Ireland's economic miracle
was driven by Germany. Under Labour, ours is being gifted by Communist China. The Germans
sent money, the Chinese are sending people.
It is generally accepted even by the Left, that the economic reforms of 1984-1996 made
a significant contribution to the performance of the New Zealand economy. This is
evidenced by the fact that over the 1990's the slide in the incomes of New Zealanders
relative to the citizens of Australia, Europe and the US has been arrested.
Helen Clark has expressed the desire to see a "closing of the gap" with the
rest of the world, not just a halt to its widening. But of course her socialist government
was elected on the basis that it would discontinue the reform programme and while it has
not reversed the reforms there have been a number of traditional policy initiatives quite
at odds with the spirit of that programme. Re-nationalising an airline and an insurance
business and preserving the protection of an agricultural sector monopoly are cases in
point.
By far the greatest challenge to a government that rejects policies that promote
competition and economically efficient resource allocation, is how to keep growth going in
the face of taxation, regulatory and ownership impediments that a socialist programme
sponsors. In this regard Helen Clark's Labour government has been singularly successful in
promoting an alternative stimulant for growth.
That impetus has come from getting immigration up to record levels, notwithstanding the
squeals from Winston Peters' constituency. Just as Ireland found a sugar daddy to give its
economy a boost in the 1980's, Miss Clark has discovered the dividend from unfettered
people inflows.
New Zealand's population growth, having languished at rates of below 0.5% per annum
over the last few years, is now running close to 1.5% pa thanks to net migration
contributing around 1% per annum. And there is no sign of the migration abating, nor any
sign that the government wants it to. Indeed the response of Prime Minister Clark to
suggestions that her government's population policy is "too liberal" on
migration is to say that "most Western countries face problems replacing their
populations due to a lowering of birth rates so that immigration is vital if economic
health is to be maintained".
Miss Clark's perspective confirms that her government does see a link between higher
net immigration and higher per capita incomes, a link that certainly Winston Peters denies
and on which many economists are ambivalent. I agree with her - generally if an investor
can be confident that population numbers are going to increase then that puts a floor
under GDP simply due to scale effects. Of course the business cycle is overlaid upon that,
but there is little doubt that an economy growing in population numbers offers a trend
growth, whereas one suffering population falls is more often down-sizing.
Now during the reform years there were so many other impetuses to business growth that
the population growth issue was just another. But now that reform is over and in places
being wound back, the economy is quite short of factors to drive incomes up. No doubt the
migrant inflow is welcomed by a government apparently keen to reduce New Zealanders'
income differentials with other countries.
That the immigration has to be so high though in order to keep the population growth
rate at 1.5% pa, is the surprise. The reason for that lies not just in the lower birth
rate. It is driven more by the numbers of New Zealanders leaving, for the latest year that
number being equivalent to 1.5% of the population. So the number of permanent arrivals is
running at almost 2.5% of the population. Net migration then is providing 1% of the
population graph, natural increase the other 0.5%.
To the extent these trends are maintained it could take as few as 60 years before the
population is effectively totally renewed. To the extent the sources of the greatest
number of arrivals are now in Asia, Mr Peters is quite justified to point out that New
Zealand is looking at a social and demographic revolution.
There are two obvious ways to dampen the fires of resentment that Winston is fanning.
One is to just cut back on immigrants. The problem with that is that it would cut the legs
from under Labour's growth strategy and expose the full effect of its economic illiteracy.
Miss Clark's dream of closing the gap between Kiwi incomes and those of the first world
would rapidly go the same way as her vision of closing the income gap between rich and
poor New Zealanders.
The second option is to bring a halt to the number of New Zealanders leaving. Short of
erecting a Berlin wall that is extremely difficult to achieve in the short run. Indeed the
most potent method of curbing the outflow is for global terrorism or recession to continue
and just discourage those thinking of leaving. But the New Zealand government itself is
limited in what it can do. The best contribution it can make is to ensure its anti-reform
activities do not stand in the way of New Zealanders catching up the relative income loss
the Muldoon years delivered.
And this is where the irony that this should occur under a socialist government hits
home. Because of the low economics literacy rate of the policymakers, reform policies that
would promote higher relative incomes are eschewed - leaving immigration as one of the few
weapons permitted in the arsenal available to stimulate incomes.
Paradoxically we have a government that in its veins hates selling New Zealand out to
foreigners, and indeed campaigned on the issue of asset sales to foreigners - yet is quite
happy to resort to an influx of foreigners as an alternative means of staying in power.
The hypocrisy is startling.
| 
FEATURES
Printable version
PDF version