Foundation for Economic Growth - Newsletter

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Last Updated: Aug 15th, 2008 - 11:26:43

Newsletters : 2005 Newsletters : 6 May 2005
Thought for the Day

Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.

Mark Twain.
May 6, 2005, 12:40

 Newsletters : 2005 Newsletters : 6 May 2005
The Ups and Downs of the World Community


One of the interesting things in studying the wealth of nations, as expressed by their GDP per Capita, over the last century is that countries behave like companies and families. Some get wealthier and some get poorer.

Our task is to find out why countries get richer and why they get poorer – then we have to persuade politicians to do the right thing. This is a very difficult task because the political imperative is always to do what will get the politician elected next time. This means pandering to public whims and the various do-gooders in the community.

How have things changed over the last 100 years? Quite a lot really. In the good old days it was basically wealthy OECD and then everybody else. Nowadays the OECD countries are spread right across the spectrum and a number of countries have come from nowhere over the last 30 years to a position of wealth today. If we have a look at the top 50 countries, Luxembourg didn’t even rate a mention in 1973 but is now at number one while New Zealand slide down the scale from 9th to 35th.

In 1900 the United Kingdom came first and NZ came second followed by Australia and the USA. By 1950 the USA was first followed by Switzerland then NZ with the UK following up at number 7. Venezuela had come from 30th right up to 4th; with Australia running at number 5 and Canada at 6. Sweden had risen from 14 to 8 in the same time.

In the first 50 years of last century, France went from 11 to 12, Germany went from 8 to 15, Argentina was steady on 13 and Chile was steady on 17.

By 1973, Canada had moved up to third spot and New Zealand had slipped to 9 with Australia closely behind at 10th. Germany had risen to 6th and France to 7th. USA and Switzerland had swapped places at the top and the UK had slipped to 11th, behind the colonies. Japan had come from 26 in 1900 and 32 in 1950 up to number 14 and Ireland had gone from 15 at the turn of the century to 24 by 1973. South America was having political problems and Argentina had dropped to 20, Venezuela had succumbed to 16 and Chile was resting at 29.

Also by 1973 Sweden had risen to number 4 with Denmark close behind at 5. The OECD was pretty much all in the top 30 with just minor jostling for places except that NZ seemed to have developed a negative trend.

Now if we move forward to the present we see quite a change. No longer are the old OECD nations dominating the top spots. Germany has dropped to 20, France down to 22 and Sweden to 21. Whatever they have been doing (are still doing?) is obviously not a recipe for success but more in the nature of an unmitigated disaster. New Zealand at 35 is pathetic but at least we have come upwards from 37 in 2000. Meantime the South Americans have disappeared completely off the scale beyond number 50. Greece had dropped from 21 to 44 in these 32 years but Ireland is at number 11 just below Canada.
Top of the heap is Luxembourg closely followed by USA, Bermuda, San Merino, Norway and then Switzerland. Iceland has shot up to number 8 from nowhere and Japan is steady at 13. Australia has slumped to 19 and the UK is down to 24.

We know that wealthy countries have the ability to look after their people better than the poor nations. It is now obvious that nobody’s place in the world is guaranteed. If your nation slumps down the wealth list then the less well off are going to suffer more than their counterparts in the wealthier countries. It is for this basic reason that we must make every endeavour to rise up the scale. It doesn’t happen by accident. It takes conscious thought and political will to make the hard decisions.

We must try and figure out what it is that makes our population vote for politicians who seem to pass legislation that steadily chips away at our growth rate. For the past 30 years we have had a growth rate averaging 0.9% below Australia (now at number 19) and as this trend continues there will be less and less reason for our young and brightest to stay and build a wealthy nation. For us to keep up with Australia we have to have business conditions in New Zealand that are better than Australia. Being just the same is no longer good enough. We have to be better just to stand still! And we can’t stand still – we must get our growth rate up faster than Australia and that means doing it now.

Unfortunately we have a government at present that do not seem to appreciate what it takes to grow wealth. Having a wealthy government and poor people is not a recipe for economic success. Labour is struggling to meet the present health demands and keep up with the standards they found in 1999. How bad is it going to be when the down-turn comes – later this year or next?????

Phil Scott

May 6, 2005, 12:35

Can we fix it?