Australian politics has been even more entertaining than New Zealand’s. But aside from the ambitions of the comedians is there something else going on?

One New Zealand MP explained the Australian political turmoil in terms of New Zealand having MMP which, he said, gave us greater political stability. In fact, since the introduction of MMP in 1996, Australia has had six prime ministers and so have we.

The exit patterns are different. Bolger was deposed in 1997, three lost elections – Shipley (1999), Clark (2008) and English (2017) – with only Key gracefully retiring (2016). John Howard lost in 2007; Kevin Rudd was deposed in 2010 and lost in 2013 after, in turn, deposing Julia Gillard in 2013. Tony Abbott was deposed in 2015 and Malcolm Turnbull in 2018. Notice that turbulence of four coups has happened only in the last decade – Howard had an 11-year tenure.

There is also a difference in the economies. This column concentrates on that last decade. But by way of background, yes, Australia has done better in economic growth for the last fifty years, for two major reasons. Their mineral boom took off at the same time as the New Zealand sheep industry collapsed following the huge and permanent drop in the price of (crossbred/strong) wool in 1966. In the 1980s and the 1990s the Australian economy handled their economic liberalisation (under Bob Hawke and Paul Keating) pragmatically while, led by Roger Douglas and Ruth Richardson our response was extreme, with disastrous outcomes. (One of the oddities of New Zealand neoliberals is that they bewail the superior performance of the Australian economy after their policies contributed to our poorer result.)

Both economies benefited from improving terms of trade (higher export prices relative to import prices) during the first decade of the 2000s. In simple terms, East Asia was increasingly consuming minerals (notably coal and iron) and foodstuffs (dairy products and meat), driving up their prices while Asian low wages enabled them to undercut the world price of the manufactures which the two countries imported.

Australia’s export price gain was about three times New Zealand’s. Roughly, their rising terms of trade added annually about 2 percentage points to real incomes in the first decade – more than what ordinary economic growth was doing.

Observe that while we tend to focus on material output – GDP (per capita) – the prices that the output gets also matter. You can be the world’s best producer of fenceposts with output steadily expanding but the exercise is pointless if the price of fenceposts is zilch. A lift in the price of fenceposts may make a substantial lift to your income even though you do not produce any more.

Shortly after the Global Financial Crisis the prices for Australia’s mineral exports collapsed. Basically, world consumption slowed down so there was an oversupply – there may also have been a speculative price boom earlier.

It is difficult to estimate a long-term trend when one has only short-term volatile data, but it looks to me that the overall export price downswing was in the order of 20 percent. That, not incidentally, is a bigger fall than New Zealand experienced from the 1966 wool price collapse. Whether the Australian economy is up for a similar three decades of economic turmoil I cannot tell because I don’t know whether the depressed mineral prices are permanent or temporary although coal is going out of fashion.

During the great export price boom, there was political stability, notably during the Howard years. Come the mineral price collapse and there has been political turmoil. The smaller economic surplus means that annually there are fewer political goodies to hand out so that ambitious men (well mainly men) blame the current incumbent for the difficulties, promise to do better (there is never a lack of quacks offering solutions) but they don’t. So the next group of snake-oil merchants comes along and there is another coup.

The New Zealand story is different. Our terms of trade growth has been modest by comparison adding perhaps 0.7 percent a year to our incomes. But the rise continued after the GFC because the world demand for food continues to rise. So we have had stability in the nation’s leadership: first the Clark era, then the Key era.

Where there was instability was in the Opposition. National had four leaders in its nine years of opposition; Labour had six leaders. (Now you know why Bridges is a bit anxious. The main activity in the Opposition caucus seems to be plotting.) The difference from Australia is that the ugliness of ambition is not so evident in New Zealand coups.

What does a government do when there are fewer goodies to hand out and when, instead, one has to restrain or cut public and private spending? The practice among rich countries has been to protect the incomes of the rich (a standard snake-oil remedy is to cut taxes at the top). That means reducing the living conditions of the poor and those on middle incomes who have more votes, and are not entirely gullible in regard to quack remedies. So the politicians have to offer alternative non-economic policies which respond to perceived threats; indeed it is the politician’s interests to make the threats worse than they are.

The easy threat to pose is something which the leader says challenges national integrity. In my student days it explained Indonesian president Sukarno’s ‘confrontation’ with Malaysia but there are many other historical examples.

It is not accidental that the two final contenders for the Australian leadership had both held the border control portfolios (and both, in my opinion, did so repressively). Trump’s supporters are equally concerned – recall his Wall. A number of continental European regimes are shifting toward repression, in part arising from fears of refugees. There was a similar migration concern among many ‘leavers’ during the Brexit referendum. Nor should we be complacent here. Australia protects us from the boat people, but there are anxieties about the plane people.

We are ending up with a public economic rhetoric of neoliberal nostrums and a populace rhetoric concerned about national integrity. Since neoliberals do not value the nation state, there is a strange disjuncture. No wonder there is political turmoil when the economy sours.

Comments (7)

by Charlie on September 01, 2018
Charlie

The mineral boom & bust cycle is well established (I work in that sector and have survived through two waves). When the price is high, mining projects are initiated that take several years to develop - ten years or even longer in some cases. When they eventually all come online, prices collapse due to oversupply. So the mineral price cycle is 10-20 years long due to the nature of the business. Individual mining companies attempt to work themselves out of financial trouble by increasing production and this exacerbates the oversupply, until they eventually go broke.

This last wave was a supercycle due to the unprecedented expansion of China and we will likely never see another on this scale in our lifetimes. Most of that iron and nickel that China bought went into infrastructure rather than consumptive demand so once the expansion is over demand dies, unlike food or coal which is consumed and the customer comes back next month for more.

So food whilst food may not make us rich quick, it provides a steadier and more sustainable income.

Where NZ has dropped the ball in the food sector is in the failure of farmer cooperatives to create value-added products. The farmers that control the dairy and meat sectors seem not to understand the need for downstream processing, branding, and packaging and have for years blocked capital expenditure in these areas. (Quoting a meat industry executive I spoke to: "Farmers don't see the value of a dollar spent outside of the farm gate") By comparison the farming sectors not controlled by copperatives have done well (eg wine). In recent years Fontera has tried to improve its performance but it is still beholden to indebted farmers who want a dollar today rather than ten next year. This is something that needs urgent attention.

by James Green on September 02, 2018
James Green

Maybe this is true on a larger scale, but your sample size here is just way too small. It basically all comes down to two people: Howard and Key. They each had long reigns, but I'm really sceptical it had much to do with economics, especially in the case of Key.

by Draco T Bastard on September 02, 2018
Draco T Bastard

The practice among rich countries has been to protect the incomes of the rich (a standard snake-oil remedy is to cut taxes at the top).

Even cutting taxes at the bottom only benefits the rich. The rich, being the gate-keepers for what people need to live, just increase prices and all that extra money going to the poor simply gets redirected to the rich.

That, of course, is the nature of wage/prices increases as well. Give the poor more in wages and the rich will put the prices up to capture that extra. It's called the price that the market will bear.

Our terms of trade growth has been modest by comparison adding perhaps 0.7 percent a year to our incomes.

But it hasn't increased our incomes. In fact, for the last thirty years incomes for the majority have stagnated and for those in the bottom decile or so they've actually gone down.

Australia protects us from the boat people, but there are anxieties about the plane people.

How many people can NZ sustainably support?

Until we know that then we should be concerned with excessive immigration. We certainly can't increase the amount of land given over to farming and we should possibly look at decreasing it so that our environment can rebalance. How many roads? How many houses? How much water?

Physical reality puts limits on what we can do but most politicians and economists iugnore those limits. Which is kinda strange for economists considering that they're supposed to be studying the use and distribution of the world's scarce resources.

by Rich on September 03, 2018
Rich

MMP means that we have multiple parties where AU has one, so Winston Peters, Simon Bridges and David Seymour aren't all crammed into the National party and intriguing to promote their faction. Similarly with Labour and Greens. 

 

by Andrew Hart on September 04, 2018
Andrew Hart

Charlie as usual your opinions are not backed up by fact.

>>Where NZ has dropped the ball in the food sector is in the failure of farmer cooperatives to create value-added products.

What about Tatua Dairy Company in Morrinsville. ?

Anyway often the milk powder price is better than for value added products like cheese.

>>>The farmers that control the dairy and meat sectors seem not to understand the need for downstream processing, branding, and packaging and have for years blocked capital expenditure in these areas.

Sheep farmers don't want to invest in freezing companies because the prices are so volatile, hence alot of foreign ownership eg Avenza in the SOuth Island.

The sheep industry needs a single marketing board to get prices up.

>>>By comparison the farming sectors not controlled by copperatives have done well (eg wine). 

Zespri Co-operative is presently doing a 900 million dollar capital raising much bigger than any Public Company raising this year.

by Charlie on September 05, 2018
Charlie

Andrew Hart

Yes I agree, there are some good examples of investment. Tatua has done well and Zespri reasonably well.

And you forgot A2!

But I see you avoided the elaphants in the room - Fonterra and I suppose the entire meat sector.

The meat industry in particular is a disaster. It spent the last 20 years infighting and has essentially ruined itself.

 

by Brian Easton on September 05, 2018
Brian Easton

James. Agree that the sample size may be to small. Not sure where to get a bigger one. It is larger than many other commentators have used. Of course there were many factors, but certainly the benign economy made Key appear more successful than the future may judge,

Good point Rich. Too many commentators ignore that the equivalent of the tensions we see between Labour, New Zealand First and the Greens also occur inside the National caucus but were/are not generally exposed to the public.

The empirical evidence contradicts you Draco. You say that our terms of trade growth ‘hasn't increased our incomes. In fact, for the last thirty years incomes for the majority have stagnated and for those in the bottom decile or so they've actually gone down.’

Using the adjusted household incomes (on which most of the empirical discussion on poverty are based) between 1986 and 2016 the per capita real incomes of the
top decile increased by 102 percent
second decile increased 59 by percent
third decile increased by 53 percent
fourth decile increased by 47 percent
fifth decile increased by 44 percent
sixth decile increased by 40 percent
seventh decile increased 39 by percent
eighth decile increased by 33 percent
ninth decile increased by 28 percent
bottom decile increased by 29 percent
So everyone got an increase, but those at the top got far bigger ones than those at the bottom.

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