Aussies are stupid and can only dig stuff up

Ever since Adam Smith wrote The Wealth of Nations, economists have been trying to understand what makes nations prosperous. Last Sunday, New Zealand’s former Minister of Finance, Dr Michael Cullen added his own theory. Comparing New Zealand to Australia, he said:

It's nothing to do with their intrinsic superiority or less regulation or whatever, it's because they've got this vast mineral wealth. We only succeed on the basis of what we're intelligent enough to create not like the Australians digging up their country because the world wants what they've got buried beneath it. 

Apparently Aussies do not have the intelligence to create anything, and merely dig up what’s hidden in the dirt of their ‘lucky country.’ Of course Kiwis always enjoy bagging Australians, but this claim is a bit on the nose. Fair enough, Australia does have vast resource reserves. But the crucial factor is its businesses are extremely good at extracting the raw material cheaply, a complex process. 

Sitting on mineral resources and experiencing economic prosperity do not necessarily go hand it hand—indicated by some of the other countries blessed with natural commodities. Australia has the sixth largest reserves of coal between South Africa and Kazakhstan. Humming economies? No. Iron ore reserves place them fourth between China and Brazil—the Ukraine is in first place. Australia has the world’s second largest bauxite reserves but sits behind Guinea, not exactly an economic superpower. 

The Australian primary sector, resources included, only accounts for 10% of its GDP, while New Zealand’s primary sector accounts for 7.2%—stuff we milk, grow, shear, and slaughter. Stuff we clearly don’t use intelligence for, Dr Cullen? This is of course being silly—efficient farming and resource extraction takes entrepreneurship, skill and talent. 

Australia’s resource boom cannot account for its outperforming New Zealand in raising wages, productivity and GDP—but its policy settings can. Perhaps when theorising in future, Dr Cullen should consider the following: New Zealand’s 55,000 new public sector employees since 2000, and as Professor John Gibson points out, the 22% pay premium they enjoy over their private sector counterparts. He should also examine the higher taxes New Zealanders pay, hefty regulations, and rising compliance costs that have seen New Zealand’s average productivity growth drop to 1.2% in the 2000s. 

Adam Smith’s The Wealth of Nations is considered an economic masterpiece, Dr Cullen’s The Wealth of Australia, one would venture, will not be. 

Luke Malpass is a Policy Analyst with the New Zealand Policy Unit of the CIS.