Australia-New Zealand: Aspects of a Relationship, Proceedings of the Stout Research Centre, Eighth Annual Conference, Stout Research Centre, 1991, 14pp
Keywords: Globalisation & Trade; Growth & Innovation; Political Economy & History;
The three most important characteristics for property – “position, position, position” – are not so important in international economics, as the close economic link between the United Kingdom and New Zealand for almost a century indicates. Similarly that Australia is New Zealand’s nearest neighbour does not closely link the two economies.
An illustration of how different the two are comes from a recent article by Kenneth FinkJensen (1991). It reports a cluster analysis of 33 countries – 23 from the OECD and 10 emergent economies – based on 37 recent measures of the strength of economic criteria. His tree diagram shows New Zealand is by itself – between the rich OECD countries and the poor OECD countries and the emergent ones – whereas Australia is grouped with Netherlands, Austria, the United Kingdom, and Italy. New Zealand only joins with this cluster, after all the other rich OECD countries – excluding Switzerland are added. The implication is that in regard to this matter New Zealand is no closer to Australia than it is to the rest of the OECD.
Table 1: New Zealand Australian Trade
Percent of Total
| Year* | Aust Exoports to NZ |
Aust Imports from NZ |
| 1890D | 2.8 | 5.1 |
| 1900D | 3.0 | 4.6 |
| 1910D | 2.4 | 2.0 |
| 1920J | 5.3 | 1.9 |
| 1930J | 3.7 | 1.2 |
| 1940J | 4.3 | 0.9 |
| 1950J | 3.5 | 0.9 |
| 1960J | 5.9 | 1.6 |
| 1970J | 4.8 | 2.2 |
| 1980J | 4.6 | 3.4 |
| 1989J | 5.2 | 3.7 |
Source: Lougheed (1987).
Notes: * D = December year; J = J year.
This series, while consistent through time, does not overlap with Lloyd (1991).
| Year* | NZ Exports to Aust |
NZ Imports from Aust |
| 1860D | 27.8 | 37.6 |
| 1870D | 45.9 | 35.7 |
| 1880D | 21.4 | 31.3 |
| 1890D | 16.7 | 17.4 |
| 1900D | 14.0 | 16.7 |
| 1910D | 09.1 | 13.8 |
| 1920D | 05.1 | 14.0 |
| 1930D | 03.5 | 07.5 |
| 1940D | 02.9 | 16.0 |
| 1950D | 02.5 | 12.0 |
| 1960D | 04.4 | 18.0 |
| 1970J | 08.1 | 21.0 |
| 1980J | 12.3 | 19.0 |
| 1989J | 17.8 | 21.6 |
Source: Department of Statistics.
Notes: * D = December year; J = J year.
The annual series are graphed in the 1990 Official Year Book, p.598-9.
Trade flows across the Tasman do not dominate either countries’ current foreign transactions. In June year 1990, only 4.2 percent of Australian imports were from New Zealand, and only 20.8 percent of New Zealand imports were from Australia (Lloyd 1991: 14). It has been like this for over a hundred years. (Table I) Other economies are much more important in the Australian export world – the European Community, Japan, and the US. The same three countries are about as important export destinations to New Zealand as is Australia. However the really big difference between the two countries’ export structure is that about 29 percent of Australia exports went to Asia in June year 1985 plus the 26 percent that went to Japan. Thus over half of Australian exports go to Asia, compared to a total of 35 percent of New Zealand’s exports – including 15 percent to Japan – in the same year .
This gives Australian business and economics a passionate interest in Asia – particularly East Asia – evident enough in its business journals. There is not the same Australian interest in New Zealand. Nor do New Zealanders show the same interest in Asia. I shall return to this issue.
But before doing so, we need to offset this focus on export markets, by noting there are economic areas where New Zealand is closer to Australia. For some product ranges New Zealand and Australia are each other’s main markets – much general manufacturing for instance. There is considerable common overseas investment: by each country in the other, and by third countries with joint or associated activities in both – although again the investment from outside Australasia is far more important to each country .The labour markets of the two countries are linked through migration. Australia is “the destination it seems, of the overwhelming New Zealand emigrants, Pakeha and Maori ” (Pool 1991:193). And then we should mention the commonality – considered elsewhere in this seminar – of social and cultural issues, of historical experience, and of social institutions such as the distinctive features of social welfare. These are not insignificant in their impact on the economy. Nevertheless, the overall picture is that Australia and New Zealand are not too closely linked economies.
Economics and the Failure to Federate
Let me for a few moments turn to one of the puzzles of the relationship between the two countries: Why did New Zealand not join the Australian federation at the turn of the century? Sinclair (1986, 1988) traces the change in the mind by New Zealanders, from a degree of popularity for joining Australia in the 1880s to rejection at federation in 1901 in the belief they could go it alone. However he offers little explanation as to why the shift in the popular perception occurred.
Let me conjecture an economic explanation for the shift.
First, as Table I shows, up to 1870s Australia was New Zealand’s most important trading partner. However by 1880, this importance was falling off, and the United Kingdom was taking over half of New Zealand’s exports, and supplying over half its imports (a situation which was to remain until the 1960s).
Second, Rankin (1991:356) suggests that in the 1880s the New Zealand economy was stagnating, while the Australian economy was expanding. However in the 1890s the Australian economy was in sharp contraction, while the New Zealand economy was still stagnating, and perhaps beginning to expand. Per capita Australian incomes appear to have been around 20 percent higher than New Zealand ones in the 1880s, but by the time of federation in 1901 Australian incomes were below those of New Zealand.
This suggests the economic linkage between the two countries was fading, and the changing perceptions of relative prosperity determined this crucial divergence in the two countries’ history .I shall have more to say about this hypothesis later .
The Australian federation was in part driven by demands to unify their economy. It is perhaps not accidental that exports from New Zealand to Australia fell further between 1900 and 1910, as Australians sourced from other states. (This is the typical “trade diversion” which occurs with a customs union. The effect is less for a free trade area.) While New Zealand was left out, they were not entirely forgotten. In 1907, 1922, and 1933 preferential trade arrangements between the two countries had been negotiated, although they do not seem to have markedly affected actual trade. It is the NAFTA (New Zealand-Australia Free Trade Agreement) agreement of 1966 and the CER (Closer Economic Relations) agreement of 1982 which are important in lifting trade relations between the two countries. (See Lloyd (1988) for a details of the two arrangements.)
Export Structures
Part of the divergence in the contemporary economies, arises from their export structures. We have to be careful here. It might seem likely that two economies with the same export structure would not trade with each other. However if those exports were manufactures (rather than commodities), there would likely to be considerable intra-industry trade so that they would export and import similar products between them. As it happens, intraindustry trade is rising both internationally, and in the case of Australia and New Zealand (see below).
However in both countries commodities (unprocessed or semi-processed) still playa greater exporting role than manufactures. Thus Australia is an exporter of wheat and other grains, wool and pastoral products, and minerals. Of this list New Zealand only exports the pastoral products in great quantities, with forestry , horticulture, and fishing more important. Even the characteristics of the wool exports of the two countries differ , because Australian fine wools are more used for clothing, New Zealand cross bred wools for carpets. Commodities do not enter intra-industry trade as typically as manufactures (except for seasonal supply of fresh foods). In such circumstances neither country is going to be a major importer of the other’s dominant exports.
However there is a second effect. Commodities experience much wider swings in their world prices, which means that fluctuations in the terms of trade have a significant impact on the business cycle. (Secular shifts also are more important.) Since the two countries have different commodity compositions, and since commodity prices do not move exactly together, this means that the two countries will experience different externally driven business cycles. This effect will be reduced as the countries’ export bases diversify out of commodities, and as the two trade more between each another .
That the two economies were at different stages in the business cycle in the late 19th century is not unique. By the late 1970s their cycles appeared to be moving lock step together. (Bowie & Easton 1987:64) This could be due to the two economies integrating, or they may both have been driven by the same third economy (e.g. US or Japan) or the world economy. But this pattern was broken in the mid 1980s, probably as a result of the two economies embarking upon different economic strategies. (QSBO June 1991: 15) In this case commodity prices do not seem to be the explainer .
An Evolving Trade Relationship
It is evident that there has been greater trade between the two economies. Although the 20 percent share of New Zealand imports from Australia has been relatively constant, the share of Australian imports to New Zealand has risen from 1.6 percent in June year 1965 to 4.2 percent in 1990. A quarter of a century ago Australia used to export three times the value of goods to New Zealand. Today the trade balance is almost equal.
This could be attributed to the NAFTA and CER trade agreements, but while I do not want to undervalue the role of such political factors, I suspect they represent an evolving response to world and domestic economic conditions, rather than being entirely exogenous to economic considerations.
The industrialization strategy New Zealand embarked upon from the 1930s was at first inward looking, concentrating on import substitution. But the intention was – as one of its architects W.B. Sutch explained (1964) – to move to manufactured exporting. The centre of the industrialization debate from the early 1960s was not about the extent of manufacturing exporting, but about the extent and role of border protection and other interventions.
While in the due course the maturation of the manufacturing sector would have generated the exports, the process was forced upon New Zealand from the mid 1960s, following the structural fall in the terms of trade that occurred then (Easton 1982). The manufacturing part of the diversification story is a complex one, but it had two major components. First was added value exporting, in which there was further processing of the commodities already being exported, or coming on stream. (Later this extends to the “cluster” – or “associated” – industries which spin off from the commodity industries.) The second component of export manufacturing was the more stand alone general manufacturing mainly supplying Australia and Oceania.
This second element was an Tasmanization of a process which had been going on within each country. Once every town of importance had a variety of small manufacturing (and service) establishments which supplied the town and the locality with sundry consumer items and production inputs – a town’s own brewery in those days was a marker of importance. But with the increasing importance of economies of scale and scope in production, with better communications, and with lower transport costs and improved transport links, these activities get concentrated into metropolitan centres, and latterly into only one of them – in New Zealand’s case it is often Auckland. The same processes means as trans Tasman transport costs come down, and ease of carriage improves we may see a similar concentration into a single Australasian centre. The relocations heartache which rural people have experienced will not stop at the metropolitan centres, but the concentration need not necessarily be in Australia. Indeed the faster growth of New Zealand exports to Australia demonstrates otherwise.
From this perspective NAFTA, and indeed CER, may be interpreted as response to underlying economic change rather than as leading it, although I hasten to say it requires political vision to identify and respond to economic change rather than to attempt to suppress it. In fact NAFTA was a very limited trade agreement. Essentially it consisted of a limited list of products which could be traded between the countries with a zero tariff. As humorously illustrated by Lionel Bowen in the opening address to the conference, annual negotiations evolved around identifying products which the interest groups on each side agreed could be traded without harming their interest. At one stage both sides were able to obtain agreement that it would not harm either if seawater were to be traded between the countries, and so seawater was solemnly added to the list of tariff free products.
By the late 1970s the Australians were getting impatient with this process. Moreover because the arrangements focussed on tariffs, it did not prohibit subsidies, and in any case an Australian exporting facing a zero tariff still might be unable to enter the New Zealand market because there was no accompanying import licence. New Zealanders had similar complaints about Australia’s particular restrictions and interventions. Out of this impatience grew CER, which was a much broader free trade approach. Whereas in the case of NAFT A there had been a positive list of what could be free traded, in the case of CER the list was of what could not, and from the beginning the negative list contained few items.
For New Zealand CER represented an acceptance – by the manufacturing sector in particular – that the future did not lie in supplying a local market, but that to survive they would have to seek larger, dynamic, markets overseas. That change of perception arose from the confidences of their export successes from the 1960s, not least due to NAFTA.
Behind this was a change in the isolationist perception of New Zealand to a realization that New Zealand was a part of a larger world and an appreciation by an increasing proportion of New Zealanders of the benefits of international travel and the variety and quality of international goods and services. We must await a future Sinclair to document the change, but my impression is that between the 1950s and the 1980s New Zealanders became much more outgoing in international terms.
The same process was probably occurring in Australia, but except for a few stray manufacturers suffering from New Zealand import penetration under CER, which they saw as subsidised, there was little industry or popular interest in Australia. Lionel Bowen illustrated this when he recalled the lack of attention to CER in the Australian parliament. There the official concerns were driven by another agenda, although one which had a parallel among New Zealand officials and their associates.
In each case CER was seen as a step towards full trade liberalization. Both countries had a record of high and erratic protection towards manufactures, although not so much towards primary products. This was seen to be inhibiting the world orientation of the economy. Strategists in both countries were arguing that they had to be more outward looking across all economic activity, and not just in the traditional export oriented industries. If so, they argued, barriers to importing discouraged this orientation.
There are numerous arguments to support this view, not all of which are convincing. For such small countries, the effects of the barriers have as a bargaining tool in global trade negotiations is hardly compelling. There is an argument that the barriers raise costs to exporters, but in my view these costs are over-estimated in quantitative terms, although the quality issues may be underestimated. The real disadvantage of the cosy environment behind trade barriers is that it discourages quality of service, of responding to buyer choice, of seeking new innovations. In short, protection encourages an economic culture and responsiveness which is antipathetic to the business climate which an outward oriented economy requires.
Both countries had experienced the howls of protest from proposals to unilaterally reduce the barriers. So the strategists saw CER as a means of reducing some of the barriers, with the aim of shifting attitudes to a more open economy.
On both sides there was an understanding that free trade areas can be inefficient, if the trade diversion effects outweighed the trade creation effects – if New Zealand ended up importing expensive Australian products instead of Asian ones which would be cheaper but for the tariff. Officials from both sides of the Tasman remarked that they had doubts of the merits of their country hooking up with the second to the world’s most inefficient producer in the world, in each case implying their country was the more inefficient.
From the perspective of re-orientating each country’s manufacturing sector, CER has been a huge success. This is not to deny there has been significant gains from the trans-Tasman trade and rationalization. (Bollard, McCormack & Scanlan 1985). Rather than measure the success just by this, we should note how quickly other trade barriers have been reduced. Compared to a decade ago, New Zealand now has virtually no import licences, and the tariff profile is looking increasingly typical for an OECD country. As its March 1991 tariff reform package indicates, Australia is cutting its general tariff even further. Within both countries the protection debate is generally about the speed at, and circumstances with, which the barriers should be reduced, not whether there should be any change.
The Outcome: Mature Trade
The outcome of these changes – the trade negotiations and the underlying economic, political, and social processes – is evident enough in Table 1. In recent years each country is exporting more to, and importing more from, the other. However the tabulations do not capture the changing composition of the trade flows, and the maturation of the relationship.
TABLE 2: Intra Industry Trade: New Zealand Australia 1964-1987.
Measured by Grubel-Lloyd Index
| Year | Index |
| 1964 | 11.2 |
| 1968 | 16.8 |
| 1972 | 20.1 |
| 1976 | 26.1 |
| 1980 | 29.6 |
| 1984 | 33.0 |
| 1987 | 43.7 |
Source: Bano & Lane 1989.
Notes: The categorisations between Tables 2 and 3 differ, and so the Australian figures are not comparable.
The intensity of intra-industry trade overcome the focus of the levels, and give some insights into the composition. There are a variety of types of such indexes, but Table 2 shows the simplest available – the Grubel-Lloyd index – increasing from 11.2 percent in 1964 to 43.7 percent in 1987, for Australian New Zealand trade, an almost quadrupling. The index usually ranges between 0 and 100 percent, the higher its value the greater the intra-industry trade. So the shift represents a major increase in intra-industry trade. (Bano & Lane 1989)
TABLE 3: INTRA INDUSTRY TRADE: NEW ZEALAND WORLD 1987.
Measured by Grubel-Lloyd Index
| Country | Index | % of All Trade# |
| Australia | 51.9 | 17.7 |
| Singapore | 28.3 | 01.3 |
| WORLD | 26.4 | 100.0 |
| Thailand | 19.8 | 0.4 |
| USA | 18.5 | 15.8 |
| Canada | 17.0 | 01.7 |
| Malaysia | 13.5 | 0.8 |
| Fiji | 11.6 | 0.4 |
| Hong Kong | 11.5 | 01.6 |
| Cook Is | 11.1 | 00.1 |
| Denmark | 09.2 | 00.5 |
| Sweden | 08.3 | 00.7 |
| UK | 07.8 | 09.6 |
| European Community |
7.4 | 22.8 |
| Phillipines | 06.3 | 00.5 |
| Japan | 05.5 | 17.7 |
| Switzerland | 04.1 | 0.7 |
| S. Korea | 03.8 | 02.0 |
| France | 03.4 | 01.8 |
| Italy | 03.3 | 02.2 |
Index below 2 percent: Belgium-Luxembourg, Brazil, Iraq*, Iran*, Kuwait*, Pakistan, Peru. (Each less than 1.3 percent of total trade. ) In the case of the asterisked countries the index level is zero.
Source: Bano & Lane 1989.
Notes: The categorisations between Tables 2 and 3 differ, and so the Australian figures are not comparable.
# ‘All Trade’ is exports plus imports
Table 3 shows that New Zealand intra-industry trade is stronger with Australia than for another country. Unfortunately the two indexes in the last two tables use different categorizations, and so are difficult to compare. However the index for the country with which New Zealand has the second to most intra-industry intensive trade, Singapore, is half the level of the Australian one, and is probably at the level Australia was at in the late 1970s. In any case, Singapore has a small role in New Zealand’s trade activities. The next significant trader with New Zealand is the US, and today the intra-industry trade intensity is about where it was with Australia over twenty years ago. Most countries are below where Australia was in 1964, when the Bano-Lane series began.
Given the ‘normalcy’ of intra-industry trade between advanced countries, it might be said that only with Australia has New Zealand anything like a ‘mature’ economic relationship. Contrariwise, the specialist nature of New Zealand trade relationships with most countries is evident.
What is happening is a regionalisation of the South Pacific. Auckland shoppers do not worry that they have face the same product perhaps made in Christchurch and Hamilton, as well as locally. They delight in the choice. Intra-industry regional trade is integral part of any country (although rarely are their statistics to measure it). When a Sydney or Bendigo alternative turns up on the shelves next to them it is the same process.
Second Generation CER
The success of CER has moved on to discussing what are called ” second generation issues ” .These include
-Services;
-Investment;
-Trans-Tasman Shipping;
-Quarantine Harmonization;
-Standards;
-Professional Qualifications, Licensing and Certification;
-Passenger Facilitation;
-Statistics;
-Tariff and Industry Issues;
-Business Law;
-Taxation ;
-Currency.
Within each of these heads there can be a number of detailed and complex issues. Rather than pursue the topic that way, we may take the broader brush recently proposed by Peter Lloyd, who drawing on the parallel of the proposed Single European Market favours a “single Australasian market”. He summarises his proposal thus:
[T]here is a strong case that Australia and New Zealand should proceed to form a single market, that is, the two countries should remove all impediments to trade and competition across the Tasman. They should unashamedly emulate in general (though not in all detail) the policies of the Single European Market which will be realised (sic) in 1992. These measures include a common market for all services, a common market for all capital, a common external tariff and a common regime for commodity taxation. (1991:40)
I do not propose here to repeat the details of Lloyd’s proposals, but a couple of omissions, relative to the European proposals must be mentioned.
First Lloyd is equivocal on the question of a common currency, arguing that it “is not conceptually part of a single market” (1991:36). Lionel Bowen would have appeared to have disagreed in his opening address. What Lloyd is saying is that a common currency (in effect a fixed exchange rate between the Australian and New Zealand dollars) is a matter of macroeconomic policy co-ordination. Without wishing to disagree with the underlying economic analysis, I would add that given Australia is six times bigger in economic terms than New Zealand, the co-ordination in practice would mean that Australian monetary and fiscal policy would dominate New Zealand. Given the superior record of economic management by the Australian Treasury and Reserve Bank, compared to their trans Tasman counterparts, this would be perhaps no bad thing.
But Lloyd also points out “that the primary consideration should be given to the extent to which the two national economies are subject to similar or dissimilar shocks from the rest of the world” (1991 :36). Given our different export profiles, I would have thought that issue rules the common currency option out. Practically, it is not obvious that New Zealand would want to respond to a rise in world mineral prices in the same manner as Australia. For the mineral importer such a rise adds to the cost of imports, and its currency should depreciate. For the mineral exporter such as Australia, export revenue rises, and the currency should appreciate. Locked together with a fixed exchange rate, the New Zealand dollar would be dragged up by the Australian dollar to the detriment of the East Australasians. It could well require a fiscal transfer from Canberra to Wellington to alleviate the consequences.
The other omission I deal with more briefly. The European Community is moving towards co-ordination in labour market and social policy. Lloyd hardly mentions this development.
Lloyd justifies his proposal for a single Australasian market as “it is required if the two economies are to realise the full potential gains from the freeing of trade under CER” .I have two comments.
First while there are alleged economic gains from opening up trade with Australia, quantified estimates are prospective. There is a remarkable silence on quantitative gains from past liberalisation. It is a curiosity of the economist’s profession that we are much better at estimating prospective events than we are at quantitatively reviewing past ones. Were we to do so we would find the gains from past freeing up from trade between the two countries are much smaller than were promised at the time. Certainly the quantitative economic evidence does not support major improvements in GDP from the allocative gains from trade liberalization (Easton 199Ia). The promised gains need to be scaled down accordingly.
My second comment is that CER was not about obtaining gains from improved trade for the two countries. I have already argued this, but let me offer two further illustrations.
When in March 1991 the Australian prime minister announced new lower tariff levels for Australia, there was no uproar in New Zealand. The effect of lower tariff levels of one partner in a free trade area is to disadvantage the other partner, by the loss of preference to third parties. That New Zealand did not complain indicated that CER is about something other than preferential arrangements between the two countries.
My second illustration is that in the heat of the CER negotiations in 1983, I attended an Australian conference on Australia’s future international prospects. There was one half afternoon session on CER. At least two days were spent on Australian Asian economic relations, and it was evident that the Australians were pouring money into research into improving their understanding of East Asia. Most Australian business is not really interested in New Zealand any more than they are, say, interested in Tasmania. We are too small. Imagine the giant yawn that would go up if New Zealand were to establish a CER typeagreement with Samoa, and some of the other South Pacific islands.
Indeed Australia is too small too. Together Australasians are a market of just over 21 million people. During the debate about whether Britain should enter the European Community it was argued that an economy of 60 million people was not viable.
If we were really concerned about the inadequate size of New Zealand, I would think that an economic union with the United States would be the sensible option for Australia and/or New Zealand. I shall argue a different course however. In the interim I reaffirm that CER was not primarily about linking two economies to obtain significant gains from trade. What then was it about?
Economic Strategies for Australasians
We can classify general international trade strategies into three categories: isolation, regionalization, and globalization.
The strategy of isolation was popular in both countries after the inter-war depression. But it has become impractical following the post war revolutions in transport and communication. The stripping out of high tariffs and import licences was a signal that this strategy was abandoned. What were the alternatives?
The first was regional integration. At its weakest that involved a free trade area – perhaps like NAFTA. There are numerous examples of such arrangements -with various levels of success – but they do not seem to me to be genuine regional economic groupings, in that there is little progress past this preliminary stage. As I shall explain they are more a part of the second alternative.
The serious form of regional economic integration is the sort of arrangement that the European Community is, and which Peter Lloyd proposes for Australasia. But other than the Community there is no successful instance, and the Community is much more driven by political, social, and emotional imperatives and ideals, rather than by economic ones (Easton 1991b). Economic integration became a vehicle to express these wider matters, not the driving force on its own part. Lionel Bowen reminded us that when he reported the Belgian who preferred the European Community to tanks rumbling through the streets.
The lesson from the European Community’s success, and the failure of other attempts towards wider comprehensive economic integration, is that a “single market” between Australia and New Zealand is unlikely to succeed unless there are some non-economic factors driving it. Economists arguing for increasing economic integration have the wrong end of the stick – again. The two nations – and particularly New Zealand – could waste much time attempting what is essentially an abortive exercise.
Indeed the main economic pressures to Trans Tasman economic integration can be parodied by a story of a son, who having observed his mother consorting with some rather unattractive (to the son’s eyes) continentals rushes off, without much thought, to live with an older brother. The reality is the brother has considerable filial affection for his younger brother , but if the truth be known he is much more interested in the Asian ladies to the north.
For very good reasons. To change the metaphor slightly, at the races always bet on the fast fillies. New Zealand made the mistake in the immediate post-war era of betting on slow commodity exports, and the slow British economy. There is little merit in our switching all our money to an almost as slow Australian economy. The Australians have gone for the East Asian dynamism. That is the sort of strategy New Zealand needs.
That is the alternative strategy. It argues that the world economy is not really regionalizing, but globalizing. It is not a simple path. Tariffs on manufactures are coming down, but non-tariff barriers keep being erected and dismantled. Agriculture and services are only just being added to the barrier-free agenda. Capital flows are being liberalised, perhaps more through the force of the new communications technologies. People still migrate. There is sorts of increasing international co-operation: the BCCL disaster/farce is likely to increase international financial regulation for instance. The list can be lengthened. but at its heart is a steady progress – odd hiccough excluded – towards a more integrated world economy especially among the rich nations, but also now with the emerging rich, and the east-central Europeans.
Free trade agreements are a part of this process. That is why they do not turn into customs unions whereby the participants go a step further, but at the same time exclude more of the outside world. I suspect that historians may see even the European Community as a leader of world integration, for many of its steps – in areas like standards, qualifications, documentation, statistics – probably foreshadow changes to be adopted by the rest of the rich world. When the globalization process falters, there are often threats to form regional groupings, but the reality is that they are only threats and unlikely to be effected – other than in free trade arrangements. The globalization process has a long term momentum of its own.
Where in the global economy does the Australian New Zealand economic relationship fit? In some areas one country will be the chief supplier of certain sorts of manufactures in a common local market. But there is more to the relationship than that. CER provides a model. The two countries can practice for globalization on each other, orienting each economy to the world economy through the relationship. That is what the second stage of CER should be about. It is not a step to a single Trans-Tasman market, but the two countries tackling some issues which are on the world globalization agenda, and by doing so preparing for the eventual change.
For instance, standardization is a part of the globalization agenda. For CER it should be seen as a part of that process, choosing standards which are likely to be the global ones. On the other hand where there is unlikely to be global unification – such as harmonization of business and labour law, uniform taxation, social policy co-ordination – then we should pursue these issues with no great vigour in the Trans-Tasman context.
Ultimately then, the ambition is not to create a single Trans-Tasman market – although reducing unnecessary barriers such as shipping costs must be on any agenda. The real task is for the brothers to go out to the Asian ladies. There are so many opportunities there, they will not be in serious competition.
Envoy
Strictly the paper should end here, but there is one other issue that needs to be addressed. The previous conclusion relied on New Zealand continuing to have confidence in its economic future, of the sort it had when it stayed out of federation in 1901. Understandably, given the appalling performance of the last five years, New Zealanders may be losing that confidence. Between 1985 and 1990 New Zealand volume GDP grew 2.4 percent in total, while Australia grew 15.9 percent, or 2.5 percent a year more. In 1990 Australian real per capita incomes were 24.5 percent higher than New Zealand ones. If the New Zealand dismal performance continues for another decade, then the loss of confidence could well result in New Zealand becoming a state of Australia as it celebrates its hundredth year of federation.
Fortunately the Baldrics who have been running our economy have a cunning plan to prevent Australia out-performing us. They want Australia to adopt our form of economic management.
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