A RESEARCH CHALLENGE IN THE ECONOMIC HISTORY OF AUSTRALIA AND NEW ZEALAND: Paper to a workshop at the 2007 EHSANZ Conference, Sydney, 14 February 2007.[1]
Keywords: Political Economy & History;
Exceptionalism is the notion that one nation’s story differs qualitatively from others, because of its unique origins, national credo, historical evolution, distinctive political and religious institutions, or whatever – that the experience of a nation is so different that its story can be told without reference or only in contrast to others. Perhaps the approach is most vigorous in American – commencing with Alexis de Tocqueville in 1831 with Frederick J Turner’s frontier thesis particularly influential. [2],[3] [4] Especially in today’s America – but also at other times in, other nations – exceptionalism has had a political agenda justifying the nation operating in ways unlike other nations.
The focus in this essay is the implications for (economic history) research. Economic exceptionalism most commonly arises in the argument that the unusual nature of an economy justifies policies which are outside conventional analysis (as distinct from advocating that all economies should pursue such policies), but necessarily there is an exceptionalist economic history which underpins this.
A rejection of exceptionalism still accepts that every country or economy is unique, that each has characteristics which make it different from others. At issue is the degree in which those characteristic are so qualitatively different – so exceptional – that there is little need nor use for drawing parallels with other economies.
That a country comes on some valid dimension at an extreme does not prove its exceptionalism either. Some country has to be top or bottom in the ranking. Thus even were Keith Sinclair correct in arguing that New Zealand was the most classless country in the world, that does not prove New Zealand is exceptional. [5] Some country has to be the most classless.
Nor do doubts about the extent of exceptionalism mean it never occurs. Britain’s industrialisation was exceptional, because there were no competitors. It would be wrong however, to assume that all other industrialisations are as exceptional, or that the exceptionalism of British nineteenth century industrialisation means that Britain is necessarily exceptional today.
Exceptionalism is sometimes associated with isolationism. It need not be. An economy may remain open to trade capital, technologies, and migrant, but they play a peripheral role in the story being told. One of the most astonishing versions of this is the tendency to discuss innovation policy as if there is no technology transfer, and that only domestic research and development matters. More subtlety, it is not unusual to write a history – even an economic history – where events overseas play a minor role.
It might seem that economic histories are less prone to exceptionalism, since their accounts are greatly influenced by the generic models which economists use to describe economic development. It might seem that most economic historians use the same set of equations, but insert different parameters and other external variables, resource endowments, initial conditions, and so on.
Yet, consider the historiography of the Argentinian economy. It was among the richest economies of the world at the beginning of the twentieth century with a per capita GDP above that of the Western European twelve, that the Maddison data base provides as a benchmark. [6] By the end of the twentieth century it had fallen out of the club, with a per capita GDP of about half of the twelve. There is a considerable economic literature explaining this poor performance usually involving explanations peculiar to the Argentinian experience, covering land ownership, the banking system and Peronism and so on. [7]
The same data base portrays Uruguay having a very similar experience – albeit starting from a slightly lower level in the early twentieth century. As it happens Argentina and Uruguay are the only two economies to have fallen out of the ‘Rich Club’ in the last century. Exceptionalism might attribute this to something in the water of the Rio da la Plata, or whatever. However, the next two poorly growing high income economies were Australia and New Zealand. Because each then had very high incomes relative to its other members at the beginning of the twentieth century, they remain members of the Rich Club, although their relative position has fallen.
Explanations particular to the La Plata economies cannot apply to the Australasian experience. The commonality between the four is that they are all primary product exporters, and in each case they have experienced falling relative prices for key exports. It is not difficult to construct an account of economies which face falling terms of trade for their exports experiencing economic difficulties which slow down their growth rate. [8] Instructively, there are no other ‘Rich Club’ members which are so dependent upon primary product exports (although Canada and the US have regions with similar economies). Fifth on the poor growth performance ladder is Britain, presumably the result of losing its first-mover industrialisation advantage.
The general explanation of deteriorating terms of trade for primary products does not invalidate the multitude of exceptionalist studies of Argentina (and Uruguay, Australia and New Zealand). Rather they describe the mechanisms by which the deterioration in the external sector fed through to an overall poor economic performance, perhaps explaining a little of the magnitude of the decline, but not its general direction
It will also be necessary to discriminate between the experience of different primary products. Argentina, New Zealand and Uruguay have few valuable minerals, their exports being mainly pastoral products. However, minerals have become a significant component of Australian exporting, and have experienced a different price path.
That leads to consideration of the third member of the South American Cone. In in 1900, Chilean incomes were not quite high enough to make it a member of the Rich Club. Over the century they grew faster than those of the other two southern-coners, and today are slightly higher.
An exceptionalist explanation might be that the ‘free market’ policies implemented by the Pinochet regime caused the high growth rate. The statistical story is a little more complex. The advent of the regime set back the long term growth rate, and the economy did not return to the trend for 20 years. The above trend performance only applies since 1992, a period in which copper prices have been very favourable. Chile is the world’s largest exporter of copper, and copper is its largest export earner (40 percent).
Would it be exceptionalism to give prominence to the Chilean copper industry in an analysis of its recent economic performance? The answer depends upon the degree to which the explanation is with or without reference to a general account of how the terms of trade influence economic growth – the extent to which the experience of comparative economies is a part of the story. (In another sense of the work ‘exceptionalism’, it would be if the elaborated account dealt exclusively with copper and did not test other possible explanations.)
Avoiding exceptionalism in economic history therefore involves comparative analysis using a common model albeit perhaps with different parameters and variables. Simply using the standard generic model is not enough.
Big questions comparative analysis involves a major challenge, because the (economic) historian needs to have a wide knowledge of other economies. There are a few bilateral comparisons but even fewer useful multilateral ones. Thomas Bender’s A Nation among Nations got around the shortage by selecting five well-worked topics (but this in no way minimises the achievement, nor interest, of the book). [9]
It is easier to challenge exceptionalism than it is to constructive an alternative. The way ahead probably (initially) involves (bilateral) comparative histories of economies, and (multilateral) comparisons of particular topics across a number of economies. The choice needs care. There may be little value in comparing Australia with Britain, say, except to get a contrast – which may slip into exceptionalism.
The obvious comparators for the Australasian economies are the Southern American Cone, South Africa, the Canadian resource based provinces, and the American West. The simplest comparison may be Australia and New Zealand (or Argentina and Uruguay) although a rigorous comparison of the Australian state economies may also be fruitful. However, a danger of exceptionalism lurks in the simplest comparisons. It profits little to conclude that neither Australia nor New Zealand is exceptional, but leaving open the possibility that Australasia is. Any explanation has to be tested against other countries.
There is not the space to do so in this short paper. Here we set out in a preliminary way a big question. The accompany graph [graph not available] shows since 1870, the ratio of Australian per capita GDP to New Zealand per capita GDP in common prices, sourced from the Maddison data base. I propose not to consider the first two decades. They look so interesting one is reminded of the caution of Moser’s law that if a statistic looks interesting it is probably wrong. Careful analysis of the data quality is necessary before a conclusion is reached.
Much of the data in the period from 1890 to the 1960s is problematic too, although by the 1950s the data is official. The story it tells over the three-quarters of a century is that the two economies had roughly the same level of per capita production albeit with deviations not more than 10 percent from each other. (If the data is sufficiently robust, there is a case for studying the cyclical variations, but space precludes that here. )
It is after the 1960s which is intriguing. Commence at 1966 because that is when New Zealand suffered a major shock when its structural terms of trade fell about 20 percent, mainly because the price of wool, which made 40 percent of exports by value, fell 40 percent relative to import prices. [10] In contrast to New Zealand crossbred wool, used for carpets, the price of Australia’s finer wools, used for fashion-ware, did not fall to nearly the same extent. It is also the time when the Australian great mineral boom begins. From 1966 the Australian economy grew faster than the New Zealand economy by an average of 1.2 percent p.a. in per capita terms. (This may not be a productivity difference, since labour force utilisation may differ.) Why? Once I argued that the aforementioned terms of trade fall explains much of New Zealand’s subsequent economic performance after 1966, and while I do not resile from this analysis, it does not explain the superior performance of the Australian economy, nor does it seem likely that a one-off shock could alone have a continuing impact four decades later.
My one comparison between the two economies (with Rolf Gerritsen) assessed the effects of the different market liberalisation policies in the 1985 to 1995 period, concluding that New Zealand’s more extremist liberalisation policies were more damaging. [11].[12] That is not so evident in the Maddison data, but even were a more delicate analysis confirm that conclusion, it does not explain the poorer performance before nor after.
Having found myself guilty of a form of economic history exceptionalism, by being over-concerned with New Zealand, I plead in mitigation there is probably no New Zealand economist who has focussed more on the global connectedness of the economy, nor done as much comparative analysis. (In the second case my error arose because I used the OECD as a benchmark, instead of Australia.) And I have volunteered my guilt, identifying here a ‘big question’ in Australasian economics: to explain a massive divergence in growth performance in the last four decades, after a twice-as-long period of near convergence. Explaining the difference ought to involve some cross-checking with other comparator countries: such as Argentina and Chile despite each being poorer.
More generally, my error – which nonetheless reflects some research progress – is a good illustration of the analytic weakness of excessive focus on a single economy, without comparing and contrasting it with others – the dangers of exceptionalism.
Notes
[1] This paper reflects my Marsden funded Globalisation and the Wealth of Nations (to be published by AUP at the end of this year), It is also prospective of an economic history of New Zealand, which is currently funded by a Claude McCarthy Fellowship.
[2] A. de Tocqueville (1835, 1840) De La Démocratie En Amérique (Democracy in America) 2 Vols.
[3] F.J. Turner (1921) The Frontier in American History.
[4] For a New Zealand contribution see M. Fairburn (2006) ‘Is There a Good Case for New Zealand Exceptionalism?’ in T. Ballantyne and B. Mologhney Disputed Histories.
[5] K. Sinclair (1959) History of New Zealand.
[6] A. Maddison (2001) The World Economy: A Millennial Perspective.
[7] Space precludes a comprehensive list of references but see V. Bulmer-Thomas (2003) The Economic History of Latin America since Independence. The terms of trade story is explored in Easton (2007) op.cit., Chapter 13 There are a number of comparative studies including A.E. Dingle and D.T. Merrett (1985) Argentina and Australia: Essays in Comparative Economic Development and D. Greasley and L. Oxley(2000) “Outside the Club: New Zealand’s Economic Growth 1870-1993. International Review of Applied Economics.. Vol 14, No 2.
[8] B.H. Easton (1996) In Stormy Seas.
[9] T. Bender (2006) A Nation Among Nations: America’s Place in World History.
[10] Easton (1996) op. cit., Chapter 5.
[11] B.H. Easton, & R. Gerritsen (1996) ‘Economic Reform: Parallels and Divergences’, in F.G. Castles, R. Gerritsen & J. Vowles (ed). The Great Experiment: Labour Parties and Public Policy Transformation.
[12] B.H. Easton (1997) The Commercialisation of New Zealand.