Recent events across the Tasman Sea have done nothing to dispel Australia's sense of superiority over our Anzac neighbours. New Zealand's voting system, which no one wanted and which no one understands, has failed to produce an outcome two weeks after the country's general election. This, combined with a foreign policy that only Mark Latham could love has hardly made NZ a model for Australians to aspire to.
In the 1980s, NZ's economic and labour reforms led the Western world. Twenty years ago we viewed the country with admiration. Now we look at with condescension.
Therefore it comes as something of a surprise that in an international survey published last month NZ was rated the third most economically-free country in the world. It ranked behind only Hong Kong and Singapore. Ranked equal with NZ were Switzerland and the United States. Next followed the UK, Canada, and Ireland. Australia was classed ninth, level with Estonia, Luxembourg and the United Arab Emirates.
The Canada-based Fraser Institute, in its Economic Freedom of the World: 2005 Annual Report, measured the economic freedom of 127 countries according to the most recent and comparable data available, which was from 2003. Thirty-eight separate components were assessed under the headings of size of government, legal rights, inflation rates, freedom to trade, and government regulation. The sources from which information was collected came from verifiable third parties, including the World Bank, the International Monetary Fund, and the World Economic Forum.
Australia and NZ had similar scores for their legal systems, monetary policies, and processes of government regulation. However, on the question of the size of government NZ did significantly better, and its income tax system was judged to be more conducive to economic freedom than Australia's. On a scale of zero to 10, with zero being least free and 10 being most free, NZ's income tax regime scored five, while Australia's, because of its relatively high marginal rates, scored only three. NZ was also judged to be more open to international trade, particularly when it came to the ability of foreigners to make capital investments.
Across the whole index, NZ scored better than Australia on 20 components, compared to the eight on which Australia ranked higher, with the countries scoring the same on 10 items.
In a global context economic freedom is advancing. Measuring the situation in 109 countries over the past two decades, 96 countries became more free, with Brazil, Poland, Uganda and Zambia recording significant gains. Seven countries went backwards, including Burma and Zimbabwe.
The figures also contain a powerful reminder to all of those anti-globalisation protesters who profess a concern about child labour. Countries with economic freedom scores in the top 20 per cent have one-tenth of 1 per cent of their children in the labour force. In the least economically free countries 22 per cent of children are working.
Released as part of the Economic Freedom of the World report was some ground-breaking research based on the index conducted by Erik Gartzke, a political scientist at Columbia University. He asked the question: What is more likely to lead to international peace: democracy or economic freedom?
Based on a statistical analysis he concluded that economic freedom was almost 50 times more effective than democracy at diminishing violent conflict between countries. Democracy was not a statistically significant predictor of conflict, but economic freedom was.
Gartzke identifies two main reasons why economic freedom encourages peace. First, leaders in market economies are less likely to engage in military activities that discourage investment and lower local economic conditions. Put simply, war is bad for business.
Second, modern economies whose factors of production are intellectual and financial rather than based in land are less dependent upon gaining territory.
These conclusions have a direct application to the war in Iraq. For Gartzke, efforts to bring democracy to poor countries, whether they are in the Middle East or elsewhere, won't produce peace unless there is also substantial economic development. Therefore we should export capitalism first, and democracy second.
Gartzke concludes his study with the following.
"Adam Smith had the great insight two centuries ago that self-interest, unfettered by bureaucratic guidance or constraints, served the common good better than state control ... Today, there is increasing evidence that an invisible hand also acts on the foreign policies of nations ... The flowering of economic freedom, what some have derisively labelled "greed", has begun to dampen the fires of war ..."
We can only hope.
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