Dr Alan Bollard
Governor of the Reserve Bank of New Zealand
Reserve Bank of New Zealand
2 The Terrace

10 February 2010

Dear Dr Bollard,

I write to you regarding the comments you made about the possibilities of New Zealand matching the level of economic output of Australia on a per capita basis, which you made on ‘Q & A’, Sunday 7 February.

In particular, I was shocked at the following comment:

"I don't think we can catch up with Australia, Australia's a most unusual country, Australia has been blessed by God sprinkling minerals across the top of the surface in very easily accessible areas in places where it doesn't annoy people to mine them. China's there buying all that, it's not rocket science, they've run the economy well, but we just don't have those advantages, but that's all good news for New Zealand because there's a lot of crumbs come off the Australian table that we can take advantage of."

The idea that the lack of mineral wealth will stymie economic growth is simply wrong. Consider the success of Hong Kong during the fifty years it was a British crown colony. In 1960, Hong Kong’s per capita income was 28 percent that of Great Britain’s. By 1996, it had risen to 137 percent of Great Britain’s. Within four decades, Hong Kong – a tiny portion of overcrowded land, with no real resources to speak of except human ingenuity and a port - was able to increase its level of economic output so that it topped the level achieved in the birthplace of the industrial revolution.

In fact, if large resource wealth was a prerequisite for economic success, then many countries that have had much faster growth rates than us should be doing quite poorly – Singapore, Ireland – and countries like the Democratic Republic of the Congo would be doing well. Mineral wealth is clearly neither a necessary nor sufficient condition for economic wealth.

A far more potent factor in driving economic growth are the institutions we develop – the nature of our constitution, the policies the Government adopts, and the social norms that develop. Economic wealth in Hong Kong has been created by, amongst others: freedom of exchange, both national and international; low taxes that reward productivity and reduce deadweight loss; and a Government that fulfils its core roles – to protect our freedoms, enforce contracts, and help create a framework for competitive markets.

There is no doubt that if we continue to maintain the status quo, then we have no hope of catching Australia. To blithely suggest that we can never catch Australia because of the minerals they have is to ignore the lesson of economic history – that policy matters.

Regards,

Hon Sir Roger Douglas