A New Zealand-shaped spanner

A comparison with New Zealand complicates the story of Argentina’s relative decline

In yesterday’s post, I pretty much convinced myself that Argentina’s terrible politics—AKA, its “institutions”—were responsible for the country’s relative decline. But a spanner was then thrown in the works of my mind. It came in the shape of New Zealand.

The earliest price I have for New Zealand is 1985, so I have only projected the country’s PPP GDP per capita back to the late 1950s. This is what it looks like when added to the Argentina/Australia comparison:

If anything, New Zealand’s decline relative to Australia has been even sharper than Argentina’s! And that’s why, of course, we read so many articles in the Economist about how the Kiwis’ terrible institutions led to the country’s decline…

Oh wait, that’s not right.

In fact, New Zealand has notoriously good institutions, coming above Australia in various rankings. Indeed, it is top of the World Bank’s “Ease of Doing Business” ranking, fourth in the Fraser Institute’s “Economic Freedom” index, and sixth in the Heritage Foundation’s “Index of Economic Freedom”. So, why so much decline relative to Australia?

Perhaps the second half of the twentieth century was just really bad for countries that were specialized in agricultural exports and lack the mineral deposits of Australia (or Chile, for that matter)?

If that’s correct, then what Carlos Díaz Alejandro described as Argentina’s “latent civil war” might have been irrelevant to the country’s relative GDP per capita. Even if the Argentines had been as well-behaved as the Kiwis, the country still probably would have declined in terms of that metric. The great passions of its politics—the violent swings in the pendulum between liberalism and populism—have been largely irrelevant. Instead, the origins of Argentina’s relative decline are to be found in agricultural export subsidies in the United States and Europe’s Common Agricultural Policy. These were the policies that ruined the world market for Argentina and New Zealand alike.

BUT, looking again at the graph above, it is notable how much more volatile Argentina’s relative decline was. The fluctuations around the trendline were far greater than for New Zealand. That volitality would, it seem, be a reflection of the macroeconomic mismanagement that came from Argentina’s awful politics.

Maybe we ought to consider stability a virtue in itself? It is notable, for example, that New Zealand tends to outperform its GDP per capita in international surveys of other aspects of quality of life. Here it is, for example, in the United Nations’ World Happiness Report:

New Zealand’s high-quality institutions might have other benefits that do not necessarily show up in GDP per capita…

And here, by the way, is Argentina:

What is going on in Japan and South Korea?!?

Could it be that those countries’ success in terms of GDP per capita has come at the expense of their people’s happiness?

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