Looking at how these countries are adapting to geopolitical and economic forces, taking into account different aspirations and responsibilities, Australians are both more fearful and more engaged than New Zealanders. Australia's economic ambitions are closely entwined with the growth of China and India; the Kiwis are yet to be recognized as players in this game. Australia's government is strapped on to the Americans in Iraq, while its troops are leading local interventions in East Timor and the Solomons. Under Prime Minister John Howard, Australia's politics have shifted to the right. Although less "p.c." than she appeared a year ago, Prime Minister Clark can still sound like a denizen of Helengrad. New Zealand's Labor-led government has taken quite a different diplomatic and military approach, its impeccable morality matching its near irrelevance as a Polynesian statelet in the broader realm of world affairs. Just on the political surface, never mind what the Sir Humphreys are doing, Australia has Alexander Downer and Kevin Rudd leading the foreign affairs debate. Winston Peters? Say no more.
But there are hard truths here for Australia and other mid-sized countries. For years, New Zealand has been viewed as a social and economic laboratory. Policy makers can see what works and what doesn't. Perhaps, as some are now suggesting, the Kiwi is becoming the canary in the coal mine of the new global economic order. According to David Skilling, chief executive of The New Zealand Institute, the health of the bird tells us how globalization affects countries on the periphery—and that, of course, includes Australia, despite being five times the size of its neighbor. Geography still matters. And New Zealand, he argues, is being left behind by globalization. "Things are seen more quickly and clearly in New Zealand," Skilling told a gathering at the Lowy Institute in Sydney last week. "Just like in biology, the interesting stuff happens on the edge."
Skilling, a former senior adviser in his country's Treasury, has distilled lessons from the Kiwis' experience. First, good economic policies are necessary but not sufficient. The country's market-based reforms over two decades have not brought a dividend in higher living standards. Although its leaders have talked a lot about getting into smart industries and adding value to commodities, the country's exports are still overwhelmingly land-based. Second, there's been a lack of strategic leadership. Not enough has been done to reposition the country to play to its competitive strengths by upgrading infrastructure, research and education. "Planning" remains a dirty word, says Skilling. As well, there has not been a willingness to experiment, boldly or persistently. New Zealand, burned by previous government follies, remains risk-averse. Third, the country has wasted a decade by not building broad political support for the new direction it needs to succeed under globalization; three-year election cycles don't help lawmakers to focus beyond small-view politics.
Skilling's Auckland-based think tank is likely to play a major role in a debate his country can't delay. One of the main drivers of the external accounts crisis is the nation's ongoing interest bill and the profits returning home to foreign investors; despite good prices, export volumes are subdued. The country's top 20 export items are pretty much as they were in 1980. Few New Zealand companies (dairy producer Fonterra is a standout) have annual overseas sales of $1 billion. Only one figures in the 2005 Forbes list of the world's top 2000 companies (Telecom was No. 988; Australia had 38 companies on the list). Not only do the Kiwis need national champions, argues Skilling, but they must invest in "sticky" assets (unlike graduates who easily find their way to Sydney, Hong Kong and London) and keep the "action at home." One advantage that New Zealand has over Australia is that it can move very quickly; its size and government structures allow rapid deployment. If the world is not as flat as Thomas Friedman has envisioned, then resources will continue to flow to the engines of world capitalism. Take note, ye Australians with your fat tax cuts, new cars and McMansions—and heed the warning of the little Kiwi bird.