Posted on 18th November 2016 by Russell Phillips
Free markets, free people, and the world’s strongest society ensure that New Zealand takes the top spot in the Prosperity Index.
New Zealand has ranked first in the Prosperity Index for six of the last ten years. Bar a small prosperity drop as a result of the 2008 global financial crisis and the immediate impact of the Canterbury Earthquakes, New Zealand’s prosperity has been on an upward trend, particularly since 2012. This rise has been driven by concerted efforts by policymakers, especially in economic and health policy. New Zealand’s Business Environment performance has seen it rise nine ranks to 2nd, and in Health it has risen eight ranks to 12th. Underlying strengths include Economic Quality, particularly free and open markets, where New Zealand ranks 1st, Governance (2nd), Personal Freedom (3rd), and Social Capital (1st).
The ‘Prosperity Gap’ takes a country’s GDP and uses it as the yardstick to measure a nation’s expected Prosperity Index ranking.
New Zealand has had the biggest prosperity surplus in the world every year for the past decade. This surplus has grown slightly since 2007, indicating that New Zealand is delivering ever higher levels of prosperity with its growing wealth.
New Zealand has had the largest prosperity surplus of any country in the world over the past decade. That it can generate the world’s highest level of prosperity with only average wealth for a developed country, is an achievement based on strong structural foundations and ongoing improvements in key areas of prosperity.
Structurally, New Zealand’s free and open markets, free people, and a strong society play a significant role in is the ability to turn wealth into prosperity. Alongside other similar countries at the top of the delivery rankings: the UK, Australia, and Canada, it is this pattern of prosperity delivery that is consistently seen. New Zealand has the strongest society in the world, with 99% of New Zealanders saying they can rely on family and friends in times of need. This social strength has been proved globally to not only have a significant impact on wellbeing but on economic growth also. New Zealand’s mighty Social Capital performance is certainly at the heart of its success.
So too has trade been critical. A small nation of just 4.7 million, exporting has long been necessary to secure rising wealth and economic growth in the country. New Zealand is one of the least distorted markets in the world, with unrivalled free market access. A recent signatory to the Trans-Pacific Trade Partnership, which includes access to over 40% of global GDP, New Zealand already has free trade agreements in place with ASEAN, was the first developed nation to secure an FTA with China, and was a signatory to the P4 (Brunei, Chile, Singapore, and New Zealand) the first FTA linking the Pacific, Asia, and the Americas. New Zealand is proof that a small nation whose exports are still dominated by the primary sector, can trade its way to prosperity.
These strong foundations are enough to secure New Zealand a place in the global top ten, but it has risen to the top through concerted policy efforts to improve key areas of prosperity where New Zealand was less competitive. The Business Environment sub-index has risen from 11th to 2nd over the past decade. This is the result of infrastructure improvement – namely greater broadband penetration – but crucially also structural changes. Labour market flexibility has risen noticeably, as has access to affordable financial services or credit for businesses. New Zealand now scores the maximum possible on ease of getting credit.
Other areas crucial to New Zealand industry, particularly its highly innovative sectors such as biotech, like IP protection, has been improved. The result of this reform is that New Zealand has one of the best environments for business in the world, second only to the United States.
Yet progress has not been merely economic. Health is another key area of New Zealand’s prosperity that has seen a marked improvement. Ranked 20th in 2007, the country now ranks 12th in the Health sub-index. This improvement is particularly notable in comparison to UK performance. The two countries’ health systems are the most comparable in the world, and both set out on very similar reforms to the service commissioning process. New Zealand’s ‘Alliance’ model, brought together not just GPs (as in the UK model of reform), but professionals from across the local healthcare sector, encompassing multiple different service providers, from the ambulance service to local clinics to major hospitals. Its progress in the Health sub-index has far outstripped that of the UK. In 2007, New Zealand ranked 20th in this sub-index and the UK 22nd. In 2016, the UK still ranks similarly at 20th, but New Zealand has climbed to 12th.
Behind New Zealand’s improvement is a rising 85% satisfaction with the health system, high life expectancy that has risen by nearly two years over the past decade, and falling mortality. Conversely, satisfaction with the UK health system has fallen from 84% to 77% since 2007, life expectancy is lower and has not risen as rapidly, and mortality remains higher. The UK has not performed as well as New Zealand in improving health outcomes, despite having very similar health systems
However, there are areas where New Zealand has not performed so well. The country has slipped seven ranks in the Education sub-index since 2007, the result of New Zealand’s education declining in real terms. This has come from falling human capital (captured by measures like years of education per worker). This trend is concerning as it has the potential to undermine New Zealand’s economic success and its role as a world-class place for business. If the country cannot sustain the skills base to match, then prosperity is at risk.
New Zealand has sustained good prosperity growth over the past decade, ensuring that it has always ranked in the top five and ranking first for six of the past ten years. It has seen notable improvements in Business Environment and Health, while performance has slipped in Health and Natural Environment.
Areas of success
New Zealand has made significant progress in improving its business environment, rising nine places over the past decade to rank 2nd only to the United States. This has been the result of improving labour market flexibility, infrastructure, and financial access. So too has improvement come in Health, where the country has seen an eight rank improvement since 2007 to now rank 12th. Increased life expectancy, rising immunization rates, reduced mortality, and a growing satisfaction with the healthcare system is behind this rise. These improvements sit alongside New Zealand’s world-class performance on Economic Quality (1st), Governance (2nd), Personal Freedom (3rd), and Social Capital (1st).
Areas of little change
New Zealand has seen little change in the fundamental foundations of its prosperity which have remained strong. Personal Freedom, Social Capital, and Governance have been steadily rising over the past decade, ensuring that New Zealand keeps its place in the global top five in all these sub-indices.
Areas for improvement
New Zealand has seen a real and relative decline in its Education sub-index, falling from 8th to 15th over the past ten years. This is the result of declining human capital relative to the working age population and less vocational training. Increasing levels of overfishing have also meant that the country has declined from 2nd to 13th in the Natural Environment subindex.
Visit New Zealand’s country profile on www.prosperity.com.