November 1, 2007

Why Have Kiwis Not Become Tigers? Reforms, Entrepreneurship, and Economic Development in New Zealand - Book Chapter

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Frederic Sautet's chapter "Why Have Kiwis Not Become Tigers? Reforms, Entrepreneurship, and Economic Development in New Zealand" appears in the book Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin Powell and with a forward by Deepak Lal.

The New Zealand economy is now famous in policy circles for its turnaround during the 1980s and 1990s. Starting from a state of semiautarky in the early 1980s, New Zealand now has one of the most vibrant economies in the world. In fifteen years, successive governments reformed the country's institutional environment by injecting high doses of deregulation and opening the economy.
A consensus is now emerging in regard to what has made the economy more vibrant and prosperous. The reforms have had a very positive impact on the entrepreneurial environment; unemployment is low, and growth is reasonably rapid. Most commentators today recognize this situation.
In the long run, what matters is the quality of the entrepreneurial environment. When the institutional and cultural environment enable individuals to discover and seize profit opportunities, growth occurs (Boettke and Coyne 2003; Sautet 2005). Taking this factor into account, I argue here that:

• The reforms have vastly improved the entrepreneurial environment, and, as a result, given the starting point, they have greatly enhanced New Zealand's economic performance.
• To go beyond current levels of economic performance, New Zealanders need to improve the entrepreneurial environment further. New Zealand failed to become a growth miracle because the reforms that were implemented, though good, were not exceptional.

I first describe briefly the context in which New Zealand's reforms took place and then, second, consider the five main reforms that changed the New Zealand economy positively. In the third section, I examine the reasons why the New Zealand economy is failing to perform like that of an Asian tiger. Before concluding, I offer some policy implications.