Uruguay and New Zealand: are they really cousins?

 

Agustín Iturralde (*)

Several Uruguayan scholars have been looking to New Zealand as a mirror that shows what their country could have been. These two countries share demographic, geographic and economic characteristics, and until early 20th century, both were among the richest economies in the world. However, during the last century, they significantly diverged: while New Zealand stayed among high-income nations, Uruguay fell to become a middle-income one. Analyzing this topic for my Master’s dissertation*, the main purpose of the research was to dispute, through an institutional approach, the validity of comparing both countries by assuming that they have a shared destiny. It has been argued that Uruguay could have had New Zealand’s economic prosperity if it had followed the same policies, but is this true? Or have colonial differences already established divergent paths?

Through well-known neo-institutional papers, the roots of their divergent paths was explored, providing clues to understand if they really are comparable nations. Taking into account important scholars as Acemoglu et al. (2001) and Engerman & Sokoloff (2002), the comparison seems to be appropriate. Initial conditions of both territories were quite similar, so these scholars boded the rise of similar institutions. It appears that colonisers of both nations faced similar conditions concerning the salubriousness of the environment and the availability of natural resources. Considering these papers alone their similar and high income until early 20th century seems to be explained. However, what remains unaccounted for is the divergence that happened after 1930. We can assume that this divergence was caused by better decisions of New Zealand rulers, reinforcing the value of using New Zealand as an example for Uruguay.

On the other hand, there are reasons to believe that substantial differences were already present during the colonial period that shaped different institutions in both countries. North et al. (2000) describes quite well into the observed institutional patterns, pre and post-independence. Uruguay experimented a longer and more violent state consolidation, and needed, after independence, to build from scratch its liberal-republican institutions. Similarly, La Porta et al. (2008) explained advantages of common law over civil law in economic outcomes. All these papers bolster the idea that being colonised by the British had specific advantages concerning economic growth. Consequently, it seems likely that inherited institutions explain a significant part of the differences between both economies, so the comparison is weakened.

Notwithstanding the previous, there are also scholars that stressed that institutions could evolve leaving behind part of their colonial heritage. La Porta et al (2008) observed a convergence trend among legal institutions, and North et al. (2009) explained how the transition to “Open Access Order” could occur. Through fostering impersonal relations and limiting elites’ benefits, it is possible to get closer to an OAO institutional type, which is historically associated with British heritage. In short, colonial heritage is not an inevitable blessing or curse. Moreover, Uruguay seems to have some indications of this transition, the quality of its democracy probably being the clearest example, but also seems to have filled OAO conditions according North et al. (2012). Some kind of institutional convergence between our two study cases has been taking place in recent years.

Concluding, Filgueira (2007: 79) described the comparison between Uruguay and New Zealand as comparing “lemons with limes”, which could be a good synthesis of this conclusion. Both economies certainly have a lot of things in common that enables to look for fruitful lessons in the other country, but the scope of these common characteristics could be easily overestimated leading to wrong conclusions. New Zealand and Uruguay territories, as most of the modern “settler economies”, presented similar conditions for establishing developmental institutions. However, at least an important share of the better Oceanic performance was founded in the advantages of its colonial heritage According to important scholars, British colonies were expected to have more pacific independence process and more rapid state consolidation. It is also true that heritage is not irrevocable, and it is probably going to be less relevant in the coming years. Briefly, both countries are cousins, but probably second cousins. The number of shared characteristics justify trying to look for mutual learnings from their successes and failures. This does not mean that Uruguay lost the opportunity of being New Zealand necessarily because of policy failure: inherited institutions had already established a huge original difference that needed to be overcome.

 

*Chevening Scholar, Msc (c) in Political Economy of Late Development, London School of Economics. For the full study, please contact Agustin at iturralde.agustin@gmail.com.

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