Can a north nation go south?

Douglas North, an American, won a Nobel Prize in Economics, pioneering work on the value of institutions in economic development. The higher the quality of institutions, the better the result.

If Cameroon could lift the quality and efficiency of its public institutions to the giddy heights of Uruguay, it would more than double its per capita income per person, according to the World Bank.

Governments do matter despite the right wing mantra that government is the problem not the solution. It's the quality, predictability and honesty of government and its agencies that matters.

And if you think globalisation has meant the death of government and that governments no longer matter, explain the difference between Chile and Argentina, North and South Korea, or Burma and Thailand. Of course, too much government is almost as bad as no government.

Good governance, property rights, and independent courts are fundamental to sustained progress. In economics where there is a problem, seek out the cleansing disinfection of competition, and where corruption is a problem, seek out transparency and competition, and where there is a political problem, seek more competition via democracy.

This expels the rent-seekers and the privileged who extort and steal because of their insider knowledge. The self-correcting genius of democracy holds bureaucracy and the powerful to account.

But democracy without an effective, honest, well-paid bureaucracy, predictable, transparent institutions is not enough especially if one large faction, party or tribe, by its numbers, can suppress the minority and reward itself with the baubles of office.

Douglas North made this case in a most profound way to a UN Commission, I'm a member of, recently. China's biggest problem is not energy, inequality or the environment, but the capacity of its system to handle these problems, without a responsive, accountable bureaucracy and without a competitive democracy, is the issue, argues North.

Worst places

I was recently in East Timor, which is amongst the worst places in the world to do business because of its confused bureaucracy. Will East Timor be the first less-developed country to escape the "resource curse" and manage to use its new-found wealth in oil and gas to assist people and develop without serious corruption?

There's not much to steal yet but this will be a close-run thing. It's like watching an old movie for the fifth time.

I spend half my time in New Zealand and Australia. There's no doubt that policies to enhance the conditions of Australia's Aboriginal people have seriously failed.

This is a scar on the conscience of Australians, sending money, devaluing power and authority to Aboriginal peoples without a professional class of civil servants; where, under the guise of democracy, tribal leaders exploit their positions - this is not democracy but feudalism and tribalism.

When people can be excused from civilised behaviour, violence is accepted because of customary rights, it is painfully absurd. The privileged will inevitably exploit their positions, which always turns to tears in any society.

It's better in New Zealand but there are ominous signs, when millions of dollars disappear via Maori institutions and no one is held accountable let alone goes to jail. And it's not just in Maori endeavours that the warning signs are there in New Zealand.

We are a developed nation of the first rank and compare ourselves with the world's best when it comes to education, life expectancy or all the worthy measures of civilisation. But we operate more and more, in some sections of our society, like a developing country or an economy in transition.

How is it in New Zealand, from sickening prosecutions of "animal" police behaviour to multi-million dollar health contracts, to inferior education projects which cost millions and don't produce anything, to the probation system ignoring consistent advice about offenders who murder and maim while on probation, is no one ever sacked or goes to jail or pays back the money?

How is it health expenditure can go up by 49 per cent in 6 years but productivity fall? If Douglas North's theory that progress in poor countries is based on the quality of the public service, is it possible that the opposite might be true, that successful nations could go backwards if the quality of their institutions degenerate?

Mike Moore is a former prime minister of New Zealand and a former director-general of the World Trade Organisation.