Published in National Business Review (Auckland), 25 January 2013

“The land of the free and the home of the brave” is a famous line in the American national anthem, The Star-Spangled Banner. However, our US friends have to be very brave indeed because there is now a better land of the free: New Zealand.

According to a joint study by the Canadian Fraser Institute and German think tank Liberales Institut. New Zealand leads the world in human freedom, followed by the Netherlands, Hong Kong, Australia, and Canada. The US only ranked seventh on this list.

The results of other developed nations are even worse. The UK (8th) ranks behind the Baltic republic of Estonia (10th); Albania (24th) beats France (33rd); and rather bizarrely Russia (89th) is judged more free than Israel (105th).

Such individual comparisons show that wide-ranging freedom surveys always have to be taken with a pinch of salt. In any case, an index in which Europe’s economic powerhouse Germany (35th) is eclipsed by the likes of Costa Rica (20th), Malta (27th) and Mauritius (30th) probably does not quite reflect the full picture of a country’s attractiveness.

Despite this caveat, New Zealand’s first place ranking is still great news. It is particularly good because unlike previous indices measuring only economic freedom, the new human freedom index measures both: the freedom to work and do business but also social freedoms, such as personal safety, freedom of expression, and other civil liberties.

Taken together, the researchers have come to the conclusion that there is no freer country than New Zealand.

The study made some international headlines, particularly in the US. Americans were miffed to find out that they were not living in the greatest country in the world and that this title belonged to a small, isolated nation in the South Pacific to us.

New Zealanders, on the other hand, would have probably been less surprised. We know that by international standards New Zealanders live in a stable democracy, with a decent education system, largely untroubled by corruption or violent crime, and with a healthy civil society.

We also know that not only do Americans sing about their “free land” in their anthem, in fact, so do we.

However, no country is perfect including New Zealand. Improvements can always be made, and most Kiwis would not have to think long about areas in which New Zealand could do better. Infrastructure bottlenecks, housing affordability, and access to state-of-the-art medical treatments come to mind.

But the point is that compared with others, New Zealand still offers a very good overall package to its people. To paraphrase Cecil Rhodes’ famous saying, to be born Kiwi is to win first prize in the lottery of life.

Unfortunately, there is another, Iless flattering, way of looking at New Zealand’s top ranking in the freedom index. For a country offering such favourable circumstances to human development, New Zealand does not make the most of them.

You would think that a country with stable institutions and a free society in regional proximity to some of the fastest growing nations on the planet would itself be an island of economic miracles. Sadly, New Zealand is not.

Our productivity performance has been mediocre for decades, not only compared with Australia but also compared with the rest of the OECD. The global financial crisis had a strong impact on the Kiwi economy. Adjusted for inflation, economic output per capita is still below the level reached in 2006.

Perhaps the strongest verdict on New Zealand’s economic performance is in net migration. Currently, about as many people leave New Zealand as others decide to settle here. It is more than a play on words but a real conundrum: How can an attractive country fail to attract more migrants and lose about 1% of its own population to its Australian neighbour?

Part of the answer is New Zealand’s lack of scale. Our small population and remote geography create a challenging environment for economic development, no matter how great the institutional settings.

To create jobs and growth and to eventually become international champions, companies first need a large domestic market. Efficiency and productivity gains usually accompany such transformations of fast-growing companies. In New Zealand, such business success stories are obviously more difficult to achieve than in other parts of the world, in which markets are larger.

For New Zealand, it is no question of “populate or perish,” as was once claimed. Nowadays, the alternatives are “populate or stagnate.”

As our political and economic circumstances are among the best in the world, we need to fill them with life. The opportunities to create growth and prosperity are there, we now have to embrace the idea of a growing population to seize them.

New Zealand may be the land of the free but are we brave enough to go for growth?