A belated price for the OCR leak

More than three weeks after the Reserve Bank released the results of its OCR leak inquiry comes news that the Bank has finally taken some specific action against MediaWorks, the media group responsible for the leak.  We learn today –  although not via a open release from the Bank –  that representatives

“from Mediaworks news outlets are excluded from Reserve Bank media conferences until further notice”

In the Reserve Bank’s release on 14 April there was no hint of any specific sanctions for MediaWorks.  Instead, taking the opportunity to tar junior staff (and me), the Governor lauded MediaWorks management, noting that:

Deloitte was assisted in its investigation by Mediaworks’ legal team, who undertook an internal investigation, uncovered emails that confirmed the leak, and reported these to Deloitte.

The leak prompted the Reserve Bank (quite appropriately) to discontinue lock-ups for media and market analysts, but to the extent that was a penalty it was one imposed on all those who had previously participated (and was, perhaps, a greater burden on some of the more specialist entities).

Unfortunately for the Reserve Bank, it quickly became clear, upon reading the Deloitte report, that MediaWorks management must in fact not have been terribly helpful, at least until very late in the piece.

It is possible that MediaWorks senior management, including the former chief executive Mark Weldon, was not aware there was even an issue until 21 March.  The leak had occurred on 10 March, and although I drew attention to it that day (both directly to the Bank and, later, on a post here), it only got attention and coverage in the mainstream media on 21 March.    But at that point it got considerable coverage, and there is no way the senior management of a major media organization, with their own corporate Group Head of Communications, could not have been aware there had been a leak.  At that point, it would presumably have taken no more than an hour to have had the internal IT people check the emails of the MediaWorks staff in the lockup (even if they had no knowledge or suspicion of their own organization’s involvement, just to be on the safe side). That would have confirmed that MediaWorks was the organization responsible.

At that point, as the Deloitte team was (by their own account) only just turning their attention to media outlets as the possible source of the (then) possible leak, MediaWorks could have come forward and alerted the Reserve Bank to their responsibility.   That would have looked like full and early cooperation.  Even better, they could have pro-actively told the Bank, and Deloitte, how long this practice, of journalists emailing draft stories back to the office from the lock-up, had been going on.  There is no suggestion in the Deloitte report that what happened was just an accident (someone hit the wrong key on their laptop).

In fact, the Deloitte report makes it clear that MediaWorks did not approach either them or the Reserve Bank until 5 April, more than two weeks later, and then only when the Deloitte team sought meetings with each media person who had been in the lock-up.  At that point, presumably, the staff concerned and their managers left senior management with little option.

It isn’t really that clear why the Reserve Bank gave so much cover to MediaWorks in their 14 April statement.  A simple statement that MediaWorks had not approached the Reserve Bank until more than three weeks after the leak had occurred would have been considerably more appropriate than the positive statement on the role of the MediaWorks legal team. They were, no doubt, working largely to protect the interests of their own organization –  an organization which has been notably unforthcoming in answering questions about just really went on, who had sanctioned these breaches of the lock-up rules etc.

I suspect the answer to my question has something to do with the Reserve Bank’s desire to play down the whole episode.  Their systems were shown to have been very weak, and totally reliant on trust. It took no sophisticated signaling techniques for this leak to occur –  just clicking Send on an email.    Systems that might have reasonably robust 20 years ago –  when lock-ups were more useful, because ordinary readers couldn’t simply download the MPS at 9am and read for themselves what the Bank had to say –  simply hadn’t kept up.  The Bank has accepted no responsibility for that, or released any internal reviews it has undertaken as to how such vulnerabilities were allowed to arise.

But the inquiry also raised some questions about just how seriously the Reserve Bank itself had taken the issue in the first place.  Had they really taken seriously the possibility of a leak they could have taken action on 10 March.  I had suggested to them that morning that they focus on media outlets.  It wouldn’t have taken much effort for the Bank – Governor and Deputy Governors – to have rung the heads of each media organization in the lock-up  (I’m not sure how many that would be, but I’m assuming no more than 20) and asked them to (a) check emails of all of their staff who had been in the lock-up, and (b) arrange for signed statements to be prepared by all those in the lock-up swearing that they had not been responsible.  Had there in fact not been a leak (and the Reserve Bank couldn’t be sure then) it wouldn’t have cost much.  As it was, it surely would have identified the culprits within hours.    Instead, we learn that the Deloitte inquiry did not focus on media until after they met me on 18 March –  more than a week later –  and as late as 21 March the Bank was on record as talking only of “allegations” of a leak.

To be frank, given the Bank’s general attitude to me, and their unease about the issues I have been raising, and the questions I’ve been posing, I can understand why they might have been a little wary.  But the fact remains that, for all the Governor’s huffing and puffing about whether I told them what I knew at 8:30 or 9:08, they don’t seem to have done much with the information for several days at least.  And when they finally did discover the truth they appear to have been at pains to help protect MediaWorks’ corporate image.   There are still unanswered questions about whether MediaWorks was shown the draft Deloittle report, and whether it was given the chance to comment on the Reserve Bank’s press release in draft.

But this all brings us back to the question as to what has changed now (other than the CEO of MediaWorks).  Banning MediaWorks from Reserve Bank media conferences for a time seems like a reasonable sanction, but why wasn’t it done three weeks ago?  Since the Governor never acknowledges mistakes, and rarely makes himself available for interviews, perhaps we’ll never know. Then again, perhaps someone will ask at the FSR press conference next week.  They might also ask what “until further notice” means.  What are the conditions that MediaWorks has to meet?  Such an indefinite suspension seems unwise, and could give rise to speculation that the suspension might be lifted if MediaWorks outlets were seen to be covering the Bank in a not-unfavourable light.  Better, probably, to have banned them for three or six months, and then put the matter behind them.  And if the conditions for lifting the suspension don’t relate to the tone of the coverage of the Reserve Bank, do they relate to getting fuller and more complete answers from the new management about just what had been going on?  That might not be an unreasonable stance to have taken, but the Bank should be upfront about it.  As it is, we were left with the impression on 14 April that the matter was over as far as the Bank was concerned.

There is still a series of questions outstanding for both the Reserve Bank and MediaWorks.  Those for the Reserve Bank concern me most, because the Bank is a powerful public sector organization, which really should be much more upfront with the public when things go wrong (as inevitably occasionally they will).  I hope that some light will be shed on some of those questions when a series of Official Information Act and Privacy Act requests I have lodged with the Bank (and its Board) are answered.  Those answers are due in a couple of weeks, and I suspect that the Reserve Bank will delay responding just as long as it possibly can.

UPDATE: The question of why the Reserve Bank provided such cover to MediaWorks is deepened if this piece by John Drinnan is accurate.

The report talks about workers, but I understand senior news staff received the leak. I spoke to a Bank spokesman at the time the Bank stopped lockups, and it was unhappy about the way it was dealt with.

If the Bank was really unhappy, why imply otherwise, commending the assistance of MediaWorks?

 

“Quality problems”

Sometimes I find the Prime Minister’s claims about the New Zealand economy, and Auckland, almost breathtaking.  There is an insouciance about them that almost defies belief. They certainly defy data.

In a speech to an Auckland business audience yesterday –  there is a report here, and also video footage –  the Prime Minister repeated his breezy claims that Auckland’s “challenges” around housing and transport are “a quality problem”, and a “sign of success”, and that both the city and the country are doing “incredibly well”.

Perhaps that is how it appears when you are already wealthy, live in a large house in a prime inner suburb, and have a taxpayer-provided chauffeur at your constant disposal.  Neither housing nor traffic problems must impinge terribly much.

I’ve commented on a lot of the detailed issues previously, including the Prime Minister’s apparent vision of New Zealand as a Switzerland of the South Pacific, and am not going to go through all the detail again here.

But let’s just repeat some of it in summary:

  • Auckland has some of the highest house price to income ratios anywhere in the advanced world.  And we know that there are plenty of larger fast-growing cities in the United States where prices and price to income ratios are much lower.  Auckland prices –  and actually those in much of the rest of the country –  are a sign of policy failure, not a sign of success.
  • Despite extremely rapid population growth  –  relative to the rest of the country, and by the standards of largest cities in OECD economies –  Auckland’s economy seems to have been persistently underperforming.  The sheer size of the economy keeps growing, but per capita income growth has lagged behind.   Using SNZ regional nominal GDP data, Auckland average incomes were 12 per cent above those in the rest of New Zealand in 2015, but they had been 24 per cent higher in 2000. A curious definition of success.  We don’t have regional real GDP data, but the ANZ’s regional trends indicators (which try to proxy regional real GDP growth) suggest much the same sort of underperformance, dating back even further than 2000.  Per capita income growth supports living standards and consumption growth prospects.  Auckland’s economy has been seriously underperforming on that count, despite all the rhetoric about the importance of agglomeration gains in our one moderately-large city.

As it happens, for most of the last decade even the unemployment rate in Auckland has been consistently higher than that in the rest of the country, even though Auckland has a much deeper labour market and one might have supposed that matching labour demand and supply in a changing economy would be that much more frictionless there than in other regions.

auckland UAnd it isn’t just that Christchurch has had a very low unemployment rate through the repair and rebuild period.  Graphing the Auckland unemployment rate against that of the median region produces much the same picture.

The Prime Minister goes on

“You’ve got net migration not just strong from India, China and Australia but actually net migration from around the country,” Key said.

Well, sort of.    Actually, in the last year around a net 3500 New Zealanders left for Australia, and a slightly smaller (net) number of Australians arrived.  Net inward migration is not a trans-Tasman phenomenon at present –  except, of course, in the sense that a more usual state of affairs has been a large net outflow.

In fact, our net inward migration results almost entirely from the government’s immigration policy choices.

I hadn’t really appreciated the extent of the increase in the number of people arriving on work and residence visas (ie every single one needing explicit government approval) in the last couple of year.

plt arrivals work and residenceAnd the massive increase in student visa numbers (mostly to second tier non-university entities), many of whom later acquire residence, is on top of that.

All of which might be a cause to celebrate if there were any sign that these massive migration inflows –  probably the second strongest wave of immigration in the last 100 years – was doing any good in lifting the incomes or living standards of New Zealanders (and particularly Auckland, where the largest proportion of migrants end up).

But there seems to be no evidence of that at all. Certainly government agencies haven’t been willing or able to produce any.  If anything, there is reason to worry that the policy-driven influx of people is undermining income prospects of New Zealanders.

And what about the claim that people are coming to Auckland (“net migration”) from the rest of the country?  That really caught my eye when I saw it yesterday. Perhaps the Prime Minister has access to some data not generally available, but it isn’t the story in the official data, and hasn’t been for sometime now.

In our quinquennial censuses Statistics New Zealand asks where people were living five years previously, which enables them to produce data on internal migration.  As censuses have long been done at five yearly intervals, that generally provides a comprehensive estimate (and I stress “estimate” because not everyone who fills in the census seems clear on where they lived five years previously).  Because of the Christchurch earthquakes, the scheduled 2011 census was postponed to 2013.  The results of that census give us a picture of internal regional migration from 2008 to 2013.

internal migration 08 to 13Net, a small number of New Zealanders left Auckland for other parts of the country.  Relative to Auckland’s population, the estimated outflow is tiny, but there is just no sign of New Zealanders flocking to the “success” of Auckland (and note that this period includes the outflow of people from Christchurch in couple of years after the earthquakes). Perhaps things have been different in the last three years, for which we don’t yet have data.

But if so, it would be quite a reversal. SNZ has compiled this data back  as far as the 1986 to 1991 five-yearly period.  The last five yearly period in which Auckland experienced a net inflow of people from elsewhere in the country was from 1991 to 1996.

Here is chart which covers the estimated net internal migration to each region for the period 1986 to 2013 (with the two years 2006 to 2008 missing, because they weren’t captured by any of the censuses).

internal migration 86 to 13.png

Internal migration has certainly happened on a significant scale (gross and net).  But, net, it hasn’t been to Auckland.

Add in the huge outflow of New Zealanders to other countries (mostly Australia) over that period, and it looks a lot like New Zealanders avoiding Auckland.  And that shouldn’t really be surprising: despite its really pleasant physical location, housing has become increasingly unaffordable and income growth has lagged behind.    Other places do worse (as a share of population), but Auckland was supposed to the beacon of opportunity and our future economic prosperity.

Of course, one can always attract foreigners from poorer countries,  and that is what successive governments have done (especially, in effect, in Auckland).  But that isn’t a sign of economic success.  It is, instead, an economic (and social) strategy (“critical economic lever” is MBIE’s term), and one which increasingly looks to have failed –  at least if the benchmark is, at it should be, benefits to the living standards and incomes of New Zealanders.

As for the Prime Minister’s final claim, that the New Zealand economy is doing “incredibly well”, words almost fail me.  At a cyclical level, our unemployment rate at 5.7 per cent is still uncomfortably high (and much higher than it was when the government took office, and currently the same as Australia’s when we’ve typically managed better unemployment outcomes).  Productivity growth –  whether labour or MFP – remains mediocre at best, and there is no sign whatever that New Zealand is making up any of the ground lost relative to other OECD countries in the last 50 years or more.

Most people in New Zealand who want to work have jobs, and material living standards for most are still quite comfortable.  But it is the continuation of a long slow relative decline.  And nothing the current government –  or its predecessor –  has done has done anything to begin to reverse that decline.  The big-Auckland “strategy” does increasingly look to have been something really quite bad, worsening living standards for Aucklanders (especially in conjunction with the “rigged” dysfunctional land supply market), and dragging down prospects for the rest of New Zealand.

As I said at the start, the insouciance in the face of all this underperformance almost defies belief.  But what matters much more is that it simply defies the data.