Month: February 2017

The new tightening cycle?

Michael Reddell Monetary policy, Reserve Bank

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

This chart shows the Reserve Bank’s projected future OCR tracks from last November’s MPS and the track from yesterday’s MPS.

ocr-projections-feb-17-and-nov-16

Using the definition of an “easing cycle” they appear to have adopted yesterday, to try to provide some cover for their 2014 misjudgements, this must surely mark the beginning of a new “tightening cycle”?     And, yes, the forward track was revised up very slightly.  Given that the Bank usually moves in increments of 25 basis points, the first actual OCR increase is currently expected in 2020 (this is the first time we’ve had projections for 2020).

But, of course, you didn’t hear the words “tightening cycle” from the Governor, or his offsiders, to describe what they’d done yesterday.  (I missed the start of the press conference, but I’ve seen no references anywhere to the words, or ideas).  And that is because it wasn’t the start of a “tightening cycle”.  Indeed, if one takes the projections seriously, one must assume there is about as much chance of another OCR cut in the next year to two, as of an increase.

And the Bank’s own official words back up the idea that this wasn’t the start of a tightening cycle.  Here are the key final sentences from the press release for the November MPS when, you’ll recall, they cut the OCR.

Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.

and here are the sentences from yesterday’s statement.

Inflation is expected to return to the midpoint of the target band gradually, reflecting the strength of the domestic economy and despite persistent negative tradables inflation.

Monetary policy will remain accommodative for a considerable period.  Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.

Parse it as you will, in substance those statements are all but identical.  If one wanted to be picky, one could highlight the addition of the words “for a considerable period” –  but it was probably aimed at those market participants who the Bank thinks (rightly in my view) have got a bit ahead of themselves in their enthusiasm for OCR increases later this year.

It would simply be nonsensical to claim that yesterday’s MPS was the start of a “tightening cycle”. It clearly wasn’t.  The Bank didn’t present it that way, and neither markets nor media have interpreted in that way.

It was even more nonsensical for them now to attempt to rewrite history and suggest that they began an easing cycle in June 2014.  They didn’t, they didn’t think that was what they were doing at the time, no one else did then (here, for example, was one of Wheeler’s bigger fans’ own quick assessment at the time) , and no one else does now.  They should be embarrassed.

Perhaps some readers will think I’ve made too much of the point.  But Parliament has given a great deal of power to the Governor, who has openly argued that the Bank is highly accountable.  One of the vehicles for that accountability –  a statutory vehicle –  is the Monetary Policy Statement.   Reasonable people can and do differ over the conduct of policy in 2014, and it is healthy to have the debate –  human beings learn from considered reflection and examination.    But attempting to twist language to try to rewrite the historical memory isn’t the sort of thing we should be expect from public servants who wield so much power.   And while Wheeler himself will soon be history, he has been keen to argue that he governs collegially –  emphasising the role of his deputies and the assistant governor.  Of them, the deputy chief executive will succeed Wheeler as Governor for six months, and most lists of potential candidates for the next permanent Governor seem to include both the other deputy governor, Geoff Bascand, and the assistant governor John McDermott.  The Governor signs the MPS, but McDermott’s department generates the document –  text and supporting analysis.   An excellent central bank –  doing policy well, producing strong supporting research and analysis, being open and accountable (rather than just playing political games), should be doing a lot better than this.

I was also struck by another of the Bank’s attempts in yesterday’s MPS to smooth over its record.  They noted in chapter 2 that

“Annual CPI inflation has averaged 2.1 per cent since the current target range was introduced in 2002”.

Which is true, but not particularly revealing.    For a start, during the Bollard decade, it averaged 2.5 per cent (excluding the direct effects of the higher GST) and in the Wheeler years it has averaged so far 0.8 per cent.  Lags mean Brash (and the old target) was responsible for the first year or so of the Bollard results, and Bollard was responsible for the first year or so of the Wheeler results, so here is a chart showing a three-year moving average of annual CPI inflation (again ex GST).  I’ve started from September 2005, so that all the data cover periods when the inflation target midpoint was 2 per cent.

cpi-inflation-3-yr-ma

It isn’t exactly a record of keeping inflation near the midpoint, even on average.  If the Bank seriously wants to argue that its performance should be evaluated over 15 year periods, they should abandon any pretence that there is serious accountability embedded in the system. Or, they could just play it straight, recognise their own (inevitable) limitations, and participate in some thoughtful, rather than propagandistic, reflections on the past conduct of policy and lessons for the future.  We should be wanting –  the Minister and Board should be seeking –  a Governor who has that sort of open-minded self-confidence.

When I exchange notes with other former Reserve Bank people one common line that comes up is a sense that the analysis in the Bank’s Monetary Policy Statements is often rather tired, and adds little of value to the reader.    Someone went as far yesterday as to send me a 20 year old MPS as a standard for comparison.  I often caution people that each generation is prone to view their successors that way, and insert the caveat that I hesitate to claim much for a period in which the Reserve Bank had the MCI (and a key senior manager, who fortunately didn’t last long, who often nodded off, just across the table from the Governor, in Monetary Policy Committee meetings).  Nonetheless, I can’t help coming to the same conclusion myself.    There are defences –  for a small central bank, four full MPSs a year is probably too many –  simply cranking the handle to churn out the documents take a lot of resource.  But it is the Bank that chooses that model –  Parliament only requires two statutory MPSs a year.  It could be argued also too that most of the value in the document is in the one page press release and a single table  –  but then why produce 30 to 40 pages?   And sadly, even when they do try to introduce new material, I often don’t find it very persuasive or enlightening.  And sometimes, the emphases seem quite politically convenient –  productivity, for example, (or the complete lack of it in New Zealand’s case) appears not at all in the text of yesterday’s MPS.

I wanted to touch on just two examples from yesterday’s document.  A year or so ago, the Reserve Bank introduced LUCI –  the labour utilisation composite index, an attempt to provide a summary measure of resource pressure in the labour market.    It was interesting innovation, if not fully persuasive as an indicator.  They ran the chart in yesterday’s document

luci

In the text, the Bank simply notes that labour market tightness increased over 2016.  But if this indicator is supposed to be a measure of that, how seriously can we take the claim?  After all, this index appears to suggest that in the Bank’s view the labour market is now almost as tight as it was at the peak of the previous boom (late 2004?) and materially tighter than it was over say 2006 and 2007 –   a period when the unemployment rate averaged less than 4 per cent, and when wage inflation was quite high, and increasing further.

Over the last year, however

  • the unemployment rate was basically flat (actually 2016q4 was higher than 2015q4, but lets treat that as possibly just noise),
  • wage inflation was flat or falling,
  • and in the Bank’s Survey of Expectations, expectations of future wage inflation were flat as well (actually down a bit in the latest survey)

And all this when the unemployment rate has been persistently above the Bank’s own estimate of the NAIRU (which appears to still be around 4.5 per cent), let alone Treasury’s which is around 4 per cent.  There is little to suggest anything like the degree of labour market pressure that was apparent in the pre-recession years.

No doubt, there are good answers to some of these questions and apparent contradictions.  But the Bank has made no attempt to address them, even though other labour market developments –  around immigration – receive a lot of focus.  The public, and readers of the MPS, deserve better analysis than that.

The Bank’s immigration analysis has also been rather tortured.  Historically, they have worked on the basis, and produced research to support, the common view that the short-term demand effects of immigration exceeded the supply effects.    There shouldn’t be anything surprising, or very controversial, about that –  immigrants (or non-emigrants) need to live somewhere, and need all the attendant private and public infrastructure of a modern economy.  Those pressures tell one nothing about the pros and cons of immigration policy.

But in the last couple of years, the Bank has been going to great lengths to try to suggest that this time things are different: this time the composition of the immigrants is so different (than in every previous post-war cycle) that, if anything, the supply effects outweigh the demand effects, and that high net PLT immigration is part of what is keeping inflation down.

It isn’t totally impossible of course.  Fly in labourers, house them in disused prisons, forbid them from spending anything locally, and employ them only in very labour-intensive roles and the supply effects might outweigh the demand effects.  But that isn’t the modern New Zealand immigration story  (and in case anyone wants to be obtuse, obviously nor should it be).

The Bank likes to illustrate their case with charts like this one, produced again in the MPS yesterday.

plt-by-age

It uses PLT net migration data to purport to show (a) record immigration, and (b) that that record influx is hugely concentrated among young people who, it is claimed, add more to supply than to demand, dampening inflation pressures.  The contrast is supposed to be particularly stark with the last big influx in 2002/03.  The Bank explicitly states “young migrants and those on student visas represent a much higher share of migration than in previous cycles”.

I’ve covered much of this ground before, especially in this post.   The limitations of the PLT data are well known, both in principle and in practice.    At my prompting, with the full knowledge of my then RB superiors, Statistics New Zealand produced a research note on the issue a couple of years ago.  In that document they showed how the PLT data had materially misrepresented the actual long-term migration inflow to New Zealand in the 2002/03 period (not wilfully –  just the limitations of the timely measure).  This was their chart.

plt-methods

So the best later estimates are that the 2002/03 influx was around 50 per cent larger than the PLT data (including the age breakdown data) the Bank is constantly citing.

We don’t have current estimates from this improved methodology for the current cycle, but one can see the point in just comparing the net PLT inflow with the net total passenger arrivals. It is a more volatile series –  things like World Cups and Lions tours help introduce volality.

migration-per-cent-population-feb-17

But you can see the big difference between the two series over 2002/03 –  and SNZ estimated that much of that difference wasn’t very short-term tourists, it was people who ended up staying longer.  Jump forward to the current cycle: contrary to the mythology the influx of people this time round, as a share of the population,  hasn’t been larger than it was then.  The peaks are around the same, and the peak this time (at least so far) was shorter-lived than it was in 2002/03.

And what of the student story?  Well, it doesn’t really hold up either.  Here is the MBIE data on the number of people granted student visas each year, as a share of the population.

student-visas-feb-17

The peak isn’t as high as it was in 2002/03, and the extent of the increase is much much smaller this time.   Foreign students add to demand –  as all exports do.  (Of course, there have been some  –  somewhat controversial  – changes in student work rules, which might have mitigated the demand effects, but curiously the Bank doesn’t invoke that effect as part of its story.)

My point here is not to argue whether my conclusion (net migration tends to boost demand more than supply in the short-term) is right, or the Bank’s (this time is different) is.   And as it happens, we see eye-to-eye right now on the current stance of monetary policy.   I’m mostly concerned that the Bank seems to just ignore inconvenient data that just isn’t hard to find or use.    There might well be good counterarguments to the data points I’ve highlighted here, but instead of making those arguments, the Bank simply ignores them.  One might, sadly, expect that sort of standard from political parties and lobby groups.  We shouldn’t expect, or tolerate, it from powerful well-resourced public agencies.  The Bank’s argument is certainly fairly politically convenient: it keeps the focus off that unemployment rate that is still above the NAIRU (a gap that might be expected to be constraining inflation) and the near-complete absence of productivity growth, which might be deterring new investment (also dampening inflation pressures in the short-run).

There are plenty of complex issues around in making sense of what is going on. I certainly don’t claim to have a fully convincing story myself. But given the level of public resources put into the Reserve Bank, we should expect a lot more from them –  not just answers, but evidence of genuine intellectual curiosity, and a desire to evaluate arguments from all possible angles.  Their current policy stance is fine, but there doesn’t seem to be a strong and robust organisation, of the sort that would underpin consistently good policy through time, judged by the strength of its analysis and its openness to debate.   Yesterday’s MPS is just one more example of that.   Turning around that weakness should be one of the key challenges for the new permanent Governor.

Alternative facts: a possible interpretation

Michael Reddell Monetary policy, Reserve Bank

A reader who is paid to, among other things, monitor the Reserve Bank got in touch to suggest that the Reserve Bank’s claim, highlighted in this morning’s post, to have “initiated an easing cycle in June 2014” was neither a typo nor a piece of carelessness (I’d assumed the latter), but something conscious and deliberate.

Recall that in this morning’s MPS, the Bank wrote that

The Bank initiated an easing cycle in June 2014, by lowering the outlook for the policy rate from future tightening to a flat track, and then cutting the OCR from June 2015

Most people, when they think of an easing cycle or a tightening cycle, think of actual changes in the OCR.  On that conventional description, the OCR was raised four times, by 25 basis points each, from March 2014 to July 2014.  Note those dates: not only was the OCR raised in the June 2014 MPS, but it was raised again the very next month.

And if one compares the crucial final few sentences in the press releases for the March and June 2014 MPSs there is no material change in wording from one document to the other, and there is nothing in chapter 2 of the June 2014 MPS (the policy background chapter) to suggest a change in policy stance.

So how might they now –  revisionistically – attempt to describe an “easing cycle” as having been commenced in June 2014?  Well, the only possible way they could do so –  perhaps hinted at in that phraseology “by lowering the outlook for the policy rate” –  is using a change in the forecast for the 90 day rate from the previous set of projections, in March 2014, to those in the June 2014 MPS.

But here is the chart showing the two sets of projections

90-day-projections

The differences are almost imperceptible.  In fact, the June track (red line) is very slightly above the blue line in the very near term, and at the very end of the period the difference is that the 90 day rate is projected to get to 5.3 per cent in the June 2017 quarter rather than the March 2017 quarter.  And recall that there were no contemporary words to suggest a change of stance.

Sure enough over subsequent quarters the Bank did start to revise down the future track, but there is no evidence that over that period they thought of themselves –  or openly described themselves –  as having begun an “easing” cycle.    That didn’t happen –  and even then they didn’t think of it as a “cycle” –  until the OCR was first cut in June 2015.   Here is the Governor talking about monetary policy in a February 2015 speech.

We increased the OCR by 100 basis points in the period March 2014 to July 2014 because consumer price inflation was increasing as the output gap became positive and was expected to increase further. Since July, the OCR has been on hold while we assessed the impact of the policy tightening and the reasons for the lower-than-expected domestic inflation outcomes.

The inflation outlook suggests that the OCR could remain at its current level for some time. How long will largely depend on the development of inflation pressures in both the traded and non-traded sector. The former is affected by inflation in our trading partners and movements in our exchange rate; the latter by capacity pressures in the economy and how expectations of future inflation develop in the private sector and affect price and wage setting.

In our OCR statement last Thursday we indicated that in the current circumstances we expect to keep the OCR on hold for some time, and that future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.

Again, no sense from the Governor that he was well into an “easing cycle”, as we are now apparently supposed to believe.

Now, there is a theoretical argument that the stance of monetary policy can be summarised not just by the current OCR but by the entire future expected/intended track.  But as the Reserve Bank has often –  and rightly – been at pains to point out, projections of interest rates several years in the future contain very little information, as neither the Reserve Bank nor anyone else knows much about what will be required 2 to 3 years hence.   And it is a dangerous path for them to go down, for it invites those paid to hold the Governor to account to do so not just in respect of the actions he or she takes, but in respect of their ill-informed (but best) guesses as to what the far future of the OCR might hold.

If this is the explanation for the Reserve Bank’s words this morning –  and sadly it seems like a plausible explanation –  it is, at best, a case of someone trying to be too clever be half, and change the clear meaning of plain words (to the plain reader) in mid-stream.  At best, too-clever-by-half, but at worst a deliberate attempt to use a verbal sleight of hand to deceive readers, including the members of Parliament to whom the document is, by law, formally referred.    Sadly, it looks a lot like the “alternative facts” label –  one that should be worn with shame – might have have been quite seriously warranted.  They didn’t start easing in June 2014; at best by later that year they started slowly backing away from their enthusiasm for (a whole lot more) further tightening.

I’d hoped for better from the Reserve Bank, its Governor, incoming acting Governor, and other senior managers who may perhaps have aspirations to become Governor next March.

Lewis Carroll wasn’t intending Through the Looking Glass as a prescription for how powerful senior public officials should operate.

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

 

Alternative facts: Reserve Bank edition?

Michael Reddell Monetary policy, Reserve Bank

I might have a post later on the substance of today’s Monetary Policy Statement –  or might not, since the bottom line stance seems entirely correct to me (regular readers may think this a first).   But I couldn’t let one particularly egregious misrepresentation go by without comment; a claim so blatantly wrong that one almost had to wonder whether the Bank was now taking communications advice from Sean Spicer and Kellyanne Conway.

In each MPS Box A “Recent monetary policy decisions” appears.  This box is one of my minor legacies to the Bank.  I banged on often enough about the statutory requirements for MPSs –  which require some retrospective assessment and self-evaluation –  that they agreed to include this box. It is rarely done well and –  in fairness –  the Act probably needs changing, to provide for reviews and assessments rather less frequently.  And the content tends, perhaps inevitably, to be rather self-serving.    But the latest version was just too much.

It begins as follows

The Bank initiated an easing cycle in June 2014

When I first saw that I assumed it was just a typo –  bad enough, but these things happen.  The OCR wasn’t actually cut until June 2015.  But no, the authors were apparently serious.  The whole sentence reads

The Bank initiated an easing cycle in June 2014, by lowering the outlook for the policy rate from future tightening to a flat track, and then cutting the OCR from June 2015

Do they really expect to be taken seriously?   For a start, their statement isn’t even true.  Here is the chart of the projected 90 day interest rates from the June 2014 MPS.

90-day-rate-track-mps-june-2014

The OCR was not only increased in the June 2014 MPS, but they projected another 200 basis points or so of increases.   By now –  March quarter of 2017 –  the OCR was projected to be still rising, and at 5.2 per cent.

And here was what the Governor had to say in the June 2014 MPS

june-14-mps-extract

There was no doubt that the Bank –  the Governor –  in June 2014 thought they would be raising the OCR a lot further, and had no thought in mind of beginning an easing cycle any time in the following few years.

I’m not sure what has gone wrong in this quarter’s Box A.    All the key players –  the Governor and his closest advisers –  were around in June 2014, and are around now.  They know what happened, and in June 2014 they were pretty confident of their tightening stance.  But they made a mistake.  It happens.     What shouldn’t happen is crude attempts to rewrite history.

I rather doubt this was deliberate on the Governor’s part –  probably some carelessness further down the organisation, and then insufficient care in reading and approving the final text.     But it isn’t a good look, and I hope they will take the opportunity to acknowledge the mistake and issue a correction.

Perhaps the FEC and/or the Bank’s Board might ask just what went on?

On Graeme Wheeler

Michael Reddell Financial stabilty, Governance, Monetary policy, Reserve Bank

Morning Report had invited me on this morning to talk about Graeme Wheeler, the change of governor, prospects for a permanent successor etc.  The death of Steve Sumner apparently changed their schedule so that interview didn’t happen, but I’d already jotted down some notes as to what I might say, so I thought I’d use them here.  Wheeler, of course, still has seven months in office, and we’ll see his next Monetary Policy Statement tomorrow.

When Graeme Wheeler was first appointed as Governor, there was generally a fairly positive reaction.  I shared that view.  Until quite late in the process, I’d assumed that Grant Spencer was the favourite for the role –  after all, successful organisations tend to promote from within, and a capable insider should always have an advantage, being constantly visible to the Board.  And so when Graeme was appointed, my initial reaction was “well, he must have been a very strong candidate to have beaten the capable internal deputy”.    And it was well known at the time that Bill English and John Key had been keen to have Wheeler back in New Zealand –  there had been well-sourced talk that the Minister had wanted him as Secretary to the Treasury, something apparently stymied by SSC bureaucracy.

With hindsight, one can only conclude that the Bank’s Board –  the key players in the appointment of the Governor –  just didn’t do a very good job in evaluating the candidates. Perhaps that shouldn’t be surprising –  mostly behind the scenes people themselves, they don’t have much experience in appointing someone to a position with as much visibilty and probably more untrammelled power than most Cabinet ministers.  There are suggestions that Board members were rather too easily swayed by big names Wheeler had produced as referees, and by his international connections (coming just a few years after the international financial crisis) rather than looking hard at the qualities required to do the Reserve Bank Governor job well.    Since many of the Board members then are still on the Board now, one can only hope they’ve learned from their experience.

I think Wheeler has done a poor job as Governor, both in the specific decisions he has made, and in the processes and procedures and style he has adopted.   For most of the time, he seems to have been aided and abetted –  or at least sheltered –  by the Board, who are actually paid as the public’s agents, not as associates and defenders of the Governor.

And it is not as if times have been unusually hard for him.  We haven’t had a recession in New Zealand and there has been no major flare-up of international financial stresses during his term (so far).  The terms of trade moved around a bit, but not much more so than usual.  There was no domestic financial crisis, no major domestic fiscal stresses, no change of government, and the major natural disasters of the last decade (the Canterbury earthquakes) had all happened by the time the Governor took office.   Sure, what is going on globally is a little hard to fully make sense of, but whereas most other advanced country central banks had by 2012 largely reached the limits of conventional monetary policy (interest rates very close to zero) that has not yet been a constraint here.

The Reserve Bank’s primary function –  according to the Act –  is monetary policy.  Graeme came into office with a new PTA that he was comfortable with –  in particular, with an explicit focus for the first time, on the 2 per cent midpoint of the inflation target range.  And yet over his 4.5 years in office, annual headline inflation has averaged not 2 per cent but 0.8 per cent.  Falling oil prices played a part in that, but CPI ex petrol has averaged not 2 per cent, but 1.1 per cent.  The Governor’s preferred measure of core inflation –  the sectoral factor model measure –  has averaged not 2 per cent, but 1.35 per cent.  All sorts of one-off factors that the Governor can’t be really be held accountable for influence inflation rates –  thus cuts in ACC levies have held down headline inflation in the last couple of years, while large increases in tobacco taxes have artificially boosted headline inflation throughout the Governor’s term.

There are a lot of comfortable commentators inclined to treat these inflation outcomes as a matter of indifference –  so what they imply, after all low inflation is better than high inflation.    But persistently low inflation over several years –  and especially when it doesn’t arise from surprisingly good productivity outcomes – almost invariably comes at a cost –  lost output, and lost employment.  And that has almost certainly been the case over the last few years.   Throughout the Governor’s term, the unemployment rate has been reasonably materially above estimates of the non-inflationary or “natural” level –  these days thought to be around 4 per cent.  The Governor’s choices affected the lives and options of real people –  and years lost out of employment simply can’t be got back.

My standard here isn’t one of perfection.  Central banks, engaged in active discretionary monetary policy of the sort now common around the world, will inevitably make mistakes.  Central banks try to operate on the basis of forecasts, and yet no one  –  least of all them  – knows the future.  So in evaluating the Governor, we need to look at the specific circumstances, and at the willingness to acknowledge and learn from mistakes.  Here, Graeme Wheeler doesn’t score well.

Before he came to office, the Reserve Bank had already once misjudged the need for a tightening cycle to commence, and had had to reverse itself.  At the time –  2010/11 –  they had some company internationally, and there was a fairly widespread expectation that interest rates would need to return to “normal” fairly soon.  That wasn’t the case by the end of 2013, when the Governor was not just talking about tentatively beginning a tightening cycle, but confidently asserting that interest rates would need to rise by 200 basis points.   He –  and his machinery of advisers –  simply got that one wrong.  Fortunately, they never raised the OCR by 200 basis points, but it was 18 months before they even started to reverse themselves –  and even now, to my knowledge, they have never acknowledged having made a mistake.  In so doing, they’ve unnecessarily exaggerated both interest rate and exchange rate variability, all the while leaving unemployment unnecessarily high.   Good managers and leaders recognise that human beings make mistakes, but they expect those who make them to acknowledge and learn from them.  Graeme Wheeler failed that test.

The other big part of the Reserve Bank’s policy responsibilities is the regulation of key elements of the financial system, to promote the soundness and efficiency of the system.  Graeme made that a much more prominent part of the Bank’s role with his enthusiasm for successive waves of LVR controls.   The Reserve Bank has no policy responsibility for the housing market, or for house prices, only for the soundness and the efficiency of the financial system.    And yet I see a leading commentator criticising the Governor for not doing the impossible:

Wheeler should have earlier called out the Prime Minister and Finance Minister on their tardiness in developing policy responses to counter the house price bubble. But he was late to the party.

Notably, the bank was also tardy in its own policy responses, thus earning itself a rebuke from then Prime Minister John Key, who rather cynically tried to take the focus off a Government that was running immigration hot for its own ends.

A more adept governor should have been able to persuade the politicians that slowing the boom was a job for both the politicians and the central bank. And that it was necessary for NZ’s long-run stability.

Quite how Graeme Wheeler was supposed to have changed the mind of the government on reforming supply – when no one else, in New Zealand or in many Western countries, has succeeded in doing that –  is a bit of mystery.  I have pretty high expectations of a Reserve Bank Governor, but that seems like a Mission Impossible task.  It is not that reform couldn’t be done, but against a Prime Minister determined to present high and rising house prices as a mark of success, a central bank Governor, with no detailed background in the area, no real research to back him, and no particular mandate wasn’t likely to succeed.  After all, our housing supply and land use laws have created problems, interacting with immigration policy, for 25 years, and Alan Bollard and Don Brash had made no inroads either.

As for the Bank being “tardy”, hardly.  When Graeme Wheeler took office, no one in the Reserve Bank had been keen on direct LVR controls –  they were a clear fourth preference, when assessed against the Bank’s responsibility for financial system soundness and efficiency.    But Graeme rushed such restrictions into place, at times surprising even his own senior managers, with no tolerance for any debate or dissent (there was no substantive discussion of the merits of the measures at the key relevant internal committee).  If you think LVR limits were a good thing, the last thing you can accuse Graeme of was being tardy.  I think they were ill-conceived, sold on a false promise (about how temporary they would be), are still poorly-researched, and have spawned one new set of controls (and odd exemptions) after another.  And, unsurprisingly, the real housing market issues –  mostly about land supply, not finance –  haven’t been dealt with.  Wheeler liked to fancy himself as a shrewd political player, and yet if there is a valid criticism of him in this particular area it is as much that he eased the pressure on politicians by rushing to do something/anything, at time when there was a growing sense that “something must be done”.  The appropriate response to “something must be done” is not “so anyone should do anything”.    And it remains concerning that despite Wheeler’s penchant for increased use of direct controls –  harking back to earlier decades –  there has been little or no serious analytical or research engagement with the issues around the efficiency of the financial system, and the way in which direct controls can undermine efficiency, and in the process favour insiders over outsiders, the well-connected and well-resourced over the more marginal, and so on.  The experience of the US over 2008/09 –  where Wheeler lived at the time –  always seemed to loom large, and never once has the Bank answered my challenge to consider the similarities and differences between the US and New Zealand, or to look at the experiences of countries (many of them including New Zealand) that didn’t have domestic financial crises in 2008/09 despite large house price booms.

Effective communication is a big part of what the central bank governor should be expected to do, and the more so in New Zealand where (a) all the statutory power rests with the Governor personally, and (b) where the Bank has such wide-ranging powers, and is not just responsible for monetary policy.  And yet during the Wheeler years, the Bank hasn’t done well on that score either.    The number of on-the-record speeches the Governor has made has dwindled, and those he does give don’t typically compare favourably –  in terms of quality, depth and insight –  with those of his peers in other countries.   There have been specific communications stuff-ups (speeches inconsistent with subsequent action etc), although I’m reluctant to be too harsh on those –  most central banks end up with some of those problems in one form or another, at some time or another.  But it is also a matter of accountability:   Wheeler has been very reluctant to grant serious media interviews (none at all to the main TV current affairs programmes, and only belatedly the occasional soft-soap interview to the Herald) in a way that is quite extraordinary for someone personally wielding so much power.  A Cabinet minister wouldn’t get away with it.  And in his press conferences, the Governor has often come across as embattled, defensive and weary.    Despite his past senior roles, he had no background in the public limelight, and clearly wasn’t comfortable with it.  But that was a significant part of what made him, at least with hindsight, the wrong person for the job.

Neither in my time at the Bank –  around half his term, involved in most of key policy committees –  nor subsequently have I seen any sign in the Governor of wanting to foster a climate of debate and explorations of ideas and alternative options.  I mentioned the LVR controls already, but they weren’t the only example.  In my own experience, one small example lodged in my brain.  One day a few years ago Graeme was down in a meeting in the Economics Department and there was a bit of a low key discussion about alternative policy approaches etc: the death glare I received for even mentioning, hypothetically, nominal income targeting was a pretty clear message, not just seen by me, that what the Governor wanted was support for his position, and answers to his detailed questions, not alternative perspectives or debate, no matter how non-urgent the issues were.  People respond to incentives.  In a area so rife with uncertainty as monetary policy, it is very dangerous approach.  The same goes for the ability to deal with external criticism –  a capable and intellectually confident Governor would recognise the value in alternative perspectives and relish the prospect of engaging with the alternative ideas.  Doing so is part of how people come to have confidence in the Governor.  But there has been none of that with Wheeler –  if anything he seemed to become unreasonably rattled by disagreement (his active effort to tar the messenger who drew to his attention the OCR leak last year was a sad example of that –  made worse by the cover he received for it from his Board).

I could go on, but won’t at length.  The Governor has been highly obstructive in his approach to the Official Information Act –  we still don’t have access to papers relating to the 2012 PTA for example –  and has done nothing to advance transparency around the Bank’s medium-term spending plans.  Nothing appears to have been done to prepare for the likelihood that the near-zero bound will become an issue here in the next recession.  The refusal of the Governor to engage with serious evidence of past misconduct around staff superannuation policy is a blight.  And despite the large team of researchers and analysts the Governor commands, there has been little good policy-relevant research published in the last few years, particularly in the areas of financial system regulation and macro and financial stability.  Sadly, the Reserve Bank has been living off reputational capital for some considerable time now, and one of the challenges for a new Governor should be turning that around and lifting the quality of the Bank’s outputs and its senior people.

As I’ve noted before, I give the Governor a small amount of credit for his recognition that the single decisionmaker model is past its use-by date, and should be reformed.  A committee of his own apppointees –  his two deputy governors and one assistant governor, all answerable to him – is not the right answer, but at least he was willing to start addressing the issue, unlike his predecessor.  Responsibility for the Reserve Bank governance model rests mostly with the Minister of Finance and the Treasury, but the Governor sought to get approval for legislative changes and failed.  That reflects poorly on him  –  our current model is so out of step with how countries do things and how government agencies are structured –  and is partly a reflection of his own fixation on a technocratic model, and partly of the loss of trust he incurred with the Minister and the Treasury (including around the financial regulation powers).  The Bank should have been able, by a flow of good research and analysis, to have helped shape a public debate on the appropriate future governance model.  But it failed to do that –  and now still refuses to release any of the background papers from that long-completed work programme undertaken at taxpayers’ expense (and this time, extraordinarily, they have managed to get Ombudsman cover for their refusal).

Quite who will be the next Governor is anyone’s guess.  If I had to put money on it, I’d assume it would come down to a choice between Geoff Bascand and Adrian Orr –  both of whom have their own weaknesses –  but there are other possible candidates both here and (New Zealanders) abroad.  Even though the Bank’s Board have all been appointed by the current government and have the key role in determining who will be the next Governor, quite a bit could still turn on the outcome of the election and what changes, if any, they might want to make to the Act.  In my view, whoever wins the election should focus quite quickly on sketching out a plan for governance reforms, and should look to appoint a person who will be able to carry those through and help the Bank adapt, and perform well, under a new model, under which the Governor personally would have a vital role, but a much less dominant personal role in determining monetary and bank regulatory policy.

Doing so now isn’t a reflection on Graeme Wheeler –  as perhaps it might have been seen as a year or two ago –  just a recognition that times, and the institution and its challenges, have changed,  While so much power rests with the Governor personally, it is important to appoint someone with some reasonable credibility in the subject areas the Bank is responsible for –  an effective deputy can do much of the day-to-day management of what isn’t a very large or complex organisations –  but if the new government, of whatever stripe, is seriously willing to move to a committee-based model (the more conventional approach) then the requirements for a Governor would be rather different.   Change management skills would be a key component, as part of revitalising the Bank and shaping a position for a strong chief executive who can support the decisionmakers –  rather than being both the principal decisionmaker, and the one who controls all the flow of paper, him or herself.  It might be a little more akin to the important role a Secretary to the Treasury plays in leading his organisation as advisers to the Minister of Finance.

A temporary Governor: is it lawful?

Michael Reddell Governance, Reserve Bank

And so we have confirmation that Graeme Wheeler is leaving his position as Governor when his current term expires, a couple of days after the election.  (Reserve Bank statement, and Minister of Finance statement.)

That is less newsworthy than the solution the Board and the Minister have come up with –  the appointment of current Deputy Governor (and deputy chief executive) Grant Spencer as acting Governor for six months, to allow the search and appointment process for a new permanent Governor to conclude after the election, when the shape (and policy orientation) of the new government is known.  Spencer will retire at the end of that acting period, and will not again seek permanent appointment as Governor (having sought the role unsuccessfully in 2012).

It is a pragmatic solution, and not that out of line with the one I had proposed –  that Wheeler be invited to stay on for perhaps a year, to allow the appointment to be made by the new government.  It would be interesting to know why that didn’t happen –  was Wheeler not willing, or the Board or Minister not interested?  No doubt, Spencer will be a safe enough pair of hands for six months.

But there are other unanswered questions.  For example, is this a solution envisaged by the Act?     The only previous appointment of an Acting Governor was when Don Brash resigned to go into politics, and Rod Carr was appointed as acting Governor while the selection process for a permanent successor took place.  There is a clear need for acting Governor provisions in such cases –  Governor can resign, die, or otherwise become incapacitated (and can even be removed for cause by the Minster).

But here is the relevant statutory provision (section 48)

If the office of Governor becomes vacant, the Minister shall, on the recommendation of the Board, appoint—

(a) a director of the Bank; or
(b) an officer of the Bank; or
(c) any other person—

to act as Governor for a period not exceeding 6 months or for the remainder of the Governor’s term, whichever is less.

As I have read that section, it envisages an acting Governor to complete a Governor’s term. not to provide a temporary Governor when it is inconvenient to appoint a permanent one.

That interpretation seems consistent with two other aspects of the Act.  First, Governors must be appointed for an initial term of five years (although subsequent extensions can be for shorter terms).  Parliament made that choice deliberately, presumably to help emphasise that the Governor was to operate at arms-length from the government.  If, by contrast, an acting Governor could keep on being appointed for terms of six months at a time, it would allow the intent of the Act, operational autonomy, to be eroded if the government determined on such an approach, without coming back to Parliament to amend the law.

And second, the PTA provisions of the Act clearly tie in to the fixed term appointment of a Governor –  and in that context an acting Governor filling in for an unexpected vacancy (as Rod Carr was in 2002) simply carries on with the PTA the substantive Governor had had in place.  There is no provision in the Act for a PTA with an acting Governor –  and the existing PTA is personal to Wheeler, and expires with his term in September this year.

Steven Joyce’s statement says that

Mr Joyce and Mr Spencer have agreed that there will be no change to the Policy Targets Agreement for the period Mr Spencer will be acting Governor.

Which might be fine for practical purposes.  But that isn’t the way the law was written.  In legal effect, there is likely to be no PTA in place during that interregnum,and that isn’t how the Act should operate.

I welcome the fact that the authorities have recognised the significance of the issue that the governor’s term expired just after the election  (it is a point I have been making here for more than a year, including this post).  And in practical terms, no harm is likely to be done by having Spencer as acting Governor, but I remain uneasy as to whether this specific solution is legal, or consistent with the spirit and intent of the Act.

More generally, it highlights again the desirability of a more throughgoing review of the governance provisions of the Reserve Bank Act.  That should not be a particularly partisan issue –  more like an opportunity for some sensible reflections and revisions in light of 27 years experience with the current framework, changes in the role of the Bank, changes in the governance of other core government agencies, and changes in the understanding of how mechanically (or not) monetary policy can be run (and monitored).

UPDATE: Just to be very picky, the Minister’s statement says Spencer will act from 27 September 2017 to 26 March 2018.  But –  unless I have badly misread something –  Wheeler took office on 26 September 2012, and therefore his five year term appointment must expire at the end of 25 September 2017.   Easily remedied, but it looks a little careless.

 

Maori and immigration

Michael Reddell Immigration, New Zealand economic history, NZ politics

Early last month, just before I headed off to the beach, a couple of readers forwarded me references to an article written in about 1992 by the late Professor (of Maori Studies at the University of Auckland) Ranginui Walker, headed New Zealand Immigration and the Political Economy.  Having done no more than glance through it, I included a link to the article at the end of a post and went on holiday.

On my return, I sat down and read Walker’s article more carefully, including in the light of the new New Zealand Initiative advocacy report on immigration, which touches lightly on issues of how we should think about New Zealand immigration policy in light of the place of Maori in New Zealand.

Walker’s piece is interesting for two things: first, that is was written in the quite early days of something like the current immigration policy (policy having been reworked considerably over the 1986 to 1991 period), and second because it is a distinctively Maori-influenced perspective.   (Incidentally, Walker’s biographer was Prof Paul Spoonley, now a leading (and MBIE-funded) pro-immigration academic.   It would be interesting to know what Spoonley makes of Walker’s somewhat sceptical assessment of New Zealand’s immigration policy written at a time when the target non-citizen inflows were smaller than they are now (and the stock of migrants was much smaller than it is now).)

Walker argued that modern immigration policy was a matter covered by the Treaty of Waitangi, consistent with his attempt to re-insert the Treaty into contemporary policymaking.  He cited words from the preamble to the Treaty

The original charter for immigration into New Zealand is in the preamble of the Treaty of Waitangi. There, it states that Her Majesty Queen Victoria of the United Kingdom:

“has deemed it necessary, in consequence of the great number of Her Majesty’s subjects who have already settled in New Zealand, and the rapid extension of Emigration from both Europe and Australia which is still in progress, to constitute and appoint a functionary properly authorized to treat with the Aborigines of New Zealand for the recognition of her Majesty’s sovereign authority over the whole or any part of those islands.”

And went on to argue that

The present generation of Maori leaders abide by the agreement of their ancestors to allow immigration into New Zealand from the countries nominated in the preamble of the treaty, namely Europe, Australia and the United Kingdom. But, for any variation of that agreement to be validated, they expect the Government to consult them as the descendants of the Crown’s treaty partner.

Asian immigration, in particular, so it was argued, required formal consultation between the Crown and Maori.  You might find that a stretch –  I do  –  but it does focus attention on the question of just what Maori leaders in the first half of the 19th century were agreeing to when it came to immigration.  I suspect it wasn’t a set of policies that would reduce Maori to a small minority, marginalised politically, in their own land.

British and settler control over New Zealand developed gradually, from the first European settlement at Oihi through to the end of Maori/land wars in the early 1870s, by some mix of acquiescence, agreement (notably the Treaty), annexation  –  and military defence/conquest.  I wrote a post last year drawing attention to a lecture by 19th century Premier Sir Julius Vogel who had noted unashamedly, looking back on the origins of his own huge public works and immigration policy, the role played by a desire to secure the North Island militarily, and so shift the population balance that European dominance of New Zealand would be secured for the future.

I will tell you the real facts, and I think I may say there are only two or three men now living who can speak with equal authority. The Public Works’ Policy seemed to the Government the sole alternative to a war of extermination with the natives. It comprised the construction of railways and roads, and the introduction of a large number of European immigrants. The Government argued that if they could greatly increase the population of the North Island and open up the means of communication through the Island, and at the same time give employment to the Maoris, and make their lands really valuable, they would render impossible any future war on a large scale. They recognised that in point of humanitarianism there was no comparison between the peaceful and warlike alternatives.

In the almost 150 years since then, there have been a variety of motivations espoused for promoting immigration to New Zealand –  including (external) defence, relieving population pressures in Britain, sharing the great opportunities here, possible economies of scale, and more latterly encouraging greater diversity and encouraging possible productivity spillovers.  But whatever the argument, the effect of immigration policy has consistently been to reduce the relative place of Maori in New Zealand.  Non-citizen immigrants are almost inevitably non-Maori, and in a unitary democracy, overall voter numbers count.  Each immigrant lowers the relative weight on Maori in decisionmaking in New Zealand.  And to the extent that immigrants assimilate, it typical isn’t with Maori culture.

In his article, Ranginui Walker touches on one of the ways in which policymakers have sought to avoid confronting the issue.  Writing of the 1986 review of immigration policy he notes

The review asserted that New Zealand is a country of immigrants, including the Maori, thus denying their prior right of discovery and millennial occupation of the land. Defining the Maori as immigrants negates their first-nation status as people of the land by lumping them in with the European immigrants who took over the country, as well as later immigrants from the Pacific Rim. Furthermore, the review disguised the monocultural and Euro-centric control over the governing institutions of the country by claiming that immigration has molded the national character as a multi-cultural Pacific country. This multi-cultural ideology is a direct negation of the Maori assertion of the primacy of biculturalism.

In other words, if Maori are just another minority there is no distinctive place, or no particular need to be sensitive to the implications of immigration policy for them.

A few years later, the Business Roundtable (forerunner to the New Zealand Initiative) commissioned Australian-academic Wolfgang Kaspar to write a paper on immigration policy in a New Zealand context.  Kaspar –  and the Roundtable –  were dead keen on freeing up immigraton, seeing it as one important element in a strategy to lift New Zealand’s economic and productivity performance.    Commenting on how Kaspar treats the Maori issue, Walker wrote

Kaspar’s views on Maori policy are also a matter for concern. With few exceptions, most Maori would reject his sooth-saying that they should not fear becoming a smaller minority in a situation where land and resources would be “competed away.” Like Job’s comforters, he says: “They (Maori) could instead live in a nation of many minorities where the Maori minority fitted in much better as an equal social group.” Kaspar’s view is advanced with the ignorance and naivete of the outsider who knows nothing of the 150-year struggle of the Maori against an unjust colonial regime. The reduction of the Maori to a position as one of many minorities negates their status as the people of the land with bi-cultural treaty rights and enables the government to neutralize their claims for justice more effectively than it does now. Furthermore, new migrants have no commitment to the treaty. For these reasons, the ideology of multiculturalism as a rationale for immigration must be rejected. Although its primary rationale is economic, the government’s immigration policy must be seen for what it is — a covert strategy to suppress the counter-hegemonic struggle of the Maori by swamping them with outsiders who are not obliged to them by the treaty.

One doesn’t need to be comfortable with the rhetoric – I’m not – to see Walker’s point.  Whether by design (less probably now) or as a side-effect that the policy designers are largely indifferent to, large scale immigration simply reduces the relative significance of Maori in New Zealand.  It has done that in new ways in recent decades as much of the immigration has been non-Anglo.  For decades, immigration was mostly British, which left Maori as a small minority in their own country, but as at least the only “other” group.  Modern migration patterns risk treating Maori as simply one minority among many –  perhaps even, in time, with outcomes similar to (say) California where there is no longer any majority ethnicity.

Some of Walker’s article is now quite dated, but I think it is still worth reading if only because such perspectives don’t seem to get much airplay in the mainstream policy discussions.  And when occasionally people do make the point about large scale immigration undermining the role of Maori and the Treaty, they are often simply batted away with rather glib reassurances that today’s politicians –  who can make no commitments about how politics plays out 20 years or more hence – simply can’t back up.

(Although it isn’t my focus today, the first person to refer me to the Walker article highlighted this quote about the emphasis on large scale immigration to New Zealand

this policy does not take into account the fact that New Zealand is a primary producing country, it is resource poor in terms of minerals and oil, and is the most distantly placed country from world markets. It is difficult to produce competitively priced manufactured goods with the plussage of high freight costs on top of manufacturing costs.

Walker wasn’t an economist, but his observation is passing doesn’t seem to have been undermined by developments in the last 25 years, in which New Zealand’s overall economic/productivity performance has languished, despite the huge influx of new people.)

Last week, the New Zealand Initiative released their advocacy report, making the case for continued – or perhaps even increased –  high levels of non-citizen immigration.  It is an unsatisfactory report in several respects –  for example, the subtitle “Why migrants make good kiwis” seems to rather deliberately(?) miss the point that should guide policy; do migrants make existing New Zealanders better off –  and I’ll have quite a bit to say about various aspects of it over the next week or two.    But today I just wanted to focus on the treatment of the Maori dimension.

As the report notes

Many Maori too are concerned about immigration, seeing it as a threat to their unique position as the first people to settle in New Zealand

and

The Election Survey reveals that Māori are significantly less favourable towards immigration than other New Zealanders, and Māori are significantly more likely to want reduced immigration numbers. They are also less likely to think immigration is good for the economy, and more likely to see immigration as a threat. This finding remains even after controlling for age, religion, marital status, home ownership, household income, education, gender, and survey year.

The authors note

This is clearly a concern for New Zealand, where Māori and the Treaty of Waitangi occupy a special cultural and constitutional role in society and national identity. Given the low barriers to obtaining voting rights in New Zealand, there may be a fear that allowing migrants to express these views at the ballot box would dilute Māoridom’s special standing.

That is all fine, but what sort of response do they propose?

The range of policy responses to this problem are fairly limited. Cultural education programmes for migrants may sound appealing, but it is unclear how successful they would be in changing views. Some migrants may simply see it as a tick box exercise to be endured to gain entry into the country, and may not have the intended effect on
migrant attitudes towards Māori and their place in New Zealand.

Indeed, and even if it it had the “intended effect” that wouldn’t alter the inevitable shift in the population balance.  Maori –  like others –  might reasonably be assumed to want power/influence, not just understanding or consideration.

We have also considered a values statement, such as the one used in Australia. All visitors to the country are required to sign this document, affirming to abide by Australia’s largely Western values. Although this idea is appealing, it has two main weaknesses. First, New Zealand has yet to formally define its cultural values. Unlike Australia, or many other nation states, New Zealand does not have a single constitutional document. Instead, New Zealand’s constitutional laws are found in numerous documents, including the Constitution Act 1986, the Treaty of Waitangi, the Acts of Parliament, and so on. This allows the nation state of New Zealand to function, but does little to define what it is to be a New Zealander, and what set of national values need be upheld. Until this is done, it would be difficult to craft a robust and useful values statement. Even if it were possible, without constitutional protection, it would be subject to change according to political whim. Second, any values statement would still suffer from the pro forma weakness that a cultural education programme is subject to.

I don’t disagree that a “values statement” isn’t the answer, partly because in a bi-cultural nation there will be differing values –  things that count, ways of seeing and doing things –  even between the two cultures.    But they go on.

A partial answer to this problem may be to shift the burden from the immigration system to the education system. The national curriculum, which acts as a reference guide for schools in New Zealand, places significant emphasis on learning Te Reo and the cultural practices of Māori.   This may do little to address concerns about the attitudes primary migrants have towards Māori in New Zealand, but may influence the attitudes of second generation migrants. This is far from a complete solution, and monitoring attitudes of migrants to Māori, and vice versa, is advisable.

Indoctrination by the education system would seem equally likely to provoke backlashes, and –  of course –  does nothing to deal with the population imbalance issue.  As the final rather limp sentence concedes,  the report hasn’t actually got much to offer on this issue at all.  They go on to conclude

There are also cultural dilution concerns of the Māori community regarding high levels of immigration threatening their unique constitutional position in New Zealand. These areas require attention from policymakers if the current rates of immigration are to be maintained.

But surely if think-tank reports are to be of any real value they need to confront these issues and offer serious solutions, not just kick the issue back to busy and hard-pressed policymakers?

By the time we get to the conclusion of the whole report, things are weaker still

Māori views on immigration policy should be welcomed. A more inclusive process is needed to instruct migrants on the key place Māori hold in New Zealand society.

It is both condescending in tone –  both towards Maori and to migrants –  while not actually substantively addressing the real issues, which aren’t just about sensitivity, but about power.

It is difficult not to conclude that in putting the report together the New Zealand Initiative had a strong prior view on the merits of large scale immigration globally, but could do no more than handwaving when it came to an important consideration in thinking about immigration policy and its implication in New Zealand.   Of course, libertarians –  as most of the Initiative people would probably claim to be, or accept description as  –  tend to have little sense of national identity or sub-national cultural identity; their analysis all tends to proceed at the level of the individual.  But most citizens, and voters, don’t share that sort of perspective.

I don’t want to sound like a bleeding heart liberal in writing this, or to suggest a degree of identification with, or interest in, Maori issues and culture which I don’t actually have.  My family have been here since around 1850, but I have no family ties with Maori, whether by blood or by marriage, and am quietly proud of my own Anglo heritage.  In many respects I probably identify more easily with people and cultures in other traditionally Anglo countries than I do with Maori.  But this seems to me a basic issue of fairness, including a recognition that (empirically), there is such a meaningful group as Maori, and that on average they see some –  but far from all – issues differently than non-Maori.  No doubt there is about as much diversity among Maori as there is, say, among Anglo New Zealanders, but the differing identities are meaningful and show up in various places, including in voting behaviour.    And the inescapable point remains that New Zealand is the only long-term home of Maori.

I’m not one for apologising for history, and of course we can’t change history.  But current policies changes the present and especially the future.  Every temperate-climate region in the Americas and Australasia saw indigenous populations swamped in the last few centuries –  between the power of the gun, and the prospects of greater prosperity that superior technology and economic institutions offered.  Compared with, say, Canada, Australia, the United States, and Argentina, Uruguay and Chile, the indigenous population remained a larger share of the total in New Zealand.

This isn’t mostly a post about economics.  It is impossible to do a controlled experiment, but I think there is little doubt that the indigenous populations of all those countries of European settlement are better off economically today than they’d have been without the European migration –  even though in each of those countries indigenous populations tend to underperform other citizens economically.  But, those gains have been made, and at what cost have they come in terms of self-determination and control?    It isn’t easy for members of majority populations to appreciate what it must mean for a group to have become a disempowered minority in their own land.  For some it is probably not an issue at all, for others perhaps it is of prime importance, for most perhaps somewhere in between, important at some times and on some issues, and not important at all on others.

If there were demonstrably large economic gains now, to existing New Zealanders, from continued (or increased) large scale immigration there might be some hard choices to make.  Perhaps many Maori might even accept a further diminution of their relative position, as the price of much greater prosperty.   But there is simply no evidence of such economic gains –  whether in the New Zealand Initiative report or in other analysis of the New Zealand position.     If so, why should we ask of –  or simply impose on (we don’t have a federal system, with blocking power to minorities) –  Maori New Zealanders a continuing rapid undermining of their relative position in the population, and in voting influence in New Zealand?

Much of this comes to, as in many ways it always has, fairly crude power politics.  But the quality of a democracy should be judged in significant part by how it protects, and provides vehicles for the representation of the interests of, minorities.  A minority population, that was once the entire population of New Zealand, seems to have a reasonable claim to a particular interest in that regard.  Advocates of large scale immigration to New Zealand –  whether politicians or think tanks or business people-  might reasonably be asked to confront the issue, and our history, more directly.

 

 

New Zealand Initiative on immigration: Part 1: The place of Maori

Michael Reddell Immigration, New Zealand Initiative, Uncategorized

(This is not a new post.  It simply lifts the New Zealand Initiative focused material from a post I wrote on 7 February on Maori and immigration, so that all my comments on the Initiative report are in this numbered series, and are thus able to be tracked down –  including by me – in future.)

Last week, the New Zealand Initiative released their advocacy report, making the case for continued – or perhaps even increased –  high levels of non-citizen immigration.  It is an unsatisfactory report in several respects –  for example, the subtitle “Why migrants make good kiwis” seems to rather deliberately(?) miss the point that should guide policy; do migrants make existing New Zealanders better off –  and I’ll have quite a bit to say about various aspects of it over the next week or two.    But today I just wanted to focus on the treatment of the Maori dimension.

As the report notes

Many Maori too are concerned about immigration, seeing it as a threat to their unique position as the first people to settle in New Zealand

and

The Election Survey reveals that Māori are significantly less favourable towards immigration than other New Zealanders, and Māori are significantly more likely to want reduced immigration numbers. They are also less likely to think immigration is good for the economy, and more likely to see immigration as a threat. This finding remains even after controlling for age, religion, marital status, home ownership, household income, education, gender, and survey year.

The authors note

This is clearly a concern for New Zealand, where Māori and the Treaty of Waitangi occupy a special cultural and constitutional role in society and national identity. Given the low barriers to obtaining voting rights in New Zealand, there may be a fear that allowing migrants to express these views at the ballot box would dilute Māoridom’s special standing.

That is all fine, but what sort of response do they propose?

The range of policy responses to this problem are fairly limited. Cultural education programmes for migrants may sound appealing, but it is unclear how successful they would be in changing views. Some migrants may simply see it as a tick box exercise to be endured to gain entry into the country, and may not have the intended effect on
migrant attitudes towards Māori and their place in New Zealand.

Indeed, and even if it it had the “intended effect” that wouldn’t alter the inevitable shift in the population balance.  Maori –  like others –  might reasonably be assumed to want power/influence, not just understanding or consideration.

We have also considered a values statement, such as the one used in Australia. All visitors to the country are required to sign this document, affirming to abide by Australia’s largely Western values. Although this idea is appealing, it has two main weaknesses. First, New Zealand has yet to formally define its cultural values. Unlike Australia, or many other nation states, New Zealand does not have a single constitutional document. Instead, New Zealand’s constitutional laws are found in numerous documents, including the Constitution Act 1986, the Treaty of Waitangi, the Acts of Parliament, and so on. This allows the nation state of New Zealand to function, but does little to define what it is to be a New Zealander, and what set of national values need be upheld. Until this is done, it would be difficult to craft a robust and useful values statement. Even if it were possible, without constitutional protection, it would be subject to change according to political whim. Second, any values statement would still suffer from the pro forma weakness that a cultural education programme is subject to.

I don’t disagree that a “values statement” isn’t the answer, partly because in a bi-cultural nation there will be differing values –  things that count, ways of seeing and doing things –  even between the two cultures.    But they go on.

A partial answer to this problem may be to shift the burden from the immigration system to the education system. The national curriculum, which acts as a reference guide for schools in New Zealand, places significant emphasis on learning Te Reo and the cultural practices of Māori.   This may do little to address concerns about the attitudes primary migrants have towards Māori in New Zealand, but may influence the attitudes of second generation migrants. This is far from a complete solution, and monitoring attitudes of migrants to Māori, and vice versa, is advisable.

Indoctrination by the education system would seem equally likely to provoke backlashes, and –  of course –  does nothing to deal with the population imbalance issue.  As the final rather limp sentence concedes,  the report hasn’t actually got much to offer on this issue at all.  They go on to conclude

There are also cultural dilution concerns of the Māori community regarding high levels of immigration threatening their unique constitutional position in New Zealand. These areas require attention from policymakers if the current rates of immigration are to be maintained.

But surely if think-tank reports are to be of any real value they need to confront these issues and offer serious solutions, not just kick the issue back to busy and hard-pressed policymakers?

By the time we get to the conclusion of the whole report, things are weaker still

Māori views on immigration policy should be welcomed. A more inclusive process is needed to instruct migrants on the key place Māori hold in New Zealand society.

It is both condescending in tone –  both towards Maori and to migrants –  while not actually substantively addressing the real issues, which aren’t just about sensitivity, but about power.

It is difficult not to conclude that in putting the report together the New Zealand Initiative had a strong prior view on the merits of large scale immigration globally, but could do no more than handwaving when it came to an important consideration in thinking about immigration policy and its implication in New Zealand.   Of course, libertarians –  as most of the Initiative people would probably claim to be, or accept description as  –  tend to have little sense of national identity or sub-national cultural identity; their analysis all tends to proceed at the level of the individual.  But most citizens, and voters, don’t share that sort of perspective.

I don’t want to sound like a bleeding heart liberal in writing this, or to suggest a degree of identification with, or interest in, Maori issues and culture which I don’t actually have.  My family have been here since around 1850, but I have no family ties with Maori, whether by blood or by marriage, and am quietly proud of my own Anglo heritage.  In many respects I probably identify more easily with people and cultures in other traditionally Anglo countries than I do with Maori.  But this seems to me a basic issue of fairness, including a recognition that (empirically), there is such a meaningful group as Maori, and that on average they see some –  but far from all – issues differently than non-Maori.  No doubt there is about as much diversity among Maori as there is, say, among Anglo New Zealanders, but the differing identities are meaningful and show up in various places, including in voting behaviour.    And the inescapable point remains that New Zealand is the only long-term home of Maori.

I’m not one for apologising for history, and of course we can’t change history.  But current policies changes the present and especially the future.  Every temperate-climate region in the Americas and Australasia saw indigenous populations swamped in the last few centuries –  between the power of the gun, and the prospects of greater prosperity that superior technology and economic institutions offered.  Compared with, say, Canada, Australia, the United States, and Argentina, Uruguay and Chile, the indigenous population remained a larger share of the total in New Zealand.

This isn’t mostly a post about economics.  It is impossible to do a controlled experiment, but I think there is little doubt that the indigenous populations of all those countries of European settlement are better off economically today than they’d have been without the European migration –  even though in each of those countries indigenous populations tend to underperform other citizens economically.  But, those gains have been made, and at what cost have they come in terms of self-determination and control?    It isn’t easy for members of majority populations to appreciate what it must mean for a group to have become a disempowered minority in their own land.  For some it is probably not an issue at all, for others perhaps it is of prime importance, for most perhaps somewhere in between, important at some times and on some issues, and not important at all on others.

If there were demonstrably large economic gains now, to existing New Zealanders, from continued (or increased) large scale immigration there might be some hard choices to make.  Perhaps many Maori might even accept a further diminution of their relative position, as the price of much greater prosperty.   But there is simply no evidence of such economic gains –  whether in the New Zealand Initiative report or in other analysis of the New Zealand position.     If so, why should we ask of –  or simply impose on (we don’t have a federal system, with blocking power to minorities) –  Maori New Zealanders a continuing rapid undermining of their relative position in the population, and in voting influence in New Zealand?

Much of this comes to, as in many ways it always has, fairly crude power politics.  But the quality of a democracy should be judged in significant part by how it protects, and provides vehicles for the representation of the interests of, minorities.  A minority population, that was once the entire population of New Zealand, seems to have a reasonable claim to a particular interest in that regard.  Advocates of large scale immigration to New Zealand –  whether politicians or think tanks or business people-  might reasonably be asked to confront the issue, and our history, more directly.

 

Towards a new Reserve Bank Governor

Michael Reddell Governance, Uncategorized

The Prime Minister confirmed the other day that this year’s General Election will be held on 23 September.  The Governor of the Reserve Bank’s five year term expires on 25 September, the Monday after the election.  That is a far from ideal situation.

Graeme Wheeler is widely expected to confirm in the next few days (what he already apparently told some staff last year) that he won’t be seeking a second term.  Comments from the Minister of Finance the other day more or less confirmed it –  if he was going to have a second term there would typically be an announcement of the reappointment by the Minister himself, not a statement from the Governor.

But although the Governor’s likely departure adds a bit more colour, the issue I want to focus on here would be relevant whether or not the Governor was seeking reappointment.

There is no provision in the Reserve Bank Act for an acting Governor, other than to (at most) complete the term of a Governor who leaves early (thus, Rod Carr was appointed acting Governor for a time in 2002 when Don Brash resigned with immediate effect to go into politics).   If a Governor is to be in place on 26 September, the appointment will have to have been made before the election.    There are various practical reasons for that, some obvious and some less so.  Anyone appointed from outside the Bank would have to give notice from a current position, and before anyone can be formally appointed that person has to agree a Policy Targets Agreement with the Minister of Finance.  That simply isn’t going to happen on the Monday morning after the election.

And so an appointment must be made by the Minister of Finance in the current government, to take up a position three days after an election in which there could be a change of government.  The office of Governor cannot be left vacant for a few weeks –  since all powers in the Bank (including crisis response powers) are vested in the Governor.    And the Governor, personally, is the single most powerful unelected person in New Zealand –  his/her choices materially influence the short-term performance of the economy (short-term here including horizons of several years), and how the financial system is regulated, which under some models directly impinges on firms’ and households’ access to credit.

None of this might matter if (a) there were a stellar candidate to become the Governor, whom everyone across the political spectrum was happy with, and (b) if the major political parties/groupings had a common approach to monetary policy and financial regulation.   That isn’t so now –  whereas, say, when Don Brash was being reappointed in 1993 and 1998 it was nearer to being true (certainly any differences on monetary policy between National and Labour were of second order importance).   Since the Act came into effect in 1990, twice before a Governor has been appointed in election year. In 1993, the Governor’s new term began several months before the likely election data, and in 2002 the appointment of Alan Bollard was not made until a couple of months after the election.  We haven’t faced this particular set of circumstances previously, and it to my mind the position highlights several deficiencies in the governance provisions of the Reserve Bank Act.

None of this might matter if the things we sought from a Governor could be written down so explicitly that there was little or no room for discretion.  A new government could, of course, insist on a new Policy Targets Agreement, and the new Governor would simply have to go along, no matter what his/her personal sympathies might be.   But as the last five years have illustrated again there is huge scope for discretion even within a typical PTA, and there is nothing akin to the PTA to govern the financial regulatory activities of the Bank.

The situation is rendered even more unsatisfactory by the dominant role of the Reserve Bank Board in the process of appointing the Governor.  If, as is the case in most countries, the Minister of Finance had the lead role in appointing the Governor, an appointment like this –  needing to be made before the election but to take office after the election –  migth appropriately be made in consultation with the Opposition.  It would be inappropriate to install someone quite controversial in an appointment made pre-election.  But under our Reserve Bank Act, the Minister of Finance can only appoint someone the Board has recommended.  The Minister can reject a nominee but can never impose his own.  Minister and Prime Ministers have been known to send messages as to the sort of people they might think appropriate, or even those they wouldn’t accept, but the prerogative to nominate rest with the Board members, who can at times have a rather high view of their role (as is legally appropriate, if perhaps not politically).

This time, there isn’t a serious alignment issue between the Board and the government –  all Board members have been appointed or reappointed by the current government.  But it is easy to imagine a slightly different timing: the Governor’s term expires four months after the election, there is a significant change of government, and the incoming Minister of Finance is left with no choice but to appoint a Governor nominated by a Board appointed entirely by his/her political appointments.   There is, quite simply, a serious democratic deficit.  It is quite extraordinary that the government cannot install as Governor –  the person who will have the biggest policy influence on short-term macro outcomes, with quite limited effective accountability, for the following five years –  someone they are comfortable with.

These problems arise for several reasons.  One is simply that whatever the length of the Governor’s term (unless it was as short as three years) every so often the appointment will be due in election year, and election dates shift around (unlike, say, the US system).  But the other reason this matters here more than most places, is that our system vests so much power –  all of it on monetary policy, and most of it on financial regulation –  in a single individual, the Governor personally.  Hardly any other country (none that I’m aware of –  given that the Bank of Canada doesn’t do financial regulation) does that.  With, say, a five person committee, with one member appointed every year, far less hangs of any single appointment (although the Governor will always remain particularly important).  And the other reason is the (again unusual) New Zealand practice of tying the PTA to the Governor’s appointment/reappointment –  by contrast, in the UK the Chancellor sets the inflation target in each year’s Budget, and in Canada, the PTA-equivalent isn’t renewed when the Governor is appointed, but in the middle of his/her term.

I’ve argued for a long time that all of these issues need to be addressed legislatively.  Doing so would bring the governance of our central bank more into line with (a) international practice, and (b) how we govern other public sector agencies in New Zealand. Sadly, that isn’t going to happen before 26 September –  the current government, at least in public, has been reluctant to admit that there is any room for improvement in the governance model.  And so we are left with the near-certainty of a new Governor being appointed before the election, with a PTA set before the election, and the possibility of material change of government.  It seems unlikely that a National-ACT government wouldd be looking for the same sort of policy or person as, say, a Labour/Greens/NZF government.

There are not any easy answers to this problem –  but a first step would be an open recognition of the issue from the relevant parties (Board, Minister, key Opposition parties).  I’ve argued previously that perhaps the least bad way forward now would be for Graeme Wheeler to accept a reappointment for one year (or even six months).  As regular readers know I’m not one of Graeme’s bigger fans, but it would seem a fairer and more acceptable approach, allowing the longer-term appointment to be made by the incoming government (of whichever stripe) rather than risk an appointment to take effect three days after the election that a new government could have real difficulties with. There don’t appear to be any statutory obstacles to such a solution: new Governors have to be appointed for a five year term, but reappointments can be for any (shorter) term.

It doesn’t seem likely that route will be chosen.  And perhaps the Board/Minister will end up appointing someone fairly acceptable to all parties, but laws exist for hard cases, and this is one of those areas where legislative change is now well overdue.

As for who might become Governor, and what I think the Board should be looking for, that can be covered in a later post.   And as some people have asked, next week –  when perhaps the hyperventilation around Trump will have died down somewhat – I will offer some posts on the New Zealand Initiative’s immigration report.

A dynamic and diversified export sector or “alternative facts”?

Michael Reddell Exports, New Zealand economic performance, NZ politics, Uncategorized

The Prime Minister went to Auckland yesterday, accompanied by his Deputy and his Minister of Finance, to deliver what is popularly billed as a “state of nation” address at the Auckland Rotary Club.   I’m staggered that the Prime Minister could give such an address in Auckland and not once mention that house price debacle that his government, and the previous Labour government, have presided over, and done little to address.

But the bit of the speech that caught my eye was this

I’m proud that on the other side of the globe from the European capitals I visited a few weeks ago, New Zealanders have built a cohesive and globally competitive country that can provide valuable lessons to the rest of the world.

In recent years, New Zealand has dealt with the biggest financial crisis since the Great Depression, we’ve dealt with devastating earthquakes and we’ve made significant progress on deep-seated social and Treaty issues.

We now have a dynamic and diversified export sector,

In particular the suggestion that we have “built a globally competitive country” and as a result we “now have a dynamic and diversified export sector”.  (I wasn’t too sure about the “valuable lessons” we can apparently offer to the rest of the world, but I’ll leave that aside for now.)

Statistics New Zealand typically advise that the best way to look at longer-term trends in components of the national accounts is to use ratios of the various nominal series.    Doing so avoids deflator problems, and also recognises that prices –  earned and paid –  matter.   Here is the chart showing exports –  and imports –  as a share of GDP.

exports-and-imports-over-gdp

Exports as a share of GDP are now below where they were when the Prime Minister was Minister of Finance/Treasurer in the last days of the Shipley government in the 1990s (and lower than at any time since then, under Labour or National governments).

In a thriving, globally competitive, economy one would more normally expect to see both exports and imports trending upwards as a share of GDP.  For small countries that is even more important than large countries.

Out of curiosity I did dig out the data on export and import volumes and how they’ve grown relative to GDP.  Here is the chart for the last decade.

x-and-m-volumes

Export volumes have certainly increased a little faster than real GDP has, and import volumes more so.  But if the value of what we sell to the world (and then buy from it) hasn’t increased as a share of GDP, it doesn’t look like a particularly impressive story.

And finally, here is the chart I run every so often, showing an estimate of GDP broken down between the tradables sector (primary plus manufacturing plus export of services) and the non-tradable sector (the rest).  And I’ve presented both series in real per capita terms.  It isn’t a perfect proxy by any means, but it tries to get at the idea that domestic production for domestic consumption –  especially in the manufacturing sector – is often exposed to global competition too.

t-and-nt-gdp-feb-17

In real per capita terms, this estimate of tradables sector GDP hasn’t grown in more than 15 years.  The current estimated level is lower than the average for the 2000 to 2007 pre-recession period.

The evidence for this economy being globally competitive is slim at best.  There are no doubt plenty of individual firms doing well, but it doesn’t add up to much, especially as the starting point –  the initial share of exports (or export value-added) in our economy –  was already so low for a country our size.

In part, firms seeking to export –  or produce locally in competition with imports –  have been battling uphill.  The TWI measure of the exchange rate is around 79 this morning –  on the Reserve Bank’s real exchange rate measure only around 5 per cent off the post-float peak.    High real exchange rates can be a welcome thing, when they result from rapid productivity growth and the growing success of New Zealand firms in international markets. The high exchange rate rate then helps share the gains around.  But that simply isn’t –  and hasn’t for a long time –  been the New Zealand story.

I’m not entirely sure why politicians come out and say this sort of stuff (“globally competitive”, “dynamic and diversified export sector”).  It is particularly sad coming from the Prime Minister, who in his early years as Minister of Finance used to make exactly the sorts of points I’ve made in this post in speeches up and down the country: he was particularly fond of a version of the tradables/non-tradables chart.  And the government has long had as one of its targets a material increase in the share of exports in GDP, suggesting that they knew there was something not quite right about New Zealand’s economic performance.

But now, almost nine years in, they seem reduced to simply making up lines like these, that perhaps might feel or sound good, so long as no one actually looks into them.  Doing so discredits the speaker, and perhaps as importantly it further cheapens and debases political dialogue and debate.  Bill English should be better than that.

Peter Thiel and New Zealand citizenship

Michael Reddell Uncategorized

I offered a few initial thoughts the other day on the government’s decision in 2011 to grant citizenship to Peter Thiel.  The Department of Internal Affairs has now released large chunks of the material they hold on the Thiel case, although the minister at the time, Nathan Guy, remains unwilling to answer any serious questions on his exercise of discretion.  Unfortunately that refusal makes it look as though he has something to hide, which he probably doesn’t.

I remain uneasy about this specific exercise of the discretionary powers Parliament gave to the Minister, and perhaps more so about the provisions themselves and how they are being operated.  Having said that, it is far from the worst decision the current government has made in its time in office, and far from being the worst immigration/citizenship decision in recent times either –  the Labour Party’s continued refusal (as recently as on Morning Report this morning) to apologise for granting citizenship to Bill Liu, directly against the advice of officials counts as rather worse in my view.

I’d even grant Eric Crampton’s argument that of all the half-baked interventions governments like to do to help business, ones like this might be less costly than most.  But that isn’t really the point.  I think the issue should really turn on what it means to be a citizen.   Supporters of having granted citizenship to Thiel seem to see it as little more than a piece of paper –  cheap to issue, signifying little, and if a decent chap whom they like would like one of those pieces of paper, why not just give it to him.

But among the papers in the DIA release was material from Thiel’s lawyers that seemed to better capture what I think of when I think of citizenship.  I can’t now find the specific page again, but it was along the lines of Thiel recognising that “citizenship is irrevocable” [which it isn’t] and that it “signified a hallowed bond”.   The language was perhaps a little too sacramental even for me –  reminiscent of a liturgical description of a wedding ring –  but it seemed to capture something quite important.  Citizenship is expressive of a bond that has already formed, and  – when actively sought and assumed – of a commitment to continuing to foster and strengthen that bond.   We can’t easily look into the hearts and souls of men and women, and so our citizenship law relies largely on behavioural evidence, and particularly continued residence, and an affirmed attention to remain resident.

[UPDATE: I’ve now found the quote from the lawyers’ letter:   ‘Mr Thiel has advised that “citizenship is irrevocable.  It is the public recognition of a hallowed bond.  For that reason and others he is prepared to make this solemn allegiance and to thereby embrace and contribute to the life, history, and culture of New Zealand.”‘]

And yet we learn from the documents DIA released yesterday that Peter Thiel had been to New Zealand just four times prior to the grant of citizenship, had never lived here, and had no intention of living here.  He was apparently enamoured of various things about New Zealand –  some mix of landscape, character, government and business environment perhaps – and even declared that he had never found a country that accorded with his values etc as much as New Zealand did.

“I am happy to say categorically that I have found no other country that aligns more with my view of the future than New Zealand,”

Perhaps, but the most serious evidence that all that was true might have been taking up residence here, or even expressing some serious intention of doing so in future.  But Thiel and his lawyers were quite upfront about that: there was no such intention.

What remains unclear is what Thiel thought was in it for him in seeking to become a citizen.  Regrettably, he has been unwilling to answer media questions on that, or other aspects of the citizenship grant.  Such reluctance to front up isn’t really the New Zealand –  or American –  way, but perhaps fronting up to explain his deep and abiding commitment to New Zealand and all it stands for might undermine his domestic political/diplomatic aspirations in the US?     The two most obvious advantages to New Zealand citizenship seem to be that New Zealand passports get one into many countries more easily than US passports do –  although it is hard to imagine that is a huge issue for Thiel (who presumably has staff to do the donkey work of applying for visas etc)  –  and the ability to purchase land in New Zealand without (overseas investment) restriction.   Since Thiel has subsequently bought land that would otherwise have been subject to those (daft) restrictions, there is at least a plausible case that that was a significant part of Thiel’s motive.    Then again, a government that would give him citizenship (on the quiet) might just as easily have granted approval to buy the land (although perhaps that wouldn’t have been so quiet).

It is disconcerting that the Department of Internal Affairs shows few signs of having probed motivation, even though it seems a fairly obvious angle to pursue in gaining a complete picture when someone is seeking to have a minister exercise discretion in their favour.   In the released documents, there are statements from Thiel and his lawyers along the lines that if he was granted citizenship he would feel better able or more confident in representing New Zealand interests on the international stage.

“to be able to say he is a Kiwi will let him feel greater ease and confidence in mobilising New Zealand’s talented entrepreneurs.  It will allow him to represent then and their companies on the international stage not only as an investor but also as a fellow countryman. It will highlight the fact that his belief in New Zealand is so strong that he has made the commitment to take up residency and citizenship…”

But in what sense is he “a Kiwi”?  And quite what commitment is involved in taking up (legal) residency and citizenship when (for example) doing so does not even involve living here?   And if in the subsequent six years very few people  –  here or in the US –  were even aware that Thiel was a New Zealand citizen one has to wonder quite what content this statement had even had.

Another line in the documents that caught my eye was Thiel’s argument for why residence shouldn’t be a factor to be considered in his case.

“I appreciate that I would not ordinarily qualify fo a grant of citizenship under such circumstances, but believe I am an exception in that my business travel and range of interests is international and in that regard I believe I am in a similar category to other New Zealanders –  Douglas Myers, Graeme Hart, Chris Liddell are names that come to mind.”

There is, of course, a rather important difference: those three are New Zealanders (probably by birth in each case).  Thiel was not.  No one has a problem with business people travelling.  But his case would have been much stronger –  reasonably compelling –  if he had indicated an intention to take up residence in New Zealand.  But he didn’t.  And why not?  Presumably because, among other factors, the centre of gravity of his business interests is in the United States –  which makes a lot of sense in the industries he is involved in.   There is no substantive sense in which he was, or was about to become, a New Zealander.  But he has a piece of paper.

And it isn’t clear from any of the documents, or any of the subsequent material, what Thiel has done in or for New Zealand interests that he would not have done otherwise.  His investments here are presumably on the basis of looking for a good deal, and bring to the table his own expertise in combination with the domestic ideas.  Plenty of people invest abroad –  and perhaps even sing the praises of those locations –  without becoming (even on the cheap) citizens of those countries.  And, on the other hand, a citizenship that costs nothing is unlikely to be much of a signifier to others in the home country to whom Thiel’s investments and arguments might otherwise provide a lead.  Costly actions can provide valuable signals.  Cheap ones don’t.

It isn’t the worst grant of citizenship ever, but it cheapens what it means to be a New Zealander.  For Thiel it seems to mean little but, possibly, a way around some (daft, but lawful) land purchase restrictions, and some vague association with his image of New Zealand.  There is no commitment.   And it simply shouldn’t be a sufficient basis to obtain citizenship.  If he’d wanted to move here, and stay here, I’d be happy to have him –  there would be more prospect of him adding value to New Zealanders than is the case for most of those who have obtained citizenship in the last 25 years – but citizenship, especially that sought and granted discretionarily, should mean something.  Otherwise, we come perilously close to selling passports, or giving them away to people who happen to take the fancy of the powerful.

It still isn’t clear how many of these extraordinary grants of citizenship there are.  Last week, government sources suggested 200 to 300 a year, but apparently the DIA released documents now say there were only 92 in the last five years.  That seems a more acceptable and understandable number, and allays some of my concerns.  But the process seems weak and insufficiently transparent.  And there is too much risks of future ministers offering citizenship as a bauble to people who take their fancy, or otherwise gain influence with them.   As I noted last week, if there are rare cases where discretionary grants of citizenship are appropriate, lets have it all done openly.   Make any applications a matter of public record, and leave them open for two months, allowing public submissions to be made, and requiring the minister to have regard to those submissions.  Perhaps if that model had been followed, there wouldn’t have been much objection to Peter Thiel –  plenty of people are in the thrall of some vision of a high tech future, and New Zealanders tend to be rather pragmatic, for good and ill.

In the process of looking again at quite how we grant citizenship, perhaps a few other aspects of the process/law might be worth looking at.  Flicking through the DIA website, I found this extraordinary line

You might not get citizenship if you have:

  • ….
  • ever been involved in terrorism
  • ever committed a war crime or crime against humanity.

Now I know the old line about one person’s terrorist being another person’s freedom fighter, but really……why are our ministers and officials ever even considering granting citizenship to anyone who has ever committed a war crime or crime against humanity?