Two faces

In the few weeks since the Financial Times/Newsroom story about Jian Yang broke and, independently, Professor Anne-Marie Brady’s conference paper on the extent of People’s Republic of China influence-seeking activities in New Zealand became available I’ve been doing a bit of reading around the issues. As far as I can tell, overseas experts appear to see Professor Brady’s paper as portraying a situation in New Zealand that is more extreme than (and more successful?), but consistent with the direction of, PRC activities in a range of other countries. Her paper seems to have attracted quite a lot of interest abroad, even as our own politicians (in particular) and media have largely overlooked the apparently serious issues she raises. The approach of successive governments, but perhaps particularly the most recent one, appears to closely resemble “never, ever, say anything to offend Beijing”.

In the course of reading around the issue, I found a couple of interesting papers on the MFAT website. The first, Opening doors to China: New Zealand’s 2015 Vision, was released in 2012. It is currently described as

The NZ Inc China Strategy maps the possibilities for the relationship on a 10-15 year horizon.

The document is totally consistent with the relentlessly upbeat and deferential tone that seems to characterise the New Zealand government’s approach to China. It begins with a Foreword from the then Prime Minister John Key.

With its talk of “centralised plans” it seems strangely apt for China.

The NZ Inc China Strategy is the second in the Government’s series of centralised plans – developed to strengthen our economic, political and security relationships with countries and regions, and to encourage people-to-people links and two-way investment.

He continues, in a paragraph that rather gives the game away.

Our strategy for China starts from an explicit recognition that an excellent political relationship is the foundation upon which everything else must be built. We can’t engage with China just on the trading front – we need to work across all sectors to build the range of links that will enhance our understanding and familiarity with one another.

That isn’t how normal countries, and firms in them, typically operate. Trade is, largely, a firm to firm matter, and governments set overarching standards and (largely) stand back. But not with China: that compliant political relationship really seems to matter.

Even the economics seem shonky, or (deliberately?) naïve.

Knowledge is in fact set to be a key driver of our rapidly growing relationship. Clearly it is a two-way street – we want to work with China to drive forward science and technology linkages, and we want to exploit the fruits of that collaboration to the commercial advantage of both countries.

But China isn’t at the leading-edge of technological innovation – thus, it is still a relatively poor middle income country – and while it has had a strong interest in acquiring western technology, by legal means or otherwise (so much so that research agreements between western universities and Chinese interests are raising increasing concerns), there is considerably less evidence of a “two-way street”.

Key concludes

The New Zealand Inc China strategy articulates the vision of a relationship with China that stimulates New Zealand’s innovation, learning and economic growth.

I won’t blame the New Zealand-China relationship for the lack of any productivity growth at all in New Zealand for the last five years. But perhaps we could just say that the claimed benefits to the wider New Zealand economy are still somewhat hard to identify.

I’m not going to comment on the detail of the rest of the 40-page document, which is full is pretty upbeat stories, and some (no doubt) useful advice to firms considering China. But this snippet did grab my attention, as I suspect it captures the flawed mindset that lies behind so much of our government’s approach to China.

China’s increasing economic success has given it greater influence in regional and international politics. Its prosperity has driven prosperity and stability throughout the Asia-Pacific region.

But that simply isn’t true on either count. Singapore, Taiwan, South Korea and Japan – the advanced countries of east Asia – aren’t rich because of the People’s Republic of China, but because they had their own policies, institutions, and people that equipped them to catch up with the leading economies of the West (something China is still failing to do). As for “stability” well it isn’t my field, but I doubt it is an impression shared by China’s neighbours dealing with its South China Sea expansionism. (I’ll try to do a separate post on the fallaciousness of the proposition that New Zealand’s economic prosperity, wellbeing, or stability depends to any large extent on China, hopefully drawing from some possible historical parallels.)

As is perhaps so often the case, what is missing from the document – the shop-front of the government’s China strategy, whether for firms looking to operate in China, or for citizens interested in evaluating government policy – is as interesting as what is there. There is no mention of how deeply corrupt much of China is, there is no mention of the pervasive controlling role of the Chinese Communist Party (generally regarded as more important than the state itself), and nothing on the absence of the rule of law (which means not the presence of courts, but the willingness to have independent judges apply laws impartially even when it doesn’t suit the authorities). You have to wonder whose interests those omissions serve. Beijing is no doubt happy. Established businesses trying to protect their interests in China may be too. Big China-associated donors to major parties might be.  But this is supposed to be a government of 4.8 million New Zealanders.

The other document I found on the MFAT website suggested that, in fact, at least among some officials there is a rather greater degree of realism about China than politicians seem ever willing to allow. In conjunction with MFAT, the Victoria University Contemporary China Research Centre is conducting five-day “master classes” for public servants. The purpose is described as

To develop a pipeline of China-savvy public sector professionals with global perspective and deep insight into the political, economic, security and cultural dimensions of the New Zealand government’s relationship with China.

It looks like a really interesting course. Among the speakers they have the retired ANU China expert, Geremie Barme, now resident in the Wairarapa, whose post on Professor Brady’s paper I linked to the other day.

Among the themes course participants will be considering are:

• The three Chinas: through the eyes of the Party, its history, and a leading global Sinophile
• What it means to be China savvy – developing a political, economic, security and perspective
• The peculiarities of media in China and the roles that Party and government play in controlling media
• The role the Chinese government takes in the threat of commercial failure to safety of Chinese. people in China and for Chinese outside of China.
• The nuances of building and protecting a brand in China, the Chinese legal system and the cultural nuances when doing business in China
• The profile of the modern Chinese in New Zealand and media influence on Chinese youth abroad.

But if this shows signs of a greater degree of realism, there are clearly limits. In the brochure for next month’s course it states of Day 1.

Scenarios throughout the day cover visiting delegations, the Māori-Chinese relationship, and navigating authorities.

But I also happened to find on-line a brochure for a version of the course run earlier this year. In that brochure it says of day 1.

Scenarios throughout the day cover visiting delegations, being Chinese in New Zealand, corruption issues, and the party-state structure.

Perhaps that was getting just a bit too close for comfort?

Last night I finished re-reading Richard McGregor’s excellent 2010 book The Party. On his final page, there were a couple of telling quotes.

The Chinese communist system is, in many way, rotten, costly, corrupt and often dysfunctional.

And

China has long known something that many in developed countries are only now beginning to grasp, that the Chinese Communist Party and its leaders have never wanted to be the West when they grow up. For the foreseeable future, it looks as though their wish, to bestride the world as a colossus on their own implacable terms, will come true.

That was, of course, written before the ascendancy of Xi Jinping.

Somewhat more immediately, a couple of people last night sent me a link to a new article by Charles Finny, former senior diplomat, and now a partner in the government relations firm Saunders Unsworth (where he describes himself as “making the impossible possible”). For someone who knows a great deal about China, and must surely be well aware of the sort of regime it is, and the nature of its activities, it did remind me of Lewis Carroll.

“Alice laughed. ‘There’s no use trying,’ she said. ‘One can’t believe impossible things.’

I daresay you haven’t had much practice,’ said the Queen. ‘When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.

Finny’s article is headed “Time for NZ political parties to take the migrant vote seriously” (actually I was pretty sure Labour had been doing just that in South Auckland for decades), but his focus is on the ethnic Chinese vote, and Jian Yang.

On the last day of the Westie experience [some years ago] I was introduced to a National Party candidate, Dr Jian Yang. He was teaching in the political science department at the University of Auckland. We talked about his academic background, about what he had done in China before leaving for Australia (where he completed his PhD at ANU), about the China-New Zealand relationship and about the Chinese Embassy and Consulate network in New Zealand.

It was clear Dr Yang was very well-connected to the leadership of the Chinese communities in New Zealand, as well as to the Embassy of the People’s Republic of China and its Auckland Consulate. He also had significant connections in China, both to government figures, and to the business community. This was the first of many meetings I have had with Dr Yang. We have met in his context as a MP, as a member of select committees and at social functions. We have travelled together to China and elsewhere as part of official delegations. It is my understanding that Dr Yang has become one of National’s most successful fundraisers, in much the same way Raymond Huo is important for the Labour Party’s fundraising efforts.

Did they, one wonders, back in 2010/11 discuss Yang’s background in the Communist Party and his teaching role in the Chinese foreign intelligence services?

What is astonishing is that one of New Zealand’s most-experienced China experts is, at least in public, untroubled by any of this: the close connections to a foreign government’s embassy, even as he serves as a member of the New Zealand Parliament, or the key role he describes both Yang, and Labour’s Raymond Huo playing in party fundraising?  Not that many decades ago, the convention – perhaps not always rigorously observed – was that elected politicians stayed well clear of party fundraising efforts, for good reasons to help maintain the integrity of the parliamentary system.

Finny is in full defence mode for Yang (and presumably Huo).

But it was a strange campaign period, with political players employing various strategies. Among the twists and turns, a rather strange and well-coordinated analysis/investigation was undertaken and then reported by Newsroom and the Financial Times about the past of Dr Yang. Subsequent coverage has led to calls for Dr Yang’s resignation.

Now, I have been involved in politics long enough to know that there are few stories of substance to emerge in the middle of an election campaign by coincidence (particularly ones that are so thoroughly researched). This was a story suggested by someone who had an agenda of some sort – and the timing was intentional.

If 10 days before an election isn’t a reasonable time to ask questions about a candidate’s background. I’m not sure when is? And it isn’t as if, to date, anything those media outlets reported has been disproved or refuted?

And Finny has nothing at all to say about Professor Brady’s paper, the timing of which was determined by the dates of an international conference she was presenting at. As he talks up – no doubt correctly – the importance of the migrant vote, surely suggestions that a major foreign power might be actively engaged in attempting to control most of the local Chinese-language media, and Chinese cultural associations, might have been worthy of some mention? These people are, after all, voters in our system, and our system allows new arrivals to vote much sooner than any other democracy.

I’m sure Finny is well aware of all this stuff, and is probably well able to distinguish the stronger bits of Professor Brady’s case from any that might be more questionable, or which might require more evidence to confirm. But nothing, not even a word. Would saying more have queered the pitch in terms of his future professional dealings?

Of course, if so, he isn’t the only one. Those master-classes MFAT is promoting had a number of eminent speakers. Some are current public servants and they, of course, must serve the government of the day. But most weren’t. And, of them all, the only one I’ve seen engage openly on the issues, and potential/actual threats Professor Brady raises, is Geremie Barme. And he’s Australian.

I’ve been critical of much our mainstream media for their lack of ongoing or substantive coverage of either the Jian Yang issue, or the more general influence-seeking activities Professor Brady describes. But you might have supposed that the Chinese-language media would be agog with the stories. In fact, I asked a fluent Chinese speaker about that. That person found that other than in Epoch Times (an anti-communist network of papers – including a NZ version – based in the US, apparently with some Falun Gong connections) there has been little about the Jian Yang story, and nothing at all about Professor Brady’s paper.

As Brady notes

New Zealand’s local Chinese language media platforms (with the exception of the pro-Falungong paper 大纪元/The Epoch Times) now have content cooperation agreements with Xinhua News Service, get their China-related news from Xinhua, and participate in annual media training conferences in China. Some media outlets have also employed senior staff members who are closely connected to the CCP. As part of Xi era efforts to “integrate” the overseas Chinese media with the domestic Chinese media, New Zealand Chinese media organizations are now also under the ‘guidance” of CCP propaganda officials.

The (lack of any) coverage of her paper and its claim would appear to consistent with her story.

And lest there is any doubt about the sort of regime the rest of the world faces in the People’s Republic of China, I thought this Reuters story on internal censorship in the modern age was a good place to end. It tells of a flash private company in China, full of eager young “auditors”, scouring the web for material to delete, anticipating/implementing the Chinese government-Party edicts.  Here, it seems, all too many of our government and opposition politicians, our academic and business elites, and too much of our media seem all too ready to do the same.  Whether it happens through naivete, a misreading of New Zealand’s economic exposure to China, the influence of private business interests, political fundraising opportunities, post-political opportunities, sponsorship deals, access, some combination of these, or whatever, it isn’t what we should accept in a free and democratic society.

 

Splashing the cash at the Reserve Bank?

When the Reserve Bank’s Annual Report turns up in my in-box, the table on remuneration isn’t the first place I turn.  In fact, executive pay more generally isn’t one of those issues I can get terribly excited about.  I thought Jim Rose’s column in the Herald the other day made some good points, although (a) I’m not sure that whether the share price goes up or down when the CEO leaves is really a good indicator of whether the individual was appropriately remunerated or not, (b) none of the defences he deploys really apply with any great force to senior public sector positions.  And there is no market discipline on top public sector salaries, so critical scrutiny  and open questioning actually matters.

But someone emailed me suggesting that the Reserve Bank Annual Report implied that the (now former) Governor, Graeme Wheeler had had a big pay rise.  And that did interest me, because outside the halls of the Reserve Bank Board it isn’t clear who would have thought that Wheeler had done something even approaching a stellar job as Governor.

Wheeler started at the Bank in September 2012, so we can’t get a read on his initial salary in the (June year) 2012/13 accounts.   But there are four years of annual reports when he will clearly have been the top earner in the Bank.    The relevant tables show the top earner received as follows during these financial years:

2013/14 620000 to 629999
2014/15 640000 to 649999
2015/16 660000 to 669999
2016/17 850000 to 859999

That is some jump.  But there is a footnote on this year’s numbers, stating that “the highest remuneration band includes a payment of $101000 for accrued annual leave, which was paid out in cash rather than taking leave”.  (That must be about two months of unused leave, for someone in the job  – at a time of no crises – less than five years, which itself doesn’t suggest particularly good management.)

But even if we subtract the $101000, we are left with figures suggesting that Graeme Wheeler got a payrise of around $90000 between 2015/2016 and 2016/17.  In fact, it was quite possibly more than that, because he personally may well have been reviewed on the anniversary of his appointment, in September (and if so the 2016/17 numbers may include only around three-quarters of his big annual increase).

So how do his cumulative pay increases compare against either CPI inflation or general wage inflation (I use the analytical unadjusted series, which is materially higher than the QES recently)?  There has, of course, been no productivity growth in New Zealand over the term Wheeler was in office.

wheeler salaries

It is a pretty astonishing boost.  Perhaps not a great problem for somone doing a stellar job but this was someone who:

  • had consistently seen inflation undershoot the target midpoint, that he’d specifically agreed to focus on, for five years,
  • who never, ever, admitted a mistake (surely not his advice to his own young managers?)
  • had repeated communications problems with financial markets,
  • whose speeches rarely offered much in-depth insight, and whose defences of successive waves of new regulatory interventions never seemed robustly grounded.
  • whose embattled relationship with the media was epitomised in his refusal to ever expose himself to a serious  and searching one-on-one interview (or indeed any interviews with outlets not already supportive of the Governor).

Oh, and then late in the 2015/16 year, there was the OCR leak debacle which among other serious failings, involved the Governor publicly tarring as irresponsible the person (yes that was me) who drew to the Bank’s attention evidence of the apparent leak.

This year, of course, (but no doubt well after Wheeler got his last pay rise) there was the still-more-shameful episode, in which Wheeler sought personally (and used his senior managers to reinforce his efforts) to silence a pesky critic, who happened to work for an organisation the Reserve Bank regulates.  And on that note his tenure ended badly, and largely unlamented.

So what were they thinking when they gave such a big pay rise to someone with such a mediocre (at best) track record, who was hardly like to walk out on them if he didn’t get the increase?  And who was “they”?

Well, on this occasion, it wasn’t the Bank’s Board.  The Reserve Bank Act is quite clear that

The conditions of employment of the Governor, including remuneration, shall be determined by agreement between the Minister and the Governor after consultation with the Board

In practice, the Board may well have put a recommendation to the Minister.   But however this idea first got traction –  whether Wheeler pushed for a pay rise, or the Board really did initiate it –  the Minister approved it. That was last year’s Minister of Finance, Bill English.   This was the same minister who went on record pushing back against a big pay rise for another public sector chief executive, Adrian Orr –  but couldn’t actually stop the New Zealand Superannuation Fund’s board putting through the pay rise.    Sceptical as I am of the NZSF, and of its long-term performance, Orr’s case for a big pay rise looks to have been considerably stronger than Wheeler’s.

I can’t imagine why the Minister of Finance approved such an increase, especially against the backdrop of his own evident discontent with the Bank.   I guess he isn’t too busy governing this week, so perhaps some journalist could ask him?

(But it was fortunate for Grant Spencer that Bill English did approve that pay increase.  When the (unlawful) “acting Governor” appointment was announced we were told that Spencer would be paid to mind the store on the same terms and conditions as Wheeler had been receiving.)

PS.  Someone who attended a post-election lunchtime seminar at Victoria University today informs me that Colin James (usually well-connected) stated there that he understood that The Treasury is undertaking a “root and branch” review of the Reserve Bank Act.  If so, that would be most welcome.

 

Immigration policy and emissions targets

I’ve written a few posts in recent months about the connections between our immigration policy – materially boosting our population growth rate – and New Zealand greenhouse gas emissions (eg here and here).  New Zealand is unusual because, as the Ministry for the Environment (MfE) has highlighted:

• we have a fairly high rate of trend population growth,
• a large chunk of our emissions are from animals, and
• much of our power has long been generated from renewable sources.

I’ve also written here about Official Information Act requests to MfE (responsible for climate change policy advice) and MBIE (responsible for immigration policy advice). It turned out that neither ministry had given any thought at all, or done any work on, possible connections between immigration policy and the economic challenges of emissions reductions target (the MfE response is discussed here).  Perhaps one wouldn’t really expect MBIE to have thought so much about emissions issues, but in MfE the omission looks less excusable, and probably deliberate.

A few months ago, the government asked the Productivity Commission to hold an inquiry into making the transition to a low-emissions economy. In August the Commission published an issues paper, trying to frame the inquiry. That document was notable for almost completely ignoring the possible population/immigration dimension. But they were inviting submissions, and so this morning I lodged mine.

Rather than attempt to excerpt, or summarise, the relatively short submission I’ve reproduced the whole thing below. It does have the feel of the sort of issue where there should be some common ground discoverable between New Zealand First (with concerns about immigration) and Labour and the Greens (proposing more ambitious emissions targets). But, equally, for the National Party it should also be something they take seriously. After all, as I note in the submission, in pursuing an emissions reduction target the goal should not be to don a hair-shirt and deliberately “feel the pain”, but to make the adjustment in a way that has as little cost to the future material living standards of New Zealanders as possible.

Submission to the Productivity Commission inquiry on a possible transition to a low emissions economy

Michael Reddell

29 September 2017 

1.      This submission is in response to the Commission’s issues paper on a possible transition to a low emissions economy, released on 9 August 2017.  

2.      My concern is that the issues paper does not touch on at all the role that immigration policy has played in driving up total emissions in New Zealand nor, relatedly, on the role that potential changes in immigration policy could play in offering a lower cost (to New Zealanders, the appropriate standard against which to measure these things) transition to the proposed low emissions economy. 

3.      As the Ministry for the Environment has noted in its most recent annual document on New Zealand’s Greenhouse Gas Inventory, a growing population represents a significant challenge for New Zealand in meeting the emissions targets the government has set (let alone those proposed in the recent election campaign by other political parties).  In fact, the Ministry included population as the first in its list of challenges. 

4.      New Zealand’s population growth has been well above that of the typical advanced country, even though for some decades now our birth rate has been below replacement level, and even though for some decades the net emigration outflow of New Zealanders (at around 0.5 per cent of the population per annum on average) has been very high by international standards.  The difference is accounted for by immigration policy.   Because of our distance from other countries we have near-complete control over who comes to New Zealand and stays.   And we have chosen to bring in numbers of non-citizens each year that, as a proportion of the existing population, are far in excess of what happens in typical advanced economies. 

5.      As is also widely recognised, the marginal abatement costs for reducing emissions are generally quite high in New Zealand.  First, unlike most advanced countries, animal emissions make up almost half our total emissions and, as yet and as I understand it, science does not offer methods to reduce substantially the emissions while keeping the animals (which, in turn, generate much of the export earnings of New Zealand).  In addition, as I understand it, other countries do not yet include agricultural emissions in their regimes to charge for or tax emissions.  And, secondly, much of our power generation already uses renewable (mostly hydro) sources.  

6.      An increasing population has resulted in additional emissions, all else equal, through at least two channels: 

a.      The direct effects of more people needing more transport, more heating, more energy in their workplaces etc, and

b.      The indirect effects, in which a rapidly growing population and a generally lagging export sector has accentuated pressures for increased intensification in agriculture, with associated pushback against attempts to internalise the effects of environmental externalities (whether water pollution or methane emissions).  With fewer people, it seems quite plausible that we’d have had fewer cows. 

7.      Because the marginal abatement costs of conventional approaches are generally accepted to be particularly high in New Zealand, it is even more important that in undertaking its inquiry, the Commission should be willing to examine the role of immigration policy.  As Official Information Act requests to MfE (responsible for climate change policy advice) MBIE (responsible for immigration policy advice) have shown, core government departments appear to have done nothing at all to look at the possible connections.  There may have been ministerial political constraints on the freedom of either ministry to do so.   Those sensitivities should not hold back the Commission –  a more independent agency – from seriously considering the connection. (In that light, I found it disconcerting that there was no material reference to the topic in your issues paper). 

8.       The argument for using immigration policy as a potential instrument in meeting emissions reduction objectives would not be strong if there were clear and material economic benefits to New Zealanders from the high target rate of non-citizen immigration (the centrepiece of which is the 45000 per annum residence approvals “target”).    But those possible gains –  most notably perhaps a lift in labour or multi-factor productivity – cannot simply be taken for granted in New Zealand.     Despite claims from various lobby groups that the economic gains (to natives) of immigration are clear in the economics literature, little empirical research specific to New Zealand has been undertaken, and there is good reason –  notably our remoteness –  to leave open the possibility that any gains from immigration may be much smaller here than they might be in, say, a country closer to the global centres of economic activity, whether in Europe, Asia, or North America.    Even many of those who are broadly supportive of New Zealand’s past approach to immigration policy will now acknowledge (a) that the New Zealand specific literature is quite limited, and (b) that any gains to New Zealanders may be quite small.  Your staff are, I know, well aware of my alternative approach which interprets modern New Zealand economic history as suggesting that high rates of non-citizen immigration have held back our productivity performance (i.e. come at a net economic cost to New Zealanders).  I would be happy to discuss those issues with you further. 

9.      The overlay of an official emissions reduction target –  a new factor –  adds a new dimension to how best to think about immigration policy.  Even if immigration policy, on its own, was slightly beneficial, in economic terms, to New Zealanders, those assessments need to be redone in the light of the constraints posed by the emissions reduction targets.  In an economy with low marginal abatement costs through conventional price/tax instruments, the effect of any such reconsideration might be small. But in New Zealand, where all informed observers recognise that the marginal abatement costs are large through conventional means, it might well be that a lower immigration target would represent one of the most cost-effective ways to reduce total New Zealand emissions.  And as our emissions reduction target is quite similar to those of a number of other countries that have much lower population growth rates, there would be no serious basis for others to suggest that pulling back our immigration targets, to something more conventional among advanced countries, was in some sense free-riding or engaging in a “beggar thy neighbour” approach to the emissions issue.  New Zealand simply isn’t a cost-effective location to reduce emissions, but having taken on the commitment to a reduction, it doesn’t make much sense to create a rod for our own back by continuing to use policy to drive up the population, thus forcing reliance on even more costly alternative abatement instruments.   

10.   All else equal, lowering expected annual population growth rates by, say, half a percentage point (by, for example, lowering the residence approvals target from 45000 to around 15000 per annum –  in per capita terms, still about as liberal as the current US approach) would make a material difference to the projected path of greenhouse gas emissions.  Over 20 years, all else equal, the population would be 10.5 per cent lower than otherwise.  Direct emissions would, accordingly be considerably lower than otherwise projected, and the inevitable pressures to do little or nothing about agricultural emissions would be eased.   The national benefit/cost ratios look likely to be considerable higher if a lower immigration target was added into the mix of instrument used to meet the commitments the government has made.  At very least, I would urge you to think hard about, and undertake modelling as appropriate, to evaluate that possibility.  Doing so might not be easy.  There probably won’t be off-the-shelf modelling exercises from other countries you can simply look to. But in a sense that is the point of this submission.  The issues facing New Zealand in meeting emissions reduction objectives are different from those facing many other countries and we need analysis that takes specific accounts of the issues, options, and constraints that New Zealand itself faces. 

11.   In conclusion, I would urge the Commission to take much more seriously (than was evident in the issues paper) the role that rapid immigration policy led population growth has played in explaining the growth in New Zealand emissions since 1990, and the possible role that modifications to our immigration policy could play in facilitating a reduction in emissions, consistent with current or possible alternative official targets.   No doubt technological advances will offer options for relatively painlessly reducing emissions to some extent.  But those options will be available to all countries.  As official agencies already recognise, New Zealand faces some specific challenges that are quite different to those other advanced countries will be dealing with.  We make it much harder for ourselves to meet the emissions targets our governments have committed to if we persist with such an unusually large non-citizen immigration programme.    The aim of a successful adjustment to a low-emissions economy is not to don a hair shirt and “feel the pain”.  The aim should be to make the adjustment with as small a net economic cost to New Zealanders – as small a drain on our future material living standards – as possible.  Lowering the immigration target looks like an instrument that needs to be seriously considered if that goal is to be successfully pursued.

 

 

A first unlawful act?

Earlier in the week, Graeme Wheeler completed his term as Governor and left office.  Even in a week with little real news to report, his departure didn’t seem to receive any notice in the media.  Not even the Herald managed an enconium.   Surely his departure must go unlamented almost everywhere, even if, no doubt, the Bank’s Board –  supposedly guardians of the public interest, but in fact guardians of the Governor –  gave him a good dinner on the occasion of their meeting last week?

And now Grant Spencer – erstwhile deputy chief executive – purports to be in charge, as “acting Governor” until a permanent appointment can be made by the incoming Minister of Finance.  I like Grant.  He was my boss in two separate stints spread over many years, and –  in the late 80s –  was a voice of reason and moderation in an age when young hotheads didn’t always welcome such perspectives.   Now that he purports to wield so much untrammelled power –  not just monetary policy, but all the Bank’s regulatory functions –  I’m sure his management skills must also have improved further.  I like to tell the story of the two years, very early in my management career, without any structured performance feedback from him: the only way I could really be confident I must have been doing ok was through the annual pay round, but when he came to deliver that news I was on the phone, so Grant scribbled the number on a piece of paper, dropped it on my desk, and left.  But I’m sure he would be a safe pair of hands, minding the store.

Unfortunately, his purported appointment –  probably sensible in intention if Graeme Wheeler couldn’t have been persuaded to take a temporary extension – is, as I’ve been pointing out for months, probably unlawful.  (If, as a new reader, you are puzzled by that claim, you can read for yourself my thoughts on the summary of Crown Law’s legal advice on the issue.  I still have with the Ombudsman a request for (a summary of) the Reserve Bank’s own lawyer’s advice.)

And if his appointment is unlawful then so, presumably, are all the acts the Bank takes –  or purports to undertake –  under his authority over the next few months.  Including setting the OCR.

Again, that proposition might puzzle you.  Surely even if there was some question over the lawfulness of the appointment of an acting Governor in these circumstances, there would be no question of the lawfulness of the Bank’s actions?  I had a look at the legislation a few months ago.

Does it all matter?    Sometimes laws contain provisions stating that any problems in the appointment of an officeholder, or doubts about the validity of the appointment, don’t affect the validity of enforceability of the actions/decisions taken by that person.

In fact, the Reserve Bank Act has one of those provisions.    For the Board.  Under section 54(4)

The validity of any act of the Board is not affected by—

(a) any vacancy in its membership; or
(b) any defect in the appointment of a director; or
(c) the fact that any non-executive director is disqualified from appointment under section 58

But there is simply nothing comparable for the Governor.    Curiously, there is protection for the Deputy Chief Executive when exercising delegated authority from the Governor.   Under section 51 

The fact that the Deputy Chief Executive exercises any powers or functions of the Governor shall be conclusive proof of the authority to do so, and no person shall be concerned to inquire whether the occasion for doing so has arisen or has ceased.

But there is nothing like it for the Governor, or any acting Governor.  There is simply a requirement on the Board and the Minister to make a proper appointment, and to have that person in place once the previous Governor’s term ends (and presumably an expectation that Governor appointments are sufficiently high profile, and as all powers of the Bank rest with the Governor, no questions should ever arise about the authority of the Governor him or her self to make decisions.

(Again, it is perhaps worth noting that there are also no such protections in the 1964 Act – the one in place when the 1989 Act was being drafted.  The drafters presumably made conscious choices about what to add and what not to.)

If the appointment of Spencer as acting Governor is unlawful, it looks as though any actions taken by him –  or under his (purported) delegations during his term –  would also be unlawful.

Perhaps it won’t matter very much.  Few people expect the OCR to be changed in the next six months, and if so perhaps they could argue that successive OCR decisions aren’t actions but inactions –  just leaving things as Wheeler left them.

But the Reserve Bank does lots of other stuff.   They commit to commercial contracts, they deal in New Zealand in international markets.  They take enforcement actions against financial institutions that fall foul of the law, or of the Bank’s rules.  And so on.  In a crises, they (the Governor) has substantial regulatory powers.

The situation should never have been allowed to arise.  As I’ve noted for months, it was easily avoidable, with a simple temporary change to the Reserve Bank Act (which there is no obvious reason for the Opposition parties to have opposed –  either on the substance, or as regards Spencer personally, whom everyone regards as a decent and honourable person).   But now we have an unlawful appointment, and Spencer purporting to exercise the powers of (acting) Governor.

But what of the OCR press release –  which, as pure commentary, I suppose Spencer is free to issue?  It probably isn’t that sensible to make much of minor differences in wording: in some areas Spencer may just use slightly different hobbyhorse phrasing than Wheeler would have.  But no one sees it as a material departure from last Wheeler statement, even if (perhaps) the confidence in the growth outlook might be fading.  As for what it might mean for actual (or purported) OCR setting, not much.  After all, it is quite plausible that a new Minister of Finance and coalition could mean modifications to the Policy Targets Agreement almost straightaway (happened in 1993, 1996, and 1999).  And even if that doesn’t happen, Spencer won’t be there to offer his opinion by the end of March, and no one knows who the new Governor will be, or what mandate he or she will be working towards.

The growth outlook was one of the issues I touched on in my comments on the last Monetary Policy Statement.  Those comments still seem largely valid now –  the June quarter GDP numbers were flattered by big one-off boosts to services exports from the World Masters Games and the Lions tour, and yet still showed growth of only 0.8 per cent.

But perhaps my biggest puzzle is where all the forecast growth is coming from.

Over the next six quarters, the Bank projects that quarterly GDP growth will average just over 0.9 per cent. This chart shows six-quarter moving average of GDP growth (in turn, averaging the production and expenditure measures).

GDP growth qtrly

The orange dot shows the forecast for the next six quarters.  Their projections suggest that the economy will grow more rapidly over the next 18 months than it has managed on a sustained basis at any time in the current recovery.   You might not think that the difference looks large, but:

  • the Bank already recognises that monetary conditions are tighter than they were last year,
  • the Bank is forecasting a substantial reduction in the net migration inflow, and no one seriously doubts that unexpectedly rapid population growth has been the biggest single driver of headline GDP growth in recent years.  However much immigration adds to supply, it adds a lot to demand.

So why are we to expect a sustained growth acceleration from here?   Although it isn’t stated in the document, I hear that the Bank is invoking the expected fiscal stimulus (from promised measures announced in the Budget).  In isolation that might make some sense, but against the projected halving in the net migration inflow and the actual tightening in monetary conditions, it doesn’t really ring true.     If anything, the risk now has to be that over the next 18 months, headline GDP growth averages lower than we’ve seen in the last couple of years.

Whichever parties form the next government, and as I noted last week, it seems likely that government expenditure will be higher than projected.  But it is still difficult to see a growth outlook as relatively buoyant as the Bank projected –  and requires if inflation is to get back to target –  as the most likely outcome.

And the Bank –  and government –  still seem grossly underprepared for the next recession, whenever it comes.

 

Things busy bureaucrats do all day

When I was very young one of the picture books I enjoyed –  favourably reviewed, so I see now, even by the New Yorker – was Richard Scarry’s What do people do all day?  Set in Busytown, there was a pervasive sense of activity and, well, busyness.  I don’t think the book had a separate entry for government policy advisers, but the book came to mind as I reflected on a Treasury guest lecture I went to yesterday.

A recently-retired MBIE official had been invited by Treasury to share her experiences of 10 years in the regional economic development wing of MBIE (or its predecessor the Ministry of Economic Development (MED)), and the title of the lecture was “The Great Cat Muster”.     At the start of the lecture she asked us to observe Chatham House rules, by which she meant that anything she said could be reported, but that she shouldn’t be identified.  I’m not sure why, when the flyer for the presentation is easily accessible on Treasury’s website, but for my purposes the presenter’s name probably isn’t very important.  The worry is that her content epitomised a cast of mind that can too easily pervade official bureaucracies.   As I summed it up last night to another attendee “all that energy and good intention, with so little of an analytical framework and even less evidence”.

We weren’t off to a good start when she briefly ran through her various roles in regional development.  In the first of them she had, apparently, been responsible for the West Coast timber settlement. But, as she noted –  and full marks for candour I suppose –  when the NZIER later rated the policy paper on this issue (as they do for a bunch of participating ministries), it scored the worst rating MED had ever achieved.

But most of her time had been spent on more pro-active government initiatives.  There was something called the Food Innovation Network, work on Maori economic development, and then for the last few years work as part of the flagship Regional Growth Programme.  The presenter was clearly pretty passionate about what she’d been doing and the relationships she’d been building.  There was no shortage of energy or ambition.  And no shortage of central Wellington perspectives either.  There were countless working groups, and charts to illustrate complex networks across central government and between arms of central and regional governments.  Meetings abounded, briefing papers multiplied, Air New Zealand profited from frequent flights, relationships were built, and sometimes the recalcitrant were called into line, or simply bypassed.   At one point, she even celebrated the “fact” that regional governments had mostly simply chosen to ignore an act of Parliament –  for the greater good no doubt.  And as for the private sector, well……..the government had simply had to be involved in the Food Innovation Network because we had to develop our food industries, and add value to our exports, and they had found that the private sector was “terribly unsophisticated”.

We learned about the regional studies that have been conducted in several areas under the auspices of the Regional Growth Programme, itself initially sponsored by three ministers (and their agencies).  Now there are “action plans” sponsored by even more minister and agencies.   One mayor had apparently finally been convinced by wise officials that one particular product did not represent his district’s economic future.

It was all remarkably busy.   I had to sympathise with the senior manager who, she recounted, had asked her of one programme “can you be sure we can contain this?”.  To which her response had been along the lines of “well, no, I can’t.  You’ll just have to trust me”.

But, since this presentation was being held at The Treasury, and MBIE is purportedly an economic agency, a few simple things struck me as missing.    There was little or no sense of any of the myriad ways in which governments and official agencies fail, and sometimes leave things even worse than when they started.  There was nothing at all, even in passing, on what the market failures might have been to justify all this busyness in pursuit of regional economic development.     Hadn’t we been this way before, numerous times (one of my earliest political memories is of Matai)?   And, for all the busyness, what difference had all this regional development promotion activity actually made.   After all, there had been no national productivity growth for the last five years, and although she several times highlighted the idea of boosting export industries, exports as a share of GDP have been falling.

So when question time came I stuck up my hand and asked what the market failures were, and how different things would have been if none of this activity had gone on.

Her response was that the market failure was “information asymmetries”.  It wasn’t at all clear what she thought she meant by that phrase, but she seemed to have in mind some sense that central government knew stuff people in the regions (private sector or government) didn’t.  Public servants had needed to “explain to regions where they fit in the system”.    That just isn’t what any economist means by the sort of information asymmetry that might –  just possibly, under some circumstances –  warrant government intervention.  But then it got even worse.  She declared that she’d come from a family that didn’t rank public servants very highly, but “I’ve come to realise that public servants see things no one else sees”, and can offer a “strategic perspective”.

She overlooked answering the second part of my question, so when other people had asked their questions, I asked again what difference all this regional development promotion activity had actually made.  And there was a brief moment of dawning unease: “I sometimes ask myself that”.  She went on to claim that the effects can’t necessarily be quantified by statistics, and that the gains might take more than a few years to realise, but that if we didn’t “do something” we’d see the eventual effects of that.

What stunned me, in someone invited to give such a public lecture at Treasury, was the lack of any rigour, the lack of any robust framework, around all this effort.  Not that many years ago, we’d have counted on The Treasury to be particular intolerant of such, apparently, woolly enthusiasm (at the taxpayer’s expense).  But no longer?  I’d like to think that somewhere in MBIE or Treasury there is a somewhat more hard-headed assessment and evaluation going on, but….it wasn’t on display yesterday.

(And, as one other sceptical attendee described it to me, most of the other attendees –  I suspect mostly public servants –  appeared to be “lapping it up”. I really hope that assessment is wrong, but there were no other sceptical questions from the floor.)

In a way, perhaps, one of the MBIE staff in the audience summed up, unwittingly, the problem with much of this.  He noted that they have “been focused on the levers we can pull easily”, while ignoring others.  And with, it seems, no hard-headed analysis as to whether levers MBIE can’t pull might be considerably more important than those they can –  I think, most notably, of the real exchange rate.

And what of the regional economies?  How have they been doing?  To have listened to the presentation one might have supposed they were wastelands of poverty and economic failure, remarkably different from the urban centres of Auckland, Wellington and Christchurch.

But the data don’t really seem to back up that sort of story.  Take the unemployment rate for example.  Here is a chart showing the median unemployment rate for the regional council areas other than Auckland, Wellington and Christchurch against the unemployment rate for Auckland.

regional U

For most of the last decade, Auckland’s unemployment rate has been a bit above that in the median non-urban region (even though theory typically predicts that a big urban area will typically have a slightly lower unemployment rate –  skill matching is a bit easier in a deeper market).

Or the same chart for the employment rate.

employment rate regions

For the last 15 years, the employment rate in the median region has typically been a touch higher than that in Auckland.

What about regional GDP? In earlier posts, I’ve pointed out that Auckland has been seriously underperforming relative to the rest of New Zealand: not only is GDP per capita relative to the rest of the country low compared to what we see for big cities in typical advanced countries, but that margin has been shrinking since 2000.    The flipside of that, of course, is that the non-Auckland bits of the country have been doing okay on this measure (not absolutely –  New Zealand’s overall productivity record is poor –  but better than Auckland).

This chart shows the GDP per capita of the median non-urban region relative to GDP per capita in Auckland (I could have used the median of the three big urban areas, but in every single year Auckland was the median).

regional GDP regions vs akld.png

In the last couple of years –  for which SNZ still label the data provisional –  the median region has lost a bit of ground relative to Auckland (big building booms to accommodate population surges tend to do that), but (a) over the last decade the regions have lost no ground, and (b) over the full period since 2000 they’ve made quite a bit of ground on Auckland.

There just doesn’t seem to be much in the data to warrant government regional economic development programmes, even if one believed –  as I don’t – that such programmes might make any material useful difference to economic outcomes.   Markets work when governments let them, and governments are better advised to focus on getting the overall parameters of economic policy set right –  tax rates, regulation, even immigration policy –  and let activity then occur where it will.  The private sector won’t typically or consistently be slow to seize opportunities, and when they get things wrong mostly they are the ones who live with the consequences.  When officials and ministers spend lots of our money on busy programmes signifying much and accomplishing little, then not so much.

Looking through the glossy document MBIE put out (they do those really well), under the auspices of three ministers, it was hard not to conclude that the whole programme had probably been more about being seen to be busy, and shoring up the National vote in the provinces, than about making a material difference to economic performance.

 

 

On the China connections and our democracy

On Saturday, New Zealand voters elected as a member of Parliament Jian Yang, a man who:

  • by his own acknowledgement
    • was formerly a member of the Chinese Communist Party (many experts claim that the way the party works, no one is ever regarded as having left unless they are expelled),
    • was formerly part of the Chinese intelligence services,
    • in seeking New Zealand citizenship did not disclose to New Zealand authorities his past with the intelligence services and their training schools, and apparently regards as an acceptable justification for that omission the wishes of the authorities of the People’s Republic of China (PRC), a country he had left a decade earlier.
  • has apparently never denounced the PRC (party or state) for the manifest evils for which it is responsible domestically, or for its increasingly expansionist and aggressive stance internationally.  He has never indicated any regret at having previously chosen to make himself part of that brutal and repressive system.
  • clear documentary evidence, including photographs, indicates that he clearly remains in the good graces of the PRC authorities, and participates in many PRC- sponsored functions in New Zealand.

Perhaps it was bad enough that Yang was first elected to Parliament in 2011, and again in 2014.   At the time, voters knew none of this.

Perhaps the National Party did?  If so –  and they didn’t care, or think it relevant to voters –  that seems even worse than if they never bothered to do the checking and (as this 2011 article suggests) were simply playing identity politics and wanting an ethnic-Chinese candidate who would, among other things tap the potential donor base.  On that latter note, last week a National Party member and conference delegate recounted to me a past conversation with Peter Goodfellow, National Party president

The President once told me the Chinese are more important than the farms – they don’t complain and they pay up.

But if Jian Yang’s election to Parliament was quite bad enough in 2011 and 2014 –  when voters didn’t know and the National Party either didn’t know either, or knew but didn’t care or think it any concern of ours – it is astonishing this time round.    Of course, he was already on the party list, in a fairly secure spot, when the Financial Times/Newsroom stories broke.   But if he couldn’t by then have been removed from the party list, the National Party leadership could have disowned him and, for example, made clear that they would not accept the vote in Parliament of someone with such a tainted past and apparently close associations with the government/party of an alien power.   If they cared.

As it is, there is no evidence that they do care.   The leader of the National Party seemed to say nothing beyond the simple descriptive statement that Yang was reviewing his citizenship application papers (some of which were released under the Official Information Act late last week).  Yang himself seems to have said little beyond things like “people don’t understand the Chinese system” –  when in fact the problem is that they do (no former public servant in New Zealand, a decade after leaving New Zealand, is going to misrepresent his or her past to the government of another country “because that is what the New Zealand government told us to do”).  And then, of course, we had the Attorney-General, Chris Finlayson –  holder of an office with responsibility for upholding some of the fundamental values of our democratic system –  who, when asked in the closing days of the campaign about the appropriateness of someone with Yang’s track record being a New Zealand member of Parliament, had only the despicable “its all racism, and targeting the entire Chinese community” attempt at distraction to offer in response.   Whatever the faults of the impeccably liberal Financial Times, “racism” isn’t among them.

If you were of a charitable inclination, you might leave open the possibility that there really is some disquiet in the upper reaches of the National Party but….well……it was a close election, and better perhaps just to deal with these things quietly afterwards.  It is pretty openly acknowledged that the government has a policy of never upsetting the PRC government in public.  Perhaps in time Yang will find that “family commitments” or somesuch will mean he regrettably has to leave Parliament, by when the National Party will have smoothed the waters with Beijing and their representatives in New Zealand.   One can but hope, and even if there was some truth to this – wishful – hypothesis, it would still be telling about the enfeebled and compromised state of New Zealand democracy.

(One also sees various comments from smart people along the lines of “why is this an issue. If he was a spy, wouldn’t it be rather too obvious, and in any case there is no evidence that during his time in the intelligence services he, say, committed crimes against humanity?”   To my mind, neither is a remotely relevant issue.  And I’ve not heard anyone suggest Yang is a spy.  But as we’d have regarded it as incredible –  simply not believable or acceptable – to have had an unrepentant former member of the KGB or the GRU, still liaising closely with the Soviet Embassy, as an MP 40 years ago whatever specific role the person had played in that evil empire, so we should regard former Chinese foreign intelligence officials now.  No matter how pleasant they might be individually, or how good an academic they might have been.  Parliament is different.

And if the National Party is particularly culpable here, the Labour Party (as principal opposition party) emerges barely better.  Over the last six years, Yang has sat opposite them in Parliament?.  Didn’t they seek to learn more about the background of MPs of the opposite party, looking to identify points of vulnerability in the governing party?  Isn’t that part of what we should expect from opposition parties.  And since the Financial Times/Newsroom stories broke, the Labour Party leadership have been almost silent –  a week out from an election.  Professor Brady’s paper suggests that the Labour Party has also been somewhat compromised by too close associations with PRC interests, but whatever the reason robust democracy depends on serious scrutiny and challenge from the opposition.  It is –  supposed to be –  an intrinsic part of the system, even if it is not an approach that commands much favour in Beijing.

And then there is the press. Financial Times/Newsroom broke the story.   The local media gave it coverage for one day’s news cycle –  TVNZ even broadcast a call from Beijing-based New Zealand economist, Rodney Jones, calling for Yang to resign.  And both Stuff and the Herald OIA’ed Yang’s citizenship application.  But that was about it.  I’m pretty sure there wasn’t a single editorial about the issue, and no sign of relentless questioning of political party leaders about the issues on the campaign trail.  And the Finlayson attack was neither reported nor followed up.

I’m not sure what to make of the silence?   Some talk about the possible commercial interests of the newspaper owners –  Fairfax signed a deal a year or two back to distribute an occasional China Watch supplement –  but that doesn’t seem terribly persuasive as an explanation.  Among other things, Fairfax papers in Australia have been writing recent stories about PRC attempts at influence in Australia, and their Asia-Pacific editor has highlighted a number of these issues, including the Brady paper and comment on it, on his Twitter feed.  And, of course, it wouldn’t explain the near-complete silence of non-commercial media like Radio New Zealand.   Perhaps there is something in the story that PRC-funded entities assist media outlets with travel to China, and one needs to be careful not to bite the hands that feed?   If so, so compromised, and worse.  So we must hope that isn’t the story either.

Our major media outlets don’t usually seem afraid of taking on the government.  Agree with them or not –  and I didn’t follow the issue closely –  Stuff recently devoted large amounts of resources to serious investigative work around New Zealand involvement’s in Afghanistan.  Health system problems, child poverty, housing, multi-national tax issues have alll seen extensive investigations, and in some cases what amount to “campaigns”.  But not, it seems, either the specific issue of the presence in our Parliament of an Chinese-government affiliated MP, and former member of the Chinese intelligence services.  Or the wider issue Professor Brady has highlighted –  and attracted plenty of positive coverage abroad for –  of the systematic PRC (state/party) efforts to exert influence, both directly and through the Chinese diaspora, in democratic societies.   It seems extraordinary that I can find correspondents from the New York Times, the Financial Times, or Fairfax Australia drawing attention to the Brady paper and the Yang issue, but not most New Zealand media.  Or international China scholars and writers, but few other local academics.   Frankly I’m a bit incredulous.

I also don’t really buy the line that the near-complete silence is explained by fear of being called “racist” –  the initial Stephen Franks interpretation – even if a senior Cabinet minister did go straight to that line of attempted defence.    No serious person thinks that this issue is about Chinese people per se, whether native-born citizens of New Zealand, more recent citizens or residents, or whatever.   China is a big and emerging power.  As the China Daily put it just yesterday, a “lion awakening”, sparking this reaction from one wit.

There have been other emergent big powers previously – the Soviet Union and Germany in just the last 100 years –  whose interests and values were antithetical to our own.  They pursued their interests, and their attempts to do so were threats to us and our interests and values.  China isn’t really any different –  it is just even bigger.

So I can only assume that the silence of the New Zealand media, and most of the political parties, and of the current and former business elites, must reflect something like them having bought into a New Zealand government narrative (established over a long period of time) that we simply mustn’t say anything critical of China, and certainly not openly.  That New Zealand’s best interests are somehow served by accommodating China’s interests and preferences wherever necessary.   In that world, perhaps, someone like Jian Yang is seen as a useful “friend at court”?      It would be a curious stance for the media at least –  after all, their self-image is often one of fearless challenge, speaking the truth to power, asking hard questions other won’t.  But what other explanation makes much sense?

You have to wonder quite what New Zealanders have to fear.   And here perhaps the double-edged sword of trade becomes relevant.  I went and dug out the numbers yesterday for New Zealand’s trade with the Soviet Union in the 1970s.  Our exports to the Soviet Union then made up around 2-3 per cent of our total exports.  By contrast, our exports to China are now around 20 per cent of total exports.

Trade is generally good and mutually beneficial. I’m a free trader, who would prefer to see all our remaining tariffs and trade restrictions removed (they harm us, not other people) and am somewhat sceptical of the various preferential trade agreements our governments have been signing.  But I suspect trade between New Zealand firms and firms in countries where governments have a pretty hands-off approach are rather different than when the trade involves firms (often effectively government/party controlled anyway –  as, say, Sanlu was ) in state with a fairly totalitarian approach to the use of trade as an instrument of heavy-handed foreign policy.

I’m sure New Zealanders benefit from trade with China, and Chinese do too.  That is, in general, the nature of trade.    But if trade access for particular firms –  and their directors and owners –  depends on making nice to a government of a state with values and practices antithetical to those of most New Zealanders then there is an unpriced externality involved.     With the Soviet Union, maintaining moral clarity around the nature of the regime was relatively easy: not that many people in New Zealand, or similar countries, had a strong economic interest in making nice to the Soviet Union.  With China it is different.  We have Fonterra and the milk powder companies.  We have university vice-chancellors and their counterparts in other educational establishments.  And we have tourism industry leaders all looking to their own economic interests –  which aren’t necessarily the same as the interests in New Zealand –  in encouraging people to look the other away, to ignore Chinese abuses, and to aim to ensure that the public never gets too bothered about the actions of the PRC in New Zealand, including among our own fellow citizens who are ethnic Chinese.

There is a view abroad – propounded for example by people at the Contemporary China Research Centre, based at Victoria University – that somehow China is critical to whether or not New Zealand succeeds economically. I found this quote in a recent major report (the bulk of which I want to come back to)

New Zealand’s future is increasingly bound with China’s continued growth and prosperity. Perhaps not inextricably, but certainly the way that China tracks over the next decade and beyond will have a profound impact on whether New Zealand prospers as a nation. Most public and political commentary in New Zealand focusses on the state of the economic relationship. It is hard to overstate its importance
for New Zealand’s prosperity.

That is simply wrong. Nations largely make their own prosperity – or their own failures. Individual firms (and tertiary institutions – several of which take direct funding from the PRC) might be deeply affected by things China’s government could do, but over the medium to longer-term, New Zealand’s fortunes won’t be. As I’ve noted previously, the exports of New Zealand firms to China are (directly) around 5 per cent of our GDP. By contrast, say, Canada’s exports to the US are more than 20 per cent of Canada’s GDP.

There are plenty of countries with much larger direct exposure to China (this chart I found yesterday uses data a few years old, but the general point holds).

ExportstoChinaShareofGDP

South Korea is an interesting example, with a much larger direct trade exposure to China than we do. But that trade exposure is now smaller than it was, because in recent months China has been expressing its extreme displeasure with South Korea, imposing what are in effect economic sanctions in response to South Korea allowing the installation of the THAAD missile defence system. You can read some of the details here.

As it happens, there was a New Zealand column about just this issue on interest.co.nz yesterday, from Victoria University’s professor of business in Asia (a chair sponsored by BNZ, but also by a clutch of government agencies. After discussing the Korea situation he concludes

The THAAD case shows that it is critical to keep an eye on the political alignment between a business’ home country and the host country where it seeks to do business.

Which sort of makes my point. The interests of businesses wanting to trade in a particular country won’t always align well with the interests and values of the home country. That isn’t likely to be much of a problem in trade with the UK or Australia, or Singapore for that matter. It is, as the Koreans have found, with China. The very fact that China operates in the way it is doing with Korea suggests it isn’t the sort of regime our governments and media should be deferring to.

Some people might look at it the other way and say “if they can do it to Korea they can do it to us”. First, South Korea will survive economically, and is proceeding with the THAAD deployment. But, second, South Korea – and the entire situation on the peninsula – is likely to matter a great deal more to China than New Zealand does. It is difficult to imagine severe trade sanctions because New Zealand was willing to have an open and honest debate about whether it is appropriate for someone like Jian Yang to serve in our Parliament, let alone about the way in which the PRC seeks to exert influence and neutralise potential criticism in countries like our own. There is more of that sort of debate already in Australia and Canada. But if, just suppose, they did – to “make an example” perhaps – wouldn’t that be a moment of moral clarity, that brought into sharp relief how a state we constantly defer to operates. There was highflown talk – John Key and Xi Jinping – of a Comprehensive Strategic Partnership with China. We’d never have considered one with the Soviet Union. The PRC is today’s Soviet Union, with many more routes into our system directly than the Soviet Union ever had.

What have we come to?

I was exchanging notes the other day with a very senior journalist in Asia who observed of this state of affairs that “I have found that the more expert in China a person is the more troubling they find all of this”.

On which note, I had an email out of the blue the other day from someone with an unfamiliar name, and when I opened the link he sent me I found it was for something called “The Wairarapa Academy for New Sinology”. I wasn’t quite sure what to make of it, being instinctively sceptical of (yes, prejudiced about) the Wairarapa. But it turns out that an eminent Australian expert on China, Geremie Barme, formerly Director, Australian Centre on China in the World and Chair Professor of Chinese History at Australian National University has retired to the Wairarapa, where he contines to research and write on related issues, and is establishing the (mostly virtual) academy. He has a good new piece out on these issues, which appears to have been quite widely disseminated among China observers abroad. He might be someone New Zealand media could consider talking to. Can any good thing come out of Featherston? Apparently so.

UPDATE (Thurs)
There is a new short commentary by Professor Brady on the PRC-influence issues, and a Newsroom story suggesting that Winston Peters may continue to regard the Jian Yang issues as worth pursuing.

Immigration: numbers and options

On the off chance that anyone thinking about negotiations with New Zealand First might also be considering immigration policy options, I thought it might be time for a refresher on the numbers (as well as yet another dig at MBIE for not making accessible data readily available on a timely basis).  Since much of the accessible data MBIE do release is for June years, for this post I’ll mostly use data for the year to June 2017.

Recall that the headline writers focus on net permanent and long-term migration, calculated from the declared intentions of those (New Zealanders and foreigners) crossing the border.  If you are leaving and expect to be away for at least 12 months, or are a non-resident arriving and expect to be here for at least 12 months, you are in the PLT statistics.   Plans do change, but the new 12/16 data I wrote about a few weeks ago suggests that during the current cycle the PLT numbers have been capturing pretty well not just declared intentions but what actually happened.    In the year to June 2017, a net 72,305 people arrived as PLT migrants.   Just slightly more than that number of non-New Zealand citizens arrived, and 1284 New Zealanders (net) left.

PLT sept 17

As people often stress, a lot of the variance in the net PLT series is typically accounted for by changes in the choices of New Zealanders (net outflows have fluctuated between around 0 and around 40000, and there have been quite big fluctuations –  hard to predict –  every few years).  The choices of New Zealanders are not a matter of immigration policy.

But policy has pretty full control over the number of non-citizens arriving (Australians are allowed in without advance specific approval, although the numbers typically aren’t large).   And sometimes you will see this chart, which uses PLT arrivals data (gross, not net) to show what sort of visa people were on when they crossed the border as PLT arrivals (the “not applicables” are New Zealand and Australian citizens).

PLT arrivals by visa

But this chart doesn’t tell us anything much about immigration policy.  In the year to June 2017, 16711 people arrived on residence visas.  But during that year, MBIE granted 47331 residence visas, the overwhelming proportion to people who were already here (and who typically will have entered first on a student or work visa).  Perhaps it is worth noting, for all the talk of the success of the export education sector, by far the biggest increase in arrivals in recent years (absolute and percentage) has been in people with various types of work visas: around 24000 in the year to June 2012, and around 45000 in the year to June 2017.

If we want to look at immigration itself, it is much better to turn to the administrative data on the numbers of people approved for various classes of visas.  Unfortunately, unless you like playing with spreadsheets with half a million lines, MBIE only produce data annually, for June years, and the data for the year to June 2017 hasn’t yet been released.   Having said that, it doesn’t look as though there will have been big changes when the data do finally emerge.

Here are the numbers for visas granted to new workers under various policies (ie excluding renewals etc).

Number of new workers by policy
2011/12 2012/13 2013/14 2014/15 2015/16
Study to work 9,319 9,131 6,259 9,610 16,097
Essential skills 6,197 6,247 7,885 7,709 8,334
Work to residence 1,653 1,558 1,426 1,483 1,717

and there has been a big increase in the numbers granted working holiday visas

2011/12 2012/13 2013/14 2014/15 2015/16
Working holidays 41,561 47,168 53,131 59,742 63,230

Fortunately, Education New Zealand don’t seem to mind the half million line spreadsheets, and produce a nice monthly product on student visas.   Here is the chart of outstanding valid student visas by class of institution for the last few years.

vsv

Numbers are growing, but in the last year or two there has been quite a switch from private training enterprises (which will have included some of the more questionable institutions/courses) towards universities in particular).

What of residence approvals?  I did download the huge spreadsheet for that subset of the data to get an overview of the 2016/17 numbers.  Here are residence approvals in the last few years.

Number of residence visas approved
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
40,448 38,961 44,008 43,085 52,052 47331

Recall that (a) there is a “planning range” (in effect, a target) for the number of residence approvals granted. That range was 45000 to 50000 per annum, but was cut to 42500 to 47500 late last year.  Actual approvals fluctuate around the target, rather than being mechanically managed to meet it month by month or year by year.  The 2015/16 approvals were high, but the numbers have been cut somewhat in the most recent year.

Recall that most of those getting residence visas were already living here (on work, study, or related visas).

In terms of nationality, in 2015/16 these were the top source countries

China 9,360
India 8,498
United Kingdom 4,934
Philippines 4,614
South Africa 2,970
Fiji 2,230
Samoa 2,156
United States 1,288
South Korea 1,125

I didn’t calculate all the numbers for 2016/17, but the patterns looked pretty similar.

I hadn’t seen this data in the published MBIE summaries, but I was a little surprised to find that among the residence approvals 1937 were for people in a category of

Uncapped Family Sponsored Stream Dependant Child

These aren’t the children of principal applicants who are themselves getting residence visas (as those children are approved with the parents).   Around half of all these “dependent children” were Samoan, and of them 242 were aged 20-29, not typically what one thinks of when one hears of “dependent children”.   I’m not sure how or why such a policy exists, but when I get time I might have a dig around.

So that is the numbers.  Perhaps the key thing to keep in mind is that the residence approvals planning range –  the centrepiece of the immigration programme –  has been pretty stable for a long time (modest cut last year).  Much of the variability in the headline PLT numbers is New Zealanders, and most of the variability in the non-NZ net inflow relates to policy streams other than the residence approvals programme.

Of course, variability is only part of the picture.  The striking thing about the residence approvals programme is its sheer size: equivalent to almost 1 per cent of the population each year, and in per capita terms three times the size of the US “green card” issuance (under both recent administrations).   We have a very large number of legal temporary foreign workers here by international standards, but most of them will eventually go home.  What really marks us out is the size of the residence approvals programme –  bigger per capita than in almost any OECD country, and far bigger than most.   I’ve argued for cutting programme back to, say, 10000 to 15000 per annum (a similar size, per capita, to the US programme.)

As I’ve noted here previously, if one looks at the New Zealand First website there isn’t much specific on immigration policy.   Winston Peters has sometimes talked of lowering the annual inflow to something like 10000 to 15000, but quite what is meant by that hasn’t been clear.  Most naturally he may have wished to suggest a net PLT inflow of around those numbers.  If so, it would have to be treated as an average over time, since annual PLT flows are almost wholly unpredictable (given the variability in the net flow of New Zealanders).

Having said that, one could make some estimates of a trend net outflow of New Zealanders, likely to resume as the Australian labour market improves.   Assume that outflow is 20000 on average over the cycle (a bit less than in the past), and you might lower the residence approvals target to 30000 to 35000 per annum (the net of the two flows on average producing something like a 10000 to 15000 inflow per annum).  That doesn’t sound terribly radical, and frankly there looks to be plenty of room to (a) drop off the lower-skilled portion of the current approvals, while (b) removing the sort of absurd bureaucratic hassles really skilled people (eg the teachers profiled in the Herald the other day) can face.

One of the other, rather general, strands of New Zealand First’s immigration policy is

Ensure that there is effective labour market testing to ensure New Zealanders have first call on New Zealand jobs.

I’m sceptical of the practical means to do this, even if I’m somewhat sympathetic to the concerns that motivate it.  I don’t think bureaucrats should be trying to decide which job is really in excess demand, let alone try to reach Soviet-type judgements on which regions should be favoured, or whether wages for those particular skills should just be left to rise.  But in various recent presentations, I have included an option for reforming the work visas system (in addition to substantially tightening up on student work visas and post-study visas, for those with lower level qualifications)

Institute work visa provisions that are:

a) Capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa), and

b) Subject to a fee, of perhaps $20000 per annum or 20 per cent of the employee’s annual income (whichever is greater).   [To limit risks of exploitation, require the employer to prove that the employee has been paid at least $10000 above the mimimum wage, with no “fees”  allowed to be paid back to the employer or related entities.]

The key element is the second one.  If your firm really needs a highly-skilled person (surgeon, lawyer, CEO or whatever, earning say $200000 or more), and can’t find one on market in New Zealand, the annual fee is unlikely to be prohibitive given the key short-term such a person is like to be playing.   But, equally, there aren’t many of those sorts of people/roles, and many won’t want to stay here forever.  So I’d make it easy to recruit them, but with a strong emphasis (because the visa is non-renewable) on the need to identify a local permanent person.   At the bottom end of the labour market, if the business your firm is doing is really so valuable you can afford the $20000 annual fee on top of the annual salary, that might be a reasonable pointer to serious scarcity.  But it seems unlikely that we’d be granting many visas to lower-end chefs, or dairy workers, or aides in rest homes.  And that would, over time, be a good outcome for New Zealanders.

 

(And MBIE could you please please make the monthly data more easily available in an accessible format, as Statistics New Zealand and other agencies do.)