A near-complete cone of silence

I’d been planning to write a post today about the near-complete cone of silence that seems to have descended over elite New Zealand around the Jian Yang scandal.   That a former member of the Chinese intelligence service, former (perhaps present, if passive) member of the Chinese Communist Party, still in the very good graces of the Chinese authorities –  never, for example, having denounced the oppressive expansionist regime he served –  sits in New Zealand’s Parliament, nominated to again win a seat in Parliament on Saturday, is both astonishing –  at least to those like me who haven’t been close observers of such things –  and reprehensible.   That it seems not to bother anyone in, or close to, power (at least enough to do or say anything) is perhaps even more alarming.  There was a wave of stories in the first 24 hours after the Financial Times/Newsroom stories broke, and then……well, almost nothing.

There has been a lame excuse offered up:  Jane Bowron in the Dominion-Post noted that it was election time and there is lots else to write about.  And actually I more or less buy the line that there aren’t the journalistic resources to do much new digging right now.  But (a) it is election week, when we make choices about the sort of people and parties we want governing us, and (b) how hard can it be to ask, and keep on asking, political leaders of whatever stripe about this story, on the basis of what has already been published, and on what Yang has already acknowledged (years later)?     Report, again and again if necessary, that a key political figure refused to comment, but don’t simply ignore the story.

But then Newsroom this morning had another important story, putting the Yang story in the much wider context of the systematic efforts of the Chinese authorities (state and party), and drawing on a new paper by University of Canterbury politics professor, and expert on China and its ambitions, Anne-Marie Brady.   Her paper Magic Weapons: China’s political influence activities under Xi Jinping  was presented at a conference in the United States a few days ago: the conference title “The corrosion of democracy under China’s global influence”.    What makes it so compelling is that it is a detailed case study of China’s efforts in New Zealand.  It isn’t heavy analysis, but simply nugget after nugget that builds a deeply disquieting picture, and perhaps makes disturbing sense of the cone of silence around Jian Yang.   Every thinking New Zealand should read Brady’s paper.

As she notes early in the paper

New Zealand’s relationship with China is of interest, because the Chinese government regards New Zealand as an exemplar of how it would like its relations to be with other states. In 2013, China’s New Zealand ambassador described the two countries’ relationship as “a model to other Western countries”.

With, one hopes, a degree of hyperbole, she goes on to note (quoting an anonymous source)

And after Premier Li Keqiang visited New Zealand in 2017, a Chinese diplomat favourably compared New Zealand-China relations to the level of closeness China had with Albania in the early 1960s.

She goes on to outline the huge effort China puts in to attempting to manage the Chinese diaspora, whether in New Zealand or other countries.

After more than 30 years of this work, there are few overseas Chinese associations able to completely evade “guidance”—other than those affiliated with the religious group Falungong, Taiwan independence, pro-independence Tibetans and Uighurs, independent Chinese religious groups outside party-state controlled religions, and the democracy movement—and even these are subject to being infiltrated by informers and a target for united front work.

She records that these efforts have greatly intensified under Xi Jinping – as internal repression in China has as well.

Even more than his predecessors, Xi Jinping has led a massive expansion of efforts to shape foreign public opinion in order to influence the decision-making of foreign governments and societies

This includes seeking, largely successfully, to gain effective control over Chinese-language media (with exceptions as above) and encouraging political involvement of overseas Chinese.

This policy encourages overseas Chinese who are acceptable to the PRC government to become involved in politics in their host countries as candidates who, if elected, will be able to act to promote China’s interests abroad; and encourages China’s allies to build relations with non-Chinese pro-CCP government foreign political figures, to offer donations to foreign political parties, and to mobilize public opinion via Chinese language social media; so as to promote the PRC’s economic and political agenda abroad.42 Of course it is completely normal and to be encouraged that the ethnic Chinese communities in each country seek political representation; however this initiative is separate from that spontaneous and natural development.

And neutralising, or even coopting,  members of local media and academe.

Coopt foreign academics, entrepreneurs, and politicians to promote China’s perspective in the media and academia. Build up positive relations with susceptible individuals via shows of generous political hospitality in China. The explosion in numbers of all-expenses-paid quasi-scholarly and quasi-official conferences in China (and some which are held overseas) is a notable feature of the Xi era, on an unprecedented scale.

As she notes, New Zealand hasn’t been immune to that strand of influence.   In part we do it to ourselves –  there are, for example, the New Zealand government sponsored New Zealand China Council media awards.  Or sponsored trips for selected journalists to China, paid for the New Zealand China Friendship Society (didn’t the Soviets used to sponsor such bodies?).    It becomes harder to ask awkward questions when awards and sponsored travel opportunities might depend on not doing so.   I don’t suppose the New Zealand China Council  –  chaired by Don McKinnon, including the chief executive of the Ministry of Foreign Affairs and Trade – would be at all pleased by open scrutiny and debate about Jian Yang’s background, his ongoing relationship with the Chinese authorities, and his presence in our Parliament.   It might –  no doubt would –  upset China, not a country known for its tolerance of robust scrutiny and challenge.  These days, one has to wonder whether we still are, at least when it comes to China.

One of the most interesting bits of the paper is Brady’s discussion of why New Zealand interests China.    Here is some of her text

But New Zealand is of interest to China for a number of significant reasons. First of all, the New Zealand government is responsible for the defence and foreign affairs of three other territories in the South Pacific: the Cook Islands, Niue, and Tokelau—which potentially means four votes for China at international organisations. New Zealand is a claimant state in Antarctica and one of the closest access points there; China has a long-term strategic agenda in Antarctica that will require the cooperation of established Antarctic states such as New Zealand. New Zealand has cheap arable land and a sparse population and China is seeking to access foreign arable land to improve its food safety.  ……

New Zealand is also a member of the UKUSA intelligence agreement, the Five Power Defense Arrangement, and the unofficial ABCA grouping of militaries, as well as a NATO partner state. Breaking New Zealand out of these military groupings and away from its traditional partners, or at the very least, getting New Zealand to agree to stop spying on China for the Five Eyes, would be a major coup for China’s strategic goal of becoming a global great power. New Zealand’s ever closer economic, political, and military relationship with China, is seen by Beijing as an exemplar to Australia, the small island nations in the South Pacific, as well as more broadly, other Western states.

Not all of it is wholly compelling –  Tokelau isn’t independent, and the Cooks and Niue aren’t members of many international organisations. But the overall story makes a lot of sense.   If you wonder about the Antarctic bit, Brady is an expert on China’s Antarctic policies and aspirations.

On the other hand, you have to wonder quite why New Zealand governments should pay so much court to China.  Exports from New Zealand firms to China account directly for only about 5 per cent of our GDP (exports from Canadian firms to the US are, by contrast, 23 per cent of Canada’s GDP). And many of those exports –  notably dairy products and lamb –  are for relatively homogeneous products that would end up sold elsewhere, perhaps at lower prices, if somehow China restricted the ability of New Zealand firms to export.    There is, of course, the Chinese student market –  almost half the total student visas issued last year were to Chinese students –  but, as is now well-recognised the export education industry is a pretty troubled and distorted one, often as much about immigration aspirations as about the quality of the education product on offer.   So university vice-chancellors, and their colleagues in lesser institutions, might have a strong private interest in not upsetting China but it isn’t obvious that the citizenry of New Zealand share that interest, when it comes to defending our values and our system.

Brady argues that the emphasis on the China relationship appears to have greatly intensified under the current government

the current prominence afforded the China relationship has accelerated dramatically under the government that won the election in 2008, the New Zealand National Party. The National Party government (2008-), follows two main principles on China: 1. The “no surprises” policy,72 which appears to mean avoiding the New Zealand government or its officials or anyone affiliated with government activities saying or doing anything that might offend the PRC government; and 2. a long-standing emphasis on “getting the political relationship right”, which under this National government has come to mean developing extensive and intimate political links with CCP local and national leaders and their representatives and affiliated actors in New Zealand.

She provides a concrete example of this desperate desire not to offend.

This cautiousness to not rock the boat over New Zealand-China relations lay behind New Zealand’s reluctance to join the USA and Australia to criticize China’s military base building activities in the South China Sea. Following massive pressure from Australia and the US, New Zealand Prime Minister John Key (2008-2016) and other ministers made a series of muted remarks in 2015 and 2016, but it was far from what  New Zealand’s allies had hoped for, who have frequently accused the National government of being soft on China. The New Zealand National government’s reticence to speak out on this issue, despite the fact New Zealand has the fourth largest maritime territory in the world and relies on respect for international norms for the protection of its rights, is one telling example of the effectiveness of China’s soft power efforts in New Zealand in recent years.

Brady highlights concerns around a number of local Chinese politicians –  not just Yang, but also Labour’s Raymond Huo and former ACT MP (and until recently, deputy leader) Kenneth Wang.   You can read some of those concerns, and apparently serious questions, for yourself.

Through much of the rest of her article, Brady writes in some detail about the various webs of connection that help create an economic interest among many leading New Zealand figures in not rocking the boat.  As I’ve noted previously, the Chinese banks operating in New Zealand have four former senior National Party figures on their various boards (Jenny Shipley, Ruth Richardson, Don Brash and former minister Chirs Tremain).  Jenny Shipley served for a number of years on the main parent board of one of the Chinese banks (all effectively still controlled by the Party) and has a number of senior appointments on boards sponsored by the Chinese government.    Senior National figures are closely tied into companies exporting dairy products to China.

As Brady notes, for the time being the issue is mostly around National Party figures, but surely only because their party is currently in government.  It seems unlikely that the Chinese would not be similarly keen on aligning Labour figures should the government change here.   She repeats the story of the fundraising for Phil Goff’s mayoral campaign: at a charity auction in Auckland, a bidder from China paid $150000 for the Selected Works of Xi Jinping.

Brady concludes with a big picture

SELRES_424b093c-5aa4-4648-8116-11850f67a020New Zealand’s needs to face up to some of the political differences and challenges in the New Zealand-China relationship and to investigate the extent and impact of Chinese political influence activities on our democracy. This study is a preliminary one, highlighting representative concerns. New Zealand would be wise to follow Australia’s example and take seriously the issue of China’s big push to increase its political influence activities, whether it be through a Special Commission or a closeddoor investigation. It may be time to seek a re-adjustment in the relationship, one which ensures New Zealand’s interests are foremost. Like Australia, we may also need to pass new legislation which better reflects the heightened scale of foreign influence attempts in our times. New Zealand can find a way to better manage its economic and political relationship with China, and thereby, truly be an exemplar to other Western states in their relations with China.SELRES_424b093c-5aa4-4648-8116-11850f67a020

That rings true to me. But for now, my interest is in the specifics of the Yang case.   It is extraordinary that a man with such a past –  and no interest in denouncing the tyrants he worked for –  is in our Parliament, and seems likely to be in it again next week.   But more alarming is the total silence of our elites.

I can’t believe that most of them –  media, politicians, past politicians –  are really comfortable with the situation.  But if they put their personal economic interests ahead of the interests, and values, of the people of our nation, by just keeping quiet, it makes no difference that they might be a little uncomfortable.  They have, in effect, sold their own country, and its values, for a mess of potage.

The media, and the academic community (the ones who still want to get to China anyway) are just as culpable –  most of the media not even now doing their most basic job and asking the questions – but I jotted down a list of senior politicians –  past and present –  that we should be able to look to for leadership.

We could look to current and past National Party leaders.   But Key and English have led the charge to strengthen the “vassal” relationship with the Chinese (and Brady reports that Key is now working for Comcast on its projects in China), and were the National Party leaders when Yang was recruited.    What about their predecessors?   Well, Brash chairs a Chinese bank , and Shipley has multiple Chinese directorships etc.  It would be costly to speak out.  But what about Jim Bolger –  certainly willing to speak out recently about “neoliberalism”, but what about submission to China’s interests?

What about former National ministers of finance.   Well, there is English, and Ruth Richardson (various Chinese directorships) –  and Bill Birch, but he is now quite elderly.   Or former Foreign Ministers?   Well, McCully should probably be asked about Saudi sheep deals…..and led the strategy to cosy up to China.  And Don McKinnon, but then he chairs the government’s China Council.    Any of these people could speak up –  sometimes principles cost –  but, sad as it is, perhaps it is no surprise they don’t.

And normally, a week out from an election you might expect strident comment from the Opposition.  But this time? Nothing?    And if it would disrupt the “relentlessly positive” narrative, what about former eminent Labour figures –  Cullen, Moore, Palmer, Goff, Clark?  Not a word though.

What of ACT’s leader?  Is this the sort of standard he accepts in the party he depends on?  What of the leaders of the Greens or the Maori Party?   Not a word from any of them.

The pattern of silence should leave us wondering just whose interests our leaders have been serving.     There is something to be said for politicians leaving office late in life and settling quietly into a dignified retirement.   It would be quite deeply disturbing if any of them are shaping their in-office approach to (eg) China with a view to their after-office economic opportunities –  consciously or otherwise.   A submssive approach to the Chinese government and party isn’t in our interests –  even if it might be in the personal interests of some present and former politicians and some business owners.

There are other people the media could –  if they were so minded –  seek comment from.  Mai Chen, for example, chairs something called New Zealand Asian Leaders.  Surely Jian Yang-  with such a disturbing past, so much hidden from the public, and a quite disturbing alignement with Xi Jinping’s Beijing now –  can’t be the sort of Antipodean Asian leadership they envisaged?

We aren’t, of course, a 1960s Albania to China.    But what the Yang episode highlights, as one example of the more general pattern Brady draws our attention to, is that we seem to have gone some considerable way down a slippery slope and need to pull back.  Some hard questions from the media, and some honest answers from politicians, would be a start.  And perhaps some courage on behalf of at least one of those decent people who has got too close to Chinese interests –  initially with the best will in the world – to say “enough”?

Before we (well, the rest of us) vote perhaps?

UPDATE (Wednesday pm).  This Herald article is at least in start in terms of the mainstream media addressing the issues and approaching some of the people concerned.

Reforming the Reserve Bank?

A week from now Graeme Wheeler will be clearing his desk on his last day as Governor of the Reserve Bank.  I’ll have some more to say about his stewardship of the role, either on that last day or perhaps when the Reserve Bank’s Annual Report and the Board’s Annual Report are published –  on past practice they should be released any day now, and I suspect Wheeler will want to publish before he leaves office.

But by next Tuesday also, most of the votes in this year’s election will have been counted.  Who knows how quickly, or slowly, but we’ll be on course for the formation of a government for the next three years.  Either way, change seems likely for the Reserve Bank –  and not just the unlawful term of an “acting Governor” , and in time the appointment of a new substantive Governor.

On the National Party side, you’ll recall that the Minister of Finance had Treasury hire former State Services Commissioner (and former Treasury deputy secretary) Iain Rennie to provide some analysis and advice on possible changes to the governance of the Reserve Bank.  Having had drafts reviewed by various experts, the report was completed months ago, but hasn’t yet seen the light of day.  Treasury has been blocking the release of even drafts of the report, or comments on the draft by reviewers, and nothing is heard from the Minister of Finance.    Presumably Rennie didn’t conclude that everything was just fine and no changes were required.  Had he done so, there would have been no reason not to publish, and it might even have been a small piece of useful ammunition against the sorts of reforms opposition parties are campaigning on.

The interesting question is (a) how far has Rennie gone in his recommendations, and (b) whether a re-elected National government (perhaps reliant on New Zealand First –  long critical of the Reserve Bank) would implement them?   I heard the other day a hypothesis that the report isn’t being released because it calls for reform so radical that the Reserve Bank would be split in two (a monetary policy and macro agency, like the Reserve Bank of Australia, and a prudential regulatory agency (like APRA).   There are pros and cons to such a structural split, but I haven’t for a long time heard anyone here seriously propose it as an option (and particularly not since the UK government brought all those functions back under one roof).    Time will tell, but I would hope Rennie would recommend things like (ideas previously proposed here, and practices in the UK):

  • moving (in law) to committee-based decisionmaking,
  • having external members appointed directly by the Minister,
  • separate committees for monetary policy and the prudential regulatory functions,
  • a mandated greater degree of transparency, and
  • (something Joyce asked for advice on) making Treasury primarily responsible for the legislation under which the Reserve Bank operates.

As I say, time will tell.  But if National is back in office, they will presumably want to move quite quickly on appointing a permanent Governor (the Board, which is driving the process, meets again later this week), and whoever takes the role would presumably want to know what legislative arrangements they would be operating under.

But what if Labour leads the next government?  They will have access to the Rennie report, although I had heard that Grant Robertson was quite dismissive when that report was initially commissioned.  Perhaps more importantly, they have campaigned on some quite significant changes to the monetary policy side of the Reserve Bank, notably:

  • a statutory Monetary Policy Committee, comprising insiders and outsiders, but with all the other members appointed by the Governor himself (and a non-voting Treasury representative),
  • adding a goal of full employment to the Bank’s monetary policy objectives, and
  • requiring publication of the minutes of the Monetary Policy Committee fairly shortly after any particular interest rate decision.

I’ve written about those proposals on various occasions previously (including here and, more recently, here).  In general, I’m sympathetic, but think the governance reforms are excessively timid (and haven’t yet tackled some important issues).

Unsurprisingly, Reserve Bank reform hasn’t a big part of the election campaign. But they were a big part of Alex Tarrant’s interview with Grant Robertson last week.  In fact, Robertson’s comments in that interview are by far the fullest I’ve seen since the day the policy was released some months ago.  In summary, they only increase my unease and concerns about possible lost opportunities.

Tarrant asked first about the pool of possible people to serve on such a committee

One concern is whether we’d have the depth of talent of candidates for such an outfit not connected to the large banks or businesses.

I’ve never found that a particularly persuasive concern.  We manage to run a country with a huge number of public sector board and committees, some on very technical manners and others not.  We have a Cabinet after all.   And will fill all those posts: the appointees aren’t always exceptional, but then again neither (in this case) are the Governors.

Robertson put his response this way

Robertson reckons we do. “We’ll be looking towards people with monetary policy expertise, in academia. We know that there are people who have served boards before, who have a strength and a knowledge and an understanding of monetary policy,” he says.
“The two ideas we’ve got [for Monetary Policy] are linked, in the sense that we do want to broaden the objectives of the Bank, and so therefore we’ll be looking for people who can bring some knowledge and expertise in the wider macro economy – the way in which employment is going.

Here is, I think, one of the areas in which he is risking making a mistake.  Perhaps he could find a decent academic with professional strengths in monetary policy, but there aren’t many of them here, and it isn’t the skill-set that is really most needed.  The technical expertise will always reside primarily inside the Bank.  What they should be looking for in outsiders to serve on a Monetary Policy Committee is a range of skills, but most of all a cast of mind that will mean those externals don’t just become a front for management.  The role needs people who will ask hard questions –  some of them technical perhaps, but many no more technical than one would might expect from a good Board director.

Tarrant didn’t raise the issue of who appoints the external members.   Robertson’s announced policy had been that the Governor himself would appoint the externals, and control when/if they could speak externally.  That would be a serious mistake, and is not a model followed by any of the central banks I’m aware of.   Monetary policy is a major aspect of short-term stabilisation policy (ie economic policy), and the decisionmakers should be appointed directly by the Minister of Finance (who is, after all, the only person we voters can hold to account).   When I raised this issue with him, he expressed concern that it wouldn’t be a “good look” for him to be grabbing the appointment powers to himself.  Frankly, I disagree; it would simply be moving towards standard international practice.   As I’ve noted previously, if he wants a Labour precedent, when Tony Blair and Gordon Brown took office in 1997 they reformed the Bank of England, made it operationally independent, established a (statutory) Monetary Policy Committe, and to this day most of the members are appointed directly by the Chancellor of Exchequer.    Allowing the Governor to appoint his or her own externals (and a minority of voters at that) is a recipe for maintaining the status quo, not changing it.  (After all, the Governor already appoints a couple of external advisers to help him on monetary policy, including (somewhat inappropriately) at present the Prime Minister’s brother.)

Tarrant moves on to the proposed addition of an employment/unemployment objective for monetary policy.  We still don’t have many specifics from Labour on how they propose to operationalise this change –  a change I generally support.  Robertson has talked of getting unemployment down to 4 per cent, but the state of knowledge isn’t such that it would make sense to add a numerical target to a new Policy Targets Agreement.    We don’t know what the long-run sustainable rate of unemployment (given eg deographics, labour market institutions, welfare provisions is) but we should want the Reserve Bank to be finding out.  By “finding out” I don’t just mean doing a lot of formal research –  although that would no doubt be part of the process –  but running policy in such a way that reveals, through developments in inflation, when we’ve got unemployment as low as it can sustainably go (ie without other micro reforms).

It looks as though there is quite a bit of work still to do to get this part of the package right.  My tuppenceworth is that appointing the right person/people is probably the most important element of the proposed reorientation: you want people making these decisions who realise that the whole point of discretionary monetary policy has always been to get and keep unemployment as low as possible consistent with maintaining price stability.    And I’ve previously suggested some specific statutory amendments that would help shift the orientation of the Bank:

  • require the Bank to publish updated estimates of the long-run sustainable rate of unemployment (or the NAIRU) at least once a year in the Monetary Policy Statement,  and
  • require that in each statutorily-required Monetary Policy Statement, the Bank explain the reasons why, in its view, actual unemployment deviates (or is projected to deviate) from the NAIRU, and the steps (if any) the Bank proposes to take to close the gap.

If appointing the right people is critical, what does Robertson have to say about that?

He expresses a modicum of concern that the new [not legally binding] Policy Targets Agreement between the Minister of Finance and Grant Spencer, notionally to come into effect next week, was done without any consultation with him.  But his concern comes to not much

Robertson was concerned that he wasn’t consulted when Steven Joyce signed the Policy Targets Agreement with interim governor Grant Spencer for the six-month period following the election. As it happens, he agrees with six months of the status quo. But, “when you’re in that period, immediately before the election, I do believe that it would have been better to have had some input from the Opposition in that.”

And, actually, in normal circumstances under the current law an incoming government would inherit a Policy Targets Agreement (and a Governor) with no automatic right to change that PTA (although new Ministers often ask nicely, and Governors have usually agreed).

Robertson should have been more concerned about the permanent appointments that have been made at the Reserve Bank in recent months, by the outgoing Governor, that risk boxing in a new Governor (and a new government).    Robertson’s governance model envisages that the members of the internal Governing Committee would become voting members of the Monetary Policy Committee.  But instead of making just an acting appointment to the (Deputy Governor level) role of Head of Financial Stability –  to cover the period while the current incumbent serves as “acting Governor –  a permanent appointment has already been made.   That role was filled by shifting Deputy Governor Geoff Bascand into the role, but then a permanent appointment has also been made –  of someone with no obvious value to add to things monetary policy or prudential –  as Bascand’s successor as Head of Operations.  Surely these permanent appointments should have been left to the new Governor, especially with the prospect of legislative change in the wind whoever leads the next government?   Allowing a new CEO to apppoint his own top team, when vacancies exist around the changeover, would seem at very least a common courtesy.   And people will exercise the monetary policy votes, not algorithms, so appointing the right people matters.

Strangely, Robertson doesn’t even seem that interested in the appointment of the new Governor, which the (current government appointed) Board has had underway for months.   Applications for the job closed weeks before the Labour Party started its dramatic rise in the polls.  And yet

So, is he happy with the current set-up where the Finance Minister can veto a board recommendation, but has no other power over the process?
“I’m not proposing any change to that,” he says. “I respect the independence, it’s a very important relationship.” One reason he has been talking about Labour’s designs is to give a heads up to anyone that applies for the job about where he’s coming from.

He keeps going on about “respecting” Reserve Bank independence, but that operational independence –  the responsibility to set the OCR independently of direct political involvement –  is a totally different matter from appointing the individual who, on current law, will have by far the largest policy influence on the short-term direction of the New Zealand economy.  He/she will determine what weight the Bank gives, for example, to the proposed employment objective.  And in almost every other advanced economy, the Minister of Finance or head of government has a key role initiating the appointment of the central bank Governor.  It is the way normal countries do things (perhaps with some role for non-binding parliamentary confirmation hearings).  It is what Philip Hammond or Scott Morrison do.  It is what Barack Obama did and (okay…) what Donald Trump shortly will do.    Our law should be changed.  Perhaps require the Minister to consult the Board –  although few if any of them have expertise in public policy or economic management –  but put the power, and the responsibility, squarely with the Minister of Finance.

I’m frankly not sure why Labour is so reluctant.  They are presented with the ideal opportunity here.  When, for example, Gordon Brown reformed the Bank of England he was faced with an experienced incumbent Governor, and a very strong internal deputy –  and yet they went ahead with reforms that markedly reduced the power of the Bank, and introduced powerful externals not under the thumb of the Governor.  Here, if Labour takes office they will do with a vacancy in the role of Governor.  Changing the law regarding the appojntment wouldn’t be a slap in the face to anyone (other than perhaps the Board, who are mostly a pretty faceless and unaccountable lot).  I’ve argued that, given the vacancy, one of the first steps of a new government should be a short amending bill to put the appointment power back in the hands of the Minister.  At present, he is on track for being presented with a status quo candidate (the Board has pretty consistently defended the status quo) when Labour (and the Greens and New Zealand First) are campaigning on changing the status quo.

What makes me say that?  Well, Robertson actually.    Because in the interview he says

How about the job description for the next Governor – is he OK with that? “Yes, but, as I say, the reason we gave the speech was to make sure that people were aware that, should we be elected, this is the direction we’re going in. The job description is what it is, as it stands today.”

It is frankly incredible.  The job description –  which I wrote about here –  was decided by the Board, all of whom were appointed by the National government.  The members aren’t openly partisan, but they were people National was comfortable with (when Labour was in power, they also had competent people on the Board, but the complexion was a bit different).   And the job description is framed under the Act as it stands (and quite rightly so –  it is all the Board can do).  But Labour is campaigning on material changes to the Reserve Bank Act, to its policy responsibilities, and to the personal powers of the Governor.  Surely it would seem likely that a subtly different set of skills would be appropriate under the current Act/PTA, than under whatever Labour and its allies are proposing?   Surely, at least to some extent, different sorts of people would be interested in the role (there are, for example, some people who would be resolutely opposed to any suggestion of adding an unemployment target, and might find it very hard to work under such a regime).   Even if Labour wasn’t going to adopt my suggestion of amending the Act to take the appointment into the Minister’s hands directly, they should be thinking of sitting down with the Board as soon as they take office, outlining their plans and visions, and inviting the Board to re-open the selection process, now that potential candidates are better placed to know what might be expected of them?

I was also interested in this comment from Robertson

Grant Spencer’s 1-3% target with a 2% mid-point will remain in place over the six months post-election. “We’ve got to take some time to get ourselves in and then have the discussions we want.”

I can understand where he is coming from, but…..parliamentary terms are only three years, and what he is effectively saying here is although he wants the Bank to focus on unemployment as well as inflation he is not going to anything about it until one-sixth of his first term is already over.   It wasn’t what Ruth Richardson did in 1990, Winston Peters in 1996, or Michael Cullen in 1999.  And even if he can’t amend the Act immediately to establish the employment objective –  and getting the details right does matter –  it would be quite within his powers to seek an amendment to the Policy Targets Agreement (which, in this case is non-binding anyway) to capture those unemployment concerns straightaway.  Given Labour’s clearly stated intention to legislate in this area, it also might not be unreasonable to at least consider use of a section 12 override (although this would probably run head-on into the concerns about the legality of the Spencer term and the supposed PTA).

And, then, finally, there is the large gap in all these reform proposals.  Tarrant didn’t ask about it and Robertson has never substantively addressed it.  The Reserve Bank has huge discretionary policymaking powers, especially over banks, which are (in law) exercised personally by the Governor, with no adequate accountability framework (nothing like the Policy Targets Agreement for example).  Any exercise that opens up the governance of the Reserve Bank –  as is likely under any government emerging after the election –  has to find a solution to those issues as well.  There are questions around which powers should be with the Minister and which with the Bank, and for those exercised by the Bank whether a committee (and if so of what sort) or an individual should (in law) wield them.   There are, probably second-order, issues around whether (so-called) macro-prudential analysis and regulation should be governed differently than the day-to-day regulatory regimes applying to banks, insurers, and deposit-takers.  I gather Labour recognises that the issues exist, but has as yet not really given any thought to how to resolve the issues.  I’m sure Treasury has some advice waiting for whoever does take office.

Robertson has been at pains to stress that the core of the Reserve Bank Act was passed almost 30 years ago (and previous core Reserve Bank Acts didn’t last that long).  There are enough issues outstanding –  lots not touched on in this post –  that doing the reform well really should be quite a major piece of legislation.  That will take time, but if he wants to embed change, reorient and lift the overall performance of the institution, he really should be thinking a lot harder (than he appears to be, based on this interview) about ensuring that he acts early to ensure that any government he is a leading figure in can choose as central bank Governor someone they are confident in, both as regards the conduct of policy, and about making effective the sort of structural and cultural changes they talk of.