Month: October 2018

Confucius Institutes, the PRC, and NZ authorities

Michael Reddell China, NZ politics

Some commenters here are, at times, a bit critical of the New Zealand media for not being more active in pursuing questions around the New Zealand government and its supine attitude to the People’s Republic of China (Party and government), and its penetration of New Zealand.  I’m less willing to criticise –  it was, after all, the media that broke the Jian Yang story and pursued it for a time, only yesterday Newsroom had a story about MBIE’s continued use of surveillance equipment supplied by a Chinese government-owned company against which there has been a substantial pushback in the US and Australia, and the Herald’s Matt Nippert has drawn attention to his longstanding request for an interview with the Prime Minister on these issues.  No doubt more could be done –  including, for example, hard questions of the Prime Minister in her press conferences – but resources are limited, the traditional media is in decline, and by the standards of our business and political leaders, and even much of academe, the media are veritable paragons of virtue in this area.

Stuff’s journalist Harrison Christian has also done a couple of interesting and useful articles in recent months.    There was this article about PRC Embassy sponsored rent-a-mobs harrassing peaceful Falun Gong exiles and protestors in New Zealand, and the more general attempts by the PRC to exert control over ethnic Chinese in New Zealand and Australia.  In that article Christian even managed to get an exceptionally-rare comment –  even if not much more than a no-comment –  from former PLA intelligence official, Communist Party member, and National MP Jian Yang.    As a reminder of the nature of the regime, there was this early on in the article.

It was the end of Daisy Lee’s loyalty to the Chinese Communist Party: a black and white photograph her partner had kept hidden for years.

In their apartment in the northern city of Qingdao, Lee was talking to her husband about the Tiananmen Square protests. In 1989, troops with tanks and machine guns opened fire on pro-democracy demonstrators in the Beijing square, killing at least several hundred people; perhaps as many as 10,000.

Steve Ma had been a student in Beijing at the time, and Lee was scolding him for it.

“You students in Beijing did crazy things,” she said. “You smashed cars, set them on fire, made trouble and were violent towards the Beijing people!”

In response, Ma showed his wife an old photo taken with a miniature camera by one of his roommates at university. The picture was little more than an inch wide, but Lee could still make out the blood on Tiananmen Square, and a young person’s severed head.

The 1989 incident has always been a highly censored political topic. But Ma had kept that photo, if only for himself; a grim reminder of the day many of his classmates lost their lives.

“He’d been hiding it even though we’d known each other for several years,” says Lee. “The fear of Government was such that he couldn’t even trust me, his wife.”

I found it exceptionally moving, perhaps partly because I’ve come to know Daisy –  who now lives in Auckland – a little over the last year.

Do such articles make a difference?   Even if it is only person by person, raising consciousness, I suspect they do.  Just after that article appeared, with its photos of the silent protestors outside the PRC consulate, I happened to be in Auckland for a meeting nearby.  With a bit of time to spare before the meeting I walked up the road to briefly say thanks to the protestors for their efforts and wish them all the best.

Harrison Christian has another substantial article out today, this time on the Chinese government-sponsored Confucius Institutes in New Zealand, located as part of Auckland, Victoria, and Canterbury universities.  I’ve written about these institutes previously (recently here, but also here)  –  seeing them partly as PRC subsidies to university marketing budgets –  and I’m among those quoted in the Stuff article.

There are quotes from China experts

Duncan Campbell, adjunct teaching fellow at Victoria University’s School of Language and Cultures, said “huge amounts of money” were flooding in for Confucius Institutes, “whereas the university should be putting that or more into the proper study of China”.

“Six hundred-odd thousand into a university system that is strapped for cash is inappropriate,” Campbell said.

He said it amounted to “outsourcing” our understanding of China to the Chinese Communist Party.

All countries were engaged in extending their “soft power” offshore to some degree, Campbell said, but no country had an equivalent programme to CIs, which were embedded in their host universities.

“Everyone does it, but it is understood to be that – L’Alliance Française, the Goethe Institute – it’s removed, separate and autonomous. It doesn’t interfere within the framework of an existing academic institution.

“The issues with China and CIs is that we are dealing with a party state. We’re not actually dealing with a nation state.”

Campbell said he was concerned about “vast taboo areas” within the CI programme: topics politically sensitive to Beijing. Under president Xi Jinping, China had entered a new era of political censorship.

including Anne-Marie Brady

As public funds were also given to CIs, New Zealand was effectively assisting China in furthering its offshore agenda, Brady said.

“The New Zealand Government is subsidising the promotion of China’s foreign policy agenda through the Confucius Institutes,” Brady said.

“New Zealand needs to develop better China knowledge and language skills, but we should do so through New Zealand-based programmes which are free of the censorship constraints that come from Chinese-government funded programmes.”

Brady added that staff employed by CIs may not be followers of Falun Gong, Tibetan Buddhism, or pro-Taiwan independence – movements seen as a threat to the Chinese Communist Party.

The constitution for all CIs states they shall not contravene the laws and regulations of China, where movements like Falun Gong are banned.

The article also draws attention to seminars sponsored by the Confucius Institutes which –  perhaps unlike straight language teaching –  are more explicitly about advancing Chinese government agendas, under the logo of a New Zealand university.    There was one in Auckland on the Belt and Road Initiative, and another in Wellington last year at Victoria University to mark 45 years of diplomatic ties with the PRC, at which not a single sceptical or critical voice was heard.

My comments were as follows

Economist and commentator on NZ-China links, Michael Reddell, said he believed the bulk of the institutes’ work was genuinely teaching language in our schools, but “one could, and should, challenge whether the New Zealand Government should be taking foreign aid from a middle-income country”.

Reddell was also concerned about the “overly close connections between the Confucius Institutes, the foreign policy establishment and other university work”.

For example, the chair of Victoria University’s Confucius Institute, Tony Browne, is also the chair of that university’s New Zealand Contemporary China Research Centre (CCRC).

Stuff understands Browne’s dual roles have caused tensions within the leadership of the research centre since it was established.

“I don’t suppose [Browne] actively suppresses any negative research on China, but his presence is likely to condition the sorts of people who get appointed to such roles, for example the director of the CCRC,” said Reddell.

Campbell described Browne’s dual roles as an “impossible situation”.

“It is hard to understand how it works. Certainly I don’t think it can be justified,” he said.

And from the fuller comments I provided the journalist

I’m probably more concerned about the overly close connections between the CIs, the foreign policy establishment and other university work.  Thus, as I’ve highlighted Tony Browne (former NZ Ambassador to the PRC) is both chair of the Vic CI, a senior advisor to Hanban, chair of the Contemporary China Reseearch Centre, and programme co-director for the Aus-NZ School of Govt annual training programme for Chinese Communist Party rising officials.  I don’t suppose he actively suppresses any negative research on China, but his presence is likely to condition the sorts of people who get appointed to such roles (eg director of the CCRC).   Rebecca Needham, ex MFAT, is both director of the CI and still on MFAT’s list of public sector China experts.  The CIs are involved in running courses for public servants (again, mostly language) and the CCRC (Browne-chaired) helps run the public sector China courses.

Harrison Christian went to the Minister of Education for comment.

Education Minister Chris Hipkins said it wasn’t his role to instruct universities on whether they establish or fund particular teaching and research centres.

“The autonomy of New Zealand’s universities is a prized, and internationally respected, feature of our education system,” Hipkins said.

Nothing seems to be a matter for the Minister of Education, in publicly-funded universities.  He was all-but silent recently on the Massey Vice-Chancellor and her refusal to accommodate speech she disagreed with.

I don’t suppose anyone thinks the government should be able to compel public universities to close Confucius Institutes, but that alone doesn’t absolve the Minister –  or his government colleages, including the Minister of Foreign Affairs –  from having a view on the activities of (heinous) foreign governments in our schools and universities, and whether such activities are appropriate.  In other countries, after all, there has been some measure of a re-think, and some Confucius Institutes have been closed.

Harrison Christian also got Tony Browne on record

However, Browne said he did not believe his roles were a potential conflict. His position as chair of the CCRC was a “management job, not a policy job”, he said.

“There’s a very fundamental and longstanding principle of academic freedom – that academics determine their areas of research.

“I don’t work for China. I’m not paid a cent by China.”

Browne pointed to an August report from the CCRC that presented a critical assessment of the potential benefits of China’s Belt and Road Initiative (BRI) for New Zealand.

“My whole life has been guided by the promotion of New Zealand’s interests, not China’s interests.”

Which is fine as far as it goes but:

  • “management” and governance includes the resourcing and staffing issues.   With Browne in the chair, it seems highly unlikely that anyone very openly sceptical of the PRC would end up in the director’s role,
  • his role as senior adviser to Hanban –  the Chinese government agency that funds the Confucius Institutes, and recruits (selectively, for political and religious reliability) the Mandarin language assistants (whom Beijing provides, on top of the cash contributions in Christian’s article) – is unpaid, but that doesn’t mean he isn’t “working for China” in that role, which provides access, trips to the PRC, and benefits which enhance his other activities,
  • in a sense, much of the issue is captured by that last sentence.  I’m sure it is an accurate description of how he sees things: that apparent very close alignment (in his view) of the interests of the PRC and the interests of New Zealand, in a way that means he never ever says anything critical about the PRC, one of the most evil regimes on the planet today.  It may be no different for Jian Yang.

It is worth recalling that these aren’t Tony Browne’s only involvements.  From an earlier post

Tony Browne, the former New Zealand Ambassador to Beijing, must be a busy man.   I remembered that I had met him once.   Among his many hats is that he is co-director of the China Advanced Leadership Programme, run by the Australia-New Zealand School of Government (itself a partnership involving various Australian universities and Victoria University).

The China Advanced Leadership Program (CALP) is an annual three-week program for Chinese officials, delivered in Australia and New Zealand. The aim of the program is to develop productive relationships between high level public officials of Australia, New Zealand and China.  The program has been operational since 2011 and is delivered across multiple Australian and New Zealand cities.  The program is made possible due to ANZSOG’s relationship with the Organization Department of the Chinese Communist Party.   

It must be a quite a revenue-generator for the universities concerned.

Who attends

Who are our participants?

Senior and emerging Chinese public officials from central and provincial governments – Up 25 senior officials in China are carefully selected by ANZSOG’s program partner, the Organization Department of the Central Committee of the Communist Party of China. The Organization Department occupies a unique role in the hierarchy of the Chinese government – it oversees appointments of all key positions within the administration. Previous delegations have included Vice-Ministers from the Central Government, Party Secretaries, City Mayors, and Directors-General.

All, quite explicitly, CCP members.

You might suppose that being a partnership between numerous Australian universities and Victoria University, ANZSOG wasn’t of much moment in New Zealand.  In fact, the state and national governments are members.  And of the Board, three are New Zealanders –  in the chair is Peter Hughes, the current State Services Commissioner.  And what of ANZSOG’s ties with the PRC?  It isn’t just a commercial relationship involved in running that course.    Instead, ANZSOG lists as “affiliate partners” a small number of agencies including

Affiliate partners

It is all terribly cosy.  The presence of the Chinese Communist Party speaks for itself.  But CELAP describes itself as

China Executive Leadership Academy Pudong (CELAP), a Shanghai-based national institution, is funded by the central government and supervised by Organization Department of the CPC Central Committee.

Which brings me to a more general point.    Much as I disapprove of the Confucius Institutes, the (much) bigger issue is the approach of successful New Zealand governments and their bureaucracies.  Here is another quote from the comments I gave to Harrison Christian

But, take the CIs out of the picture completely and I doubt anything would be very much different.  The official cast of mind –  don’t ever say anything to rock the boat –  doesn’t arise from the CIs but from a hard-headed (probably misguided and amoral) assessment of NZ interests by NZ politicians and officials.   You note the OBOR seminar the Akld CI was involved in.  Another example, from the Vic CI, is this https://www.victoria.ac.nz/ci/courses-and-programmes/programmes/45th-anniversary-symposium-new-zealands-relationship-with-china   at which no remotely sceptical voice was on the programme.  But if it hadn’t been the CI hosting the workshop, the CCRC –  or the university politics dept –  might have done so itself, and it isn’t clear that the format would have been much different.  [MFAT itself –  represented with MBIE and NZTE on the board –  may have been involved in blocking] awkward appointments to the CCRC director role.  But again, it isn’t China doing that, but NZers acting in their (misguided in my view) assessment of NZ best interests –  given the heavy handed approach China takes at times.

It was, after all, the NZ govt which willingly and enthusiastically signed up to the OBOR MOU last year. [“fusion of civilisations” and all that].
Nature abhors a vacuum, and the extent of PRC involvement in New Zealand is perhaps what you’d expect when an evil regime finds successive local governments scared of their own shadow, in the thrall of particular business interests (and the post-politics opportunities for them and their colleagues) and all too ready to turn over and let the PRC tickle their tummy.
Confucius Institutes are an issue, and it is good that Harrison Christian is giving the issues and risks wider public coverage.  But they aren’t the main event.   That is about attitudes, self-respect, integrity, values (and the lack of them) among our elected and bureaucratic “elite”.   Active mindsets and choices of New Zealand leaders.
(On my long list of possible things to write about had been this recent article from the Australia New Zealand School of Government, chaired by our own most senior public servant, State Services Commissioner Peter Hughes.   It is about an education/”indoctrination” programme for senior Australian and New Zealand public servants in China.     Perhaps the worst of it is that way it normalises the PRC regime

The group also had discussions with Chinese officials about reforms to the education system aimed at building problem-solving capabilities and improving student welfare and school/life balance.

Participants said that the CRP had given them a better understanding of Chinese thinking and would enable them to engage better with Chinese businesses. They also gained a sense of the tension in China “between government’s role as a controller, and its reliance on social capital and community spirit to implement effective programs”.

Just another bunch of well-intentioned public servants on both sides.   Probably the rotations of the PRC counterparts through Xinjiang were carefully avoided, as trips to 1938 Berlin might have stepped around the local unpleasantness of Kristallnacht.

The CRP was initiated by ANZSOG in conjunction with the Organisation Department of the Central Committee of the Communist Party of China.

The Organisation Department occupies a unique role in the hierarchy of the Chinese government – it oversees appointments of all key positions within the administration.

The CRP – the first and only initiative of its kind undertaken by the Chinese Government – and works in conjunction with the reciprocal Chinese Advanced Leadership Program, which sees senior Chinese officials visit Australia and New Zealand.

The special relationship of the our public service hierarchy with China’s Communist Party……   It should defy belief, but sadly it is all too real.  All part of the same (successful) effort by the PRC to neutralise the New Zealand government (in particular) and to relativise the perspectives of the officials who advise them. )

Looking back to the deposit guarantee

Michael Reddell Financial stabilty, New Zealand economic history, Reserve Bank, Treasury

12 October 2008 was a frantic day.  It was a Sunday, and I never work Sundays (well, two financial crises, one in Zambia, one in New Zealand, in 30+ years).  There was a call in the middle of our church service summoning all hands to the pump, to put in place a retail deposit guarantee scheme that day.   We did it.  My diary later that night records that we’d “delivered a brand spanking new not very good deposit guarantee scheme”, announced a few hours earlier.   It was a joint effort of the Reserve Bank and The Treasury.

I had recently taken up a secondment at The Treasury.  I’d been becoming increasingly uneasy about the New Zealand financial situation for some months (flicking through my copy of Alan Bollard’s book on the crisis I found wedged inside a copy of an email exchange he and I had had a month or so earlier about Lender of Last Resort options for sound finance companies, potentially caught up in contagious runs) but I hadn’t had any material involvement in the unfolding sequence of finance company failures.   But it was the escalating international financial crisis – this was four weeks after Lehmans, 3.5 weeks after the AIG bailout, two weeks after the US House of Representatives initially voted down TARP, and two weeks after the Irish government surprised everyone by announcing comprehensive deposit guarantees –  that really accelerated interest in the question of what, if anything, New Zealand should do, or might eventually be more or less compelled to do.    The initiative for some more pro-active planning came from The Treasury, but with some parallel impetus  –  including around guarantees – from the then Minister of Finance, Michael Cullen (who, a few days out from Labour’s campaign launch, was also looking for pre-election fiscal stimulus measures).

On Tuesday 7 October, there was a long meeting at the Reserve Bank, attended by both the Secretary to the Treasury, John Whitehead, and the Governor of the Reserve Bank.  My memory – and my contemporary diary impression – is that the Governor was considerably more focused on the managing the Minister’s political concerns than on any sort of first-best response.    But the outcome of that meeting was agreement to quickly work up a joint paper for the Minister which would not, at that stage, recommend introducing a deposit guarantee scheme, but which would outline the relevant issues and operational parameters, giving us something to work from if the situation worsened.

Which it quickly did, both on international markets, and with the political pressure, with the Prime Minister signalling that she wanted to be able to announce something about guarantees in her campaign launch that coming Sunday afternoon.

I and a handful of others on both sides of The Terrace scurried round for the next few days.  I see that in my diary I wondered what the best approach was: do nothing, allow some risk of the crisis engulfing us, and then pick up the pieces afterwards, or be more pro-active and take the guarantee route.  My conclusion –  and even today I wince at the parallel (but this was a late-at-night comment) – “I suspect that if the pressures really come on, the Irish approach is best”.   As relevant context, although much of the finance company sector was in solvency trouble (many had already failed) there were no serious concerns about the solvency of the banking system.   (Liquidity was, potentially, another issue.)

At Treasury we had recognised the importance of the Australian connection –  most of our banks being Australian-owned.     I’m not sure of the date, but we had taken the initiative –  at Deputy Secretary level –  of approaching the Australian Treasury to see if they were interested in doing some joint contigency planning around deposit guarantees, and had been told that the Treasurer had no interest in such guarantees and so our suggestion/offer was declined.

But even Australian authorities could look out the window and see that the global situation was deteriorating rapidly, and by late in the week that recognition was being passed back to authorities on this side of the Tasman.  Alan Bollard always kept in close contact with his RBA counterpart Glenn Stevens, and on the Friday my diary records (presumably told by some RBNZ person I was working with) “apparently Glenn S[tevens[ told Alan this afternoon that the RBA/authorities might fairly soon have to consider a blanket guarantee”.     In the flurry and uncertainty, one other senior RBNZ person –  still holding a senior position there –  told me that in his view nothing should be done here unless there were queues outside New Zealand banks.

Between a handful of people on the two sides of the street, we got a paper on deposit guarantee scheme possibilities out to the Minister of Finance on the Friday afternoon.  It was a mad rush, with some uneasy negotiated compromises (and everyone’s particular hobbyhorse concern got its own mention). I was probably too close to it to tell, and noted I wasn’t that comfortable with it, but when I got Alan Bollard’s signature he indicated he was happy with it.  I noted “lots of small details to sort out next week –  we hope only that, not implementation”.     To this point, we were focused mostly  on retail deposits, but I see in my diary that in The Australian on the Saturday there was talk from bank CEOs of a possible need for a wholesale guarantee scheme.

The full, unredacted, paper we wrote is available on The Treasury’s website.   The thrust of the advice was that (a) action was not necessary immediately, but (b) that should conditions worsen a scheme could be put in place at quite short notice.  The rest of the paper outlined the relevant issues, and the recommended features of any such scheme, and we advised against announcing a scheme until the remaining operational details had been sorted out, something we suggested could be done in the folllowing week.

These were the key features we suggested, largely accepted by the Minister.

dgs 1

One thing that puzzles me looking back now is why we were focused on guarantee options, rather than lender of last resort options.  The latter would have involved lending on acceptable collateral to institutions that we judged to be solvent, perhaps at a penal rate.  It was the classic response to the idea of a contagious run –  troubles elsewhere in the financial system spark concerns about other institutions, and people “run” –  cashing in deposits, retail or wholesale –  just in case.  A sound institution could, in principle, be brought down very quickly by such a run (empirically there are few such examples –  most actual runs end up being on institutions that prove to be at-best borderline solvent).

In the paper we sent to the Minister on 10 October we don’t seem to address that option at all.  I presume the reason we didn’t was twofold.  First, guarantees were beginning to proliferate globally.  And second, there probably is a pretty strong argument that if (a) you are convinced your banking system is sound, and (b) there are nonetheless doubts in the wider environment (in this case, a full scale global crisis, and a domestic recession), a guarantee is likely to be considerably more effective in underpinning confidence.  Not so much depositor confidence, as the confidence of bankers (and their boards).    Even if lender of last resort funding, on decent collateral, had been available without question, few bankers would have been happy to rely on that, and many would have been very keen to cut exposures, pull in loans, and reduce their dependence on the good nature of the Reserve Bank Governor.   A guarantee –  where the Crown’s money is at stake –  is a much stronger signal than a loan secured on the institution’s very best assets.   On the other hand, as the paper does note, once given a guarantee may not leave one with much leverage over the guaranteed institution.

Almost all of the subsequent controversy around the deposit guarantee scheme related in one form or another to one key choice.

All the systemically significant financial institutions in New Zealand were banks (not that all banks were systemically significant).  But they were not, by any means, the only deposit-taking institutions, and we were in the midst at the time of a finance company in which many companies were proving to be insolvent and failing.  Other finance companies appeared –  not just to the Reserve Bank, but to the market, and to ratings agencies – just fine.

Treasury and the Reserve Bank jointly recommended to the Minister that any deposit guarantee scheme include finance companies.  Why did we do that?

The simple reason was one of both fairness and efficiency.  Had we proposed to offer a guarantee only to banks (let alone only the big banks) then in a climate of uncertainty and heightened risk, there would have been an extremely high risk that such an action would have been a near-immediate death sentence for the other deposit-taking institutions, including ones with investment grade ratings, and in full compliance with their trust deeds.    We knew that finance companies (while small in aggregate) were riskier than our banks, but that was no good reason to recommend to the government a model that would have killed off apparently viable private businesses.  It still seeems, with the information we had at the time, an unimpeachable argument.  Classic lender of last resort models, for example, don’t differentiate by the size of the borrowing institution.

We weren’t naive about the risks –  including that there was still no prudential supervision of finance companies and the like –  and we explicitly recommended that risk-based fees (tied to ratings) be adopted, and the maximum coverage per depositor be much lower for unrated entities.   We included in the table an indicative fee scale, based credit default swap pricing for AA-rated banks in normal times, scaling up (quite dramatically) based on the much higher default probabilities of lower-rated entities.

We even included a indicative, totally back of the envelope, guess as to potential fiscal losses –  drawing on the experience of the US S&L crisis.  As it happens, actual losses were to be less than that number, even though the scheme as adopted by the Minister of Finance was less good than the one we recommended.  (Treasury provided some other –  but lower – loss estimates a few days after the actual announcement, but I can’t see those on the Treasury website and can’t now recall the approximate numbers.)

But all that was just warm up.   We’d been under the impression that the Prime Minister was going to announce, in her campaign launch speech, that preparatory work was underway on a deposit guarantee scheme.  That was probably her intention.  But that didn’t allow for the Rudd effect.  The Australian Prime Minister decided that he was going to announce an actual retail guarantee scheme for Australia that day –  the Sunday.  And so it was concluded that New Zealand had little choice but to follow suit.   As a matter of economics, there probably was little real choice but to follow the Australian lead.  But the timing was all about politics.  Neither economic nor financial stability would have been jeopardised if we hadn’t had a deposit guarantee scheme announced before the banks opened on Monday morning.  We’d have been much better to have taken a bit more time and hashed out some of the details with the Minister in his office in Wellington, not at campaign launches and then, as the day went on, airport lounges (at one point late that afternoon I –  who’d talked to the Minister perhaps twice in my life previously –  was deputed to ring Dr Cullen and get his approval or some detail or other of the scheme).   But I guess it might have left open a brief window in which critics might have suggested that New Zealand politicians were doing less for their citizens and their economy than their Australian counterparts.

The main, and important, area in which Dr Cullen departed from official advice was around the matter of fees.   We’d recommended that the risk-based fees would apply from the first dollar of covered deposits (as in any other sort of insurance).     The Minister’s approach was transparently political –  he was happy to charge fees to big Australian banks (who represented the lowest risks) but not to New Zealand institutions (including Kiwibank).  And so an arbitrary line was drawn that fees would be charged only on deposits in excess of $5 billion.   Apart from any other considerations, that gave up a lot of the potential revenue that would have partly offset expected losses.  The initial decision was insane, and a few days later we got him to agree to a regime where really lowly-rated (or unrated) institutions would have to pay a (too low) fee on any material increases in their deposits. A few days later again an attenuated pricing schedule was applied to deposit-growth in all covered entities.   But the seeds of the subsequent problems were sown in that initial set of decisions.

The weeks after the initial announcement were intense.  We rushed to get appropriate deed documents drawn up, dealt with endless request from institutional vehicles not covered who sought inclusion (property trust, money market funds etc), and set up a monitoring regime.  In parallel, we quickly realised that the way wholesale funding markets were freezing up suggested that a wholesale guarantee scheme was appropriate, and got something announced in a matter of weeks –  a much more tightly-designed, better priced scheme, operating only on new borrowing (but I’m biased as that scheme was mostly my baby).  As it happens, that scheme provided the leverage to actually get the big banks into the deposit guarantee scheme.  Once the government had announced the retail scheme the big banks had little incentive to get in –  they probably thought of themselves (no doubt rightly) as sound and as too big to fail –  and the scheme was an opt-in one (we couldn’t just by decree compel banks to pay large fees).   But the Minister of Finance –  probably reasonably enough –  insisted that if banks wanted a wholesale scheme (which they really did) it would be a condition that they first sign up to (and pay for) the retail scheme.  Perhaps less defensible was the Minister’s insistence that any bank signing up to the guarantee scheme indicate that it would avoid mortgagee sales of home owners in negative equity but still servicing their debt (the ability of banks to do so is a standard provision of mortgage documentation).

After the first few weeks of the retail scheme I had only relatively limited ongoing involvement, and so I’m not going to get into litigating or relitigating the South Canterbury Finance failure, and whether –  even the constraints the Minister put on –  and how that could by then have been avoided (the Auditor-General report some years ago looked at some of those issues).   The outcome was highly unfortunate, and expensive.  Nonetheless, it is worth remembering that the total cost of all the guarantee schemes – retail and wholesale – was considerably less than officials had warned was possible.  And it is simply not possible to know the counterfactual –  how things might have unfolded here had either no guarantees been offered, or if the finance companies and building societies had been excluded from day one.  Personally, I think neither would have provided politically tenable, but we’ll never know that, or how that alternative world played out.

But with the information we had at the time –  including, for example, the investment grade credit rating for SCF (which had outstanding wholesale debt issues abroad –  and actually my only meeting with SCF was about their interest, eventually not pursued, to try to use the wholesale guarantee scheme) –  the recommendation made on 10 October seem more or less right. Given the same information I’m not sure I’d advise something different now.  And once Australia had made the decision to guarantee retail deposits, there was little effective economic or political choice for New Zealand.   Had they not done so –  and there was real data, regarding increasing demand for physical cash in Australia, supporting Rudd’s action (rushed as timing was) – perhaps we could have got away with a well-designed wholesale guarantee only.   That would have been a first-best preferable world, but it wasn’t the set of facts we actually had to work with.

 

Ever-extending regulation

Michael Reddell Uncategorized

In the rush to regulate –  that seems to characterise all our governments these days – it was announced yesterday that government plans to legislate to give the force of statute law (complete with penalties) to “do not knock” signs on someone’s front door.       What next?  Statutory penalties for, say, people who dawdle down Lambton Quay at lunchtime trying to text as they walk, or any of the many other minor social irritants?

But the initiative that particularly caught my eye was a proposal to legislate to fix the maximum cost of “high cost” credit at no more than 100 per cent of the value of the loan.  Borrow $500 and the total interest and fees you will ever pay will be capped at $500.   Apparently (judging from the high level material the minister published) regardless of how long the term of the loan is.  That seems more than a little incoherent, even granted the inevitable good intentions of the minister and his officials.

When I first bought a house, floating first mortgage interest rates were (according to the RB website) 15.5 per cent.   Admittedly, there was still a fair amount of inflation in the system at that stage.  But when I bought my current house in 1995, the inflation target was 1 per cent and the average floating first mortgage interest rate was 10.64 per cent.   On a 25 year table mortgage (from memory what was typical term back then), at that interest rate a mortgage calculator tells me that I’d have paid $373000 in interest alone on a $200000 mortgage over the life of the loan.    Mortgage rates of 10.64 per cent probably seem quite foreign and implausible today, but if it happened before –  with an inflation target lower than today’s –  it can happen again.  In fact, ANZ’s Visa interest rate –  over which they have full security of your home if you happen to have a mortgage with the same bank –  is currently 20.95 per cent.   If it took you eight years to steadily pay off a debt at that interest rate you’d also have paid more than 100 per cent of the initial loan in interest.

As I understand it, the government’s proposal won’t apply to mortgages –  even though the lender has much better security than is typical for one of the target loans.  Perhaps it won’t even apply to credit cards, although if so the logic of any such distinction escapes me.

I’m not unsympathetic to the concerns that probably motivate these reforms. I come from a tradition that for centuries (even millennia) looked askance –  as I still do –  on charging any interest rate to those in need.

Exodus 22:25       “If you lend money to My people, to the poor among you, you are not to act as a creditor to him; you shall not charge him interest.

I hugely admire the work of people like the Kingdom Resources Trust (among its services are some interest-free loans).

But it is hard to see how the government’s proposed cap, imposed quite without regard to how long the loan is outstanding for, is either just or efficient.

There looks to be quite a bit of discussion in the Regulatory Impact Statement of the possibility that some restrictions would severely reduce the availability of credit (they cite one particular UK intervention which it is estimated to have reduced the number of people using “high cost” credit by 40 per cent over 18 months).  And yet, absent any robust analysis suggesting that lenders in these sectors are making consistent excess risk-adjusted profits, it is hard to see how the effect of any binding restrictions is not going to be to restrict access to credit.   And restricting by total interest cost –  regardless of the term of the loan –  seems to have little going for it.  The impact on a two-day payday loan (which the document seems concerned to protect) will be less severe than that on someone who might –  rationally – need a loan for a year to cover a new fridge or a new set of tires for the car, or even the expenses of some culturally significant festival.

The government’s proposals (summarised here) aren’t just about capping the total interest expense, but about adding numerous layers of other regulation, including yet further extension of “fit and proper person” tests in which bureaucrats get to decide, subjectively, who is a suitable person to run a business.

To repeat, I’m not suggesting there are no issues here, or that some individuals don’t find themselves in exploited situations.   And yet, for example, we know that housing costs are one of the major contributors to financial pressure on lower income households, and after a year in office the government has done absolutely nothing substantive to fix the rort that governments themselves impose/facilitate, that render urban land so outrageously unaffordable to large portions of our people.  And there is no strategy to lift productivity growth, the only sustainable basis for higher incomes.    Imposing ever more regulations –  that will bear heavily on small entities and probably won’t much bother the large operators – is a headline-grabbing response, but it does little about the underlying problem.

It is also hard not to conclude that the ever more pervasive net of regulation is partly a reaction to the decline of the numerous intermediate institutions of society –  trade unions, extended families, friendly societies, churches, lodges etc –  which once helped people get through tough times, and helped vulnerable people cope with life generally, without the ever-expanding panoply of intrusive, inflexible, and costly government regulation.

Real interest rates

Michael Reddell Immigration, Interest rates

It is a while since I’ve done a real interest rate post, so here goes.

You’ll see stories from time to time about how low the New Zealand government’s borrowing costs are.

But it is still worth reminding ourselves of New Zealand’s long track record of having among the very highest average real interest rates in the advanced world.   Here, for example, are New Zealand, Australia, and the G7 countries for the last five years (the period chosen a bit arbitrarily, but a different set of dates wouldn’t substantially alter the relative picture).  I’ve just used average bond yields and average CPI inflation, from the OECD databases, but using (say) core inflation also wouldn’t materially alter the picture.

bond yields

Among these countries, we have one crisis-ridden hugely indebted euro-area country (Italy), one country with new substantial political and economic uncertainty –  and quite a lot of debt (the UK), one with extremely high levels of public debt (Japan), and one with recklessly large fiscal deficits and rising debt (the US).  And our real long-term government bond rates have been higher than all of them.

If we look at the situation today, the picture isn’t a lot different.  Italy has gone shooting past us, which should be no consolation to anyone (crisis pressures re-emerging there).  The gap between New Zealand and US real interest rates has narrowed quite a bit, as one might expect from the sequence of Fed interest rate increases in turn driven partly by unsustainable late-cycle fiscal expansion, but a 10 year US government inflation indexed bond was trading this week at 1.04 per cent, and a 10 year NZ government inflation indexed bond is trading at about 1.25 per cent.   Even that gap is substantially larger for 20 year indexed bonds.

As a reminder, our interest rates don’t average higher than those abroad because of:

  • superior productivity growth rates (we’ve had almost none in recent years),
  • macroeconomic instability (we have low stable inflation and low stable public debt),
  • public sector credit risk (see above –  and of the countries in the chart only Australia has comparably strong public finances),
  • weak banking systems (the Australian banks and their NZ subs have some of better bank credit ratings in the world),
  • risk around high levels of external indebtedness (not only is much of the external indebtedness on bank balance sheets –  see above –  but the New Zealand exchange rate has been persistently strong, not a feature you expect to see when risk concerns are to the fore).

Oh, and of the small OECD countries with floating exchange rates, over the last five years only Iceland (recently emerged from serious systemic crisis) and Hungary (IMF bailout programme as recently as 2008) had higher real interest rates than New Zealand.

At the heart of any explanation for this persistent real interest rate gap –  which has been there, on average, for decades –  must relate to factors influencing pressure on resources in New Zealand.   At some hypothetical world interest rate, there is  some mix of more demand for investment (housing, business, government) and a small supply of savings (households, business, government) than in most other OECD countries.    That incipient excess demand on resources is absorbed by having a higher domestic interest rate than in most other countries, and a higher real exchange rate.    That mix of adjustment will then squeeze out some of the incipient excess demand.  Global evidence suggests that overall savings rates aren’t very sensitive to changes in expected real returns.  Governments tend not to be very responsive to price signals, and people have to live somewhere (so although residential investment is highly cyclical, in the end everyone gets a roof over their head).  Much of the adjustment pressure is felt around genuinely discretionary, and market sensitive, investment spending: business investment, and especially that in sectors exposed to international competition.   It is the stylised story of New Zealand: moderate savings rates (overall), quite high rates of government and residential investment, modest rates of business investment, and a tradables sector which has managed little per capita growth for decades, and where international trade shares of GDP are stagnant or falling even a period when world trade blossomed.

And that is where my immigration policy story fits in.   Savings and investment pressures are aggregates of all sorts of forces and preferences, and so one can never say that a single factor “explains” the whole picture.  But if one is looking for areas where government policy – a non-market or exogenous influence –  plays a part, then New Zealand immigration policy over decades seems likely to be a significant part of the story.  Lots more people means lots more demand for investment just to maintain existing capital/output ratios.   New people need houses, and schools and roads and so on.  If this were a country where domestic savings (flow rates) were abundant –  and domestic savings are different from foreign savings because the act of saving domestically takes some pressure off domestic resources (incomes generated here not spent here) – it wouldn’t be a particular issue.  But that isn’t so in New Zealand.  Government policy choices may have influenced those outcomes to some extent –  I certainly favour a different tax treatment of savings –  but my reading of the international evidence leaves me sceptical that reforms in that area would make very much difference to desired savings rates (if only because income and substitution efforts tend to offset).

Instead, conscious and deliberate government policy drives up ex ante investment demand (at the world interest rate), and in the process tends to drive out the sort of investment that might have enabled those of already here to achieve better material standards of living.

(In a very small sample, it is perhaps worth noting that there are four OECD countries where policy is set to favour high rates of immigration.  They are New Zealand, Australia, Canada and Israel.  It should at least prompt a moment’s reflection among the immigration champions, that not one of those countries has been a stellar OECD productivity performer –  Australia and Canada have done better than New Zealand and Israel, but are nowhere near the OECD frontier, despite the abundance of fixed natural resources those two countries have.)

Race and the Living Standards Framework

Michael Reddell Treasury

The Treasury has been at work on its Living Standards Framework for some years now (since at least 2011).  When it was first dreamed up I recall remarking to various people that it seemed like preparation for a Labour/Greens government.  And so it has come to be, with the new government embracing the framework –  a substitute for actually doing anything about New Zealand’s dismal productivity record –  and talking endlessly about their forthcoming “wellbeing Budget”, plans for which must now be well underway.

There have been numerous papers published.  Among them were several playing identity politics:

Strangely, the Pacific paper emphasises that there is a wide variety of different Pacific cultures, but the Asian one talks repeatedly of “the Asian culture”.   This was the paper Gabs Makhlouf was touting in China a couple of weeks ago, talking up the “value” of “recognition of the hierarchical orderings of relationship.”

Personally, these papers strike me as largely a waste of public money.   But then so is the whole project, and I am very uneasy about The Treasury trying to analyse policy by loose race-based “preferences” or sets of values.  It has been notable, for example, that they have made no effort (to date) to look at perspectives on “wellbeing” by religion, for example –  where any differences may well be starker than those across race-based lines. Nothing either by political affiliation or ideology.  Only race.

Treasury were the ones who set off on the race-based path.  So I was curious –  and, okay, being slightly mischievous –  about what they’d done to look at the perspectives on the issue of European New Zealanders?   I didn’t actually expect they’d have done anything –  maybe they just assumed that their British CEO could adequately represent a (or the likely wide range of) European perspective(s)?   But I lodged the OIA request, and had a response this afternoon.

This was my request

Dear Sir/Madam,
I have noticed that Treasury has recently released papers on Maori, Pacific and Asian New Zealanders” “wellbeing” and the Living Standards Framework.  This is to request any similar work on European New Zealanders’ wellbeing, and if no such work exists any explanations why, and copies of any papers/emails relevant to the decision not to prepare such a paper.
Thanks in anticipation.
and this was the response,  provided on the very last of the standard 20 working days, and certainly not (as the Act requires) as soon as reasonably practicable.
The request is being declined under section 18(e) because the document/s requested do not exist.

In other words, it seems it never even occurred to them to think about the distinctive perspectives of the largest ethnic group in New Zealand.

Telling really, about the tokenism and identity politics that seems to infest this project.

 

The IDI and government data linking

Michael Reddell Statistics, Treasury, Uncategorized

Browsing on The Treasury’s website the other day, it was the title that caught my eye: “Talkin’ about a revolution”.   I’m rather wary of revolutions.  Even when –  not always, or perhaps even often –  good and noble ideas help inspire them, the outcomes all too often leave a great deal to be desired.   There are various, quite different, reasons for that, but one is about the failure to think through, or care about, things –  themselves initially small or seemingly unimportant – that the revolution opens the way to.

This particular “revolution” – billed as “a quiet and sedate revolution, but a revolution nonetheless” – was sparked by Statistics New Zealand’s Integrated Data Infrastructure (IDI).   Here is the Treasury author

The creation of Stats NZ’s IDI (or Integrated Data Infrastructure), a treasure trove of linked data, sparked the revolution, and its ongoing development drives it along. The IDI doesn’t collect anything new. Instead it gathers together data that is already collected, links it together at a person level, anonymises it, and makes it available to researchers in government, academia, and beyond.

The author goes on

Since 2013, its growth has been far more rapid. From a handful of users in its early years, there are now hundreds of people using IDI data to help answer thorny questions across the full range of social and economic research domains. The IDI is incredibly powerful for research, and has a number of important strengths.

  • Longitudinal – Providing a picture of people’s lives over time, crucial for understanding the effect of policies and services.
  • A full enumeration – Incorporating administrative data for almost all New Zealanders, enabling a focus on minority groups and small geographic areas.
  • Accessible – By making data available to researchers at relatively low cost, agencies are no longer gatekeepers of the data they collect, and a culture of sharing in the research community is encouraged.
  • Cross-sectoral – Allowing researchers to explore the relationships between different aspects of people’s lives that may be invisible to individual agencies.

There is a breathless enthusiasm about it all.

Stats NZ’s new online research database highlights the huge breadth of research underway for the benefit of all.

It is never made clear quite how the Treasury author gets to his conclusion that all this research benefits us all.

And here is the SNZ graphic illustrating the range of data they have put together (and linked)

IDI

I’m a bit torn about the IDI (and its business companion, the LBD).   As an economist and policy geek, I’m fascinated by some of results researchers have been able to come up with using this new database.  A few months ago I wrote (positively) here about how Treasury staff had been able to derive new estimates on internal migration.   Here is a chart I showed then on the various databases linked together that enabled those estimates.

tsy popn
And here is a more-detailed SNZ graphic on what data are in the IDI at present (and more series are still being added).

IDI 2

More details are here.

Note that it is not even all government data –  for example, the Auckland City Mission is providing data on people it assists.  Specifically

Auckland City Mission data

Source: Auckland City Mission
Time: From 1996
What the data is about:  Income, expenses, housing status, and household composition of Auckland City Mission clients, and the services these clients use. Auckland City Mission is a social service provider in Auckland CBD, that helps Aucklanders in need by providing effective integrated services and advocacy. Note: data dictionary available on the IDI Wiki in the Data Lab.
Application code: ACM

Even if in 1996 those individuals gave their consent for their (anonymised) data to be used, few people in 1996 would have had any idea of the practical linking possibilities in 2018.   (And at a point of vulnerability how much ability did they have to decline consent anyway?)

It is researcher heaven.  But it is also planner’s heaven.

Statistics New Zealand sings the praises of the IDI (as does Treasury –  and any other agency that uses the database).  I gather it is regarded as world-leading, offering more linked data than is available in most (or all) other advanced democracies –  and that that is regarded as a plus.   SNZ (and Treasury) make much of the anonymised nature of the data, and here I take them at their word.  A Treasury researcher (say) cannot use the database to piece together the life of some named individual (and nor would I imagine Treasury would want to).   The system protections seem to be quite robust –  some argue too much so – and if I don’t have much confidence in Statistics New Zealand generally (people who can’t even conduct the latest Census competently), this isn’t one of the areas I have concerns about at present.

But who really wants government agencies to have all this data about them, and for them to be able link it all up?   Perhaps privacy doesn’t count as a value in the Treasury/government Living Standards Framework, but while I don’t mind providing a limited amount of data to the local school when I enrol my child (although even they seem to collect more than they need) but I don’t see why anyone should be free to connect that up to my use of the Auckland City Mission (nil), my parking ticket from the Dunedin City Council (one), or (say) my tiny handful of lifetime claims on ACC.  And I have those objections even if no individual bureaucrat can get to the full details of the Michael Reddell story.

The IDI would not be feasible, at least on anything like its current scale, if the role of central government in our lives were smaller.   Thus, the database doesn’t have life insurance data (private), but it does have ACC data.  It has data on schooling, and medical conditions, but not on (say) food purchases, since supermarkets aren’t a government agency.   I’m not opposed to ACC, or even to state schools (although I would favour full effective choice), but just because in some sense there is a common ultimate “owner”, the state, is no reason to allow this sort of extensive data-sharing and data-linking (even when, for research purposes, the resulting data are anonymised).   There is a mentality being created in which our lives (and the information about our lives) is not our own, and can’t even be stored in carefully segregated silos, but is the joined-up property of the state (and enthusiastic, often idealistic, researchers working for it).   We see it even in things like the Census where we are now required by law to tell the state if we have trouble “washing all over or dressing” or, in the General Social Survey, whether we take reusable bags with us when we go shopping.    And the whole point of the IDI is that it allows all this information to be joined up and used by governments –  they would argue “for us”, but governments view of what is in our good and our own are not necessarily or inevitably well-aligned.

In truth my unease is less about where the project has got to so far, but as to the future possibilities it opens up.  What can be done is likely, eventually, to be done.   As I noted, Auckland City Mission is providing detailed data for the IDI.  We had a controversy a couple of years ago in which the then government was putting pressure on NGOs (receiving government funding) to provide detailed personal data on those they were helping –  data which, in time, would presumably have found its way into the IDI.   There was a strong pushback then, but it is not hard to imagine the bureaucrats getting their way in a few years’ time.  After all, evaluation is (in many respects rightly) an important element in what governments are looking for when public money is being spent.

Precisely because the data are anonymised at present, to the extent that policy is based on IDI research results it reflects analysis of population groups (rather than specific individuals).  But that analysis can get quite fine-grained, in ways that represent a double-edged sword: opening the way to more effective targeting, and yet opening the way to more effective targeting.  The repetition is deliberate: governments won’t (and don’t) always target for the good.  It can be a tool for facilitation, and a tool for control, and there doesn’t seem to be much serious discussion about the risks, amid the breathless enunciation of the opportunities.

Where, after all, will it end?   If NGO data can be acquired, semi-voluntarily or by standover tactics (your data orno contract), perhaps it is only a matter of time before the pressure mounts to use statutory powers to compel the inclusion of private sector data? Surely the public health zealots would love to be able to get individualised data on supermarket purchases (eg New World Club Card data), others might want Kiwisaver data, Netflix (or similar) viewing data, library borrowing (and overdue) data, or domestic air travel data, (or road travel data, if and when automated tolling systems are implemented), CCTV camera footage, or even banking data.  All with (initial) promises of anonymisation –  and public benefit – of course.  And all, no doubt, with individually plausible cases about the real “public” benefits that might flow from having such data.  And supported by a “those who’ve done nothing wrong, have nothing to fear” mantra.

After all, here the Treasury author’s concluding vision

Innovative use of a combination of survey and administrative data in the IDI will be a critical contributor to realising the current Government’s wellbeing vision, and to successfully applying the Treasury’s Living Standards Framework to practical investment decisions. Vive la révolution!

Count me rather more nervous and sceptical.  Our lives aren’t, or shouldn’t be, data for government researchers, instruments on which officials –  often with the best of intentions –  can play.

And all this is before one starts to worry about the potential for convergence with the sort of “social credit” monitoring and control system being rolled out in the People’s Republic of China.    Defenders of the PRC system sometimes argue –  probably sometimes even with a straight face –  that the broad direction of their system isn’t so different from where the West is heading (credit scores, travel watchlists and so).   That is still, mostly, rubbish, but the bigger question is whether our societies will be able to (or will even choose to) resist the same trends.  The technological challenge was about collecting and linking all this data,  and in principle that isn’t a great deal different whether at SNZ or party-central in Beijing.   The difference –  and it is a really important difference –  is what is done with the data, but there is a relentless logic that will push erstwhile free societies in a similar direction  –  if perhaps less overtly – to China.  When something can be done, it will be hard to resist eventually being done.    And how will people compellingly object when it is shown –  by robust research –  that those households who feed their kids Cocopops and let them watch two hours of daytime TV, while never ever recycling do all sort of (government defined –  perhaps even real – hard), and thus specialist targeted compulsory state interventions are made, for their sake, for the sake of the kids, and the sake of the nation?

Not everything that can be done ends up being done.  But it is hard to maintain those boundaries, and doing so requires hard conversation, solid shared values etc, not just breathless enthusiasm for the merits of more and more linked data.

As I said earlier in the post, I’m torn.  There is some genuinely useful research emerging, which probably poses no threat to anyone individually, or freedom more generally.   And those of you who are Facebook users might tell me you have already given away all this data (for joining up) anyway –  which, even if true, should be little comfort if we think about the potential uses and abuses down the track.   Others might reasonably note that in old traditional societies (peasant villages) there was little effective privacy anyway –  which might be true, but at least those to whom your life was pretty much an open book were those who shared your experience and destiny (those who lived in the same village).   But when powerful and distant governments get hold of so much data, and can link it up so readily, I’m more uneasy than many researchers (government or private, whose interests are well-aligned with citizens) about the possibilities and risks it opens up.

So while Treasury is cheering the “revolution” on, I hope somewhere people are thinking harder about where all this risks taking us and our societies.

Should Grant Robertson be able to bankrupt New Zealand?

Michael Reddell Fiscal policy, Uncategorized

Of course not.  And nor should have Michael Cullen, Bill English or Steven Joyce, the other people who have held the office of Minister of Finance this century.

And yet, by law, he can.  Anyone who holds the office of Minister of Finance can.   Without any further involvement in the matter by Parliament.

A basic principle of our form of government has long been that public spending can only occur if there is an appropriation voted by Parliament to authorise such spending.  Without that basic protection, Parliament loses much of its protection over the executive –  and protecting citizens against the executive was a significant part of the rise of democratic systems over government over hundreds of years.

There are some exceptions to that rule (eg  –  and at the sensible end – permanent legislative authorities for judicial salaries), some of which should be a little worrying, but the one I want to focus on here is section 65ZD of the Public Finance Act.

65ZD Minister may give guarantee or indemnity if in public interest

(1) The Minister, on behalf of the Crown, may give, in writing, a guarantee or indemnity to a person, organisation, or government if it appears to the Minister to be necessary or expedient in the public interest to do so.

(2)  The Minister may—

(a) give the guarantee or indemnity on any terms and conditions that the Minister thinks fit; and

(b) in the case of a guarantee, give the guarantee in respect of the performance or non-performance of any duties or obligations by a person, organisation, or government.

(3) If the contingent liability of the Crown under a guarantee or an indemnity given by the Minister under subsection (1) exceeds $10 million, the Minister must, as soon as practicable after giving the guarantee or indemnity, present a statement to the House of Representatives that the guarantee or indemnity has been given.

(4) The statement may contain any details about the guarantee or indemnity that the Minister considers appropriate.

Under this provision, a Minister of Finance can guarantee anything.   He doesn’t need the approval of Cabinet to do so, he doesn’t need the approval of Parliament, there are no specific criteria he is required to take account of (only his own assessment of “the public interest”), there are no limits on how large the guarantee can be, and even the reporting requirements –  added in recent years –  are weak in the extreme (the Minister must tell Parliament, after the event, that a guarantee has been given, but there is no mandated disclosure of the terms of any guarantee, the case for the guarantee, or documents related to the giving of the guarantee).

It is a shockingly broad power.  It isn’t clear that –  to take a deliberately overstated extreme example –  there is anything to stop a New Zealand Minister of Finance guaranteeing, say, the entire public debt of the United States –  or all the liabilities of Lehmans – provided the Minister concluded that, in his sole view, doing so was in the public interest of New Zealand (“I was worried the world financial system might fail, and New Zealanders would have suffered in the backwash”).   There are no effective ex ante checks and balances.  The Prime Minister might be able to sack the Minister of Finance, or the public might toss the governing party out at the next election, but that would small comfort if trillions of dollars of guarantees had been given out in respect of shonky activities.   A corrupt minister – and fortunately we haven’t had much of a problem with them so far –  could vastly enrich favoured people and entities in the process.  We supposedly build institutions around the realities of human fallibility, not an assumption that humans are angels.

As for settling the obligations taken on under a ministerial guarantee –  committing the full faith and credit of the New Zealand government –  there is an explicit statutory provision governing that too

65ZG Payments in respect of guarantees or indemnities
Any money paid by the Crown under a guarantee or indemnity given under section 65ZD and any expenses incurred by the Crown in relation to the guarantee or indemnity may be incurred without further appropriation, and must be paid without further authority, than this section.

Parliament gets no say at this point either (which makes sense –  a guarantee is worthless, and non-credible, if the person giving it doesn’t have the ability to ensure the obligation is honoured.

Perhaps a government could choose to default on its guarantee obligations, and so long as the guarantees were not given as part of any contract under some foreign jurisdiction there might be nothing anyone could do about it.  Defaults do happen, even in advanced countries, and perhaps markets would excuse default on the guarantee given by a corrupt minister for a huge and shonky deal, but it isn’t a situation we should ever risk finding our country in.

I’m not sure how other countries handle this issue, or constrain the ability of the executive to issue guarantees (I looked and couldn’t readily find a suitable reference source or comparative study).  But whatever they do –  and I’d be astonished if, for example, there was such flexibility in US legislation (where they have statutory debt ceilings, and all the perceived constraints around TARP or bailing out Lehmans) –  these provisions of New Zealand legislation seem far too broad, and should be reined in.

I don’t have a particular problem with some guarantee powers, but if they exist they should be tightly constrained.  The amounts the Minister can authorise himself should be capped (perhaps $100 million –  anything more requiring the approval of Cabinet (up to perhaps $10 billion) or of Parliament itself.  And the terms of such guarantees should be disclosed, as should the supporting documentation.

The counter-argument is probably about the ability to act swiftly.  And yet we know from bitter experience that governments can, when necessary (or when it simply suits them) ram legislation through Parliament in a day.   That doesn’t provide much scrutiny, but it is much more than we have at present, and Parliament is ultimately protection, and source of legitimisation of executive actions and commitments.

I’m pretty sure the guarantee sections  of the Public Finance Act aren’t the only way in which unconstrained individuals –  sometimes even unelected ones –  could gut the public finances, with little effective comeback, and no protections for citizens.  The hypothetical one that used to bother me –  and not because of any distrust of particular individuals, but because I had run the financial markets side of the Bank and was conscious of our powers –  was the Reserve Bank, which has almost totally unconstrained powers to enter into financial contracts, and which will be regarded by counterparties as highly creditworthy precisely because it is the central bank (too central to fail).  It trades on the underlying fiscal position of the Crown, and yet the Crown and Parliament have very little effective control over transactions initiated by the Bank.  In principle, a corrupt or seriously incompetent Reserve Bank Governor –  one unelected individual –  could enter highly leveraged large scale derivatives contracts and, if things went wrong leave the New Zealand taxpayer on the hook of tens of billions of dollars of losses.

Why am I writing about this issue now?  Because it is 10 years this week since I first really became conscious of section 65ZD of the Public Finance Act –  10 years since we were working on preparations for the Deposit Guarantee Scheme, in which  –  with Parliament dissolved for the election –  the Minister of Finance, on his sole authority, offered to guarantee hundreds of billions of dollar of financial institution liabilities.    I’ll write more about that specific intervention later in the week, but for now I wanted to shine a light on these statutory powers –  and their frightening extent in the wrong hands.    We need better protections, with less discretion for a single minister.  We can’t simply rely on the integrity and good judgement of those who hold office, in this or any other area.

Makhlouf on China

Michael Reddell China, NZ politics, Treasury

In a blog post the other day, which briefly touched on the activities of the People’s Republic of China in New Zealand, former ACT MP and senior lawyer Stephen Franks observed that

Our colonial forebears gained their colonial power and wealth by suborning the elites of the peoples subjugated more often than with military violence.

I hadn’t particularly thought of it that way before, but of course once one thinks about it for even a moment he is correct about the history, and (I suspect) about the relevance of the parallel to the current situation.

In fact, the parallel came to mind in pondering the latest public speech by Gabs Makhlouf the British ring-in Secretary to the Treasury, who not only qualifies as one of the “elite” but isn’t even someone with a strong ongoing personal interest in the future of ordinary New Zealanders, or even of New Zealand institutions.  Of course, even public servants holding as high an office as Secretary to the Treasury don’t make policy –  we hold politicians to account for that –  but Makhlouf seems to be actively engaged with, and supportive of, the longrunning deference to one of the most evil regimes on the planet, and apparent indifference to the tentacles of that regime in our system and country.

It mightn’t even be quite so annoying if his pandering was supported by decent economic analysis or a compelling understanding of the economic challenges facing New Zealand.  But it isn’t.    The speech, given at the university in Beijing, is under the title “The role of the China-New Zealand relationship in raising living standards”.

He burbles on about his beloved Living Standards framework, reaching the astonishing conclusion in his final paragraph that

Green mountains and blue rivers are as good as mountains of gold and silver.

Perhaps when you have a secure government income of many hundreds of thousands of dollars a year they are, but not to most New Zealanders – the people who struggle to get by, who’d appreciate the opportunities for better housing, better medical treatment, or even a better holiday.     Of course, the environment matters (rather a lot), and greater wealth and productivity has given us cost-effective options to reduce pollution (contrast the pollution levels in London or Beijing).  Perhaps we could extend the parallel: uninhabited New Zealand 1000 years ago –  beautiful and untouched as it may have been –  as good as a reasonably prosperous country today that makes extensive use of natural resources, and which has changed the landscape?   Few will think so, but perhaps the Secretary does?     If this is the sort of economic analysis governments have been getting, no wonder there is no progress in reversing our relative productivity decline.

Makhlouf goes on at length about the value of international trade and investment, and I can go a reasonable way along that line with him.  But it is as if he is talking for a totally different country when he observes enthusiastically that

And back in 1990 the ratio of global trade to world GDP was 30 percent; by 2015 that ratio had doubled to around 60 percent.

Which is good, but in New Zealand –  the country he supposedly represents –  the total exports and imports were 52 per cent of GDP in 1990 and 54 per cent last year.    We simply haven’t shared at all in the dramatic increases in world trade.   And because he seems not to understand that, the Secretary presumably has no credible analysis for what might make a helpful difference in future.   As it is, the New Zealand story is even worse than those snapshots suggests: exports as a share of GDP peaked as long ago as 2000, and even exports of services –  where the Secretary likes to talk up tourism and export education –  peaked as share of GDP in 2002.    The services exports share of GDP is now 30 per cent smaller (three percentage points) than it was then.

Then there is one of his tired old lines, claiming that “we” (New Zealand) are “part of the fastest growing region in the world” when, as he delivered his speech in Beijing, he was closer to home in London than to his office in Wellington.

I could go on, but the weaknesses of the Secretary’s economic analysis have been documented in many earlier posts.   What appalled in this particular speech was the craven grovelling to the PRC, the total relativisation of our two countries in ways which suggest that he thinks their system, their government, is just as good as ours.  (I don’t suppose he really does, but when you are a senior official, backing your government, what you say counts  –  including no doubt to the PRC authorities. He does the kow-tow)

He begins his speech with the rather empty claim that

Yet there is so much that we have in common.

We are all human beings I guess, but it wasn’t clear what else he had in mind.   He tries, not very convincingly, to elaborate.

All of us here want open trade, thriving business, and economic growth. Those things matter for our material wellbeing. But they are only a subset of what contributes to the quality of our lives. I’m sure we share a belief in the importance of good health and education, decent housing, the support of family and friends, a clean natural environment, a safe and peaceful society. We seek that for ourselves and for future generations.

As the Secretary surely knows, the People’s Republic of China has no commitment to open trade, having a highly regulated economy, and tight restrictions on international services trade in particular, and on investment.    But what of that broader list of things he thinks we have in common?  Perhaps it is fine as far it goes, but he is talking to people in a country whose government has a million people from Xinjiang in concentration and re-indoctrination camps.  And for all the Secretary’s talk about wellbeing –  and even “social capital” –  it is notable that things like free speech, free expression, the ability to change your government, freedom of religion, and even the rule of law – explicitly disavowed not long ago by the PRC Chief Justice –  are totally absent from his list.  The things that divide free and democratic countries from the PRC regime are huge and important.  Perhaps even the sorts of things that might appear in a typical New Zealand assessment of wellbeing?  But they, apparently, don’t matter much to the Secretary to the Treasury.  He goes on the praise the Belt and Road Initiative –  under the aegis of which the previous New Zealand government committed to the (rather frightening) aspiration of “the fusion of civilisations” with the PRC.

In all that he was just warming up.  There is later a substantial section of the “NZ-China relationship”, which is almost nauseating in places.  Thus

It is a relationship that goes beyond diplomacy and trade. It’s also about the links between people, about investing in our mutual success, and about recognising our shared interests in the world.

Liberty, democracy, the rule of law for example?  I guess not.  Respect for established international borders?  I guess not.    Then again, there is this in common, that both China and New Zealand have dramatically (economically) underperformed their near neighbours over the last century of so: in China’s case, Japan, South Korea and Taiwan, and in New Zealand’s case Australia.

Then we get this

It hasn’t all been one-way traffic. New Zealander Rewi Alley helped establish the Gung Ho movement in the 1930s and dedicated 60 years of his life to improving the living standards of Chinese workers.

You mean the active member of the Chinese Communist Party and unashamed apologist for its evils  (I have one of his books sitting on my desk, co-authored with the dreadful Communist fellow-traveller Wilfred Burchett, written towards the end of the Cultural Revolution celebrating the quality of life in the PRC).    Then again, when we have a Chinese Communist Party member in our Parliament what might one expect from our elites?

The Secretary moves on to celebrate PRC foreign investment in New Zealand.  He notes, without further comment, that

Over half of the 25 largest Chinese investors in New Zealand are state owned enterprises including Huawei, Yili and Haier.

as if this is a good thing (Treasury not being known for its enthusiasm for SOEs in New Zealand), as if he cares not about the national security threat various allied governments have determined Huawei represents –  and note that Huawei likes to represent itself as a private company –  and as if he is unaware (or cares not a bit) about the PRC law under which companies (private and public) are required to operate in the interests of the partt-State, at home or abroad.  In the best of circumstances, state ownership (and murky ownership) is a recipe for weakened capital allocation disciplines etc, and the Secretary to the Treasury really should know that.

The Secretary goes on

I believe one of the main reasons the China-New Zealand relationship is so close and constructive is because we both recognise the importance of diplomacy.

A line so vacuous it can only mean that New Zealand knows when (almost always) to rollover, never upset Beijing, and so on.   And who would want a “close and constructive” relationship with such a tyrannical regime anyway –  unless money is now all that matters (surely not so, especially in the Secretary’s wellbeing world.   Do these people have no shame?

Channelling the government, the Secretary touches on the Pacific, where the PRC is increasingly active, and in ways that look quite damaging not just to our interests, but to those of the ordinary citizens (although, again, not necessarily the “elites) in those countries.  Here is his final line.

We believe it is in everyone’s interest in the region – including New Zealand and China – to encourage sustainable economic development, good governance, respect for sovereignty and the rule of law.

I guess that is really a timid suggestion to the PRC, but they are quite open that they have no time for the rule of law (unless, of course, in their own interests), good governance (surely you’d practice what you preach), let alone “respect for sovereignty” –  ask the neighbours in the South China Sea, or Taiwan, the peaceful independent productive democracy.

We believe it is in everyone’s interest in the region – including New Zealand and China – to encourage sustainable economic development, good governance, respect for sovereignty and the rule of law.

Sounding like his countryman, Neville Chamberlain –  who did finally come to his senses –  we apparently don’t believe in right and wrong, or standing by those who are threatened.  The Secretary –  and his government –  just want to be “honest brokers”.  It is a shameful stance.

Perhaps you think I’m being a little unfair to Mr Makhlouf.  He is after all just a (very senior) public servant, channelling government policy.  But no one forces him to parrot these sorts of lines, and to make public speeches re-emphasising New Zealand’s deference and subservience, all under the mask of “mutual benefits”.  Sure, he can’t run an alternative, more challenging, perspective in public, but it is entirely his choice to attach his name to these lines.    He is one of the guilty, sacrificing our values, our institutions, while giving cover to the evils of the PRC regime, all for what?   A few more dollars for a few more big institutions.  In the Secretary’s case there isn’t even the shameful, feeble excuse about political parties “needing” to fund themselves.

Sacrificing our values?  Well, in his speech Makhlouf also talked about his living standards framework and how Treasury had gone out to do some weird race-based consultations about what mattered to people. I haven’t read these papers yet but he reported that of their consultation with Asian New Zealanders (emphasis added)

There is a strong belief in the value of collectivism, diligence, responsibility, frugality and recognition of hierarchy in relationships.

Surely, if there is any traditional New Zealand value –  and as I noted earlier in the week, I’m not fan of values-test – it is the polar opposite of “recognition of hierarchy in relationships”.  But probably Makhlouf, MFAT, and the political elites of all parties would prefer we all knew our place and left all this to them; another deal, more donations, and a refusal to ever stand for the values the Prime Minister sometimes talks about if it might even create even a little awkwardness in Beijing.

Sometimes, moments of hope arise in the strangest places.  I’m no fan of Donald Trump, and could only agree with the right-wing US columnist who the other day declared Trump the single most unsuited person to be President in all of US history.  And yet the other day, his Vice-President Mike Pence gave a speech on the Administration’s policy towards the PRC that came as distinctly refreshing after reading the Makhlouf effort.  I’m not going to excerpt it at length, but for anyone interested I suggest you read it.  I was pleasantly surprised by much of it, and have seen fairly positive commentary on it from various Democrtic-leaning China commentators.

But I come before you today because the American people deserve to know that, as we speak, Beijing is employing a whole-of-government approach, using political, economic, and military tools, as well as propaganda, to advance its influence and benefit its interests in the United States.

China is also applying this power in more proactive ways than ever before, to exert influence and interfere in the domestic policy and politics of this country.

Pretty much what Anne-Marie Brady (I’m pretty sure no right-wing Republican) has been saying here, although you will never hear such honesty from our politicians.

Previous administrations made this choice in the hope that freedom in China would expand in all of its forms -– not just economically, but politically, with a newfound respect for classical liberal principles, private property, personal liberty, religious freedom — the entire family of human rights. But that hope has gone unfulfilled.

Gabs Makhlouf claims to believe we have so much in common with the PRC.

Beijing is also using its power like never before. Chinese ships routinely patrol around the Senkaku Islands, which are administered by Japan. And while China’s leader stood in the Rose Garden at the White House in 2015 and said that his country had, and I quote, “no intention to militarize” the South China Sea, today, Beijing has deployed advanced anti-ship and anti-air missiles atop an archipelago of military bases constructed on artificial islands.

Blunt, but unquestionable.  And thus utterly unacceptable in New Zealand.

At the University of Maryland, a Chinese student recently spoke at her graduation of what she called, and I quote, the “fresh air of free speech” in America. The Communist Party’s official newspaper swiftly chastised her. She became the victim of a firestorm of criticism on China’s tightly-controlled social media, and her family back home was harassed. As for the university itself, its exchange program with China — one of the nation’s most extensive — suddenly turned from a flood to a trickle.

While in our universities, Confucius Institute advance PRC interests, and our multi-university Contemporary China Research Centre is chaired by someone who chairs a Confucius Institute, advises the PRC on Confucius Institute, and has a range of other interests that could be severely disadvantaged if the PRC were ever upset.

I don’t have any confidence in the Adminstration’s willingness to stick to anything, or in Trump’s temperament in handling a crisis.  But at least the US government is willing to call a spade a spade in this area.  Ours are determined to see never ill, say nothing ill, while their party leaders (sickeningly) praise the regime, and the party donations keep flowing in.

Sadly, there is a yawning vacuum where courageous and honest political leadership, standing for our system, our values, and (to the extent we can) for the rights and freedoms of people in China, might be.   As Stephen Franks put it, it is the elites we have to worry about.

And, in closing, I noticed this link this morning on Anne-Marie Brady’s Twitter account

The article it links is (or at least I found it so) a little difficult to make your way through, but it represents the efforts of some ethnic Chinese New Zealanders not content with successive New Zealand governments’ supine approach to the PRC.

The PRC and the Prime Minister

Michael Reddell China, NZ politics

National Public Radio (NPR) in the United States is a bit like Radio New Zealand National, and about as left-wing in the assumptions and orientations (sometimes probably unconscious) of most of its presenters and interviewers.  I listen regularly to their politics podcast, and it struck me recently that the people involved are probably almost as left-wing as our Prime Minister (who, while an MP, served as president of the International Union of Socialist Youth, complete with the speech in which she used the word “comrade” 15 times in eight minutes).

Which is by way of saying that when NPR reports on a story, it isn’t exactly Breitbart, or the fevered imagination of some vast right-wing conspiracy.    These are people with whom you’d think our Labour and Greens parties would normally be in sympathy with.

But earlier this week, NPR published a lengthy story about the influence activities of the People’s Republic of China in Australia and New Zealand.  It is missing a few nuances, but is an interesting treatment for an international audience.  In the Australian section there is a nice quote from a serious senior academic.

“China’s different in scale and it’s different also in that it can integrate the private sector, education, civil society — all arms, if you like — of the state and the community with the objectives of the Chinese Communist Party,” says Rory Medcalf, head of the National Security College at Australian National University. “We’re not really dealing with a normal country here. We’re dealing with an authoritarian party state, where in fact Chinese citizens owe a higher loyalty to the party than to the state itself. So what we’re dealing with here is the largest secret organization in human history.”

and

Medcalf says the problem is not China’s people, but its Communist Party. Some of the most vulnerable victims of the party, he says, are Chinese people who left their country to live in democracies like Australia and New Zealand.

Very similar themes to those in the work, on this side of the Tasman, of Anne-Marie Brady –  vilified in last year’s election campaign by the then Attorney-General and Minister of National Intelligence as some sort of nasty xenophobe.

NPR interviewed Chen Weijian who

….moved from China in 1991, escaping imprisonment for working on a pro-democracy newspaper. He restarted the newspaper in New Zealand, but even there, Beijing caught up with him, he says: A pro-Chinese Communist Party newspaper in Auckland sued him for defamation after he criticized it for being too pro-Beijing. Ongoing legal fees forced his paper into bankruptcy in 2012.

“Their paper was funded by businesses supported by China’s government,” Chen says. “So an overseas Communist Party’s propaganda wing crushed our democratic newspaper here in New Zealand.”

A reader who is closer to these things tells me

The Chinese newspaper which crushed Chen Weijian’s pro-democracy paper is the Chinese Herald, now NZME’s joint venture partner of the Chineseherald website.
The international news on this website are primarily sourced from the three major CCP’s state media and they apparently uphold the CCP’s stance.
And more US readers/listeners got to hear of the curious, not to say alarming, case of Jian Yang.

Last year, local media reported that a prominent, Chinese-born member of New Zealand’s Parliament, Jian Yang, had lied to authorities about his education background on his citizenship application for New Zealand.

Yang, a member of the National Party, which led the government from 2008 to 2017, had worked for 15 years in China’s military intelligence sector. He studied English at the People’s Liberation Army Air Force Engineering University, taught at the college for five years after graduating and then obtained a master’s degree at the People’s Liberation Army University of Foreign Languages in Luoyang, one of China’s best-known military intelligence schools.

Later, at the same institute, Yang taught English to students who were studying to intercept and decipher English-language communications on behalf of Chinese military intelligence.

Yang declined an interview request from NPR. He admitted to journalists last year that he was a member of China’s Communist Party, though he insisted he has not been an active member since he left China in 1994. He has steered clear of the media spotlight since the scandal hit.

NPR joining the honourable company of all English language media that Jian Yang –  an elected member of the New Zealand Parliament, elected (to their shame) by all National Party voters  – simply refuses to talk to.

Chen Weijian goes on, rather more speculatively in some places

“Jian Yang is not just connected to China’s Communist Party,” says Chen Weijian. “He was sent here by them to spy on New Zealand. But people in Yang’s party — the National Party — all think he’s good for New Zealand-China relations. A lot of his party’s donations come through him, and he often leads government trips to China to make lucrative deals there.”

Yang, who has served in Parliament since 2011 and remains in office, played a prominent role during official visits to China in 2013 and 2016, sitting alongside then-Prime Minister John Key opposite Chinese leader Xi Jinping and serving at times as interpreter during bilateral meetings.

As Yang’s political influence grew, so did New Zealand’s economic dependence on China. In 2008, New Zealand became the first developed country to sign a free trade agreement with China. As a result, trade between the two economies has tripled in the past decade, largely because of China’s thirst for imported New Zealand milk: A quarter of all imported milk in China comes from the tiny island nation.

The (so-called) FTA was signed three years before Jian Yang turned up in national politics, and as a the world’s largest exporter of milk powder it seems probable that exports to China would have increased considerably over the last decade whether or not an FTA had been signed, whether or not Jian Yang was in Parliament.

NPR talked to Charles Finny, former diplomat, trade negotiator, and now lobbyist who declared last year that he knew Jian Yang (and Raymond Huo) and was always very careful what he said in front of either of them.

Finny [talking of FTAs] believes the same to be true in politics. He says China has most likely been using New Zealand as a testing ground for diplomatic relations with other developed nations.

“We’re small, nonthreatening,” he explains. “We’re not as close to the United States. China, I think, wants to learn from us about how to deal with other, larger players. It’s very common for Chinese leaders when they’re just about to be appointed to a big position to come to New Zealand to learn about democracy, to learn about how to deal with the media, to learn there are going to be some protests — all these things that are going to be a much bigger factor in bigger relationships, they get to learn how to deal with it here.”

Perhaps, but you get a pretty easy ride here.  Universities lined up to have photos taken with Xi Jinping.  Our former Prime Minister Jenny Shipley went out of her way to ensure that the visiting Chinese leader in the 1990s didn’t have to see protestors.

NPR did talk to one senior New Zealand politician who made some interesting remarks (if typically cryptic and defensive) that seem to have had surprisingly little local media attention.

After New Zealand’s intelligence agency began looking into Yang’s background in 2016, he was removed from parliamentary select committees on foreign affairs, defense and trade. But he hung on to his seat in Parliament, leaving some wondering why.

“The answer to that is not something that can be given today, but it is an answer that will soon have to come from our country and our system as to what our response is,” Winston Peters, New Zealand’s deputy prime minister and foreign minister, tells NPR. “At that level of growing public interest — and I would think intelligence interest as well — plus the shared intelligence from our closer allies, one would be naive in thinking that our response would not be forthcoming.”

Does that mean anything at all?  And if so, what?    Surely it is pretty clear why Jian Yang hangs onto his seat, despite his past, and his misrepresentations to New Zealand authorities, being exposed and acknowledged?   And despite his ongoing close associations with the PRC and his refusal to ever utter a negative word about that totalitarian state.  On the one hand, the National Party wants the donor money and doesn’t want to risk the relationships with donors by acknowledging that there is something very wrong.  And, on the other hand, because all other parties –  including that of the Deputy Prime Minister, once in office – make it easy for National to do so.  Not a negative word is heard from any of them –  the Prime Minister, the minister responsible for the intelligence services and the electoral system, the Deputy Prime Minister, the Minister of Defence, the leaders of the Green Party (or their foreign affairs or intelligence spokespeople).

The interview with Winston Peters obviously got a little tetchy.

Analysts in the U.S. and Australia have suggested the Yang case is evidence that China is exploiting New Zealand as a weak link in what’s known as the “Five Eyes,” the intelligence alliance including the U.S., U.K., Canada, Australia and New Zealand. This angers Peters. He is the longest-serving parliamentarian in New Zealand’s history [which he isn’t] and has long been vocal about his country’s dependence on China, but he draws the line when his country is criticized for being used as a political tool for the Chinese.

“This country turned up to two world wars, two years before the United States on both occasions,” he points out. “So we don’t like that sort of talk down here.”

The journalist obviously missed the important context that Peters only ever says anything critical when he is in Opposition and unable to actually do anything.

One might point out in response to the Deputy Prime Minister that 80 years ago our then government was at the forefront of calls to pushback against aggression by Germany and Italy, recognising the nature of the evil.  So different today…..

The NPR journalist then turned to Stephen Jacobi

“To suggest that New Zealand may be naive, well, OK, fine,” says Stephen Jacobi, executive director of the New Zealand China Council, a group in Auckland promoting business ties. “We don’t have to see the world the same way Americans do, or even Australians do. We’re very proud of that.”

Jacobi says the evidence against Yang — who serves on the board of his organization — is largely hearsay and is not enough to prove that he is working for China’s government.

The NPR people obviously missed the rather important point that the China Council isn’t just a bunch of businesses wanting to sell out their own country for another deal, but a taxpayer funded organisation designed to play distraction and influence public opinion in favour of the (successive) government’s strategy of doing much the same.

New Zealanders might be proudly independent, but only foolish people are proud of having a different view from other countries simply for the sake of it.  Most New Zealanders aren’t that foolish.   Jacobi –  whose background was trade with the Americas –  seems to simply ignore issues around the integrity of our political system, the evils of the PRC regime, and its external aggression.    But who cares about those things when there are deals to be done by your members, visits to host etc.

But his comment about Jian Yang is interesting.  On the one hand, he now seems to concede that there is something to the concerns (it is only “largely” hearsay).  Perhaps things like the:

  • service in the PLA military intelligence system,
  • membership of the CCP,
  • expert assessments that (a) no one voluntarily leaves the Party, and (b) a person with his background would not have been allowed out of the PRC unless he was regarded as totally politically safe and reliable,
  • the acknowledged misrepresentations of his past on immigration/citizenship forms,
  • the photographic evidence of his close ongoing associations with the PRC Embassy,
  • the absence of any sign, in his time in Parliament, of ever being willing to criticise the PRC regime, for anything.

Does he actively “work for” the Chinese government?  One hopes not, but even if not –  and Charles Finny appeared to think otherwise, on national TV – the list of things we know, with a high degree of certainty should be enough to have any leaders of decency and integrity dissociate themselves from Jian Yang.   Perhaps it is a bit like the Kavanaugh case: the relevant standard, in putting people in influential leadership positions, shouldn’t be whether one could avoid a criminal conviction.  In Jian Yang’s case, it isn’t even clear that he could get over that hurdle in respect of the immigration/citizenship non-disclosures.

The willed reluctance of the New Zealand establishment to confront the issue was captured again in this week’s Newsroom column by Peter Dunne. Writing about who might leave Parliament at the next election, our longserving former minister writes

Likewise, Dr Jiang Yang may decide to stand aside if the vague but persistent whispers about his links to Chinese intelligence agencies persist and intensify

 

You mean pretty basic, now acknowledged, “links” like the fact that the man worked for them for a decade?   A bit more than a “whisper”.

The NPR story ends with some coverage of Anne-Marie Brady, both her papers (and associated testimonies) and the break-ins to her home and office, which are widely assumed to be the ultimate responsibility of the PRC authorities.  There isn’t anything new in that section of the story, although it is good for a wider range of overseas readers/listeners to be exposed to the material.

The Peters quote aside, in many ways there isn’t anything new in the NPR story; the news is as much that another major overseas media organisation, one whose people are probably not generally unsympathetic to the leftish slant of most New Zealand politics, ran it.

But I was struck by it partly for the contrast with the speeches the Prime Minister was giving last week on her progress through New York, making the most of her baby for publicity purposes (I checked, and Tony Blair and his wife had a child while he was Prime Minister, who wasn’t –  as far as I could tell –  paraded at the UN General Assembly).  I read all six of them, looking for substance and mostly coming up short.   It was the speech to the United Nations General Assembly that I focused on most.  After all, there might have been hardly anyone there is hear it, and only a few Guardian types to praise it, but it was an official statement of New Zealand Prime Minister to an international agency which New Zealand is a founding member of.

There were plenty of sly digs at the United States –  some even warranted –  but not a word, directly or indirectly, about the People’s Republic of China.  It might be the most populous country on the planet, with the largest (total) GDP, on an aggressively repressive path domestically (as just one particularly egregious example, those million or more people of Xinjiang in concentration camps, having done nothing but be) and a pretty aggressively expansionist path abroad, including the direct interference in the commercial and political affairs of other countries, including our own.  There was a whole section on “universal values”, which of course bears no relationship to how the People’s Republic operates.  There was a great deal on climate change, most just cheap rhetoric –  and perhaps not that different from what Xi Jinping might have said.  And then the speech ended this way

Perhaps then it is time to step back from the chaos and ask what we want. It is in that space that we’ll find simplicity. The simplicity of peace, of prosperity, of fairness. If I could distil it down into one concept that we are pursuing in New Zealand it is simple and it is this.  Kindness.

In the face of isolationism, protectionism, racism – the simple concept of looking outwardly and beyond ourselves, of kindness and collectivism, might just be as good a starting point as any. So let’s start here with the institutions that have served us well in times of need, and will do so again.

Kindness and collectivism.  There’s the answer, at least according to our Prime Minister.  Frankly I found it unnerving that we get this level of vapidity of someone charged with running the government.   “Kindness” is an admirable, perhaps under-rated, characteristic in interpersonal affairs, but it is hardly any sort of useful benchmark for making public policy.  In fact, it is incredibly naive and dangerous, and simply pays no heed to the realities of human nature.    As for “collectivism”, perhaps it is something the members of the Interational Union of Socialist Youth think fondly of, but many of the rest of us are inclined to think of manifest evils of the Soviet Union and Communist China (I could recommend a couple of good books I’ve read recently –  here and here).  I’m pretty sure neither the term nor the idea of “freedom” or “liberty” appeared in the Prime Minister’s speech at all.    Much of the active government talk was rather reminiscent of the sorts of speeches the Chinese Ambassador gives here every few weeks, with her talk of

“building of a community with a shared future for mankind”

Or rather like Simon Bridges signing the government up last year to an aspiration of a “fusion of civilisations” with a regime so evil.

Not, of course, that the PRC would be so vapid as to suggest that “kindness” is some sort of watchword for policy, whether domestic or international.

But then why would we be surprised.  The President of the Labour Party sings the praises of the regime, and of Xi Jinping.  And, so we learn from the Chinese Embassy website (although not from the Prime Minister), on the recent visit of a Politburo member there was talk of strengthened ties between (presumably) the Labour Party and Communist Party of China (emphasis added).

Li, secretary of the CPC Guangdong Provincial Committee and a member of the Political Bureau of the CPC Central Committee, met with New Zealand Prime Minister and Leader of the Labor Party Jacinda Ardern on Monday.

Li said China is ready to work with New Zealand to enhance political mutual trust, expand economic cooperation, keep closer party-to-party exchanges, and strengthen coordination and communication in international and regional affairs.

People say (I see it even in the ACT newsletters) that the Prime Minister is a nice kind person at an individual level, but she seems wilfully indifferent –  if not worse –  to the nature of the regime with which she and her party deal,  and about whose evils  –  and whose interferences here –  she will never once openly speak of, whether at home or in New York.

It was interesting to see the government joining yesterday in a multi-national effort to denounce various incidents of Russian government hacking.  I welcome them doing so, even if I couldn’t help wondering what marked out our own government’s signals intelligence efforts, Waihopai and all.  Isn’t such interception what governments do?  And isn’t complicity in actual and attempted murder on foreign soil –  about which the government was so slow to speak out, whether over the Malaysian airliner over Ukraine or the Skripal case – rather more substantively important.

But those were rather cheap words –  about episodes not actually involving New Zealand directly – signifying not much more than our ongoing relationship with the UK and Australia.   But China is a much bigger issue globally, and particularly in New Zealand, than Russia is.

And where is the Prime Minister on things like Xinjiang (or do “universal values” not apply there)?  Where is the Prime Minister on things like the episode in the South China Sea earlier in the week –  a Chinese warship within 45 metres of a US ship on innocent passage through international waters –  let alone the now fait accompli of the illegal militarisation of reefs etc in that sea?  Where will the Prime Minister be on the new in-depth Bloomberg story about the PRC using their place in supply chains for espionage purposes?

The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies

The attack by Chinese spies reached almost 30 U.S. companies, including Amazon and Apple, by compromising America’s technology supply chain, according to extensive interviews with government and corporate sources.

Or on the PRC attempts to use research cooperation agreements, including with NZ universities, to steal sensitive technology?

And, of course, where is the Prime Minister on situations like Jian Yang, or Raymond Huo –  apparently associated with various United Front bodies –  who sits in her own caucus.

Perhaps she and her colleagues think kindness is the answer?

“Kindness” is no substitute for a serious hardheaded analysis or for engaging with the New Zealand public on the nature of the PRC threat, here and abroad.   It seems more like an excuse for covering your ears and eyes and reciting repeatedly “hear no evil, see evil”.     But then there are none so blind as those who wilfully choose not to see.

(And critical as I am of the Prime Minister here, there is no sign that any party in New Zealand is any better, even if not all of them would use quite her particular vapid rhetoric to simply avoiding facing reality, or standing up for New Zealand and the values of her people, and her friends in other free and democratic countries.)

But what did Winston Peters mean in those quotes above? Perhaps some New Zealand journalist could ask him?

Tomorrow, I might tackle the latest public effort of a senior public servant to dine with the devil.

In (reluctant) support of teachers

Michael Reddell Education, Immigration, Uncategorized

I’m no great fan of school teachers (at least as found in contemporary New Zealand –  a re-read last week of Goodbye Mr Chips was another matter altogether).  Over ten years now we’ve encountered a handful of very good teachers, quite a few duds, and lots who seemed no better than mediocre.  There was the Principal who, when my oldest child started school, told a gathering of parents of new entrants that it was really quite inappropriate to teach content as almost all of it would be out of date before long.   And when this particular Principal (together with the NZEI) was using the pages of the Dominion-Post to promote my daughter’s teacher –  apparently genuinely excellent –  as an illustration of the case for more pay, I made myself unpopular by noting that in the same school there were less than outstanding teachers, and that most people knew who they were.   Then there was the science teacher at the local intermediate school teaching conspiracy theories around 9/11.      Teachers who want to tell students off for discussing the previous day’s playground incident in which a deeply troubled student was on the loose with a knife and the school was in lockdown.   And then there is the endless “indoctrination”, mostly probably by teachers not quite smart enough to realise there really is an alternative view to their particular right-on views on colonialism, capitalism, homosexuality or whatever, and not apparently trained to the view (common in my youth) that a teacher’s personal political views (let alone sexual preferences) weren’t something to obtrude into the classroom.   If there are any teachers in Wellington sympathetic to a market economy, they must keep rather quiet about it.

So I’m not normally overly sympathetic to teachers.  And mostly we are stuck with them –  the teachers’ unions being among those most strongly opposed to effective school choice.   That said, as a stay-at-home parent, their stopwork meetings and strikes don’t inconvenience, or greatly bother, me.  It can be nice to have a bonus day at home together.

Of course, like any occupation there can at times be difficulty filling particular teaching positions.  When I was young we moved from Christchurch to Kawerau, and either on the day we arrived, or possibly the next day, the Principal of the local high school was on the door step.  He’d heard that the new Baptist minister’s wife had science qualifications and teaching experience (10 years previously) and he was desperate for staff.

Perhaps not all such specific vacancy stories tell anything meaningful about salaries and/or working conditions.  But when the stories multiply, and there is evidence of a material gap between demand and supply (demand exceeding supply) at the current price is usually a sign that the price should be rising, perhaps quite a bit.

How confident can we be that there is a shortage of teachers at current salaries?  Principals tell us so, but they –  members of same unions –  aren’t entirely disinterested observers (it was only a few weeks ago that a newsletter came home from one local school in which the Principal urged us parents to get along and support the teacher protest).    And almost every day, at least in the schools I have exposure to (three at present), there is a warm body in front of each class.

But then in this morning’s newspaper we read that the government itself –  the ultimate employer/funder of most school teachers –  recognises the problem.  The Minister of Education “is pledging to find at least 400 overseas teachers for the 2019 academic year”.

Which is rather convenient for the government surely?  As the near-monopsonist purchaser of school teaching services, it deals with shortages by using its power as  controller of the immigration and work visa regime to attempt to meet its staffing problems.

As I’ve written previously, there can be a place for work visas where, for example, there is a sudden and unexpected increase in a demand for a particular skill, or even where a particular skill is very rare (the market for some speciality skills can be very thin indeed).   But there are no real surprises as to how many teachers are needed nationwide –  at bare minimum for people born here there is a five year lead time, and that for new entrant teachers.  And decent teaching skills aren’t, or shouldn’t be, that hard to come by –  the PPTA apparently claims 17000 members.    These should be jobs that can be perfectly adequately filled by local residents –  who will have the added bonus of understanding the local culture –  at least if the labour market was allowed to work.

A few months ago I wrote here (and here) about how the work visa system appeared to be enabling local authorities to keep down bus driver wages and (thus) fares and ratepayer funding by substituting foreign workers in place of locals.    The bus driver case looked particularly egregious –  it being a quite modestly-skilled role into which someone could be trained in 6-8 weeks.   But it isn’t clear to me that the school teacher case is really so different, even granting that the skill levels are higher, and thus the inevitable local training and recruitment lags would be a bit longer.

Of course, like all work visa applications the case for importing teachers will be supported by evidence that locals couldn’t be recruited. But if you keep the wage level down it isn’t overly surprising that New Zealanders with other options will pursue them, and you will be left with an apparent shortage.

And the market in teachers is a pretty dysfunctional one.  We have national pay scales even though it must be a great deal harder to get teachers in Auckland than in Timaru (and that private sector jobs typically pay a bit more, for the same job, in Auckland than in Timaru), the pay scales for secondary teachers don’t differentiate by subject (even though the alternative options for a good science teacher and a good history teacher may be quite different, and we still have something like pay parity between kindergarten teachers and secondary school teachers.   For that we can blame both the teacher unions and successive governments (National-led and Labour-led).

Nonetheless,  there does seem to be a shortage of (good) teachers, and it isn’t obvious that the government should be able to use the immigration system to avoid meeting the market (while no doubt claiming in other fora that heavy use of work visas in particular sectors doesn’t hold down wages in those sectors).

When writing about bus drivers, I suggested adopting this sort of policy

To that end, I’ve argued previously for a system in which Essential Skills visas are granted on these terms:

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, with this provision to apply regardless of skill level).

b. Subject to a fee, of perhaps $20000 per annum.

If an employer really can’t find a local hire for a modestly-skilled (or unskilled) position, they’d be able to get someone from overseas, but only by paying (to the Crown) a minimum annual fee of $20000.  It is pretty powerful incentive then to train someone local, or increase the salary on offer to attract someone local who can already do the job. If you can’t get a local to do a job for $40000 per annum, there might well be plenty of people to do it for $50000 (and still cheaper than paying the ongoing annual fee for a work visa employee).

Even in the context of teacher salaries –  where starting salaries are well above $40000 –  per annum – this looks like the starting basis for a workable model.

More generally, I have argued that

If we are going to have government officials administering something like a mass market Essential Skills visa scheme, and deciding who does and doesn’t get approval, surely a key aspect of any labour market test should be something along these lines?

“has the effective wage or salary rate for this occupation risen materially faster than wages and salaries more generally in New Zealand over the past couple of years?”

If not, how can you seriously use the term “skill shortage”?    Even if wages in a particular occupation have risen faster than the norm, it takes time for locals to respond and shift occupations, so one wouldn’t necessarily want to jump at the first sign of a bit of real wage inflation in a particular occupation, but if after a couple of years the pressures were persistent then some sort of Approval in Principle for temporary migrant labour –  at wages at or above those now prevailing in the domestic market – might make some sense as a shock absorber.  But MBIE seems perennially averse to markets adjusting in ways the generate higher real wages, even though that outcome is one core part of what we look for from a successful economy.

I’m not a fan of the teachers’ union propaganda arguing that some decades ago senior teachers earned as much as MPs, and that they should be again –  MPs seem to have been quite badly underpaid in that earlier period.  But I’d be surprised if the government could show that teacher salaries (and overall working condition-adjusted remuneration) have increased more rapidly than the market generally in recent years.  If not, surely higher salaries –  perhaps regionally differentiated – should be the first part of any adjustment, and if there is any resort permitted to offshore labour markets it should be explicitly temporary, backed by financial incentives/penalties of the sort I outlined above.

It sticks in the craw to stick up for teachers and their unions, but the market indications would appear to be on their side in this particular dispute.   Of course, the fact that there is a shortage doesn’t –  in an administered market like this –  tell one how much salaries should be adjusted (or the onerous paperwork burden eased), or the appropriate balance (starting salaries vs later progresssion) but the direction looks pretty clear.  And the proposal to resort to substantial offshore recruitment looks as if the government has indirectly conceded the case –  even as, again, it continues to preference the interests of offshore people over those of New Zealand workers.  Teachers might be less sympathetic than bus drivers, rest home workers, or shop assistants, but they are New Zealanders too.  Even, as it happens, substantial funders of the Labour Party.