Day: November 26, 2018

Thoughts prompted by the open letter

Michael Reddell China, NZ politics

There was an open letter to the Prime Minister, cc’ed to the Deputy Prime Minister and Foreign Minister, released this morning and signed by 29 people (mostly academics), prompted by

….the reports of intimidation and harassment suffered by Professor Anne-Marie Brady of Canterbury University. According to news reports, she has been repeatedly burgled and her car tampered with, starting from December 2017. Reports have suggested that these events are related to her high-profile academic work on overseas influence campaigns by the government of the People’s Republic of China.

The letter calls for two things

…we echo the recent calls by Professors of Chinese history and literature Geremie Barmé and John Minford for the New Zealand authorities to take the threats against Professor Brady more seriously, in consideration of their implications for all New Zealanders.

(I ran the Barmé/Minford letter here last week.)

We also urge Prime Minister Jacinda Ardern to make a clear statement in defence of academic freedom in New Zealand in light of the Brady case, and to be very clear that any intimidation and threats aimed at silencing academic voices in this country will not be tolerated.

It should be hard for decent people to dissent from the broad thrust of the letter (which even appears to have briefly united ACT and the Green Party –  at least the bits out of office.)  One might quibble about the details –  for my own tastes it seems a bit too focused on “academic freedom” (which is mostly about the relations between universities and their staff), as distinct from the more general freedoms of New Zealand citizens and residents, including those of the ethnic Chinese community, whether or not they happen to be associated with a specific government tertiary institution –  but the thrust of the case really shouldn’t have needed saying, and yet apparently did need to be said.

But I found two things about the statement interesting.  First, who did and didn’t sign.  And, second, the (reported) reaction of the Prime Minister.

By my count, 21 New Zealand-based academics signed (plus a couple of PhD students, and one New Zealander working at a US university).  Of those 21, only one appears to specialise in international relations, and none appear to be specialists in matters to do with China (politics, society, economics, international relations or whatever).

One of the signatories was (former academic and now) consultant Paul Buchanan.  In  an exchange of comments here on Saturday, and in reference to this letter he noted

It appears many academics are reluctant to sign on because a) they fear retribution of one sort or another (say, loss of funding); and b) they personally dislike Ms. Brady and/or claim that her research is flawed etc. The fact that people cannot separate personal animus and/or concern about funding from a defence against criminal harassment is telling. As for her research, her “Magic Weapons” essay is an example of applied research and was not meant to be a theoretical or conceptual path-breaker, so sniping about its quality is pedantic.

Perhaps some of our media might like to ask, for example, those involved in the Contemporary China Research Centre about why not one of them signed this statement (or, so far as I’ve seen, have issued their own statements supporting Professor Brady).   As a reminder

The New Zealand Contemporary China Research Centre is New Zealand’s national research centre on China. We are based at Victoria University of Wellington with New Zealand’s other seven universities all being University Members of the Centre, University of Auckland, Auckland University of Technology, the University of Canterbury, the University of Otago, the University of Waikato, Lincoln University and Massey University, and with each University providing a Deputy Director.

Here is a list of the senior people at CCRC, including the Executive Chairman, Tony Browne (who also happens to chair Victoria’s Confucius Institute, and to sit on the board that advises the PRC government agency on the Confucius programme worldwide).   As the excerpt says, there is a director and then deputy directors in each university, and there are research/senior fellows.

But then here is the Advisory Board to the CCRC.   It includes representatives of MFAT, NZTE, MBIE, and Treasury, as well as the Director of the Asia New Zealand Foundation, the chair of Education New Zealand and the former chair of the New Zealand China Trade Foundation.

The CCRC helps run courses for MFAT.  And it hosts various visiting delegations from PRC government agencies.  Just next week, it is hosting a conference on next year’s Year of Chinese Tourism which event, no doubt, the PRC Embassy smiles benignly on.

Wouldn’t do then for anyone to speak up or speak out.  I don’t suppose there was anything quite as crass as a directive to all to keep quiet, but all those involved surely know which side their bread is buttered on (perhaps they wouldn’t have got appointed if not).  Much as I care about the intimidation and threats to Professor Brady, if there is a narrow issue of academic freedom, it is probably more about the utter silence of the rest of the China-focused New Zealand academic community.  It was perhaps also telling that no university vice-chancellors signed the open letter.  Perhaps they are all sympathetic –  and there have been no reports of Canterbury trying to close Professor Brady down –  but they have enrolments to sell, and the PRC is a big and threatening market.    But, again, perhaps some journalist could ask them about their attitude to attempts to intimidate a prominent New Zealand academic?

I guess the Prime Minister will probably get some direct questions on this issue at her post-Cabinet press conference, or in her weekly media rounds tomorrow, but I was interested in her initial response, as Radio New Zealand reported it.    It was terse and largely empty, apparently attempting to avoid the issue, with brief comments along the line that she “supports” and “defends” academic freedom, but that she couldn’t say anything more substantive until the Police investigation had concluded. She couldn’t even manage –  wasn’t willing to –  make a statement that was (in the words of the signatories)

“very clear that any intimidation and threats aimed at silencing academic voices [or others] in this country will not be tolerated.”

And, again as Radio New Zealand reported it, Professor Brady understands that the Police investigation has already concluded, and the question now is whether the government will show any backbone.     Whose values is the Prime Minister actually sticking up for?

Of course, if anything the Leader of the Opposition, interviewed on Radio New Zealand a few minutes later, was worse.  He managed some quick passing comments vaguely in support of the letter –  I guess he could hardly say he opposed “academic freedom” –  before moving on to run his own (in effect) defence-of-Beijing line.    Rather rashly he declared the US and China to be in a “virtual war”, was more or less defending Huawei (there was “no smoking gun” –  it might be a bit late when there is, surely?), and criticising the government for being a little hesitant about the Belt and Road Initiative (recall that Bridges was the minister who signed us up for a “fusion of civilisations”) and for upsetting China by buying the P8s and stating a few honest words –  never echoed by the PM –  in a defence policy statement.

“We’ve got a situation of inflamed language, particularly from the Foreign Minister whether it’s been on defence strategy, whether it’s been Belt and Road. These things will be of concern to the Chinese and they will be sending a [subtle] signal.”

As if he belonged to the youth wing of the Labour Party, he was reciting lightweight lines about how “we shouldn’t take sides”.   Not in opposing evil?  Not in resisting aggression?   That wasn’t New Zealand’s historical approach –  National or Labour. Then again, his stance seems to be avoiding even taking New Zealand’s own side, given the continued presence of Jian Yang in his caucus, and Yikun Zhang in arranging large donations for his party.

To return, finally for now, to the Prime Minister, TVNZ ran a story/article on Friday night about the decision – no doubt from Beijing –  to deny the Prime Minister a trip to Beijing this year.   With the website version there was a little video clip from the opening moments of her meeting with Chinese premier Li Keqiang in Singapore a couple of weeks ago.  I very rarely listen to such clips, but for some reason did this time.   The clip captures the Prime Minister opening the meeting stating that she was encouraged by “the significant common ground between your vision for China and the policies of my government”.  She went on to observe that “just as you are focused on a balanced development model and the wellbeing of the Chinese government, my government is focused on sustainable economic development and a fair society”.

It is, frankly, sickening and shameful.  Our Prime Minister, elected leader of a free, open and democratic society, governed by the rule of law etc suggests that there is “significant common ground” between her government’s policies and those of one of the most brutal un-free regimes on the planet, that has spent at least the last six years going backwards not forwards on the sorts of values and practices that most New Zealanders cherish,

Sure, Prime Ministers and like need to mutter pleasantries at the start of meetings, but surely “did you travel well, and get a good sleep?” beats this sort of stuff?    And why is she giving recognition and apparent approbation to the desire of the Chinese Communist Party to extend its brutal rule (“the wellbeing of the Chinese government”).

Is there any decent moral core there at all?  No wonder she hasn’t managed a robust defence of free and open debate, of the sort the academic signatories called for.

(I’d been going to write a bit about former NSW premier, former Australian foreign minster, current head of a somewhat Beijing-sympathising think-tank, Bob Carr’s interview on China-related issues on TVNZ’s Q&A last night.   There were plenty of bits to disagree with, but actually compared to either Simon Bridges or Jacinda Ardern he came across as fluent and somewhat reasonable.  Perhaps it helps being out of office, but he was willing to welcome Mike Pence’s efforts to highlight China’s human rights abuses, and was explicit that he would not have signed Australia up to the Belt and Road Initiative.    By his standards, New Zealand’s “leaders” seem very far gone.)

Central bank minutes released: a small victory for transparency

Michael Reddell OIA, Reserve Bank, Transparency

Regular readers will recall that the Reserve Bank has long been deeply resistant to releasing any information relating to OCR decisions or Monetary Policy Statements, other than what they themselves chose to release, whether in the published documents or in subsequent interviews.  That has never been very satisfactory, but the Bank has attempted to carve out for itself a special place, more or less above the provisions of the Official Information Act.

One of the things they’ve consistently refused to release is minutes of the Governing Committee, the body set up by the previous Governor, in which the Governor takes his final OCR decision (and other major decisions, including ones around LVRs).  They had long taken the same stance to the minutes of the predecessor Official Cash Rate Advisory Group, even when the requests related to decisions some time in the past. Often enough, it seemed that there were no written minutes at all (which was probably in breach of the Public Records Act).

I had largely given up on making any progress on this issue (and, anyway, the new statutory Monetary Policy Committee, which will have its own charter on such matters, is coming next year). But for some reason, which I now forget, I had lodged one more request six months ago seeking

1. the minutes of any meetings of the Governing Committee relating to the May MPS,
including minutes of the meeting where the OCR decision was taken;

When the Bank refused to release anything (not even date of meeting, list of attendees, headings –  even if all the substantive content was redacted) I complained to the Ombudsman, noting that (among other things) the Bank quite often released minutes of Board meetings (even with some content withheld).

The Bank regularly releases minutes of the meetings of its own Board (in response to OIA requests), with individual deletions as appropriate.  It seems inconceivable, for example, that the date, time, place of the meeting, the list of attendees, the confirmation of past minutes, and the final decisions of any meetings (themselves reflected in a later published document) could pass a “free and frank”: withholding test, even if (again) it is plausible that if there is any substantial account of the nature of contentious discussion at the meeting that specific element of the material might.

And then I forgot all about the request until a short time ago when an email from the Reserve Bank turned up.

We refer to your complaint to the Office of the Ombudsman (ref: 480453) relating to your request for: “minutes of any meetings of the Governing Committee relating to the May MPS, including minutes of the meeting where the OCR decision was taken.”

The Reserve Bank has reconsidered its initial position and is now releasing with redactions, a copy of the only document within the scope of your request – the Governing Committee minutes in May. The document is attached to this correspondence.

And it has only take six months, which is progress.  Credit to the Ombudsman.

For anyone interested, the minutes themselves are here

Governing Cttee minutes May 2018 OCR

One day perhaps we might even have released –  with a suitable lag – the background papers the Governor (and his new MPC) receive, and upon which they base their decision

I’m not sure there is any new information in the particular minutes released, but having released Governing Committee minutes in this form –  against a request made almost immediately after the relevant OCR decision was released – a small but helpful precedent has been established.   Some material is still withheld on the highly questionable ground of avoiding damage to the substantial economic interests of New Zealand.  One day, the Ombudsman is going to have to provide some substantive guidance on that provision, but for now both he and the Bank seem keen to avoid the Ombudsman having to draw the appropriate line between national economic interests and those of a particular public agency.

 

 

LVR restrictions: towards the FSR

Michael Reddell Financial stabilty, Housing

The Reserve Bank’s latest Financial Stability Report is due out on Wednesday.  Perhaps we will see some further articulation of the Governor’s strange vision of the Bank as a tree god, but I guess the main interest will be in what, if anything, the Governor does with the loan to value controls rushed into place, and then frequently amended, by his predecessor a few years ago.  It is as well to recall that although legislation is going through Parliament at present that will, at least on paper, modestly weaken the Governor’s personal power over monetary policy, in respect of banking regulation his statutory powers remain untrammelled, and unchannelled.  There are few legal constraints on what he  –  an unelected official whose appointment was controlled by unelected and unaccountable academics and company directors –  can do.

Market economists are, understandably enough, focused on the narrow question of whether there will be any changes to the rules announced this week. You can read a summary of their views here.   I remain less interested in that (forecasting) issue than in the cases for and against having such controls in the first place.   They are a new thing: we never had some legal restrictions in the bad old days of a heavily regulated financial system prior to 1984.  But, like weeds or wilding pines, once regulatory controls get in place people come to treat them as normal, the only debate tends to occur around the edges, and it takes huge effort to do something serious about fixing the problem.  Years ago, when the LVR restrictions were first introduced, we were assured they would be temporary (I was still inside the Bank at the time, and as far as I could see senior people genuinely believed it) but now the very idea that willing lenders and willing borrowers should be free to contract on mutually agreeable terms seems to be becoming lost.

The Herald’s economics columnist Brian Fallow used his column last Friday to argue to “Keep the brakes on houses”.  I can’t see the column on line, but the gist of his article is that house prices are high and household debt is high and that unless that combination changes the Reserve Bank shouldn’t think of lifting the LVR controls.  It doesn’t matter that stress tests repeatedly show that banks can cope with big falls in house prices and even big rises in the unemployment rate.  It doesn’t matter that our banks came through the last serious recession –  when household debt to GDP was about as high as it is now –  unscathed. It doesn’t matter that high house and land prices are mostly a phenomenon of the artificial scarcity created by land use restrictions (with high construction costs into the mix).  It doesn’t even seem to matter than there is no evidence that the LVR controls have made banks safer (banks with fewer individual risky loans also need to hold less capital) or the economy more stable.  It doesn’t seem to matter that the LVR controls have acted to favour established (cashed-up) buyers over new entrants to the housing market.  No, even though there is no threat to financial stability, and everyone recognises that LVR limits impede the efficient functioning of financial markets  (and those are the only two criteria the law allows the Bank to act under), the call is simply to leave the controls in place.

It was a bit like people in earlier decades who opposed removing import licenses or exchange controls because of the “foreign exchange constraint” (imports might increase if we took the controls off): papering over symptoms rather than tackling causes is rarely a sensible approach to policy.  Sadly, this government, like its predecessor, seems to be doing almost nothing to fix the underlying problem (and when I heard the UDA announcement over the weekend cited as something that had “worked well” in the UK and Australia one was reminded a new of just how obscene house prices in the UK and Australia remain).  But if the government isn’t doing anything serious, they will no doubt be grateful for the cover the Reserve Bank provides, claiming that somehow it is “doing its bit”, when it has no responsibility (there is “our bit”) for the fundamental problem.

But, of course, with no evidence whatever, the Governor is convinced that he knows best, the banks and markets are too “short-sighted” and so no doubt the controls will remain.  If the Governor is really so convinced he should at least really go to the effort of persuading the Minister of Finance to agree to extend the restrictions to other non-bank lenders.  The LVR controls only apply to banks because they are the only lenders the Reserve Bank Governor himself can order round in this way –  restrictions on other non-bank deposit-takers require the agreement of the Minister of Finance.  We have been fortunate in the last few years that there has been less disintermediation of mortgage business to non-bank lenders than most (including Reserve Bank staff doing the evaluation) had expected.   But if we learned anything from the decades of heavy controls prior to 1984, over time risk-taking will gravitate to institutions where it can occur.  Putting in place a competitively-neutral regulatory framework (treating banks and non-banks similarly) was a huge step forward in the 1980s, and it is unfortunate that the Reserve Bank now treats the same risks differently depending on whether an institution wears a “bank” or “non-bank” label.

At the press conference a few weeks ago for the Monetary Policy Statement, the Governor and his deputy (once a fairly market-oriented economist) indicated that in the forthcoming Financial Stability Review the Bank was planning to outline a more disciplined framework or road-map for assessing when, and whether, adjustments should be made to the LVR controls.  In principle, that sounds sensible and welcome. In principle, it should involve the Bank setting out some markers against which they can be held to account when the next decisions/reviews come round.  Whether it is so in practice only time will tell, but I was disconcerted when I heard them talking of this new framework as something similar to what they have for OCR decisions.

While we have a Reserve Bank there have to be regular monetary policy decisions.  That isn’t so for LVR restrictions, and it would be unfortunate if the initiative the Bank has foreshadowed was also about entrenching LVR controls as a permanent feature of New Zealand’s financial system.  Capital and liquidity requirements, backed by regular and robust stress tests, should remain the heart of our banking regulatory framework, rather than having bureaucrats reach into private businesses –  well-run over decades –  and tell them who they can and can’t lend to, or who they can and can’t employ.  But bureaucrats have incentives to build up their bureau and are typically reluctant to give up powers they’ve once got their hands on.  They are just human, and in their shoes you and I might face similar temptations.  We need banking regulation and supervision –  mostly, in my view, because politicians will bail out large banks in crises and everyone knowing that efforts need to be made to limit the risks –  but its appropriate place is distinctly limited, accountable, and kept in fully in check.   Instead, those paid to hold the Bank to account –  ministers, the Board, FEC –  mostly just accommodate the regulators, at times even egging them on.

On a totally different matter, for anyone interested in a some snippets of New Zealand economic history, you might want to try the latest Newsroom/Radio New Zealand Two Cents’ Worth podcast, which was built around the odd coincidence that –  if you look at the data a bit loosely and from the right angle – for several decades in a row, years ending in 8 had also seen a New Zealand recession.  I did an interview with Bernard Hickey for the podcast, in which he had me run quickly through aspects of the New Zealand economy in each “8” year since 1918.   As I noted to Bernard, there is now a rather large hole in the market for a up-to-date economic history of New Zealand (the last full one appeared in about 1985 and much has been done, much has happened, since then).  Brian Easton’s long-awaited history of New Zealand from an economics perspective – his framing –  is still awaited.