Month: November 2018

Economics of climate change

Michael Reddell Emissions reduction, Emissions targets, Uncategorized

I’ve written a few posts here about the economics of climate change, and of the sorts of goals the government proposes to adopt in response.  On the one hand, OECD and IPCC work has suggested that, if anything, the New Zealand economy in aggregate is likely to benefit a bit from warming (albeit with sectoral and regional ups and downs –  the sort of thing that is a normal part of economic life).  And, on the other hand, the government’s own modelling, undertaken by NZIER, suggests a very high real economic cost to New Zealanders from pursuing a net-zero target.

And so I was interested to see a headline on the Wall St Journal website this morning

U.S. Government Report Warns of Economic Losses From Climate Change

The story noted

Its conclusions are at odds with statements by President Trump, who has been skeptical of global-warming trends, questioned the validity of climate science, and challenged federal regulations designed to control greenhouse-gas emissions.

“There has been no external interference in the development of this report,” said David Easterling, director of the technical support unit at the National Centers for Environmental Information, who helped prepare the 1,500-page assessment.

That’s good.

But what did it have to say about these economic costs?

The impact of global climate change is being felt across the country and, unchecked, could cause U.S. economic losses totaling hundreds of billions of dollars a year by the end of the century, says a new U.S. government report released Friday.

“Hundreds of billions of dollars a year” is a lot of money, but then (a) the US is a big economy, and (b) the end of the century is a long time away (especially once you apply any sort of discount rate).

How big?  Well, US GDP last year was US$19.4 trillion dollars.

I clicked through to the report document itself.  Unfortunately, there isn’t a distinct economics chapter (although there are sixteen separate topic chapters). But the summary did report these comments.

Some aspects of our economy may see slight near-term improvements in a modestly warmer world. However, the continued warming that is projected to occur without substantial and sustained reductions in global greenhouse gas emissions is expected to cause substantial net damage to the U.S. economy throughout this century, especially in the absence of increased adaptation efforts. With continued growth in emissions at historic rates, annual losses in some economic sectors are projected to reach hundreds of billions of dollars by the end of the century—more than the current gross domestic product (GDP) of many U.S. states.

All of which made me even more curious, as I’d had the hazy impression in my mind that US emissions had already peaked, and yet this report talks of the economic costs of emissions continuing to increase at historical rates.

And sure enough there was this chart on the EPA website

us-greenhouse-gas-emissions-1990-2016

In other words, whatever the historic rates of growth of emissions were, there has been no growth since the early 1990s, and the trend appears to have reversed in the last decade.

I guess the report has in mind global emissions rather than US-specific ones, but then these days China’s choices (and non-choices) are the bigger issue.

And what about the size of the US economy at the end of the century?  If we assume very conservative numbers (no population growth and perhaps 1 per cent per annum productivity growth) then in real terms an economy of US $19.4 trillion in 2017 would be one of about $44 trillion per annum.  If the real economic costs of climate change are “hundred of billions of dollars per annum” by the end of the century that must mean a number less than one trillion dollars. In other words, the scary headline reduces to a cost that is, at most, 2 per cent of GDP.  Not nothing.   But it is (a) long time in the future –  discounted back to today at any reasonable discount rate, it will be equivalent to a lot less than 2 per cent of GDP, and (b) the discussion on the economic impact in the summary does not mention at all the potential economic costs of policy measures to accelerate the reduction in emissions already underway.   Those costs are likely to be materially smaller than those facing New Zealand (the 10 to 22 per cent of GDP estimate from the government’s NZIER modelling, falling most heavily on the poorest) but they aren’t likely to be trivial either.

Whatever the case for doing something dramatic, and potentially quite economically costly, on climate change, it doesn’t seem reasonable or sensible to base any such argument on the economic consequences for rich countries of doing nothing.   It is easy to produce big dollar numbers far enough into the future, but no credible modelling I’ve heard of suggests that climate change is a material long-term economic threat to existing advanced economies –  and certainly not to New Zealand.

NZ and the PRC: Friday bits and pieces

Michael Reddell China, NZ politics

I noticed in the Herald’s “Dynamic Business” supplement, associated with the Deloitte Top 200 awards (themselves notably short on successful outward-oriented companies based on anything much other than natural resources), that the former Prime Minister John Key was interviewed about China.   It was, to say the least, a bit of a mixed bag.  In his first answer this line appeared

“I think Xi Jinping’s going to go down in history as a good leader of China.”

That would be in the history as written by the Chinese Communist Party (assuming it survives that long)?  I’d accept “consequential”, “influential”, even (in a bleak way) “pathbreaking”, but “good”?  What does John Key possibly see as “good” –  a term that usually has some moral connotation to it – about Xi Jinping’s rule?   It isn’t even as if the economy has been set on firmer foundations, let alone the seizures of power, seizures of territory,  the Xinjiang situation, or whatever.  But I suppose the PRC embassy will have taken note, and doors are likely to remain open in Beijing.

Key was then asked about the (straw man) question about balancing China and the United States.  I don’t particularly agree with his stance but at least –  in contrast to our current Prime Minister –  he seems capable of giving a straightforward answer, including recognising where our values, our culture, and our history take us.

…the reality is that our relationship with China is still a very economic relationship…. In the case of the US and our traditional allies –  Australia particularly – it’s a much different relationship.  They are the people that we culturally feel most at home with.  We share such a massive history.  Everything lines up much more closely there…..

I think if we turned our back on the Chinese, we’d find a lot more Irish an Dutch dairy products would flow into China and less would flow from New Zealand. It might be a bit mercantile but I think that would be negative for the New Zealand economy, for dairy farmers and for lots of New Zealand businesses –  from tourism to education services

I think he is mostly wrong about dairy –  it is a globally traded market and as we are seeing in the soybean market at present in time what doesn’t go to one country ends up going to another (if, say, the Irish and Dutch industries had WMP capability, to divert that product to China would involve not selling to the people they are now selling to).  But at least Key seems willing and able to give a straight answer –  even if it is an amoral one:  “never mind the nature of the regime, we should give priority to businesses selling stuff there”.

There was an interesting snippet in the Herald’s (typically rather well-sourced) “Insider” column in which it is noted that

NZ diplomats have been told the long-expected invitation for Jacinda Ardern to go to Beijing won’t come any time soon.

Perhaps that is the explanation for her shameful refusal to front up for the Herald’s longstanding interview request.  But if so, she needs to rethink her priorities.  Tea at today’s Berchtesgaden beats an open and honest discussion with –  and accountability to – her own citizens and voters, confronting concerns about the activity of the regime at home, abroad, and here in New Zealand?

You could read the account on the Chinese Embassy’s website of her meeting with the PRC Premier Li Keqiang and not come away with any sense of any awkwardness at all, with bizarre talk of working together for the “peace and prosperity” of the Asia-Pacific region.  We are presumably supposed to accept with a straight face words like these from the Premier

He also encouraged New Zealand companies to expand investment in China and boost technological cooperation with China, saying that China will conduct the cooperation on the basis of strict protection of intellectual property rights.

Surely only that distinctive New Zealand “Yeah right” should greet claims like that?.  Perhaps the Prime Minister’s perspective on the meeting would be different, but there is no similar account on the Beehive website (and if MFAT had problems with Beijing’s account, no doubt they have raised those concerns).

Can it really be that deals and donations are all that now matter to her?    If she doesn’t care about the citizens of the PRC, or about surrounding states, or even about how closed an economy China is in many respects, is she really not bothered about the PRC activities here?  Presumably not.  After all, Raymond Huo chairs the Justice committee and sits in her caucus, and Jian Yang sits on the other side, and not a word in heard from the Prime Minister.

There was an interesting post a couple of days ago from Paul Buchanan, the American (but New Zealand resident) former academic and now consultant on issues international.  He began by addressing the somewhat extraordinary suggestion (made by David Parker and the Prime Minister) that New Zealand could be some sort of bridge or broker between the US and China. He is simply dismissive of it, and doesn’t think either Beijing or Washington is likely to take it seriously.

For my tastes, Buchanan’s discussion  is altogether too cold (then again, perhaps his future isn’t tied to New Zealand?).   He suggests

While New Zealand audiences may like it, China and the US are not fooled by the bridge and broker rhetoric. They know that should push come to shove New Zealand will have to make a choice. One involves losing trade revenues, the other involves losing security guarantees. One involves backing a traditional ally, the other breaking with tradition in order to align with a rising power. Neither choice will be pleasant and it behooves foreign policy planners to be doing cost/benefits analysis on each because the moment of decision may be closer than expected.

I’ve disagreed with him in comments here on earlier posts, because I think he grossly overstates the extent of any sort of “economic dependence” of New Zealand on China.

On trade, New Zealand has an addict-like dependency on agricultural commodity and primary good exports, particularly milk solids. Its largest trading partner and importer of those goods is China. Unlike Australia, which can leverage its export of strategic minerals that China needs for its continued economic growth and industrial ambitions under the China 2025 program, New Zealand’s exports are elastic, substitutable by those of competitors and inconsequential to China’s broader strategic planning. This makes New Zealand extremely vulnerable to Chinese economic retaliation for any perceived slight, something that the Chinese have been clear to point out when it comes to subjects such as the South China island-building dispute or Western concerns about the true nature of Chinese developmental aid to Pacific Island Forum countries.

But even if there is some potential for short-term disruption to some sectors or firms, countries largely make their own medium-term fortunes. That was true of us in the past, is today, and will be still in the future.  Policymakers here have been very unwise in continuing to encourage stronger trade links with China, even as they recognise the sorts of threats and disuptions China has proved capable of in other countries, and the more aggressive approach China is taking internationally across a range of fronts.  No serious and free country, none with any integrity whatever, ever prioritises (for any length of time) the interests of a few of its export firms, over the values of its people.  In the medium to longer-term values and interests amount to the same thing.

And it is not as if other countries in years past have not faced these sorts of tensions.  Denmark and the Netherlands had Germany as a major trading partner in the late 1930s, but they didn’t simply roll over and invite Hitler in.

Perhaps more importantly, and a reason why I think the US vs China framing is a distraction, is that whatever the US is or isn’t doing, we face the interference activities of the PRC in our own country.  Simply taking a stand there –  clearing Jian Yang and Raymond Huo out of Parliament, standing up for Anne-Marie Brady and for those ethnic Chinese New Zealanders facing regime pressure and threats, being more open and serious about the cyber-security threats, shunning people with recognised United Front connections (not honouring Yikun Zhang), protecting and promoting an independent Chinese language media here.  These are the sorts of things a minimally decent government would be doing, even if it said not a word about abuses in China or China’s near-abroad.  But not our government: faced with the choice not between China and the US, but between decency on the one hand, and deals and donations on the other, they seem to side with the deals and donations.  And the National Party provides them cover to do so.

On the topic of cyber-security, the Australian papers this week had several stories about PRC cyber-attacks on Australia.   There were two classes of attack in the stories I saw –  one about a resurgence in direct cyber attacks on Australian companies, in violation of some deal Malcolm Turnbull and the PRC had done a couple of years ago.    The other built on this academic article, in which the authors report the results of a study showing how the PRC appeared to get round a similar deal between Barack Obama and the PRC in 2015, by using China Telecom to route selected international internet traffic through China –  where presumably the PRC could spy on it, copy it or whatever –  rather than following the standard (shortest distance) protocols. The authors provided evidence to the Australian media strongly suggesting a specific such attack involving Australia last year.

But here is the thing that interested me.  In the newspaper articles I read we saw senior government officials confirming “a constant, significant effort to steal our intellectual property”, and even a senior Cabinet minister expressing concern about the number and severity of such attacks.

By contrast, what do we get here, but blather from the Prime Minister about needing to keep an eye on cyber-security, and otherwise silence –  “national security” don’t you know, providing cover for anything ministers and officials don’t want to talk about.  I did see a Radio New Zealand article quoting a PWC person saying there was no evidence New Zealand had been caught up in the first class of attacks described above.  It would be nice to hear it from official sources, but even if it is true in the specific case, how likely is that the PRC approach to New Zealand is very much different than that to Australia –  take what they want, and can get at?   Occasionally, I make glib remarks about how perhaps New Zealand has nothing much advanced to steal, and when I do I get firmly put in my place, with links to various advanced university departments (for example).  Surely we might reasonably expect the Prime Minister or the Minister for the Intelligence Services to front up on this sort of issue, at least to give us reason to believe (confidently) that they aren’t living in some fool’s paradise, convinced they are uniquely immune from the efforts of the Ministry for State Security?

And finally,  I was sent yesterday a copy of a statement by a group called the New Zealand Values Alliance, which appears to be a group of ethnic Chinese people living in New Zealand who are concerned about the intrusion of the PRC into New Zealand.  (There is a similar, more prominent group in Australia, called the Australian Values Alliance.)   This was the statement

We, New Zealand Values Alliance(NZVA) , hereby issue the following declaration:

It is learned from media that the prominent China researcher Anne-Marie Brady has encountered on-going harassment which has recently widened to include a vehicle  sabotage of her private car, which “absolutely posed a risk to her life”.  We hereby express our concern and condemnation on the matter.

To our knowledge, similar harassments and threats sometimes happen to people who criticize CCP. Such harassments include text intimidation, tracking, stalking and a variety of harassment activities which has now escalated to sabotaging private vehicle to seriously threaten life safety.

We are very concerned about the personal safety of people who publicly criticize CCP. We earnestly appeal to the NZ government and police to pay close attention to the safety of those human rights activists and researchers against dictatorships and give more attention  to the rampant activities related to foreign political infiltration. Meanwhile an investigation into foreign interference should be started ASAP   and relevant laws be established for deterrence and punishment against related activities from agents with foreign interests.

Hard to disagree (the Values Alliance had an earlier statement about Jian Yang, reported here).  The organiser, a relatively recent migrant from China, Freeman Yu, has noted on his Twitter feed his own experience of what he talks of

Does this sort of thing bother our politicians at all?

You might have hoped that New Zealand political leaders would be speaking out  (let alone New Zealand academics working on China and/or international relations).  Former Prime Ministers, former Opposition leaders, former foreign ministers?  People like Don McKinnon, Jenny Shipley, Don Brash, Murray McCully, Helen Clark, Phil Goff, Geoffrey Palmer, Jim McLay, Jim Bolger or Mike Moore.  But, it appears, not a word from any of them, let alone Bill English or John Key.   A sad commentary, that rather tends to make the point Anne-Marie Brady was making in her paper about how too many of our elites have been persuaded that keeping quiet and going along is somehow in the best interests of New Zealand.  In fact, it largely just serves Beijing’s interests.

Not adequately reforming the Reserve Bank

Michael Reddell Uncategorized

Lest Reserve Bank readers think I’ve lost interest in them, it is time for an update on the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill, currently before Parliament.

The government introduced this not-very-good piece of legislation some months ago, carrying out their election pledge to reform the Bank, but in such a minimalistic way that it is likely to make next to no difference.  Being seen to have done something, anything, seemed to be more important than properly overhauling our monetary policy agency, to be fit for purpose in an open and transparent democracy.   As a well-informed commenter here put it a few months ago

It appears to me that the Government has largely made its mind up about what it wants; the illusion of change rather than anything fundamental.

It’s a pity because as you say, this is probably a once in a generation opportunity to throughly review the legislation, to learn from best practice abroad, and bring into being a stronger Reserve Bank better aligned with public benefit.

What was proposed seemed only marginally better than the status quo, and even then on a couple of dimensions only.  The reforms proposed simply didn’t address the evident weaknesses in the way the Bank has been run, including:

  • the dominance of a single unelected official,
  • the structural weaknesses that made it unlikely the Board would ever really hold the Governor to account (despite being designed entirely to do so), and
  • the lack of transparency of the institution.

Some of these issues can be seen as “cultural”, but legislation supports, and underpins, the sort of culture we can expect to see in powerful public institutions.

The bill was sent to the Finance and Expenditure Committee for consideration.  I made a submission, which I wrote about here.    Although I made some specific suggestions in other areas, including a better formulation of the proposed employment objective, and on how the Board works, my main concern was about the proposed new Monetary Policy Committee where I noted

The Monetary Policy Committee provisions of this bill are unambitious and disappointing, especially when set against the expressed aspiration of a once in a generation update to the legislation to reflect the way in which the world (including central banking) has changed since 1989.  Among the features of our age are a much degree of openness, a greater recognition of uncertainty and of the benefit of an open contest of ideas, and less willingness to build institutions based on a deference.  This bill reflects almost none of that.

In considering the bill, I would urge the Committee to look closely at the experiences of open central banks in the United Kingdom, the United States, and Sweden (in particular).  All are more open than anything envisaged in this legislation, and in the way the Minister has described his intentions for how the proposed New Zealand system should work.  Each of those central banks has had strong individuals willing and able to challenge consensus views, and to debate monetary policy issues thoughtfully and openly.  They do so in part by avoiding designing a system where the Governor (chief executive) has a too-dominant formal role.  The current bill does not really address that glaring weakness in the New Zealand system.

I concluded my post on the issue this way

This shouldn’t be a particularly partisan issue.  Everyone should want a better, more resilient, better-governed institution handling monetary policy, and for the regime itself to command confidence across the political spectrum.  I hope the select committee deliberations do finally prompt the Minister of Finance and the government to reconsider, to give up their small ambitions, and to embrace the idea of more far-reaching change and improvement in the way monetary policy is governed, contested, and accounted for.

I wasn’t optimistic.    The chair and deputy chair of the committee are both parliamentary under-secretaries; the chair the under-secretary to the Minister of Finance.  It is hardly arms-length parliamentary scrutiny.  And, from their public comments and a couple of reports I saw of committee sessions, the National Party members seemed more interested in playing partisan politics –  with silly arguments that adopting a (marginally) more internationally comparable model was putting at risk New Zealand macroeconomic stability.

And, having expected little, I was not thus unduly surprised when the Committee reported back a couple of weeks ago.   It was a pretty short report, falling along partisan lines (ACT even called the bill “an invitation to corruption”), and recommending hardly any changes to the bill.    The one (welcome) change of significance relates to a new document provided for under this legislation, the charter.

The charter would impose additional requirements on the MPC relating to transparency, accountability, and decision-making procedures. The requirements in the charter would go beyond what is provided for in legislation, allowing for flexibility as best practice evolves. The charter would be set by agreement between the Minister and the MPC, while the remit [effectively the policy target itself] would be set by the Minister following a specified process. Whenever the Minister issued a new remit, the Minister and the MPC would need to consider issuing a replacement charter. We agree that there is a legitimate public interest in the MPC’s decision-making procedures (for instance, vote attribution), and that changes to the charter could potentially be quite significant. To increase transparency, we recommend requiring public consultation on key issues relating to a replacement charter alongside the consultation on the remit required by clause 37.

That is a small step forward, at least in principle.    However, since the first of these charters is to be set by the Minister and the Governor (rather than the MPC), and the initial provisions are likely to be quite influential in how the MPC operates for some considerable time, there should be a commitment by the Minister to apply the same process of public consultation to the initial charter as will be required for subsequent replacements.   I can’t see any sign of such a commitment, or legislative requirement, at present.

One of the things the Reserve Bank management has consistently opposed is the idea that members of the Monetary Policy Committee should be able to openly articulate their views on issues relating to monetary policy (whether in speeches, interviews, or in comprehensive published minutes.  The Minister of Finance appears to have allowed himself to be persuaded by those arguments –  arguments which serve the institutional self-interest of public sector managers, rather than the public interest, which is advanced by robust debate, inside and outside the institution, on issues characterised by huge uncertainty, and where bureaucrats have no monopoly on wisdom.  (And, of course, the Governor himself shows no sign of any sort of personal self-restraint, apparently regarding it as appropriate for him to talk on all manner of things, whether or not the Bank has responsibility for them –  just no serious speeches on his core areas of responsibility.)   There are good, and highly-regarded, central banks abroad that do things quite differently, much more openly –  without the scary bogeyman the Reserve Bank invokes (“adds to uncertainty, lacks clarity, creates confusion”) coming to pass.

The United States is one example of such a system.  And as a specific example of how a more open system works, the Wall St Journal had a long interview with Patrick Harker, president of the Philadelphia Fed, one of the regional presidents who rotates through voting positions on the FOMC.  In fact, when I went looking for the transcript again I found they’d had three such interviews in just the last few months.

interviews

Of course, the US is a big country with much deeper journalistic resources, but the key point is that markets didn’t shake, confidence in the Fed wasn’t eroded, because citizens (and markets) were able to see and hear what these influential policymakers thought about important issues.   And it wasn’t shocking that not everyone agreed on everything. There is no reason to think it would be different in New Zealand, if our minister hadn’t allowed the bureaucrats to wrap him round their little finger.  It was, after all, supposed to be a government committed to openness and transparency.

As I’ve noted here previously, the very narrow scope of the proposed New Zealand Monetary Policy Committee, the legislated dominance of the Governor, the lack of resources for MPC members, and the tight constraints on their ability to do or say much is likely to make it hard to attract good people into those roles, and won’t encourage those who do get appointed to take the position very seriously.   Of course, that will probably suit the government and the Governor

And so it will be interesting to see what people they finally manage to attract, both in the first round, and a few years later when the novelty has worn off.  A smart (but deferential) semi-retired person would probably fit the bill quite well, but since the government and the Bank have been clear they don’t want people who might rock the boat, and they apparently aren’t keen on economists, and since even the externals together will be a perpetual minority, you wonder why someone good would be interested.   Pocket money probably shouldn’t be the motivation, at least if the government were serious about putting in place a strong, well-functioning, MPC.  Of course, as it is, there is no evidence of such intent.

The (minority) external MPC positions were advertised some time ago.   As I wrote about a few weeks ago, it appeared that the recruitment process had run into trouble.   I’d lodged OIA requests for a breakdown of applicants and of those taken to the next stage of the process, but when the Bank responded they indicated that no one had been taken to the next stage of the process at all.   I hadn’t even asked about a short-list, just about the group who hadn’t immediately been ruled out as totally unsuitable.

The other day I had a first stage substantive response, providing a breakdown of the people who had lodged applications for the external MPC positions.

There were 75 candidates in total, including candidates identified through a search process, for the roles of external members of the Monetary Policy Committee being established under the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill.

Of these 75 candidates: 23 percent (17 candidates) are women, 92 percent (69 candidates) are currently resident in New Zealand, and 8 percent (6 candidates) are currently employed at a university.

It was a surprisingly large number of people (although I’d asked about applicants, and it isn’t clear from the response whether all the people “identified through a search process” were necessarily actually wanting to be considered).

But it also makes it all the more odd that the process is moving so slowly.  There was a Reserve Bank Board meeting last week (the Board is responsible for the selection of MPC members) and yet the email I had earlier this week says they still don’t have a short-list.

Perhaps in the end they will manage a barely-credible set of appointees, but even if they manage it the first time (perhaps the Minister twists a few arms, and hands the nominations to the Board to send back to him), it is going to be hard to sustain even that as time goes on, so inadequate is the model the Minister has chosen.

It isn’t democratic (even questionable Deputy Commissioners of Police are directly appointed by elected people), it isn’t broad-ranging (the MPC has a deliberately very narrow mandate), it isn’t conducive to a serious contest of ideas (being too dominated by a single unelected person), it isn’t very accountable (formally or otherwise) and it isn’t very open and transparent.  It simply isn’t very good legislation.  And that is a shame, a lost opportunity.

 

Europe’s economic performance

Michael Reddell Economic history, Euro area, New Zealand economic performance, Productivity

A commenter on yesterday’s Brexit post raised the question of how Europe (EU, euro area or whatever) had done overall relative to the rest of the advanced world.   The question sparked my interest, not just about the last 20 years or so (since the euro was created, and the comparison in yesterday’s post) but about somewhat longer spans of history.

At around the turn of the 20th century no one would have doubted that Europe dominated the world geopolitically, and it no longer does that.  That geopolitical rise was built on technology and associated economics, but just because the geopolitical moment has passed doesn’t necessarily mean the economic one has.

But who to compare Europe with?   Relative to the situation 100 years ago, some east Asian countries (in particular) have caught up considerably.  In most respects that is to be welcomed, and doesn’t tell one anything particularly enlightening about the performance of western Europe.   And some (most?) of the European countries that aren’t in the EU are nonetheless in agreements with the EU that mean that in many respects the policy regimes are similar.

And so here I’ve focused on a comparison with the European “offshoots”, notably the Anglo-shaped ones (the United States, Australia, Canada, and New Zealand), but with some reference also to Argentina, Chile and Uruguay.  Prior to World War One, Europe may have been the geopolitical centre of the world, but individuals in the typical offshoot countries enjoyed a better material standard of living than their peers in western Europe.

europe 1

The first two columns are the group of 11 western European “established” euro area member countries in yesterday’s post, and a subset of those that I’ve got interested recently (France, Germany, Belgium, Netherlands, and Denmark) which today have much the same level of average labour productivity as the United States.

In 1913, the Anglo countries were top of this particular economic heap, and the western European countries weren’t much different than average living standards in Argentina, Chile and Uruguay.  In 1929 and again in 1955 (allowing some time for recovery from the war) the picture still wasn’t so different.  The five top European countries were doing better and the UK a bit worse, but average GDP per capita in the 11 European countries group was only about 10 per cent higher than those in the Uruguay, Argentina or Chile group.

And here is the same chart for 2017, using Conference Board data.

europe 2

It doesn’t take too much study to see where the (relative) decline has been centred: the European offshoots and the UK.  The picture is most vivid for the southern cone countries in Latin America, but isn’t less real for the Anglo countries.  It isn’t that, as a group, they’ve been surpassed by continental western Europe, but that western Europe has caught up. (Since this isn’t a New Zealand-centred post, we will quickly pass over the way those countries now outstrip New Zealand.)

But what about some time series charts for more recent periods?  In this chart I’ve shown the same two European groupings relative to the median for the Anglo offshoot countries (US, Australia, Canada, and NZ) using OECD data which start in 1970.

europe 3.png

(I don’t quite know what was going on around 1990, although I guess it is probably about the recession in many of the Anglo countries).

Over the full period since 1970, Europe has gained ground relative to the Anglo offshoots, on both groupings.  But there is, of course, a big divergence in the two series in the last decade or so.   For the top-5 north European countries, performance has remained pretty strong.  The median of those five countries now has average per capita incomes almost equal to those of median Anglo offshoot country (and, as it happens, the Europeans work fewer hours per capita to achieve that outcome).  But for the wider group, things have gone badly into reverse –  the influence of the poorly performing tail (Greece and Italy in particular, but also Spain and Portugal).

What about a similar chart for productivity?   The OECD doesn’t have labour productivity data for the whole period for Austria and Greece, so in this chart those two countries drop out of the comparison.

europe 4

It is a somewhat different picture.  The cylical effects large drop away, but (not unrelatedly) so does the marked difference between the two groups of euro-area countries over the last decade.   On this measure, Europe’s labour productivty growth has fallen behind that of the Anglo offshoots grouping over the last decade (although not in the first few years of the euro).  But perhaps the bigger story remains just how much average productivity in Europe has improved relative to that in the Anglo offshoots world over the whole period since 1970.  It is a huge relative gain for (western) Europe.

And what of a simple comparison between the leading group of European industrial countries and the US?  After all, if Europe has its laggard, the Anglo world has New Zealand (and Canada).  Here’s that chart.

europe 5

It is interestingly different.  Relative to the US, these leading European countries did poorly last decade.  But the underperformance hasn’t continued into this decade, despite the euro-area crises, even if little of the ground has been made up again.  But again, taking the longer view, surely the bigger story is one of the improvement in Europe’s relative performance since 1970.

And of course, amid all of this there has been no mention of the rest of Europe, the bits that spent decades in the Soviet orbit, and weren’t beacons of prosperity prior to that.    Many of those countries have been making progress in catching up with the Western European leaders even as, over longer runs of time, western Europe has been catching up with the (former) Anglo leaders.

And as one final chart here is snapshot of Conference Board estimates of the levels of labour productivity last year.

europe 6

Five of the top six are European, even if Singapore is almost at the heels of the European leaders.  (Ireland, Luxembourg, and Norway have higher numbers again, each with their own idiosyncrasies.)  Below Singapore, I’ve just put in a few countries out of interest –  China as much because on my walk this morning I listened to a podcast interview with a former European politician convinced that by 2038 China will dominate the world, and that this will mostly be a good thing.

Europe has had its good and its (very) bad times in the last 100 years or so, but when one looks at the data as a whole it is hard not to think that in economic terms Europe’s performance (and especially that of the northern European top tier) relative to the rest of the advanced world has increasingly been as good as it has been at any time since the New World was really opened up to trade and settlement.    By contrast, over the last 100 years or so, of the New World countries only the US has more or less managed to hold its own matching or exceeding the leading group (per capita income and productivity) of European countries.

For New Zealand, Uruguay, Chile and Argentina –  and even Australia –  (the Antarctic Rim countries) it all seems to have proved just too hard.

Blathers away when directly asked

Michael Reddell China, NZ politics

Another week and another Matt Nippert article in the Herald updating us on the Prime Minister’s continued refusal to be interviewed substantively on the government’s approach to the People’s Republic of China.

A Herald request filed in May to discuss the Government’s China policy with Ardern was this week again rejected, with possible windows for an interview now pushed into early next year.

Perhaps it  –  refusal to be interviewed by a serious journalist on a major public policy issue – might not matter as much if our MPs were not, apparently, all in thrall to the PRC, such that there is no questioning in Parliament of the government’s approach on this really important issue.  But Parliament is useless –  and worse –  and the Prime Minister simply avoids (refuses to face) sustained media questioning.  Not, it seems, that many try, but to their credit the Herald has.

Cheap virtue-signalling is apparently fine: the Prime Minister was reported as (to her credit) having refused to travel in a Maserati at APEC.  But that’s only PNG, and hardly anyone here (well, perhaps a few MFAT diplomats) will question her small stand against such excess.

But she is not willing to engage seriously on the activities, including those in our own country and own political system, of a great (if evil) power.

Fortunately, an occasional journalist does still manage to ask the odd question.  But they are typically short interviews, and rarely focus in on things she is directly responsible for, and so she gets away with what can only be described as “blather”.    There was an excellent example on Radio New Zealand’s Morning Report yesterday when she was interviewed by Guyon Espiner.

It was a consistent attempt at minimising any issues, relativising everything, and never ever calling out China on anything.  It was actually pretty fundamentally dishonest to the New Zealand public, in attempting to imply that all that is really going on is a trade dispute.   Then again, I thought she was given a pretty easy run by the interviewer.

Thus, we were told that there was “significant consensus” around the APEC communique and that the issues were only a few words.  But she knows as well as anyone that most such communiques are just bumpf anyway, and the real issues always resolve around a few critical words.  It matters a lot –  tells us a lot – that neither the US nor China decided that it was in their interests to compromise on this specific point, which could almost certainly easily have been drafted around (and the results spun by each side) had there been a will to do so.  (“Unfair trade practices –  of course we disapprove of those, but our country doesn’t have any, just standard national security provisions”.  That sort of thing.)

She stated that both sides should “step back and de-escalate”, without addressing the substance of the issues at all.    But she must know that her consistent refusal to say anything of substance plays into the hands of the People’s Republic.  You might think –  as I do –  that Trump’s initial focus on bilateral trade deficits is pretty flakey, but it doesn’t detract from the wider issues around theft of intellectual property, market access, and so on.  The PRC remains one of the least open markets in the world.  And the US by contrast, for all its many faults, is one of the most open.

The government seems to see itself as having some sort of role as a ‘bridge” between the US and China.  Questioning drew on a comment to that effect over the weekend from the Trade Minister, David Parker.   The Prime Minister attempted to minimise this, talking of some specifics around WTO governance.  But perhaps the interviewer could have pushed her rather more on what it is that the government disagrees with in the recent combined (ie not just the US) EU, Japanese, and US approach

On November 12, the United States, European Union, and Japan will submit a package of proposals to the World Trade Organization’s Council on Trade in Goods that would significantly help curb China’s practices of heavily subsidizing its state-owned enterprises. They are also discussing ways to prevent China from forcing Western companies to transfer technology to Chinese firms.

The Prime Minister was asked why we wanted to be a “bridge”, to which her response was to burble on about a “values-based approach”, an independent foreign policy, and not picking sides.  Surely in any sort of values-based approach –  one where life is more than deal and political donations – you would be found on the side opposing the greater evil?  But, of course, there was none of this from the Prime Minister, just the suggestion that somehow being neutral was better, for its own sake.  To believe her, for example, you’d have to believe that Michael Joseph Savage and Peter Fraser were forced into World War Two against their better judgement, rather than as leaders of an independent country deciding to act together with other countries that shared our values, and the attitude to the presenting evil.

It is the sort of answer that wins praise from the largely taxpayer-funded propagandists for all things PRC.   It shouldn’t be acceptable to decent New Zealanders, not compromised by deals or donations.

The interviewer tried again, asking if she was really saying we (well, she) was as aligned with the PRC as with the United States (with whom, as he pointed out, we are in a longstanding intelligence relationship).  Even there she couldn’t manage a straight answer, burbling on about how “we align ourselves with a set of principles and values. Some of these things are not black and white”.  But even then she seemed to be trying to reduce everything to technical details about a trade dispute.  No sense, for example, that imprisoning a million people in Xinjiang, for being who they are, qualifies as pretty unconditionally “black”.  Or probihiting freedom of speech, scoffing at the rule of law, widespread theft of intellectual property, severe restrictions on freedom of religion, and no capacity of a country’s citizens to change their government –  and all that is mostly just the internal stuff –  are pretty black.  No other country –  let alone our own – is perfect, but in real life you choose to align with real people and real countries, and when you choose to consistently refuse to identify that New Zealand has a lot more in common –  in its values –  with Australia, Canada, the US, Japan, the UK, Taiwan, or EU –  than with the PRC, by default you side with other lot.   You give legitimacy to their evil.

The interviewer moved onto the Belt and Road Initiative, which the previous government signed us up to last year –  some sickening text (“fusion of civilisations”), but mostly a big propaganda win for the PRC.  Because although the Prime Minister tried to spin her listeners suggesting that lots of countries had signed up, we are the only advanced country – and the only Five Eyes partnership country – to have done so.   Of course, given that the deadine in the original agreement for specifics has now passed, one might deduce that the government is not too keen on doing too much under the loose aegis of the Belt and Road Initiative.  Perhaps the pressure from Beijing for some specifics is beginning to mount –  if, for example, New Zealand wants that extension of the preferential trade agreement (or the Prime Minister wants that trip to Beijing).

The interviewer moved onto matters we have full control over: our response to the PRC influence and interference activities in New Zealand.    He quoted Anne-Marie Brady’s line that those activities (“covert, corrupting, coercive”) were now at a “critical level”.   The Prime Minister simply refused to engage with specifics (she was “very cautious about labelling”), talking about the need for good and broad “legislative frameworks” –  as if the real issues were primarily legislative, rather than attitudinal ones being at least as important  – while naming nothing specific there either (although some mention of cyber-security).   We need, we were told, to be “vigilant across the board”, trying to play distraction with references to North Korea and Russia.   She was, she said, comforted that there was no evidence of interference in the election, without being pushed to engage with the fact that the current inquiry into last year’s election is being led by her own MP, Raymond Huo, who is himself associated with various United Front organisations, who adopted a Xi Jinping slogan for Labour’s campaign, and who organised the function at which Phil Goff funded a large chunk of his mayoral campaign with a “donation” (charity auction bid) from mainland China.  I wonder how the intelligence services would feel if they were called to testify to a committee chaired by Mr Huo?

And, finally, the interviewer moved on to the burglaries at Anne-Marie Brady’s home and office, and suggestions of interference with her car.   There was no clarion call in defence of the freedom of New Zealanders (academics or otherwise –  this isn’t largely about academic freedom) to write, advocate and lobby as they like, no observation that while the investigation hadn’t yet been resolved, if there were evidence of involvement of a foreign power it would be a very grave matter, which the government would need to respond to with utmost seriousness.  Instead we got attempts at obfuscation and procrastination.  She told us she didn’t comment on intelligence briefings, only for the interviewer to point out that she was first one to mention intelligence services.  Twice she attempted to point out that she had “been away”, as if she’d been communing with nature alone on top of some high mountain, not travelling on a government plane, accompanied by all manner of senior government officials.

If it wasn’t that surprising –  given what we’ve come to see of her performance –  it was disappointing nonetheless.   I wonder if we will even get a straight answer when the Police finally – next year, the year after  –  finish their investigation.  Effective freedom of speech –  let alone a stand for the core values of New Zealanders – seems to be an inconvenience next to keeping the donations going, and keeping the business interests trading with China (notably Fonterra, the universities, and the tourism sector) on side.  Her only “value” in this area seems to be the dollar.

But, of course, she gets away with it because the Opposition leader is just as bad.   She has Raymond Huo in her caucus (and in a senior select committee role), he has Jian Yang, and both seem to keep the donations flowing, and neither will call out the other.  The parties combine to honour Yikun Zhang for what, it seems, is in effect services to Beijing.

There was an interesting article in the Financial Times yesterday, reporting that the US is considering banning exports to China of a range of advanced technologies

In a document published on the Federal Register, the commerce department listed all the products it might subject to export curbs. These included items from genomics, to computer vision and audio manipulation technology, to microprocessor technology, quantum computing, mind-machine interfaces and flight control algorithms.

It is the sort of thing that illustrates that however silly the initial focus on bilateral trade deficits was, the tensions between the US and China are well beyond that stage now.  At a time when the Chinese economy is in any case looking under more threat as the longrunning credit boom appears to have exhausted itself, and the authorities seem unsure how –  if at all – to respond, surely an honest and decent Prime Minister would be more interested in levelling with the public, about the nature of the regime in Beijing, the nature of its threats here and abroad, than in engaging in some sort of weird amoral “balancing act”.   If she wants to run the “not black and white” line, at least she could honestly recognise the distinction between off-white and something very very deeply dark grey.

But not in New Zealand.  One could almost say she puts herself in something like the same category as Trump over Saudi Arabia –  with obfuscation and avoidance, rather than bluster, her chosen rhetorical style.

In closing, and having praised the Herald for persevering (I guess at near-zero cost) in its quest for a serious interview on these issues, I noticed this earlier in the day

https://twitter.com/niubi/status/1064907102412513281
Translated from Chinese by
Microsoft
New Zealand has fallen.

Bill Bishop is a pretty astute and highly-regarded China analyst (who wears his distaste for Trump pretty visibly).  I clicked the link and sure enough there seemed to be a whole series of sponsored articles (links down the right hand side of this particular article) from the People’s Daily –  main Chinese Communist Party newspaper – on the Herald website.  Quite extraordinary.

Brexit and UK economic performance

Michael Reddell UK

Flicking around the web yesterday afternoon I noticed this tweet from Matt Ridley (more formally the 5th Viscount Ridley), the British journalist, businessman and author of various smart books including The Rational Optimist: How Prosperity Evolves.  (Ridley was also formerly  –  from 2004 to 2007 when it hit the rocks –  chairman of Northern Rock.)

Ridley is reportedly strongly pro-Brexit.  In my book, that is to his credit (had I been British, I’d almost certainly have voted Leave too.  Then again, the next recession is likely to shake the euro and the EU itself to its very foundations anyway).

But it was the quote from the paywalled Telegraph article that caught my eye.  Those look like pretty impressive numbers, at least for the first 10 seconds until one realises that they are almost certainly total GDP comparisons and British population growth had been faster than that of most of the other countries of Europe.  And, of course, polling data suggests that was one of the factors that led to the Leave vote in the first place –  in and of itself, higher population growth is hardly a mark of Britain’s economic success, let alone a clear welfare gain for the British.

But it left me wondering how the UK had done on other, more relevant, economic comparisons. For example, growth in real GDP per capita and growth in real GDP per hour worked.   The euro was launched on 1 January 1999, so here are a couple of comparisons (using annual OECD data) for growth from 1998 to 2017.  The comparators are  the 10 older western European countries that are in the euro (excluding Ireland whose GDP numbers are messed up by the tax system, and don’t –  to a substantial extent –  reflect gains to the Irish, and Luxembourg) plus Denmark, which isn’t in the euro but whose currency has been firmly pegged to the euro since its creation.  I deliberately didn’t include the former eastern-bloc countries, partly because they joined the euro at various different times over the last 20 years and because something else more important –  post-communist convergence –  is going on there.)

First, real GDP per capita.

UK 1

and then real GDP per hour worked.

UK 2

It isn’t an unimpressive performance over that period as a whole, especially considering (a) all the hoopla at the time the euro was created, including from some trade economists, about the new economic possibilities, and (b) the UK productivity performance since the period encompassing the 2008/09 recession has been really poor (growth in real GDP per hour worked of only 2 per cent in total).   And, I guess, it is now more than two years since the referendum, and the real naysayers would have predicted a further worsening in UK productivty growth since then.

Of course, on the other hand, it is fair to point out that the UK is in the bottom half of these countries for its level of productivity.    On the OECD estimates, in 2017 only Italy, Spain, Portugal and Greece had lower average labour productivity than the UK.   But over the 18 years in the chart those laggard countries underperformed, while the UK did actually manage some convergence.

I don’t think these numbers themselves shed any real light on how the UK will do, in economic terms, relative to the rest of western Europe over the next decade or two (whether or not there is the brief, but perhaps initially quite costly, disruption associated with a “no deal”).  And it is interesting just how widely performance has diverged even among countries in both the commmon currency and the single market.   People make choices about nationhood, and how they want their country run, for a whole variety of reasons, and in most cases a few percentage points of GDP either way doesn’t weigh that heavily –  as I’ve pointed out previously, many post-colonial countries (notably in Africa, but including Ireland) underperformed economically after independence, but probably few really regretted the choice of becoming independent.   Brexit won’t change the twi n facts that the UK is a moderately prosperous country, nor the fact that –  inside or outside the EU –  it has productivity challenges, if it wishes ever again to be in the very front rank of economic performance.

I attended a lecture a couple of weeks ago by the historian and “public intellectual” Niall Ferguson.  He noted that he had supported Remain, for what seemed to be not entirely serious reasons (he is/was friends with David Cameron and George Osborne and thought they were doing a good job, and was himself going through a messy divorce and thought breakups were very hard).  But he had become frustrated by what he described as “the bleating, whining, grumbling of the Remainers” and suggested that he now supported Brexit for two reasons.  The first was that, in his view, the EU could only survive if it became more like a federal state (good luck with that) and the UK could never have been a part of such an entity.  And the second was a hope that Brexit would help the UK confront the fact –  captured in the data above –  that its economic challenges are there whether or not it is in the EU.

I was reading last night an 1882 lecture by French philosopher and historian Ernest Renan, titled “What is a nation?”.   It seemed relevant at present, emphasising as he does that nationhood isn’t about race or language, but about two things

One is the past, the other is the present. One is the possession in common of a rich legacy of memories; the other is present consent, the desire to live together, the desire to continue to invest in the heritage that we have jointly received. Messieurs, man does not improvise. The nation, like the individual, is the outcome of a long past of efforts, sacrifices, and devotions. Of all cults, that of the ancestors is the most legitimate: our ancestors have made us what we are.

A nation is therefore a great solidarity constituted by the feeling of sacrifices made and those that one is still disposed to make.

and

Nations are not eternal. They have a beginning and they will have an end. …..At the present moment, the existence of nations is a good and even necessary thing. Their existence is the guarantee of liberty, a liberty that would be lost if the world had only one law and one master. By their diverse and often opposed faculties, nations serve the common work of civilization. Each carries a note in this great concert of humanity, the highest ideal reality to which we are capable of attaining.

That makes sense to me.  As does, through all its challenges and mismanagement, Brexit.

 

 

Aid and economic failure: PNG

Michael Reddell Uncategorized

Apparently desperate not to upset anyone, the Prime Minister announced on Sunday at the APEC summit that, along with Australia, the United States, and Japan, New Zealand would contribute to a grand electrification scheme in Papua New Guinea.   Presumably she thought not even the bullies in Beijing might object to that –  so deals and donations might be safe (the only “values” evident in her foreign policy) – and she could throw a (pretty modest) bone to the countries we used to be allied with.

But it disconcerts me on two fronts.  The first is the way that, looking across the Pacific, New Zealand and Australia (and perhaps Japan and even the US) seem to be wanting to play the game Beijing’s way.    Beijing flings cash around in a somewhat cavalier way, in some mix of decent and poor quality projects, some mix of the transparently obvious and the less than adequately transparent, and our response is to do much the same thing.    At home we spray money around through, for example, the Provincial Growth Fund, and in the Pacific through beefing up our aid programmes, including last week’s Pacific Enabling Fund.  Our aid programmes don’t necessarily have a bad reputation, but the more they are used for avowedly political ends, the worse the quality will be, and the more we treat relationships as something for sale.  It is a bit like financial incentives for kids to improve reading or pass exams: it might appear to work in the short-run, but it commoditises what needs to be internalised.

Perhaps that is what happens when you have no values?  When the Prime Minister won’t name evil when she sees it, and when she presides over the corruption of New Zealand’s own political processes.    Countries didn’t take a stand against the Soviet Union because, say, the United States paid them to, but because they recognised the character of the regime in Moscow, and the oppression visited on its own people and thus in other Communist-controlled countries.  As various observers have noted, Beijing has no friends and allies, just clients bought and paid for, or intimidated quasi-vassals.   That shouldn’t be the sort of approach New Zealand (or Australia) fosters in response.  There was, for example, the quote I ran here last week from Scott Morrison’s recent speech

Our foreign policy defines what we believe about the world and our place in it.

It must speak of our character, our values.  What we stand for. What we believe in and, if need be, what we’ll defend. This is what guides our national interest.

I fear foreign policy these days is too often being assessed through a narrow transactional lens.   Taking an overly transactional approach to foreign policy and how we define our national interests sells us short.

If we allow such an approach to compromise our beliefs, we let ourselves down, and we stop speaking with an Australian voice.

We are more than the sum of our deals. We are better than that.

It isn’t clear that the New Zealand government could honestly say that.

I imagine the Prime Minister is one of those who believes in the efficacy of foreign aid –  and not just transactionally.   Most politicians and bureaucrats tend to.  I’m much more sceptical (drawing on both observation, and –  for examples –  the writings of scholars like Peter Bauer), and Papua New Guinea is a case in point.

I care quite a bit about Papua New Guinea.   When I was growing up our church supported missionaries there –  one of whom died flying the inhospitable terrain –  and (apart from an overnight in Brisbane to get there) it was the very first overseas place I ever went to.   At the ripe old age of 23, on secondment from the Reserve Bank, I became by default –  a series of “accidents” –  a sort of de facto chief economist and adviser on monetary policy, financial markets, banks, and so on (learning as I went) to their central bank, the Bank of Papua New Guinea. It wasn’t even foreign aid, at least directly –  the Reserve Bank did the recruitment, but I was paid (rather well) by the Papua New Guinea taxpayer.   It was a great experience, personally and professionally, and although I haven’t been back now in almost 30 years, there is a sense in which I left some of my heart in PNG.  One of the memorable moments in my life was the dawn service on ANZAC Day –  a working day in PNG –  at the Bomana war cemetery, not far from where the Japanese advance had been halted in World War Two.

When I went to PNG, it was just coming up to the 10th anniversary of independence from Australia –  I recall then then Minister of Finance telling us we couldn’t tighten monetary policy because it would put a damper on the celebratory mood.    When people worried (there) about foreign influence, it was still about people like us (a former Governor-General had a newspaper column which he not infrequently used to lambast young Australians and New Zealanders who he regarded as still having too much influence in the public sector generally).  But at that point, if PNG wasn’t prospering, it had had a reasonably impressive run of macroeconomic stability: under the tagline of the “hard kina” policy, PNG had had lower average inflation rates than New Zealand or (I think) Australia.

I might not have been paid by foreign aid, and yet the whole of the Papua New Guinea state (established bureaucracies and institutions, very nice new Parliament House etc) wouldn’t have functioned without such aid.  Most of the aid in those days was direct budgetary aid from Australia.  I can’t remember the numbers now, but it was a large share of total government spending.  Direct budgetary aid had, in principle, quite a lot going for it.  Locals got to make the choices about how the money was spent, in line with (their judgement of) national priorities –  as distinct from vanity projects which might have looked good on the glossy brochures of aid agencies.  On the other hand, direct budgetary aid was only ever likely to be acceptable in the longer-term with strong accountability and good governance locally.  And both were fading in PNG.   And all foreign aid, whatever its other pros and cons, tends to contribute to an appreciated real exchange rate –  higher domestic cost structures than otherwise – that make it harder for industries based locally to be internationally competitive and for the economy to prosper longer-term based on its own strengths.   Australia still gives over A$500 million a year in aid to Papua New Guinea.   Here is how Australia talks of the opportunities, challenges, and aspirations.

Despite huge resource potential and close proximity to Asian markets, PNG faces economic challenges and fiscal pressures. Poor law and order, lack of infrastructure, complex governance arrangements, weak public service, inequality between men and women, and rapidly growing population are challenges to its future prosperity. PNG also remains vulnerable to climate change and natural disasters, including earthquakes, volcanoes and tsunamis.

The population is overwhelmingly  poor and face hardship and 80  per cent of Papua New Guinean’s reside in traditional rural communities. The development challenges for children and youth in PNG are stark: an estimated 40 per cent of children are stunted, one in five children are not enrolled in school and nearly half the population is under the age of 20. Family and sexual violence is endemic, with some of the highest rates of violence against women and children in the world. It is also estimated around 15 per cent of the population have some form of disability.

Despite these development challenges, PNG is seeking to achieve upper middle-income country status by 2050 (PNG Vision 2050 [PDF 2.78mb]). Sector priorities, as set out in the PNG Government’s 2017 Alotau Accord II, include education, health, law and justice, infrastructure and sustainable economic growth. PNG’s economic growth agenda focuses upon investments in high impact infrastructure, job skills development and partnering with the private sector.

And yet what is striking is that despite those enormous natural resource opportunities, Papua New Guinea has done so appallingly badly.  It is almost as if Papua New Guinea was one of those countries where natural resources  –  without the institutions and attitudes to change the narratives –  have been a curse more than a blessing.  There was the Bougainville mine, there was Ok Tedi, there is Lihir, there is gas (and an LNG development) and so on.  And yet here, using IMF data, is how PNG’s real per capita GDP has done since 1980 (not long after independence, and when the PPP series starts).

PNG

I’m not showing comparisons with stellar performers like Taiwan, Singapore, or Korea, or even with China.  Instead the comparisons are with three modest developing/emerging market performers – Fiji, Indonesia, and the Philippines –  and with Australia and New Zealand.   Over almost 40 years –  and all that aid – Papua New Guinea’s real per capita GDP has dropped further behind that of each of these countries.   If you can’t grow faster than New Zealand has managed since 1980, starting so far behind, there is something very wrong.    GDP per capita was about 12 per cent of New Zealand’s in 1980, and it is about 9 per cent now.

And yet New Zealand, and Australia, just see fit to throw more money at it.    The feel-good aspect is no doubt strong –   photos of the Prime Minister opening new facilities at the Gordons Market –  and the crass geopolitical positioning too  (whether it was funding to host the APEC meetings themselves, or a few tens of millions for electricity –  which probably ticks both boxes).   But where is the wise domestic prioritisation –  the hard choices made by locals about their own resources –  or the good governance and accountability?

It isn’t as if these are just questions outsiders ask.  One could look, for example, to the website of Sir Mekere Morauta.  These days he is an Opposition MP, but over the years since Independence he has held all manner of top jobs –  first local Secretary of Finance, head of the largest bank, central bank Governor, and Prime Minister.  He can be a prickly character –  when I was there he was head of the largest bank, and consistently refused to come to meetings the Governor held with heads of the banks – but has been a major force for good in PNG over the decades.

From a statement he issued last week

Prime Minister Peter O’Neill must come clean on total APEC spending. It is unacceptable for the Prime Minister to keep hiding the vast amount spent on the meeting,” Sir Mekere Morauta, Member for Moresby North-West, said today.

“Public money is not his to do with as he pleases, wasting it on luxury cars and private parties for his cronies.

According to the Public Finances (Management) Act, Section 47K, the APEC Authority must be audited by the Auditor-General, Sir Mekere said. But there is no record of any audit.

The report of the Auditor-General on the APEC Authority must be tabled in Parliament. This has not happened. Mr O’Neill has been promising for ages to table the APEC budget and expenditure report in Parliament but has never done so.

“These latest irregularities are in addition to likely breaches of the Constitution, the PFMA and other laws I have previously outlined in relation to the APEC vehicle procurement,” Sir Mekere said. “The smell of corruption grows by the day, and only full inquiries by the Ombudsman Commission and the Fraud Squad can ascertain the truth.

And

“Mr O’Neill has been the most extravagant and self-indulgent Prime Minister in our history,” Sir Mekere said. “He and his cronies are living the high life at the expense of ordinary Papua New Guineans who are suffocating, gasping for clean air. Forty per cent of our people earn less than $1.90 a day. The extravaganza of APEC is a grotesque slap in their face.

“The Prime Minister admitted in a recent Post-Courier article that his Government’s corruption, waste and mismanagement mean there is not enough money to pay for essential services such as health, education, transport, infrastructure and law and order.

“Preventable diseases such as polio, leprosy, TB and malaria are surging, and people are dying – 21 children are now known to have contracted polio. Many schools are closing across the nation. Public servants are not being paid properly and other entitlements such as superannuation payments are being withheld. Essential infrastructure outside Port Moresby is crumbling into the dust, and government systems and processes are failing by the day.

“Transparency and accountability demand that the Prime Minister’s secrets be brought out into the open. Over to you, Mr O’Neill.

Not a word, of course, from our Prime Minister.  Just throw some more money in the pot, playing Beijing’s game.

Or for an independent take on a range of such issues, you could try this.

There are no easy fixes to Papua New Guinea’s failure –  other than the wishful thinking of assuming into existence things (“institutions”) that can only be created and sustained by painstaking and persevering effort.  But whatever the path to a better PNG, it is hardly likely to be helped by yet more of a cavalier bidding war among potential official donors.  Is there even any analysis as to how the grand electrification scheme –  good for headlines for a day or two –  is going to avoid falling foul of the same problems, the same poor governance –  that has become endemic?   Or does that simply not matter in the particular game the various governments –  Chinese, or our own –  are pursuing?

Papua New Guineans deserve a lot better –  mostly from their own leaders, but also from our own.

Exchange rate: no rebalancing in view

Michael Reddell Exchange rate, Uncategorized

It doesn’t seem long –  and, in fact, it isn’t long –  since people were squabbling over a bit of a fall in the exchange rate.  The National Party was blaming the Labour-led government, while the government seemed to be taking some credit for the fall and talking about a rebalancing of the economy that they claimed was underway.  To support their claims, they not infrequently invoked the support of the rather left-wing Governor of the Reserve Bank.

And now they’ve all gone quiet again as the exchange rate has rebounded again.  On the Reserve Bank’s TWI measure, the rebound has been about 6 per cent.   Even by the standards of this decade –  when the exchange rate has been reasonably stable –  it isn’t that big a move.

TWI 18

The level now is about the same as the level at the time the choice of the new goverment was decided in October 2018.  It poses new fresh inflationary threat (which seemed to be the National Party concern when it was falling) and no greater buffering, or signal of rebalancing, as the government and the Governor had liked to claim.

What of longer-term comparisons?  Here I like to use the OECD’s real relative unit labour cost measure –  partly because there is a long run of data.     Here is how the longer-term picture looks (the dot representing today’s estimated level).

TWI 18 2

On average, the real exchange rate has been high since around 2003 (with a sharp but shortlived dip in the 2008/09 recession).   Even the lows the Prime Minister and Governor liked to talk up had still been a bit above the 15-year average (the grey line); current levels even more so.

But I’ve also shown (yellow line) the average for the entire period since 1980.  The current level of the real exchange rate is about 18 per cent above that long-term average.

That would make sense, and be welcome, if – for example – the last 35+ years had been ones in which New Zealand had been chalking up a stellar productivity growth performance, if New Zealand firms had been successfully many more foreign markets lifting the foreign trade share of the New Zealand economy.  But, of course, that hasn’t been the story at all.   There were short periods when it sometimes looked as if these sorts of developments were actually happening, but they’ve never lasted, and none of those periods have been in the last 15 years (when the real exchange rate has consistently averaged high).  Instead, our productivity levels have drifted further behind those in other advanced economies –  including, notably, over the last five years when there has been little productivity growth at all –  and foreign trade shares of our economy have stagnated and then shrunk.  Indicators of the relative size of the tradables sector of our economy have also not been encouraging.

These aren’t developments that should leave anyone very comfortable.  In the shorter-term, there isn’t much obvious impetus for strong domestic growth –  commodity prices are easing, confidence is weak, population growth is ebbing –  and the risks to the global outlook seem to be mounting, and perhaps even crystallising.  Then again, if things go badly wrong in the short-term, the exchange rate can –  and probably will –  move quite quickly.

The bigger concern is that there is no sign of an economy rebalancing towards some better – higher productivity, more outward-oriented, tomorrow.  And the persistently high exchange rate, over decades, seems to have been reflecting deeply misguided policies that have helped produce the last few decades of disappointing economic performance, all combined with a depressing indifference from the leading figures in all our main political parties.  There is little chance of breaking out of the slow spiral of continued relative decline without a quite materially different approach.  Part of making that work would be likely to involve the real exchange rate revisiting –  settling –  the sorts of lows we experienced at times in the first 15 or so years after liberalisation.    Even back then, when senior figures talked of rebalancing, it was mostly wishful thinking –  since the lows were purely the results of short-term cyclical forces.  These days, such talk bears even less relation to reality –  and to the scale of the challege before us.  But perhaps it generates a favourable news story for a day or two.

Voices in support of Anne-Marie Brady

Michael Reddell China, NZ politics

Many, perhaps most, readers will have seen the article by Matt Nippert on the front page of yesterday’s Herald, about Professor Anne-Marie Brady and indications that her car may have been sabotaged.  This, of course, comes in the wake of break-ins to Professor Brady’s home and office, that are still –  months afterwards –  being investigated by the Police.  The strong suspicion has been that agents of the People’s Republic of China were involved in the break-ins, including (inter alia) because of what was, and wasn’t, taken, and letters that Professor Brady had received.  Yesterday’s article included this comment from Brady about the very slow-moving investigation.

She was unwilling to comment on the lengthy and still unfinished Police investigation, but told the New York Times in September the lack of comment or public action from government to date was “starting to look like procrastination”.

Official Wellington might be thought to have a strong interest in the investigation not coming to a conclusion, and it has (sadly) become difficult to have much confidence in the independence and integrity of the Police when it involves issues that matter to governments.

Nippert also included this section

The ongoing investigation …. had raised the temperature of local debate on the issue of China.

Commentary in local Chinese-language media has been an especially heated, with a recent op-ed by Morgan Xiao – published simultaneously by SkyKiwi, the Mandarin Pages and the New Zealand Chinese Daily News – describing Brady and other New Zealand-Chinese democracy activists as “anti-Chinese sons of bitches” who should “get out of New Zealand”.

Freeman Yu, whose New Zealand Values Alliance has started a petition urging the government to follow Australia’s lead and curb China’s local influence, was also called out by Xiao.

Yu said the language used in local debate had recently hardened, with “extreme expressions used in the Cultural Revolution”.

“The language used in their articles expressed intense hatred for different voices and the freedom of speech,” he said.

Comments sections on (for example) Stuff often don’t reveal humanity at its finest, but this is a description of a published op-ed.   New Zealanders should get out of New Zealand?

I know Professor Brady only slightly.  We’ve talked a couple of times and exchanged emails from time to time over the last year.  I’ve found her contribution to the New Zealand debate –  which seems to involve stepping a bit beyond her personal comfort zone (academics are often most comfortable behind the scenes) –  on these issues invaluable.   Such debate as there now is wouldn’t be occurring without her.

But Geremie Barmé and John Minford know Professor Brady very well.     Barmé and Minford are both emeritus professors at the Australian National University where Barmé was formerly Director, Australian Centre on China in the World and Chair Professor of Chinese History at Australian National University College of Asia and the Pacific in Canberra.   They now live near Featherston –  which perhaps accounts for the number of China books I found in a Featherston secondhand bookshop recently –  and host The Wairarapa Academy for the New Sinology.  Their website has a fascinating collection of material, which I’ve linked to occasionally.

They have today put out a statement about Professor Brady, her work, her position and so on.   I’ve reproduced it here (with permission).

17 November 2018

Re: Professor Anne-Marie Brady

To Whom It May Concern,

Professor Anne-Marie Brady is a noted specialist in China’s domestic and foreign politics at the University of Canterbury. Her work on contemporary China, and its increasingly controversial global engagement, contributes directly to the national interest of New Zealand. It is also having a considerable impact internationally, not only in academic circles but also in political debates and policy formulation among the major allies and trading partners of this country.

As teachers and mentors of Professor Brady — John Minford was one of her undergraduate teachers at the University of Auckland; Geremie Barmé was a supervisor of her doctoral work at the Australian National University — we are proud of her achievements and we strongly support her ongoing academic research work and engagement with issues of public, national and international significance.

In February this year, we were profoundly disturbed to read media reports about break-ins at Professor Brady’s workplace and of her home office, resulting in the theft of electronic equipment and research materials. The details of the break-ins, still a subject of police investigation, suggested that Professor Brady was being subjected to intimidation for her internationally recognized work on official Chinese strategies to influence the politics and societies of foreign countries, in particular New Zealand. (See: https://www.pressreader.com/new-zealand/the-dominion-post/20180219/282355450217707) We were shocked by the latest media reports — on 16 November — that, during routine Warrant of Fitness maintenance, it was discovered that her vehicle may well have been purposely tampered with. There are indications that this was done to endanger the occupants of the vehicle: Professor Brady, her husband and their three teenage children. (See: https://www.stuff.co.nz/national/108649435/professor-annemarie-brady-who-warned-about-china-interference-says-car-was-sabotaged )

The freedom from fear was long ago recognized as a basic human right; academics should be able to pursue their work, and their daily lives, without being subjected to intimidation. In any modern democracy worthy of the name, academic freedom and independent research are crucial “public goods”. They are also germane to university life.

As residents of New Zealand and as independent scholars — our main institutional affiliation is with The Australian National University as emeritus professors — we hereby express our deep concern about the on-going threats to Professor Anne-Marie Brady’s research and private life.

We hope that others whose research and teaching involves contemporary China will offer her and her important work collegial encouragement, as well as public support.

Furthermore, we also hope that the New Zealand authorities take the threats against Professor Brady seriously. We appeal to the Prime Minister, Rt. Hon. Jacinda Ardern, and her coalition partner the Foreign Minister, the Rt. Hon. Winston Peters, to address directly the issues raised by her work which she has further articulated in practicable, and succinct, formal advice to the government.

Since September 2017, Professor Anne-Marie Brady’s work has attracted overwhelmingly positive global attention. It has also been subjected to vilification by Chinese officialdom. Regardless, her work continues to influence the debate about China’s “sharp power” on the international stage, and it contributes to practical policy discussions in Europe, North America and in Australia. This work remains ever more pressingly relevant to the public life, and the future, of her homeland.

Yours,

Geremie R. Barmé
Professor Emeritus of History
The Australian National University
Founding Director, Australian Centre on China in the World
Fellow of the Australian Academy of Humanities

John Minford
Professor Emeritus of Chinese
The Australian National University
Sin Wai Kin Distinguished Professor
Hang Seng University of Hong Kong

To me, the most important lines in the statement are those addressed to our political leaders

We appeal to the Prime Minister, Rt. Hon. Jacinda Ardern, and her coalition partner the Foreign Minister, the Rt. Hon. Winston Peters, to address directly the issues raised by her work

(To which I would add “and the leaders of the National Party, so recently in government”.)

They might also speak about, for example, things like that appalling op-ed from various Chinese-language local media.

Shameful as the government’s stance on, say, Xinjiang is –  the refusal to add our voice to the protest by our friends and allies –  we can’t change China.  But we  –  they –  have no such excuse when it comes to New Zealand itself, our political system, the environment facing freedom-loving ethnic Chinese New Zealanders, and the actions of the People’s Republic of China and its agents here.

And yet Matt Nippert’s article reminds us again of the supine, scared of their own shadow, attitude of the government.

Since May the Herald has been seeking to interview Prime Minister Jacinda Ardern about the governments’ China policy in light of Brady’s research and legislative action in Australia.

The Prime Ministers’ Office has regularly put off the request

Simply refusing to engage on such vital issues with a serious journalist from our largest newspaper is astonishing, and a telling commentary on how corrupted our political system appears to have become.  Perhaps as telling is the utter silence from the National Party on the government’s refusal to engage.

UPDATE: I would strongly recommend this new piece, by the commentator on China issues who goes under the label Jichang Lulu, to anyone at all interested in the PRC influence issues as they relate to New Zealand.

 

The Prime Minister continues to shame us

Michael Reddell China, NZ politics

The Prime Minister has been attempting to defend her handling of the meeting with the Malaysian Prime Minister, following his apparently quite forthright comments on the South China Sea.  She parrots a line about not taking sides in the dispute, but surely she knows that when you don’t take sides between a bully and his (or her) victim you side with the bully.  And when you say

New Zealand’s position on the issue had been “utterly consistent”, and the country had never taken sides, she said, adding all claimants should uphold international law, and the law of the sea.

and yet fail to point out which party –  the PRC –  consistently refuses to uphold international law in this area, you make yourself a party to the abuse, the aggression, aiding the new status quo in which the PRC has taken control.  It really is like not taking sides when Germany takes Czechoslovakia or Poland.

But perhaps journalists could also ask the Prime Minister to explain New Zealand’s absence from this list

Australia, Canada, and the European Union as a whole, but not New Zealand, are part of an approach to Beijing over the abuses in Xinjiang.

Life –  even foreign policy – really has to be more than the sums of the deals, or the sum of the donations.

The Government’s stance is these areas –  much the same as the Opposition’s –  shames us.

UPDATE:  A reader sends me this (I’m not sure from which publication)

“We decided not to sign it because we have raised concerns about the situation in Xinjiang directly with Chinese authorities,” a spokesman for Ardern told Newsroom when asked if New Zealand had joined the protest.

“New Zealand concerns have been registered by the Prime Minister with senior counterparts, including yesterday with Premier Li. Concerns have also been raised at officials’ level, including through New Zealand’s bilateral human rights dialogue with China, and at the UN in Geneva,” the spokesman said.

This is pathetic.     As if none of the other countries has made direct or bilateral comments, and –  as noted here –  other countries (including the US, UK, and Australia) were much more visible and vocal at the recent UN human rights review on China.   There are those old lines about “stronger together”, and people being known by the company they keep.   I don’t think trade agreements and the like should drive our policy stances –  our values should – but you have to wonder what the EU (with whom New Zealand wants to sign of an agreement) makes of a New Zealand government so supine it won’t join its (erstwhile) friends in this process.   Perhaps unilateralism is an option for the US, but it is the same Prime Minister who regularly reminds us, and the world, about the merits of acting together.  Just not when it comes to never ever upsetting Beijing?