I’m presuming Stuff’s Kate MacNamara won’t be very welcome at the Reserve Bank for quite some time.
She was the author of the double-page spread in last week’s Sunday Star-Times about the Governor (“Portrait of the Governor as a strongman” – note that is one word, not two, and the difference is quite important). I wrote about that earlier in the week. As a reminder of some of that article, it included this
The video of the conference remains on the Reserve Bank’s website. Some reporters said they were stunned Orr would air his anger so publicly and called it bullying.
But other observers were not surprised. Details of Lubberink’s experience were already circulating in Wellington and industry sources say they match a pattern of hectoring by Orr of those who question the Reserve Bank’s plan.
“There is a pattern of [Orr] publicly belittling and berating people who disagree with him, at conferences, on the sidelines of financial industry events,” said one source who’s been involved in making submissions to the Reserve Bank on the capital proposal.
There have also been angry weekend phone calls made by Orr to submitters he doesn’t agree with.
“I’m worried about what he’s doing.”
The source said some companies have “withheld submissions,” for fear of being targeted by Orr.
“They’re absolutely scared of repercussions. It’s genuinely disturbing,” he said.
and this, re the Governor’s approach around the bank capital debate
In the cut and thrust of the debate, Orr’s jokey style and everyman charisma fell away. In recent months he’s dogmatically insisted the cost of his plan would be minimal and has picked personally at critics in the media, academia, and the financial services industry.
He’s been variously described as defensive, bullying, and perilously close to abusing his power.
“He’s in danger of bringing scorn on his office,” said long-time industry watcher David Tripe, professor of banking at Massey University. “I used to know him well. I no longer feel so confident.”
The Governor was reported to have refused any comment when approached for that story.
MacNamara followed her story up with a detailed piece on the Bank’s staffing and the loss of a succession of highly-qualified and experienced researchers over this year. Names were named – people who probably hoped never to see their names in the general media – and specific information was clearly provided to the journalist from insiders and people still very well-connected to the Bank’s Economics Department. The story listed the departure of seven capable researchers who had left in the last year or so (and, at that, missed another name). Those are large numbers. In my time at the Bank it would have been rare to have had more than perhaps 10 researchers across the (then) Research and Modelling teams.
MacNamara’s sources were clearly keen on promoting a narrative of a hugely important and influential research function. One might perhaps say, if only. I have a high regard for several of the people in the list of the departed. But the Bank’s key policy initiatives in recent years, whether in monetary policy or financial regulation, didn’t stem from, and were rarely directly supported by, good quality research generated by Bank researchers (there was some good work done, but often fairly tangential to the Bank’s immediate interests/needs). The sources were also apparently keen on recently departed, having been effectively demoted, former chief economist John McDermott. I have been on record as believing that Orr’s decision re McDermott was one of the better he has made, and as senior manager in charge of the research function McDermott has to take responsibility for the limited relevance of the research function over the last decade. Even the Bank’s macroeconomic analysis was pretty underwhelming over much of that period. All that was under previous Governors. I’m critical of Adrian Orr for many things, but he can’t be blamed for that (whatever mix of factors played a part in the individual choices of the researchers to leave – and several of those who left were foreigners who had probably never seen their long-term future being in New Zealand).
The Bank must have been taken aback by MacNamara’s forthcoming story
A Reserve Bank spokeswoman said she could not answer quickly questions about staff departures and replacements.
She was unable to say how many staff with graduate degrees in economics or finance have departed in the last 18 months.
Neither could she tally immediately how many staff have joined in that time with similar academic credentials.
Pretty bad staff work, given that they must have known this issue was a point of vulnerability – even the Annual Report had included a table showing high total staff turnover – for which they should have been prepared. Since the Bank publishes a page with details of their Economics Department research and analysis staff, it only took me a few minutes to run down the list and find several new PhD staff the Bank had hired relatively recently (albeit, by the look of it, only one with any knowledge of New Zealand). It shouldn’t have been hard for the Bank to have got that information to the journalist.
(The article is mostly focused on the Economics Department, and although the journalist attempts to draw connections to the Bank’s poor performance around the bank capital proposals that is a bit unfair to the Governor – only rarely have Economics Department research staff had anything much to do with financial regulatory issues. Maybe it would be better if they did – I used to argue for a broader focus (ie some actual research around the regulatory functions – but the choice not to also long pre-dates Orr. The absence of these particular researchers will have made little or no effective difference to how the bank capital proposals were made and marketed – those choices were the Governor’s.
The sources who spoke to MacNamara were clearly also keen on PhD qualified staff. The story highlights that there is no PhD held by anyone in the top-tier of the Bank (first time since 1988 I think), and repeats the contrast between the qualifications of McDermott and his replacements (new chief economist, new Assistant Governor). Personally, I think this issue in considerably overdone. Qualifications are not without value, of course, but research qualifications only take you so far in managing and leading a public sector policy organisation. As I’ve pointed out, over the last 40 years the Bank has had 10 chief economists, only four of whom had PhDs, and at least on my reckoning both the best and worst of them had PhDs. During the period when the Reserve Bank of Australia was widely-regarded as one of the best central banks in the world, it was led by people with much the same sort of academic qualifications as, say, Adrian Orr. The presence or absence of a PhD at the top table is not what gave us a rushed, over-reaching, capital proposal with no ex ante cost-benefit analysis. That is much more about the temperament and character of the Governor (and his right hand people who clearly weren’t willing or able to insist on something better). In fact, the chair of the Bank’s Board not only has a PhD but is a university vice-chancellor no less, and he claims (in the recent Annual Report) that all is just fine at the Bank.
In many respects I don’t disagree with Eric Crampton’s concluding comment in the article
Eric Crampton, chief economist at the public policy think tank The New Zealand Initiative, said it mattered more in a small country like New Zealand that the Reserve Bank has internal research depth.
“There are very few academic macroeconomists and monetary theorists who pay much attention at all to New Zealand policy. There are, at most, a small handful who do.
“That means that having some of that serious firepower in the Bank matters more,” Crampton said.
Except that, in reality and in other countries, research depth inside and outside the central bank tend to be complements rather than substitutes. And there is little point in having much of a research capability if it isn’t used to support robust policymaking and analysis. It hasn’t been for some time at the Bank, and that is mostly a reflection on a succession of senior managers and Governors (now including Orr), not on the staff involved.
The real prompt for this post was when, by chance, I noticed a statement from the Bank on its website, apparently released with no fanfare yesterday. Here is the whole thing.
Get the sense Orr is feeling a bit embattled?
But instead of fronting up to, say, Kate MacNamara we get bluster and distraction (and this common confusion – often found among senior public servants these days – about the name of the country).
No one criticised their individual staff. If there are criticisms to make they are of the leadership itself, mostly that of the Governor – both because he is chief executive, and because he has a long track record of surrounding himself with people who will do his bidding and not challenge him.
See how the Governor suggests that the Bank somehow has a higher capacity for identifying what is good for New Zealand (yesterday, today and forever) than others, or even that they have a mandate to do so (they don’t).
See his claim that he holds “informed and mature conversations”, and contrast that with, for example, the rushed way they put out the bank capital proposals, the backfilling they had to do as the year went on, the refusal to engage on the substance of any concerns/challenges, the attempts to slur critics and regulated institutions alike, and those descriptions above of Orr’s “angry weekend phone calls” and the like. This is the same Governor who has not given a single substantive speech on either of his core areas of policy responsibility in over 18 months in office. It would be unheard of in any other other advanced democracy.
It is past time the Minister of Finance took the situation in hand. He is the one actually accountable to the public for the Reserve Bank. He needs to be asking the Board chair and the Governor just what is going on, and why they are content for bluster to substitute for serious analysis and considered engagement – not from staff, but from the Governor himself. The problems at the Bank are at the top – Board, Governor, and a weak senior management team – not among the staff. The Governor’s statement is an attempt at distraction, trying to suggest he is sticking up for staff (who don’t need it) when the problems start with him (and those paid to hold him to account).
Bluster shouldn’t be able to substitute for serious accountability.