Eaqub on NZ policymaking

Shamubeel Eaqub’s column in yesterday’s Sunday Star-Times got me thinking.

The column is headed Policy flip-flopping on the road to progress although Eaqub seems to lament two quite different things.  The first is what he suggests is a tendency for policy to reverse course depending on which party is in office.

On tax, we have seen little leadership. The Helen Clark-led Labour government raised income taxes for high income earners, because they wanted a progressive tax system.  The John Key-led government then lowered those taxes, as it took its turn at the policy-making helm.

This kind of turn-based policy making which favours ideology is bad. It creates instability and loses sight of the long-term issues governments should be dealing with.  Instead we need a long-term and deliberate approach which can overcome this kind of policy yo-yo.

And the second is something about failures of New Zealand policymaking more generally

Bad policies often hang around like weeds, because we don’t have a good system to review past policies and undo them if necessary.

The demands for action and leadership are justified. But we should not be so hasty to deride collaborative and transparent approaches to policy development.

They are a good counter to the current way that has allowed big social and economic issues to accumulate over decades.

I’m not convinced on the first score.  For decades now, the similarities between our two main parties have been much more apparent than the differences.  Even in the brief periods of radicalism, Labour briefly wrong-footed the National Party in the mid 1980s, then National had its own brief spurt of reforms in much the same general spirit, and then before long both parties had settled back to doing not very much at all.  In many ways, the similarities aren’t so surprising –  there is plenty of political science and economics literature to predict that sort of clustering to the centre.

There are exceptions of course –  such as the maximum marginal tax rate example Eaqub describes.   Another example might have been the 90 day trial periods promised (and implemented) by National in 2008, and being partially unwound now.   And the exceptions aren’t necessarily a bad thing.  We do, after all, live in a democracy, where parties compete for your vote.  One likes to think that at least some of that competition might be based around different visions, and differences of the best practical ways to achieve even agreeed outcomes, not just on (say) who has the cutest kids or makes the best pizza.  Reasonable people will, at times, take a quite different view on (a) priorities, and (b) mechanisms (not just what “works” but what is “socially acceptable”).   The hankering for “a long-term and deliberate approach which can overcome this kind of policy yo-yo” has disconcerting similarities to the talk of the alleged superiority of the approach adopted in the People’s Republic of China: one party, and now one leader, indefinitely supposedly facilitates good long-term reform.  None of that pesky competition of ideas, interests, and individuals.  Shame about the outcomes there.

So which party is in office is supposed to make a difference –  and not just to the faces on the covers of the women’s magazines.

But I’m much more sympathetic to Eaqub in his concern about longer-term policymaking and associated advisory capability.   And that probably does spillover into Eaqub’s concerns about some of those short-term initiatives parties promise to win elections

Too many policies are populist, turn-based or just ill-thought out

Eaqub laments the state of the public service.

The civil service has a role here, as the generators and repositories of policy ideas, rather than just the delivery mechanism of ministers’ ideas that it has become.

Beaten into submission over decades, our civil service is more likely to say “more research required” on a problem, like an academic, rather than offer a well-formed recommendation.

In some respects it is hard to disagree.   Observing the quality of the analysis and advice coming out of The Treasury and MBIE instills no confidence whatever.  But while ministers have not often not welcomed, and at times actively discouraged, free and frank advice, the problem isn’t only with politicians.  The Treasury’s continued failure to have a compelling narrative of why our economic performance continues to lag behind isn’t really Bill English’s fault –  it is the failure of the institution itself (more interested, apparently, in well-being studies) and perhaps of those –  the State Services Commission –  that appoints heads of government departments.  Sir Robert Muldoon –  no great fan of The Treasury –  didn’t prevent The Treasury being well-positioned in 1984 with ideas, analysis and energy that helped facilitate the reforms of the following decade.  But that was probably an historical exception, and perhaps it is unrealistic –  even in a small country –  to really expect the public service to lead in ideas-generation around desirable reforms.  Apart from anything else, the incentives are all wrong, and the inevitable constraints militate against it.

Perhaps we have bigger weaknesses than our public service?    Think-tanks are few –  and our most consistently fertile one (the New Zealand Initiative, and is predecessor the Business Roundtable) tends to be located towards a libertarian end of the spectrum where very few likely voters are.  And in many areas, the contribution to policy-related analysis and debate from university academics is pretty thin, or often almost non-existent.  There are understandable reasons –  the PBRF ranking/funding model prioritises refereed journal articles and academic books, and recruitment policy (no doubt for good short-term economic reasons) often prioritises cycling through young foreign academics with little knowledge of, or interest in, the specifics of New Zealand.   Whatever the reasons –  and some of them may just be the limits of a small country – the policy-related inputs are often pretty thin.

But I wonder if the bigger issue still isn’t the lack of demand for anything different.  After the ructions of the 80s and early 90s there seemed to be both a shared elite consensus that reforms had been done pretty well, and it was only a matter of time until we saw the fruit.  And when the fruit (mostly) didn’t show up to the extent hoped for, there was a shared reluctance at a political level to risk more change –  perhaps particularly on the left (where the Labour Party had split).   For many people, life in New Zealand isn’t too bad at all, so why risk rocking the boat –  memories (and folk memories now) of the 80s and 90s.

And the “policy elite” (whether or a broadly-left or broadly-right persuasion) still mostly tend to hold some views that probably haven’t served New Zealand that well.  For example:

  • the broad-based low rate (BBLR) tax system, which keeps getting praised (including abroad) but typically isn’t imitated.   We tax returns to savings materially more heavily than most countries do, and that is increasingly true of business investment too,
  • the deep-seated belief that high levels of immigration are a “good thing” –  generally, and for New Zealand (even as the proponents are unable to produce evidence of those benefits for New Zealand).  The belief might be rooted in history (settler societies and all that), general economics literature, and the dread fear of being accused –  eg by the NZ Initiative –  of “racism” or “xenophobia, but whatever the reason, it no longer serves us well,
  • the endless deference to the People’s Republic of China, and the narrative that has somehow been allowed to grow up that somehow our fragile prosperity depends on keeping on side with the PRC,
  • the indifference to the fact that New Zealand has had consistently the highest real interest rates in the advanced world (and amomg the slower rates of productivity growth) –  the rhetoric for a long time (again a legacy of past decades) was that such differences can’t persist, unless they are risk-based,
  • a shared belief in the importance of technology and the tech sector, and more of a desire to belief than a willingness to ask hard questions about the likelihood of such industries developing, and remaining, here,
  • the implicit belief that our physical location doesn’t matter much (occasional talk about “costs of distance” notwithstanding) and thus an implicit view that analysis fit for small northern European countries is just fine for a really remote South Pacific one,
  • a largely shared indifference to the persistence of a very high real exchange rate.  Some of this indifference no doubt relates to the memories of controlled exchange rates past, or to journal articles characterising exchange rates as random walks, but again whatever the reason, it holds people back from seriously engaging with this symptom of our problems.

Of course, there are other issues on which the “policy-elites” are on the side of the angels –  there is probably a pretty strong consensus on raising the NZS age and even age-indexing it in future –  but there are high political barriers.

And other issues like house prices – perhaps even family breakdown –  where New Zealand’s policy failures aren’t much different from those in many other parts of the Anglo world.

Probably it is much easier to do reform, and even craft some sort of elite support for it, when the issues look like ones that involve converging towards what everyone else is doing.   That was, more or less, the story we told in the 80s and early 90s.  Even when the details of things done here were sometimes world-leading, the overall narrative was one in which we had failed to open up and reform in a way that other countries had, or were doing.  We just need to catch-up, and in the process could do some innovative stuff.

But what of now?  No country anywhere is doing much to do structurally with house prices –  and for most people in most of the rest of the world, those successful parts of the US without the problem seem to be treated as little more than a curiousity, of which most are barely aware.  No one is fixing the “family breakdown” issues either, and so we drift like the rest.

And addressing our economic underperformance looks as though it might require stepping away from some of the OECD rhetoric.   That can be hard to do (perhaps especially for officials), absent some compelling figure with an alternative narrative and the political skills to take people with him/her.

To get back to Eaqub’s article, he began by noting that

When a new government forms, there is usually a flurry of studies, task forces, working groups and advisory panels.

That has been right, at least with recent governments.  But perhaps what is most notable about many of those groups is the typically limited resources and limited time they are given.  He cited the Jobs Summit –  done over a couple of months, culminating in a one-day jamboree –  or the 2025 Taskforce (so under-resourced the one foreign appointee couldn’t really believe it). But he could have mentioned the current Tax Working Group too, which is operating on pretty tight deadlines, with limited specialist expertise.   Some of these groups, even with limited time/resources, have produced some useful material.  But they are often more about political management than about actually getting to the bottom of some serious and knotty problem.

This post has been pretty discursive, probably more useful for clarifying my thinking than for anyone else.  I think my bottom line is something along these lines:

Political flip-flopping is the least of our problems.   And the public service –  while quite degraded in its policy capabilities –  is perhaps not a body one could ever hope for much from on a sustained basis.  Our university and think-tank sectors are weak, when it comes to policy analysis and associated innovation.  But perhaps the biggest obstacle to change –  whether around the issue this blog most often focuses on, productivity underperformance, or most others –  is the absence of any political (or, presumably, public) demand for different outcomes, buttressed by “policy-elites” who seem to share assumptions and presuppositions that might have looked fine 25 years ago, but which –  on my argument – don’t do so now.  Without alternatives –  that might go over well at the OECD, the IMF or the like – it is just easier to hold on to those presuppositions, and the comfortable life most enjoy.       It is a recipe for continued drift, which is of course what we saw under the last two governments and what we seem set for under the current one.   It isn’t obvious what, or who, might credibly lead us to something different.

What do we want with the Belt and Road?

Readers will recall that the New Zealand China Council was set up by the government a few years ago, and is largely funded by the government, to promote

deeper, stronger and more resilient links between New Zealand and China

The Council includes the heads of government departments/agencies (MFAT and NZTE), and includes plenty of people –  including retired politicians – with strong business links to the People’s Republic of China.    A significant part of what they do –  see their Annual Report – is a “communications and advocacy programme”, designed –  it seems – to help ensure that as far as possible New Zealanders see things their way, and don’t create trouble around either the character of the regime (and the party that controls it), or that regime’s activities at home, abroad, and in New Zealand itself.   There are, after all, deals to be done, political donations to be solicited, friends to be protected, and so on.

Stephen Jacobi is the executive director of the Council, and its public face.  In the last few weeks I’ve written about a speech Jacobi gave recently in which he attempted –  without much depth or rigour –  to bat away concerns about PRC activities and risks, and also about a rather economics-lite press release he had put out attempting (Trump-like) to make much of the current trade surplus with the People’s Republic of China.

This week Jacobi was out with another speech, this one on Investing in Belt and Road – A New Zealand Perspective.  “Belt and Road Initiative” (or BRI) is the most recent label (previously “One Belt, One Road”) on a somewhat ill-defined but expanding PRC programme, partly about improved infrastructure (initially in and around central Asia) and partly –  some argue mainly – about extending PRC geopolitical interests in ways that display scant regard for recipient countries’ debt burdens, social or environmental standards, transparency and so on. A few weeks ago, a Bloomberg story reported that Xi Jinping had just added the Arctic and Latin America to the areas (now almost the entire world) supposedly cover by the Belt and Road initiative

BRI graphic

Or as a recent New Yorker story put it

“Across Asia, there is wariness of China’s intentions. Under the Belt and Road Initiative it has loaned so much money to its neighbours that critics liken the debt to a form of imperialism.  When Sri Lanka couldn’t repay loans on a deepwater port, China took majority ownership of the project”

I’ve also linked previously to a recent report on the potential debt risks associated with the BRI programme.

Last week’s speech isn’t, of course, the first time Jacobi has been talking about the BRI.  In a Newsroom article last year he was quoted this way

Jacobi says “the real play” in our corner of the world is less about infrastructure and more about connecting up with China through including the flow of goods, services and people.

“I’ve even heard reference to the Digital Silk Road, the vision is expanding … there’s a bit of talk in China about Belt and Road being a new way to manage globalisation instead of the old ways, which have been done off the back of trade liberalisation in particular.”

But it wasn’t very clear, at all, what it meant for New Zealand

Jacobi says New Zealand shouldn’t let too much time go by before it develops more concrete ideas for what Belt and Road could achieve in New Zealand.

“We’ve really got to move from a very conceptual phase to talking about more definite projects: I can see scope for some projects that exist at the national level between New Zealand and China on bigger picture economic cooperation-type matters, and I can see scope for more discrete projects with individual provinces.”

But what did Mr Jacobi have to say this week?

He mightn’t be sure quite what the substance of the Initiative is, but Jacobi seems pretty sure it is a good thing.

Meanwhile China under its newly-empowered President is proceeding to implement the Belt and Road Initiative (BRI) as a new model for globalisation, precisely at the time when people all around the world are calling for new ways to make globalisation work better.

What China –  with far-reaching restrictions still in place on foreign access to its market, especially around services –  means by “globalisation” isn’t what most people think of.

And so he tells us that

It is the assessment of the NZ China Council that New Zealand cannot afford to stand aside from developing a contribution to Belt and Road.

If we choose not to engage, others most certainly will and we will find our preferential position in the Chinese market further eroded.

There is the odd caveat

At the same time, we need to proceed carefully and in a way which matches our interests, our values and, especially, our comparative advantage.

although I don’t think I noticed any substantive discussion of our values or what they might mean in this context.

The context for any New Zealand involvement is a Memorandum of Arrangement signed by the two governments a year ago.

As Jacobi puts it

The MoA is non-binding and largely aspirational –  it set a timetable of 18 months for the development of this co-operation – we understand the official wheels are now in motion to put some greater flesh on the bones of how we might co-operate in the future.

And the China Council is working up its own ideas.

We suspect the greater benefit for NZ is likely to be in the “soft infrastructure” rather than the “hard infrastructure” – the way goods, services, capital and people move along the belt and road rather than building the road itself.

New Zealand has wide policy expertise and commercial services to offer in this area which matches a number of the policy areas China has highlighted for Belt and Road including policy co-ordination, investment and trade facilitation, and cultural and social exchange.

And they’ve had a consultant’s report done –  to be released in May –  with proposals.

Count me a little sceptical.  When Statistics New Zealand released the country breakdown of goods and services exports a few weeks ago, I had a look at the services exports of New Zealand firms to the PRC.  Under services exports –  themselves only 20 per cent of the total –  were tourism, export education, and travel/transportation.  Fifth on the list of “major services exports” was “other business services”.  Last year, that totalled $32 million – a fraction of 1 per cent of total exports to China.  It isn’t surprising, given that tight restrictions China has on most services sector trade, but it does leave you wondering what Mr Jacobi has in mind from his champion of globalisation.

I hadn’t previously got round to reading the Memorandum of Arrangement.  On doing so, it was hard to disagree with Mr Jacobi’s “aspirational” characterisation.  But equally, one had to wonder whether these were aspirations we should share (with Simon Bridges, who signed the agreement for the previous government).

It was, for example, a little hard to take at face value this bit of the preamble


and a bit further on the preamble started to get positively troubling, the Participants


I’m quite sure I – and most New Zealanders –  have  little interest in pushing forward “coordinated economic…and cultural development” with a state that can’t deliver anything like first world living standards for its own people (while Taiwan, Singapore, South Korea etc do) and whose idea of cultural development appears to involve the deliberate suppression of culture in Xinjiang, the persecution of religion (Christian, Muslim, Falun Gong or whatever), the denial of freedom of expression (let alone the vote) and which has only recently backed away from compelling abortions.  And that is just their activities inside China.    “Fusion among civilisations” doesn’t sound overly attractive either –  most of us cherish our own, and value and respect the good in others, without wanting any sort of fusion,and loss of distinctiveness.  But perhaps Simon Bridges saw things differently?

The next section is “Cooperation Objectives”.  There is lots of blather, including this


Hard not to think that “regional peace and development” might be better secured if the PRC forebore from creating new articial islands, seizing reefs etc in the South China Sea, or patrolling menacingly around the Senkaku Islands, engaging in military standoffs with India, or even making threatening noises about Taiwan.  There seem to be two main threats to regional peace, and the other is North Korea.  But you’d never hear anything of that sort from a New Zealand government.

The next section is “Cooperation Principles” under which the governments agree to


In other words, if New Zealand keeps quiet and never ever upsets Beijing, whether about their domestic policies (economic, human rights, democracy), their foreign policies (expansionist and aggressive) or their influence activities in other countries, including our own, everything will be just fine, and the PRC will keep dealing with us.  And on the other hand…….?

There are then  five “Cooperation Areas”.   Apparently, we are going to actively conduct “mutually beneficial cooperation in….public financial management” (hint: that “wall of debt” is a sign things haven’t been done well so far).  But the one that really caught my eye was under the heading “policy cooperation”, where Simon Bridges committed us to


It isn’t obvious New Zealand now has any “major development strategies” (see sustained lack of productivity growth) or that the PRC ones offer much to anyone –  well, individual business deals aside –  when compared with, say, those of Taiwan, Singapore, or Korea.     And what is this bit about strengthening “communication and cooperation on each other’s major macro policies”?     Why?  To what end?     And who thinks it is desirable for New Zealand to “connect and integrate” our (largely non-existent) “major development strategies”, and our “plans and policies” with those of the PRC?  A country that, as even Mr Jacobi recognised in his earlier speech, has fundamentally different values.

And the agreement concludes

bri 6

One has to wonder how it is in the interests of the people of New Zealand (as a whole –  as distinct perhaps from some individual businesses looking for a good deal), or consonant with their values, to support such an initiative, or a regime such as that of the PRC. Apart from anything else, it all seems curiously one-sided: the agreement isn’t to support New Zealanders, but rather to advance a geopolitical projection strategy of a major power, with very different values than our own.   Can anyone imagine us having signed such an agreement with the Soviet Union in the 1970s?

We can only wait and see the details of what the China Council will propose in their paper in May.   And, even more interestingly, what the government comes up with –  being bound to formulate a detailed work plan by September.  Winston Peters may regret the previous government signing up, but he is now stuck with the agreeement for four more years.  One hopes the government will find a way to some minimalist, not very costly, arrangements, but given how keen governments of both major parties have been to cosy up to Beijing –  party presidents praising Xi Jinping –  it is difficult to be optimistic.  On the other hand, it is difficult to see quite what any New Zealand involvement might amount to, and perhaps Beijing has already had the real win –  getting a Western country, a Five Eyes member, to sign up to such a questionable deal with such an obnoxious regime.

But to get back to Mr Jacobi’s speech, nearing the end he observes

There is currently a debate in New Zealand about the extent of Chinese influence in our economy.

I am on record as being concerned about some of the “anti-China” narrative in that debate, especially in the unfortunate targeting of prominent individuals in the Chinese community, but there is nothing wrong with a debate focused on how to build a resilient relationship with China given the difference political values between our two countries.

While I welcome his final half-sentence, it is a little hard to take seriously when he never – at least in public –  engages seriously with the concerns that people like Anne-Marie Brady have been raising.  As I noted about his earlier speech, among other things he will simply never

  • address why it is appropriate to have as member of Parliament in New Zealand a former Chinese intelligence official, former (at least on paper) member of the Communist Party, someone who now openly acknowledges misrepresenting his past on forms to gain entry to New Zealand (apparently because that is what the PRC regime told people to do),
  • address the PRC control of the local Chinese language media, and associated (and apparently heightened) restriction on content,

Instead he falls back on plaintive laments about the “unfortunate targeting of prominent individuals in the Chinese community”.   These same people –  since presumably he has in mind Jian Yang and Raymond Huo –  sit on his own advisory board.  And both are not members of the public, but elected members of Parliament: not in either case elected by a local constituency (and certainly not by “the Chinese community”), but by all New Zealand voters for their respective parties.     And yet both of them –  but particularly Jian Yang –  simply refuse to answer questions or appear in the English language media to explain and defend (in Yang’s case) the background, and their ongoing ties to the PRC and apparent reluctance to ever say a critical word about that heinous regime.

It must now be six months –  since the Newsroom stories first broke –  since Jian Yang has appeared.   At the moment, it looks much less like “unfortunate targeting”, than quite specific and detailed targeting, with unfortunate defence and distraction being played by key figures in the New Zealand establishment, including Mr Jacobi.  Perhaps people might be more persuaded by Jacobi’s case –  that working closely with, and constantly deferring to, the PRC was in the best long-term interests of New Zealanders, if he called for his board members to front up, rather than giving them cover to simply shut up.

In concluding the post a few weeks ago about Mr Jacobi’s earlier speech, I had a speculative paragraph on some uncomfortable parallels between the PRC now, and Germany in the 1930s.  If the parallel isn’t exact –  and we must hope not, given how the earlier episode ended –  it still seems closer than any other historical case I can think of, including the same desperate desire to appease, to understand, to get alongside (key figures in the British Cabinet were still hoping to do economic deals with Berlin well into 1939), and the same reluctance to confront evil or take a stand (even at some cost to some businesses).  In a week when the PRC “Parliament” passed the amendment to remove the term limit on the office of President with 2958 votes in favour and two against, I decided to check out the results of the referendum Hitler staged in August 1934 after President Hindenburg died, to finally concentrate all power in his own hands.  This was 18 months into the Nazi era.  Despite widespread intimidation, almost 10 per cent of voters (on a high turnout) felt free to dissent

For 38,394,848 88.1
Against 4,300,370 9.9
Invalid/blank votes 873,668 2.0
Total 43,568,886 100

There is something to be said for our governments openly and honestly confronting the nature of the Beijing regime.   We can’t change them, and it isn’t our place to, but we can choose with whom we associate, we can choose how often we just keep quiet, and how much of our own values (and the interests of many of our own Chinese citizens) we compromise in the quest for a few deals for a few businesses (and universities) – and a steady flow of political party donations.   And we can, and do, as I’ve pointed out before, make our own prosperity.  If individuals firms want to deal with the PRC, on its terms, then good luck to them I suppose, but we then need to wary of those same firms and institutions, and to ask whose interests they are now, implicitly or explicitly, championing.

There is a weird line in Matthew Hooton’s column in today’s Herald in which he asserts that no one should be critical of China because “China is just doing what emerging Great Powers always do”.  That may be a semi-accurate description.  It didn’t stop us calling out, and resisting, the expansionist tendencies of Germany, Japan, or the Soviet Union.  It shouldn’t hold us back in recognising the threat the latest party-State, the People’s Republic of China, poses both abroad and here.



Census day

It is census day.  I’d probably be filling in my census forms now, except that they haven’t yet arrived.  We wanted paper forms, and I rang to request them within minutes of the initial SNZ letter arriving, with the access codes.  That was 10 days ago now.  So I’m less than impressed.  Doubly so as one of my kids is off at a school camp, and whereas I’d planned to fill out most of her form for her and send it along with her, since the forms haven’t arrived some teacher will presumably be overseeing her completion of the form, including a bunch of quite sensitive information that is simply none of the teacher’s business.

There is an article in the Dominion-Post this morning (“An intrusive, insulting exercise”)  from a journalist attacking the very existence of the census.  I’m torn.  I’m a keen user of some census data.  But I can’t help wondering what business it is of the state to coerce –  under direct threat of prosecution –  much of this information out of people.  As the journalist notes, threats to government data security have become more real.  And I also wonder whether Statistics New Zealand is not increasingly an instrument of a socio-political agenda (note the several pages of defensiveness about the absence of “gender identity” questions – this time).    Glancing through the questions, I’m also struck by the imprecision of several of them (eg under “Which country were you born in?” the third option is “England”, which is barely more of a country than, say, Canterbury or Otago are –  the latter two had their own parliaments rather more recently (1876) than England did (1707?).

The ethnicity question has been in the media in the last few days, with some  people bothered that “Pakeha” isn’t an option.  I guess they have a point.  But what bothered me was something else. Here is the question.


How many Niueans are there in the entire world?   Apparently about 25000.  At the last census there were more than 200000 people in New Zealand born in “England” –  plus others who probably identify as English.   And yet SNZ don’t even list it as one their top 8 options.  It would be interesting to understand why.  I’d probably normally tick the form as “NZ European”, but I think that (when the forms finally arrive) this time I might write down English, Scottish, Northern Irish, and perhaps British as well.  Since SNZ tell us ethnicity is, on their reckoning, self-perceived, the answers won’t (can’t really?) be wrong –  and those places are where my ancestors come from.

There are questions that leave one wondering about the reliability of the results of the census.  Here is a language question


On a form in English, they feel the need to remind us to remember to mark English if we can have a conversation in English?.  Quite how thick do they think respondents are that they need to talk down to us thus?   (And why is it any business of the government whether someone can hold a conversation in, say, Pukapukan or Polish? –  English, Maori, and Sign Language might, arguably, be a different matter.)

Then there is the religion question.


I consistently refuse to answer this question, not because I’m ashamed of my faith – Christian – but because it is the one question I’m lawfully allowed to refuse to answer.   The government and SNZ attempt to market the census on the basis of all the important public policy/spending choices it will inform, but it isn’t clear what decisions they think they will be making on the basis of individual’s declared religion (or lack of it).   And then there is the picky point: few Presbyterians will think of “Presbyterian” as a religion, but as a denomination within Christianity.

And then there is the question that probably bothers me most.


Quite what business is any of this to the government?  Frankly, if I had difficulty washing or dressing, I’d rather take the risk of being prosecuted (or perhaps even lie) than face the humiliation/embarrassment (as many will regard it) of writing that down on some government official’s form.

There are the questions that look like some activist’s request


What marks out cigarettes, in the minds of the bureaucrats who put this together, from pipes or cigars?  What business is it of the government’s.    And if cigarettes, what about alcohol, drugs, or other things people might think of as social vices –  “have you ever requested a single-use plastic bag?” for example.  Then again, perhaps I shouldn’t encourage them.

And, to the very end, the worthy social agenda continues.  The form ends –  the sample on-line firm, not yet having got my forms –  thus.


Actually, if there are blank unused forms, I’d prefer to rip them up, drop in the rubbish bin and see them off to the landfill.  But quite what I do with my rubbish shouldn’t really be any concern of Statistics New Zealand.

For much of the sort of information in the questions I’ve highlighted, it is hard to see a legitimate public policy interest in the information (coerced as you’ll recall) and also hard not to think that to the extent that there is interest in the issues in some quarters, reasonable steers could not be obtained much more cheaply, and non-coercively, through the use of well-designed voluntary surveys, undertaken at the expense of those interested in the data, and without the privacy concerns regarding the provision of so much joined-up data in one place to public servants.


Causes of financial crises

Earlier in the week I wrote about a couple of the surveys, of US academic economists, conducted out of the University of Chicago by the IGM economic experts panel.

But another of their 2017 surveys caught my eye.  It was about the financial crisis of 2008/09.

Panellists (US ones, and those of the sister European panel) were asked (with detailed wording of each item at the link)

Please rate the importance (0=none; 5= highest) of each item below (presented to panelists in randomized order) in contributing to the 2008 global financial crisis.

And this was how the results came back (using the version where respondents indicated how confident they were of their views).

2007 IGM weighted-graph

For the most part, the European and American responses were pretty similar (not that surprising given (a) that they were asked about the same events, and (b) that quite a few of the US panel were academics who’d migrated from Europe).  Perhaps the only material differences are on the questions around the role of savings and investment imbalances, and around the role of direct government involvement in the housing finance market.  In neither case do the (weighted) average respondents think these issues were top-tier factors but in Europe extremely large current account deficits (savings/investment imbalances) were much more salient (Ireland, Greece, Spain, as well as various eastern European countries) –  as were the “reinvestment” pressures on eg German banks.  And on other other hand, in the United States, between the role of the agencies (Fannie Mae et al), the FHA, and direct federal pressure on banks to lend to support home ownership, the government has a far larger role in housing finance than in most countries.  And US housing finace was the epicentre of the crisis.

In some ways, it is a funny mix of questions/options.  Even if all these factors contributed in one sense or another to the 2008 crisis, they must have done so in quite different ways.  Take, for example, funding runs, resulting from maturity mismatches (short-term liabilities funding long-term assets).  Clearly they were a phenomenon observed in the crisis –  whether at Bear Stearns or Northern Rock or…. –  but since every banking system in the world, strong or otherwise, operates that way, it isn’t clear that the funding structures (or the runs) were a material cause of the crisis.

And one can criticise the rating agencies all one likes –  and I’m sure most of the criticism is well-warranted – but few people were compelled to use credit ratings to guide their asset allocation choices.  And, for all their faults, the rating agencies were generally only responding to much the same incentives that drove other active participants in the system.

And what might lament that regulators and supervisors didn’t catch the building risks before the crisis broke, but (a) they rarely do, and (b) generally, prudential regulators did not compel or coerce willing borrowers and willing lenders to undertake the transactions that ended badly.

It is interesting to see that the “too big to fail beliefs” item is ranked a fair way down the scale (the specific question is about the beliefs of bankers that their own bank was too big to fail).     That sounds about right.  In boom times, most participants are focused on maximising the upside, with little focus on the possibility of things going very badly.  And for the management and Boards of banks, even if their own bank does prove “too big to fail” it is probably little solace to the people involved –  they will still be ousted (RBS, for example, still trades but Fred Godwin –  knighthood and over-generous pension too –  is long gone).

I’m not quite sure what two or three factors I would rate most important.  But one that would rank fairly highly isn’t even directly on the IGM panel’s list: the creation of the euro and the inclusion of so many peripheral states in it.  That choice –  giving German interest rates to Ireland, Greece, Spain, and associated flows of capital –  greatly accentuated imbalances that might already have been there.   Again, it caused no bad loans directly, but fostered an environment in which they became more likely.

And I still find quite persuasive –  more so than the panels clearly –  the story around the importance in a US context (and the US crisis contributed greatly to crises in the UK, Germany and several other European countries)  of government efforts to promote easier access to housing credit.  As I summarised the story former US official Peter Wallinson told

It is that without repeated, sustained and frighteningly successful US government efforts – under both Clinton and Bush administrations – to promote easier access to housing credit, particularly through the agencies (Freddie Mac and Fannie Mae), there would most likely have been no serious US financial crisis.  Wallinson documents how government mandates compelled the agencies to drive down their lending standards, and how because of the dominant role of the agencies in the market, this contributed to a sustained deterioration in the quality of new housing loans being made across the United States.  As late as 2004, new mandates were imposed, forcing the agencies to meet higher low income lending targets with loans for new purchases, excluding any refinancing or equity withdrawal loans.

Finally, it is interesting to note that household debt (specifically “Elevated levels of US household debt as of 2007”) also doesn’t rank that highly as an explanation.  That has long seemed right to me –  apart from anything else, debt to income ratios at the time were higher in New Zealand and Australia (which had no crisis at all) and in the UK (which had no domestic housing finance crisis) than in the US.   But the Reserve Bank has tended to put (in my view) too much weight on the debt stock.

I noticed this week that credit growth in New Zealand (household or total) has now again dropped a little below the rate of growth of nominal GDP.  I don’t supppose it portends anything very much, but if our debt levels in 2007 didn’t cause a local crisis, the current debt levels don’t seem likely to either.

(with an estimate of Dec quarter 2017 GDP)debt to GDP NZ

It is striking just how little has changed in aggregate.   Debt stocks that, as a per cent of GDP, have barely changed over a decade, are very rarely the stuff of which crises are made.  Big increases in those ratios can sometimes be associated with subsequent crises –  that was what New Zealand had in the 00s, and thus we were worried in 2007 – but very bad banking seems to be what really matters, and in a well-disciplined market economy, “very bad banking” and “more debt” aren’t synonymous.


Not much encouragement in the productivity data

New Zealand’s weak productivity performance has been an on-and-off theme of discussion for decades.   We’ve been falling behind for 70 years now, something that was recognised by expert observers almost 60 years ago. In all that time, there has never been any sustained period when we’ve made any progress in closing the gap.   A typical cycle seems to involve Opposition politicians –  of whichever party –  suggesting that they will do better, and that under their stewardship we’ll catch Australia, get back into the upper half of the OECD, or whatever.   Once in office, the rhetorical concern often lasts for a year or two, and then typically nothing much else is heard or –  worse –  there are attempts to twist the data to try to render our underperformance less stark.

There was a bit of focus last year on New Zealand’s latest run of poor productivity outcomes.  I and others had noted that we seemed to have had no productivity growth for almost five years.  And, sure enough, Opposition parties picked up the issue to some extent, and the then-government attempted to play distraction and pretend everything was fine.

And then there was a change of government, and a couple of months later a new annual update on the GDP numbers.  The new numbers saw estimates of GDP for the last few years revised up a bit and –  since estimates of hours worked didn’t change – that translated through into a lift in estimates of real GDP per hour worked.  In some quarters, a sigh of relief was breathed.  And, to be sure, in this context more was undoubtedly better than less.

But when I dug into the numbers it still resulted in this chart

GDP phw worked NZ Jan18

We’d gone from having no labour productivity growth at all (actually marginally negative) over the last five years to total productivity growth over that period of 1 per cent (ie about 0.2 per cent per annum).   It is a little better than the previous iteration of data has suggested, but……it wasn’t anything to boast about.  It shouldn’t have made anyone much less uncomfortable.  And on the updated data this was the New Zealand vs Australia comparison.

AUs and NZ reaL gdp PHW

Once a year, Statistics New Zealand release official estimates of annual labour productivity growth for what they label the “measured sector” of the economy, which covers around 80 per cent of the economy (total GDP).  The latest release, including data for the year to March 2017, was out last week.  The “measured sector” includes about 80 per cent of the economy, where Statistics New Zealand is reasonably comfortable about its real output measures (the main exclusions are education and health).

Unsurprisingly, there were some upward revisions in these numbers as well.   The numbers don’t get a great deal of commentary, but the reaction seemed encapsulated in this chart from one of the banks.


Not only were the numbers for the last couple of years revised up, but if you eyeball the chart productivity growth in the last decade doesn’t look much different than that for the previous decade.

That certainly looks more encouraging.

This is how productivity growth in (a) the measured sector and (b) the whole economy compare, based on the latest SNZ releases.   Here I’ve used just production GDP –  since it is production sectors SNZ uses to do the measured sector numbers –  and have shown the data in log form, in which a constant slope of the line means a constant growth rate.

measured sector and real GDP phw

Recall that the measured sector is about 80 per cent of the economy.  And for a gap of that size –  the measured sector productivity growth was 17 percentage points faster than that for the whole economy over the 21 years – to have opened up it suggests that productivity in the non-measured sector (the rest of GDP) must have done very badly indeed.

This little exercise is purely illustrative.  I’ve deducted measured sector productivity from the total, assuming the measured sector is indeed 80 per cent of the economy, and then multiplied what was left by 5 [(100/(100-80)] to produce a proxy residual index of implied labour productivity in the non-measured sector.  This is the result.

nonmeasured sector

It is only a proxy, calculated residually, and the precise numbers are sensitive to the (changing) exact share of the non-measured sector industries.  But the proxy suggests a pretty calamitous picture for productivity (especially, if summary numbers SNZ includes are to be taken seriously, in education) in the non-measured sector.  Disgruntled parental consumer of the education system that I am, something doesn’t seem to entirely ring true –  these aren’t, after all, quality-adjusted numbers.   When, as a matter of policy, money is being thrown at education and (eg) teacher/pupil ratios are being raised, one might expect crude measure of education sector productivity to fall.  But that doesn’t seem to have been the story of the last nine years –  whether the educational lobbies, or the former government, are to be believed.

One problem with the measured sector data is that there is no ready way to compare New Zealand productivity growth numbers with those for most other countries.    There are no standard compilations of such data and it would take a huge amount of painstaking effort for an individual to attempt to replicate the numbers for a reasonable range of other advanced countries.  Given the importance of common global (or at least advanced country) trends in productivity, that severely undermines how much use can be made of the aggregate data.

However, the Australian Bureau of Statistics publishes some very similar data, for what it calls the “market sector”, also around 80 per cent of the economy.  And SNZ themselves highlight the comparisons between the New Zealand and Australian productivity growth numbers in each of their annual releases.  As they note in the latest release, over the period since 1996 (the period for which the two countries have comparable data), labour productivity in the measured/market sector averaged 1.5 per cent per annum in New Zealand and 2.2 per cent in Australia (Australian data is for June years).   Over 21 years, those differences multiply up to big numbers –  and, in levels terms, we had already fallen well behind Australia by the mid 1990s.

You might have hoped that all those differences were early in the period. Unfortunately, the SNZ/ABS data suggest not.

measured sector nz vs aus

Starting from just prior to the 2008/09 recession (downturn in Australia) the relative performances of the two measuered sectors look depressingly similar to the pattern in the aggregate (real GDP per hour worked) chart I showed earlier.  Over nine years, Australia’s market sector managed total productivity growth a full eight percentage points fast than New Zealand’s measured sector managed.

All these charts just use hours worked as the relevant input measure.  Usually SNZ also publish (as do the ABS) the data using composition-adjusted labour input measures (eg if the amount of human capital per worker is increasing, as people get more skilled, that represents more inputs not higher productivity).   I’ve become a bit more sceptical of such measures in recent years, since proxies for human capital are often educational achievement numbers, and much of what Bryan Caplan writes about –  that much of formal education is about signalling rather than skill acquisition –  I find increasingly persuasive.  But this year I can’t even show you the numbers as SNZ ends their release noting plaintively

The composition-adjusted productivity in the measured sector data did not meet our quality standards for publication..The absence of this data does not affect any other data published in this release. We don’t have an expected release date for this data

Oh dear.

In sum, there isn’t much in the recent waves of productivity data/estimates that should give anyone serious about economic performance much comfort at all.   There are, no doubt, countries that have done worse than us on this score in the last decade, but  –  starting well behind –  we’ve made no overall progress in closing the gaps to other more advanced countries, and have continued to slip (quite materially) further behind our closest comparator, Australia.


Revisiting the case for splitting the Reserve Bank

The Minister of Finance has commissioned a two-stage review of the Reserve Bank Act.  The scope of the first part is pretty clear: it is about monetary policy (goals, transparency, and decisionmaking structures).  What, if anything, is included in the second stage is still up for grabs, with the Minister awaiting advice from the officials (a joint Treasury/Reserve Bank process) and from the Independent Expert Advisory Panel.   It seems likely that the Reserve Bank itself will try to keep any second stage to an absolute minimum –  as someone put it to me last week, the Bank seems happy with any reform that keeps things pretty much just as they are now –  and the arrival of Adrian Orr as Governor next month is likely, based on past performance, to reinforce that resistance.

A few weeks ago, I outlined the case that, as a key component of the second stage, the Reserve Bank should be split in two.  The Reserve Bank itself would remain responsible for monetary policy and associated activities (notes and coins, foreign exchange reserves, interbank settlement etc) while a new Prudential Regulatory Authority would take on responsibility for regulation and/or supervision of banks, non-banks, insurance companies, payments systems (and for the associated AML controls).

In favour of that position is that:

  • it is the more common model in advanced countries today (including Australia),
  • the synergies and overlaps between the various functions of the Reserve Bank are pretty slight (and probably no greater than, say, those between fiscal and monetary policy),
  • structural separation would allow for clearer lines of accountability, and
  • structural separation would allow for the creation of stronger, more effective, cultures  –  with appropriately skilled chief executives –  in each of the two successor institutions.

There hasn’t been a great deal of public commentary about this issue/option, but I noticed that the Shoeshine column in last week’s NBR picked it up.   NBR’s columnist  –  Jenny Ruth –  noted her support for structural separation (“a jolly good thing”).    She has been pretty critical of the Bank’s handling of a number of its prudential responsibilities, and is uneasy about the extent to which she believes the use of LVR limits –  by statutue, in pursuit of financial stability – “has become hopelessly confused with the Reserve Bank’s monetary policy functions”.

But in putting together her column she also talked to Massey banking academic David Tripe who “agrees there is a problem but isn’t so sure separation is the solution”.  He is quoted as saying

“My suspicion is that it wouldn’t improve matters because it would still be the same people doing the supervision”

and arguing

“We’ve got bank capture of the regulator –  the Reserve Bank asks for the data that the banks agree to provide, not the other way round”

On his first point, I guess my response would be that structural separation is not panacea, but that (a) change starts from the top, and (b) it should be materially easier to hold the financial regulator to account when it is responsible for only one main job (unlike today’s Reserve Bank).   And, as I’ve noted above, many of the other considerations also point in the direction of structural separation.  Finding a chief executive and senior management team who care primarily about the prudential regulation of the financial system –  whereas most of the senior management of the Reserve Bank over decades has always been more interested in (and had more background in) monetary policy –  is likely to be significant part of lifting the performance of the regulator.

Perhaps my one real unease is that a standalone regulatory agency could – if it were allowed to – become even more resistant to transparency and public accountability for its actions.  Whether there is a structural split or not, the officials and politicians doing the current review need to take steps to make the regulatory side of the Bank (as it is now) much more open.

(On Tripe’s second point, while I think there is something in what he says –  especially around data –  I rather doubt many of the banks would recognise the “regulatory capture” story.  On that note, I’m looking forward to the forthcoming publication of the New Zealand Initiative’s work on economic regulatory agencies, including the Reserve Bank.)

In her column, Jenny Ruth highlights a number of recent cases where the Reserve Bank’s handling of regulatory issues leaves a lot to be desired (and where, even if the Bank was correct, it has been so untransparent that we couldn’t possibly be confident of that).  I’ve written a bit about one of the cases she mentions –  the Westpac capital models issue.  The Bank has made no attempt to pro-actively disclose the relevant material (and would no doubt staunchly resist OIA requests), and although it claims it discovered the problem, as Ruth notes

“Westpac insiders say that Westpac outed itself. Shoeshine’s money in on Westpac”

Whatever the truth on that point, the whole episode did little to instill confidence in the Reserve Bank’s systems, processes, or accountability.

I haven’t written about the two other episodes Jenny Ruth highlights, both involving Kiwibank (you can read them for yourself).  Neither suggest that the Reserve Bank’s prudential wing has been on top of its game, or that they really have an instinctive handle on the nature of markets and financial institutions.

There are capable people in the regulatory/supervisory side of the institution (and I sat on the relevant internal policy committee for the best part of 20 years) but it is time for some refreshment, and the sort of restructuring that a fresh chief executive, focused on building and maintaining a strong and effective regulatory agency, can bring.  I’m not convinced, by any means, that all the regulatory framework is well-warranted, but if Parliament chooses to regulate, we need the job done excellently, and with considerable transparency and accountability.

NBR appeared on Friday morning.  As it happens, on Friday the Reserve Bank was taking regulatory action.   At 6.37pm an email dropped into my inbox stating that CBL Insurance had been placed in interim liquidation by the High Court, on application from the Reserve Bank.  The Reserve Bank is, of course, now responsible for the prudential regulation of insurance companies.

In time, I hope we see a substantial accounting by the Reserve Bank of its activities in this case, including its exercise of its powers to apply for the appointment of a liquidator.  In the meantime, I was interested in a piece on interest.co.nz by David Hargreaves who suggest that, based on what we’ve seen so far, this episode too raises questions about the handling of the Reserve Bank’s supervisory/regulatory role.

From the Hargreaves article

That the RBNZ was interacting, strongly it seems, with CBL Insurance going back as far as July last year was revealed by CBL Corporation to the NZX only as recently as February 5, almost in passing and then more explicitly on February 7.

Key parts of the February 7 revelation for me were that the RBNZ had done an independent review on CBL insurance, that it had, as long ago as July 27, 2017 issued a minimum solvency recommendation, and then – most crucially from my perspective – that on November 22, according to the statement from CBL Corp, RBNZ had issued directions to CBL Insurance, CBL Corporation and its subsidiaries, requiring them to consult on any non-business-as-usual transactions greater than $5m.

That last one, as far as I’m concerned is a biggie. Essentially a publicly listed company with a sharemarket value of three quarters of a billion dollars was put on the leash by the regulator three months ago. And yet nobody was told publicly.

The CBL February 7 statement went on to say that “these directions and discussions that CBL Insurance has had with RBNZ have been occurring under strict confidentiality orders prohibiting CBL from making any announcement to the market while those orders remained in place. These orders have now been lifted.”

Neither confirm nor deny

The RBNZ refuses to either confirm or deny that it had placed confidentiality orders on its interactions with CBL Insurance last year.

He goes on

I actually think the RBNZ had some obligation to let the public know it was engaging with this company.

I do not like the idea of regulation behind closed doors because it is suggestive, at least, whether that is the reality or not, of a holier than thou attitude. It is to me, the regulator putting themselves above the public.

I’m not sure how well prepared the RBNZ was for getting itself into a situation like this with a publicly listed entity like an insurance company.

I’m not so sure about “holier than thou”, but it is an example of just the sort of thing the Reserve Bank always used to worry about: if it had private information (especially about significant regulatory interventions) and customers were nonetheless allowed to carry on trading with regulated entity, doesn’t that then create at least some moral risk, some moral exposure, if the regulated entity subsequently failed?  It seems extraordinary, if true, that the Reserve Bank could ban a regulated entity talking about a regulatory intervention.

Hargreaves’ solution isn’t one I’d agree with

Personally, I would suggest creation of a separate authority to regulate and supervise the insurance sector. Yes, it would be more money, it would arguably be more bureaucracy, but sometimes that’s what you’ve got to do for the best results.

Frankly, I’ve never been quite sure that the case for prudential regulation of general insurance is particularly strong anyway, and would be very reluctant to see a standalone insurance regulator. But I take the Hargreaves story as reinforcing the case for a strong standalone prudential regulatory agency, led by people whose sole job is prudential regulation and supervision, and within governance and accountability structures that help ensure serious and effective scrutiny of how the regulatory agency does its job.

I gather that Treasury and the Reserve Bank have been consulting this week with private sector representatives on the possible prudential regulatory aspects of the Stage 2 review.  I hope that the idea of structural separation –  with all it could entail –  isn’t lost in the desire of Reserve Bank management to keep things just as they have (not overly effectively) been.

The boondoggle

Earlier this week, Kiwirail released its most recent half-yearly financial result.  Once again, the taxpayer was poorer for their operations.   They make great play of a modest “operating surplus” but I rather liked this summary table from their latest Annual Report


In other words, no returns to shareholders at all; in fact losses in one year of a third of the (periodically replenished) shareholders’ funds

Last year, they had operating revenues of $595 million, and an overall loss of $197 million (much the same as the year before).  So roughly a quarter of their overall costs are not covered by income.   As an organisation –  and with all due respect to the energies of individual employees (including the five earning in excess of $500000 per annum) – it has all the appearance of being a sinkhole, absorbing more of the scarce resources of taxpayers each year.

And before people start objecting that roads don’t make a profit, it is worth remembering that airlines do and coastal shipping operations do –  and, if they don’t, they usually go out of business.

An organisation that operates such large losses (acquiesced in by successive shareholder governments) clearly isn’t one that applies the most demanding tests possible to the question of whether individual lines should be opened or closed.  Occasionally people attempt to justify government intervention in this or that activity on (questionable) grounds that the private sector is applying too high a cost of capital.  But in this case, the state operator’s average return on capital (ie over all its operations) is substantially negative, and it has no expectation of changing that.

A few years ago, Kiwirail closed the Gisborne to Napier line.  Rail volumes had been low and falling –  some trivial portion of the volume that Kiwirail estimated would have been required to make the line viable.  But ever since, there have been people hankering for the line to be reopened.

And yesterday, as part of the first wave of projects approved under the new Provincial Growth Fund, the Minister of Regional Development announced that

“We’re also providing $5 million to Kiwirail to reopen the Wairoa-Napier line for logging trains, taking more than 5700 trucks off the road each year.”

 In the more detailed material released with the announcement there is a suggestion that the Hawkes Bay Regional Council may also be putting in money.

There is no sign of any cost-benefit analysis of this proposal having been released at all. But we can assume that the proposal wouldn’t pass any standard (weak) Kiwirail commercial test since otherwise Kiwirail would have reopened the line without taxpayers’ having to chip in more money directly.

There used to be some logs/timber carried on the Gisborne-Napier line, but a reader pointed me to the numbers: in the final full three years of operation, a total of 327 tonnes of it.

There are, apparently, going to be a lot more logs to move in the coming years.  In the Minister’s words

“The wall of wood is expected to reach peak harvest by 2032 so reopening this line will get logging trucks off the road and give those exporting timber options that they currently do not have,” Mr Jones says.

“It makes sense to consolidate that timber in Wairoa and use rail to take it to the Port of Napier.

Except that apparently officials and Kiwrail had already looked at this option a few years ago.  In a report released only a few year ago it was noted that

“We note that Kiwirail was not convinced this would be finanically viable for users given the relatively short distance involved and the need to double-handle the logs.  Industry feedback has also indicated that transport of logs on rail across the study area was unlikely to be economic.”

Perhaps the economics has suddenly changed?  But, if so, where is evidence?  None was published yesterday.   We aren’t even told what assumptions are being made about how much of the logging business will be captured.

The Minister’s release also argued that there were climate change benefits from this move

“It will also mean 1,292 fewer tonnes of carbon dioxide released into the atmosphere each year.”

Even if this were relevant –  don’t we have an ETS supposed to deal directly with pricing emissions? –  and accurate (what assumptions are being made, including about the carbon costs of the double-handling?), it sound doesn’t terribly impressive.  A single 747 flying to London and back once apparently emits 1100 tonnes of carbon dioxide.

This is just one of the numerous projects the government is going to spend money on in the next few years.  I’ve only looked through the Gisborne/Hawke’s Bay list, and none of it fills me any confidence.   What, for example, is central government doing on this?

The Provincial Growth Fund will provide $2.3 million to redevelop the Gisborne Inner Harbour as part of a wider tourism investment programme.

If, as the Minister claims,

“Tairāwhiti is brimming with potential and untapped opportunities

you would have to wonder why the private sector, and the local authorities, don’t seem to think them worth spending money on.  (On my story, a materially lower real exchange rate would help quite a bit, but the government shows no sign of addressing that.)

A couple of weeks ago, I commented on the Minister of Finance’s underwhelming exposition of what the government was going to do to transform the productivity outlook in New Zealand.   The Minister noted

A major example of this is the Provincial Growth Fund developed as part of our coalition agreement with New Zealand First.  This will see significant investments in the regions of New Zealand to grow sustainable and productive job opportunities.

To which my response was

If it ends up less bad than a boondoggle we should probably be grateful.  It isn’t the sort of policy that has a great track record, and it is hard to be optimistic that one new minister –  with a vote base to maintain –  is going to transform the sort of flabby thinking around regional development presented at Treasury late last year.  

hen again, the Secretary to the Treasury might quite like the idea of paying to reopen the Napier-Wairoa line.  I’ve told previously the story of Gabs Makhlouf, fresh off the plane from the UK, lamenting that the one thing New Zealand hadn’t sufficiently taken from the British Empire experience was to invest more heavily in rail (in response, assembled Treasury officials were not quite being sure where to look).

Sometimes economic policy in this country seems almost designed to defy reason and evidence in an effort to make us poorer, to hold back national productivity prospects.  Spraying around $5m here and $5m there –  $3 billion over three years, in some scheme reminscent of congressional earmarks in the United States – not backed, it seems, by any robust supporting analysis, seems just another  step along that path.