Funding the Reserve Bank: focus on your statutory mandate

The Reserve Bank has been joining the ranks of the public sector agencies bidding for more money –  not just doing so in the conventional manner, behind closed doors in private discussions with relevant ministers, but in public.

There were some initial comments a few weeks ago, which I didn’t notice at the time, using this totally spurious argument

we are a net contributor to Crown revenue rather than a cost, and we’ve asked if we can hang on to a little more of what we make in order to fund extra work,” the Reserve Bank spokesman said.

The Reserve Bank generates a lot of money (mainly) by issuing zero interest bank notes (a statutory monopoly) and investing the proceeds in interest-bearing assets.  It takes little skill to collect this (what is in effect a) tax.     That income should have no bearing, formal or rhetorical, on how much of our resources the Reserve Bank is permitted to spend on other stuff –  mostly more bureaucrats to do regulation, analysis, and (see below) political positioning, of the sort many other cash-constrained bureaucracies in Wellington do.   Those activities do not generate even an iota of revenue for the Crown.

They were back with the begging bowl this week at the annual financial review undertaken by Parliament’s Finance and Expenditure Committee.  I saw two accounts –  one from Newsroom, and one from interest.co.nz.      There were a couple of strange claims, including the Governor appearing to suggest that the CBL failure might have occurred because the Reserve Bank didn’t have enough staff.  I don’t regard that as a totally implausible story  –  then again, the system is not supposed to prevent all failures, and at least some concerns relate to what the Bank did do (suppression orders) rather than what it didn’t do.  But if staffing was a concern, and the Bank thought it didn’t have the resources to do the job Parliament had given it, surely the previous year’s Annual Reports would have said so.  And I’m pretty sure they didn’t.

Orr is also reported as claiming that

….now was the time to resource-up and ready the bank for a crisis.

“The time when under-resourcing most shows up is generally during a time of crisis and we aren’t in one of those times,” Orr said.

I doubt that is so. In a crisis it is all hands to the pump, and institutions pull through.  If there is under-resourcing (and that is an open question) it is more likely to affect progressing work programmes in more-normal times.

Perhaps it is why, 8.5 months into his governorship, we still haven’t had a substantive speech from the Governor on either monetary policy or financial stability/regulation?  But that can’t really be the explanation either –  after all, we’ve always only had one Governor, and his predecessors somehow managed.

The Reserve Bank’s finances are not very tightly managed (externally, by the minister or Parliament).  Under the current Act there is provision for (but not a necessity for) a five-yearly funding agreement, outlining how much the Bank can spend.   It isn’t a great model, for various reasons, even if it was a step forward on the total lack of formal controls that existed prior to the 1989 Act.

But my experience was that almost every year, the Reserve Bank’s actual spending undershot what was provided for in the Funding Agreement.  I knew they had had the odd tighter year this decade, but other than that it isn’t something I follow closely.  But here is interest.co.nz’s account of what the Bank said in its latest Annual Report released in October.

The Reserve Bank’s annual report, issued last month, showed it had undershot spending allowed through its funding agreement by $26.7 million over three years and paid a $430 million annual dividend. By June 30 the Reserve Bank had spent $173.1 million of a possible $199.8 million allowed by its 2015-2020 Funding Agreement, signed with the previous National-led government. Net operating expenses in the June 2018 year were $4.1 million below the funding agreement, despite rising $8 million year-on-year to $76 million.

“The $26.7 million cumulative underspending is expected to partially reverse in the last two years of the funding agreement, as capitalised expenditure on systems improvements is amortised to operating expenses, and the issuance of new banknotes continues. The Bank expects to be within the five-year aggregate expenditure provided for in the funding agreement,” the annual report said.

Bottom line?  They’ve been underspending again, and even though that is “expected to partially reverse” over the next two years, the forecast reversal is only partial and, once again, they expect to underspending the Funding Agreement allowance.  And, under the current statutory model there are no adverse consequences for the Bank if it were to have spent a little more than the Funding Agreement number anyway.  But the issue is moot –  they seem to have managed in a way that will actually underspend (again).

Which leaves another of Orr’s comments ringing a bit hollow

Orr in the select committee again pointed out the limitations of the five-yearly model, saying a “phenomenal” number of “unanticipated” events had happened in the last five years, and the same would be the case in the next five years.

And probably every five years since 1990, and yet the Bank still almost always underspends.

Having said that, this may be one of the areas in which there is some convergence of views between me and the Governor.  The five-year funding agreement model is crazy and should be scrapped.   No corporate – no government agency for that matter –  sets operating expenditure budgets five years in advance, and it is simply silly to expect to do so for the Reserve Bank.  It is fine to do rough medium-term plans to help ensure that foreseeable expenditure pressures are identified well in advance, but that is different from a binding five-year budget.

Where we may well diverge again is that I think the Reserve Bank’s policy, regulatory and related activities should be funded –  as most government agencies are – by means of detailed annual appropriations by Parliament (and will be forthrightly making that case when the current review of the Reserve Bank Act gets round to looking at funding issues).  I wrote about the issue in a post earlier in the year.   Here were some of my points:

A common argument –  at least among central bankers –  is that somehow central banks are different.  There is only one important respect in which they are: they earn far more than they spend.  But even that isn’t very important here.  Central banks make money largely through the statutory monopoly on currency issue, which is just (in effect) another form of taxation.  And spending and revenue are two quite different bits of government finance: IRD might collect lots of money, but it can only spend what Parliament appropriates.

And what of those arguments about avoiding back-door pressure?  Even they don’t mark out central banks.  After all, we don’t want ministers interfering in Police decisions either (a rather more important issue than a central bank), but Police are funded by parliamentary appropriation.  So is the Independent Police Complaints Authority.   There are plenty of regulatory agencies where policy might be set by politicians, but the implementation of that policy is set by an independent Board, and where backdoor pressure could –  in principle be applied.  Other bodies publish awkward reports that make life difficult for politicians.  But those bodies too are typically funded each year by parliamentary appropriation.  It is just how our system of government works.

When I wrote about this issue in 2015 (having only recently emerged from the Bank), I was hesitant about calling for radical change.   The funding agreement system itself could be tightened up in various ways, which might represent an improvement on what we have now.   But there isn’t any very obvious reason not to start with a clean sheet of paper, and build a new system –  aligned with how we manage public spending in the rest of government –  starting from the principle of annual appropriations, with a clear delineation by functions (monetary policy, financial system regulation, physical currency etc), and standard restrictions on the ability of ministers to reallocate funds across votes).

I’m not aware of any country that funds it central bank by annual appropriation.  But historically, central bank spending all round the world was subject to weak parliamentary control.  This is one of those areas where the international models aren’t attractive, and the standard should instead be the way in which we authorise spending across the rest of government.   This is a policy and regulatory agency ….  and should be funded, and held to account, accordingly.

But if the Governor really thinks he doesn’t have enough resources to do aspects of the job Parliament has given, perhaps he could look rather hard at how he prioritises.  In his FEC appearance the other day, he claimed to have been doing so, but in my observation his sense of priorities appears personal, idiosyncratic and even political, not at all well-aligned with the Bank’s statutory mandate.

Recall that the Governor has only been in office for just over eight months, but already we’ve had things like:

  • speeches on climate change, helping out his buddies in the government and in the liberal wing of the business community,
  • the “Reserve Bank as tree god” exercise, which surely didn’t just flow off the end of the Governor’s pen in an idle hour one Saturday afternoon. It will have consumed real resources, at an opportunity cost,
  • cartoon versions of the Monetary Policy Statements and Financial Stability Reviews,  and
  • swamping those individually modest items by several orders of magnitude there was the conduct inquiry of which I noted upon its release

Despite highlighting several times in the report that this was really none of their business (of course they phrased it more bureaucratically: “neither regulator has a direct legislative mandate for regulating the conduct of providers of core banking services”), they’d spent an estimated $2 million of public money to mount their bully pulpit, lecture the banks, lobby for more powers for themselves.  

It simply wasn’t their job, but it suited the Governor’s ambitions to sweep in and spend large amounts of public money –  for modest-sized agencies –  on a personal campaign, to discover what?

The waste goes on.  There is an advert out at the moment for a Manager, Performance and Corporate Relations.  There appears to be some real work associated with the role (some of the bureaucratic hoop-jumping all government agencies have to do) but part of the role is this

Leading a mid-sized team of specialists, the person appointed will provide leadership to organisation-wide initiatives such as the Bank’s Climate Change Strategy and Te Ao Maori framework.

There can be no possible need for whatever a “Te Ao Maori framework” actually turns out to be.   The Reserve Bank isn’t some social agency dealing with troubled individual families, where quite possibly individual cultural backgrounds matter.  It doesn’t really deal with ordinary people much at all –  that is not a criticism, it doesn’t need to.    It runs monetary policy –  which affects and benefits people quite regardless of ethnicity-  and it regulates banks (and other financial institutions) again –  one would hope –  regardless of the ethnicity of individual managers or shareholders.  Fortunately, the “principles of the Treaty of Waitangi” are not part of the Reserve Bank Act.     I don’t suppose the Bank will be spending a vast amount of money in this area, but every little bit reallocated to financial regulation would surely help, at least if you believe the Governor and his Deputy.  It has the feel of the Governor pursuing another personal political agenda at the expense of the taxpayer.

And then there is “the Bank’s Climate Change Strategy”.    I’ve touched on this before, but as a reminder the Reserve Bank is an office-bound organisation, with precisely two offices (main one and a small one –  probably unnecessary –  in Auckland).  For practical reasons (to do with specialist vaults) the Bank –  unlike most central government agencies –  owns a building in central Wellington, and if they own any vehicles at all it might be just one car.  They are a wholesaler of one physical product –  bank notes –  but they import that product from overseas producers, for whom the Reserve Bank is no more than a modest-sized customer (thus with little market power).  But they do, I suppose, travel to lots of overseas meetings (but last I looked, international air travel still isn’t captured in the agreed international carbon reporting framework or our own current government’s incipient net-zero goal).

There is just no obvious reason –  at least not one that isn’t ultra vires –  for the Reserve Bank to be spending public money on a “climate change strategy” at all.  It is a feel-good piece of political positioning, perhaps helping the Governor is his turf fights around the Reserve Bank Act, and assisting him in a cause that he clearly feels strongly about personally –  even if there is little sign of him thinking about it deeply.

I’ve written prevously about the sheer vacuity of much of this, especially in the New Zealand context –  our banking system hardly being heavily exposed to, say, oil producers.  There was a vapid box in the FSR a few weeks ago, and as I noted of it

The text burbles on about possible risks, but it all adds up to very little.     There are numerous risks banks and borrowers face every decade, every century.  Relative prices change, trade protection changes, external markets change, exchange rates change, technology changes, economies cycle, land use law changes.  Oh, and the climate changes.

If one looks at the structure of New Zealand bank (or insurer balance sheets) it just isn’t credible that climate change poses a significant risk to the soundness of the New Zealand financial system (that pesky law again).   Some individuals are likely to face losses from actual and prospective sea-level rises, but banks (and insurers) typically have diversified national portfolios.   People can’t have mortgage debt without insurance, and so the insurers are likely to be constraining people first.   Much the same surely goes for the rural sector?   Sure, adding agriculture into the ETS at the sort of carbon price some zealots have called for would be pretty detrimental to the economics of a dairy debt portfolio, but then freeing up the urban land market probably wouldn’t be great for residential mortgage portfolios, and we don’t see double-page spreads from the Reserve Bank on that issue, or the Governor trying to play himself into some more central role in that area.     It smacks of politics –  signalling the Governor’s green credentials –  more than anything legitimately tied to financial system soundness.

As it happens, the Bank yesterday released its “Climate Change Strategy“, a 10 point statement which seems almost equally devoid of content relevant to the statutory responsibilities of the Bank.  Instead, the Governor is offering political support to the government (that is the gist of the first paragraph) and bidding to be a player.  Here are two of their 10 points.

8.No single institution working alone can achieve meaningful progress on a global challenge such as climate change. Furthermore, it is not for financial policymakers to drive the transition to a low-carbon economy, nor is it the role of the Bank to advocate one policy response over another. That is the role of government.

9. However, appropriate action on a national or global level can only be achieved if individuals and entities are able to take action on a micro level. For this to occur, two conditions need to be met. First, there has to be proactive and effective leadership to drive our collective understanding of climate risks and to establish robust strategies to respond to those risks. Second, there has to be effective and timely dissemination of those assessments and strategies. Appropriate information will be vital in enabling entities and individuals to price and manage risks, facilitating the transition to a low-carbon economy, and ultimately contributing to both the soundness and efficiency of the financial system.

You might agree, disagree, or simply yawn, but when did this become an issue for a central bank, with important, powerful, but quite limited, statutory responsibilities?  And a central bank crying poor, claiming it doesn’t have enough money for its day jobs.   It is more like a creed than something one might reasonably expect from a central bank.

As part of the Bank’s statement we learn that

The Bank has also been welcomed as member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The Network was set up in December 2017 at the Paris ‘One Planet Summit’ to strengthen the global response required to meet the goals of the Paris agreement.

Head of Department Financial System Policy and Analysis Toby Fiennes says the Reserve Bank is very proud to have been accepted as a member of the NGFS.

“Playing our part globally, and as a leader in the Pacific region, is important both in terms of reinforcing New Zealand’s reputation as a ‘good global citizen’, and in providing us access to the latest thinking around the globe,” Mr Fiennes says.

(Among this small group of (excessively funded?) central banks and regulators is the central banking arm of the Chinese Communist Party. )

I guess it is the sort of feel-good, but empty, rhetoric one now expects from public servants.  And I guess when you see yourself as a tree god, the fit with an organisation devoted to “greening the financial system” must be almost complete?   But it is all empty.  “Playing our part globally” seems likely to involve little more than another round of international meetings to attend –  all those extra emissions – at the taxpayers’ expense, to advance Orr’s personal agenda at a time when he suggests the institution has insufficient money to do the job the taxpayer instructed them to do.  On an issue where there are no material financial system implications at all.

I’m open to the idea that the Bank might in fact need more financial resources, given the various jobs that (wisely or not) Parliament has instructed them to do.   There are other agencies and causes that might have a stronger case  and (on the other hand) some that should simply be wound up altogether.  But the Bank’s case would be that much more compelling if there weren’t repeated signs that the Governor was using the institution and public resources to advance personal, often quite political, agendas that reach beyond his statutory responsibilities.  He should be ensuring –  and the Board insisting –  that resources are rigorously prioritised to focus on the statutory mandate.

Where have real house prices risen and fallen?

The QV house prices indices for November for each of the territorial local authority areas were released last week.  Much of the headline coverage is around the fact that in the last year Auckland prices have barely changed, while those in places like Dunedin, Invercargill, Palmerston North and Whanganui have shown double-digit rates of increase.  Even Wellington prices rose 7.4 per cent –  something brought home to me when a house across our driveway went for $2 million recently (a very big house).

Cycles are often not in synch from place to place and I’ve sometimes found it an interesting reference point to look back and see how (real) house prices have changed since the peak of the previous surge upwards in house prices, in mid 2007.  That, of course, was just before the onset of the last recession in New Zealand.

Here is a chart showing (mostly) the cities

house prices 2018 1

Auckland is, of course, still far worse –  total real increases (as well as levels) –  than any of the other cities.  But I was interested in a couple of things.

First over the (little more than a) decade. the increase in real house prices in Dunedin is well above that in many urban areas, and about the same as the increase in Wellington prices.  In the absence of population pressures, that Dunedin increase took me a bit by surprise.

And second was Christchurch.  There was a big rise in Christchurch prices a few years ago –  housing was in genuinely short supply following the earthquakes –  but looking back to before the recession and earthquake, and forward to today, Christchurch house prices haven’t increased in real terms very much at all.   Christchurch city has had less population growth than, say, Auckland or Wellington, but is still estimated to have 6 per cent more people than it had in 2007.

Much of the population growth (about 75 per cent of it) in greater Christchurch since the earthquakes has been in the Selwyn, in particular, and Waimakariri districts.  People sometimes talk about how responsive the two councils’ policies have been in facilitating this growth.  There is clearly something to that, but it is worth noting that neither locality seems to offer anything like the sort of easy ability to build and develop land that we can observe in many fast-growing places in the United States.  Real house prices in Selwyn, for example, have risen by about 20 per cent in the last decade.  And there is are enormous amounts of flat land in Selwyn.

And my other chart is of the TLAs at the bottom of the scale –  the places where real house prices are still lower than they were at the peak of the boom in 2007.

house prices 2018 2

Not, it seems, because (say) land use laws were freed up and the cost of bringing new houses to market has fallen.  In some of these places, prices are probably now below replacement cost (at least on existing land use regulation).    Most, if not all, look like the sorts of places that would benefit from the sort of much lower real exchange rate that I remain convinced has to be a part of any successful economic adjustment in New Zealand –  not that either main party seems to have any interest in effecting such a transition.

It is a sad and shameful record for our politicians.  One neither hears them talking of a goal to get house prices back down again, nor sees them implementing or advocating policies that might make a credible long-run difference.  I guess it won’t greatly matter for the kids of people like the Prime Minister or the Leader of Opposition, but what about the kids of the rest of us? It saddens me to listen to my kids talking about how difficult they think it will be to ever afford a house (in places with decent jobs), but it angers me how (practically) indifferent our political leaders –  central and local – seem.

Earnings advantage of the tertiary-educated

Skimming through the tweets of the chairman of the Productivity Commission –  who often includes interesting charts –  I spotted this picture.

returns to education

It is an interesting chart on a number of counts.  First, in every country shown, except the UK, the earnings advantage to tertiary educated workers is higher –  often materially so –  for older workers than for younger ones.  Second, all the countries at the far left of the chart are among the poorest of all those shown (the sample is OECD countries and “partner countries”).  And thirdly, of course, that New Zealand is over towards the far right of the chart, where the earnings advantage to tertiary educated workers is pretty low (and especially so for older workers).   The chart is drawn from this short OECD note.

Making sense of the numbers isn’t straightforward.    First, note that the chart isn’t claiming to illustrate returns to tertiary education, but the earnings margin of people who have had a tertiary education over those who haven’t.  The difference matters –  people who undertake tertiary education are different, in various dimensions, to people who don’t.    I’m in that older age group, and if I think back to my Auckland high school, only about 10 per cent of those who started in the third form made it to the seventh form.  Most of them probably did go on to university, and perhaps a few others did tertiary study later, but it was a cohort that was much more intellectually capable, on average, than the other group.   Since university was all but free to attend in those days, there weren’t even obvious financial barriers excluding capable people from poorer families.

These days, of course, a much larger share of young people undertake tertiary education.  But that probably means that the intellectual capability of the median tertiary qualifed person today is lower relative to that of the population as a whole than was the case 40 years ago.  It isn’t clear that is true if we compare the median of those with tertiary education and those without it (since the median of those without it is now likely to be quite a bit lower relative to that of the population as a whole).

Productivity performance in New Zealand has been poor for a long time, and we now start a long way behind the better-performing OECD countries.  If there were a lot of really good opportunities here then all else equal, and given how far behind we start, I might have expected the returns to enchanced skills (not, of course, the same as having a tertiary education) to be higher here than in many other countries.  The greater international mobility of people with better educational qualifications might have tended to work in the same direction.

But instead, those with tertiary educations aren’t doing well absolutely (low productivity country) or relative to those without.     And so you are left wondering quite why immigration policy is oriented towards recruiting lots of “skilled”  migrants –  particularly those with New Zealand tertiary education –  and why “education” policy is oriented towards encouraging yet larger proportions of people to undertake tertiary education.  None of which prevent’s Treasury’s living standards dashboard  – which we are told is going to help shape next year’s Budget – including the share of the population with a university degree of one of their “wellbeing indicators”.

(As far as I can tell, this particular chart also doesn’t taken of the fact that getting a tertiary education costs a lot of money –  directly (fees and living costs) and indirectly (foregone time in the labour force) and thus, if anything, probably overstates the advantage held by the tertiary educated.  There are other estimates of overall lifetime earnings advantages (or otherwise)).

Abdicating a basic responsibility

The Herald this morning reported on a new open letter in support of Anne-Marie Brady, this one from 169 (at present –  the letter is still open apparently) overseas experts on issues relating to the People’s Republic of China.   As the signatories note:

Since the publication of her work on global United Front work, Brady’s home and office have been subjected to burglaries, during which no valuable items other than electronic devices were stolen. Most recently, her car was found to have been tampered with in ways consistent with intentional sabotage. According to media reports, Interpol and the New Zealand Security Intelligence Service  (SIS) are involved in the investigation. In China, academics were interrogated by Ministry of State Security agents after their institutions hosted Brady. Brady has also been personally attacked in media under the direction of the CCP, both in the PRC and in New Zealand. Taken together, these circumstances make it likely that this harassment campaign constitutes a response to her research on the CCP’s influence, and an attempt to intimidate her into silence.

Despite the evidence of CCP interference provided in Brady’s research, of which the harassment campaign appears to be a further example, the New Zealand government has been slow to take action and failed to acknowledge that a problem exists…..

Far from unique to New Zealand, the CCP’s global United Front tactics and other political influence operations have been documented in other locations, in Europe, Oceania, Asia and the Americas. ….Whether within or without the limits of the law of their target countries, these activities have considerable effects on their societies and merit evidence-based research and the attention of politicians and the media. The harassment campaign against Brady risks having a chilling effect on scholarly inquiry, allowing the CCP to interfere in the politics of our societies unfettered by informed scrutiny.

We urge the New Zealand authorities to grant Professor Brady the necessary protection to allow her to continue her research, sending a clear signal to fellow researchers that independent inquiry can be protected in democratic societies and conducted without fear of retribution.

We join other voices in support of Professor Brady, which have included statements by a New Zealand Chinese community organisation, some of her Canterbury University colleagues, New Zealand academics and two Australian Sinologists, as well as many others on social media.

We further hope decision makers and the public at large, in New Zealand and elsewhere, will engage with evidence-based research on the CCP’s United Front tactics, such as Brady’s Magic Weapons, and give due consideration to policy advice emanating from such research.

It is welcome that these (mostly) foreign experts are coming together in support of Professor Brady. But what sort of country have we become where such stands are even thought necessary?   Once upon a time this was a bastion of democracy and liberty, and now our “leaders” cower in the corner, apparently unbothered about “little things” like the apparent intimidation of Professor Brady.   It is a shameful choice.  There are deal flows to keep going –  students to enrol for the new academic year for example –  and funding political parties doesn’t seem to come cheap.   And barely a voice in Parliament –  none from anywhere in our main parties – that appears troubled in the slightest.

Before I saw that open letter I’d been meaning to draw attention to an even more trenchant statement from closer to home, this one by Paul Buchanan, a former academic with a background in the US system, and who now runs a consultancy that describes itself this way

36th Parallel Assessments is a non-partisan, non-governmental geopolitical risk and strategic assessment consultancy.

Buchanan is an American who has lived here for a long time, and is in the process of becoming a citizen.  From what I’ve read of his stuff over the years, his personal politics probably lean left. But his post pulls few punches about the abdication of responsibility being displayed by the Labour-led government on this issue.

I do not mean to bang on about the Anne Marie Brady case but since it is coming up on one year since the campaign of criminal harassment began against her, I feel compelled to mention how the Labour-led government’s silence has been used as a window of opportunity by pro-China conspiracy theorists to question her credibility and defame her. Until I blocked the troll I shall call “skidmark,” this was even seen here on KP [Kiwipolitic blog] where he launched numerous attacks on professor Brady as well as question the very notion that the burglaries and vandalism that she has been subjected to were somehow related to her work on PRC influence operations in NZ.

He goes on the outline a number of strands of attack made on Professor Brady  by these “trolls”, each more far-fetched or unpleasant than the last.   There are even people echoing the ludicrous and desperate claim made on the hustings last year by the then Attorney-General Chris Finlayson that Professor Brady was saying the stuff she was becasue she was “racist”.

Buchanan goes on

It is very likely that the government’s reticence to talk about the case is due to diplomatic concerns, and that political pressure has been put on the Police and SIS to delay offering any more information about the status of the investigation

That’s a serious claim, but almost nine months on –  while the Prime Minister pretends this is just a normal suburban Police inquiry – it sounds plausible.  Police, after all, have form in bending to the political wind.

Gathering from the tone of her recent remarks it appears that Ms. Brady is frustrated and increasingly frightened by the government’s inaction. I sympathise with her predicament: she is just one person tilting against much larger forces with relatively little institutional backing. I also am annoyed because this is a NZ citizen being stalked and serially harassed on sovereign NZ soil, most probably because of things that she has written, and yet the authorities have done pretty much nothing other than take statements and dust for fingerprints.

And expressed no hint of concern, let alone outrage, at the possibility of the involvement of a foreign power.  (And, of course, no apparent interest at all in taking seriously the substantive concerns Professor Brady was highlighting about PRC “sharp power” in New Zealand.)

Buchanan concludes with a telling parallel and highlights just how unacceptable the government’s handling of this matter –  apparently more interested in Beijing than in Brady –  should be seen as.

If this was a domestic dispute in which someone was burglarising and vandalising a neighbour’s or ex-partner’s property, I imagine that the cops would be quick to establish the facts and intervene to prevent escalation.  If that is the case then the same applies here. Because to allow these crimes to go unpunished without offering a word as to why not only demonstrates a lack of competence or will. It also encourages more of the same, and not just against Ms. Brady.

If one of the foundational duties of the democratic state is to protect the freedom and security of its citizens, it appears that in in this instance NZ has so far failed miserably. The government needs to step up and provide assurances that the investigation will proceed honestly to a verifiable conclusion and that it will work to ensure the safety of Anne Marie Brady against those who would wish to do her harm.

To not do so is to abdicate a basic responsibility of democratic governance.

Of course, the main opposition party shares in responsibility for, and ownership of, the government’s shameful abdication.

As I noted, one of the ludicrous claims made against Professor Brady –  fluent in Chinese, married to a Chinese man –  is that her work is motivated by racism.  One of those who has made such claims in the Chinese-language media is Auckland writer Morgan Xiao, a past or present international student at the University of Auckland.  He apparently writes fairly prolifically in various of the (CCP-controlled) Chinese-language outlets, which is of course his right.   His Facebook page however advertises his Labour Party associations, listing himself as a member of Labour Botany electorate committee, and featuring of photo of himself posing with the Prime Minister.   His writings are pretty pro-Beijing, and very anti-Brady.  He has accused her of racism, and also of running the arguments she does because she has been paid by the Americans to do so.  It is pretty florid stuff –  he has new piece here this week (open in Chrome and Google Translate will give you the gist).

A few weeks ago, the Auckland-based dissident author, and editor of the Beijing Spring magazine, Chen Weijian published (in Chinese) a takedown of some of Morgan Xiao’s recent writing on this subject.   I’ve previously published a translation of Chen Weijian’s article on Yikun Zhang (he of the National Party donations controversy, the Labour-bestowed QSM, and the close Beijing connection), and I was approached as to whether I’d be willing to make more widely available a translation of the latest article.   The translation has been undertaken by Luke Gilkison (and reviewed by a native Chinese speaker) a recent graduate in Chinese language and literature who has also spent time living and studying in China.  Both he and I would emphasise that the article is the work of Chen Weijian, and the views expressed are his and his alone, but his arguments seem to deserve wider circulation, especially given that Morgan Xiao himself is repeatedly returning to the issues.   The rhetorical style isn’t mine, and in some areas his conclusions seem a little over-optimistic to me (I’m not so sure that “the mainstream political ideology of our time is liberal democracy”).    But for those interested, the full translation is here

Chen Weijian Morgan Xiao Gilkison translation

As a flavour

On the matter of New Zealand–China relations, Xiao went on to say this: 

For a long time now, the National Party and the Chinese government have had frequent interactions. Many former National MPs have gone on to consultancy jobs within CCP-linked companies, and every time the Chinese government hosts an event, the number of National Party attendees far exceeds that of any other party. It’s evident that within National, at least, it is well known that China and New Zealand’s relationship is innocuous – otherwise how could these two parties, National and the CCP, be so close? Would that not be treason? 

This last part is said very well. Although I don’t know for sure what National would say to these assertions, I’m fairly sure they would have some choice words for this young man. Something along the lines of, “How on Earth is this helping us? You’re clearly intending to ruin us. Subterfuge!

And

He writes an editorial column on the website Skykiwi, and he’s a contributing writer for the People’s Daily, a state-run Chinese newspaper, where he writes under his Chinese name, Xiao Zhihong (肖志鸿). You’re more likely to find Xi Jinping thought in his Skykiwi column than anything reflecting New Zealand values. This quote from Xi Jinping appears in one of his columns, for example: “Our vision for democracy is not merely a system of one person, one vote. We strive to reflect the will of the people, and in this regard we not only do not fall short of the West, but we greatly surpass it.”

How does Xiao understand CCP-style democracy and “universal values”? This is his opinion on the Tiananmen Square massacre: 

Murderers and arsonists are criminals with no hope for rehabilitation. ….. But those June 4th bottom-feeders burnt and beat to death hundreds of soldiers, set fire to thousands of vehicles, and looted an army arsenal. People who commit wanton violence and destruction like this are beyond hope of rehabilitation. The condemnation of these crimes is a universal value. I say let us string up these June 4th rioters and beat them!

Perhaps if the Prime Minister ever chooses to speak out against the intimidation of Professor Brady, or to begin to take seriously the issues Professor Brady has repeatedly raised, she might make clear that she strongly disapproves of this sort of stuff from a Labour Party electorate committee member.

Then again, I guess Morgan Xiao was really only following her lead, when a few months ago she was committing to closer relations between Labour and the CCP and of party president Nigel Haworth who was in Beijing praising the regime and Xi Jinping just a few months earlier.

It is an abdication of New Zealand values –  hand in hand with the National Party.  We need leaders who see government, and international relations, as more than just the sum of the deals, the sum of the flow of political party donations.  There is little sign that we have such “leaders” anywhere in politics.

Promoting constructive vigilance

That was the sub-title to the substantial (200 pages or so) new report released last week by the Hoover Institution at Stanford University on Chinese (PRC) influence activities in the United States (but with eight case studies on the situation in other countries, including one on New Zealand which draws largely on the work of Anne-Marie Brady).

The report is the product of a working group of 33 academics, think-tankers, and journalists specialising in PRC-related issues.  Around half those involved are academics.  Of the 33, 10 are ‘international associates’ –  again, about half academics –  bringing perspectives to bear on PRC activities in other countries, including three Australians and Anne-Marie Brady.

I read the report over the weekend.  I’m not sure there is a great deal new in it, but it is easy to read, and extensively documented, and the accumulation of material helps build the picture.     And even on New Zealand, there are striking lines from the Magic Weapons paper that one forgets

The Chinese government considers New Zealand an “exemplar of how it would like its relations to be with other states.” One unnamed Chinese diplomat even characterized relations between the two countries as similar to China’s close ties with totalitarian Albania in the early 1960s.

Or bits I’d never noticed previously

Individuals with strong ties to United Front organizations have donated several million dollars, primarily to the National Party. One such individual, who donated $112,000 to the National Party in 2017, is listed as an officer of no fewer than seven United Front organizations.

Then again, it was Labour bestowing the QSM on Yikun Zhang.

But the focus of the report is on the United States.  In many areas one is struck by the similarity of the story to the work done on these issues for New Zealand.

The Chinese Communist party-state leverages a broad range of party, state, and non-state actors to advance its influence-seeking objectives, and in recent years it has significantly accelerated both its investment and the intensity of these efforts. While many of the activities described in this report are state-directed, there is no single institution in China’s party-state that is wholly responsible…..   Because of the pervasiveness of the party-state, many nominally independent actors— including Chinese civil society, academia, corporations, and even religious institutions— are also ultimately beholden to the government and are frequently pressured into service to advance state interests.

or

China’s influence activities have moved beyond their traditional United Front focus on diaspora communities to target a far broader range of sectors in Western societies, ranging from think tanks, universities, and media to state, local, and national government institutions. China seeks to promote views sympathetic to the Chinese Government, policies, society, and culture; suppress alternative views; and co-opt key American players to support China’s foreign policy goals and economic interests.

or (more remarkably in the much larger US market)

In the American media, China has all but eliminated the plethora of independent Chinese-language media outlets that once served Chinese American communities. It has co-opted existing Chinese-language outlets and established its own new outlets.

The report builds to a set of policy principles and recommendations.  They group the principles and recommendations under three headings: Transparency, Integrity, and Reciprocity.   Under the first two headings, most of what they suggest seems (a) sensible, and (b) relevant to other countries where these issues arise, including New Zealand.

Here are the Transparency principles (there are more detailed recommendations below many of these).

Transparency is a fundamental tenet and asset of democracy, and the best protection against the manipulation of American entities by outside actors.

• American NGOs should play an important role in investigating and monitoring illicit activities by China and other foreign actors. They should as well seek to inform themselves about the full range of Chinese influence activities and the distinctions between legitimate and illegitimate influence efforts.

• Congress should perform its constitutional role by continuing to investigate, report on, and recommend appropriate action concerning Chinese influence activities in the United States. It should update relevant laws and regulations regarding foreign influence, and adopt new ones, to strengthen transparency in foreign efforts to exert influence.

• Executive branch agencies should similarly investigate and publicize, when appropriate, findings concerning these activities, with a view to promoting healthy and responsible vigilance among American governmental and nongovernmental actors.

• The US media should undertake careful, fact-based investigative reporting of Chinese influence activities, and it should enhance its knowledge base for undertaking responsible reporting.

• Faculty governance is the key to preserving academic freedom in American universities. All gifts, grants, endowments, and cooperative programs, including Confucius Institutes, should be subjected to the usual procedures of faculty oversight.

• US governmental and nongovernmental sectors should disclose financial and other relationships that may be subject to foreign influence.

And yet, to reflect on this list of items is to realise how much more serious the issue is here.   There are few relevant NGOs, the media is struggling and thinly-resourced, and instead of Parliament taking any sort of lead we have the former PLA intelligence official sitting in Parliament, not apparently bothering either National or Labour, and Raymond Huo –  with various United Front connections, and openly championing PRC perspectives –  chairs our Parliament’s Justice committee, dealing with electoral law.    The Opposition leader is soliciting large donations through people with close connections to Beijing, and Jian Yang is reputed to be the biggest National Party fundraiser.  (Again, in this regard US campaign finance laws, including disclosure provisions, are well ahead of our own.) The National Party’s president praises the Beijing regime and its leader, and if Labour’s president hasn’t been heard from for a while, he has form in that area too.   Our system is already corrupted, whereas (from the report) on this particular dimension the threat to the US system is still nascent.

As for the executive (political and official), they remain keen to say quite as little as possible – on any dimension of the issue (donations, cyber-security, Chinese language media, threats –  whether to Professor Brady or people in the ethnic Chinese community), and direct money to propaganda outfits like the New Zealand China Council to help keep the populace in line.  Winston Peters this morning refused to even accept an interviewer’s description of the PRC as becoming “increasingly authoritarian” (although, as he implied, there has not been a time since 1949 when it been anything other than highly authoritarian and repressive).

What of disclosure?  I linked the other day to a comment from consultant and former academic Paul Buchanan about PRC funding of parts of our universities.  If true, these contributions (and those of any other foreign government) should be fully and routinely disclosed.   And what about travel?   In the flurry of stories about Yikun Zhang it emerged that the Mayor of Southland had been travelling to the PRC, working closely with (and travelling at the expense of) Beijing-affiliated Zhang.   I was struck reading the Hoover report by the observation that US members of Congress can’t accept gifts of travel, and the same day I read that a reader sent me a link to a story about Clutha Southland National MP Hamish Walker (and other local body officials) on (PRC) paid trips to China.   Shouldn’t any such (paid for) trips simply be prohibited?  I’m sure MPs do their jobs better for some travel, but either they personally or the New Zealand taxpayer should be paying.  Not vested interests –  corporate or other governments.

What about integrity?  These were the high-level principles

Foreign funding can undermine the independence of American institutions, and various types of coercive and covert activities by China (and other countries) directly contradict core democratic values and freedoms, which must be protected by institutional vigilance and effective governance.

• Openness and freedom are fundamental elements of American democracy and intrinsic strengths of the United States and its way of life. These values must be protected against corrosive actions by China and other countries.

• Various institutions—but notably universities and think tanks—need to enhance sharing and pooling of information concerning Chinese activities, and they should promote more closely coordinated collective action to counter China’s inappropriate activities and pressures. This report recommends that American institutions within each of the above two sectors (and possibly others) formulate and agree to a “Code of Conduct” to guide their exchanges with Chinese counterparts.

• When they believe that efforts to exert influence have violated US laws or the rights of American citizens and foreign residents in the United States, US institutions should refer such activities to the appropriate law enforcement authorities.

• Rigorous efforts should be undertaken to inform the Chinese American community about potentially inappropriate activities carried out by China. At the same time, utmost efforts must be taken to protect the rights of the Chinese American community, as well as protecting the rights of Chinese citizens living or studying in the United States.

• Consideration should be given to establishing a federal government office that American state and local governments and nongovernmental institutions could approach—on a strictly voluntary basis—for advice on how best to manage Chinese requests for engagement and partnership. This office could also provide confidential background on the affiliations of Chinese individuals and organizations to party and state institutions.

That last suggestion seemed like one that should be considered here, as local government figures seem all to keen on accepting PRC approaches for relationships, oblivious to (or unconcerned by) the wider political context.  I’m not sure what Yikun Zhang’s interest in the Mayor of Southland specifically is, but I’m pretty sure it isn’t just that they got on well over a beer.  As the  report notes

….it is important for local officials to understand that local American “exchange” companies that bring Chinese delegations to the United States and promote professional interactions between the United States and China all depend on official PRC sanction and have received approval to receive Chinese delegations. The business model of such companies is, of necessity, as much political as financial. Even if they conduct high-quality programs, they should not be viewed as disinterested actors. They, too, are subject to rules made by the Chinese Communist Party, its united front bureaucracy, and united front strategic imperatives.

Where I was a bit more sceptical –  and where there seems to be some ongoing debate –  was around the idea of Reciprocity.    As academics, think-tankers and journalists, they are  –  as group – frustrated over how difficult it is for many to get visa access to the PRC, research in the PRC, use PRC government archives etc.  They contrast this to the fairly open access PRC researchers and employees of PRC media outlets have in the United States, and propose that the US should tighten up to try to gain greater access for outside researchers and journalists to China.  One can understand their grievance, but are these people really suggesting that open societies (the US or places like New Zealand) should adopt a PRC approach to things?    When it comes to foreign trade, “retaliatory” tariffs mostly end up hurting consumers in the country imposing them. Perhaps things are different when it comes to idea, research etc, but surely one of the great strengths – not vulnerabilities –  of our sort of system is our openness?

Early in the report I was struck by the observation that the working group did not “generally oppose” Confucius Institutes  (three in New Zealand, very many in the US –  although some have since been closed by the host universities).  But as I read on I found the specific recommendations

Confucius Institutes We do not endorse calls for Confucius Institutes to be closed, as long as several conditions are met.

US institutions should make their CI agreements public to facilitate oversight by members of the university community and other concerned parties. Those agreements, in turn, must grant full managerial authority to the host institution (not on a shared basis with the Hanban), so the university has full control over what a CI teaches, the activities it undertakes, the research grants it makes, and whom it employs. The clause in all Hanban contracts that CIs must operate “according to China’s laws” must be deleted.   If these standards cannot be attained, then the CI agreements should be terminated.

Furthermore, universities should prevent any intervention by CIs in curricular requirements and course content in their overall Chinese studies curricula or other areas of study by maintaining a clear administrative separation between academic centers and departments on the one hand, and CIs on the other. Finally, universities must ensure that all public programming offered by their CIs conform to academic standards of balance and diversity and do not cross the line to become a platform for PRC propaganda, or even a circumscribed view of a controversial issue. In fact, this report would suggest that universities not permit Confucius Institutes to become involved in public programming that goes beyond the CI core mission of education about Chinese language and culture. To go beyond these two categories invites opportunities for politicized propaganda.

As I understand it, few of those tests would be met in respect of the New Zealand Confucius Institutes (the one that is, as I understand it, is that the Confucius Institutes are not involved in the host university’s own courses or curriculum).   And, in addition, there is the unstated dimension as to whether our governments and universities should be facilitating the presence of PRC-appointed and paid staff in our schools –  the PRC being one of the most heinous regimes on the planet (as well as ruling a relatively poor country, which means we allow the taxes of poor foreigners to help pay for the education of our kids.)  If the PRC wants to subsidise Chinese-language learning then good luck to them, but let them set up downtown and market for clients in the way other countries’ language-teaching operations (Alliance Francaise, Goethe Institute) do.

Reprising a theme in my post on Saturday, there was this line about the compromised nature of universities.

The message from China to US universities is clear: Do not transgress the political no-go zones of the Chinese Communist Party or government, or you will pay a price. Sometimes the pressure is overt; other times it is more subtle and indirect, but no less alarming. Some American faculty members report troubling conversations with university administrators who continue to view Chinese students as such a lucrative revenue stream that it should not be endangered by “needlessly irritating Chinese authorities.”

There is lots more in the report, which is well-worth reading if you have the time.

Perhaps my bottom-line unease about the report was a bit of a reluctance to call a spade a spade.    For example, at least amid the discussion of the difficulties foreign academics and journalists face in the PRC, there was either a touching naivete, or a wilful refusal to face the fact, that the PRC is not a normal country, that just needs a few nudges to bring their attitudes and behaviours into line.   Why would one expect the PRC to behave differently, given the nature of the regime?   Obviously, all those involved know much about the true situation, but there was an apparent reluctance to say out loud that the party/State is  –  and for decades has been –  a malevolent force, at home, abroad, and increasingly in other countries.  Look at the tens of millions killed under the depraved indifference of the Party, the masss incarcerations, the forced organ transplant, at the near-total absence of freedom of speech, freedom of religion, the rule of law, or at the decades of the one-child policy. Look at the huge scale industrial espionage.  Look at the militarisation of the South China Sea, the constant threats to free and democratic Taiwan, or all the influence activities the report documents in the US and other countries, including attempting to subvert ethnic Chinese abroad and pressure them –  whatever there citizenship –  to advance PRC ends.  I know some people regard comparisons between the PRC and late-1930s Germany as overstated or unhelpful.  But such parallels seem increasingly valid –  not as prophecy, but as description –  and helpful in prompting those –  some perhaps individuallly decent people –  who just go along, to stop and think about the nature of the evil they accommodate or abet.  New Zealand politicians, of both stripes, as an example.

We have to be more than sum of our deals, more than the flow of political donations.

People might (as I do) distrust Trump on these issues for his typical inconstancy.  The difference here is that there is a constancy, but one that seems determined to, in effect, serve PRC interests, not the interests of New Zealanders, or the values that underpin our society (perhaps those involved try to tell themselves the two interests are much the same?).   That is why I still regard the “choose between China and the US” line as a false one.  Our governments could choose to go along with much of whatever (limited amount) the US is doing in foreign policy (or not), and still have abandoned any sense of integrity around our own system.  Personally, much as I welcomed the decision to buy the P-8 aircraft earlier in the year, I’d be more persuaded by our “leaders” if they had

  • combined to get Jian Yang and Raymond Huo out of Parliament,
  • defunded the China Council,
  • amended electoral laws to stop Phil Goff funding his mayoral campaign with anonymous mainland donations and to force comprehensive disclosure (at the level of the ultimate human donors) of all significant political donations,
  • done something to manage the exposure of the universities and the way in which that exposure risks compromising effective freedom to speak,
  • agreed together to stop issuing statements of praise for the PRC and Xi Jinping, and
  • foreswore accepting donations from anyone with significant United Front connections.

As a start.

Without steps like that, we could end up banning Huawei,  buying P-8s, being in the good graces of the US and Australia, and it just wouldn’t matter much. We’d still have severely compromised the integrity of our political system and our own longer-term interests.

 

Universities and PRC-risk

A couple of days ago the prominent US economics blog Marginal Revolution highlighted a university in the United States which had taken out insurance against a significant drop in revenue from Chinese students.   The underlying article was here.  The policy had been taken out last year, but only now has the broker allowed the transaction to be publicised.

Here’s the gist

The University of Illinois at Urbana-Champaign has paid $424,000 to insure itself against a significant drop in tuition revenue from Chinese students.

In what is thought to be a world first, the colleges of business and engineering at the university signed a three-year contract with an insurance broker to pay the annual six-figure sum, which provides coverage of up to $60 million.

and

Jeff Brown, dean of the Gies College of Business, told Times Higher Education that the insurance would be “triggered” in the event of a 20 percent drop in revenue from Chinese students at the two colleges in a single year as a result of a “specific set of identifiable events.”

“These triggers could be things like a visa restriction, a pandemic, a trade war — something like that that was outside of our control,” he said.

Tuition revenue from Chinese students makes up about a fifth of the business college’s revenue.

Brown said that the insurance would cover the colleges’ losses if the decline was temporary and buy the university time to “make some adjustments to where we recruit” if it became a longer-term issue.

The article refers to the comments, mentioned here the other day, from a former head of Australia’s Department of Foreign Affairs and Trade

Last month, Peter Varghese, chancellor of Australia’s University of Queensland, suggested that universities should put revenues from Chinese students into a trust fund to insulate themselves against a future drop in enrollments from East Asia.

A few thoughts came to mind reading the article:

  • on the one hand, the insurance seems quite cheap (less than 1 per cent of the amount insured).  Even if a year ago there weren’t debates –  as now in the US –  about possible government restrictions on China student visa numbers – the risk of something going wrong wouldn’t have seemed small (after all, even pandemics happen more than once in a hundred years, and wars have also been higher frequency than that).
  • and, on the other, you have to therefore suppose that the contract is very tightly drawn, and it might well be difficult for the university to get a claim paid out.

It would also be interesting to have seen their analysis on the merits of paying a premium to an outside insurer as opposed to self-insuring.  The university concerned  appears to have an endowment of US$3.5 billion and a drop in Chinese student numbers doesn’t look like it could pose an existential threat to the institution as a whole.

And the policy seems unlikely to provide cover in the event that, say, the university president or a group of his/her senior academics were at some point to make a strong stand against the actions and policies of the People’s Republic of China.  That is something in the hands of the university and therefore almost certainly uninsurable.  If anything, one could imagine the insurance policy constraining their perceived freedom of action/speech.

But it also got me thinking about the compromised position of New Zealand universities.  Perhaps none of them is dependent on the China market for quite 15 per cent of their total revenue, although there will be individual departments and perhaps even faculties that will be at least that dependent.   In a new post, on why people on the left have been reluctant to support Anne-Marie Brady, I noticed this line from Paul Buchanan

The first, prevalent amongst academics, is concern about losing funding or research opportunities for publicly siding with her. The concern is obvious and acute in departments and institutes that receive PRC funding directly

Do we really have components of our public universities receiving direct funding from the PRC (Confucius Institutes aside, which are peripheral to the universities themselves)?  If so, surely such funding should be given more prominence, given the nature of the regime (scarcely benevolent and welcoming of scrutiny and criticism).

But even just in respect of student enrolments, the PRC market is clearly of considerable importance to the universities (and slightly far-fetched claims of increased penetration of the international student market are used to support Victoria University Vice-Chancellor – and China Council member – Grant Guilford’s bid to change the name of his institution).   Our universities are keen on lots of foreign undergraduate students for various reasons.  High numbers apparently help them in some of the mechanical international ranking schemes.   But the key driver is almost certainly the money.  Overseas students –  especially from non English-speaking backgrounds –  are quite expensive to support, but they can be charged full fees.  By contrast, the government caps both domestic student fees themselves, and limit the amount of direct support to universities in respect of those students (while, with gay abandon, offering interest-free student loans and fee-free entry to students themselves).  In a hugely distorted “market”, successive governments have set up the incentives that drove the universities further into exposure to the political whims of the PRC authorities.  Universities, in turn, were aided and abetted by the immigration policy provisions, that bundled-up work rights and qualification for post-study visas and residence points with study at a New Zealand institution.   In most fields, in most institutions, our universities simply aren’t so good (highly ranked) they’d attract large numbers on their own merits at full fees (although being a low wage Anglo country, presumably our fees are lower than those in some other countries).

The corruption of the system is double-edged.  There is the political dimension –  we are never likely to see a clarion call from our Vice-Chancellors opposing the repressive nature of the PRC regime, including the repression of academic freedom – such as it was – in China.  It seems unlikely they’d even speak up for, say, Anne-Marie Brady here –  certainly none have.  Once upon a time one might have looked to university vice-chancellors as among the eminent figures guarding and championing our traditions (for all the talk about academics as “critic and conscience”, a huge part of what they do is pass down the accumulated knowledge and wisdom, so that we don’t start anew each generation).  But not these days.  There are deals to be done –  connections with the PRC itself, even degree-granting programmes there –  and enrolment numbers to keep up.  Vice-Chancellors seem more like hawkers, than guardians and champions of our values.

But the other side of the corruption of the system relates to the pressure to pass people.  Those of us outside universities don’t see much of this directly, although occasional reports seep out.    But there was a Twitter thread the other day from an Australian economist, who teaches at the University of Queensland

One hears similar stories from time to time here (not necessarily specific to PRC students), and one can only assume they aren’t uncommon, (and that New Zealand universities are no purer, or their academics more resistant to pressure, than their Australian counterparts).

It is a very sad way to run a university system – at least if society expects anything more of universities than being degree-factories.   Rather than “critic and conscience” it has the feel of something more like corrupted exemplars of how off course our society has gone.

And thus there seems almost no chance that our universities –  or the Australian ones – will heed Peter Varghese’s advice (will his own even do so?).  Governments would have to take the issue seriously first, and that seems unlikely.    Putting aside some of the short-term profits as protection against a “rainy day” –  if the thugs in Beijing took a dislike to you – would probably immediately expose the problems in the financial standing of the universities and of our tertiary education system as a whole.  Better just to go along, get along, get the Vice-Chancellor on one or other of the pro-PRC propaganda bodies, pass the students, keep the contracts (with Beijing or Wellington), and keep supporting succesive governments in doing everything possible to avoid upsetting Beijing, to sacrifice the values of our society on the pyre of deals and donations.

But I was left wondering whether our own Export Credit Office –  a small intervention I’m deeply sceptical of –  would offer our universities the sort of insurance the University of Illinois was taking out.    They tout themselves as offering these services

NZEC can assist exporters to mitigate the effects of a buyer cancelling a contract or defaulting on its payments, as a consequence of commercial or political events beyond an exporter’s control.

And would we be better off if they did, or would the insurer just be even more keen on keeping the insured (the universities) in line?

In her writings, Anne-Marie Brady quite often introduces lines from Lenin, which appear to help shed some light on how the PRC operates.  As one reflects on our universities –  in particular – I’m reminded of the line that the capitalists would sell the communists the rope with which they’d later be hanged.   Perhaps one expects little of our “capitalists” –  businesses can prosper under any political regime (see Google worming its way back into China) – but universities were supposed to be better than that.  Governments share the blame, of course, but leaders of universities are moral agents, and should have their own responsibilities beyond just the income statement.

Economic failure CCP-style

I’ve touched on this point in earlier posts, but since at present there are lots of new readers, it is worth revisiting, and re-illustrating, the point: the People’s Republic of China (and more specifically, the Chinese Communist Party, that our leaders are so keen to cosy up to) has overseen a really poor economic performance.  It is, more or less, what one might have expected knowing that the rule of law would be absent, markets wouldn’t be allowed to function effectively, state subsidies (of all sorts) would be rampant, and so on.  It could have been worse, of course –  there was the utter chaos, misery, and (for a time) mass starvation from the late 1950s to the mid 1970s.  The handful of other remaining Communist-ruled countries are worse.   But even having stopped doing so much active destruction, the PRC results are unimpressive.    Any other conclusion surely invites that American line about the soft bigotry of low expectations.

Of course, it isn’t the line the PRC would have one believe.  And it suits too many politicians in the West to talk up China as a stunning economic success story.  But it isn’t.  Development economists, left and right, will talk up the hundreds of millions of people who’ve moved above the poverty line.  And that is great, except that (a) it was the CCP that did its utmost (perhaps unintentionally) to put them back below the poverty line in the first place, and (b) getting above the poverty line is a pretty feeble standard against which to judge the economic performance of a country that for centuries matched or exceeded the best material living standards anywhere.

Angus Maddison’s great collection of historical GDP per capita estimates is a typical starting point for such comparisons.    He reports estimates for some countries every few hundred years from year 1 AD, and then more frequent (increasingly annual) estimates for more countries in more recent centuries.  In 1 AD the estimates he reports had Italy with the highest material living standards, followed by Greece.  China was about the level –  or a bit ahead –  of most other places in Europe.   In 1000 AD, China was top of the rankings –  not by much, but it was number 1.  That shouldn’t be any great surprise to anyone who recalls the various Chinese inventions ahead of the discoveries of such things (printing presses, paper money, even very big ships) in the West.   By 1500, China was a bit behind Italy and Belgium, but not much different to most of the rest of western Europe (all well ahead of what is now the United States).

Scholars spill a lot of ink debating why China went into such severe relative decline (Japan also fell well behind and I presume –  though Maddison doesn’t have estimates –  other east Asian places did too).    Whatever the precise mix of explanatory factors that slippage happened.   In 1850, Maddison’s estimates have Chinese GDP per capita at about a quarter of that in the UK and the Netherlands, and less than 40 per cent of his “Western European 12 countries” average.  By 1900, estimated per capita GDP was only about 15 per cent of that in the highest income countries.

But perhaps as importantly, in 1900 China’s GDP per capita is estimated to have been about half that in Japan, and just a bit behind that in Taiwan (by then a Japanese possession).   As late as 1870, China had been not far from the GDP per capita in a range of Asian countries/territories for which Maddison now has estimates –  about on par with Korea, Taiwan, and Thailand, and a bit behind Japan, Hong Kong and Singapore.

And this is what they’d been further reduced to by 1976, the year Mao died.  I’m using the Conference Board’s PPP estimates, and have shown a mix of countries –  mostly east Asian and European, but with a few other interesting cases (eg Israel –  brand new in 1948) thrown in.

china 1

Such utter self-destruction and failure.  It wasn’t done by outsiders.  It wasn’t as if the PRC had faced uniquely bad external threats.  It was like economic suttee, with the depraved indifference of mass starvation thrown into the mix.

And how does the picture look today, with the Conference Board’s 2017 estimates.

china 2

The PRC has rocketed past the Philippines and Sri Lanka, and still trails the rest of this pack rather badly.   And this isn’t Tanzania or Rwanda, but a country that was once –  for centuries –  among the highest living standards anywhere in the world.  A country in a region where South Korea, Japan, Taiwan, and Singapore now manage advanced country living standards –  one of those a country that struggles to get international recognition and under constant threat from the PRC.

From the Maddison estimates, in 1980 the Soviet Union –  a region never at the forefront of material living standards –  had GDP per capita about the same ratio to that in the western European countries that China has today.  In fact, about where China was –  in relative terms –  in 1850 (see above).  It is a simply dismal economic failure in a country –  by a Party –  that would have so much potential were its people ever to be free, to ever be properly governed with the rule of law rather than the rule of Xi.

For the same countries, here are the real GDP per hour worked estimates.

china 3

It really is an astonishingly poor performance.  Or at least it would be unless you’d been told in advance that Japan, Singapore, Taiwan, and South Korea would establish market economies with the rule of law, sound governance etc etc (and none of it perfect) and that the PRC would remain a land where the (Communist) Party actively rules.  Then, the outcomes are probably much as one might expect –  China lags very badly behind, to the disadvantage of its people, even if to the enrichment (power, money) of its rulers.

On the IMF’s full list of countries, the PRC now ranks 79th (out of 187) in the GDP per capita (PPP) stakes.  Average real GDP per capita is a touch behind that in Iraq (yes, I was surprised) and the Dominican Republic, and a little ahead of Brazil and Macedonia.  Perhaps China’s growth rates are faster than those places, at least if one (a) believes the official data for the Xi period, and (b) discounts the massive distortions and misallocations associated with one of the largest credit booms in history.      But there is no sign of Chinese per capita incomes catching those of the leading countries any decade soon (if things unwind nastily, the gaps would even widen a bit for some years).

Taiwan, Korea, Japan, and Singapore are genuine economic success stories –  catch-up and convergence more or less as the textbooks suggested was possible.  Cause for celebration in fact.   The PRC?  Anything but.  Being big doesn’t change that –  even if it gives geopolitical clout to a lagging middle income country –  it just means more people are failed by their rulers (and by those in countries such as ours who give the rulers aid and comfort, pander to them, or simply cower in a corner).