Central bankers not giving speeches

I’ve been among those who’ve drawn attention, disapprovingly, to the fact that the Governor of the Reserve Bank, now in office for more than a year, has made no on-the-record speeches about either of his main areas of policy responsibility: monetary policy and financial stability/regulation.   The enabling legislation meant that until very recently he was the sole decisionmaker in both areas, and in both areas there have been significant new initiatives in the last year – a new objective, and new governance structure, for monetary policy, and far-reaching contentious proposals around bank capital.

The Governor has recently become merely primus inter pares on most aspects of monetary policy, joined by six others to form the new Monetary Policy Committee.  The first OCR decision of that new committee was released on Wednesday.

On Thursday morning, the Governor appeared at Parliament’s Finance and Expenditure Committee for his regular post-MPS questioning.  I was going to use the word “grilling” there, but the questioning is often pretty soft, and used to seem more attuned to soundbites for the evening news bulletins than to serious scrutiny and accountability. But this week, apparently, the Governor was asked about the criticism that he had not been delivering substantive speeches.   His response apparently was to “dismiss the criticism” on the grounds that the Bank publishes Monetary Policy Statements, OCR reviews, and some descriptive material on the new governance structure.

But here’s the thing.  Other countries’ central banks also publish official interest rate announcements, and the equivalents of Monetary Policy Statements (and these days, those documents are typically more in-depth and insightful than New Zealand Monetary Policy Statements). 

But since the Governor took office in March 2017 there has been not a single substantive public speech from the Governor on monetary policy.  There was one conference paper written by the now-departed chief economist, which must have been commissioned and substantially written before Orr took office.  That was more than a year ago.

In Australia this calendar year alone the Governor has given two public speeches on economic matters firmly within the monetary policy remit of the Reserve Bank of Australia.   And other senior managers have given another four such speeches.

In Canada, the Governor and senior managers have given eight to ten such speeches (depending how on classifies particular speeches).

In the UK, there appear to have been about six such speeches this year –  again, on things pretty closely related to monetary policy and the state of the economy.

And in the US, just at the Board of Governors (there were numerous other speeches by regional Fed people), I counted 10 such on-the-record speeches this year.

I deliberately mention speeches both by the Governor (or US equivalent) and by senior staff or committee members, because apparently Orr went on to ask, presumably rhetorically, if all public communications needed to come from the Governor, noting that in the past there had been criticism (when?) of a Governor having too high a profile (recall that Graeme Wheeler avoided all substantive searching interviews for five years).   Indeed, it doesn’t, but (a) we’ve had no speeches from any of them for more than a year now, and (b) until a few weeks ago the Governor was solely and personally accountable for monetary policy, and is still formally (ministerial determination) the spokesman for the MPC.

Playing distraction, Orr apparently went to suggest that a lot of discussion focuses on issues around things like climate change and social inclusion, asserting that the same people who criticise him for not doing speeches would criticise him for talking about such issues, and that he just couldn’t seem to win.

Of course, he knows very well that there are two quite separate lines of criticism.   Many (including me) think it is inappropriate and unwise for the Governor to be talking about such topics which go well beyond his remit (as it would be, say, for the Chief Justice to be giving speeches on economic policy).   But even if you were to grant that it was appropriate for the Governor to be discussing such peripheral (to the Bank) issues, you would then surely think it should be all the more reasonable to expect the Governor –  and other MPC members – to be giving serious, on-the-record, speeches about the state of the economy, monetary policy and so on (not to mention financial regulation, but this post –  and the FEC appearance – were about monetary policy).   Things they are actually responsible for, and where they wield a great deal of power, subject to no appeal or review.  It should be all the more reasonable to expect that at a time when (a) a new regime is being put in place, and (b) when the Bank has had to materially alter its policy view.

And when all their peers in other similar countries seem to give serious speeches as a matter of course.  It isn’t clear why our Reserve Bank has stopped doing so.



Two charts

Reading the papers yesterday for a forthcoming meeting, and as “reward” for getting to page 200 (or thereabouts), my eye lit upon (a version of) this chart.  Here I’m showing quarterly data.

bond yields nz and jap.png

It was a salutary reminder of the days –  must have been around 1998 –  when JGB yields first fell materially below 2 per cent.  I was responsible for the Reserve Bank’s markets monitoring unit at the time, so we paid a fair amount of attention to this stuff.  One of my young staff and I spent hours discussing the possible opportunities for shorting JGBs.  After all, everyone “knew” that long-term bond yields couldn’t stay that low for very wrong.    Fortunately we never put the trade on, but in the intervening 20 years I’m sure many people have at various times.  The 10 year Japanese government bond yield today is -0.05 per cent.

It was a New Zealand based outfit –  Melville Jessup Weaver – that did the chart I saw, but here is a version with Australia added.

bond yields aus

And, as a reminder, Australia and (even more so) New Zealand have long had the highest real interest rates in the advanced world.

The point of the chart in the article I was reading was to make the point that further, perhaps quite material, falls in New Zealand bond yields are not impossible.  It isn’t even as if Japanese bond yields are that much of an outlier: German 10 year bond yields are also slightly negative (and Germany has had one of the strongest performing advanced economies in the last decade or so).

What could take New Zealand bond yields much lower?   Well, I’ve argued for years now that the biggest single factor explaining why New Zealand real interest rates are so much than those in other advanced countries is our policy-driven rapid rate of population growth: savings rates are modest, and resource demands for a rising population are large, and high real interest rates (and a persistently high real exchange rate) reconcile those two ex ante pressures.  Cut the non-citizen immigration target as I’ve recommended and I would expect to see considerable convergence.  That would be good for our productivity and business investment prospects.

And, of course, the other (much less favourable) scenario is the next serious economic recession.   Simply cutting the OCR to (say) -0.75 per cent (about as low as people think it could feasibly go) wouldn’t of itself immediately result in near-zero bond yields –  indeed, as was the case in 2008/09 globally, aggressive policy rate cuts help create an expectation that rates won’t be low for long. It was a couple of years after the 08/09 recession before markets really started pricing the idea that low short-term rates might hang around.  But whereas in 2008/09 most central banks could cut policy rates by 500 basis points, if the next recession happens in the next couple of years most advanced country central banks won’t have even 200 basis points of conventional policy space (the Fed a little more, and most in Europe much much less).  And markets will recognise that limitation quite quickly, and begin to price conventional government bonds accordingly.   Even in New Zealand (or Australia) conventional nominal bond yields could quite easily go to 50 basis points or less.

As I noted yesterday, the Governor keeps on with his cavalier tone that there is nothing to worry about and the Bank has lots of potential tools –  the sort of exceptional stuff all sorts of other countries did after the last recession when they reached their effective lower bounds on nominal interest rates.   Sentiment at the BIS in Basle might be a bit different –  they aren’t responsible to any voters, or for any excess capacity/unemployment –  but I doubt there would be any policymaker in any advanced country who could look back on the last decade with equanimity, and not wish they’d had the tools available to lower the unemployment rate faster.  After all, almost nowhere was rising inflation an inevitable constraint.  New Zealand is better placed than some countries, in having a floating exchange rate, but (for example) the UK had one of those too.

The second chart I noticed in the last day or so was this one from the Reserve Bank’s Monetary Policy Statement.

job finding

I’m not entirely sure how they derive this measure –  there must be a research paper online somewhere, which I will try to track down –  but it is cited as evidence that “employment is near its maximum sustainable level”.    The text focuses on the rising trend last year, but in making that comment the authors of the Monetary Policy Statement (for which the whole MPC is presumably responsible), the authors appear to have ignored the rest of the chart.   After all, on this measure less than half the ground lost during the last recession has been recovered (and that incredibly slowly) and –  even allowing for the fact that the peak of the last boom was unsustainable –  the current value of the indicator is still not back to where it was in 2002 or 2003, when nobody (at least as I recall it) would have thought of labour as fully employed.

There does seem to be something of a tension in the Bank’s analysis and official rhetoric.  If labour is really fully-employed (in that weird statutory formulation “maximum sustainable employment”) as they have been saying for the last year –  through upside and downside OCR biases –  why are they cutting the OCR?  More plausibly, a lower OCR would allow the economy to run a bit more strongly, unemployment a bit lower (and, per the chart, people who lose jobs finding a new one more quickly), with the not inconsiderable bonus (given the statutory mandate) of a higher inflation rate.

On which note, one hears that the Reserve Bank’s research function has been  substantially gutted, with several recent resignations in recent months from among their best-regarded and most productive researchers (and the manager of the team left this week and is reportedly not being replaced).    The Bank’s research function once played a very influential part in policy and related thinking, but that is going back decades now.   Even with a Chief Economist who himself had a strong research background, the research team never quite found a sustained and valuable niche in recent years, even as some individual researchers have generated some interesting papers, often on topics of little direct relevance to New Zealand.  One of the most notable gaps is that the Bank has become increasingly focused on financial stability and financial regulation, and yet little or no serious research has been published in those areas of responsibility (a senior management choice).  That weakness has been evident in the recent consultation document(s) on bank capital.

One can always question the marginal value of any individual research paper, but we should be seriously concerned if the Reserve Bank under the new wave of management is further degrading the emphasis on high quality and rigorous analysis.  Apart from anything else, a good grounding in research has often been the path through which major long-term contributors to the Bank have emerged, including former chief economists (and roles more eminent still) Arthur Grimes and Grant Spencer.   I see that the Governor is delivering an (off the record) talk at the New Zealand Initiative today: perhaps someone there might like to ask just what is going on, and what place the Governor sees for a research function in a strongly-performing advanced country central bank.  Not even he, surely, can count on Tane Mahuta for all the answers.


The new Monetary Policy Committee’s MPS

I agreed with the bottom line policy decision yesterday of the new Monetary Policy Committee (it was “unanimous” the Governor twice told us yesterday, even though their charter tells them to aim for consensus not for a vote).  Cutting the OCR looks, with the information to hand now, to have been the right thing to have done (although, as always, only time will give us a better sense as to whether it was in fact the best choice).

But, as a rather portentous (but also somewhat empty) recent Bulletin article reminded readers, there is more to the responsibilities of the Monetary Policy Committee than the succession of OCR decisions.    And on their first outing yesterday I don’t think they were performing that well.  It is early days of course –  three new externals (one of whom wasn’t even there for this round), and two internals who’ve both been in their new roles for less than two months. But there is a (very) long way to go if they are serious about the aspiration the Governor sometimes runs about being the best central bank.

Getting some basic facts right would be a helpful start.  For example, I heard the Governor on Radio New Zealand this morning talking about business investment, and suggesting that it was high but not rising.   Here is a chart showing non-housing investment, and the best proxy for business investment (total less housing less government) as a share of GDP (and recall that GDP growth itself has been slowing).

bus I may 19

Doesn’t look very high to me.

Or there was the exchange in the Governor’s press conference when he was asked about the persistence of low nominal interest rates and whether this was some sort of “new normal”.   There are all sorts of possible, reasonable, answers to that one, but the Governor’s answer wasn’t one of those.  He suggested that what we have now is a return to some sort of “old normal”.   To be sure, real interest rates were at times materially negative in the periods (70s mostly) when inflation was very high, but the Governor explicitly claimed to be referring to an earlier period.  Here is a chart from yesterday’s Martin Wolf column in the Financial Times.

long-term rates UK

The Governor also seemed rather cavalier (again/still) when asked about the limits of conventional monetary policy.  He waves his hands, talks expansively of all sorts of other tools, and yet never once mentions that the countries that reached the limits of conventional monetary policy in the last downturn mostly had very subdued recoveries –  and there is a reasonable argument that with more monetary capacity fewer people would have been unemployed for as long as they were.

In the document itself there were also various odd or questionable bits.  The downside risks to the world economy seem to have played a large (surprisingly large) role in yesterday’s decision, but I was left wondering about the supporting analysis when I read this in the document.

New Zealand has become more exposed to international shocks over time as our global economic links have strengthened. Structural changes since the 1980s, such as the liberalisation of trade and capital movements, have increased our exposure to international economic conditions.

What can they have in mind?   Foreign trade as a share of GDP has been shrinking this century, foreign investment has been subdued, immigration has almost always been important in modern New Zealand history, and external indebtedness as a share of GDP hasn’t risen for decades (even if the composition has shifted from public to private) and is materially lower than it was 100 years ago.  And, on the other hand, we’ve had a floating exchange rate since 1985 which acts as a semi-automatic buffer to many global shocks.

Then there was what looked a lot like a (questionable) bid for the government to increase its own spending.  In the press conference, the Governor disavowed any suggestion of wanting more government spending as a cyclical stabiliser, but in the minutes (the new element of the document) we read this (emphasis added))

The members acknowledged the importance of additional spending from households, businesses, and the government, to meet their inflation and employment targets.

(Rather weird framing to suggest we all need to spend more.)


A potential source of additional demand discussed by the Committee included government spending being higher than currently projected, in view of the current strength of the Crown balance sheet.

Since there has been no suggestion from the government that it might depart from its Budget Responsibility Rules  (so the MPC isn’t responding to something in the wind) it looks strange for them to have chosen to include these lines (it is quite simply a choice).

The Governor’s own (apparent) left-wing pro-government biases also seemed to be on display in discussing existing government policy.  There was a whole paragraph about how government fiscal policy would be boosting GDP, and that paragraph ends with the observation that

announced minimum wage rises are expected to support household consumption over the projection period

No analysis was presented in support of this claim, and there is no discussion at all of the possibility that much higher minimum wages might have adverse employment effects.  Readers are just left to suppose it is all good.

The Bank is relatively upbeat in its GDP forecasts (quarterly growth rates averaging 0.8 per cent for the next couple of years) and one explanation appears to be their view of KiwiBuild.   The document notes that KiwiBuild is “assumed to contribute to residential investment from the second half of 2019”, and even though population growth is slowing, credit constraints appear to be tightening, and nothing new has been done to free up land-use regulation, the Bank expects to seeing residential investment rising as a share of GDP.

Readers may recall that at the time of the last MPS the Bank released a background note on its KiwiBuild assumptions.  I took them to task then over the unrealism of assuming that KiwiBuild would represent a material net addition to building activity (and that was before the growing questions about the KiwiBuild programme itself).  As I noted then

On my story, there could be as many builders and associated tradesmen and labourers as you like –  resources flowing easily, with high elasticities, into building as required, with barely any change in prices –  and over any reasonable horizon (say, five to ten years) a credible government announcement that it will build 100000 more houses will, to a first approximation, reduce the construction of other houses by 100000 over that period.    It almost has to be that way because:

  • announcing that as a government you are going to build lots of houses doesn’t change land use law or land availability.  It is what it is –  whether in Auckland or elsewhere.  Everyone recognises that (artificially regulated) land scarcity is a huge component in the high cost of New Zealand houses.   Other government policy measures may yet act on the land use issues, but this is a debate about KiwiBuild, in the existing regulatory system,
  • announcing that you are going to build lots of houses isn’t likely to materially alter the price of building materials in New Zealand, and
  • it isn’t going to materially alter regulatory approval timeframes and related things that (for example) affect financing costs.

In other words the marginal supply price of a new residential property –  like for like in its features –  doesn’t change.    Fix those things and there will be more effective demand for houses from the existing (and projected) population: building activity could really step for quite a while (and some of those capacity constraint and resource pricing issues could be relevant for a few years).    But if you don’t change any of those things –  and KiwiBuild doesn’t materially change any of them –  you’ll end up with no more houses, unless (and only to the extent) that the government-sponsored construction doesn’t cover true costs, and effectively offers a subsidised entry to the market for the favoured few.  Even then, the effect will mostly be to drive out more private construction, but there might still – at least for a time –  be a net increase in the housing stock.

I stand by those propositions, but the Bank appears to continue to assert/assume that KiwiBuild will be lifting economic activity.  Perhaps they are right, but they need to offer more analysis that a single sentence assertion.

Productivity isn’t one of the things the Reserve Bank can do anything much about (on that note, I really welcomed an interview yesterday in which I was being asked about the economy and the Bank, and when I mentioned the underwhelming productivity record the non-specialist interviewer responded “And the Reserve Bank can’t do anything about productivity, is that right?”).   But the Bank’s view on productivity growth affects its forecasts of headline GDP growth, which in turn are grist to the political mill.

Like Treasury, the Bank’s forecasts have been repeatedly upbeat and repeatedly wrong about productivity growth.  They always assume it is just about to pick up again.

In the Bank’s case the story is muddied because the variable they publish forecasts for is “trend labour productivity”.  On this measure – definition unclear –  we have had labour productivity growth averaging 0.8 per cent per annum for the last six years, and over the forecast horizon (to 2022) that is expected to increase to 1.1-1.2 per cent per annum.  There is never any discussion as to how or why this increase is expected to occur.

But lets look at a hard, easily replicable, measure of economywide labour productivity growth.  In this chart I’ve used the average of the two measures of GDP (production and expenditure) and the average of the two measures of hours (HLFS and QES) to derive an estimate of growth in real GDP per hour worked.  We have hours data up to and including the March 2019 quarter, and I’ve used the Bank’s forecast for GDP growth in that quarter (0.4 per cent).

GDP phw may 19

The orange line is the average for the last five years.  There has been almost no productivity growth at all.  Nothing in the data, or in government policy such as it is, suggests that is about to improve materially any time soon.  With little or no productivity growth it would be surprising indeed if annual GDP growth is anything like 3 per cent.

(And yet none of this stops the Governor burbling on about global inflation being low because of positive global productivity shocks.  The rest of the world’s story isn’t as bad as New Zealand’s, but it is hardly a story of strong and robust productivity growth.)

I was puzzling a bit over the MPC’s apparent interest in increased government spending.  Looking through the detailed spreadsheet of forecasts the Bank publishes I found they had forecasts for a variable they call “government spending (including non-market investment)”.  Out of curiosity I averaged the quarterly growth rates over the period from when the current government came to office (their first full quarters was q1 2018) to the end of the forecast period in 2022.  Recall that the Bank uses the government’s announced plans for their fiscal numbers.  Real government spending over the 4.5 years to mid-2022 is forecast to increase by an average 0.5 per cent per quarter.  Still curious, I calculated the average for the previous 4.5 years, under the previous government, and it was 0.7 per cent per quarter.  I don’t have a strong personal view on the appropriate level or rate of growth of public expenditure, but as a detached observer I’ve always been a bit puzzled as to whether left-wing voters really wanted to elect a government that would have government spending (share of GDP) so similar to that of the previous government, and growing more slowly.

As I mentioned the Governor has tended to talk up the New Zealand economic story, including around business investment.  But here, from the same forecast tables, are the Bank’s projections for average quarterly growth in the volume of business investment and the volume of exports.

lab govt

Not, among other things, the sort of picture one might expect to see if productivity growth were really about to accelerate.

My overall summary?  The OCR call was correct, but little about the analysis or communications the Bank has presented gives one much confidence in our central bank having a good understanding of the economy and its challenges, or the willingness/ability to communicate in a well-grounded dispassionate ways that genuinely sheds light on the issues.  The new MPC is still finding its feet –  one reason why I put little weight on yesterday’s projections as a guide to how things will unfold over the next few quarters –  but there is a big challenge ahead of them.

Economic expectations

The macroeconomic news of the day will be around the Reserve Bank’s Monetary Policy Statement this afternoon.   But yesterday afternoon the Bank published the results of its quarterly survey of (somewhat expert) expectations.

There wasn’t much newsworthy in the survey results.  Across this group of respondents, the median expectations for the inflation rate two years ahead, five years ahead, and ten years were 2.00, 2.00, and 2.00 per cent. The Bank will be pleased.   Unfortunately for the Bank, market prices (from the market in indexed and conventional government bonds) suggest something close to 1.0 per cent (my own responses to the survey were not that low, but were in the lower quartile of responses).

The questions that caught my eye were those around monetary conditions.  Respondents are asked (on a 7 point scale) how they perceive monetary conditions at present, in three months time, and in nine months time.  It is entirely up to each respondent how they interpret “monetary conditions” –  what weight they put on each of, say, interest rates (short or long), exchange rates, credit conditions, share prices, or whatever.  Here are the summary results

mon con

A huge majority of respondents think current monetary conditions are looser than neutral (“neutral” is the Bank’s own term) and expect them to stay that way.

But the surprise was the shift, expected over the coming quarter, from neutral to tighter than neutral.  Sure, the survey was taken almost two weeks ago, but even then market prices were clearly centred on the prospect of an OCR cut –  whether today or in August – with no commentator I’m aware of expecting an OCR increase.   (And in the same survey three months ago, there was an expectation of a slight shift towards less-tight conditions.)

Who knows what respondents had in mind.  It can’t have been the exchange rate –  the survey asks for exchange rate expectations and they aren’t rising –  so perhaps it was something about credit conditions.  Then again, it is a fairly small sample (33 respondents) so perhaps a couple of people just read the options the wrong way round.

What about OCR expectations themselves?  The survey asks about expectations for the OCR as at the end of June and at the end of March next year.   The median response for June was still 1.75 per cent – no change now or at the OCR review at the end of June –  in a survey taken only 10 days ago.   The median expectation is for only one OCR cut by then , but the lower quartile response is 1.25 per cent, and at least one person (wasn’t me) is picking 1.0 per cent by then.  (On the other hand, at least one respondent thinks the OCR will have been increased to 2 per cent by March.)

And the last result that caught my eye was this one.  Respondents are asked for their expectations of GDP growth for the year ahead and then for the year beyond that.  This chart shows the average of those two expectations.

GDP expecs

The latest results are lower again, and are now at the lowest level since December 2009.   Expectations of this sort aren’t particularly useful as forecasts (lots else will change), and often largely reflect what has already been seen.  And the latest decline isn’t severe in the long-run history of the serious. But it isn’t exactly a rosy picture either.  Respondents don’t see anything on the horizon likely to accelerate growth rates.   All else equal, there isn’t much suggesting core inflation will rise.

There is a pretty good case for the OCR to be lower.  Then again, there was a good case (probably stronger) for a cut to official interest rates in Australia yesterday, and it didn’t happen –  the statement read like a central bank desperate not to cut, despite an agreed inflation target they’ve been badly undershooting.   I doubt our Governor will be desperate not to cut, but whether he and his new colleagues actually do so today we won’t know for a few hours yet.



What are Police up to?

A reader sent me the link, and this is what Google Translate generates:

Guangzhou Municipal Public Security Bureau and New Zealand Oakland Police Department signed a friendly cooperation arrangement
Source: Guangzhou Municipal People’s Government Foreign Affairs Office published:2019-05-05 17:51

guang 1.png

guang 3.png

To celebrate the 30th anniversary of the conclusion of the international friendship city relationship between Guangzhou and Auckland, and to strengthen the police cooperation between the two cities, Yang Jianghua, deputy mayor of Guangzhou and director of the Municipal Public Security Bureau, and the assistant police chief of the Auckland City Police Department of New Zealand on April 29 Lena Hassan ( Naila Hassan ) signed a “friendship and cooperation with the Guangzhou Public Security Bureau Auckland, New Zealand Police to arrange the book” in the Guangzhou Municipal Public Security Bureau. It is reported that this is the first time that the Guangzhou police and foreign police have signed a cooperation intention, which indicates that the law enforcement agencies of the two places will formally cooperate in police exchanges and police training.

“Police exchanges” with the Guangzhou branch of the Ministry of Public Security………..  Surely this cannot mean that MPS officers will be let loose with law enforcement powers in New Zealand?  Surely…..

I looked on the Auckland police website, I looked at the Minister of Police’s website, and I looked at the main Police news releases page, and there was nothing about this deal.

I wonder if Police, or their Minister, were ever planning on telling New Zealand citizens and voters about their deal with the PRC domestic repression apparatus?

Yesterday, I mentioned the Gestapo, but one doesn’t need to invoke (quite valid) Nazi comparisons with the People’s Republic of China.   Would Police – or elected governments – have thought such friendship and exchange deals were appropriate with the domestic security forces of the Soviet Union, or Pinochet’s Chile, with Galtieri’s Argentina, with apartheid South Africa, or……or…..or……

It just should not be.  And it clearly isn’t the case that this is just normal stuff (“everyone does it”) –  it is the PRC side that stresses that this is the first such arrangement for Guangzhou.

I’m not fond of the phrase “social licence”, but if it must be used this is an example of how government agencies –  allegedly working for our interests –  risk forfeiting theirs.

I will be lodging an OIA requesting details of this agreement.


Big business

I’ve been following the views of Tyler Cowen for almost 30 years now, since he spent some time in New Zealand doing a review for the Business Roundtable of the (then) new Reserve Bank of New Zealand Act.    These days he is a prolific and prominent writer –  columnist and blogger –  and a professor of economics at George Mason University, all supported by (apparently) voracious reading.   There is almost always something stimulating and fresh in what he has to say.

But he doesn’t always get it right.  Back in the very early days of the Trump presidency, he ran a column on parallels between Donald Trump and our own Sir Robert Muldoon. I begged to differ, and mostly I reckon my argument looks stronger now than it did in early 2017.

A few days ago he had a column in the Washington Post (extracts here) drawn from his recent book “Big Business: A love Letter to an American Anti-Hero”.  In his column he argues that (so-called) progressives in the United States should embrace big business and see it as an ally in the causes they champion.   On some of the specific issues he lists, there is probably something to what he says (and I’m with him in pushing back against the Elizabeth Warren approach to capitalism and business), but as a general proposition (which is what he makes it out to be) what he claims –  that companies are a source of social and political good, going beyond merely the production they facilitate – is at very least arguable.

Thus, we are told that various large US companies “offered health care and other legal benefits for same-sex partners well before the Supreme Court legalized gap marriage”, and that these moves “put a mainstream stamp of approval on the notion of same-sex marriage itself”.   Some will have regarded all that as a good thing – certainly (which is Cowen’s specific point) the so-called progressives will have.   And in that case, one person’s additional remuneration doesn’t directly impinge on anyone else’s.

One could take the argument further.  There are papers around illustrating the way in which companies operating buses or street cars in the segregated American South championed the cause of bus desegregation.  That wasn’t because the owners were necessarily any more “enlightened” than the rest of the white populace, but because having segregated facilities cost them money.  Desegregation was cheaper and more profitable.

More generally, one of the arguments against the idea that there is some sort of meaningful gender pay gap, arising out of discriminatory practices, is that economic incentives are pretty powerful and should contribute to eliminating any such substantial differences –  if equally productive female workers can be had more cheaply than male ones, there are expected returns on offer to firms that focus on recruiting those women.  In the process, wages for women are bid up and, over time, any excess returns are eliminated.   In apartheid South Africa, it was the white unions not the mining companies that had a compelling interest in preventing the employment of blacks in skilled or supervisory positions.

So a competitive market economy probably is quite good at taking out any differences in remuneration based on employee characteristics that are irrelevant to the production process itself (the relentless tendency towards wage=marginal product), and it is also good at chipping away at regulatory and other barriers that impede the ability of shareholders to maximise risk-adjusted returns.    Street-car segregation might be a positive example of the latter, but it isn’t hard to think of less-positive examples (and as someone who favours low taxes on business and light-handed regulation of the financial system I’m not even going to those “progressive” favourites).  One could think of all manner of corporate welfare programmes that many firms fall over themselves to champion and defend (and which anyone who rejects using them can find themselves pushed beyond the margins of profitability), or incentives around environmental regulation, or financial system bailouts, firms that attempt to portray their corporate interest as the same as the national interest (eg those championing tariffs), or whatever.

And we could revert to Tyler Cowen’s example around attitudes to homosexuality.  He argues

The larger the business, the more tolerant the institution is likely to be of employee and customer personal preferences. A local baker might refuse to make a wedding cake for a gay couple [celebration of a their “wedding”]  for religious reasons, but Sara Lee, which tries to build very broadly based national markets for its products, is keen on selling cakes to everyone. The bigger companies need to protect their broader reputations and recruit large numbers of talented workers, including from minority groups. They can’t survive and grow just by cultivating a few narrow networks as either their workers or customers.

And yet it is Rugby Australia, pressured by large corporate sponsors, which is attempting to sack Israel Folau for quoting the Bible on his own social media accounts on matters quite unrelated to the production of rugby services.  The idea that large firms are generally tolerant of employee preferences and views seems hard to credit these days –  perhaps, on average, they are individually more tolerant of some differences than individual small firms, but individual small firms have much less market power (more places for employees to choose to work).

What is probably true is that big corporates don’t care who they sell to (there is a dollar in it) but are –  and perhaps always were, but on different issues –  quite intolerant of employees with a mind, or conscience, of their own.  The Colorado baker managed to get the backing of the Supreme Court for not being willing to bake a cake explicitly for the celebration of a gay “wedding”, but if an employee of a major chain had attempted to exercise the same freedom of conscience, most likely they’d have been out of a job.   Again in the US context, Brendan Eich was forced out as CEO of Mozilla for having made a modest donation to a campaign against legalising same-sex “marriage”.    In the last few weeks, a major tech company sent out a message to all staff, apparently cautioning that if staff weren’t totally onside with the corporation’s “diversity and inclusion” programme, it could affect their pay or even their future employment.

Now, in many respects those examples go to Cowen’s point: much of US big business is very much of the same ideological hue as the political “progressives”, at least when it comes to social issues.

But here again there is another side to the issue.   When Wilberforce was leading the fight to abolish the slave trade in the British Empire in the early 19th century, it wasn’t big business interests that were right behind him –  indeed, when slavery itself was finally abolished, it was only possible with large compensation payouts to those who had enriched themselves on maintaining in slavery their fellow human beings.

Or nearer to our time, take attitudes to the People’s Republic of China and the way that evil regime represses its own people (generally) and systematically persecutes various minorities (Muslims in Xinjiang, Falun Gong, Christians, human rights lawyers and so on).  It is business interests that quake at the very thoughts that political “leaders” in countries like our own might even speak up and speak out against such evil, business interests that sully themselves (but presumably don’t see it that way) by continuing to trade with the regime.  Fund managers continue to buy shares in Hikvision and similar companies.  And none of this is new –  foreign companies operating in apartheid South Africa might have wanted to be able to use labour more efficiently, but they had no interest in upsetting the regime; various US companies remained actively involved in Nazi Germany right up to December 1941, and few German companies displayed any great moral courage or leadership either.

This isn’t intended as an anti-corporate or anti-business post.  Private businesses are the form through which much or most of the staggering material wealth we enjoy today is realised.   But businesses are owned, staffed, and run by human beings, and are unlikely to be consistently any better than those human beings.   If anything, and around the limits and taboos that societies might seek to establish and maintain, they will often be worse –  even as they remain very narrowly efficient in marshalling inputs and generating outputs.  Why?  Because of the impersonality of the (widely-held) corporate form and the impersonality of the pressures on them. Widely-held firms are prone to pressure from the mob – on issues that mob has focused on in that particular moment – and, on the other hand, people near the top of a firm can detach from any strong personal ethical sense –  having perhaps a lot to lose individually –  under the guise of excuses like “everyone else is doing it”, or “fiduciary responsibilities”, or a focus on the share price.  Widely-held firms have no particular interest in any values or interests that don’t work to lift the firm’s own bottom line (thus no particular commitment to democracy, or transparency, or whatever, or about the character of those with whom they trade, so long as they honour contracts).   That can have positive elements to it –  the firm just gets on and uses resources efficiently – but stops doing so when firms themselves become political players.  We don’t let firms vote, but we do allow them to donate to political parties, and (more importantly) we give their bosses and boards access and influence in the corridors of power, in ways that aren’t always aligned that well at all with the values and interests of citizens.

So count me sceptical of paeans to big business.  We probably need to be almost as sceptical of them in many circumstances as we should be of big government.




A certificate of shame

A week or so ago I wrote a post about our Police and their apparent indifference to the requirements of the law –  in this case the Official Information Act.  I’d asked about the appointment of their Assistant Commissioner Hamish McCardle to a visiting professorship at the PRC’s People’s Public Security University (the university of the Ministry of Public Security).  It was already well past the 20 working days limit specified in the Act and nothing had been heard from Police.

This morning I finally had a reply from Police’s (acting) International Services Manager,   There was not much to it, and (so they say) nothing was withheld.  First, I received a photo of a certificate of Mr McCardle’s appointment.

McCardle certificate

The appointment was made almost a year ago.

It probably should be a warning sign when the university of the Ministry of Public Security in a regime like that of the PRC recognises your “outstanding achievements”, but apparently it wasn’t to either Mr McCardle or his bosses.   In fact, in the photo included with the article on the Police website, Mr McCardle looks downright pleased.  Never mind the loss of liberty –  pretty much across the board –  that the Ministry for Public Security helps give effect to, the mass incarceration of Uighurs, and the persecution of all manner of other groups, it was apparently a great honour to be welcomed as (visiting) faculty at their training school.

The only other information related to my request that Police claimed to have was an email from the former International Services manager to three of his superiors, including the Deputy Commissioner and the Commissioner of Police.

From: “KANE, Brett” < >
To: “PANNETT, Michael (Mike)” < >, “CLEMENT, Michael” < >, “BUSH, Michael (Mik·e)” < >
Subject: Hamish Mccardle -Appointed Visiting Professor at the Chinese Ministry of Public Security University

Assistant Commissioner Hamish Mccardle has recently been appointed as a Visiting Professor at the Chinese Ministry of Public Security University.
This is a very rare honour, in fact Hamish is the first ever foreigner to have this honour bestowed. A bit like Massey University presenting President Xi’s wife an Honours Doctorate during the State visit a few years back.
This honour presents the chance to return each year to teach an advanced class of Masters students, about a one to two week teaching block. This role will have some great advantages in the overall relationship development with MPS and
New Zealand over the long term.

Brett Kane
National Manager I International Services Group (ISG)
Detective Superintendent I New Zealand Police

And that was it.  A “very rare honour”, “first ever foreigner”.  All with the utter moral blindness that sees no apparent difference between Massey University and the advanced training establishment of one wing of the domestic repression apparatus of a state like the PRC.  In fact, this ‘honour” is regarded as highly beneficial (“great advantages”) in improving relations between the New Zealand Police –   police force of a free and democratic, bound by the rule of law –  and the PRC Ministry of Public Security, in a country whose own Chief Justice eschews any notion of the rule of law or an independent judiciary.

Assuming that Police are telling the truth and this is really all there is, I find it pretty surprising.  There is no sign of Mr McCardle consultating with his superiors on whether to accept such an “honour” (indeed, my letter from Police says the appointment was done “independently of New Zealand Police”), even though this appointment was to involve a significant ongoing commitment of time.  There is also no suggestion of consulting with MFAT on whether it is a good idea for a senior New Zealand police officer to be accepting such an “honour” from a state like the PRC (and MFAT’s response to my OIA to them confirmed that they had no other material on this appointment), and there is also no record of Police notifying the Minister of Police or his office (“no surprises” and all that), or of the Minister of Foreign Affairs being informed.  Perhaps worst of all there is no sign that the Commissioner expressed any concern about being informed only after the event, or asked for any advice over whether such an “honour” was really appropriate, or whose interests it was serving.

As it happens, the Police covering letter also says that, a year on, “details of any engagement are yet to be agreed” (do note that “any”) suggesting that the symbolism here is more important than the substance –  a key ministry in the PRC, active agent in the suppression of liberties of Chinese citizens, managed to get a senior western police officer to accept an honour from them.   Probably the Gestapo had training establishments that in the late 1930s would happily have dished out visiting professorships or the like to gullible foreigners happy to associate themselves with an institution responsible for such evils.

When it comes to making sense of Police it is always hard to be sure whether malevolence or sheer stupidity/tin-earedness explains any oddities.    This is, after all, the Police Commissioner who had to apologise for giving the eulogy at the funeral of a former police officer found by a Royal Commission to have planted evidence.

Who knows quite what the story is with this episode.  But it probably shouldn’t really surprise us, given the way official Wellington falls over itself to accommodate – and more –  the PRC.    Almost as much as sections of the business community.  Between them, they seem to simply put all concepts of right and wrong, of concern for the oppressed, of recognition of the evil character of the regime they defer to, to one side.

Of course, it is all led from the top.   I listened to a recording of the Prime Minister’s addresss this morning to the China Business Summit (also addressed by the Chinese Ambassador and the local CEO of Huawei) on the Herald website. It seemed strangely apposite that her address –  on this recording –  was bracketed by adverts for the latest in Hauwei technology.   It was, in different ways, a speech both extraordinary and banal.  Banal because it was probably as empty, and as cravenly deferential, as you’d have heard from any New Zealand Prime Minister for the last decade (in fact, it seemed very like her address to the same forum last year).

And yet extraordinary too for the utter emptiness of it all, in the face of a regime that poses such substantial challenges to the world, including its intrusion in our own political system.   Listen to the Prime Minister address the China business vested interests and you’d not know that issues around Huawei remain alive and serious (just the other day Vietnam banned Hauwei), you’d not know there were serious issues with state-sponsored intellectual property theft, with threats to Taiwan, the increasing loss of liberty in Hong Kong, expansionist activity in the South and East China Seas.  Nor, of course, issues like Xinjiang, the sustained persecution of Christians who won’t bend the knee to state-sponsored “churches”, or the forthcoming anniversary of the massacre of Tiananmen Square (no doubt airbrushed completely from PRC media, but I wonder if any of our political leaders will be moved to comment at all).  And as reminder that it seemed to be all about dollars, the Prime Minister reminded the assembled business figures that the government had nine agencies represented in being “there to serve your interests” –  it was that “your” that sparked me interest, no sense of “our”.

Of course, there was the obligatory brief and embarrassed note that we don’t always agree with the PRC, but that “differences of perspective don’t define our relationship”.  But they really should shouldn’t they, with a regime of such evil, with values so alien to those of most New Zealanders?  Of course, we have differences with every other country at some time or another, but with some we share fundamental values, and with others we just don’t.  The PRC is one of the latter, and yet the PM was again on her mission to treat the PRC as just another country, its leaders just another group of decent blokes (in their case, they are all male).  You can’t escape the impression that she is happier photographed with Xi Jinping than with, say, Donald Trump (and I don’t blame her at all for not wanting to be photographed with Trump, but the government he leads is not the PRC).  And yet, for all its faults, the US Adminstration is actually willing to speak up and speak out about the mass incarceration in Xinjiang

Perhaps it is no wonder Police not only accept this “honour” but celebrate it in their magazine.   When it comes to the PRC, they seem to take a lead from the Beehive, where successive waves of ministers seem devoid of any moral grounding.

When they ponder those deals and donations, and all the squalid compromises involved, perhaps our politicians, officials and business figures might ponder that old Scriptural line

For what shall it profit a man, if he shall gain the whole world, and lose his own soul?