Almost unbelievable

I was about to settle in for the rest of the afternoon writing a review article of an interesting (but obscure) book on aspects of US monetary policy, when a reader sent me a link to an astonishing article from the New Zealand Police website.   In it we read

As he prepares to bring down the curtain on eight years as our man in Beijing, Assistant Commissioner Hamish McCardle has received a rare honour from his hosts.

He has been appointed Visiting Professor at the People’s Public Security University of China – the first foreigner to hold such a role.

The university is where China’s Ministry of Public Security (MPS) trains the elite of China’s police. …..

The university and the Royal New Zealand Police College have had a bilateral training relationship since 2016. ……

He says the university appointment is an endorsement of the healthy state of the New Zealand-China bilateral relationship, and “underscores the idea that New Zealand has values and ideas worth considering in the Chinese context”.

It also aligns with the aims and values of the New Zealand-China Friendship Society and the pioneering work of New Zealander Rewi Alley who fostered a life-long friendship with China from the 1930s.

I don’t have any particular problem with Police having a person in our embassy in Beijing.  The day job had “a focus on disrupting the flow of drugs and precursors to New Zealand”.  That sounds fine.

But in accepting this “honour”, have the Police, MFAT, and their political masters lost sight completely any sort of moral compass?

The People’s Republic of China is a country where the Chief Justice himself proclaims that the rule of law is not something for China.  The Party rules.   It is a country where the Ministry for Public Security plays a key role in imprisioning a million or more people in Xinjiang.  I’m sure they do basic policing work as well –  Chinese have road accidents, and break-ins just as we do –  but this is the New Zealand government actively participating –  on a ongoing basis – in making the repressive apparatus of the PRC state better and more effective at doing its job.  A big part of that job is an instrument of systematic repression –  political, religious, or whatever.    Political loyalty –  to the CCP – is, not surprisingly, a key element in recruitment, and presumably even more so at those studying to be “the elite of China’s police”.

And what about that weird stuff in the final paragraph of the quoted excerpt?  The New Zealand-China Friendship Society has been around for decades and long-served as a Beijing front organisation in New Zealand, right through the horrors of the Great Leap Forward, the Cultural Revolution, and on to their total silence today about repression in Xinjiang.    And Rewi Alley?   Well, he lived a fairly comfortable life in Beijing after the CCP took over, navigating this way through the thickets of changing CCP politics, reaching new lows when he published a jointly-authored book near the end of the Cultural Revolution defending the regime at its worst.  What possesses our Police to think these are “aims and values” to champion?   Why not, for example, the aims and values of the Tiananmen protestors, the Falun Gong movement, or the (underground) Catholic church?  But that wouldn’t fit the narrative I guess, of prostrating the New Zealand system before Beijing.

Presumably Mr McCardle is a perfectly decent chap, and probably won’t think of trying to import PRC methods to New Zealand policing on his return?  But did he not in the seven years he has been lecturing at this university already,  or does he not now, feel any qualms of conscience at all about abetting evil?  Because that is a big part of what the Ministry of Public Security, elite and otherwise, actually does.

And what of our subservient and deferential politicians?   Does the Minister of Foreign Affairs really feel comfortable with this “honour”?  ( I assume his officials at MFAT think it is just wonderful).  What about the Minister of Police?  Or the Prime Minister?

Or Simon Bridges or Todd McClay?  Or do all our MPs just think it is totally fine –  quite an honour in fact –  for the New Zealand government to be helping the PRC better repress its citizens, better repress freedom, free expression, free worship, free assembly or whatever?

It is a small thing in a way.  But a succession of individually small things build up to a narrative of a government system –  from the top down –  more interested in getting along, and supporting, this evil regime doing its work –  mercenaries, in effect, for trade deals and political donations –  than in representing the interests, values, and traditions of New Zealanders.   For Mike Bush and the New Zealand Police it seems that the values of the China Friendship Society and Rewi Alley count for more.

That’s shameful.

Has monetary policy run its course?

In one of the world’s most prominent economics platforms, the economics columnist for the Financial Times, Martin Wolf uses this week’s column for a piece headed “Monetary policy has run its course”, with a subheading “It has made secular stagnation worse.  Fiscal alternatives look a safer bet.”.    That headline was guaranteed to get my attention, disagreeing as I do with all three limbs of the apparent argument.

Wolf draws on various other papers, but doesn’t really make his case in a compelling way.  Take secular stagnation first.  There are various definitions: Wolf uses one of “chronically weak demand relative to potential output”, while the FT’s own lexicon uses a materially diferent version

Secular stagnation is a condition of negligible or no economic growth in a market-based economy.

On the former definition, most of the OECD is estimated to be back somewhere near a zero output gap, and the unemployment rate now in several major economies (but not New Zealand) is lower than it was going into the last recession (and there is a striking fact that the worst performers are all in the euro common currency, a system Wolf tends to be keen on).  That has happened without big new surges in overall ratios of private debt to GDP.

On the latter definition, even in countries with high starting levels of productivity, productivity growth has slowed but not stopped.  Per capita GDP across the OECD is now about 10 per cent higher in real terms than it was in 2007.  Not stellar, but it means that 10 per cent of all the output growth managed in the last several hundred years (since the Industrial Revolution) has been in the last decade alone.

I think there are credible stories under which monetary policy wasn’t used sufficiently aggressively in, and following, the last recession –  partly because both markets and central banks misjudged things and expected a strong rebound, so were always looking towards the first (or subsequent) tightenings.  But is very difficult to construct a story, in which monetary policy has made any material (adverse) difference to population growth, productivity growth, actual innovation opportunities or the like.    And even if, for argument’s sake, there was some effect in the frontier economies, most OECD economies (including large ones like the UK, Japan, Italy, Spain, Canada, South Korea) are nowhere near the frontier.

Having said that, there is little doubt that neutral real interest rates have fallen away very substantially over the last 15 years or more.  They are now at levels that are pretty much without historical precedent.  This is the first chart in the article.

ft chart

That means there are issues.  There is an effective lower bound, at present, on short-term nominal interest rates.  No one knows precisely where that bound is, but there is a degree of consensus that taking your policy interest rate much below -0.75 per cent will lead to fairly large scale conversion of deposit balances into physical cash (not, primarily, transactions balances –  where the inconvenience would dominate – but large wholesale balances).  The limit now exists wholly and solely because (a) governments monopolise physical currency issue, and (b) pay zero interest on physical currency.  Zero might not be much, but for a multi-million dollar fund, it is a lot more than -3 per cent (for the same credit risk).

Quite a few countries (including the euro area) are at or very near that floor already.  Other countries, including New Zealand, Australia, and the United States are not.   But even in those countries, a severe recession in the next few years would be likely to exhaust conventional monetary policy capacity (our Reserve Bank could cut by perhaps 2.5 percentage points, but it has often needed to cut by more than 5 percentage points in previous downturns).

Wolf isn’t apparently keen on doing anything about that, observing that a need for materially negative nominal official interest rates

would, to put in mildly, create a wasps’ nest of technical, financial and political problems.

Not nearly as many problems as doing nothing, and allowing persistently high unemployment for multiple years might create.

There are two broad options for creating more monetary policy space.   The first is to raise the inflation target (and reading a central banking magazine yesterday I noticed that a Swedish Deputy Governor is calling for exactly that), and the second –  and more reliable –  is to remove, or markedly ease, that near-zero effective lower bound.   No government or central bank has done so (and there are not overly complex ways of doing so), and that passivity –  apparently endorsed by Wolf – is increasing the risk of problems when the next serious downturn gets underway.  If interest rates can’t, for now, be cut far, people will quickly recognise that, not expect it, and adjust their behaviour, and asset holdings, accordingly.

Is there reason for unease about some of these options?  Perhaps.  If we were to allow short-term interest rates to go materially negative, no one knows how far they might eventually go.  There are good theoretical reasons to think not too far (human innovation hasn’t died, there are naturally productive (positive returns) assets (land or fruit trees) but no one knows with certainty.  Would it matter if interest rates went, and stayed, materially negative?  I’m not convinced it would, allow it would certainly be a symptom of something odd.   But such philosophising shouldn’t get in the way of actively preparing to handle the next serious downturn.  Neither central banks nor governments seem to be doing what they could on that score (and although the issue is a bit less immediately pressing in New Zealand, it is true here too).

Which brings me to the third limb of Wolf’s argument: “Fiscal alternatives look a safer bet”.   “We need more policy instruments he argues”.  In many respects, the rest of the article is a teaser for a conclusion around more aggressive use of fiscal policy.   (“More aggressive? perhaps Antipodean readers wonder, but as a chart in the article illustrates OECD net government debt as a share of GDP has trended quite strongly upwards in the last fifty years as, generally, has government spending.).  He asserts boldly:

If the private sector does not wish to invest, the government should decide to do so.

And yet who is “the government”, except a collective representation of the voters, themselves “the private sector” in one form or another.  There is no sense of trying to understand why the private sector might not choose to invest more heavily and then, if those things are in the gift of governments (tax, regulation, policy uncertainty or whatever), fix them.

And nothing at all on the near-certain “political problems” and constraints around the large scale and persistent (for it is something structural he is championing, not just a short-term cyclical response) aggressive use of fiscal policy, whether for consumption or investment.  Monetary policy has its problems, but if central bankers and politicians got on and fixed some of the regulatory (lower bound) obstacles, it would be a much more reliable tool to deploy.   At worse, even left-wingers (such as Wolf, and the Democratic economists he cites –  Laurence Summers, Olivier Blanchard, and Jason Furman) should want to have monetary instruments to hand, rather than some all-or-nothing wager on fiscal policy, when there is no political consensus at all (anywhere) on using fiscal policy in the ambitious way they suggest.

Wolf is right that central banks can’t deal with structural secular stagnation –  although they can do the important job of leaning against serious cyclical downturns, as they did in 2008/09. But even on the most optimistic of readings, it seems unlikely that aggregate fiscal policy is going to be able to either, whether for technical or political reasons.  And so-called secular stagnation should simply not be regarded as an acceptable excuse for poor productivity growth and weak investment in countries that are far from the productivity frontier, New Zealand pre-eminent (for how far it has drifted behind) among them.

Kudos

I’ve been quite critical of the New Zealand China Council, which uses taxpayer money to champion an emollient, in effect subservient, relationship with the People’s Republic of China.  Doing so, of course, serves the business interests of the other corporate and academic members of the Council.   Whatever the intent, I’ve argued that their approach serves the interests of the PRC, one of the most awful regimes on the planet.

As part of that I’ve noted that it has been hard to find any examples of a case where the China Council has ever said anything critical of the PRC.  They will benignly note, in principle, that our systems differ, our interests differ, but will never articulate specific areas where they are critical of the PRC stance on anything, whether directly affecting New Zealand or otherwise.

And so it is only fair for me to draw attention to a welcome, if somewhat surprising, exception.

A couple of days ago a group of US foreign policy experts issued a joint statement calling for the immediate release by the PRC of Michael Kovrig.

You may recall that Kovrig is the Canadian former diplomat who was detained in China just before Christmas, apparently as “retaliation” over the detention and extradition proceeedings against the Huawei CFO in Canada.  No charges have been laid, and Kovrig is being held without access to a lawyer and with little consular access either.    It looks a lot like a state-sponsored abduction, presumably intended both to intimidate foreigners more generally, and perhaps as some sort of “bargaining chip”.

Late yesterday, I noticed that that tweet (above) had been retweeted by Stephen Jacobi, the Executive Director of the New Zealand China Council, with this comment added.

jacobi

Not only does he associate himself with the call by the US foreign policy experts, but he goes further, adding an unequivocal call also for the release of Michael Spavor, the second abducted Canadian.

Sure, this message isn’t being sent out on the China Council’s own Twitter account, but when you are the chief executive of a body, writing about areas closely related to your employer’s interests, no one is going perceive very much difference.   The Executive Director of the China Council, their high profile public spokesman, has made a public statement that can only be read as unequivocally critical of actions of the PRC.   There might be some price to pay –  perhaps a certain barely-detectible frostiness when next he encounters the PRC Consul-General? – but he did it anyway.

For a picture of what sort of detention Kovrig and Spavor are undergoing, you might want to read this article from someone who was subjected to the same treatment:

The law in China allows for these disappearances. Yes, as reported, Michael’s whereabouts are being kept secret. Yes, he will not be given access to a lawyer. But more so, even China’s prosecutor, who is supposed to monitor these secret detentions, will be denied the right to visit him. In a database that the NGO Safeguard Defenders keep, for which I’m the director, we have never come across a single case where the prosecutor has visited, even though it’s prescribed in law that they should.

Mr. Kovrig, and Mr. Spavor, and future American and European victims can, without any court order, be kept incommunicado, in solitary confinement, for six months. Actually, solitary confinement is only half true – he will have two guards sitting inside his cell 24/7, working in six-hour shifts. These guards, most of whom are civilian-dressed trainees for the Ministry of State Security, will not be allowed to speak to him, but will take notes on his every single movement. They will also stare him down as he uses the toilet, or when he is (rarely) allowed to shower.

Numerous foreign governments (including all our Five Eyes partners) have weighed in in support of Canada and the detained Canadians.  But not New Zealand.

I wrote about the contemptible silence of our government a couple of months ago

Jacinda Ardern and Winston Peters head the New Zealand roll of shame on this issue, since they are the most senior figures in the current government.   But the shame isn’t just theirs.  There is no sign of anything from Simon Bridges, Paula Bennett (perhaps both rather keen on those donations Yikun Zhang was arranging?), or Todd (“vocational training centres in Xinjiang) McClay.   Nothing from the Green Party or ACT leaders.   Nothing from the Minister of Justice (rule of law and all that). And of course nothing from our PRC-born and educated MPs.  In a decent society, they’d be at the forefront of condemning the abuses in the land of their birth.  In our society, it seems to be just fine that they keep very very quiet –  a silence that suits Beijing –  and help ensure that the donations keep flowing.  Perhaps a journalist might consider asking Raymond Huo his opinion on the abduction of the Canadians.  He was, after all, formerly a lawyer with a leading local law firm, and now he chairs the Justice select committee in Parliament.  You’d hope the rule of law meant a lot to him.  But, like his bosses, deferrring to Beijing, and never ever upsetting the murderous rogue state, appears to matter more than the rule of law, or standing by our friends and allies when they (almost inadvertently in Canada’s case) incur the wrath of a tyrant.

By their utter silence, on this as on so many other PRC issues, our MPs and ministers dishonour this country and its people.   Cowering in a corner, deferring to Beijing, is simply unbecoming people who purport to lead a free and independent country.

But credit where it is due.  Well done Stephen Jacobi.  On this, an example to others.

What is going on with residence approvals?

Late last year I did a post using some data from the near-final version of MBIE’s new immigration statistics dashboard.   The dashboard is now on general release (here) and I should take the opportunity to commend MBIE on the initiative (even while wishing SNZ would now take the key time series and include them in their Infoshare database).  It takes a while to really work out how to make the most of the dashboard, but it means that administrative data (all the information on visa approvals –  and declines) that used to be published in readily useable form only annually and with up to an 18 month lag, is now readily available within 10 days of the end of each month.  For anyone trying to keep track of what is going on around the impact of immigration policy settings –  and recall that the late lamented PLT data was never any use for that –  it is a huge step forward.

And so lets have a look at a few charts, using data to the end of February.   Here is the number of residence visa approvals (and declines), actual monthly data and with MBIE’s “seasonally adjusted trend” (more trend than seasonal) through the data.

Res 1

Recall that the “target” rate of approvals is around 45000 a year, an average of 3750 per month.   The trend in actual approvals has been running (increasingly) below that level for the last two years.   For the current financial year, approvals are running at an annualised rate of under 35000 –  lower than at any time in the last 10 years.   Interestingly, it isn’t that more applications are being declined – in percentage terms, the fall off in declined applications has been larger than the fall in approvals.

I’m at a bit of a loss to know quite what is going on.  There was a slight reduction in the approvals “target” (they like to call it a “planning range”) late in the term of the previous government, but that was the difference only between 47500 per annum and 45000 per annum, nowhere near enough to explain the fall in actual applications and approvals.

I’d heard in several places that a big part of what was going on was shifting more residence visa processing back onshore.   Here is some relevant data on that

res 2

Clearly something has gone on, but (a) for a long time the overwhelming bulk of approvals were granted onshore, to people already in New Zealand (on other short-term visas), and if (b) offshore approvals have dropped away sharply, offshore declined applications have dropped to almost zero.  So I’m no clearer now than I was previously.

The points system is supposed to serve as a rationing device –  a quasi or shadow price. If there are lots of good applicants then, in principle, with a bit of lag the points threshold should be raised, so that we winnow out the lower quality (in terms of how the scheme is set up) applicants.  And, on the other side, if applications are dropping away sharply then, all else equal, the points threshold should in time be lowered and we’d find ourselves taking less-good quality applicants, who would otherwise not have qualified for residence.  But applications and approvals have been well down for two years now, and nothing has happened to the points threshold.

I’m mostly pleased with that –  part of my argument over the years has been that too many of the people we are bringing in (even under the skilled migrant headings) aren’t that skilled at all, and while they are benefiting themselves (and good luck to them) it isn’t doing any good for New Zealand.  Changes made late in the previous government’s term –  tightening up a bit on the one hand, and additional points for regional jobs on the other –  won’t have changed that picture.  But……..keeping the target unchanged (which is government policy, what Labour campaigned on and New Zealand First accepted in the coalition deal, looks a bit empty if the target is going to be persistently undershot (more so than, say, undershoots of the inflation target, since immigration approvals are an adminstrative act, directly under official control).  I’m a bit curious why no journalist seems to have been grilling the government about quite what is going on.  Is this the immigration equivalent of “opportunistic disinflation” –  they’ll take the cuts in immigration approvals if they come, but won’t do anything active to bring them about (or reverse them).  One can imagine there might be some blowback –  except among the handful of open borders people –  if standards for getting residence visas were lowered further.

It is noteworthy too that the fall in residence visa approvals has been concentrated in the streams (business/skilled) that were supposed to be the focus of the immigration programme.   That is so even though, for example, parent visa approvals are still suspended altogether.

res 3

I’m left puzzled about quite what is going on.  The number of people here on shorter-term work visas has still been rising strongly (and most people who get residence were already working here), and if the number of students is now flat, the numbers aren’t falling and an increasing share of the students who are here are in better quality, university, courses.  Quite possibly, a smaller proportion of those doing university study are interested in staying long-term than of those who were doing the PTE courses (often mainly as a pathway to work and possible eventual residence).

res 4

And finally, for those interested, here is what has been happening to residence approvals for our two largest source nationalities.

res 5

The next two biggest source nationalites –  UK and Philippines –  have also fallen away a lot, the former part of a long-term trend decline.

Overall, there are more questions than answered, but it is great to be able to do these sorts of charts quickly and easily.  Many fewer people who meet our quite low immigration standards now seem to be applying, or getting, residence visas, and that despite the apparently quite tight labour market.

Given announced government policy –  a continued high target – that should be a concern to them.    Some questions should be posed to Mr Lees-Galloway (although I can imagine that he would much prefer not to have to face them).

 

 

An unserious organisation, with serious consequences

I wasn’t planning to write anything more today, but then I got an email from the Reserve Bank.

You’ll be aware that almost three months ago the Reserve Bank released a consultative document, in which the Governor proposed to massively increase the amount of equity capital banks have to have just to keep on doing the business they are doing now.

As this was, apparently, the culmination of a multi-year review (in fact, the final numbers seem to have been very much a last-minute affair) you might have supposed that a serious central bank would have all its arguments straight and evidence (or at least sustained reasoning, engaging alternative perspectives) at hand in accessible form to support all their claims.  They’d probably have anticipated all the plausible area of disagreement or challenge, and had good responses readily to hand.

Whether they supposed, for some reason, that everyone would embrace their schemes with open arms and uncritical spirit, or what, actual experience has been anything but that.  When they finally responded to OIAs and released the background papers, it turned out that one of them had only been written several weeks after the consultation paper was released.  And in his speech a couple of weeks ago, the Deputy Governor was promising that they would soon publish an Analytical Note explaining their estimates of the likely impact on interest rates (which still hasn’t seen the light of day).

At the Monetary Policy Statement in February, there was a considerable attention on the proposed capital changes.  In fact, the Bank even proactively included a box in the text (page 35).   There were various claims, some numerical and some not.  These were a couple of examples

The Bank expects that the spread of banks’ lending rates to the rates at which they borrow will settle in the range of around 20 to 40 basis points higher as a result of the proposed changes, although the exact effect is uncertain.

Higher bank capital requirements could also improve the government’s fiscal position. A higher share of bank equity funding would likely increase tax revenue from the banking sector since debt funding is tax-deductible while equity funding is not.

There were lots of questions at the Governor’s press conference as well, including his claim (not made in the text) that the Bank’s proposed new capital ratios would be “well within the range of norms” seen in other countries.

That was all very interesting, but I wanted to know a bit more, and assumed they would simply have material to hand to support their claims.  It would, you’d have thought, have been in their interests to do so –  after all, they obviously believe in what they are proposing, and would presumably want to carry us with them, supported by robust evidence and analysis.  Or so you’d have thought.

And so I lodged a fairly simple Official Information Act request, for the material supporting those claims.   That was on 13 February.  This afternoon –  the day before the last date by when a response was due – I got this letter.

OIA barclay

In which they take to themselves a whole another 20 working days.    Not because whatever they have needs to be collated or compiled, but allegedly because of “ongoing consultations”.  One can only assume that is a shorthand for “there wasn’t much, if anything, there, but give us time and we’ll see what we can drum up”.

It is both so ludicrous and so telling that I’m not going to waste the time of the Ombudsman’s office complaining.  I’ll just let it stand –  a powerful public figure makes claims in support of a far-reaching proposal on which he is prosecutor, judge, and jury –  and can’t, or won’t, produce any evidence or analysis to support his specific claims.   Sadly, it isn’t the first time.

If you want sceptical analysis and argument:

  • Ian Harrison’s substantive document, “The 30 billion dollar whim” is here, and
  • my succession of posts on unanswered questions and unconvincing analysis are here.

As for the Governor, he seems to have time to play tree gods, and for spending other people’s money on Maori cultural advice (recall, that this was going to improve the quality of monetary policy and financial regulatory policy decisions), just not for the serious stuff.

The Bank is at growing risk of becoming a profoundly unserious organisation, but one whose whims have serious consequences for the rest of us.

It isn’t good enough.  The Bank’s board is charged with protecting us from Governors not doing their job properly. It is about time they took some responsibility.

Powerful unelected public appointees

Some time in the next couple of weeks the Minister of Finance will be announcing the members of the new (statutory) Monetary Policy Committee which assumes responsibility for monetary policy on 1 April.  There will be seven of them, and only one serves ex officio (the Governor), so there will be six names to be announced.  Almost certainly, the Deputy Governor Geoff Bascand will be one of them, and the new Assistant Governor for economics and financial markets, Christian Hawkesby, will be another.   The fourth internal member is likely to be the new Chief Economist, but that position hasn’t been filled yet, so perhaps that is the source of the delay.  And then there will be the three mystery part-time external appointees.

When I said that the Minister will announce the appointments, that shouldn’t be read as suggesting the Minister will have had much say (at least if the legal process has been followed).   The appointments will all have been sorted out between the Governor and the Bank’s board –  most of whom were appointed by the previous government.  The Minister can reject nominations, but can’t impose his own candidate (although I have heard suggestions of him trying to inject names into the process).   Those were the same rules that applied when the Governor was appointed.

(In addition, of course, the outgoing Secretary to the Treasury has nominated himself to be the first Treasury observer on the Monetary Policy Committee.  It is a strange choice, both because the Secretary’s term expires very shortly (you’d have thought some continuity might be a good idea) and because any Secretary to the Treasury has perhaps 300 issues to keep on top of, and spending up to 50 days a year –  the advertised expectation for external members – as a non-voting observer at the Reserve Bank suggests an odd sense of priorities.   It looks like the sort of role one would normally expect a second or third tier person to take on.)

And thus monetary policy will be in the hands of a group of people not only themselves unelected, but appointed (in effect) by people who are not only unelected but are (a) typically faceless, known by hardly anyone, (b) lacking in much technical or policy capability and (c) largely unaccountable.   Monetary policy may not seem overly important right now – it is over two years since the OCR changed –  but it matters a great in serious downturns, and preparations for the next such downturn should be a significant issue for the Bank and the new MPC now.

And these people will take up their new statutory roles without a chance for us, or our elected representatives, to grill them, and to understand the thinking around monetary policy that they might bring to the role.  That is, of course, so even for the Governor, because although he has now been in that job for almost a year, he’s not yet given a substantive speech on monetary policy (more concerned, it appears, with tree gods and the like).

In principle, the members of Monetary Policy Committee can agree to do speeches and interviews (under quite tight constraints, but still better than the nothing the Minister first intended).  But you are very unlikely to hear any distinctive voice from the internal members of the committee (they after all, owe their pay, resources, and promotion prospects etc to the Governor).  And I’m still expecting that the external members will be chosen in part for their willingness to come quietly and not rock (as he sees it) the Governor’s boat.

How much better if, before you take up office as a policymaker –  and that is what the MPC are, exercising considerably discretion –  you had to front up at an open hearing of a parliamentary select committee and explain your qualifications for the job, your views on monetary policy and macroeconomic management, and any questions about your background, potential conflicts etc, that MPs might think relevant.    It is, of course, what happens in the United States.    There, members of the Federal Reserve Board of Governors have to win Senate confirmation.  That has some appeal, but I’m not proposing that –  the US has a quite different system of government.

But in the United Kingdom, where the statutory Monetary Policy Committee system is relatively new (about 20 years old) they have something very much like what I’m proposing.    Before taking up their appointments, new members of the MPC have to undergo a Treasury Select Committee hearing.   The Committee can’t veto the appointment, and the whole House of Commons doesn’t get a vote.  But an adverse report from the Committee can be a considerable embarrassment.  In one case in the last couple of years, someone appointed as Deputy Governor actually stepped down after the report by the select committee.  That she stepped down was probably better for the Bank of England and better for a sense of serious democratic scrutiny and accountability.  Ministers might, in the end, be able to appoint pretty much anyone, but there is another layer of open scrutiny which they –  and the nominee –  have to be prepared for.

Sceptics will cast doubt on what value our local version, the Finance and Expenditure Committee, might add in the process.  The UK Treasury Select Committee is regarded as one of the better scrutinising select committees around (in the economics and finance field), and isn’t just full of people champing at the bit to be the next Cabinet minister (our system is particularly bad at present, in that both the chair and deputy chair are already parliamentary undersecretaries, in effect part of the executive already).  Committee scrutiny of Reserve Bank MPSs and FSRs is already perfunctory and typically more focused on point-scoring and that evening’s news bulletin.  So my expectations of pre-appointment scrutiny hearings aren’t that high.  But just because MPs are often pretty useless doesn’t mean we just give up on democratic scrutiny and accountability.  Just possibly, given a new and responsible role some might see it as an opportunity to demonstrate their chops.

I hope that the Minister of Finance and his officials, in considering Phase 2 of the Reserve Bank Act review –  likely to deliver us another new policy committee –  will keep this possible innovation in mind.

It isn’t just a model for the Monetary Policy Committee though.  I reckon it should be much more seriously considered for a range of other key appointments, currently totally in the gift of ministers, where the appointee concerned will exercise huge discretionary power –  often reflecting a personal ideology, personal character – sometimes for decades.

For example, today (12 March) is Dame Sian Elias’s 70th birthday.  That means she finally has to retire as Chief Justice, after a couple of months short of twenty years in office.  The higher courts are now pretty transparent –  certainly by the standards of the Reserve Bank –  but she, and her colleagues of the Supreme Court, have exercised huge amounts of discretionary power, and there isn’t anything citizens can do about that.  (Parliament could, of course, legislate to reverse the effect of some egregious ruling.)  And for a term for which I’m not aware of any parallel in New Zealand (most other statutory appointments, from the Governor-General down, are for no more than five years).

Sian Elias is replaced as Chief Justice, on the Attorney-General’s sole choice, by Helen Winkelmann.  She is 53 and most probably will end up as Chief Justice for 17 years.   The government announced plans last year to extend the power of the Supreme Court, so as explicitly allow the courts to make declarations of inconsistency of individual peices of legislation with the New Zealand Bill of Rights Act, while mandating Parliament to reconsider and respond.  Sure, the declarations would not overturn existing legislation, but it is a further chipping away at the sovereignty of Parliament, entrusted to a committee of ex-lawyers, appointed by the Attorney-General (typically an active senior politician, usually holding other portfolios as well) and with no serious scrutiny of (say) the judicial philosophy, personal ideology, or background of the appointees (indeed, it is almost regarded as lese-majeste for anyone to raise such doubts).

And there is no point pretending that judges just “read the statute” (or the Bill of Rights) –  they interpret (shaped in part by their own background and predispositions) and thus themselves create the law.   And yet there is no prior scrutiny whatever –  rather the Attorney-General of the day sorts out his/her candidates, using whatever criteria they choose (Chris Finlayson got to appoint most of the current senior judges with no scrutiny or transparency at all).  And once appointed, neither the Chief Justice nor individual Supreme Court judges ever have to account for their approach, philosophy or whatever.   Politics (not specifically partisan politics) and ideology are almost inevitably at work in how higher court judges operate (anyone doubting this, refer to the US experience, and here we don’t even have the checked of a hallowed constitutional text.)

Attorneys-General and judges seem to like this approach (unsurprisingly).  As they put it on the courts website

From time to time it has been suggested that a more formal method for appointment of judges should be adopted but that course has not been followed. There is no suggestion that the present procedure has not served the country well.

Well, they would say that wouldn’t they.  For Supreme Courts judges (including the Chief Justice in particular) I think there is a pretty good case for (a) a fixed term appointment (say, 10 years without the right of renewal) and (b) for proper parliamentary hearings, at which nominees could be seriously grilled, before taking up any appointment.  Perhaps most of our top judges have been as good as we could get –  although one Supreme Court justice has already had to step down –  but no one should hold that much power for that long, and certainly not without serious and open scrutiny before taking up the position.

The position of Commissioner of Police is being advertised at present.  That appointment is in the gift of the Prime Minister of the day (with only as much scrutiny of the appointment as the Prime Minister chooses to give –  not much apparently in recent case of the Deputy Commissioner.  In some respects, it is less concerning that the situation of the Chief Justice – the appointment is only for three years at a time, and in the end the courts hold more power than the Commissioner.  On the other hand, when you hold a three year appointment, and want to be reappointed, there is quite an incentive not to rock the boat in ways that might make the Prime Minister look askance.  The Police have gained an, apparently well-earned, reputation for preferring to look the other way when complaints or issues involving politicians and political parties are involved.

And if you think the Commissioner of Police doesn’t really exercise much power, I’d remind you of the current incumbent’s claim last week that he alone –  not elected politicians –  had the power to decide whether or not the Police should routinely carry fire-arms.    If someone you love ends up dead at the hands of a police officer acting rashly, it won’t be much comfort if the IPCA eventually raps Police over the knuckles (and things carry on much as usual).  At a more mundane level, Police exercise discretionary power.  In effect, marijuana has been decriminalised, not by Act of Parliament, but by the choice of the Police Commissioner (you might or might not support decriminalisation, but everyone will recognise that it is a significant choice).  There are all manner of other areas where Police discretion is at work –  or could be revoked on an individualised basis.

And it isn’t as if the Commissioner has been without blemish, whether in office (think Haumaha) or prior to taking it up (that historic drink-driving conviction that only come up several years after he took office, or the eulogy at the funeral of a former police officer found to have planted evidence in a major case).  Perhaps he really is, or was, the best person for the job, but it might be more reassuring if, instead of just being appointed by John Key, he’d had to face some open hearings, including around his views on the sorts of areas where the Police might either just stop policing, or greatly step up policing.  Add in a non-renewable five or seven year term, and we’d be considerably closer to a system that balanced operational independence (in the narrow areas where that is appropriate) with democratic accountability, and a reminder that ultimately the Police are supposed to work for the people, not for the Prime Minister of the day.

I’m sure there are other positions where a similar degree of open parliamentary scrutiny would enhance confidence in the appointments made to powerful public positions, espcially roles in which the holders exercise significant discretion –  either policymaking, or in holding other officeholders to account.  I had a list of senior positions in this post, and quite a few of those (eg Human Rights Commissioners, and head of the IPCA) look like candidates for pre-appointment parliamentary hearings.   The Chief Justice and the Police Commissioner are much more fundamentally important roles than those at the Reserve Bank, but the sort of change I’m proposing would also be more unconventional for those roles.  The UK approach, for the Bank of England appointees, is already established and has proved its worth. I’d commend it to the government.

An establishment perspective

John McKinnon is a quintessential New Zealand establishment figure.  He fairly recently returned from a second stint as New Zealand’s Ambassador to the People’s Republic of China, and between those two stints he was first Secretary of Defence for several years and then head of another of those taxpayer-funded influence organisations, the Asia New Zealand Foundation.   And that is not to speak of the extensive family connections, including his brother, the former Deputy Prime Mininster, former Commonwealth Secretary-General, and current chair of the (largely) taxpayer-funded New Zealand China Council.

Having relatively recently retired, McKinnon is now free to speak more openly than during his official career.

On Saturday, McKinnon was interviewed on Newshub Nation about the relationship between the New Zealand government and the authorities of the People’s Republic of China.  It was fairly soft interview – so he was never put on the defensive – and the former ambassador was fluent and endlessly emollient. In many ways, it was quite impressive.  MFAT will have appreciated it, as will senior figures in both government and opposition.  He did far better in spinning a quasi-official line than either the Prime Minister or the Minister of Foreign Affairs could have done.  The Executive Director of the China Council was particularly impressed

And to many, what McKinnon had to say  probably sounded quite plausible.  He has an impressive way with words, sounding very calming without actually saying much.  Thus, we shouldn’t read “too much” into the long-delayed visit for the Prime Minister to Beijing, but presumably it is okay to read something into it.  “It will happen” we were told, but “not necessarily soon”.

The relationship was not, in his words, “in trouble” but “changes are afoot, in China, in New Zealand and in the world”.  “Navigating the relationship” has become “more difficult, more complex”.    There was the occasional reference to our “very different” political and social systems, but it wasn’t clear that Mr McKinnon thought these differences should make any difference to the relationship.  There had been, we were told, lots of conversations in private about things like the South China Sea and it was, on his telling, “helpful” (to whom, for what) to have these “private diplomatic exchanges”.   Treating the PRC –  arch-abuser of human rights, military expansionists of this century –  as some sort of normal country, we were told that New Zealand ‘respects’ PRC concerns, even if we don’t always agree.  Which sounds good I suppose until one remembers what sort of concerns they have –  taking Taiwan, imprisoning a million people in Xinjiang, systematic denial of political or religious freedom, claims that overseas ethnic Chinese have obligations to Beijing, state-sponsored intellectual property theft, and so on.   (Why, if they were serious about an open and reciprocal relationship, the PRC might even have condemned their former national and former intelligence official, Jian Yang, for bringing the good name of the PRC into disrepute by misrepresenting his past on his immigration/citizenship forms.)

And so the emollience went on. It was good that David Parker had been invited to, and would attend, next month’s Belt and Road Forum –  this PRC geostrategic initiative, that seems to have contributed to the intensified repression in Xinjiang.  Good for what one could wonder, except perhaps to reinforce the message last month when the Prime Minister made obeisance to Madame Wu.    Don’t worry, we’ll come quietly.

What of the sought-after upgrade to the preferential trade agreeement with the PRC?  It was not, the former ambassador thought, “at risk” but was “challenging” –  which does have the feel of reframing and re-expressing much the same thought.   It was, he accepted, harder than in 2008.

And the interview ended on an upbeat note.  We might have a very different background and history but the PRC could quite reasonably claim to have (the old line) lifted more people out of poverty than any other society in history.  Which isn’t much claim to fame when (a) you are the biggest country (population) in world history, (b) you immiserated your people (indifferently allowing tens of millions to die) for the first thirty years of your regime, and (c) even now, the material living standards of your people languish far behind the leading east Asian economies (including the one facing a constant military threat from you).  McKinnon did note that, of course, human rights matter.  In what sense –  given the rest of the interview –  wasn’t clear.

Between interviewer and interviewee it was in many ways an impressive performance.  Had many people been watching, who were not familiar with the story beyond recent headlines, it would probably have served the cause of emollience –  go back to sleep, nothing to worry about here.  As it is, I suspect it mostly had value for making those who’ve already thrown in their lot with the “never ever upset Beijing” line feel a bit better on a Saturday morning.  Thus Jacobi’s praise.

In a sense, you can’t blame McKinnon too much.  He’s been a career diplomat, and if he had some hand in shaping the New Zealand government’s approach to the PRC over the years, mostly he has been sent abroad to do the bidding of successive governments. MFAT might be a problem, but responsibility ultimately rests with successive governments. McKinnon on Saturday was about as on-message as he no doubt was throughout his stellar career.   And you can’t really expect him to answer questions he wasn’t asked: not only was there nothing about Taiwan or Xinjiang (“don’t you find shaming, Mr McKinnon, to serve governments that keep quiet in face of such evil?), let alone the PRC activities closer to home, or Messrs Jian Yang and Raymond Huo.  That will have suited the government and officialdom.  But McKinnon is still evidently very much with the programme.  I don’t suppose political party donations are his focus, but trade will have been….and other stuff only to the extent it couldn’t be avoided.  Perhaps when his older brother retires he’ll be considered as next chair of the China Council?

The bottom line for now is that there doesn’t seen to be any material disruption to trade or related matters.  If PRC student numbers and residence visa numbers are down, that has been underway for some time, and most likely not related at all to the recent heightened “complexities” in navigating the relationship.  That’s mostly good of course, and yet the great flurry of concern last month –  led from the craven National Party side –  was a reminder of how readily New Zealand governments seem able to be brought to heel, at the merest hint of a fluttering of the feathers.  That is more concerning.

The interview with McKinnon reminded me of a speech he had given late last year, after he had retired, to the New Zealand Institute of International Affairs.  I meant to write about it at the time, but one thing succeeded another and I’d never got round to it.

The speech is worth reading. It is interesting, and much the most impressive example of its genre (New Zealand establishment re the PRC) I’ve read.  Rereading it today over lunch I was struck by that same effortless emollience we’d seen in Saturday’s interview.  He is very skilled, and still very much the bureaucrat –  he’s retired now, but it was hard to see anything in the speech that he might not have said as Ambassador in Beijing.  And so much skill was devoted to minimising, time after time, the evil of the regime in Beijing and its representatives and champions.

Predictably, the New Zealander Rewi Alley who lived in Beijing for decades under the PRC and wrote propaganda defending its evil gets a positive mention.    Any possible “unfair exploitation of the multilaterial trading system” is “beside the point”. If there is any worry in New Zealand about what Beijing gets up to here, well that seems to be of concern mostly for making life tougher for bureaucrats and politicians (“making for a more complex China policy making environment than we have had hitherto in this country”).    Endlessly understanding too, passing on the message that Beijing “would be troubled” if any measures singled it out –  that suggestion again, that the PRC is just another normal state.    The elevation of Xi Jinping Thought wasn’t a concern, but a sign that “China can evolve”, and while he couldn’t exactly bring himself to praise the decision to remove the term limits for the PRC presidency, he wouldn’t criticise it either, and noted that it did have the upside of aligning the state rules with those for the Party.  He’s good is McKinnon.

He goes on to note that the PRC is now “an internationalised society, where information abounds”.  Just so far as that is information the Party wants people to have, but a shame that the blocks on various social media platforms, major foreign media websites, let alone the re-intensified censorship of domestic opinion didn’t get a mention.   “Arbitrary actions by the state” might look odd to New Zealanders but, he tells us, we have to understand what China has gone through.   The other side of the civil war eventually turned itself into a robust prosperous democracy, but even in retirement McKinnon couldn’t acknowledge the relevance of that.

What of suggestions of PRC interference (“a very contentious debate”) in other countries, and with ethnic Chinese abroad?  Well, none of this should be at all surprising we are told (apparently because a few overseas resident Chinese many decades ago had previously played a role in developments back in China), and shouldn’t (it seems) be troubling to us (or, presumably, the ethnic Chinese, citizens of other countries, on whom the pressure is put).  On that sort of logic, presumably it would be just fine for New Zealand to be seeking to interfere in the domestic politics of the UK –  look at the difference those Brits made here.

As for New Zealand

I have more confidence than some that in New Zealand [I don’t presume to speak for other countries] we have the wherewithal in terms of our law, practices and values to respond if we need to, and to deal constructively with both allegations and facts of interference, whatever country they come from, and so far as China is concerned, in a manner which is in accord with the mutual respect that subsists between us.

But Jian Yang is still in our Parliament, not (at least in public) something that seems to bother either main political party.  Raymond Huo does still chair the Justice Committee and the electoral inquiry.  Wealthy business people, with close ties to Beijing, secure royal honours, in effect for services to Beijing.  The Chinese language media is largely controlled from Beijing.  Ethnic Chinese here comment on the climate of fear many face if they speak up at all.    But the former Ambassador is confidence there is nothing to worry about.  After all, their government respects us (yeah right) and our governments respect them (well, do the kowtow).

And still it goes on.  There is a recognition that New Zealand and China disagree on the South China Sea (although has our current PM ever stated a substantive view on that?) but then the construction and militarisation of artificial island is itself relativised with the totally irrelevant observation that (good guys like) “the Dutch are past masters at it”.  Antarctica?  Anne-Marie Brady has written extensively about PRC interests in polar regions, and some of the threats that poses. For the former Ambassador, just a case of “China is now more present in …Antarctica than it was 10 or 20 years ago”.

New Zealand apparently has little interest in such issues as theft of intellectual property, subsidisation of SOEs, access to the Chinese market for services exporters –  someone else’s problem apparently.  Meanwhile, in perhaps the most obeisant quote in the speech  there was this

New Zealand, as a country which invests in and benefits from the international rule of law, has expectations of China, as it does of other great powers.  That they will comport themselves appropriately, especially towards those who have less power than themselves.  That is the true mark of greatness.  It is pleasing to see how China has responded to these expectations

Unbelievable. The same state that only two months later our own intelligence services would accuse, in a joint effort with other countries, of state-sponsored intellectual property theft.   Most observers believe the recent cyber attacks on Australian political parties and the Parliament was directed from, and for, Beijing.   One could go on of course.  Some “marks of greatness”.

Relativising to the end, we are told it is important to realise how different we are

China is of course very different from New Zealand…  It is important to realise this, as without this understanding we can be blindsided by aspects of China, especially in areas such as the definition and protection of human rights and the like, where our values are very far apart, and where we see or hear of developments in China which are at odds with those of our own.

It isn’t as if Chinese people want repression, abhor democracy, regard the rule of law of law as some irrelevant concept, and have no interest in speaking up and speaking out.  The big differences that count aren’t those between New Zealanders and Chinese citizens, but between New Zealanders, decent people of all races and ethnicities, and the PRC Party/state.  It is as if the retired Ambassador is invoking some quaint trope about the inscrutable oriential, rather than just playing defence for a near-totalitarian evil regime, lest any concerns threaten the flow of dollars (deals and donations).

McKinnon ends noting it doesn’t matter how much we agree (actually, it usually does –  decent enduring relationships, between individuals and states, are usually based on a set of shared values) but on how much “mutual respect” and “mutual benefit” there is.   Ambassador McKinnon can respect the butchers of Beijing –  this 60th anniversary year of the suppression of  the Tibet rebellion, 40th anniversary of Tiananmen Square, 70th anniversary of the regime itself – but I suspect few New Zealanders would choose to do so.

I’m a retired bureaucrat myself, so I can admire the technical skill of a well-honed, nicely rounded, piece of bureaucrat-speech: it is fluent, apparently thoughtful, and emollient.  And yet in a cause that decent people really shouldn’t be championing and defending.  You can –  as McKinnon does –  seek to relativise and minimise almost anything, but to what end?  Other than keeping the deals and donations going.

Late last year, I ran this extract from a speech by the (soon to be former) Australian Prime Minister, Scott Morrison

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

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

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

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

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

Wouldn’t it be great if our politicians really acted as if they believe that, especially in their dealings with the PRC.  And found a new crop of officials at MFAT who would effectively implement such a policy.