Savings and investment

Pottering in the IMF WEO database yesterday, I found myself looking at savings and investment trends.  Here is chart for advanced countries as a group, with the data expressed as a percentage of GDP.

adv country savings and investment

In some ways, it is quite a remarkable chart –  remarkable for what isn’t there.  Over the entire period I’ve shown –  2000 to (estimates for) 2018 – the gap between the aggregate savings rate and the aggregate investment rate has only twice exceeded 1 per cent of GDP.    The measures for the world as a whole –  where savings and investment have to equal each other, if correctly measured –  isn’t much less variable.  It is almost as if the advanced world countries just trade with and borrow from or lend to each other.   For what it’s worth, both investment and savings rates –  the former specially –  are now lower than they were in 2007.   That probably isn’t too surprising, given demographic trends and weak productivity growth.

And, of course, the aggregate chart covers a huge amount of variation in individual country experiences.   2007 was the peak of the last boom.   Here is a chart, by country, of the change in the gap between savings and investment rates from 2007 to 2018.

chg in s and i

Broadly speaking, current account deficits and surpluses have narrowed in advanced countries (eg Singapore’s surplus has shrunk a lot, and Latvia’s deficits have shrunk).  But, as the first chart shows, almost all that adjustment looks to have occurred within the advanced country grouping.  As it happens, New Zealand is the median country on this chart.

Of course, it isn’t so different in the rest of the world taken together –  the IMF’s class of emerging markets and developing countries.  Here is the aggregate savings and investment chart for that large group of countries.

s and i emerging

There was a big increase in both savings and investment shares in the 2000s, and if anything the aggregate investment share –  already far higher than in the advanced world –  still appears to have been trending upwards more recently.    (The picture isn’t much different if one simply looks at Asia –  often the focus of discussions about big imbalances.)

In the emerging/deveoping country group, there has been a bit more variability in the gap between savings and investment rates –  or at least there was in the peak boom years prior to 2008 –  but both at the start of the period and at the end, just like advanced countries as a group, emerging and developing countries as a group are basically financing all their own investment.  Again, there is huge variability in individual countries’ experiences –  China comes to mind, but so too do places like Argentina and Turkey.  But in aggregate –  and despite all the talk –  the advanced world finances itself and the emerging/developing world does the same.

I’m sure there are learned articles around on this issue (which I don’t have time today to try to track down) but it isn’t at all what (very) simple theory would have predicted.  There isn’t any simple obvious reason why savings and investment patterns should have tracked so closely within these aggregate groupings of countries, and yet not between individual countries.  It wasn’t, for example, how things were between the advanced and emerging economies in the late 19th century.  But it has been for the last couple of decades, and IMF projections don’t suggest they expect any change in the next five years.

I might try to dig out some articles addressing the issue, give it some more thought, and perhaps write another post down the track trying to better understand this pattern.

Falls in business confidence: 2000 and 2018

There have been numerous articles in recent days about the fall in business confidence, as reflected in various survey measures.  What, if anything, is it telling us?  Why is it happening?  What might turn the situation around, and so on?  Both sides of politics have a strong interest in their own particular interpretation.   On the one hand, general business confidence has tended to be weaker relative to actual outcomes under Labour than under National-led governments (if so, the falls might tell us nothing that we don’t already know –  that we have a Labour-led government).  And, on the other hand, (so the argument goes) the government is doing and saying quite a few things that many in the business community genuinely regard as inimical to growth, and thus it should be no surprise that sentiment is weaker now, and with it future growth prospects –  for those who particularly want to gild the lily, especially relative to the stellar performance allegedly achieved in the later years of the previous government.   As regular readers know, I treat that latter bit as laughable: productivity growth being almost non-existent, the relative size of the tradables sector having shrunk, business investment having been weak, and so on.  Oh, and the housing situation got even worse.

(The IMF Board –  whose assessment of New Zealand just dropped into my inbox – must be firmly of the “business just don’t like Labour” school, but then their assessment of the past, present, and future seems laughably detached from reality.  Believe that assessment, and you’ll believe that – at least in per capita terms –  things get even better from here, building on the “economic expansion with notable momentum” of the last half-dozen years.)

I’m not going to try to put myself in the minds of those answering these surveys but there seem plenty of reason to be rather pessimistic on the outlook from here.   Some –  perhaps many –  are the responsibility of our government, but others are not.     The global environment looks shakier than it has at least since the height of the euro crisis in 2012, with significant fragilities evident all over the place: in the euro-area itself, the ever-increasing uncertainty around Brexit, pressures in various large emerging market economies, rising US-driven trade tensions, the legacy of a debt-fuelled boom in China, and so on.   And against that backdrop, few countries have much fiscal or monetary space to respond vigorously when the next downturn comes.   Recognition of that is beginning to seep into general consciousness.

And it isn’t as if things have been going particularly well over the last couple of years.  This chart shows GDP per capita growth, with the horizontal bars marking successive 18 months periods.

gdp pc to mar 18

Perhaps the most recent weakness will end up getting revised away, but at the moment there doesn’t seem to be any particular reason to expect that.   There has been little or no productivity growth, and very weak per capita income growth.  It can take time for awareness of that sort of thing to take hold, especially in an election campaign session when National (party garnering the most business votes) was trying to tell a very upbeat story.

Perhaps not unrelatedly, the biggest proximate boost to growth in recent years has been house-building activity (related to earthquakes and the unexpected surge in the population).

res i to june 18

How plausible is it to expect any sort of repeat of the last few years?  Not very, I’d have said, both because the population pressure is beginning to ease, existing house price inflation seems to be stabilising (for now anyway) and the government has, despite fine words buried deep in the manifesto, done nothing to fix up the urban land market.  If anything, housebuilding activity is likely to fall back somewhat in the next few years, and housebuilding typically plays a key proximate role in explaining short-term economic fluctuations.

Perhaps business investment could take its place.  But consider:

  • investment spending, other than on housing, is now 2 percentage points of GDP lower than it was at the previous peak (mid 2000s),
  • the exchange rate, while have weakened a bit, is still in the range it has fluctuated within for the last 7 or 8 years,
  • plenty of policy initiatives don’t look terribly conducive to encouraging more business investment:
    • sustained and large increases in minimum wages (even if there is some spending to replace labour)
    • concerns, fair or not, about other labour relations law changes,
    • scrapping new oil and gas exploration licences,
    • the uncertainty engendered by the shocking policy process used to make that decision, and  (not mentioned in any other article I’ve seen)
    • the government’s net-zero carbon emissions target, which their own consultative document (and their own independent consultants’ numbers) suggest will act as a material drag on the economy for several decades to come, if pursued with the sort of zeal key ministers at times suggest. (Of course, the previous government’s target would also have acted as a drag, but (a) many thought they weren’t entirely serious about it, and (b) the marginal costs of pushing further into this territory can be expected to increase quite substantially).
    • the considerable uncertainties engendered by these targets (since few policy parameters, including expected carbon prices are remotely clear).
  • if one wanted to focus on individuals, one might also feel uneasy that none of the top 4 ministers in the government command any confidence that they instinctively understand –  or care greatly –  what makes for a high-performing economy.   Several of that top tier simply seem out of their depth, and few of the rest command much respect either.  (I was no fan of the previous government but –  rightly or not –  business took a different view of Steven Joyce, Bill English, and John Key.)

I have also been interested in the comparisons with the “winter of discontent” that followed the election of the Labour-Alliance in late 1999.  Some of that experience is quite nicely covered in this piece although I think the author is rather too optimistic about the current situation.  As he notes, the level and tone of commentary on this new government is nothing like as vociferous as what greeted the incoming 1999 government (complete with plans to raise taxes, repeal and reform the Employment Contracts Act, repealing ACC privatisation, and installing Jim Anderton –  opponent of most of the 80s reforms –  as deputy Prime Minister).  It hadn’t been that long since the polarising reform phase had ended.  And while Michael Cullen was much more able than Grant Robertson, his acerbic tone –  and all too obvious revelling in his own intelligence –  only enhanced the tensions.

It was a tough period.  Here is the chart of quarterly GDP growth (not per capita –  annual population growth then was around 0.6 per cent).

real gdp 00

GDP growth averaged zero for a year –  before rebounding quite strongly.   Some of that slowdown –  which I don’t think we ever fully understood at the Reserve Bank –  may have been a direct response to the change of government and proposed new policies.   But it was far from being the only factor.  It was still relatively early days in the recovery after the 1998 recession –  so there was still lots of unutilised capacity –  but there had been a big surge in investment during 1999 (even though a change of government was widely expected).  At the time, two factors that seemed to play a part were the Y2K effect –  every firm and its dog was devoting lots of resources to ensuring systems were robust –  and building associated with the defence of the America’s Cup in Auckland in early 2000.  Both were time-limited, and the relevant dates were very close to each other.    Whatever the reason –  and, as I say, I don’t think I’ve ever seen a particularly compelling analysis of that specific period –  there was a (quite unexpected) slowdown in activity, and in particular in investment spending.   Perhaps  –  well, quite probably –  higher interest rates played a role –  we raised the OCR by 200 basis points in six months from November 1999, none of it because of the change of government.  It was our first go at actually adjusting official interest rates –  the OCR was only introduced in early 1999 –  and with hindsight, they do seem like rather aggressive moves.

One factor that did play quite a large role then was the exchange rate, which fell very sharply in 1999 and 2000.    Some vocal critics wanted to pin the blame on the change of government (expected and actual) –  I recall one particularly strident Reserve Bank Board member bending my ear about the point at the time.  But that story was simply wrong.  Here is a chart of the BIS measures of the exchange rate for New Zealand, Australia, and the US.

bis exch rates 00

The New Zealand and Australian exchange rates were basically tracking each other, with no obvious role for a “new left-wing government” effect.   What was going on?  Well, two things.  First, and probably most importantly, although New Zealand was raising interest rates, so was the US, and indeed until now this was the only period since deregulation when our interest rates had matched those of the US.  And, secondly, this was the era of “new economy” vs “old economy” –  the NASDAQ peak in the dotcom boom peaked in March 2000, and capital was flowing towards these perceived new opportunities and away from “old economies” like Australia and New Zealand.   That period proved quite shortlived, and by the start of 2001 the Fed was cutting interest rates and the US itself had entered a mild recession (not mirrored in either New Zealand or Australia).

Which brings me back to the observation earlier that –  politics aside, and the pressure from one news cycle to the next –  the current situation should be more concerning.  There was a pause in growth then, of the sort we haven’t seen yet this time, but:

  • the previous episode came early in a recovery phase not late,
  • it came at a time when population pressures were quite weak, and there was a reasonable chance of an acceleration (as happened a year or two later),
  • the global environment looks less promising (despite the dotcom bust in the US, much of Asia was recovering strongly after the crisis/recession of 1998),
  • productivity growth over the previous few years had been reasonably good in th late 1990s,
  • there were some specific, time-limited, factors that can be pointed to, contributing to the pause back then,
  • whatever you think of the policies Labour brought in the 1999/2000, in terms of creating additional uncertainty and an additional drag of prospective growth well into the future, they were as nothing as compared to the implication of a net-zero emissions target,

and perhaps the biggest difference of them all is the real exchange rate.  The current level is about 30 per cent higher than it was in 2000, and it had fallen a long way to get to those 2000 levels (and not on heightened risk concerns etc).  Those falls created a credible prospect of new business investment in the tradables sectors.  There is nothing comparable now, and we’ve probably exhausted the limits of domestic demand (especially residential investment) as a support for headline GDP growth.

One could add to the mix that if anything goes wrong, sourced here or abroad, there isn’t much capacity for macrostablisation policy to respond.  Yes, the OCR could be cut –  and probably already should have been, given the persistent undershoot of the target (another difference to 2000) –  but the Bank is likely to be increasingly uneasy the further it cuts from here, and on its own estimates can’t cut more than about 250 basis points in total.   And whatever the merits (or otherwise) of the 20 per cent debt target, it will come under new pressure in any downturn, and the (market and business) pressures to stick to it will only intensify in that climate –  “show us your mettle, minister” will be the watchword.

 

The debate on PRC influence on Q&A

Late last week I posted as a standalone item the comments that Peter Jennings, director of the Australian Strategic Policy Institute (and former senior Australian defence strategy official), had made in response to my post about last week’s Asia New Zealand foundation roundtable on People’s Republic of China (PRC) influence/interference in New Zealand.   Jennings was pretty critical of successive New Zealand governments’ attempts to pretend there is no issue.

This morning someone pointed out to me that Jennings had been interviewed on TVNZ’s Q&A programme on Sunday, so I took a look.  His comments were pretty moderate (especially about New Zealand), and largely focused on the Australian situation, and the new foreign interference laws passed with support from both the Liberal-National coalition and the Labor Party.   He highlighted issues around political donations, the Sam Dastyari affair (Labor senator forced to resign over inappropriate activities in this area), and noted that, between Federal and state Parliaments, there was concern that Dastyari’s wasn’t the only worrying case.

Re New Zealand, he noted that New Zealand seemed to face similar pressures as Australia, and that things weren’t that different in Canada, in the UK, and in many EU countries, and that in his view it would be smart if New Zealand and Australia tried to align their approaches.   While noting that New Zealand and Australia had different geographies and different strategic imperatives, he noted some risk to the bilateral relationship (important to both sides) if our governments don’t take the PRC intrusions seriously.

Corin Dann, the interviewer, pushed back, suggesting for example that Sir Don McKinnon would see things differently.  McKinnon is, of course, head of the government-sponsored China Council, designed never to see anything concerning, never to say anything upsetting, about Beijing and its activities.   As Jennings noted, there is an interest in having an effective relationship with the PRC, but that all countries needed to recognise that there were downsides as well as upsides in relationships with such a massive power, in the process of being more dictatorial.   He argued that even if officials were confident they had things under control –  something he was explicitly sceptical of in his comments here –  it was important for governments to take publics with them, and engage in open dialogue on the issues, risks, and responses.

Dann again attempted “what-aboutism” – every country spies, there is no military threat etc.  Tell that to Taiwan –  or countries with lawful claims in the South China Seas –  was my reaction, but Jennings was a bit more emollient, simply pointing out that countries like ours did not engage in large scale intellectual property theft by cyber-hacking etc.

And finally, asked about the PRC backlash to the new Australian laws, Jennings noted that the PRC (and some its populist media) didn’t like the new approach, but that the relationship goes on.  He argued that there was a mutual interest in a “steady relationship”, and that the PRC would come to recognise that Australia couldn’t do less than say “thus far and no further”.   Given past PRC attempts at economic coercion (which I wrote about here) that seemed optimistic.

All in all, it was pretty emollient stuff, and there wasn’t even any material bad-mouthing of New Zealand governments –  an approach which, fair and accurate or not, tends to get the backs of New Zealanders up.

But it was still all too much for two members of the Q&A panel, political scientist Bryce Edwards and former Minister of Defence, Wayne Mapp.  The word “overwrought” appeared so often that one could almost use it to describe their reaction.

Edwards began claiming that there “no compelling evidence of a problem” in New Zealand, and asserted that the new laws continued Australia’s journey down a path towards being an authoritarian illiberal state, where people could no longer participate freely in political debate and protests.  To be honest, I wasn’t really sure what he was on about – and I hold no brief for the specifics of Australian legislation.  The BBC –  no right-wing authoritarian outlet – summarised the law thus

The laws criminalise covert, deceptive or threatening actions that are intended to interfere with democratic processes or provide intelligence to overseas governments.

They are designed to include actions that may have fallen short of previous definitions of espionage.

Industrial espionage – the theft of trade secrets – is among new criminal offences, while people who leak classified information will face tougher penalties.

The government also plans to ban foreign political donations through a separate bill later this year.

But I presume that what Edwards is on about is material in this Guardian article.   But even if the specific points the critics make were sound  –  and both government and opposition disagree with them – they are details, perhaps even important ones, not a challenge to the basic proposition about PRC activities and agendas in Australia and similar countries.

Former Defence Minister Wayne Mapp then joined in, claiming that Australia would not put any pressure on us to follow suit, because our political donations laws were very tight.  That would, presumably explain how former Foreign Minister Phil Goff was able to get a very large donation to his mayoral campaign from a PRC-based donor, through a charity auction organised by, among others, Raymond Huo?  I’m not disputing that the New Zealand laws are tigher than Australia’s, but here is the relevant section from my post on the Asia NZ roundtable last week.

There was clear unease, from people in a good position to know, about the role of large donations to political parties from ethnic minority populations –  often from cultures without the political tradition here (in theory, if not always observed in practice in recent decades) that donations are not about purchasing influence.  One person observed that we had very much the same issues Australia was grappling with (although our formal laws are tighter than the Australian ones).  Of ethnic Chinese donations in particular, the description “truckloads” was used, with a sense that the situation is almost “inherently unhealthy”.

Dr Mapp went on to claim that there was no need at all for new laws in New Zealand, lauded New Zealand’s role as a pioneer in relations with the PRC, and highlighted favourably the New Zealand government’s choice to eschew the term “Indo-Pacific” in favour of “Asia-Pacific”.   I can’t excited about that latter point –   New Zealand has no exposure to the Indian Ocean, and on the other hand Asia is a big place, including Israel and Syria as well as the east Asian bit.  But Mapp went on to declare that concerns about New Zealand were ‘overwrought” and that he would put his trust in his former National Party colleague Don McKinnon, over the perspectives of Peter Jennings.   The McKinnon approach, like that of the China Council more generally, has been to consistently pooh-pooh any concerns, and in the article I linked to a few lines back even asserted that

To suggest we are too scared or cautious to ever rock the boat with China is simply incorrect.

I think most of us –  agreeing or disagreeing with the stance –  will take the evidence of our senses over Don McKinnon’s make-believe.

At this point, Anne-Marie Brady’s work, and her Magic Weapons paper, finally came up.  Bryce Edwards volunteered that she had raised some points, especially about particular MPs (Jian Yang and Raymond Huo) and their closeness to PRC interests, that hadn’t really been debated, and which needed to be debated.  But this was all too much for Wayne Mapp, who asserted that we hadn’t had the debate because we didn’t need to –  the claims were all overwrought.  Weirdly he then went on to assert that we wouldn’t go down the Australian path because we don’t have overwrought debates like the Australians do.  One can only assume he was determined to keep it that way, and keep on avoiding debate and serious scrutiny of the issues.

So, for example, one can only assume that Dr Wayne Mapp, former Cabinet minister, former military intelligence officer, former law professor, and current Law Commissioner, is quite unbothered about such facts as:

  • his own party putting Jian Yang on its list and, through successive elections, never disclosing his past.
  • that past included study and work as part of the PRC military intelligence system, and
  • membership of the Communist Party
  • (experts point out that no one voluntarily leaves the Chinese Communist Party, and that given his military intelligence background he would only have been allowed to go abroad if was regarded as politically sound)
  • Jian Yang himself now acknowledges, after the media exposed his past, that he had withheld key details from the New Zealand immigration authorities, and that the PRC authorities had encouraged him to do so,
  • that in seven years in Parliament he has never once said anything critical about the PRC regime, whether about Tianammen Square or more recent abuses (domestic and foreign),
  • that a prominent former diplomat and lobbyist has gone on record of Jian Yang (and Raymond Huo) that both are close to the PRC embassy, and that he is careful what he says in front of either man.
  • or about the efforts of his own former Cabinet colleague, Chris Finlayson, to tar Anne-Marie Brady as some sort of xenophohic racist –  one of the more despicable events of the last election campaign.

No, according to Dr Mapp, there is no problem here, just a few “overwrought” claims.

But, as I’ve pointed out previously, calling things “overwrought” or “sensational” is no substitute for dealing with the specifics of Brady’s paper.  I’m not aware that anyone has rebutted anything much in her paper, despite plenty of opportunities over almost 10 months now.  They aren’t just about Jian Yang, or even Raymond Huo.  There are the party presidents grovelling to the regime, whether for fundraising or trade purposes.  There are things like a former MP trying to block out from local Council minutes any record of listening to citizens with an alternative view on the regime.  And it isn’t as if the issues and threats are all in past either –  I was told just this morning about a university which has, under pressure, withdrawn, permission to screen a documentary on campus about aspects of the PRC regime.  And much of it is about pressure on New Zealand citizens of ethnic Chinese orientation, unseen to most of us, but no less real for that.

It was a pretty extraordinary performance from Dr Mapp in particular.  As Jennings had usefully pointed out, it is not as if these issues are unique to New Zealand  But the sustained denial –  whether wishful thinking or a deliberate choice to look the other way –  of any issue, any risk, any problem, does seem to be something rather more specific to successive New Zealand governments and the Wellington establishment.  They seem willing to sacrifice self-respect, and any interest in our friends and allies in other democratic countries including in east Asia, for the mess of pottage –  some mix of trade for a few firms, and keeping the flow of political donations flowing.

Still plumbing new depths

I know they shouldn’t, but the Reserve Bank still seems to have endless capacity to surprise, and not in a good way.  Another example turned up yesterday, when someone sent me a link to a Bloomberg story about a speech the chair of the board of the Reserve Bank, Neil Quigley, is giving today.

This is how the Waikato Institute of Directors bills the speech

Governance and decision-making at the Reserve Bank of New Zealand

The government has announced a review of the Reserve Bank Act focussing on governance and decision-making issues.  Key decisions in Phase 1 of the review have been announced, and Phase 2 is about to begin.  The key issues in the review relate to the move from the current “single decision-maker” model to a committee structure, and to changes in the role of the board of directors resulting from this.  The presentation will outline the unique role of the Reserve Bank Board under the current Act, the challenges of operating in this framework, and the ways in which the board’s role and powers are likely to change following the review of the Act.

Significant reforms are coming, which we haven’t seen the text of yet, and nor do we know anything about how those holding statutory positions expect to operate in the new world.

If you stump up $65 you could attend and find out more, unless that is you were part of the media.

Quigley declined a request for media to attend, an institute spokeswoman said.

There is also no sign that the Bank or the Board plans to release the text of Quigley’s speech.   And this time I largely agree with comments quoted in the article from Shamubeel Eaqub.

“There’s this great promise from Adrian Orr that things will change, and certainly he has been more engaged and more open, but in terms of the culture of the board and the organization it seems like very slow progress,” said Shamubeel Eaqub… “When it’s an issue as important as this, we would expect at least a speech to be available to the media.”

But he is probably going a bit easy on the Governor. The Governor can’t actually tell the Board chair what to do, but there can be little doubt that this particular speaking engagement and the (non)communications strategy around it will have been agreed jointly by the Governor and the Board chair.   After all, it is par for the course; pretty standard practice in all but one respect.

That one respect is that it is highly unusual for the chair of the Reserve Bank Board to be giving a speech in his capacity as chair at all.  Perhaps it has happened before, but I’m not aware of such occasions. In fact, it was concern that chairs would want to speak publicly that led to the misguided decision in 1989 to legislate to make the Governor chair of the Board, even though the Board’s primary role was to hold the Governor to account.  It took almost 15 years to fix that mistake.

The Board chair generally doesn’t speak at all –  and successive ones have repeatedly refused media comment on all sorts of issues – except through the bland Governor-covering Board Annual Reports.  In the 15 years these reports have been published, there has never been a single critical word about the Bank or the Governor: either they walk on water and simply never ever make mistakes, or the Board itself is essentially useless.  As I’ve argued previously, my interpretation is the latter one.  This same Board couldn’t bring itself even to criticise Graeme Wheeler for his wildly inappropriate attempts to silence the BNZ’s chief economist, and Quigley’s predecessor was positively egging Wheeler on in his public denunciation of a person who drew attention to what was shown to be a leak of an OCR announcement.

In this case, it appears that Quigely would not even front up himself and explain why he won’t (a) allow media to attend and report his speech, and (b) release his text or any relevant slides.  Instead, the acting head of communications at the Reserve Bank was wheeled out to defend the Board chair.  He didn’t do a particularly compelling job.

“Members of the Institute of Directors and their paying guests will not be privy to information from Professor Quigley that is not already in the public sphere,” said Angus Barclay, acting head of communications at the RBNZ. The bank gives presentations to private audiences because “the presence of news media at an event alters the nature of the discussion” and may dissuade guests from participating “in a two-way experience,” he said, speaking on Quigley’s behalf.

It seems highly unlikely that Quigley will say nothing that is not already public.  He is billed as talking about

the challenges of operating in this framework, and the ways in which the board’s role and powers are likely to change following the review of the Act.

Well, we’ve never heard anything from the Board or the chair about the challenges in the existing framework (as it affects the Board and its role), there is very little in the material released so far on how the Board expects things might change in future, and anything that is in the public domain isn’t from the horse’s mouth –  the people actually paid to do the monitoring, accountability, and reporting role.

And Barclay (for Quigley) undermines his own argument in the second part of that extract.  If selected members of a favoured audience are able to ask questions of a public official, and get answers from them, about pending reforms it seems almost certain that they will receive angles or emphases that aren’t available to the rest of us.   Even the argument that the presence of the media changes the character of the forum seems flawed.  The event could, for example, have been run on Chatham House rules grounds –  common enough in many fora, dealing with many, often sensitive, issues –  allowing the reporting of Quigley’s comments, and the reporting of questions from the floor, but not the identification of the questioner. (It was, for example, how the consultation session I attended at Treasury a few months ago on Reserve Bank reform issues operated –  one at which, as I’ve reported before, none of the attendees had any time for the Bank’s Board). It is hard to see how the nature of the function would be changed –  certainly not for the worse –  by adopting that sort of model.  Perhaps as importantly, despite the talk of a “two-way experience”, this isn’t billed as some sort of consultative session, but as an address from a public official holding a statutory office.     But even if it was such a “consultation”, (a) this is a powerful public agency we are dealing with, and (b) it is still no excuse for not releasing the text (it isn’t as if this is material the speaker has covered in similar addresses 100 times previously).

Barclay/Quigley then proceed to dig an even deeper hole for themselves.

Asked how banning media from tomorrow’s event squares with the bank’s stated communication aims, Barclay said: “Professor Quigley will communicate directly with a group of people who will be better informed after the event than they were at the start. That fits very well with our strategy to communicate more widely.”

The word ‘smart aleck” springs to mind.    Even more people would be better informed if Neil Quigley’s text was released, and if media representatives could attend and report his speech.   As it is, I’ve now lodged an Official Information Act request for the text, any slides, and in event that he is speaking without text or slides a summary of his presentation.  Since the material is being provided to some members of the public, there can be no credible grounds for withholding it from others.

One announced change coming in the new legislation is that in future the Board chair will be appointed directly by the Minister, to help make clearer that the Board works for the Minister and the public, not for the Governor, the Bank, or a quiet life for themselves.  Changing the chair would be a good and salutary step for the Minister of Finance to take, if that is he is at all serious about a more open and accountable central bank.  Better still would be to rethink, and dump the Board from its current role completely.

I guess shouldn’t really be surprised at this attitude from the Reserve Bank Board.  This is an entity that doesn’t even do the basics of its job tolerably well.  There is no serious scrutiny of the Governor –  certainly none that ever sees the light of day – there was complicitly in what was almost certainly an unlawful appointment of an “acting Governor” last year, there are no conflict of interest provisions in the Board’s code of conduct,  and –  as I’ve documented previously –  the Board has been in flagrant breach of the requirements of the Public Records Act.  Oh, and they aid and abet some pretty egregious financial sector misconduct (of which this particular case is only one example) –  appointing (and being able to remove at will) half the trustees of the Bank’s troubled superannuation scheme, and being required to approve any rule changes.  The Board members are probably all individually decent people (and I used to have a good relationship with Quigley) but they have taken far too many wrong turnings, and no longer serve a useful public purpose (protecting and promoting the Governor isn’t such a purpose).

Finally, as a reminder of how better, more open, central banks do things, here is a screenshot from the Reserve Bank of Australia’s 2018 speeches page.

rba speeches

A range of speakers, and where possible provision not just of the text but of a webcast, so that audiences can see where the speaker may have departed from the text, but can also see and hear questions and answers –  new material which, in New Zealand terms, is official information.   It just seems to be a standard condition of having an RBA speaker.  There is no reason why a similar approach could not be adopted here, both for the Bank itself (eg the potentially market sensitive post-MPS addresses, to which only favoured invitees among bank customers have access) and by the Board.    When senior officials speak, the default standard expectations should be public access, and open reporting.

If they are vaguely serious about being a government known for “open government” –  and there is little real sign of it so far – it must about time the Minister of Finance and the Minister responsible for open government to have a word with the Governor and the Board chair about what it means.  One can debate the merits of (say) pro-active release of Cabinet papers (something I generally favour) but there should be no debate about speeches by officials being made routinely available.  The Bank, and the Board, are falling well short of any sort of open government standard.  Perhaps some journalist could ask one or other Minister about this case, if only to get them on record washing their hands of any responsibility.

 

 

Eaqub on nationalism

I guess one views, and experiences, a country differently when one is an immigrant, even one who came involuntarily as a child.   And since all of us are either immigrants or –  mostly –  not (with perhaps a few shades of grey for people who think they have come somewhere temporarily, but year succeeds year and they never actually go/come home) it can be hard for any of us to see the perspective of the other person.

That was my initial reaction when I read Shamubeel Eaqub’s latest column, headed (online, although not in the hard copy version),  Forces of nationalism a spoke in the wheels of trade.   It was, probably, a slightly unfair reaction, as there are staunch globalists (from strands of both the left and the right), almost embarrassed by the particularities and heritage of our own culture, among those whose ancestors have been here for generations.  But it is probably an easier stance to adopt when you have few or no roots in a particular country.   And many of the staunchest opponents of anything resembling nationalism seem to be immigrants themselves.  For them it seems to mean no more to move from one country to another than to move from, say, Hamilton to Tauranga.    Most people, across most pairs of countries, simply don’t see it that way.   Many, perhaps, feel an attachment even more specific: to a town or region where they may have spent all, or most, of their lives.   It is how most people live.  And the pride they often take in place, and the people of that place, is often what helps build strong functioning communities.   There is a sense of identity, shared destiny, and shared assumptions about how things are done.   It isn’t that, at least in any serious sense, one’s own community is in some objective sense “better” than the others, but it is mine, and a bit different (for good and ill) from other places.

Eaqub begins his column lamenting the rise of “nationalistic fervour”.  It isn’t abundantly clear what he means by that phrase, but in his book whatever it is counts as a bad thing.   It isn’t, he says, “just” Donald Trump or Brexit –  as if the two phenomena (two narrow victories) really have much in common.   But it isn’t clear what it is.  And he seems to have no sense that people tend to become more vocal, and intense, in defence of what they value when they perceive that someone is threatening to take it away.   There is nothing in the column that suggests he sees any value in communities (town, regions, countries –  perhaps even families) nurturing their own heritage, and what it is that makes them what they are.  Perhaps he hasn’t noticed the trend, over perhaps 100 years now, for a greater number of independent states to emerge.   It seems unlikely that that trend has exhausted itself.  And the world seems a better place for the Czechs and Slovaks to be able to have their own countries, or the Slovenes and the Croats, or the Poles – unhappily suppressed for 120 years –  or the Dutch, the Finns, the Estonians, Lithuanians or Latvians. Or at least the inhabitants of those countries seem to think so.

Instead, we get this sort of empty stuff.

Nationalism by definition prizes nationhood and pits nations against each other. It makes cooperation between countries harder, and tensions more likely. Nationalists have much in common, but even they cannot get on with each other.

Of the first half of that paragraph, he seems to have things almost completely the wrong way round.  It is no more true than to claim that because I prioritise my own house and family over those in the rest of the street that I either think badly of, or wish ill to, the rest of residents.  I don’t, I imagine Eaqub doesn’t, and I suppose only a very few people do.   At a national level, England/Britain and France both have strong national traditions, and it has been more than 200 years since those two countries were at war with each other.  Do New Zealanders resent Australians because they are a different country/nation?  It seems unlikely.

And “makes cooperation harder”?   Well, again I doubt it, except perhaps in some trivial sense that were there a single world government, its regulatory reach would cover the entire world, and none of us would have any choice, any exit options.  It doesn’t sound remotely appealing to me (and in my culture, has resonances of the Tower of Babel, which didn’t end well).   We managed to fight World War Two, beating such aggressive determined powers as Germany and Japan, without losing sight of the fact that the United Kingdom, the United States, the Soviet Union, South Africa, the Netherlands, New Zealand, Australia, and Canada were all independent states, with a shared commitment to a common goal, as well as individual national interests.

And what of “nationalists have much in common, but even they cannot get on with each other”, well since the phrase is used so broadly, in such an ill-defined sense, no doubt is true –  I doubt Michael Gove and Vladimir Zhirinovsky have almost anything in common, but one could define another side almost as broadly, and meaninglessly, and make almost exactly the same observation.  Close to home, for example, and within a single professional discipline, I doubt Eric Cramption and Shamubeel Eaqub – who would probably both accept a non-pejorative descriptions of “globalist” – have a great deal in common.

Eaqub goes on

The nationalist agenda seems to converge across three main areas: anti-immigration; protectionist economic policies; and a distrust of global institutions.   Anti-immigration and nationalism go hand in hand. At the core of nationalism is the nation state and the right to belong to it.

I’m not sure that this is necessarily true, but it is particularly unhelpful because Eaqub makes no effort to distinguish between legal and illegal migration.  Most of the debate in the United States, for example, seems to stem from the substantial stock of illegal migrants, and the renewed salience of the issue in much of Europe also seems to substantially reflect the wave of illegal migration.   That –  not the high legal numbers –  was also what has given the issue salience at times in Australia as well.

But then we are straight back to casting nonsensical aspersions, with little or no historical foundation

Being a citizen is the critical element, and easily leads to demands for tougher controls on who can come in.

It is then a small step to conflate citizens’ culture and racial makeup as different and better than those looking to come in. Language we have seen previously in precursors to discrimination, war and genocide become easier: like pests, lock-em-up and exterminate.

He simply seems to have no concept that in the same way that I don’t think badly about my neighbour, but I don’t wanting them occupying my house, people might simply value what they have, and the culture – in all its dimensions (about trust, and the way things are done, as well as arts, cuisine, religion, literature, language and so on) –  they and their ancestors have built and fostered, and be uneasy about things which threaten it. I suspect many citizens of Invercargill would be uneasy if 100000 Aucklanders moved south, and they are citizens of one country.   Arguably, it is those mass movements of people –  especially those of quite different cultures –  which sow the seeds of future tensions, and perhaps worse.    Whatever economic gains there may have been to Maori from large scale immigration since 1840, it sowed seeds of tensions that are likely to be with us for generations.  It wouldn’t have been unreasonable –  although it might have been infeasible, given the technological imbalances –  for Maori in 1840 to have said, “no, we prefer to kept these islands predominantly Maori –  we don’t think poorly of you English, and indeed we are happy to trade with you –  but we think we’ll be better, our heritage will better sustained, if we stay here and you stay there (or just in Australia)”.   By what criteria does Eaqub say they would have been wrong to have done so?

I’m not sure if I really qualify as a “nationalist”.  Even though my ancestors have been here since 1850, I feel a strong affinity for the UK and for Australia –  in many respects shared cultures, and common histories – and I count myself fortunate that the interests of those three countries haven’t collided very much, very materially, in my lifetime (let alone the century prior to that).   There are things we do differently and distinctively here,  and memories/experiences/reference points that are specific to individual countries (or regions, or cities) but I suspect I share considerably more in common with middle-aged co-religionists in Australia and the UK (perhaps even the US to some extent) than with my own mayor or Prime Minister.  My views about New Zealand immigration policy –  too many migrants, but it doesn’t much matter for those purposes whether they come from Birmingham, Banglalore, Brisbane, Beijing, or Buenos Aires –  are about the economic interests of a group called New Zealanders, and thus “nationalistic” to that extent.  If that is “nationalism”, then I’d happily sign up.

And that should be uncontroversial (even if views differs as to how best to advance the economic interests of New Zealanders).   In raising my kids, I look primarily to their interest  –  not exclusively so, not seeking harm or wishing ill on anyone else’s kids, and even feeling some attentuated responsibility (through the political system among other avenues) for those of others.  I’d lay my life on the line for my kids. I can’t automatically say the same for others, and probably no one can.   And those rare people who perhaps profess an equal interest in everyone, often in practice end up neglecting those for whom they have a particular responsibility.  Dickens treated such people in the form of Mrs Jellyby.

So I do think policy should be made at as low a level as it feasibly can, primarily with the end in view of benefiting the group those governing are responsible for.   Had I been British I’d almost certainly have voted for Brexit, and been among the many who did so (so the exit polls tell us) simply on the grounds of wanting to make our own laws.  In that vein, I think it was right that New Zealand should have its own government –  not still be part of an empire administered from London (as it was for a very short period).

And I am “suspicious” (well, more like generally disapproving, and favouring the winding of many of them) of global institutions, regarding many of them as primarily serving the interests of those who staff them (I sat on the board of one of them for a couple of years).  And if some of the more prominent ones are ever effective, it is often in constraining the future (legitimate) choices of individual countries’ citizens, in ways we simply wouldn’t accept within a single country.  So probably in Eaqub’s terms I count as a nationalist.  If so, I’ll wear the badge happily –  I even found a Guardian columnist a few weeks ago noting, perhaps reluctantly, the possibilities of a good nationalism, based around the things –  in many cases the very considerable achievements –  we’ve built together.

And, if I count as a “nationalist”, I’m a free trade and open markets one. Nationalism isn’t and never was, at least in our Anglo tradition, primarily mercantilist  The bit I liked best –  perhaps the only bit –  in Eaqub’s column was his praise of trade (his focus is external but I presume he means internal as well) –  not exports, but trade, exchange, specialisation and so on.  But for all his attempts to write about some very broad-brush “nationalism”, it isn’t obvious that he is even generally right about economic protectionism.  Perhaps I’ve missed something, but last time I looked Michael Gove was pretty keen on something approaching free trade, and whatever the concerns of governments or prominent parties in the Netherlands, Germany, Austria, Poland or Slovakia, there doesn’t seem to be much of those parties wanting to take a protectionist path.  No doubt, the gains from international trade are too little appreciated –  and thus New Zealand still has tariffs in place, disadvantaging New Zealanders –  but the push for increased use of tariffs seems to be a distinctly Trumpian theme, rather than one appearing more generally.  What, perhaps, there will be –  and rightly so in my view –  is resistance to preferential trade deals (often at best orthogonal to free trade) attempting to tie the hands of future national governments on domestic regulatory issues.  Our own government –  and its predecessor –  seem too keen on such deals (even if now, no longer on removing disputes from the jurisdiction of domestic courts).

Eaqub, by contrast, seems rather keen on such deals, and rules, and structures, and institutions.

This is why global rules on trade, travel, finance and standards have developed over time. To make it easier to connect with each other and to also use a rules-based system to deal with bad behaviour by countries.  As nationalists pull away from these global institutions, there seems little realisation that these greased the wheels of global trade, which helped their exporters and domestic producers too.

To the extent, he is specifically referring to the Trump administration approach to the WTO, I share his view.     But mostly trade has grown because of the opportunities it offered (both parties), and those opportunities aren’t going away.

Eaqub has long been a fan of immigration in New Zealand, and he returns to that theme in his columm

The global environment for migration is becoming more hostile. New Zealand can follow on a similar path, or be more organised in nabbing the best and brightest.

Being open in a closed world can be a boon. We need to actively consider our inward migration policy.

New Zealanders who have long been used to leaving for other countries, mainly for economic opportunities, will find their choices becoming more limited.

We should think about what to do with the many bright and hard working locals who will no longer leave.

It could delay the provincial decay of recent decades, which has been hastened by young people leaving.

Which seems wrong on every count.  There is no –  repeat, no –  evidence that our large scale immigration policy has been of economic benefit to New Zealanders as a whole.  There is little reason to believe that we could attract many of the “best and brightest” even if we set out to –  short of the early days of some Neville Shute On the Beach scenario, we are remote and not that wealthy, and it isn’t obvious why anyone (well, many of them) with the sort of drive, creativity and determination that might really make a difference somewhere would choose this “where”.   And as for New Zealanders leaving, perhaps the Australians will make it even harder for New Zealanders (and Australia is overwhelmingly the destination of New Zealanders that leave), but if they can’t go to Australia, I doubt it makes them much more likely to stay in Taihape.   People will flow to where the best opportunities are, whether elsewhere in New Zealand or abroad (and contra Eaqub, I’m not that worried about individual towns rising or –  in most cases –  modestly falling).

Eaqub ends with a call for New Zealand to join some group of countries with liberal views.

As nationalistic tendencies rise in many countries, we can expect a grouping of countries with liberal political and economic views.

New Zealand has an opportunity to be a strong player in this grouping. We have a strong track record in leading multilateral trade negotiations and championing liberal ideals.

We should get our house in order on migration and imports, then lead a charm offensive to place ourselves firmly in the liberal team in a divided world.

I’m not quite sure where he expects to find these countries, given how broadly he cast his “nationalistic” aspersions.  Nor is it likely to be, consistently, in the interests of New Zealanders to do align with them if they are found.  People will, perhaps annoyingly, insist on governing themselves, and form and maintain distinctive communities, and those who attempt to trade away that freedom risk creating in time backlashes, which are typically more unsavoury than a realistic regard for human nature, and the sense of place, or community, and culture that most people value in some form or other.

You’ll have noticed the sly attempt in Eaqub’s article to suggest that any scepticism about immigration is “racist”.  Perhaps because I’m still annoyed at the way Eaqub attacked me as “racist” several years ago for my arguments around immigration and New Zealand economic performance (remember, doesn’t matter: Birmingham, Bangalore or Buenos Aires) I thought I’d draw attention to a chart I saw over the weekend that perhaps captured quite starkly the differences on such issues, at least in the US context.   It was from a New York Times article, in turn reporting some work done a year or so ago by a leading UK-based political scientist Eric Kaufmann

Kaufman chart

I was stunned by the differences.  I’d not have been a Trump or a Clinton voter, and my views on New Zealand immigration (as economic instrument) apply as much to British immigrants as any others, but it reinforced a sense that the word is one that should be retired, as all but useless for any purpose other than abuse.  Debate the substance of the policy by all means –  in a New Zealand context, for Maori to oppose all further immigration to safeguard their position in New Zealand seems a reasonable option (not necessarily one I –  non-Maori –  would welcome) and not in any meaningful, ie pejorative, sense “racist” –  but drop the descriptor.

The PRC and New Zealand: an Australian perspective

In response to my post yesterday about the Asia NZ Foundation roundtable on foreign interference/influence in New Zealand, I received this comment, which I’m elevating into a post of its own because of its source, and because otherwise only a small number of readers would now see it.

When officials are assuring you everything is under control, that’s the moment you know that everything is not under control. As a long-term New Zealand watcher I am deeply disturbed to see how the political and bureaucratic establishment in Wellington wants the problem of Chinese interference in domestic politics to be swept under the carpet.

The idea that the Australian debate on this topic is ‘unhelpful’ is simply ridiculous. Successive Australian governments have ignored the problem but now it has become so painfully obvious that Canberra has had no choice other than to take a stand and set some limits on Chinese Communist Party interference. I believe that a substantial reason why Canberra acted was because of the public focus on the problem.

China will continue to suborn the NZ political system unless your Government is prepared to push back. If the problem is not addressed in time this will become a serious problem for the NZ-Australia bilateral relationship.

My suggestion is that the Australian and NZ Prime Ministers should meet with their intelligence agency heads and have a frank, closed-door discussion about the extent of the problem of Chinese interference in both our countries. We can actually help each other here.

Pretending there is no problem, or failing even to utter Beijing’s name isn’t sophisticated statecraft, its just a failure to come to grips with a major problem for both our countries.

The comment is from Peter Jennings, who has been Executive Director of the Australian Strategic Policy Institute since 2012.

Peter has worked at senior levels in the Australian Public Service on defence and national security. Career highlights include being Deputy Secretary for Strategy in the Defence Department (2009-12); Chief of Staff to the Minister for Defence (1996-98) and Senior Adviser for Strategic Policy to the Prime Minister (2002-03).

I’ll leave his much-more-informed comment as it stands, just observing of his suggestion of a meeting of our two Prime Ministers etc, that for such an event to occur there would have to be a willingness and desire among political leaders on this side of the Tasman to acknowledge and confront the issue.  In fact, what we see in public is a desire to minimise, or to deny that there are, any serious issues, and to refuse to deal even with issues in plain sight.

Regressivity, petrol taxes, and ministerial PR

Someone around home mentioned this morning that there was a confused article on the Herald website about the progressivity (or otherwise) of the fuel tax increase.   I didn’t pay much attention until I read the paper over lunch, when I was a bit staggered by what I found.

This was the centrepiece chart

fuel tax

The line of argument from opponents has been that the fuel tax increase will fall more heavily on low income people.   But according to the Herald’s journalist, channelling Phil Twyford.

 in a startling revelation, the ministers claim that the wealthier a household is, the more it is likely to pay for petrol. They say the wealthiest 10 per cent of households will pay $7.71 per week more for petrol. Those with the lowest incomes will pay $3.64 a week more.

I still don’t understand what the journalist finds startling.  It is hardly surprising that higher income households spend more on petrol than lower income households do.  They spend more on most things.

But he goes on to claim

This is a complete reversal of the most common complaint about fuel taxes, which is that they are “regressive”. That means, the critics say, they affect poor people more than wealthy people.

The suggestion that these data are some sort of “complete reversal” of the claim the tax is regressive is itself just nonsense.  One would need to look at the impact of the fuel tax increase as a proportion of income.  And households in the top decile earn about ten times as much as households in the bottom decline, according to the same Household Expenditure Survey.

So I went and got the income by decline data for the June 2017 year from the Household Expenditure Survey.  The income data is presented in range form, so for each decile I used the average of the high and low incomes for that decile.  And then I took the Auckland fuel tax increases numbers in the right hand column of the table above, and calculated them as a annual percentage of annual household income by decline.  (The income numbers are for 2017, and the fuel tax increases phase in to 2020, so the absolute percentages will be different –  incomes will have risen – but what won’t change materially is that high income households earn a lot more than low income ones.)

fuel tax by decile

On the numbers the Herald themselves used, apparently supplied by the Ministry of Transport, the  direct burden of the fuel tax increase will fall much more heavily on low income people than on those further up the income scale.   The extremely high number for the lowest decile masks how significant these effects are even for other groups: the second and third deciles of household income will see an increase twice as large, as a percentage of income, as those in the 9th decile.

I’m driving to Auckland later this afternoon for a wedding, and planning to get out again on Sunday without having paid the increased Auckland fuel levy.