Unresearched dribble?!

I received so many comments (for my fledgling blog) on my post Protectionism in our backyard that I thought I would respond with another blog post. Flattered as I was to discover how many Zespri growers are apparently among my readership, I thought this comment at least required response:

What absolute uninformed and unresearched dribble.
Put some skin in the game and I doubt you would barking on about philosophical rhetoric….

Unresearched dribble?!  Can any serious participant in this debate be unaware of the enormous amount of research done by the Business Roundtable on agricultural marketing regulation, in general in this ACIL report and then later in a specific study on kiwifruit in this report?  This research was highly influential in the decisions taken by past governments to deregulate producer boards.  Export monopolies for dairy, pipfruit and kiwifruit were all to be removed.  Kiwifruit was stated to be only a matter of time.

Other respected organisations such as the Productivity Commission in Australia have advised against single desk regulations.  With one or two exceptions they have been dismantled worldwide.  Why should kiwifruit in New Zealand be an exception to well-established research findings and governmental decisions?

More recent arguments for kiwifruit deregulation were made in the 2009 report by NERA Economic Consulting here.  The 2025 Taskforce called for the monopoly to be removed.

Turners and Growers have presented facts about pipfruit deregulation here. There are no serious calls for the pipfruit industry to be re-regulated, yet nothing stops the government from doing that if it were desirable.  The profitability of land use is the basic reason for the growth or contraction of land-based industries, not marketing arrangements.  Wool has contracted relative to the deregulated dairy industry for this reason.

Bottom line: it is an extraordinary restriction on the freedom of a producer to ban them from selling something they have produced to a willing buyer in New Zealand or anywhere in the world.  We do not impose that restriction on hundreds of thousands of other New Zealand producers, including horticultural producers.  It would be ludicrous to argue that they should have to get the consent of a competitor for the right to export.  If Zespri is as good as it says it is it may lose no business – but potential competition will keep it on its toes and protect growers. 

National as a party and in its 2009 Government Statement on Regulation states that it is for free enterprise and against monopolies.  Where is the serious piece of independent analysis showing a case for restricting freedom of commerce in kiwifruit exporting?   Here is a challenge to Zespri and like-minded growers: if you think the arguments for the monopoly stack up, ask the government to seek advice on them from the New Zealand Productivity Commission when it is set up next year.  It is being established for exactly that kind of inquiry.

RIP Graeme Hunt

Graeme Hunt 1952-2010

 

It was with deep sadness that I learned of the sudden death of Graeme Hunt today. Graeme was a widely-respected author, historian and journalist, and a tireless campaigner for electoral reform in New Zealand.   

He was also standing as an independent candidate for the Albany ward of the new Auckland Council and was reportedly leading in the polls.   

Graeme was passionate about New Zealand history and one of our foremost business historians. He was a walking encyclopaedia who, while chatting, could go into extraordinary detail about a huge variety of topics including long-forgotten people, places, organisations and issues.   

Together with Peter Shirtcliffe, Graeme founded the Put MMP to the Vote lobby group and it’s extremely sad that he won’t be here to see the outcome of the referendum at next year’s election. Graeme wrote the book on Why MMP Must Go and has been a commentator on the subject since before the system was implemented. I greatly admired his tenacity in this regard – a largely thankless task that he pursued relentlessly because he believed New Zealand would be a better place without MMP.  Those of us who share that view should, in Graeme’s memory, redouble our efforts to make the case for change.   

Graeme was an award-winning journalist and former editor-at-large of the National Business Review. The NBR reported his death this morning.   

I’ve lost a good friend and a much respected colleague, and New Zealand has lost one of its most talented and public-spirited journalists.   

My sincere condolences go to his wife Saluma and his son Robert and daughter Ellen.  

Protectionism in our backyard

Driving home from work in Wellington I pass a huge Turners and Growers billboard near the Beehive, and there is now another near the airport. I think they’re innovative.

  

The billboards are a small move in a big battle to remove New Zealand’s last remaining, innovation stifling, export monopoly.

The company Zespri has a monopoly on exporting New Zealand kiwifruit to all countries except Australia. Technically a monopsony, because they have a monopoly on buying all kiwifruit from New Zealand growers who wish to export their produce outside Australasia, Zespri is one of only two single-desk sellers of agricultural products left in the developed world.

On the issue, Agriculture Minister David Carter has said the government will be guided by what most growers want – but what about the other growers? Blocking non-Zespri growers from exporting overseas because they are a minority is like banning all dairy producers who don’t supply Fonterra from exporting overseas. Fonterra is subject to competition as Zespri should be.

An Australian Productivity Commission research paper said that pooling of returns across growers “tends to reward lower-valued products at the expense of higher valued products, discouraging the more efficient and innovative producers”. If Zespri is doing as well as it claims, it should have nothing to fear from innovative competition. And what is wrong with competition? In Econ 101 you will learn that a monopoly exporter selling 10 units into an overseas market won’t normally get a better price than two suppliers selling 5 units of the same product. Obviously a firm with rivals will be more innovative and efficient than a monopoly.

Meanwhile a recent Turners & Growers press release, Turners & Growers ‘Mobbed’ by Media And Buyers At Asia Fruit Logistica, highlights missed opportunities:

Buyers here are fascinated with the look of our ENZARed kiwifruit and love the flavour. ENZA Gold is also proving extremely popular and the combination of new high quality apple and kiwifruit varieties under the ENZA brand is creating strong demand. Buyers here want New Zealand kiwifruit. They can’t believe that there’s a monopoly around New Zealand kiwifruit.

Quite rightly the New Zealand government has pushed strongly on the world stage for the freeing-up of trade barriers – yet the Zespri monopoly is blatant protectionism right in our back yard.

The universe of the resistant is getting smaller

On reading the announcement that Cuba, long mired in the gloom of communism, is finally taking steps to free up its economy, I was struck by several aspects of the news pertaining to New Zealand.

 1. Even Cuba is moving toward privatisation

 The Herald Tribune reported:

To soften the blow, it said the government would increase private-sector job opportunities, including allowing more Cubans to become self-employed, forming cooperatives run by employees rather than government administrators and increasing private control of state land, businesses and infrastructure through long-term leases.

A few years ago the World Bank observed: “Privatisation is now so widespread that it is hard to find countries not using the approach: North Korea, Cuba and perhaps Myanmar make up the shrunken universe of the resistant.”

Clearly the World Bank hadn’t noticed New Zealand. Indeed in recent years we’ve gone in the opposite direction with the buy-back of Air New Zealand and the railways and ferries, the establishment of Kiwibank, the renationalisation of ACC, and the Auckland Regional Council’s reversal of the part-privatisation of Ports of Auckland.

As even Cuba moves towards privatisation, why are we waiting? North Korea and Myanmar are dubious company.

2. Even Cuba’s state employees will be paid according to their performance

Instead, Cubans will soon be “paid according to results,” it said, though few details were provided. Castro has said repeatedly he sought to reform the pay system to hold workers accountable for their production, but the changes have been slow in coming.

Teacher unions in New Zealand are loudly demanding a 4% pay rise across the board, and strongly opposed to performance-based pay. Why should bad teachers be paid the same as great teachers?

Unions claim New Zealand teachers are poorly paid in comparison to their counterparts in other OECD countries but David Farrar has correctly made the point that all New Zealanders are poorly paid in comparison to other OECD countries. The solution is increasing productivity, and our overall economic performance, so that all New Zealanders will be better off. 

Yesterday’s HoS editorial had some enlightening figures about teacher salaries:

The plain fact is that the average secondary teacher salary is now more than $71,000 or $1365 a week. It has risen since 2000 by more than 45 per cent – almost twice as fast as wages in the public sector as a whole (24 per cent) and the private sector (25.3 per cent).

As the rest of New Zealand belt-tightens, to use the phrase du jour, what gives teachers the right to demand a pay increase when they refuse to be held accountable for their performance? Of course good teachers should be paid well, but rewarding poor performance is ridiculous – even in Cuba.

It is prosperity that creates spending

Over at Café Hayek Russ Roberts has a post ‘Does spending create prosperity?’ which begins:

Does spending create prosperity? It’s a weird idea when you think about it. Spending is consumption. Consumption uses stuff up. How could it create prosperity? If anything, the causation is reversed – it is prosperity that creates spending.

I’ve often wondered why this basic concept, boiled down to the marrow here by Roberts, is so difficult for some people (and governments) to grasp. The idea that government spending generates prosperity has long been exposed for the Keynesian fallacy that it is.

IMF figures show that central government expenditure in New Zealand is 34.6% of GDP – which is enormous when you compare it to top performers like Hong Kong (17.5%) and Singapore (22.4%). The people of both those countries receive quality public goods and services – and have lower taxes and higher wages.

Roberts uses a neat analogy to describe US stimulus package policy later in his post:

Think of having a lot of wet wood and trying to get it going by lighting newspaper as kindling. There’s a fire for a while, while the newspaper is burning. But once the newspaper is consumed, the wood hasn’t caught. Even burning a lot more newspaper (bigger stimulus package) isn’t going to get the wood dry enough to catch fire.

The same applies to government spending in New Zealand. The role of the government should be to provide a framework that allows the economy to prosper. Cutting government spending is a sure way to heat up a damp economy.

Cutting government spending will generate higher growth. Growth generates prosperity. Prosperity creates spending: a roaring fire using dry wood without wasting stacks of paper getting it going.

For more on this topic read an article I wrote last year titled Faith in Government Spending is Misplaced.

Public policy matters

On Thursday and Friday last week the Business Roundtable held its 6th Dunes Public Policy Symposium for Emerging Business Leaders (pictures to come).  It attracted a most impressive group of upcoming senior executives interested in a serious engagement on the principles of good public policy.  A perspective that is often misunderstood but that was fully grasped by the group is that the drivers of successful businesses are quite different from those that underpin sound public policy.

The calibre of this group – and their enthusiasm for the topics and the concept generally – convinced me of its value and that we should continue to run these forums.  It was a shame we had to turn some would-be attendees away.  The speakers also entered into it in the right spirit, including ministers and MPs who weren’t into political grandstanding but wanted instead to shed light on public policy processes. 

There are few business leaders better qualified to speak on public policy than Roderick Deane,  whose presentation The New Zealand Economy: Challenges and Opportunities was one of the symposium’s highlights.   Also well worth highlighting was Don Brash’s Answering the $64,000 Question aka catching Australia by 2025.  If Don could get these facts out to wider New Zealand I’m convinced the public would be clamouring for change.  A good task for public service broadcasting?

For me, and for many of the attendees, a welcome break from public policy and a star turn of the two days was a riveting after-dinner talk by Fletcher Building chairman Ralph Waters exploring risk – its history, mitigation and management, its manifestation in current Australian politics, and its place in his own early career.

Markets at work – by Top Gear

In buying a new brake calliper for his Porsche James May of Top Gear fame provides amusing but compelling evidence of markets at work (hat tip: Café Hayek). Here’s an excerpt: 

That something as complex as a car can be owned by ordinary people is, I think, one of the greatest achievements of humanity”

I love this stuff.

Working to limits and fits liberates the manufacturing process. Instead of one fitter having to make sets of rods and holes work together, a man in Shanghai can make all the rods while a bloke in Botswana drills all the holes, in the certain knowledge that any two will work together. This is the bed-rock of mass production as far as machines are concerned, if not chicken and mushroom pies.

It’s a pretty simple idea, but it took a long time to sort out. The origins of limits and fits are assigned to the clock-making and gunsmithing businesses, and you can see why they’d be interested, because both these things were required in huge numbers and would break readily – the hammers on guns would shear, and the pallets in the escapements of clockwork mechanisms would wear out.

Prior to the culture of interchangeability, a new hammer for your revolver would have to be made to fit, usually with a bit of filing. The mass-produced hammer would go straight on. Job done.

The earliest cars were made like flintlock pistols, and were machines with no true commonality, even if they looked the same. Each part had to be made to fit by a, well, ‘fitter’, who would remove bits of metal like the man in our original rod-and-hole example. These cars were hideously expensive to buy and hideously expensive to maintain.

It reminded me an article I wrote on productivity titled The Lever of Riches a couple of years ago for the ODT. Here’s an excerpt:

Improving worker training and knowledge, having better technology or more capital to work with, making best use of natural resources and inventing new ways to do things increase productivity. Henry Ford’s development of the assembly line in 1913 is a popular example of a spectacular productivity leap: it reduced the number of hours required to make a car from 17 to one and a half, dramatically cutting the cost of production and making the car affordable.

Ford’s invention effectively pushed his workers up the ‘hierarchy of human talent’. With the creation of machines and tools that can perform tasks better and cheaper than human muscle and basic brain power, people move to jobs that use other, more sophisticated human talents like creativity and people skills. At the same time, manual jobs like sewing machining, assembly line work and telephone operations shift to lower-wage countries where workers can perform them more cheaply. In this way the economy sheds ‘lower order’ jobs, and adds ‘higher order’ jobs like nurses, lawyers, chefs, recreation and hospitality workers, designers and architects, hair stylists and beauty therapists, financial advisors, tourism operators, and so on. 

Read James May’s full article here and mine here.

Donald J. Boudreaux at Café Hayek wonders if James ever read ‘I, Pencil’, a delightful essay by Leonard Read. ‘I, Pencil’ is an old favourite of mine which I highly recommend. The link above includes an introduction by Milton Friedman and an afterword by Boudreaux.