“SENDING PROFITS ABROAD IS A GOOD THING”

Here is a nice little piece by Oliver Hartwich, a highly talented researcher at the Centre for Independent Studies in Australia.

As he notes, it’s amazing how easily Australians are persuaded by the claim that every time someone buys products of a foreign-owned company, the profits will somehow disappear and harm Australia’s prosperity.

In New Zealand, we also hear the ‘sending profits abroad’ argument in the context of the privatisation debate.

Leaving aside the likelihood that some significant part of the profits of a multinational may be reinvested in the host country, the article notes:

If the parent company however decided to transfer the profits from its Australian branch to America, it would soon find out that Australian dollars are pretty useless outside Australia and change them into US dollars.

And then it gets to the nub of the issue:

But what happens to the Australian dollars? Since Australian dollars don’t buy anything abroad, they will return to Australia to buy Australian goods and services. Maybe a US company will use them to buy Australian minerals. Perhaps US tourists will come here to spend their holidays. Or the US might import Australian-made cars.

In any case, Australian dollar profits transferred abroad return to Australia sooner rather than later because outside Australia, our dollars are just printed paper that will not get you a cup of coffee.

So the conclusion is:

This is where the ‘Australian-owned’ argument falls to pieces. For Australia’s wealth and prosperity, it does not matter where the profits from Australian businesses end up. All that matters for the Australian economy is that Australia remains a place where business transactions take place – irrespective of who owns the business.

Would that more New Zealand journalists and commentators exposed the fallacy of the ‘sending profits abroad’ argument.

PORTUGAL’S FUGA DE CÉREBOS

A new lament is sweeping around the world. Already viewed close to a million times on several YouTube clips, Que Parva Que (What a Fool Am I) is a song mourning the plight of Portugal’s young generation hit by their country’s economic disaster.  The song speaks of a generation studying but with no prospect of paying work, putting off relationships and children, the ‘parents’ house generation’.  

There is much to lament. Portugal’s unemployment rate stands at a record 11.2 percent and among 15 to 24 year-olds the rate is 23 percent.  In the words of one young Portuguese university graduate, demonstrating recently against unemployment along with hundreds of thousands of others: “The only work we can get is ‘work experience’, the only future we are offered is emigration”.

In Sad Songs from Portugal, Oliver Marc Hartwich writing in the Business Spectator found plenty more to be sad about.  As early as 2006 – well before the current Euro crisis – with the country’s cost competitiveness declining, productivity stalled and its economy sluggish, Portugal’s fuga de cérebos (brain drain) was already visible:

[A survey published in 2006] found that hardly any other developed economy had lost as many of its university educated workers to migration as Portugal. Almost a fifth of Portugal’s graduates had left the country. Even poorer Cambodia, Senegal or Zambia were better at retaining their best qualified workers. ….

The loss of the country’s best qualified people is a disaster for the Portuguese economy – especially because Portugal has the least qualified population in the OECD. A mere 28 per cent of all working age adults have completed high school. This compares to 51 per cent in neighbouring Spain, 70 per cent in Australia or 91 per cent in the Czech Republic. If there is one country that cannot afford a large loss of its young graduates, it isPortugal.

Oliver notes that as well as the fuga de cérebros to EU countries, many young Portuguese migrants have headed for Brazil, where the number of registered Portuguese citizens has risen by 9 percent to 705,615 since 2008.

The same development could also be observed in other traditional migration countries. In just the last two years the number of Portuguese nationals jumped 6.3 per cent in the US, 16.0 per cent in Canada and 4.8 per cent in Australia.

The European rescue package will do little to make Portugal more attractive to its young generation. They only have to watch the news from Greece to see their own future. Overly indebted, unable to fund itself at reasonable interest rates in capital markets, the government will become dependent on funds from the European rescue funds almost indefinitely. And yet within the monetary corset of the euro there is little hope to regain competitiveness without resorting to a massive and painful internal devaluation – if this strategy will work at all.

At the risk of being melodramatic, it’s a story we should heed. With our own rate of unemployment for the latest quarter standing at 6.6 percent, youth (15 to 24 year-old) unemployment at 18.8 percent, and Maori youth unemployment at a shocking 28.8 percent, we should be very concerned. And with a net outflow of 3,200 permanent or long-term NZ migrants departing for Australia in the month of April (up from 1,500 in April 2010 and the highest for an April month since 2008) we should perhaps be writing our own sad song.

NO COUNTRY FOR YOUNG MEN (OR WOMEN)

It’s always salutary to see ourselves as others see us.

Recently German-born Centre for Independent Studies researcher Oliver Hartwich wrote this piece on alcohol.

The first sentence is arresting: “Coming from a country where even petrol stations are allowed to sell alcoholic drinks as ‘essential traveller needs’, I have always found Australian alcohol practices rather bizarre”.

Imagine the outcry over any proposal to allow petrol stations to sell alcohol in New Zealand.  Anti-alcohol crusaders like Doug Sellman would have apoplexy.

I have no view on such a proposal, but shouldn’t we be willing to examine evidence from Germany?  After all, New Zealanders routinely observe that European drinking habits are better than ours.

Dr Hartwich commends competition among supermarkets in the interests of driving down prices for consumers.  The idea of imposing minimum prices on alcohol products as a means of reducing alcohol abuse makes no sense.

Recently MP Paul Quinn exposed the hypocrisy of doctors appearing before the select committee considering liquor law issues.  They wanted to ban supermarket sales yet bought their own supplies from supermarkets.

As Dr Hartwich observes, restricting the places that sell alcohol is ineffective in preventing excessive alcohol consumption.  “Licensing laws in Victoria and the ACT are more liberal than in NSW.  However, binge drinking or alcoholism appears no worse in Melbourne or Canberra than in Sydney.”

Parliament is debating a proposal to increase the purchase age to 20.  This would align New Zealand with only 11 other countries.  Eighty-one (including Australia) have a minimum age of 18, 12 (including Belgium, Germany, Norway and Spain) set the age at 16, and 17 have no drinking age at all.

As one expatriate New Zealander said to me, the proposed move would do nothing to attract young expatriates back: it would be a signal that New Zealand is ‘no country for young men’ (or women).

Alcoholism and alcohol abuse are serious problems.  But as this submission by the Business Roundtable argued, heavy-handed regulation as proposed by the Law Commission is not the way to deal with them.