Home thoughts from abroad

Melbourne University professor and member of the 2025 Taskforce Judith Sloan has an excellent article in The Australian today.

Entitled ‘New Zealand seems to have lost track of its reform agenda’, she writes:

New Zealanders are good at lots of things. Rugby, sailing, rowing, netball and film-making all spring to mind. But running a national economy does not appear to be one of their strengths.

On the income gap with Australia, she says:

Some commentators attribute New Zealand’s poor economic performance to its small size and distance from markets. The trouble with this explanation is [that] New Zealand has always been small and distant and so these characteristics cannot explain the growing gap.

She puts a finger on a key problem:

In Australia, there is broad-based acknowledgement of the benefits of the reforms undertaken by the Hawke-Keating and Howard governments. These involved removing import protection, financial sector deregulation, privatisation and other pro-competition measures.

By contrast,

New Zealand suffers from the consequences of an incomplete reform agenda. Public ownership remains prevalent, statutory marketing arrangements are still in place and the labour market has been re-regulated. There is even a single desk (monopoly) for the export of kiwi fruit.

Many New Zealanders think of Australia as a big government country, with governments at federal, state and local levels.

But as Judith points out:

The overall size of the public sector is considerably greater in New Zealand than in Australia. General government outlays as a percentage of GDP are around 45 per cent in New Zealand, some 10 percentage points higher than in Australia. Even if cyclical factors are taken into account, the relative size of the public sector in New Zealand is considerably larger than in Australia and has been growing particularly strongly since 2005, well before the GFC.

And the point here is that:

While there are exceptions, the higher the level of government activity in a country, the lower the rate of economic growth. And there is no example of a country with a public sector of equivalent size to NZ that has grown at the sustained rates needed to eliminate the per capita income gap between the two countries.

The article goes on to talk about New Zealand’s inferior policies such as interest-free student loans, ownership of KiwiRail, the Resource Management Act and the lack of public private partnerships: these “are almost unheard of in New Zealand.” Judith pinpoints the risks for New Zealand:

[T]he spanner in the works relates to the fact that New Zealand and Australia essentially have a common labour market. Trans-Tasman migration is completely unfettered. As a consequence of the income gap between the two countries, the flow of migrants is almost completely one-way, to the point that there are now about half a million New Zealanders living in Australia.

The consequences for New Zealand of this flow of people are both economic and social. Economic in the sense that there is little return to New Zealand for the investment in its citizens’ early years, and social in the sense that children (and grandchildren) live at a distance from their parents (grandparents) and possibly even barrack for the Wallabies!

She notes that the Key government has made modest moves in the right direction:

But if the aim is to close the gap with Australia by 2025 — and the taskforce of which I am a member will be recommending how to achieve this objective — modest policy is not nearly good enough.

Wise counsel from a good friend of this country.

  

O wad some Pow’r the giftie gie us

To see oursels as others see us!

 

The full article is here

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.

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.