This week’s 2012 PISA results should have sent shockwaves down the country.
New Zealand slipped from 7th to 13th place in reading, 13th to 23rd in maths, and from 7th to 18th in science in the OECD’s Programme of International Student Assessment (PISA), a study of half a million 15-year olds in 65 countries.
But it seems that some of the shock was absorbed last week when Education Minister Hekia Parata announced that a drop would be probable, and that the drop in rankings would be due to the improved performance of Asian countries.
Indeed, the top seven performers are Asian jurisdictions like Singapore and Hong Kong. Shanghai’s 15-year-olds are a full three years ahead in performance compared with the average OECD 15-year-old.
But attributing New Zealand’s slip in rankings to the rise of the Asian dragons masks three undeniably shocking facts. First, it was not just the ranking that slipped: it was actual performance.
New Zealand’s 15-year-olds of 2012 were around 6 months behind their counterparts of 2009 in maths.
Second, the drop in performance was not due to a gradual downward trend such as we saw between 2000 and 2009. It was a sharp turn for the worse.
Third, it is not just average results that are concerning. The kids at the bottom are falling further and further behind. One in four (23 per cent) 15-year-olds cannot do maths at a level needed for work or further education. That is an increase of seven percentage points from 2009.
So what can New Zealand do with this shock?
My journey this year to Singapore, Germany, Finland, England, and Canada revealed that shocking PISA results in educational performance can be a spur and a catalyst for widespread change. In 2000, the first year of PISA, Germany found that they performed much worse than they expected, with low average performance and wide disparities between the top- and bottom-performing students.
Teachers and their unions in Germany got behind reforms to drive up standards and improve the system, and they have seen remarkable gains in the last 12 years. Even in the last four years, Germany surged ahead, while New Zealand fell sharply behind. Where New Zealand was ahead of Germany in 2009, Germany now sits at 16th place while we have fallen to 22nd.
Next week The New Zealand Initiative releases its second report in a series on teacher quality, reporting on how leading jurisdictions like Germany and Singapore have strengthened their teaching professions.
But before we even begin to talk reform, New Zealand needs to acknowledge that these PISA results are shocking.
Healthy competition is a key driver of efficiency gains. It forces businesses to focus on meeting customer needs better than anyone else.
Intrusive regulation is potentially the enemy of healthy competition. It forces regulators to make fundamentally arbitrary decisions and can induce businesses to focus on self-interested lobbying rather than on investing irreversibly in infrastructure.
Telecom was set up as an SOE in 1987 and obliged to face up to competition. Between 1987 and 2001, multifactor productivity in the information, media and telecommunications sectors rose at an impressive average rate of 2.9 per cent per annum.
This was achieved under a regulatory regime that relied on general competition law, the Commerce Act, Telecom’s Kiwishare obligations and the courts.
The Telecommunications Act 2001 was a major departure from this ‘light-handed’ regime. It set up an industry-specific regulator who would be responsible for making major recommendations on the basis of limited information and mixed incentives. It naturally gave the politicians scope to set aside those recommendations.
Critical economists at the time argued that this initiative would be likely to produce disappointing outcomes. By further politicising the industry it would weaken property rights, undermine the rule of law and impair investment incentives.
The 2006 Budget made such concerns concrete. It over-turned the recommendation of the Telecommunications Commissioner against forced local loop unbundling and imposed billions of dollars of losses on Telecom’s investors.
No professional case was made that any benefits for New Zealanders would be plausibly comparable to such costs.
The next big political step was the National Government’s commitment in 2008 to oblige taxpayers to invest in a competing platform for copper wires, wireless and satellite, and fibre. They also required a commitment of political capital to achieve a good uptake. That decision created a conflict between the government’s interest as a market participant and its role as an impartial regulator of competition.
The current regulatory debacle for investors in Chorus is a direct result of the 2006 unbundling decision and National’s decision to be an industry player in fibre.
A regulatory and investment morass is not a good recipe for high productivity growth. Multifactor productivity growth in this technologically dynamic industry averaged only 1.7 per cent per annum between 2001 and 2011, well down on the 1987-2001 average.
It is easy to envisage taxpayers being forced to invest more and more heavily from here on. It is harder to envisage a path back to greater respect for private property rights and the rule of law.
Measuring the extent to which corruption prevails worldwide is notoriously difficult. However, it is certainly not difficult to understand why corruption can have a hugely detrimental effect on a country’s economic integrity.
Earlier this week, the non-governmental organisation Transparency International released their annual Corruption Perceptions Index. The 2013 index ranks 177 countries according to perceived levels of public sector corruption, as determined by both expert-level assessments and opinion surveys.
Corruption, as defined by the New Zealand Serious Fraud Office, is “behaviour on the part of officials in the public or private sector in which they improperly and unlawfully enrich themselves or those close to them … by misusing the position in which they are placed”.
There is no doubt that the economic consequences of corruption can have an utterly devastating effect on individuals and societies worldwide. And while substandard economic performance itself does not suggest pervasive corruption; pervasive corruption does often result in substandard economic performance.
Firstly, corruption impedes a government’s ability to provide high-quality public services. Severe corruption results in lower-quality services at a much higher cost.
Secondly, corruption deters foreign direct investment, which can be a driving force of economic growth. Corruption raises investors’ costs and risks.
Thirdly, corruption constricts the healthy functioning of market economies. Illicit behaviour – for instance, the rigging of procurement processes – diminishes market competitiveness and, in turn, lowers economic growth.
The World Bank estimates that around US$1 trillion is paid in both public and private bribes per year. However, given that this estimate excludes other common forms of corruption – such as the embezzlement of funds or tainted procurement processes – the economic costs in real dollar terms are likely to be significantly higher.
New Zealand and Denmark, with identical scores of 91, tied for first place in this year’s index. While New Zealand can applaud itself for scoring consistently high on the index, any score less than 100 indicates that there is still some form of vulnerability to corruption.
Given the damaging impact corruption can have on a nation’s economy, it is not enough to simply identify a country’s strengths. It is also critical to identify the weaknesses.
Next week, the New Zealand arm of Transparency International will follow up this report with the release of the ambitious National Integrity System assessment which will provide a detailed report on New Zealand’s vulnerability to corruption. Armed with this information, if New Zealand wants continued economic growth, we should be working towards attaining a perfect score.
I have been spending this week in Hong Kong as a guest of the Hong Kong government. To be frank, when I received the invitation to visit the Special Administrative Region (that is the name and status after it was handed back from Britain to China in 1997), I was not quite sure why they have such a programme for international visitors (mainly politicians and business people), let alone why I would be chosen to participate in it.
All of this became clearer throughout my visit. The schedule put together by the SAR government is aimed at showing itself to the world and uses thought leaders to amplify this message. Hong Kong certainly has a lot to present and much to be proud of: it is still the world’s freest economy and one of the least corrupt, for that matter. Its financial market is the second largest in Asia (after Japan), and the economic integration with China presents further economic opportunities.
Outside Hong Kong, however, the awareness of Hong Kong’s position is diminishing. Whereas previously Hong Kong was an island of prosperity in an underdeveloped Asia, and later a gateway for dealings with mainland China, China itself has built similarly impressive cities and opened itself to the world. A gateway to China is not needed as much nowadays.
Hong Kong is trying to stay on the world’s radar with its own story, its own identity and its own advantages. This is the reason for inviting international guests such as myself and putting them through a densely packed meetings-and-visiting programme.
Ironically, as the Hong Kong government is trying to show itself to the world, I notice in passing that New Zealand suffers from a similar perception issue here. At all my meetings here with government representatives and business leaders, I asked what, conversely, do they know about us? What associations do they have when they hear New Zealand?
Their answers are sobering. In Hong Kong New Zealand is best known for its race horses, which are a popular import. The All Blacks are also famous here. Beyond that, there is hardly any detailed knowledge about New Zealand. Some people have heard that New Zealand apparently had a dairy industry, but that is as detailed as it gets.
It does not lack irony that as I am invited on a programme to ensure that Hong Kong retains its global visibility, I come to realise that New Zealand would probably need an image campaign more than them.
The Parliamentary Health Committee’s major recommendations from its ‘Inquiry into improving child health outcomes and preventing child abuse’ has been applauded for its evidence-based research. However, its recommendations still need some further consideration.
The problem the inquiry sought to address was inequalities in health outcomes for children. The major recommendations would increase early intervention (that is, interventions focused on the period between pre-conception and up to three years of age).
Based on economic research, it was plausibly argued that a dollar spent on healthcare in the early years is at least a dollar saved on healthcare in the future, as prevention is always cheaper than the cure.
To this point, the recommendations seem solid. They have cross-party support, are informed by scientific evidence, and maximise cost-effectiveness. They even satisfy the age-old Helen Lovejoy plea of “won’t somebody please think of the children!?”
However, not to be impertinent, but shouldn’t that ‘somebody‘ be the biological parents first and foremost? Evidence may prove early intervention to be most cost-effective, but it doesn’t necessarily point to who should primarily be responsible for overseeing intervention. In this case, the recommendations seem to favour universal implementation, at least for some early intervention mechanisms.
Yet if the aim is to address health inequalities, wouldn’t targeted interventions be even more cost-effective? It could well be argued that the vast majority of parents are caring for their children and committed to doing everything for their health. For these parents, no intervention is ever needed. The only thing they may benefit from is guidance and information when they need it.
If most children enjoy good health in this country, surely most parents are already fulfilling their parental duty. The problem is that not all parents require intrusive government intervention, so why will all parents be subject to it? There is a fine line between providing support to parents and undermining parents’ responsibility through a (certainly well-meant) paternalism.
Incidentally, ‘paternalism’ derives from the Latin word for father. It is used to characterise situations in which the government takes on the role of a parent towards its citizens – in this case a parent of parents.
Of course, for those parents who are not fulfilling duties due to lack of will or circumstance, there is an arguable case for the government to use its coercive powers in the interests of minors. However, it ought to intervene only where it is established that the parent or custodian are not fulfilling their original responsibility.
There is no doubt that somebody must think of the children. But the proposition that ‘somebody‘ must always be the government is a shaky one.
As someone who enjoys the fruits of New Zealand’s cinematic output, it might seem hypocritical to argue against Graeme Tuckett when he suggests we need to lift rebates on overseas film productions.
In a Dominion Post editorial, he argues our film industry is struggling to compete with some countries because they offer a rebate of 25 per cent on every dollar spent, while we only offer 15 per cent.
The net effect is that overseas countries such as the UK, South Africa, and Romania are winning big blockbuster business that would otherwise have ended up here, and furthermore, 75 per cent of something is better than 85 per cent of nothing (a bird in the hand, so to speak).
He also argues that a rebate is not really a subsidy, because it is paid after the money has been spent.
Respectfully, I disagree. It is not hypocritical for a Kiwi movie buff to resist lifting the rebate if it doesn’t make economic sense.
Firstly, let’s settle a matter of housekeeping. A rebate – despite Tuckett’s assertions – is a subsidy. It matters little whether the government pays the equivalent of 15 per cent of a $100 million production upfront as a subsidy, or rebates the same amount on the backend.
Secondly, whether we’re addressing the rebate or the bid to lift it to 25 per cent, it is important to take opportunity cost into consideration.
Based on the example above, might the extra $10 million rebated on this production (or for that matter the entire rebate itself) not be better spent in other areas of the economy, presumably where there are greater economies of scale that offer a higher return on the taxpayers’ investment?
It is also worth bearing in mind that the rebate differential is not the only reason why New Zealand is becoming less attractive to foreign film makers. The other is the currency.
Lifting the level of rebate by 10 percentage points may have no actual impact when you factor in currency fluctuations. The rand, for example, has declined by 13.4 per cent against the greenback over the last year, whereas the Kiwi dollar has remained largely stable (bar a few bumps).
Lastly, even if we did lift the rebate in a bid to win a greater slice of the global film business, what is stopping competing countries from upping their rebate in a race to the bottom?
The international movie industry is perfectly within its rights to ask for a rebate – it’s just savvy business. But fans of Middle Earth or not, we should be rational enough to decline when the basic figures don’t stack up.
If there is any life left in one of the last demand boogeymen of the housing market, The Economist this week reminded us that there is a novel way of exorcising them, namely letting them in the front door. I am, of course, speaking of foreign buyers.
It turns out that in the city of London there are a high number of foreign investors active in the market, which was revealed in the latest census data.
Population figures showed that, along with several cities and towns in the industrial north of the country, some of the city’s most affluent neighbourhoods had recorded population declines over a 10-year period.
That was attributed to foreigners buying these homes as investments and then leaving them empty. Indeed, the article quotes data from real estate agency Savills which states that in 2012, close to 40 per cent of homes in central London were bought by overseas investors.
Predictably this drew the attention of politicians, who have vowed in various degrees to remedy the situation, and restore housing affordability for everyday Britons.
However, The Economist makes an important point, namely that non-resident foreign buyers in London are principally interested in acquiring new property, not existing houses, and are a major driver of new home construction.
As a novel idea, if it was made a rule that non-resident foreigners are only allowed to buy new properties, as BNZ chief Economist Tony Alexander has suggested earlier this year, might that not do the trick?
Well, if you believe that demand is the root cause of the housing affordability crisis, the idea has some merits because it would add to the housing stock (albeit at the extreme margin). Finance Minister Bill English previously acknowledged that while Auckland needed as many as 12,000 homes to satisfy demand last year, only about a third of that was actually built.
Presumably foreigners buying new homes could replace the would-be local buyers who, according to the Registered Master Builders Association, have deserted the new home construction market as a direct result of the Reserve Bank’s loan-to-value ratios on low equity mortgages.
Additionally, these new residences would house people unable to get their first step onto the property rollercoaster because of spiralling house price inflation.
But, probably the biggest upside from this kind of policy is that it puts a pin in the xenophobia that has grasped the popular imagination and focusses us, even if just by crude elimination, on the need for supply-side remedies.
Or you could just take the easier solution and just build more houses rather than tinkering with demand-side remedies, as we have highlighted in this research report.
One in seven of New Zealand’s 15-year-olds cannot read at a level considered requisite for basic participation in society, according to the 2009 Programme for International Student Assessment (PISA) study. But does this simply reflect natural variation in ability levels and the left-end of the bell curve?
Leaving kids at the bottom of the educational barrel will be catastrophic for society, argues Jon Moynihan OBE, Executive Chairman of the PA Consulting Group. In his presentation The Continued Economic Decline of the West to the London School of Economics (available on YouTube), he explains that globalisation has and is continuing to open up large pools of unskilled labour markets.
There are 1.1 billion people in urban areas in developing countries who earn US$12 a day, and there are another 1.3 billion people earning US$1 to $2 per day, waiting in the wings to urbanise.
In advanced economies like ours, similar skill levels earn an average of about US$135 per day, for now.
But with the laws of supply and demand, unskilled jobs will naturally drain to the East, and it’s already happening.
So what does that mean for the one in seven Kiwi kids who cannot read? Quite simply, the migration of jobs to countries with cheaper pools of labour means there will be none of these types of jobs left. These kids will be very unlikely to participate in employment, further education, or training. Those who are lucky enough to get a job will be very poorly paid.
It is a tired excuse that schools and teachers should not be expected to correct for the disadvantages that children bring from home. Frankly, this is not good enough. Other countries are better at using education to correct for socio-economic disadvantage. 2009 figures suggest that teachers need more support to teach basic reading skills at the very least.
It is with much anticipation that we await the 3 December launch of PISA 2012. Will New Zealand still have one of the largest gaps in the world between the top- and bottom- performing students? What percentage of our 15-year-olds are able to read?
The fact that 14 per cent of 15-year-olds in 2009 could not read is not a reflection of natural ability levels. Anyone can learn to read. This excuse needs to be taken off the table.
For developed countries facing an increasingly productive and yet low-cost competition from the developing world, better education is crucial.
Earlier this week, Foreign Affairs Minister Murray McCully announced that a further $2.975 million would be provided to the Filipino government in the aftermath of the devastatingly destructive Typhoon Haiyan. The additional funding will take New Zealand’s total contribution to the cause to more than $5 million.
The voluntary transfer of money, goods and services from one nation to another is never exempt from debate. But there is a great difference between the two most common forms of foreign aid: humanitarian aid and development aid. Arguably, one is far more viable than the other.
Humanitarian aid is material or logistical assistance designed to save lives and alleviate suffering in the aftermath of natural or man-made disaster.
An overwhelming majority of those affected by such disasters – as is the case with Typhoon Haiyan which has left an estimated 4000 people dead – reside in developing countries, the most vulnerable to natural hazards and least equipped to help themselves when disaster strikes.
But it isn’t only developing nations that require immediate emergency assistance.
In the aftermath of the Christchurch earthquake that killed almost 200 people, New Zealand received emergency humanitarian aid from multiple nations including Australia, Japan, Taiwan, Britain and Singapore among others.
Development aid, conversely, is financial aid given by governments and other agencies to support the social, economic and political development of developing nations over the long term.
Dambisa Moyo, a Zambian-born economist who has written extensively on the impact of foreign development aid on developing nations, argues that unlike humanitarian aid, which addresses a temporary spike in resource demand, development aid can lock impoverished nations into a never-ending cycle of corruption, disease, poverty and aid-dependency.
In Moyo’s own words: “[Development] aid has been, and continues to be, an unmitigated political, economic, and humanitarian disaster for most parts of the developing world.”
Whether development aid and the transfer of money can actually promote economic and social development is subject to much scepticism. After all, despite more than $300 billion in development aid since the 1970’s, many developing African nations have not progressed much. Development aid it seems, more often than not, performs the political function of maintaining the status quo.
Foreign aid is always a topic of considerable controversy. However, as demonstrated by Typhoon Haiyan, catastrophic events can strike at any time. New Zealand’s contribution to the Philippines, a nation in dire need of emergency humanitarian aid, should be met with praise rather than criticism.
As a businessman and philanthropist I get many requests – for funding, to be a keynote speaker, to support various projects. Unfortunately, I can’t do everything, but when I was asked to support an Auckland Council initiative to get young people into training and employment I was genuinely excited.
Auckland has 34,000 young people currently not involved in education, employment or training and that’s an alarming statistic – not just for those young people. It’s an alarming statistic for employers in Auckland and indeed New Zealand.
Those 34,000 young people are untapped talent and they deserve to have a chance to earn a job. Thankfully, the Youth Connections initiative is making that happen by mobilising employers, parents, training organisations, schools and young people to create opportunities. This involves local board champions across the region engaging the business community in taking a lead role developing its future workforce.
The Tindall Foundation, among others, is a proud financial supporter of Youth Connections, and I was a very willing ‘talking head’ on the website (www.youthconnections.co.nz) to encourage employers to sign up.
Statistics are definitely not the focus of this initiative, which has been running for just over a year and gaining a good deal of traction, however, connections have been made with more than 750 young people and more than 130 businesses are engaged.
The advantage of Youth Connections is its flexibility and focus on solutions. Youth Connections works hard to understand what employers want and provides the support that young people need, and engages a range of strategies across the region to support the development of a sustainable workforce.
Employers cannot let their workforce stagnate or disregard the need for succession planning. Businesses need young people for the diversity and potential they bring; our young people are the answer to the looming challenge of our ageing workforce.
Every year for the next 19 years a successively larger cohort will reach the retirement zone with a successively smaller cohort taking its place. Employers must be investing in and developing those who can step up and keep the momentum of their business going when other people retire or leave.
I urge all employers to get involved. Go to the Youth Connections website, sign up to participate and help make a difference to your business, and to the youth of Auckland. Being a business person is not just about making a profit and it is not a short-term investment. It is about doing something noble for the community and being part of the Youth Connections’ movement is an excellent way to do just that.
This year, HSBC asked over 7,000 ex pats in 37 countries how they felt about the attractiveness of their host countries from a financial, quality of life and child-raising perspective. The results – many of which may seem surprising – were released early this month.
China, Germany and Singapore were the most attractive countries overall, in that order. Australia and Canada filled 5th and 6th positions respectively. Hong Kong was 10th and the USA 12th. New Zealand was 14th, well ahead of the UK, at 22nd, and Ireland at 24th.
Not bad perhaps, but well behind those competitive Aussies. One caveat is that we don’t know the sample size for New Zealand, or its ex pat composition.
So what about the component details?
Switzerland achieved the highest overall ranking by ex pats financially, as reflected in the proportion earning over US$200,000 a year, average disposable income and satisfaction with its economy. China was 2nd, Germany 7th, and Singapore 9th. Australia was 17th and New Zealand 29th of the 37 countries.
Ex pats presumably don’t live in New Zealand for the money. Their rank for disposable income was second to bottom of the 37 countries. Australia’s rank was 15th.
On a better note, resident ex pats’ level of satisfaction with the economy put New Zealand at 22nd, compared to Australia’s 19th. On this measure, we were ahead of the USA and the nine included European countries, bar Germany and Switzerland.
What about the ex pats’ experiences in setting up in the host country, integrating into the community and overall quality of life? Surely friendly, clean, green New Zealand can shine here? Apparently not. We ranked only 16th for ease of setting up and 14th for quality of life. Troublingly, we ranked only 27th for ease of integration. Our overall rank was 18th. Australia’s was 5th, its lowest ranking being 14th for integration. Thailand was top overall, China 3rd, and Singapore 6th. For once, we did outrank Hong Kong (25th).
But take heart. We rated 4th out of 24 countries for raising ex pats’ children, behind Germany, Singapore and France. The Australians found their place behind us at 7th. Within this overall ranking we were behind only Australia for child health and South Africa for the overall childhood experience. In the latter respect we were 1st ranked for making ex pats’ children more outgoing and improving their quality of life and 3rd for giving them a wider diversity of friends.
The argument that we need to build more homes to tackle the housing affordability crisis was underscored this week by reports that suggest loan-to-value ratio (LVR) restrictions are having unintended – and negative – effects on the housing market.
According to the Registered Master Builders Association, the number of enquiries into new homes has fallen by 30 per cent since the Reserve Bank’s limit on how much money retail banks can lend on low-equity mortgages kicked in at the start of October.
LVRs, which are a fairly new addition to the monetary policy tool kit, were never supposed to tackle house price inflation. They are designed to serve as a stop-gap measure to de-risk our financial system while the supply constraints ease.
Unfortunately, the policy has made the situation worse. That’s alarming, because last year New Zealand only built about 15,000 new homes, half of the number of new homes built in the 1970s. Not coincidentally, the 1970s was the last time houses in New Zealand could rightfully be called affordable.
Also worrying is the fact that public sentiment seems to have swung in favour of a capital gains tax (CGT).
According to the most recent Fairfax Media Ipsos poll, just over half of the 1,030 people polled said they thought a CGT on investment properties would help tackle high prices, up from 37 per cent in August.
Yet we don’t have to look very far to see that a CGT that exempts the family home won’t have much impact. Australia has just such a CGT, which has been in place since the mid-80s, and the country’s housing market is in much the same position as ours.
The UK also levies a CGT on investment properties, and yet house price inflation is nearing the 10 per cent mark in London, according to the latest figures.
It seems absurd to adopt a policy that has been shown to be pretty much useless at controlling house prices, while obtusely ignoring the fact that the UK, Australia and New Zealand simply aren’t delivering enough new homes to keep up with demand (or address the backlog).
The Housing Accords and Special Housing Areas Act could potentially inject thousands of new houses into the system over the next few years, but it fails to address the fact that local government incentives will still be stacked against development when it auto-repeals itself in 2018.
Our international research shows that a brace of policy measures is needed to dilute the infrastructure costs of new housing, incentivise local government to welcome development, and provide a competitive alternative to restrictive and unresponsive planning structures.
We are set to release our recommendations when we launch our third housing report on Monday,18 November. If you’d like to attend, please click here.
The biggest surprise announcement out of Labour’s conference last weekend was the proposal to establish KiwiAssure, a new state-owned insurance company.
Speaking to his party’s delegates, opposition leader David Cunliffe argued KiwiAssure would inject more competition into the insurance market. It would also give New Zealanders the choice of insuring with a wholly domestically-owned company that would keep its profits in the country.
Media commentators have been split on what to make of Cunliffe’s announcement. Some regard it as a sign of Labour’s ‘lurch to the left’ and a big risk to taxpayers. Others complain that KiwiAssure was not bold enough as it would be profit-oriented and not pursue any social policy goals.
Such differences aside, KiwiAssure already fails on the reasons given for its introduction. If the goal is to promote more competition in the market for insurance, the answer cannot be to create a new state-owned company to enter the market.
To show the absurdity of such a proposition, one only has to imagine what it would mean if this became a guiding principle. Say a future government came to the conclusion that a market might benefit from more competition, it would have a blank cheque for creating new competitors.
Unfortunately, such state-owned companies never play by the same rules as their market rivals – even if they are started with the best intentions. State-owned companies always have the financial, regulatory and political power of their creators behind them. Ask any courier company competing with NZ Post how this plays out in practice.
To ensure markets are competitive, the best option governments have is to keep markets contestable by new entrants. Even the vague potential of market entry can discipline established companies.
Labour’s other reason for KiwiAssure is to have a nationally-owned company keeping profits in New Zealand; this is yet another fallacy. Firstly, profits may well be sent abroad but they typically return quickly. Secondly, thanks to the international division of labour, not every product or service needed in New Zealand also has to be produced here or owned by New Zealanders. If it were otherwise, we would not just create KiwiAssure. We would also need KiwiCar, KiwiPlane, KiwiSearch, KiwiDrugs, KiwiMachinery and KiwiTextiles to compete with imports or foreign-owned New Zealand companies.
Ironically, KiwiAssure fails to assure the public of Labour’s economic credentials.
In his book, The Great Degeneration, Niall Ferguson describes how the West’s six ‘killer applications’ (competition, science, property rights, medicine, consumerism, and work ethic) are on the decline.
"Our democracies have broken the contract between the generations by heaping IOUs on our children and grandchildren. Our markets are increasingly distorted by over-complex regulations that are in fact the disease of which they purport to be the cure. The rule of law has metamorphosed into the rule of lawyers. And civil society has degenerated into uncivil society, where we lazily expect all our problems to be solved by the state."
The result is slow growth, strained social systems, complacency, and disinterest.
At the same time, the creative industries were shaken by the principle of crowd funding. Privately owned for-profit websites like Kickstarter allow individuals to pool their money to support projects initiated by other people.
Creators set deadlines and a minimum funding goal, and describe risks and challenges associated with the project. Once the project receives funding, the creators are expected to supply regular progress updates.
According to Wikipedia, since Kickstarter's launch nearly five million people have funded more than 50,000 projects. Examples include video games, films and a 3D printer. In fact, in 2012, Kickstarter channelled more money into the US arts scene (US$323.6 million) than the Federal Government (US$146 million).
These numbers raise the question of whether the answer to Western society’s ills could lie in adopting this model.
A small percentage of taxes would go into essential services, and what happens with the rest is for the electorate to decide.
Any tax-funded project must justify itself, and it would need to persuade people, give detailed timelines, manage risks, and show that it has the appropriate staff. Any delays and extra costs would have to be communicated and explained immediately. Lobbyism would become more public as it needs to inform a broader audience.
For example, single mothers could choose not to pay for upper class students to attend university. Tax-funded nanny state tendencies based on vocal special interest groups, solely focused on helping themselves to our wallets and freedoms, can be curbed and a sense of personal responsibility re-instilled.
Theoretically, this would lead to less waste, and lower taxes.
Of course, this approach is not without its problems, the biggest being how to make sure that all projects are equally represented and considered by the electorate.
Still, the idea would make for a much more explicit contract between the state and its people that would make for more engagement by appealing to responsibility, and being able to directly influence outcomes. Maybe the West can crowd fund itself back to glory.
Last week the New Zealand Taxpayers’ Union was launched, with a purpose as challenging as its name.
Claiming the term ‘union’ is a smart move strategically. While there are many unions in society lobbying the government to spend on their pet areas, there is a significant proportion of taxpayers who would urge the government to be scrupulous with taxpayer money.
But a ‘union’ implies a common interest. So what exactly unifies this group apart from their obligation to pay tax?
With the aim of scrutinising and publicising examples of excessive or wasteful government spending, its purpose certainly seems broad enough to attract a large membership.
However, getting a large group to agree on what counts as excessive and wasteful spending may prove difficult. After all, one taxpayer’s waste is another taxpayer’s policy win (or America’s Cup, Wearable Arts competition, corporate subsidy etc.).
The Taxpayers’ Union has said it will focus on inappropriate spending (such as personal use of taxpayer money); excessive spending (disproportionate spending even if the cause is appropriate); and misdirected spending (the Taxpayers’ Union use the example of interest-free student loans and the SuperGold transport subsidy).
While we can all recall examples of inappropriate spending (leather satchels, decadent boozy lunches and that time an MP ordered a movie at a hotel), surely there is a difference between this kind of expenditure and the assessment of policy.
Is it possible to get a unified response on what policy expenditure constitutes waste?
One’s conception of waste will at least in part be informed by what one believes the role of government should be, and what government policy should seek to achieve.
Obviously, scrutinising both types of expenditure is important. However, the distinction must occur not because one kind is more worthy of coverage than the other, but what kind will attract the strongest response from the public.
After all, size matters. The influence of the Taxpayers’ Union relies on enough people declaring government expenditure problematic, and pressuring the government of the day accordingly.
If the Taxpayers’ Union truly wants to be New Zealand’s largest union, then focussing on only the most unanimously inappropriate examples of spending may be the least divisive option.
This, in itself, will be an important first step in increasing public interest in their tax money. It will send the message that political parties across the spectrum will be held accountable for poor decisions.
Perhaps with this change in mentality, there will eventually be a growing consensus that unjustifiable expenditure of tax money is unacceptable across the board, from administration to perks to ineffective and inefficient policy.
Until then, good luck to the Taxpayers’ Union in distinguishing the trash from the treasure.