According to RNZ’s embedded reporter, the importance of Winston Peters’ talks in Washington this week “cannot be overstated.” Right. “Exceptionally important.” said the maestro himself. This epic importance doesn’t seem to have culminated in anything more than us expressing our “concern” to the Americans about a series of issues that are already done and dusted. Tariffs? Australia isn’t getting an exemption, so why would we? Slashing 80% of the US foreign aid budget, and leaving the door open to China in the Pacific? A fait accompli, already.

If there is anything that cannot be overstated, it is Donald Trump’s indifference to New Zealand’s opinions and concerns. Two weeks ago, Trump didn’t even know what AUKUS is. We have no sway in Washington. It seems that we fired Phil Goff in vain.

Footnote: Embarrassingly, Peters also told the Americans about the sacrifices our soldiers have made alongside the US in past wars. Good luck with that. Canada’s similar reminders a month ago were met with Trump’s contemptuous dismissal of Canada’s military capabilities.

Peters is not alone in “negotiating” on bended knee with the new US regime. Almost every other global leader is treating the Trump administration as a hand grenade likely to go off in their face at any moment. Incredibly, Pope Francis seems to be the sole exception. In early February, US Vice-President J.D.Vance, a Catholic convert, mis-used a medieval theoloogical concept (called ordo amoris) to try and justify the US policy of mass deportations.

Within days, Pope Francis sent a ferocious rebuttal to the US Catholic Bishops in which he argued that Jesus himself had been a refugee “who did not live apart from the difficult experience of being expelled from his own land because of an imminent risk to his life, and from the experience of having to take refuge in a society and a culture foreign to his own.” Francis further countered Vance’s sophistry by citing the parable of the Good Samaritan.

The entire Pope Francis letter is available here. It includes this passage:

I have followed closely the major crisis that is taking place in the United States with the initiation of a program of mass deportations. The rightly formed conscience cannot fail to make a critical judgment and express its disagreement with any measure that tacitly or explicitly identifies the illegal status of some migrants with criminality. At the same time, one must recognize the right of a nation to defend itself and keep communities safe from those who have committed violent or serious crimes while in the country or prior to arrival. That said, the act of deporting people who in many cases have left their own land for reasons of extreme poverty, insecurity, exploitation, persecution or serious deterioration of the environment, damages the dignity of many men and women, and of entire families, and places them in a state of particular vulnerability and defencelessness.

This is not a minor issue, Francis continued:

An authentic rule of law is verified precisely in the dignified treatment that all people deserve, especially the poorest and most marginalized. The true common good is promoted when society and government, with creativity and strict respect for the rights of all — as I have affirmed on numerous occasions — welcomes, protects, promotes and integrates the most fragile, unprotected and vulnerable. This does not impede the development of a policy that regulates orderly and legal migration. However, this development cannot come about through the privilege of some and the sacrifice of others. What is built on the basis of force, and not on the truth about the equal dignity of every human being, begins badly and will end badly.

Weird, as the Guardian recently noted, that a deeply flawed, hierarchical organisation like the Catholic Church should now be almost a lone voice in defending the values of social democracy against their daily violation by the current US President.

PPPs - The Unkillable Monster from Capitalism’s Crypt

This week, I initially shied away from the PPPs topic partly because of combat fatigue. I’ve been writing cautionary columns about the inherent dangers of PPPs for nearly 30 years, and yet the zombie keeps on shuffling back to centre stage no matter how many economists and commentators try to kill it by citing the overseas horror stories, and explaining the basic illogic of the whole PPP concept. Yet here we are, again.

It shouldn’t come as a surprise that foreign pension funds and multinationals want to invest in PPP projects here, to rebuild this country’s infrastructure. In a turbulent world, what sensible foreign investors wouldn’t want to lock local taxpayers into delivering them guaranteed profit margins for the next 30 years regardless of climate change, wars, natural disasters etc, and despite whatever other priorities the country might develop between now and 2055.

Along the way, what PPP-delivering corporate worth its salt wouldn’t be looking for concessionary tax breaks and for the opportunity to minimise their tax liabilities for the profits they derive from these projects? On top of all that, the main opposition party (Labour) is giving signs of accepting and honouring whatever deals National sign us up to, in the name of continuity and the national good. No PPPs in health, education and prisons, Labour says, but otherwise, they may be OK.

Hmmm. That’s the trouble with selective morality. In no time, it ends up being not moral at all. Meaning: if something is not good for you in X, Y and Z contexts, then chances are it's not good for you, period. Moreover, the Luxon government has been a very, very recent convert to this noble cause of bi-partisanship. The Cook Strait ferries replacement is the most important infrastructure project that New Zealand has embarked on in decades - yet that didn’t stop Finance Minister Nicola Willis from ripping up the existing contract as soon as a change of government had occurred, and despite Willis having no idea what the net cost of scrapping the deal will be.

In theory, it may sound desirable for major infrastructure projects to survive changes of government. Yet this requires placing a great deal of trust in a government that has shown itself willing – via the Fast Track legislation – to bulldoze dissent and limit the capacity for legal challenge. These people have shown they need to have more robust scrutiny, not less.

Flaws in the model

The real problem with PPPs is that no-one in their right mind should be signing up to deliver foreign corporates a guaranteed risk-free set profit margin for decades to come, especially when it would be demonstrably cheaper, quicker and more reliable to use the government’s own ample ability to borrow the money, and build these projects itself. Keep the profits and the high paying jobs onshore, or send them offshore? This should be a no-brainer.

Talking of jobs... Willis is making a song and dance about how PPPs offer a win/win in terms of regional jobs. Yet with PPPs, many of the enduring high skills/high paying jobs are filled by foreigners. Most of the jobs for Kiwis are temporary, relatively low paid jobs as caterers, baristas, ditch diggers and construction workers on projects run by overseas corporates. With PPPs, there will be relatively little of the work force upskilling and related enhancement of the country’s manufacturing base (and downstream productivity gains) that we would achieve if we were financing, building and managing these projects ourselves - as we used to do very competently, before this country’s productive capacity was gutted by the series of free market reforms.

Doing it cheaper

Why would it be cheaper to do it ourselves? For starters, governments can always borrow money at cheaper rates than the private sector, and New Zealand keeps being told by the international credit rating agencies that they would have no problem if the government took on more debt to build productivity - enhancing infrastructure. As Simon Wilson pointed out yesterday in the NZ Herald:

[The government] is paying 4.7% interest on 10-year Treasury bonds right now, while the private sector is paying upwards of 8%. Largely because of this disparity, a British parliamentary study in 2011 found PPPs were likely to end up costing twice as much as other comparable projects.

With PPPs, taxpayers will be saddled with (a) a higher overall project cost, (b) an inbuilt extra profit margin and (c) the cost of reimbursing the private sector for the extra interest payments they incur when borrowing the money to meet those inflated costs.

PPPs are, in other words, take all the risk out of capitalism, for everyone except taxpayers. For reasons largely to do with their ideological hostility to state provision, Willis and Luxon are about to saddle this country with unnecessary bills (while tying the hands of future governments) until well past the mid-point of this century.

One can only hope that Labour’s murmurings about bi-partisanship will be subject to revision once the details of the deals emerge. However, because of the “commercial sensitivity” surrounding private sector delivery, New Zealand taxpayers may never know whether the deals they’re underwriting are good ones, or bad ones.

Footnote: As we’ve learned from recent experience…if it is a government project, any cost over-run is a scandalous “blow-out “ that gets used as an excuse to cancel the project altogether (the ferries) or curtail the scope of the project (the Dunedin hospital/ Nelson hospital upgrades.) As we saw with Transmission Gully though, private sector cost overruns tend to be treated with empathy and understanding. Penalty clauses tend to be treated only as a last resort, and reluctantly enforced only in part.

Footnote Two: Do PPPs really cost more? That’s not just my opinion. In line with those UK findings cited above...at last year’s Building Nations seminar in Auckland, KPMG partner Karen Mitchell reportedly cited a hypothetical example whereby if New Zealand used PPPs to build $50 billion of infrastructure, it would be facing extra billions in debt repayments over 25 years. As the (paywalled) Business Desk site reported:

‘Referring to the lower Crown borrowing costs, [Mitchell] said: “The difference between that private sector and public sector borrowing means that we have to extract $25billion of value out of those projects essentially.” [Essentially, that’s to make up the difference between the added cost of private sector vs Crown borrowing over the contract period.]

Given that these additional costs are inherent in the private sector profit-taking on PPPs, this means that some of the infrastructure projects will be prioritised according to whether it is possible to recoup the cost difference from the general public’s use of the asset. (That’s why user pay projects i.e. motorways, get moved to the front of the queue.)

On transport infrastructure projects in future, that will commonly entail road tolls, congestion pricing, and (perhaps) a tax on the capital gain enjoyed by the owners of properties adjacent to the motorways in question. In other words, many of us will be paying double. As taxpayers we will be paying mandatory annual profits to foreign providers, while also being on the hook for user-pays charges whenever we use the infrastructure. As mentioned, PPPs are fail-safe capitalism at work, at our expense.

Walking On the Wild Side

PPPs get sane-washed into getting good coverage they don’t deserve, while cats receive bad press these days, for a variety of reasons. Here’s a cat on the prowl, perfectly in sync with the music. The great graphic designer Saul Bass dreamed up the idea, and set the feline footage to Elmer Bernstein’s score. The sequence was definitely the best thing about a terrible 1962 film called Walk On The Wild Side, a title borrowed years later by Lou Reed.

For anyone who wants to explore how Saul Bass revolutionised movie title sequences, there’s a highly clickable collection of his work available here. The credits sequence for Seconds,(the scary Rock Hudson/John Frankenheimer body swap movie) is just one of many highlights.

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