Insights - The NZ Initiative

Issue 42/2013 - 8 November 2013

In this issue:
• The Initiative needs your help researching foreign direct investment
• KiwiAssure provides no assurance | Dr Oliver Hartwich
• Crowd funding the public interest | Dr Jens Schroeder
• What will unify the Taxpayers’ Union? | Jenesa Jeram
• All things considered ...
• On the record

The Initiative needs your help researching foreign direct investment
We are looking for expert input from you, our readers, with experience on the red tape that surrounds foreign direct investment globally. Using the Crafar deal as a real-world case, just how difficult is it for a Chinese investor to buy farmland worth $200 million in countries such as the US, the UK, Germany, Australia, Taiwan, or South Korea?

For more information on how you can participate, please click here.
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KiwiAssure provides no assurance
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz
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.
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Crowd funding the public interest
Dr Jens Schroeder | Guest Contributor | jens.b.r.schroeder@gmail.com
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.
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What will unify the Taxpayers’ Union?
Jenesa Jeram | Research Assistant | jenesa.jeram@nzinitiative.org.nz
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.

All things considered ...
• Graph of the week: the latest OECD data proves Kiwis work harder than Aussies, but they are slouches next to the Greeks and South Koreans.
• Environmental considerations are cropping up in just about every facet of our lives, including executions it seems.
• First the America’s Cup, now World of Wearable Arts. Is there no elitist recreational endeavour that the government won’t throw wads of taxpayer cash at?
• It is hard to reconcile the UK’s top-10 position on the global competitiveness rankings when you consider how many workers it takes to change a simple light bulb.
• The European Union’s attempts to downsize the humble vacuum cleaner really suck – or not, as the case may be.
• Do you know the Clapping Song? “Three, six, nine, the goose drank wine, the monkey chewed tobacco on the telephone line, the line broke…?” Well, in this case it was a swan.
• Who knew government splurging of taxpayer money could be so entertaining? Of course this type of thing would only happen in Australia, and never, ever, in Aotearoa.
• The next time an Auckland commuter complains about the amount of time they spend in traffic, send them this link.
• We suspect Toyota’s new concept vehicle will be a hit with Taumaranui’s renegade cowboys.
On the record
• More is at stake than just high house prices, Jason Krupp, The National Business Review, 8 November 2013.
• Don't put Germany on the economic axis of evil, Dr Oliver Hartwich, Business Spectator, 7 November 2013.
• On the prejudice of business, Stuff.co.nz, Rose Patterson, 6 November 2013.
• The NZ Initiative's Oliver Hartwich argues a 'cure', rather than merely 'pain killers', is needed for the housing affordability 'disease', interest.co.nz, 1 November 2013.

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