Insights Issue 38 - 10 October 2014

In This Issue

• The right don’t want to eat the poor | Rose Patterson

• Fighting bad government policy the South African way | Dr Oliver Hartwich

• Sale time for Kiwi assets? | Khyaati Acharya
• All Things Considered

• On The Record

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The right don’t want to eat the poor
Rose Patterson | Research Fellow | rose.patterson@nzinitiative.org.nz

Recently, I sat beside a Green MP at an event who, much to my astonishment, scoffed when the presenter mentioned John Key’s indication of wanting to tackle poverty this term.

If politicians, advocacy groups and commentators on the left want to work on solutions for poverty and inequality, the more extreme among them need to a) stop thinking the right would eat the poor if they could, and b) change up their stale narrative about how poverty came to be. These changes need to happen before the left can even start thinking about working with the right (or probably more accurately, the centre) on how to tackle it.

The bleeding hearts bleated on about inequality and poverty for the whole election campaign, yet they didn’t get voted into power. Key could ignore poverty if he wanted to, and yet has made it a priority in his third term. Whether that’s a cynical move to buy votes is immaterial. Here is an opportunity for the left to work constructively with government, and yet many (not all) on the left scoff at it.

This is frustrating because as someone from the left who has an insight into the political right, I know both sides care about poverty and inequality. Granted, they have very different ideas on how to solve the problem, and the right are more accepting that there will always be some level of inequality (not to be confused with poverty) in society.

Some on the left, however, need to get better at challenging their own narratives about how the problem came to be in the first place. Condensed down to its simplest form, their story goes like this: the economic reforms of the 1980s, and capitalism in general, has made the rich richer at the expense of the poor.

The reasons the right get frustrated with this narrative are manifold, but here is just one.

When people point the finger at people who have worked hard, and tell them that their success is making the poor even poorer, whether that is true or not, they stop listening. I understand that on balance, people who do well in life got a better start, but there exists the presumption that this wealth was stolen, not created.

If anything, we need to take a long-term view and seriously tackle equality of opportunity through education. The reality in the meantime, however, is that people who have made the most of what life has given them don’t want to hear they are evil capitalists exploiting the poor. Most are just trying to make a good life for their own families.

If the left really wants to make a difference to reducing inequality and poverty, before even debating solutions, it is time for those who hold stale narratives to change it up. Stop assuming the right is out to exploit the poor.
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Fighting bad government policy the South African way
Dr Oliver Hartwich | Executive Director | oliver.hartwich@nzinitiative.org.nz

Two countries, two successful internet entrepreneurs, two clashes with government. Last week we witnessed an epic Twitter battle between Trade Me founder Sam Morgan and Economic Development Minister Steven Joyce over the usefulness of research grants. Meanwhile, founder of Thawte Consulting and the Ubuntu Linux OS, Mark Shuttleworth, won a long legal fight against the South African Reserve Bank.

Though unrelated cases, there are lessons we might draw from both of them.

Sam Morgan’s anger was directed at the New Zealand government’s policy of subsidising research and development through its Callaghan Innovation Centre. His objection is both practical and philosophical since he does not believe that government should, let alone could, pick winners.

As Morgan points out, R&D subsidies can only fail. Either the government funds companies that no reasonable private investor would, or it funds companies whose business model is so good that they do not need any hand-outs. In Morgan’s own words, “if anyone in government had any idea how to pick those winners, I would hire them. Fact is, nobody does, but government is particularly poor at it.”

Minister Joyce of course vehemently defended his innovation grants, pointing out that they were meant to encourage growth in the IT sector. However, even though the rationale may be laudable it does not mean that the policy actually makes sense.

“Tech investors love free subsidies, so nobody tells the government that the grant programmes are stupid,” said Morgan, adding that “when you can get free money you’d be mad not to fill in the form and take the grant makers out to lunch.”

South African internet pioneer Mark Shuttleworth’s problems were of a different nature. Rather than trying to give him money, the Reserve Bank attempted to tax it away when Shuttleworth moved his assets from South Africa to the UK.

Ironically, the reason for Shuttleworth’s relocation were the capital controls the Bank imposed on businesses. To escape them, he decided to leave – only to find his capital subjected to a 10 percent export levy. Furious about this, Shuttleworth fought the Bank in the courts until he won his money back (approximately $28 million).

But here comes the twist: Instead of keeping the funds, Shuttleworth is investing them in a trust dedicated to fighting legal battles where constitutional rights are violated by the state.Maybe that would be an option for Sam Morgan as well? Take the grant money and invest it in initiatives making the case for better public policy. We’d be happy to hear from him.
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Sale time for Kiwi assets?
Khyaati Acharya | Research Assistant | khyaati.acharya@nzinitiative.org.nz

Does a lower Kiwi dollar mean that foreigners will rush to buy up New Zealand’s 'cheap' assets?

A recent article in The Herald raised this concern. Its author even proposed that there “may be a case for the Government to take a closer look at [tightening] the settings of the Overseas Investment Act” to prevent this.

But this argument is fallacious in that it confuses price with cheapness. It is like arguing that people will rush to buy a work of art that was thought to be a Monet original because it became cheaper the moment experts determined it was a forgery.

If the New Zealand dollar has fallen because global investors have become more nervous about New Zealand's economic prospects, the fall does not make New Zealand assets ‘cheap’. Usually a lower price indicates a loss of confidence in the value of an asset. Whether that is misplaced or not is a judgement call. To make that call, one should examine the causes of the loss of confidence.

The recent drop in global dairy prices reduced demand for our currency, weakening its price. While this makes a given New Zealand dollar value for assets in New Zealand look cheaper, when viewed in foreign-currency terms, it also reduces the foreign currency value of a given New Zealand dollar revenue stream generated by those assets.

The lower exchange rate could well increase the New Zealand dollar value of New Zealand assets that are export- or import-related. It could well increase the New Zealand dollar value of other assets whose value is not impaired by the factors that reduced the exchange rate. For example, a lower dollar may induce returning New Zealanders or intending immigrants to bid up local currency house prices, reducing the wealth loss for emigrating (and other) New Zealanders. These are normal adjustment processes in a healthy market.

The article also feared that New Zealanders would somehow sell assets to foreigners too cheaply because of the lower value for the New Zealand dollar. But any seller with nous will seek the best price from competing sellers, whether the New Zealand dollar is high, low, or unchanged. New Zealanders aren't irrational en masse.

In a research paper earlier this year, we demonstrated why New Zealand's Overseas Investment Act is already ridiculously restrictive in respect of broadly-defined sensitive land. A lower exchange rate is no reason to make it even more ridiculous.

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All Things Considered

• Graph of the Week: For those political junkies craving more after last month’s poll there are the US mid-term elections and this handy infographic to help get a handle on the situation.
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• Turns out atheists have been wrong all along, with a new study finding that there is life after death – although it is far from the eternity promised.
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• With the rise of ISIS whipping up Islam-o-phobia, religious scholar Reza Aslan reminds us in this interview that facts are a great cure for grandstanding by politico-comics.
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• Speaking of Islam-o-phobia, there is nothing that terrifies a community quite like a plastic sword... wait, what?!
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• Feel like giving to a good cause? Nicky Hager is doing a whip round to defend the use of hacked emails in his book Dirty Politics. With $30k raised so far, other good causes are jealous.
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• The New York Times apologised for this cartoon about the Indian Mars mission. Moral courage or political correctness? Make up your own mind.
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• Amid all the reporting on the tensions between Hong Kong and China over universal suffrage, finally someone talking about the elephant in the room: Britain.
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• Nothing brings the past to life like a bit of colour as these re-touched historic pictures show.
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• While revenge from beyond the grave was the intention, Helmut Kohl is now the one battling to preserve his reputation after his tell-all memoir was published before he sloughed off his mortal coil.
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• First it was cigarettes, then it was booze, now the nanny statists in Vermont have set their eyes on the next scourge in society. Yes, you guessed it: dessert in schools.
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• We love management guru Tom Peters’ hyperbole, but this recent gem stands out: “I see managers who look like 12-year-olds with attention deficit disorder, running around from one thing to the next”.
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• Our new Tweet of the Week segment hits the Auckland property market right on the head. Soon shoe boxes will be worth millions.

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On The Record

• Child Poverty, Housing & the RMA, Small Torque, 9 October 2014.
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• Juncker's multi-billion stimulus phantom, Dr Oliver Hartwich, The Business Spectator, 9 October 2014.
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• Expanding the investment approach, Kiwiblog, 8 October 2014.
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• Do the recent moves by the government to encourage prospecting and exploration of the mineral estate risk turning NZ into the Nigeria of the South Pacific?, Jason Krupp, Interest.co.nz, 7 October 2014.
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• Bennett rolls out 'investment approach', The New Zealand Herald, 7 October 2014.
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• While he doesn't look like it to us, outsiders see John Key as a 'radical'. Jenesa Jeram tries to reconcile the views, Interest.co.nz, 6 October 2014.
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• Why is it so expensive to create an NGDP future's market?, The Money Illusion, 4 October 2014.
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• Calling for RMA reform is a cop out, an assault on the wellbeing of New Zealanders,Gareth's World, 3 October 2014.
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• Crampton on child poverty, Kiwiblog, 3 October 2014.
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• The joys of forming a European government, Dr Oliver Hartwich, Business Spectator, 2 October 2014.

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