My opposition to the proposal to partially sell 4 of our energy companies (and who knows what else down the line) is based not on an ideological opposition to privatisation (government should only own assets that have a public good purpose or have key national strategic value) but on the issues of finance, risk and law.

The finance argument is simple. There really is no case for selling these assets based on their poor performance, funding costs or return. Government debt may be high and set to rise but flogging the family silver provides short term gain with long term pain. The debt position in NZ (both public and private) is a structural problems and will not be solved by a $5-7b sell down of core assets.

The question of the risk of these proposed sales is perhaps more subtle. It simply comes down to how one views the provision of energy on a national scale. It is a clear public good, even if it can be provided privately (e.g solar or micro-wind) and therefore should be provided at least cost (taking into account externalities) to the public. Floating energy providers onto the stock market changes the goal of the company. It is now a profit maximizer with long term shareholder value as its primary concern. Some might argue that SOEs are already operating in that model but that’s not relevant to this argument. The key is that in order to provide a public good, ownership must be in public hands. Added to that, the changes in technology and energy availability will require national level changes, planning and investment. Diluting ownership will make this problematic. At some point, the national interest may come back into focus and then what? What of the shareholders? They may not be interested in the national interest, especially if it impacts on the share price or their dividends.

This leads nicely into last night’s news. Argentina has sensationally nationalised YPF, a unit of the Spanish energy giant, Repsol, quoting “Hydrocarbon Sovereignty” (in Spanish) and basically arguing a lack of investment by YPF in Argentina. This is out and out expropriation and Repsol has hit back with a claim for $10.5b as compensation. This has been completely rejected by Argentina, as expected. This is likely to play out very badly in the international trade and investment arena and will probably end up in the international courts, if it is not resolved diplomatically.

Now this is exactly what I alluded to in my submission around the issue of international law and any future re-nationalisation or expropriation of assets, no matter what the situation is locally. Added to that we have the TPPA lurking in the background, which may further complicate matters, especially for a National government desperate to turn everything in NZ into an investment. One may argue that there is absolutely nothing to worry about in terms of possible future legal claims or problems but history shows us that this is a serious and unconsidered risk. Certainly I have not seen it in mentioned in any commentary. The government tries to duck and weave around the wording and structure of the sales model but it really needs to rethink the whole process from start to finish.

Submission on the Mixed Ownership Model Bill

The main purpose of the bill is to raise funds to reduce government debt and provide funds for new spending on public services. Reducing government debt is a laudable proposition and one can do that by increasing taxes, cutting expenditure or selling assets.

The government has chosen to sell publicly owned assets, specifically energy companies, in order to raise somewhere between $5 and $7b. These numbers are purely guesswork and will depend on a number of factors, including current market conditions, offering price and the structure of the companies post-sale.

This proposed bill is of concern for a number of reasons, which are listed below. I have categorized them into three areas: finance, risk and legal.

1)   Finance: The prime reason given for selling energy companies is that they provide a poor return to the government and that private owners may extract more “efficiencies” from the businesses. There has been no clear-cut evidence provided to support the former assertion, namely that the return from the energy companies is lower than the cost of government debt. Furthermore, there is scant evidence to support the proposition that privately run energy companies are any more efficient than publicly run ones. As we have seen from the Pike River disaster, private companies tend to be poor managers of risk and cut costs wherever possible, in order to increase profits. As many costs are externalized as possible to achieve this goal. In the energy business, this is a very dangerous approach. It seems that the financial argument is weak at best.

2)   Risk: As alluded to above, risk management is of serious concern when privatizing companies in the energy space. Energy provision is a prime public good and should therefore be provided by the public. Like water, energy is a pre-requisite for basic survival and should, therefore, not be seen as a profit maximizing good. By giving up pubic ownership of these basic assets, we open ourselves up to a poorer service, which may be based on ability to pay rather than a right to have the basic provision of energy. We may also lose the ability to make changes to and investment in the development of new energy production and networks. Investors, even with a 10% cap and other restrictions, will still have rights and views (see legal for further argument on this point), which may not be aligned with the public good. As well as safety and control risks, there is the risk of prices being raised over and above what might be appropriate. The example of the Bolivian water privatization and the Bechtel corporation (see Cochabamba riots of 2000) is a good example of what can go wrong when private interests are allowed to control basic pubic goods. Theses risks should not be taken lightly.

3)   Legal: Global investment rules have been expanded significantly over the last 20 years. NAFTA, the WTO and numerous bilateral trade agreements, have made the investment law field extremely complicated. What is clear, though, is that foreign investors have clear rights and these rights may, in some cases, trump domestic law and the expectations of the domestic citizenry. Examples of this are the Santa Elena case in Costa Rica, the Metalclad Corporation vs. The United Mexican States and the Ethyl Corporation vs. Canada. These are a small example of cases taken by foreign investors against states, where they feel their rights have been infringed. This could be for a number of reasons: environmental laws, human rights laws or expropriation (e.g. arising from renationalization or similar action).  We have transnational agreements being negotiated in secrecy (the Trans Pacific Partnership Agreement (TPPA)), which may contain further restrictions on the ability to make decisions based on domestic considerations but perceived as harmful to foreign investors. The making of new international investment rules has seen many unintended consequences. The same outcomes may apply to this bill.

In summary, it is clear that the proposed bill has some serious problems. There are many consequences, known and unknown, which give cause for deep reflection and concern. The financial argument is weak and there are other ways to raise funds for public expenditure. Of more concern is the risk and legal framework that may end up being applied. The examples are too numerous to fully list but they are clear and unambiguous as to the impact on the local population and its finances.

This bill seems predicated on an ideological desire to privatize state assets and not on any serious and well thought out argument for doing so. I would therefore argue strongly against its implementation.

Raf Manji,

Director,

Sustento Institute,

Christchurch.

But still there is confusion around what to do about it. “Saving” has become the new buzzword, sitting squarely alongside “austerity”, as private individuals are urged to save more and governments are urged to spend less. That sounds like a sensible way forward. But watch the economy tank when that happens. Why?

Simply because when debt is paid down (and no corresponding new loans made) the money supply contracts as the debt is destroyed. The debt never existed as “money” in the sense of notes and coin but as an asset and liability for the bank. The interest is collected and the debt destroyed, leaving the profit for the bank. A monetary system based on debt will always lead to booms and busts as the interest charged overwhelms the ability of the productive sector to pay it. Ironically the system always needs infusions of new debt to stay afloat as the amount of money in the system declines.

Of course, when companies start to lay off workers (their first cost saving option) this creates uncertainty and an unwillingness for new borrowing to take place. This creates a self-reinforcing cycle which in some cases leads to recessions and occasionally to depressions. So what’s the best way out of this?

Austerity? No. Austerity will keep some investors happy but generally this will simply lead to slower growth and higher unemployment. But austerity is also a fact of life. When you have borrowed money and spent it, you know one day you have to pay it back. If you haven’t saved for that day then you will have to forego consumption for repayment. If you are in that position, which many governments are, you have, in fact, over consumed your income and eaten into your future. That’s not a pleasant space to be.

Is there an alternative?

Yes there is. I’d like to propose what i term “Monetary Dialysis”. This process seeks to replace debt money with real money (let’s assume for the moment that fiat money is real). The difference between debt money and real money is two fold: firstly, real money is permanent and once it enters the banking system it remains there; secondly, real money enters the banking system without interest, with no charge for its creation.

This two key differences will lead to new outcomes: a more stable money base and a less inflationary one.

How will this process take place?

The government, instead of issuing new bonds to raise money (primarily from overseas investors), will directly spend the money into the economy. In other words public spending will be funded by new money, not new debt. Immediately there will be a saving in interest costs, with current funding costing 5-6% per annum. The current annual bill (previous to the recent enlarged debt issuance) has been running at close to $4billion a year which is a hefty sum (I am only talking government borrowing here).

I use the term dialysis as a representation of a monetary system that is malfunctioning, not just here but globally. I propose a slow transfusion with the goal to end government borrowing completely by 2017.

Where’s the catch? Ok clearly there needs to be some balancing on the other side of the equation. As well as issuing new money instead of new debt, another part of the monetary dialysis approach is to create stronger limits on the abilities of banks to increase the money supply through the issuance of new debt. This can be done in many ways, using a variety of macro prudential tools, whether it’s increasing capital requirements or other similar actions.

Monetary Dialysis is the first step to cleaning up our monetary system. It will lead to a more stable money supply, lower inflation and clear savings in interest costs. The reduction in public debt will be highly beneficial for the economy and the country as a whole. The cost savings from this clean up will be in the order of $20billion over 6 years.

Now that’s something to really think about.

What a great idea. It’s a shame no one has actually tried it out or bothered to let homo rationalus economicus that it’s an urban myth. We operate mainly in a state sponsored system of capital markets underpinned by arcane and often opaque trading rules and regulations.

The provision of capital is key to any functioning economy and has been since the beginning of time. Each empire had its own approach to coinage to support trade and the governing class or head of state. The first pillar of modern capitalism was established in 1694 with the formation of the Bank of England. Thus began the first stirrings of the fractional reserve banking system and the modern financial system.

I’ve previously covered the many bailouts experienced by the banking system and the Bank of England itself and in some ways our current malaise is no different. The central precept of free markets is that they should operate on their own merits – caveat emptor.

I’m not going to discuss that fallacy here but focus on the problems of bail outs. Why should a failing business be rescued by the state? The simple answer to that is when it has implications for the national economy or issues of national security (often regarded as twos sides of the same coin). We have seen the fiasco in the US, the UK and Europe. We have seen the banking system bailed out, private companies bailed out and yet we still hear the mantra of free markets, trade and market liberalisation and privatisation repeated.

Here in NZ we have seen South Canterbury Finance bailed out and most recently AMI. On both occasions the government intervened to provide capital from taxpayers for businesses which had clearly failed. In the case of SCF depositors were guaranteed under a standard deposit guarantee framework but bondholders also benefitted to the tune of $350m. Those bonds should never have been covered under a deposit guarantee scheme. Investors enjoyed a big free lunch here at the expense of the taxpayer. In the case of AMI, the government intervened to support an insurance company who didn’t have enough reserves on hand post the February 22nd quake. The government could easily make a good case for supporting AMI, in terms of providing it with backstop liquidity but in doing so it needed to be very clear that it was suspending any belief in free markets.

The moral hazard is clear but the implications have not been explored. On one hand the government wants to bail out private companies who are clearly responsible for their own position. At the same time they want to promote policies like privatisation because, wait for it, private companies are more efficient than public ones.

It’s very clear that the neo-liberal dream is in tatters but no one seems to want to wake up and smell the reality. Market morality is indeed quite hazardous.

At current government bond yields this is likely (presuming the issue is in longer term bonds) to cost over half a billions dollars a year. That’s right $500-550m a year in cost, just to access the money we need.

Bill English has our recent proposal to use new public money in front of him but so far we have heard nothing back on it. Other than an earthquake levy, which has been ruled out also, there are no other proposals on the table.

I look forward to hearing why the Finance Minister thinks paying $500m a year is a good idea for something we could do ourselves.

As Yogi Berra said, “if you don’t know where you are going, any road will lead you there”.

There has already been some outraged commentary on some of the more sensitive aspects of the report but it’s worth a closer look. Clearly we have a serious problem with the benefit system at the moment: there are 376,000 people on some form of benefit (79,058 on unemployment (UB), 68,056 on sickness (SB), 99,269 on invalid’s (IB) and 99,289 on the domestic purposes (DPB) plus other smaller categories). Having 167,325 people unable to work through ill health or disability is a major issue but that’s really a health problem not an economic one. Having nearly 100,000 sole parents on benefits is a serious social problem reflecting the breakdown in the family as well as unstable and unhealthy relationships. That leaves 79,000 unemployed and actively looking for work. That is a big number at a time when the economy is heading for a double dip recession.

So those are the important numbers but what does the WWG have to say about them? They outline 8 key reform themes amongst 43 recommendations (42 would have suggested a dark sense of humour!)

1) The key theme of the report is the importance of paid work. That’s interesting because I imagine most people would like to have paid work to do. Unfortunately with 79,000 unemployed it suggests there isn’t enough paid work around (certainly not enough suitable jobs). So it’s all very well saying paid work is the way forward but if the jobs are not there then it becomes a platitude. The focus on paid work also ignores the fact that many people do very important unpaid work: this includes child rearing (100,000 sole parents on the DPB), caring for the unwell, volunteering and other unrecorded contributions. This is where the report really misses the target. By only offering up paid work as a contribution to society it misunderstands how society functions, seeing society as a simple economic structure. If we valued unpaid work then that might be the case and actually there is a very sensible way of doing that which I will come to later.

2) Reciprocal obligations: this reinforces the paid work theme by making sure people are taking all reasonable steps to find work even if this means moving about the country (echoes of Norman Tebbit and his infamous and misquoted “on yer bike” remark). 2 comments here: Reciprocity is important. A benefit is a gift from the taxpayer in times of hardship. In return one is expected to do one’s best to find a job or at least re-train in order to find a different job. The problem with treating labour as a highly mobile input is that families are disrupted. Still it’s a fair point to make. With online job search sites now available, people can find suitable jobs all over the country. However, relocating may not be as easy (or cost efficient) as it sounds. This leads into the next theme.

3) Taking a long term view: the WWG recognised the need for further investment into education, training and job finding services. This makes sense. Every time someone becomes unemployed they need a thorough assessment of their abilities and potential opportunities. At that point upskilling and retraining can be offered. From what I have heard the current system is a bit lackluster in this department.

The remaining 5 themes are fairly standard fare: measuring outcomes, focus on Maori (31% on welfare, 41% of DBP recipients), focus on at-risk children (220,000 living in benefit households), cross government approach (bringing in health and education departments as well as the community) and more effective delivery (new outcomes focused agency). All standard stuff.

There has been a bit of an uproar over 2 recommendations:

- One is over the 14 week return to work proposal: this is actually about addressing the issue of having further children whilst on welfare and it is designed to act as a disincentive. This ties in with the expectation to look for work once your youngest child reaches 3 (up to 20 hours a week). It is quite specific to people who already have children and go on to have another one whilst on welfare. I think it’s reasonable to ask people to put off having further children until they are in a stable financial situation. Otherwise we do get into the potential situation of multiple children to extend time on benefit. The WWG notes that the government should monitor this policy closely and apply further financial disincentives if necessary. John Key has already said he’s uncomfortable with this proposal and this demonstrates how difficult this issue is to address.

- The other is the furore over teenage pregnancy and contraception. One of the proposals is to offer free long term contraception to women on welfare as a way of helping to ensure no further pregnancies. This ties in with a post from 2008 which looks at incentives around teenage pregnancy. It’s always preferable to see behaviours change intrinsically but it is likely to require some serious incentives to capture the attention of young people and use that to show that there are alternatives. Whether it’s annual payments into a savings scheme such as Kiwisaver or housing deposit. Incentives do matter and can help bring about lasting change.

Two fundamental changes have been proposed from these 8 key themes:

-  A new single work focused welfare payment called Jobseeker Support (with more focused supplementary benefits above that).

- A new agency called Employment and Support New Zealand (ESNZ) to implement new approach.

Interestingly enough they ruled out a guaranteed minimum income on the basis on large costs and transitional problems (they relied on a Treasury report which I will discuss in an upcoming post) but have tried to move the various benefits to a single payment, the Jobseeker Support. This really is the crux of the problem: how can people be supported whilst they are in between jobs, yet at the same time not penalised or disincentivised not to work at the margin and how can we make sure people are gainfully occupied when there are no jobs available. The UK has had a go at welfare reform as well coming up with a Universal Credit which again tries to simplify the payment process whilst incentivising the work search.

To summarise the report:

- Paid work is where it’s at.

- Labour is mobile and should go wherever the work is with appropriate support.

- Better training, support and rehabilitation is needed to help people into new employment.

- We should discourage women from having further children on welfare, teenage pregnancy and get sole parents in the workforce when their youngest turns 3 (or 14 weeks if you’ve been silly enough to have another one whilst collecting your benefit).

- Reciprocity and obligation: there’s no such thing as a free lunch.

- Invest for the future.

- Reduce beneficiaries by 100,000 by 2021.

- Improve efficiency in structure and delivery of benefits and employment prospects.

All in all these are sensible suggestions in a perfect world so what’s missing? Jobs for a start. As well as poor outcomes from an education system under strain, poor health from a section of society living in poverty and wages which for many have gone nowhere over the last 20 years. Unfortunately the WWG were given a poisoned chalice (governments have become good at outsourcing bad news) since the problems of welfare are deep seated and structural. I think they have made a reasonable fist of it despite the headline hysteria. So what’s my take on it? I’m a big fan of basic income, which comes in many forms, because I believe we have a structural decline in the availability of jobs which is going to get worse as technology strides ahead. However, there is never going to be a shortage of work. That’s the critical difference. Work can be paid or unpaid. By ignoring the value of unpaid work the WWG leaves itself with few options other than the ones they have recommended.

This is why I personally favour a conditional basic income to replace all benefits and superannuation (which I will discuss in more detail in another post). I’m glad the WWG raised the issue of reciprocity and obligation as I think it’s a very positive way to look at welfare. I’m also in favour of more investment into education and training for the workforce (the recommendation for all 16/17 year olds to be in paid work or training is good). Overall there is a need to really look at the future of work in a changing society, the embedded inequality and lack of positive pathways for many. The WWG is a very worthwhile effort at bringing some issues out for debate. It certainly doesn’t have all the answers and it does look at work through a very narrow lens but it’s a discussion we need to have with clear heads. This is just the start.

The damage of the Feb 22nd 6.3 shake is way worse than the Sep 4th 7.1 quake. No doubt this is due to the depth and the proximity of the epicenter. But this post is not about the earthquake, it’s about the economic impact and the re-building to come.

The cost of this disaster is only guessable at the moment. Numbers from $10 to 16bln have been thrown out but it could be anything. There is no doubt that this is a complete rebuild of the city’s infrastructure and central business district. Added to that is the viability of the eastern suburbs. They were affected badly and there will be questions over ground issues when it comes to re-building.

I want to go back to 1936 and the First Labour government which introduced low interest loans as part of a system of public finance to rebuild the country’s post-war economy. Think of it as New Zealand’s New Deal. The Reserve Bank governor can direct this at any time. This is certainly one possibility.

What I would like to see is fresh new money being injected directly into the economy by the government. The Treasury can action this at any time. The New Zealand economy has been struggling for a few years now since the GFC hit and deleveraging started. Business is struggling and cash is constantly tight. This latest quake will have finished off many business hanging by a thread.

I am proposing the Treasury create $5bln of new interest free money and credit it to the Government Earthquake Department for use in the rebuilding of public infrastructure. This is real money (not debt) and it will flow through into the economy thus giving it a boost as well as providing liquidity to the economy.

The money supply will increase by $5bln but I don’t believe there will be any inflationary risk. We are currently in a period of deflation and deleveraging with falling house prices and economic stagnation. NZ needs all the help it can get and there has never been a greater need nor a better time for this proposal.

It’s time for a New Deal. Please pass this on if you can.

What is not clear though is to what extent we have an actual savings problem. Our gross saving is at the low end of the OECD with Portugal and Greece below us along with two nations that might surprise: The US and the UK (page 121). There is also difficulty in analysing the differences between household and business saving. NZ is a country of small businesses and often business and household financials are closely interlinked. There is no definite conclusion around this issue and the report asks for further research into this topic, especially around data collection.

The macro level is really where the problem can be seen. When looking at the growth in national wealth, it’s clear to see that housing revaluations are the key driver (page 127) of growth since 1999. In fact “property revaluations explain nearly all changes in household net worth since 2001 (page 130). This is another way of demonstrating that we haven’t actually created any productive wealth: we’ve simply revalued our housing base and used that to fund increased consumption. That consumption has been funded by debt and that is why we have a serious debt problem.

So can we save our way out of this problem? Looking at the data on household incomes one would have to say “no chance”. Market incomes have fallen (yes fallen) for the bottom half of the population between 1988 and 2007 (page 140). That is simply astounding. This at a time when house prices have risen 490%. This is the cause of the deepening inequality between the owners of property and the renters. Even with benefits added in income for the first four deciles has remained largely the same (page 141).

Poor choices? Or simply no income with which to save. I think we must face the fact that half of our population is existing on meagre income. They cannot save and are likely to be in debt simply by virtue of not having enough cash to afford purchases or expenses outside of the simple basics of living. Those who have managed to get on the property ladder have prospered primarily because their asset has risen substantially in value. That is where their  savings lie. It should be noted though that, for many, this increased wealth is purely on paper.

At this point it might be worth looking across to data from Australia (page 128. Aussies actually have more of their wealth in residential property than Kiwis do (50% vs 46%). Investment in shares in much the same (8% vs 9%). The big difference is in long term assets. Aussies have 19% in Pensions and Superannuation whereas Kiwis have 2%. To balance that out Kiwis have 22% in business and farm assets against Aussies holding just 9%. So for Kiwis businesses and farms are their pensions. This is not an exact comparison but it’s clear that there is not much to separate the two countries other than Aussies invest in public companies and Kiwis keep it private. It also shows that Australia may have the same debt problem we do though they have benefitted more from the commodities bubble than NZ.

The oft quoted statement (from Ministers, the RB and other officials) that Kiwis should save more is somewhat optimistic. Save more from what exactly?

So what can we do? Well we can look at the other side of the savings coin and that is our expenditure. As a country we have essentially borrowed our GDP for the last 20 years. This is reflected in our current account position which has left us with a Net Foreign Liability (NFL) of 85% of GDP. Poor investment and low labour productivity (not sure where the NZBR gets its numbers from) has left is with nearly 40 years of negative current account balances (pages 20-24). The simple explanation is that we have consumed more than we have sold (plus all that accumulated and compounding interest). This consistent deficit should have seen NZ with a consistently weak currency (to allow the balance of payments to correct) but this has not been the case. NZ’s high real interest rates have been attracting overseas investment looking for a high yielding home (page 26). NZ is seen as a safe place to invest and, in an era of low global rates, has seen major inward flows which have not just funded the current account deficit but also the major revaluation in house prices.

The accumulated current account deficit has pushed interest rates thus forcing up the currency . This in turn has made imports even cheaper fueling the spending boom and embedding the circularity of higher prices in the economy (page 39). The bottom line here is that our currency is too high. This has been noted for some time but successive governments have chosen to ignore the problem, hoping that regular comments will help keep a lid on its appreciation. A 2010 IMF study estimated “that stabilising NFL would require the real effective exchange rate to depreciate by 20%”….that’s to just keep NFl where it is now. To reduce “NFL to 75% of GDP over 15 years would require the real effective exchange rate to depreciate by 25%” (page 36).

That would put the NZ$ at between $0.55-0.60. Ouch!

That is the real story to come out of this report. To summarise:

- We don’t save much because half the population has had no increase in income for 20 years.

- The other half have increased wealth due to large revaluations in house prices.

- The top 2 deciles have seen increases in wages and this is where most of the real saving is coming from (if any).

- Debt funded consumption has seen interest rates rise thereby sucking in more investment flows and boosting the currency.

- We have borrowed to live and really have no spare cash to save.

- The best form of saving is paying down debt, both private and public.

- The only way to improve our position is to export more and import less.

- The primary way to export more and import less is to engineer a significant and lasting depreciation in the currency.

- The second option is to develop and invest further in export based industries.

Adjusting tax incentives and boosting Kiwisaver are not going to help us out of this malaise. Only strong and decisive action can help us from here. So what would I recommend? That’s too much for this post but at a high level some of the following (most of which I have written about previously).

- Lower the exchange rate by direct intervention.

- Cut interest rates as well as bringing down the cost of mortgages which are still very high.

- Restrict bank credit by raising asset requirements.

- Build a self-sustaining energy sector.

- Introduce a basic income to replace welfare and superannuation.

- Liquidate the overseas portion of the Cullen Fund (now whilst markets are at 30 month highs).

- Invest more in the productive export sector.

- Oh and let’s have a land tax whilst we’re at it (this was ruled out by the government in the terms of reference!).

Next week: The Welfare Working Group reports…..can’t wait!

Is complete economic union likely? I addressed this back in September 2009 when it was last on the table. What has changed since then?

There has been a major shift in global political alignments. As the shift of economic power has moved from West to East, so has the political spotlight. Back in 2008 I noted cross border acquisitions from the East and that these signaled a major shift to a post-imperial world. That shift has continued apace with China rising to the fore, now the second largest economy in the world. For the ANZAC brothers that has major implications.

Being connected to the ASEAN has helped both Australia and New Zealand define its geo-political position in a post-Empire world, specifically post European Community integration. Asia is quite clearly the major focus in terms of trade and this has seen some interesting reaction from the old allies. This year we had a visit from William Hague, the British Foreign Secretary, along with his Defence colleague, Liam Fox. It was the first visit in almost 20 years and indicated that the UK was taking this shift East a little bit more seriously. Suddenly old friends were very much worth getting to know again. Previous to this we had a semi-royal visit from Hilary Clinton, the US Secretary of State, down under to sign the Wellington Declaration which put NZ back in the very, very good friends corner. And today we see the Treasury heads of the UK and Australia in town to meet with their NZ counterpart. This is of note as it is the first time they have met together.

So what does this all mean? Simply it’s a jostling for position and a reaffirming of old ties in  a very new world. This puts Australia and New Zealand in a very strong strategic position. We are friends of the old and the new world. We are well located geographically…out of the way but close enough. For the ANZAC buddies that poses some interesting questions. Stronger together, weaker alone or carry on as is?

We can see that the CER is being re-negotiated to allow of higher levels of non-reviewed investment which could mean a lift for corporate activity as well as a loss of company control. And this is really the crux of the matter. Do we want to control our own destiny? Lessons from Europe are all too stark in this regard. Sinking economies have no room to lower their currencies and so swing in the wind, completely reliant on bailouts.

Ultimately the people will decide on this, though its clear that further integration around common borders, regulations and practices is likely to continue. At what point does having separate currencies become a pain? Well ask anyone trying to transfer money between the two countries. You would imagine you could shift cash at minor spreads but actually you pay through the nose. Travelex is one the worst players in this market. Even market spreads are quite wide. So there is definitely a cost to doing business which might add up to 1-2% of overall activity.

A nation’s currency is ultimately a reflection of its sovereignty. The ability to issue your own coin is one the the most recognised symbols of nationhood and has often been as an economic weapon in the colonisation process. If you lose that ability then you lose control. It’s as simple as that. The way to overcome that is to just recognise that you are part of something bigger (in this case Australasia) and take the good with the bad. Personally I think it’s a tough decision to make. History tells me that having control over your own affairs is a good thing. But perhaps the mateship bond will swing views the other way. Perhaps it’s already happened. I’ll leave the final word to Peter Costello, the former Australian Treasurer, at the second Australia New Zealand Leadership Forum in April 2005 (“Crisis”, Bollard, 2010, 26):

“You guys in New Zealand have to get real. If you want to be part of a single economic market with us you can forget having your own banking system. Remember, you sold your banks to us: you don’t own your financial system any more. Leave the regulation to us”.

Strewth!!

“

As Russel Norman noted in his address to the Green Party,

“There are 20,000 New Zealand children going to school each day without food, or shoes or raincoats”

This is a major issue facing NZ. Poor health and nutrition impacts hugely on the ability to learn and on general outcomes in life. As Jamie Oliver has shown with his Food Revolution, starting early in schools can change behaviour before it becomes embedded and beyond repair. The Sustainable Kids Programme has been a real winner so far but we need more of this. Sadly the National Party over turned a previous policy on health eating in schools. It’s these types of programmes that are being slowly squeezed in the name of cutting spending. This is the classic mistake many governments make when trying to cut costs….they don’t realise that this ends up costing us all more in the long run.

We should be investing hugely in our children. In an employment constrained world, in an outsourced world, in a world of highly competitive manufacturing, we need our people to be as well as possible. They are our future. If we are going to develop a hi-tech, productive and efficient economic system then we need smart kids with good habits and a good understanding of how systems work. Food and nutrition is a perfect example of where this kind of learning can come from. If you ever seen the faces on children who have grown their own food and then cooked and eaten it then you will know what I am talking about.

We are in severe need of new jobs. Well here is a start: get every school a food and nutrition specialist, with a garden alongside. Make it a core part of the curriculum. It’s as important as P.E. (if not more important according to research). I would love to see all schools with a canteen, cooking and supplying a healthy lunchtime meal. For some children this may be the most important meal of the day. Now imagine how many jobs that could generate (with 2000 primary and secondary schools in the country).

The main argument against this approach has been of interfering in what should be a parental responsibility and also taking away to choice to eat crap, unhealthy food. Well my response to that would be to argue that schools have the advantage of scale: they can teach many kids at once. Scale is the pathway to efficiency. The most efficient way to get healthy eating into our society is through our schools and our children. They children will then take that back home and slowly change will take place.

It’s this type of vision that we need to see. Hopefully the Green Party will be the ones to bring it to the Parliamentary table.