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Weekend reading, 29 October 2010

Friday, October 29th, 2010

A version of this list of recommendations also comes out earlier in the day as part of the weekly Policy Progress e-newsletter.

Jon Cruddas - Taking Back the Big Society
A rich, sprawling and very worthwhile speech from UK MP Cruddas, the unofficial leader of the Labour left over there. A few extracts:

Across Europe social democracy has been reduced to parties of the public sector and the liberal middle class.

. . . The task at hand is for Labour to rebuild its identity grounded in ordinary, everyday working class culture.

. . . Labour built new schools and hospitals; a massive social investment. An historic achievement. No-one seems very grateful.

Labour in government pursued efficiency, ‘value for money’, and ‘customer satisfaction’ but it did not take care of the human relationships and trust that lie at the heart of public services. It used the market and the state as heartless instruments of reform. People felt excluded. They did not feel an ownership of the new grand buildings.

With embarrassing speed the Conservatives detached Labour from its own achievements. The market failure of the banks was turned into a crisis of public debt and blamed on Labour.

. . . In our history Labour has always responded to dispossession; to economic and social loss. It must do so again by rediscovering a warmth and generosity; especially in England by learning from our previous generations who have all dealt with the same patterns of loss. As such, Labour’s Good Society lies deep in the English struggle for popular democracy. (Read more)

John Kearne – Decline, fall and rebirth
This lengthy essay from The Australian presents an account of the history and evolution of social democracy and asks whether we are “living through a rare period of rupture” in which social democracy will be eclipsed by the green movement. Kearne traces some similar developments to those I’ve discussed in my Theoretical Foundations series of posts, though perhapsin a pithier style.

John Quiggin - Cosmopolitan social democracy

The left needs to offer a transformational vision of a better society if it is to motivate the kind of enthusiasm needed to overcome a rightwing politics of tribalism and (often misperceived) self-interest . . . We need a world view that extends the solidarity of social democracy to the whole of humanity. (Read more)

Dan Hind - The Media, the crisis, and the crisis in media
An intriguing suggestion from Hind, a former publisher and now author:

Clearly the media are in crisis. But if the current system doesn’t work, and the widely circulated proposals for reform won’t make a significant difference, what should we do? In The Return of the Public I make the case for a system of public commissioning. Instead of relying exclusively on professional commissioning editors all citizens take some responsibility for directing journalistic inquiry ourselves.

. . . To fund this system of public commissioning a sum of money could be taken from tax revenues or from licence fees and allocated to regional trusts. Journalists, academics and citizen researchers would post proposals for funding with these trusts . . . The public would then vote for the proposals that it wanted to support. (Read more)

Gordon Campbell – On The Hobbit finale
I’m not keen to get drawn into all the ins and outs of Hobbit-gate on this site, but this suggestion from Campbell, the veteran political columnist now with Scoop, was rather interesting:

In one important sense, The Hobbit experience has given New Zealand a second chance. What LOTR offered was an opportunity to build an entire industry off the back of what Peter Jackson had achieved. We could have created a wide ranging knowledge industry of a sort that bypassed the usual tyranny of New Zealand’s distance from its markets. Almost by accident from a national planning point of view, the film industry could have become exactly the sort of business cluster that Harvard University marketing guru Michael Porter had – decades ago – urged New Zealand to create.

Did we take full advantage of that opportunity? Hardly. . . . successive governments have left the private player (Jackson) to do all the heavy lifting, while keeping the Film Commission on starvation rations . . . We have a world leading FX shop, and little else of any stature . . . Keeping The Hobbit now gives us a second chance to re-balance the mix, because film seems to be what we do best. It is our knowledge economy forte.

This is not a case of picking winners. The winner, in the shape of Weta Digital at least, has already galloped past the post and picked up the Cup for being a globally recognized star performer. The strategy now should be to seriously fund and foster the growth of spinoffs – in gaming, in animation, design shops etc – that will enable the industry to expand out horizontally. To pull its weight properly in this process the Film Commission needs more funding – under conditions that ensure it meets cultural and commercial objectives from micro-budget features to mainstream theatrical releases. (Read more)

Paul Krugman - Falling Into the Chasm
Martin Wolf – Why US voters are suing Dr Obama
Krugman:

If Democrats do as badly as expected in next week’s elections, pundits will rush to interpret the results as a referendum on ideology. President Obama moved too far to the left, most will say . . . But the truth is that if the economic situation were better — if unemployment had fallen substantially over the past year — we wouldn’t be having this discussion.

Wolf:

With a political stalemate expected, further action will now be blocked. A lost decade seems quite likely. That would be a calamity for the US – and the world.

Also:
John Kay – Why you can have an economy of people who don’t sweat
Jake Brewer – The Tragedy of Political Advocacy

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Commentary round-up

Wednesday, October 27th, 2010

A regular feature spotlighting new writing (and audio) from top commentators Rod Oram, Colin James and Brian Easton.

In Labour fails to convince on economic policy (Star-Times), Rod Oram is rather harsher than his earlier Nine to Noon radio spot (covered last week). He is particularly critical of Labour’s new policy on foreign investment:

. . . if foreign investors help the New Zealand dairy industry shift to far more sophisticated, higher-value products, there is a good case for having them here. Labour says those are the land investors it will approve, while it bans the rest.

It will be very difficult, though, for the government to pick the right projects. Other countries such as Ireland have learnt how to make difficult decisions about which foreign investments to support. Labour must convince us it can learn and apply them. If it doesn’t, its agricultural land policy will be a big liability in the business community.

I find this a little ironic, in light of Oram’s own suggestions on foreign investment on Nine to Noon a few weeks ago, as covered in my round-up at the time:

It would be far more interesting if approval was contingent, for example, on a large-scale investment that would improve the industrial capability of New Zealand and increases exports beyond a business-as-usual case. Or there would be safeguards, so for example if a foreign investor bought a New Zealand company any money that that company had received in the way of government R & D grants over, say, the previous five years were refunded. You could be an awful lot more strategic about that — as other countries have been.

If anything, that sounds rather more difficult to operationalise than what Labour is proposing. Though perhaps he has backed away what may have just been an off-the-cuff musing at the time. In any case, he concludes:

“John Key has no game plan for our cities and our farms so that we can compete and win in the global economy,” Goff told the conference. “I do.”

No he doesn’t. But at least he and his Labour colleagues are working on it.

(Oram’s Nine to Noon spot didn’t appear this week, due to the short week.) (Thanks, Samuel Parnell!)

Colin James looks at the Maori Party in The foreshore party’s long growth into realist politics (Fairfax papers):

What does this say to the Maori party as it gathers on Saturday? That it has reached or is close to the limits of what it can extract from National. National will not agree to a “Treaty-based constitution”, except in the formal sense that the Treaty is the founding document legitimising the imposition of constitutional colonial government.

. . . So on Saturday there will be congratulations for the leadership on the totemic wins. But the farsighted will ask what can be extracted from National for a second term after next year’s election which has not already been dealt with or set in train.

And in Science, John Key and the Singapore syndrome (Otago Daily Times) he continues last week’s discussion on science policy:

So what’s stopping Key deciding to lift the game? He could, for example, add $200 million new spending each year for five years, which would get us to around 1 per cent of GDP.

. . . Of course, it also means either taking money off somewhere else or delaying a return to a budget surplus. And many RS&T ideas produce no return and those that do can take up to 10 years for a return, whereas hip operations, national superannuation at age 65 and the like are here-and-now politics.

Nothing new from Brian Easton this week.

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Material living standards in New Zealand and Greece

Tuesday, October 26th, 2010

A while back, I did a comparison of material living standards in New Zealand with those of Australia, a very similar country but one with 33% more GDP per capita in buying power terms. (There are links at the end to the posts on the Australia-New Zealand comparison, which also outline the methodology for this analysis.)

In this post, I’d like to complement that by comparing New Zealand to Greece, which is a country with (as at 2005) very similar buying power per capita but a less similar lifestyle and culture.

When we looked at Australia we found broadly similar patterns of expenditure on many items, with much of Australia’s ‘growth dividend’ over New Zealand being reinvested in health, education and gross fixed capital expenditure. How, then, do we look alongside Greece?

As we can see in this first graph, New Zealand earned somewhat more than Greece did in pure GDP per capita terms, but when you take into account buying power (i.e. things were a little cheaper in Greece on average), then the Greeks were a little better off than we were. The difference is noticeable but not huge, about $1,500 a year ($29 a week).

This is complicated somewhat by the fact that Greece and New Zealand differed somewhat in the way they allocated their income across the large categories of actual individual consumption, collective consumption, gross fixed capital consumption, change in stocks and net exports.

Greece spent more than New Zealand across both forms of consumption and capital formation, but nearly half of this was financed by them running an even more negative trade balance than New Zealand’s. (Events over the last year may suggest that this was not a sustainable strategy for Greece.)

Looking more specifically at actual individual consumption, which is the aspect of our material standard of living that we experience most directly, the Greeks were spending $1,022 a year more each in New Zealand buying-power terms than us. That equates to about $13 dollars more a week.

But once again we see a differing pattern of consumption, rather than this dividend being spread thinly across all categories. As we see below, the Greeks spent a great deal more than us on food, drink and clothing — much moreso than the considerably richer Australians. (And, remember, these figures are in buying-power terms; they don’t reflect food, drink and clothing being more expensive there, but rather more and/or higher-quality consumption.)

On the other hand, there are number of categories where New Zealanders spent more than Greeks, most notably recreation and culture where we spend on average $32 a week more.

And then there are categories where we spent roughly the same amount (including health and education).

There are of course many, many caveats needed with an analysis such as this. For one thing, these per capita figures tell us about the mean, but they don’t necessarily say much about the lives of the average (i.e. median) Greek or New Zealander — especially if we don’t know about the income distribution of the respective countries.

Nevertheless, this analysis does suggest some broad differences between New Zealand and Greece, and possibly other southern European countries with broadly similar GDP per capita. Underneath the similar aggregates, we appear to be more modest in terms of our food and clothing (as are the Australians) but to spend more on recreation and transport. However, the latter may not necessarily reflect better outcomes for us but may simply mean that they have access to cheaper alternatives that might be just as good or better (the Acropolis and the Metro rather than the rugby match and the private car).

Links:
The earlier analysis can be found in Staring at the gap and If we do catch Australia, what’s the prize?
SourceOECD data on the 2005 Purchasing Power Parity Benchmark results

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Weekend reading, 22 October 2010

Friday, October 22nd, 2010

A version of this list of recommendations also comes out earlier in the day as part of the weekly Policy Progress e-newsletter.

Ben Baumberg – Should we defend the middle class welfare state?
An interesting and challenging post on Left Foot Forward from Ben Baumberg of the LSE and the group-blog Inequalities. He concludes:

[UK Labour leader Ed] Miliband somehow needs to avoid several temptations: not to give in to the siren call of means-testing everything, nor to universally defend universalism. To help him in this, we need to think through the welfare state systematically, rating the impact of targeting and means-testing against a complete set of principles – and come up with a plan for targeted universalism that is both affordable and which defends the key achievements of the middle-class welfare state.

John Quiggin - Five Zombie Economic Ideas That Refuse to Die
Progressive Australian economist John Quiggin has a new book out called Zombie Economics: How Dead Ideas Still Walk among Us which looks interesting and accessible. This article from Foreign Policy provides a useful introduction to some of what he has to say.

Big Cake – What if greenies are right? Growth: we can’t live with it, can’t live without it. Another great TED talk
Local blogger (and friend of Policy Progress) Big Cake’s take on Tim Jackson (who I discussed here).

OECD - Business as usual is not an option
Interesting to see this from as ‘establishment’ an organisation as the OECD:

“Business as usual” is not an option. That’s why the OECD is developing a Green Growth Strategy to help governments design and implement policies that can shift our economies onto greener growth paths. Central to this is identifying sources of growth which make much lighter claims on the biosphere. This will require fundamental changes to the structure of our economies, by creating new green industries, cleaning up polluting sectors and transforming consumption patterns.

Seth Godin – What does ‘pro-business’ mean?
Author Seth Godin makes a distinction between ‘pro-business’ policies and ‘pro-factory’ policies.

Also:
David Cunliffe – Cactus Kate on FDI
No Right Turn – Choice
Keith Ng - Did you know we’re in a recession?
John Kay - Barbarians at the gates of complexity
Matthew Yglesias – Global Economic Impact of Immigration

And on the ‘to read’ pile:
Brendan Mai, John Janssen, Geoff Lewis, Simon McLoughlin - Taking on the West Island: How does New Zealand’s labour productivity stack up? (New Zealand Treasury Productivity Paper 10/01)

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Commentary round-up

Wednesday, October 20th, 2010

A regular feature spotlighting new writing (and audio) from top commentators Rod Oram, Colin James and Brian Easton.

Turning science from problem to opportunity, Colin James’s column for the Fairfax papers this week, is about a soon-to-be-released report from Research, Science and Technology minister Wayne Mapp and former AgResearch chief executive Andrew West:

Mapp, who started slowly in RS&T because his main interest was defence (his “review” is about to reach his desk), has got enthusiastic. On Thursday he will scan the role of science over the next 20 years. He got West to find “demonstrable evidence in the New Zealand situation that expenditure on science leads to economic growth”.

West has done that and a lot more. His still very-much-under-wraps report goes far beyond a simple cost-benefit exercise. In his idiosyncratic manner he has crafted a bold, maybe even daring, strategy.

Yep, that sounds like Andrew West! I worked with him when he was NZQA chief executive and then Tertiary Education Commission chair in the early 2000’s, and had a little to do with him at AgResearch too. I’ll be interested to see his report.

Off that back of that Mapp will pitch for more funds. He is talking of a “modest but not insignificant” lift in the 2011 budget. Others in the swim think it might not be so modest if Key gets enthused and pulls rank on English. One option is an annual commitment of a significant additional sum, accumulating over time to a large lift in GDP terms.

Colin concludes:

Sir Peter [Gluckman, Key's Science Advisor], West and Mapp are putting to Key an opportunity.

It might be the wrong opportunity for Key or just too risky or too hard. But small hints suggest he might (just conceivably) go for it. If he does, the 2011 budget might (just conceivably) be his prime ministership’s defining day.

Writing in Otago Daily Times, Colin also looks at Squaring (or not) Labour’s economic nationalism circle. His take on the policy shift that I discussed an aspect of in my column yesterday is:

The new line reflects a conceptual shift.

Much of Labour has longed to escape the neoliberalism its 1980s government embraced. Its 2000s government knocked off some rough edges but could not disavow it. Now, in the aftermath of the great financial crisis (GFC), Labour can quote from a rising tide of hefty international writing.

. . . Labour’s hope is that the post-GFC new way-truth-and-light — when it can be seen and then codified after the global blindness subsides — is congenial to its instincts and values and frees it from the 1980s legacy.

. . . Certainly, Labour has been emboldened to act on the plausible premise that neoliberal economics is no longer convincing politics. The enemies of capitalism who lurk multitudinously within capitalism and who, in precipitating the GFC, did such wide and deep and still persisting damage have brought that about. Labour sees its economic nationalism as fitting this “changed world”.

Rod Oram also looks at Labour’s economic policy development in his weekly interview with Nine to Noon (audio). It’s difficult to summarise succinctly and I’d encourage you to have a listen for yourself, but in general he is cautiously optimistic but with some reservations and awaiting more analytics.

Rod also writes Rail revival will finally make a difference for the Star-Times:

The Key government was no fan of its predecessor’s decision to buy back rail, but it took a rational approach to the asset . . . The government vigorously tested the business case KiwiRail put to it before agreeing in May to invest $250m in this financial year. It agreed to invest a further $500m the next two years, subject to business-case approval.

. . . Such improvements will cut the Auckland to Wellington freight time to around 11 hours over the next two years, from 13 hours now. When this goal is achieved, KiwiRail, working closely with its export and freight forwarding customers, will be demonstrating the viability of rail. Hopefully, it will then be able to convince the government to make further investment.

My fellow blogger (and sometimes Policy Progress commenter) Big Cake is critical of the column, however, for ignoring what he sees as “the fundamental issue that parts of the rail network are commercial duds and, if not closed, will continue to weaken the rail network as a whole”

And, finally, Brian Easton writes for the Listener on Riceonomics, another in his series of articles about China. This one uses the massive public construction works of ancient China like the Forbidden City to illustrate “the central role of the economic surplus, including how it comes about, who shares it and what they do with it”.

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Foreign ownership — getting the balance right

Tuesday, October 19th, 2010


I spent this weekend at the Labour Party conference in Auckland, and it was a heartening and energising experience. I had a real sense that the openness to new thinking that I predicted way back in my first Policy Progress post, and which I’ve recently been tracing in the UK Labour Party, was alive and well in New Zealand Labour, too.

I was particularly pleased about Annette King’s Agenda for Change for children, including legislated targets for the eradication of child poverty.

But, for the moment, I want to focus on Phil Goff’s announcement about restrictions of foreign purchase of farmland and strategic assets, and some of the broader issues around economic policy that I think it touches on.

Back in May, I identified that New Zealand’s gross national income (GNI) — what New Zealanders earn — as a proportion of gross domestic product (GDP) — has been declining slowly but steadily for at least the last 40 years.

Source: National Accounts of OECD Countries: Detailed Tables, Volume II, 1996-2007, 2009 Edition

(I also compared us with handful of other countries.)

A main driver of the gap, which had risen to 7.5% of GDP by 2007, is the amount we pay to foreign owners of New Zealand-based resources and productive capacity.

This phenomenon has also been acknowledged by Treasury in a 2009 report, though they are not concerned by it:

Greater foreign ownership increases the gap between GDP (economic activity that occurs in New Zealand) and GNI (income accrued to New Zealanders). However, the gap does not matter in itself; rather, the question is whether the gap results in lower long-term real incomes.

To the contrary, their report argues that “foreign investment brings a number of benefits that are much more likely to increase long-term real incomes.”

In a 2006 essay, David Skilling, who was then the director of the New Zealand Institute, took a much less benign view:

This consistent sale of debt and equity claims on the New Zealand economy to foreign investors translates into a high degree of foreign ownership of the productive New Zealand economy . . . A significant portion of New Zealand’s economic growth therefore benefits the foreign savers who have invested their capital in New Zealand. New Zealand is increasingly becoming a nation of employees rather than of owners.

One important function of capital inflows is not arguable, however: it’s an accounting identity, and thus true by definition. Pulling my old economics textbook by Joe Stiglitz off the shelf, I find the savings-investment identity written as:

private savings + government savings + capital flows from abroad = investment

Or, in other words, “to decrease capital flows, it is necessary either to reduce the budget deficit, to increase private savings, or to decrease investment”.

And here we come to the nub of the challenge of progressive economic policy in New Zealand. Whatever unease we might feel about foreign investment, we need it to achieve even the relatively modest levels of investment in our productive capacity that is currently occurring.

Because, as we hear time and time again, we in New Zealand are not saving enough to drive the investment we need. When I looked at the breakdown of Australian and New Zealand income per capita a few months ago, I found that Australians were collectively spending 66%, or nearly $6,000 a year per person, more on gross fixed capital formation than New Zealanders were. Of course, in part this reflects the fact that Australians are richer than we are, but the consequence is to reinforce that relative advantage.

So, unless and until we can improve our savings levels, we need to maintain current levels of capital inflow from abroad.

But we should be aware of the cumulative impact that this is having. And of just how much of an outlier New Zealand has become. Philip Lane from Trinity College Dublin and Gian Milesi-Ferretti from the IMF have done a lot of work estimating the net foreign asset position of a whole range of countries. This graph from a 2004 paper by them shows that, even for a relatively poor ‘industrial country’, New Zealand’s situation of having a net debt of nearly 100% of GDP is well outside the norm.

They also found that a negative net foreign asset position tends to drive up long-term real interest rates, which makes it more expensive for businesses to invest in productive capacity. A 2003 paper by Christopher Plantier for the Reserve Bank tends to confirm that for New Zealand.

What this all says to me is that we would want to be very confident that our foreign investment is indeed going into building new productive capacity.

If it is, then there is some evidence that there will be positive side-effects as well. Firm Foundations, a 2002 report from the Ministry of Economic Development found evidence that foreign owned firms outperformed domestic businesses and argued that “foreign ownership has provided resources and opportunities to generate substantial positive change to the practices and capabilities of New Zealand businesses”. There are also studies that suggest R&D spillovers.

But where capital inflows are simply coming in to transfer the ownership of an existing asset or resource, with no further development envisaged, then the argument is quite different. Particularly in the case of land, which is a finite resource (“Buy land; they ain’t making any more of it”, the US humourist Will Rogers used to say). The only ‘beneficial’ effect of foreign land purchase (without accompanying investment plans) is to potentially bid up the price, and that’s mainly of benefit only to the seller.

An economic argument against sale restrictions in this instance therefore tends to come down to a faith that whatever a willing buyer and a willing seller agree on is always the most efficient outcome. In other words, it relies on an unwavering faith in the market.

Beyond that (apart from strategic assets), we get into more challenging territory. It would seem the first thing that needs to be done is work to to boost household (and/or government) savings levels. If this can be done, then current levels of reliance on foreign capital inflows will (as per the accounting identity) decline of their own accord. Thus more general restrictions on foreign ownership may not be necessary or desirable.


Links:

Further reading:


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Weekend reading, 15 October 2010

Friday, October 15th, 2010

A version of this list of recommendations also comes out earlier in the day as part of the weekly Policy Progress e-newsletter.

Tony Wright (ippr) – Where next? The challenge for centre-left politics (hat-tip: NBH)
Tony Wright is a recently-retired UK Labour MP who now teaches public policy at University College London. His ideas have a bit in common with some of the other writers of similar pedigree I’ve discussed, like Purnell and Liddle. Here are a few extracts:

There are interesting ideas emerging about a transparent ratio between earners at the top and bottom of an organisation. Discussion of tax levels should no longer be off-limits either.

Nor does the idea of an active industrial policy seem quite so old-fashioned now . . . This is not a matter of the state propping up industries that are in decline, or even of ‘picking winners’: it is a matter of stimulating new technologies, promoting business networks and ensuring sources of finance.

. . . It is already clear that behind the immediate fiscal crisis there are long-term ambitions to re-order the relationship between the state and the market. The centre left will be required to remake the case for collective provision of services on grounds both of equity and efficiency, and for the taxation necessary to pay for them. This will require rather more intellectual and political confidence than was required during the New Labour years, when the cash cow of financial capitalism could be relied on for its painless largesse.

. . . The style of politics matters too. It should be open and inclusive, not imposed and manufactured. New Labour eventually (but inevitably) paid a high price for a style of politics that was more about responding to the party’s disputatious past than fostering an engaged democracy.

John Carney – A Primer On The Foreclosure Crisis
Bernard Hickey drew my attention to this column about a worrying new economic problem emerging in the US:

Ever since the housing bubble burst, there have been signs that there are serious problems with foreclosure practices. In some cases, the financial institution claiming it owns the mortgage has not been able to produce the underlying loan documents . . . what really kicked off the latest developments was the deposition of a GMAC loan officer named Jeffrey Stephan. . . he signed off on up to 10,000 foreclosure documents a month for five years. He said that he hadn’t reviewed the mortgage or foreclosure documents thoroughly. He quickly became known by the pejorative “robo-signer” for this way of getting mortgages through.

. . . Banks concerned about the recovery values of their mortgage portfolios and higher capital requirements, may pull back lending even further than they already have. In short, this could be the beginning of the second leg of the credit crunch.

Paul Krugman – What We Learn From Search Models
Matt Nolan (TVHE) – Nobel 2010
This year’s ‘Nobel Prize’ in Economics goes to Peter Diamond, Dale Mortensen, and Christopher Pissarides for their work on search models of unemployment. You can read a bit about that work in these articles.

George Monbiot – The Values Of Everything (hat-tip: Fleur)
I’m not totally sold on environmental activist George Monbiot, but in his latest column he outlines a rather interesting new book:

Common Cause, written by Tom Crompton of the environment group WWF, examines a series of fascinating recent advances in the field of psychology . . . By changing our perception of what is normal and acceptable, politics alters our minds as much as our circumstances. Free, universal health provision, for example, tends to reinforce intrinsic values. Shutting the poor out of healthcare normalises inequality, reinforcing extrinsic values. The sharp rightward shift which began with Margaret Thatcher and persisted under Blair and Brown, all of whose governments emphasised the virtues of competition, the market and financial success, has changed our values.

. . . Common Cause proposes a simple remedy: that we stop seeking to bury our values and instead explain and champion them. Progressive campaigners, it suggests, should help to foster an understanding of the psychology which informs political change and show how it has been manipulated. They should also come together to challenge forces – particularly the advertising industry – which make us insecure and selfish.

Also:
Clint Smith (Parliamentary Library) – The next oil shock?
Brad DeLong – What Does Cutting-Edge Macroeconomics Tell Us About Economic Policy for the Recovery?
Martin Wolf – Why America is going to win the global currency battle
The Guardian – Calm and forceful Ed Miliband impresses at PMQs
The Dom Post – Capital goes green and cuddly
The Dom Post – Choat vows to fight further cuts to spending

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Government gratitude for charitable contributions

Thursday, October 14th, 2010

The government says thank you, in a tangible way, to people who donate money to charity. But there is no such thank you for people who donate goods or services to charity instead. Is that fair? Can we fix it?

One of the last things the last Labour government did to our tax laws was to raise the amount of charitable donations that a person can claim against their taxes. It used to be that, no matter how much a person gave to charity, they could only claim about $600 off their tax bill as a result. Now people can claim one third of their donations off their taxes, no matter how much that comes to.

The basic idea is that if someone is generous enough to gift some of her income to worthy causes, the government should say thank you in a meaningful way. The reasoning is that larger donations should always get louder a thank you. That sounds both reasonable and public spirited.

Only a very few people in New Zealand, however, actually give enough money to charity to benefit from this policy change. To get anything out of the 2008 law change, a person has to donate over $1,900 a year. Most New Zealanders simply do not have that level of spare cash sitting around, even as they strongly support the valuable work that our charities do.

The way that many people show their support charity despite a thin pocketbook is to give things other than money. Some people volunteer at a Citizens’ Advice Bureau or a soup kitchen. Others drive for Meals on Wheels. Still others donate goods to a Salvation Army Thrift Store.

The difference is that this kind of charitable giving does not attract a thank you from the government. If you give the Red Cross $10, the government gives you a little money in return. If you spend a weekend pounding the pavement helping the same organization, the government does nothing.

That is a shame, because the work is every bit as valuable as the financial contributions.

If the Meals on Wheels service had a lot of money to make meals, but nobody to deliver them, then needy folk would go hungry. Similarly, if the Sallies had the money to rent a retail location for a Thrift Store, but no goods to put in it, then it wouldn’t do much good. Donations of goods and services are just as vital to New Zealand’s charitable sector as are donations of money.

Is it really fair that the government gives a break to those who are generous with their money, but not to those who are generous with their time or their possessions?

I think this situation is not fair. I think the government should step up and said thank you, in a tangible way, to the small army of volunteers and bric-a-brac donators across New Zealand.

It would not be hard to implement. Donations of goods, if properly accounted for, could be written off against taxes at their fair market value. That already happens in the USA, where I live. Last year, my wife and I donated some furniture and clothing to a thrift store. Its market value was about $200, so we got a $200 deduction off our taxable income. That was a nice motivator while cleaning out the garage on a cold Michigan morning.

Similarly, donations of time can be written off against taxes at the rate of the minimum wage. For every hour that a person does volunteer work for a charity, they can write $12.75 off their taxable income. Simple.

The administration of this need not be burdensome. If you want the tax deduction, simply provide the (registered) charity with your IRD number. The charity then keeps a log of the hours you work or the goods you provide, along with their sales price to determine market value, then sends the list to the IRD each year. The IRD collated the spreadsheets and starts mailing cheques. Simple.

(Of course, the IRD will need to be on the lookout for cheats. But they are already on the lookout for cheats everywhere else in the tax system, so the extra workload need not be large.)

Even though this scheme amounts to paying people to volunteer, nobody would get rich this way. The actual pay rate would be something less than 33% of the minimum wage, depending on your other income. But nobody gets rich off the current law where people who part with $1 get $0.33 in return either, and everyone seems to think the current policy is an appropriate gesture of both encouragement and thanks.

Despite the small amounts of money at play, a policy like this would send the right signal about charitable work, namely that the government likes what you are doing and wants to show its gratitude for your contribution, no matter what form it takes. The most effective part of any incentive is the first dollar.

Maybe those few dollars would encourage some extra people to spend a day or two helping the less fortunate. That would be nice.

________

A native Wellingtonian, Rob Salmond now lives in the US. He is Assistant Professor of political science at the University of Michigan, and is also currently a Visiting Scholar in the department of political science at Stanford University. Rob’s academic areas of interest include legislative institutions, political media, and political economy, all with a cross-national focus.

Rob’s previous posts for Policy Progress were Why the progressive movement should talk more about economics and A (Conditional) Progressive Case for Income Splitting.

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Commentary round-up

Wednesday, October 13th, 2010

A regular feature spotlighting new writing (and audio) from top commentators Rod Oram, Colin James and Brian Easton.

Colin James’s column for the Fairfax papers, Labour: perhaps the end of the beginning, is about the Labour Party conference this weekend:

MPs have been developing six “frameworks” and a number of other policy documents, drawing on outsiders as well as party supporters. The “frameworks” and a range of other policy items will be test-driven this weekend at open workshops and “new thinking” debates, then firmed into election policy. Some other topics will be canvassed at “fringe” meetings.

We will see at the weekend whether the “frameworks” amount to imaginative and fresh enough rethinking on which to base policy that can still be relevant in 2020 (the sort that Phil Goff’s gimmicky GST off fresh fruit and vegetables, opposed by some MPs, is not).

One which may qualify is Annette King’s use of an outside “commission” to rebase social policy on intervening in early childhood to avert expensive remediation or incarceration later. Instead of a child segment in the health, education, housing and welfare policies, those policies will grow out of this child-based policy. From among her advisers, academics Richie Poulton, David and Liz Craig and former Children’s Commissioner Cindy Kiro will figure at the conference. (Poulton is also on Sir Peter Gluckman’s group tackling this issue and on Anne Tolley’s early childhood education inquiry.)

David Craig is also a guest-poster at Policy Progress. You can read his State subsidisation of low wages and his trilogy on Reconceiving the welfare state (parts one, two and three).

Ruth Dyson took a cue from King and ran two day-long forums to canvass academic, professional and lobby group outsiders and unions. Her 2020 challenge is affordability, which she says can be met only by shifting the focus more heavily on to prevention and disease prevention. She has yet to produce a “framework”.

Economic debates will feature economist Ganesh Nana and journalist Bernard Hickey. The economic rethink draws on post-GFC writing searching for the “new normal”. One insider says: “The world economic order is changing, so policy platforms are changing, particularly in the developed world. Things that were out of bounds are now back in play. That gives an opportunity to flash ideas around old and new.”

The policy frameworks are also mentioned in Are we heading towards a greener government? (Otago Daily Times):

Environment is one of the six policy “frameworks” to be workshopped and debated at the Labour party’s conference this weekend.

The framework will talk of transition to a low-pollution economy. It will argue that, if necessary, short-term economic gain should be traded off for long-term environmental benefit.

It will talk of intergenerational fairness and needing to live within the earth’s capacity to support humans. So, make it easier for people to live more environmentally friendly lives. The government should promote strong, enforceable standards and, because it occupies about a third of the economy, lead by example.

It will propose re-tightening aspects of environmental regulation the government has loosened and toughening the emissions trading scheme, with strategies on energy, transport and land use to reduce greenhouse gas emissions.

But the main focus is on Department of Conservation director-general Al Morrison (a former journalist who some readers may recall as the political editor for Radio New Zealand, 1996-2002) and the speech he gave last week that attracted some media attention:

He analogised this rundown to the country’s economic performance in running nearly four decades of balance of payments current account deficits: “Our economy is dangerously exposed, seriously out of balance and facing huge adjustments. The prospect of getting back into balance is a distant one.”

. . . But Morrison is not a lefty sandal-wearer. He links the environment — and the conservation estate — with economic wellbeing. This is in two senses: that nice nature is one of the things we sell, to tourists and with our land-based products; and that there is money to be made out of this “natural capital”.

. . . for strategic planners in business and elsewhere the message is that greener policy settings are likely in due course.

Morrison has signposted a path for those strategists: to look for ways of working with environmentalists, including DoC, to make money and in the course of doing that, make New Zealanders more prosperous in a wider sense than simple GDP.

Rod Oram talks to Nine to Noon about the looming Currency Wars that I discussed on Friday. With regard to New Zealand he differs from Bernard Hickey’s analysis (which I reported in that post), saying:

In the short-term there’s not a lot we can do. We have a highly-traded currency and it bobs around on these international markets.

. . . there’s not a lot that people can do in the short-term. The Reserve Bank, thanks to the previous government, has some more minor powers to try to nudge the exchange rate at a turning point in the cycle (and we’re nowhere near one of those yet). But basically we, and even countries much larger than us, can’t intervene; the forces are too big.

But there’s a very important longer-term issue, which is that one of the reasons always for the strength of our currency is our relatively high interest rates here, which takes us right back to how monetary policy is conducted. And the view on our government about monetary policy is incredibly orthodox, it hasn’t changed much over the last fifteen years. Whereas there are very interesting new views coming out of the likes of the IMF that monetary policy perhaps needs to be run in a slightly different way, particularly in countries like ours which are very open economies.

Ryan: I’m always bemused as to what that different way is, beyond the flexibility that the former Finance Minister gave to ‘look through’ the cap or the maximum interest rate that the Reserve Bank governor’s supposed to work to, and to factor in other economic priorities. What else can you do?

Oram: Well those ideas that came up a few years ago were seriously bad ones. Like trying to put an extra levy on top of mortgages, for example, to try and curb those. What’s coming through is much more practical and rather more insightful. So, for example, the Reserve Bank has a new capital reserve requirement on the banks — we’re the first jurisdiction in the world to do it — which allows it to lean against lending if you like, so when lending is very strong it can increase the capital reserves the banks needs to have in place to try to slow that lending down. So that’s some of the new thinking that’s going on.

And it’s very interesting that Labour has picked up on that, and has already made it very clear that it’s going to campaign next year on this issue. So it’ll be very interesting to see, particularly if the currency pressures get a lot more extreme over the coming months, to what extent this will become an election issue. We can’t control our currency, but maybe there are ways to moderate its movements more than we’re doing.

Oram’s Star-Times column is NZ film stuck in muddle earth (“The film The Hobbit is a sideshow. The real drama is the survival of the New Zealand screen industry.”)

Nothing new from Brian Easton this week.

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There needs to be room for politics in public management

Tuesday, October 12th, 2010

A few weeks ago I went along to an Institute of Policy Studies lunchtime seminar on the performance management of state sector organisations. It was given by Derek Gill (whose working paper The Future State I wrote about a few months ago) and Susan Hitchiner.

The seminar was reporting on the IPS’s Managing for Organisational Performance research project, which is a sort of stocktake of the system of public sector accountability put in place in New Zealand by the Public Finance Act and the State Sector Act in 1980s.

I found it dense but worthwhile. It was definitely intended for quite a particular audience, though: one that is really immersed in the system of Annual Reports, Statements of Intents, outcome measurement etc that make up the current formal accountability framework for the public sector.

This got me thinking about how — and whether — this connects to the kind of things we’ve been talking about and hoping to achieve here at Policy Progress.

In theory, there’s no reason why it shouldn’t. I certainly believe that the public service (a) understanding what you’re trying to do, (b) being committed to making it work, and (c) having the capability to back that up, are all vital ingredients for any progressive government’s agenda.

And an accountability framework could potentially be a valuable means to ensuring that.

And yet, I detect a twinge of disappointment from Gill and Hitchiner about politicians’ actual engagement with, and attitudes towards, the detailed and resource-intensive accountability framework that has been erected for their benefit over the last twenty years. As Gill gently puts it, “Ministers use of performance information was variable as their political leadership role requires a selective focus on a few issues.” Rather than working systematically through an department’s Statement of Service Performance and ensuring that they’re performing well across the board, Ministers seemed to want to concentrate on certain key things that they wanted to achieve, or where they felt at risk.

And similarly with Parliament. They get such a wealth of systematic and comprehensive information across the whole range of departmental activities, but do they use it properly? Gill reports “Little systematic use of performance information due to Ladley’s iron rule of political contest”. He then elucidated this nice turn of phrase from Andrew Ladley (who himself spent nearly three years in the Beehive as Chief of Staff of the Alliance party) with a quote from ex-State Services Commisioner Mark Prebble’s new book: “Parliament uses performance information not to improve the Executive’s performance but in order to attack the Executive”.

Gill and Hitchiner are not surprised by this and understand and accept the dynamics at work. But you still get the feeling it’s a bit of a pity.

Even so, this doesn’t seem to be a major impediment. If politicians don’t care about and utilise the public management system we’ve erected, then we’ll identify others who do. As the discussion continues, they explain how the accountability framework can best be used by some public servants (chief executives, control agencies) to monitor and manage other public servants.

Listening to this, I begin to wonder: who does “we” mean in all of this? A lot of those in the room weren’t public servants (many were academics), yet they all seemed interested and heavily invested in a system for keeping the wheels of government running smoothly and effectively in a way that largely abstracted from any kind of political contest (or “the authorising environment”, as they call it).

At one point Susan Hitchiner even talked about “reducing political contest in relation to outcomes” (although, to be fair, I’m not entirely clear if she was actually advocating that). This got me thinking about how far removed the discussion (erudite and thoughtful as it was on its own terms) was from addressing the needs and aspirations of people trying to develop and then implement a progressive agenda. (And presumably it was equally remote from our opposite numbers on the other side of politics.)

Let’s leave aside the idea of taking the politics out of which outcomes to pursue and prioritise (which can only be done by expressing them in such a generic motherhood-and-apple-pie way as to make them meaningless). Even the idea of depoliticising the supposedly ‘technical’ process of how to most effectively achieve our desired outcome is fraught. In my view, it misunderstands the nature of many of the difference between political ideologies.

Progressives differ from conservatives not just on what kind of society they want to achieve, but also (in some ways moreso) on the best and most appropriate means to deliver that.

The currently quite topical issue of public-private partnerships offers a good illustration of this. From a technocratic perspective, this is but one means to a desired end. It can thus be evaluated quite dispassionately on objective criteria, and an assessment made about its suitability in a particular context.

But this does not adequately capture why many conservatives are so keen to pursue this avenue. Nor why many progressives are so opposed to it. Those reasons are intricately bound up with ideas about the relative roles (and efficacy) of the public and private sectors that are quite fundamental to both political perspectives. They are not likely to be dislodged by citing one or two research findings for or against.

(I’m not saying here that political positions are completely unresponsive to empirical evidence. Over time, various assumptions that have been held by one or other political perspective have in fact been largely discarded in response to the weight of evidence and experience. But political partisans will be, quite properly, slow and cautious about making such a shift, and expect a high standard of proof.)

So, what does this mean for a system of public management that seeks to make public sector organisations accountable for delivering on the electoral mandate given to a progressive (or other) political programme? It needs to accept, as Gill and Hitchiner have recognised, that such programmes are not strongly concerned with managing business-as-usual (which is inevitably encompasses a large proportion of a departments’ activity), though they will want to have confidence that this is being well-managed.

An accountability framework needs to provide politicians with an easy-to-use mechanism for holding agencies accountable for carrying out their progamme, as they conceive it. To do this, it needs to be responsive to the inevitable and legitimate fact that programme will encompass a mix of: broad outcomes or aspirations; particular outputs or initiatives (perhaps ones that party activists have championed within the party’s manifesto process); plus some views or preferences as to which ways of achieving things are effective or appropriate.

This is probably much less tidy than the traditional framework, but it is also more responsive to the democratic process that the system of accountability is supposed to serve.

With this is mind, there may be some value in dialogue between the public administration experts seeking to reform and reframe our system of public management and those of us thinking about public service effectiveness in relation to a particular political project. Such an exchange might enrich both group’s agendas.


PS Many Policy Progress readers will be interested to learn that the Institute of Policy Studies has also announced a full-day policy forum for 16 November entitled Does Inequality Matter? and featuring a keynote speech from one of the authors of The Spirit Level. Visit the IPS website to learn more and to book for this free event.

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