Sunday, April 29, 2012

Communicating Policy – An Abject Failure in N.Z.

When 9,600 people march down Queen Street protesting against partial privatisation you know you have an abject failure to communicate policy adequately.

Privatisation is, on average, a global policy success and is understood and in full swing across the globe in cultures and economies as disparate as Somalia, Nigeria, Rwanda, Russia, the UK, the EU, Japan, South East Asia, the U.S. and Australia – amongst numerous others.

In China in the late 90s some 3,950 state businesses were “partially privatised”. It’s difficult to argue that wasn’t a success.

Why then in N.Z. don’t we “get it”?  Very simply because no one has explained in simple terms why it is a good policy which creates benefits.

Why not? Very simply because at least half the people implementing it don’t understand why it is a strong policy, how it works and they are confused about the criticisms. Worse they don’t seem to care.

They think it feels right. Not good enough – by far.

Plus the “spin doctors” employed to sell the policy don’t understand it or why it is a good idea. Rather than put some brain work into understanding the economics, they spit out politically driven clich├ęs which they fondly believe will “bring people round”. Clearly another fail.

No wonder journalists reporting such “spin” are wildly confused as well.

National Governments have never been renowned for taking a strong analytical interest in policy. That might be defensible – as the ever eloquent Rachel H. once said “we don’t all have to be brain boxes.”

But they do employ people who are supposed to understand and communicate policy.  Those people – their communicators - do their political masters a vast disservice by either failing to understand or failing to communicate or both.

Meanwhile the economy suffers as the stage is cleared for those with other agendas to strut loony tunes about the wonders of the state as a great investor.


Monday, April 16, 2012

Justice without fear or favour–at a price

In a TV Close Up investigation of the recent conviction of Directors of failed finance company Lombard Finance Ltd, the Chief Executive of the Financial Markets Authority stated that the law had to be applied without fear or favour to everybody. Quite. This is, as I understand it, the lay persons’ understanding of how the legal system works.
Consequently, being a knight of the realm, as one of the directors is, makes absolutely no difference to ones treatment before the law. Again. Quite right it would seem. How else could we observe fair treatment before the law?
Asked, however, why these particular directors had been chosen amongst many who might have been charged, the Chief Executive stated that the FMA had criteria it used in picking whom to prosecute. These criteria include (inter alia presumably):
  • the amount and quality of evidence the Authority has to prove the case and get a successful prosecution; and,
  • the ability of those they prosecute to pay any fine which might be imposed by the Court.
This has to be worrying logic – presumably if the evidence is a bit shakey and one is fairly broke one needn't worry too much about the law?
Thankfully only in the fantasy world of securities regulation do we find this type of tortured thinking which is as hopelessly flawed as the idea that regulation can save investors from the world and themselves.

Monday, April 9, 2012

Maori Battle Goldman by Mount Doom as New Zealand Sells Assets

Here’s how the N.Z. asset sales programme looks – along with the country and some of its history and current players – to Bloomberg reporters:

A bus full of bankers from Goldman Sachs Group Inc. (GS) and other lenders bounces down a dirt track in New Zealand’s North Island to survey sites that are dividing the nation, pitting John Key’s government against Maori who have lived here for centuries.

Near the volcano that film director Peter Jackson chose as Mount Doom in his “Lord of the Rings” trilogy, the bankers view a drilling rig shipped from Iceland that has bored 1,100 meters (3,600 feet) of a geothermal-power well for state-owned Mighty River Power Ltd. The company plans to sell shares this year in the first of four initial public offerings Key says will help raise as much as NZ$7 billion ($5.7 billion), the nation’s biggest asset sale in two decades.

Some Maori say the sales violate the 172-year-old Treaty of Waitangi, New Zealand’s controversial founding document that gave the indigenous people rights to their land and resources. They’re mounting a legal challenge to the IPOs that Key says will raise money for schools and roads after the country lost its top credit rating because of mounting debt.

“Overseas investors just really want to understand what it is they’re buying into,” said Mai Chen, who founded Wellington- based law firm Chen Palmer with ex-prime minister Geoffrey Palmer. “What they don’t understand is this black box called the Treaty of Waitangi.”

Maori want to stop their “taonga,” or treasures, from being controlled by private investors who the government says won’t be liable for any unresolved Treaty claims. The companies make power from resources including rivers and underground steam in areas of scenic beauty. Most of the nation’s 4.4 million people oppose the sales, with Maori opponents saying they turn a sacred life force -- water -- into a commodity.

Five Sales
The government plans to sell as much as 49 percent of Mighty River in the third quarter on the New Zealand stock exchange and replicate that with Meridian Energy Ltd., Solid Energy New Zealand Ltd. and Genesis Power Ltd. over the next five years. It will also reduce its 73 percent stake in Air New Zealand Ltd. (AIR) to as low as 51 percent. The timing and order of the other IPOs haven’t been decided.

Goldman, Credit Suisse Group AG (CSGN) and Macquarie Group Ltd. (MQG) are among banks that stand to gain fees from the sales. All three declined to comment.

To damp public opposition, Key said 85 percent to 90 percent of the companies will be owned by New Zealanders on completion of the IPOs. Overseas investors can build bigger stakes by buying shares in the market after that, State Owned Enterprise Minister Tony Ryall said in a telephone interview.

‘Raped and Pillaged’
“Once those resources become commodified and put on to the financial marketplace, they are raped and pillaged to maximize profit for the shareholder,” Hone Hariwira, leader of the one- seat Mana Party, said in an interview. “There’s no holding back in that world, and that’s not something that indigenous people see as being an intelligent future.”

New Zealand’s land and resource ownership has fueled wars and racial tension since James Cook claimed the islands for Britain in 1769. The 1840 Treaty of Waitangi promised the Maori undisturbed ownership of their land, forests and fisheries in return for becoming British subjects. Alleged breaches of the treaty have split national opinion since the 1970s when Maori -- now 15 percent of the population and with almost triple the white unemployment rate -- began seeking redress.

The New Zealand Maori Council filed two claims in February with the Waitangi Tribunal, an independent panel. The council argues that Maori rights to water and geothermal resources have been denied and the IPOs should be stopped. While the tribunal can only recommend actions to the government, it has helped return about NZ$1.2 billion of cash and property to Maori complainants since the early 1990s.

Unresolved Rights
Nobody owns the nation’s water, the New Zealand Herald reported Key as saying in February. A 2009 cabinet paper said Maori water rights “remain undefined and unresolved.”

“There’s no doubt that it needs to be resolved,” said Chen in an interview. The tribunal last week granted the claims urgent hearings, which are likely to be heard before the IPO of Mighty River, she said.

The dispute follows a public outcry over the government’s January approval of the sale of 16 dairy farms to China-based Shanghai Pengxin Group Co. Opponents including the three-seat Maori Party said parts of New Zealand were being sold off to the highest bidder. That deal is being reviewed after a rival bidding group of local dairy farmers led by businessman Michael Fay successfully appealed in court.

Telecom Sale
Key’s sale program is New Zealand’s biggest since the government raised about NZ$10 billion between 1988 and 1990, including the sale of Telecom Corp. of New Zealand Ltd. to U.S. phone companies, government figures show.

The country lost its top credit rating at Standard & Poor’s and Fitch Ratings in September. Fitch said that a “key vulnerability” was New Zealand’s high level of net external debt, which fell to NZ$146.2 billion, or 72 percent of gross domestic product, at the end of last year.

Mighty River, which sells electricity to more than 370,000 customers, has been showing bankers and lawyers around its power stations, workers told Bloomberg News during a site visit. The company operates hydroelectric and geothermal stations near Lake Taupo, New Zealand’s biggest lake, where tourists jet-boat through river rapids or take winter skiing holidays on Mount Ruapehu, Jackson’s setting for the fiery Mount Doom.

Almost two thirds of voters in a One News Colmar Brunton poll this week opposed the planned sales.

‘Lost and Confused’
“This isn’t an asset sale. It’s a sell-down of a minority shareholding in the company,” Doug Heffernan, Chief Executive Officer of Mighty River Power said in an interview at the company’s Auckland offices. “That point has been lost and confused in the public’s mind.”

Stephen Franks, a Wellington-based lawyer who advised on previous state asset sales, said the Maori council is unlikely to stop the sale and is pressuring the government for a stake.

“The Maori strategy is essentially to raise enough dust and enough smoke and problems that it becomes worthwhile to the government to buy them off before the offerings,” said Franks, previously a member of parliament for the ACT party, which has one seat and is in coalition with Key.

Maori groups are seeking “a substantial shareholding interest” in the  POs as one form of compensation should the sale go ahead, the Waitangi Tribunal said last week. Some Maori oppose the indigenous council’s claims after already settling with the government and forming successful joint ventures with companies such as Mighty River for years.

Harawira last month wrote an open letter to overseas investors, warning them to “steer clear” of any share offers, or they may be “caught up in legal battles and direct action from citizens determined to protect their own interests.”

“The assets involve natural resources and to us, those are taonga and belong to the inhabitants of this place,” Pita Sharples, co-leader of the Maori Party, which is also in coalition with the government, said in a telephone interview. “It’s part of our cultural and spiritual identity -- the water and the mountains and the forest.”


Saturday, April 7, 2012

The Trouble with Pushing People Around–More KiwiSlaver Problems….

It appears there is some disquiet about the default provisions of the KiwiSaver scheme. At present some six relatively lucky providers are the “default” providers for those savers who find themselves compelled by law to donate their hard earned to the Kiwisaver scheme and forget, fail or otherwise do not nominate who that provider should be.

In the interests of the great egalitarian state and “fairness” one of six (actually five since one of them owns two of the providers) carefully selected providers are chosen to receive such funds on a random basis as the default provider.

The unsolicited punter can change to a different provider if he or she wishes. Personal experience tells me that in fact the process is somewhat bureaucratic and takes the expected length of time any transfer run by a government sponsored scheme would be expected to take.

Being one of the providers is fairly helpful. It is helpful not just for the fact that one gets a certain guaranteed stream of funds and attendant fees, but – and the Herald article along with the commentators seem to completely miss this point – it means that with the dice assuring one that one will get ones share, there are five other competitors one need not worry about.

And these are not just any competitors. They are for any given fund manager the five other largest competitors in the market. Not having to compete with them because the dice is ensuring you get a good lick at what is going is very helpful indeed.

The providers are well aware of this of course. Evidence for this comes from “our man from Tower” popping up and declaring that, sadly, they have barely broken even having sunk an enormous amount of money into establishing themselves as a provider and ensuring that the punter gets a great service.

His conclusion is the oft quoted and ever helpful, quaint and folksy “If it ain’t broke don’t fix it”. Clearly it is not broke from his point of view. The last thing he needs is someone “fixing it”.

The Herald article and commentators suggest a variety of solutions. Unsurprisingly their first port of call is that “the State” should provide a default service. Brilliant. If the State’s well-known acumen in the finance sector is to set the benchmark then again one wouldn’t be too worried about the standards that one is likely to have to meet down in the provider bazaar.

What seems to be missed in this commentary and others is that the net effect of having a default provider system with six carefully mandated and selected providers is two-fold:

  1. It means these providers don’t have to compete with one another to get Kiwisaver business. Inhibiting competition like this results in outcomes we are all too well aware of; and,
  2. Various drivel about consumers and investors not being able to choose for themselves simply continues a situation where citizen knowledge of investment continues to be poor. If punters can’t decide which provider to use or are unaware of which provider they ought to use then it is more than high time they learnt.

Good financial outcomes in New Zealand require better education amongst consumers. Squashing incentives to learn and become educated in matters of risk and return involves the same arrogant paternalism that led to the need for the Kiwisaver scheme in the first place.

If, of course, these providers produce such wonderful results and provide such an incredibly competitive service that they are without peer then they have nothing to fear from open competition. Putting selected default provider status utterly to the axe would be a, shall we say, “fair” test of their claim.