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.AUKUS is a backward-looking policy. The World needs to move forward.

Economists think that the more interconnected countries are by trade and investment, the less likely warfare will occur between them. On many occasions countries have consciously intensified those interconnections as an alternative to war. Examples include the federation of the American states into the USA following a confederation after customs conflict between Maryland and Virginia; the European Coal and Steel Community (which evolved into the EU) tying up the French and Germany industries after three painful wars; ASEAN which was started after the Indonesian confrontation of Malaya ended; recently India has improved its physical and trade links with its neighbouring China and Pakistan.

Alas, economic relations between China and the US have deteriorated. That this occurred under both President Trump and President Biden suggests a structural tension arising from jostling over their places in the world. According to the World Bank, the Chinese economy is now a quarter larger in total output than the US economy, although its output per capita is only about a third of the US level.

One can explain the First World War and the follow-up Second World War as a consequence of Germany catching up in economic size to Britain and trying to find a comparable place in the world. (Neither noticed that the US was already bigger.) We may be grateful that moving from one global hegemon, Britain, to a second, the US, did not involve conflict between the two (although the two world wars accelerated the transfer from a weakened Britain).

It is unlikely that China is going to be the next global hegemon. Rather, we are moving to a multipolar world where there is none. There is a plausible economic model which predicts that world economic output, and hence power, is moving to where the populations are – the situation before British industrialisation. It occurs because of the ease with which technology and capital can transfer between countries.

That does not mean that Chinese productivity will catch up to the American level – not in this century anyway. Factors like the resource base and social organisation mute the economics. (Nor is it clear what will be the effect of global warming.)

India’s population overtook China’s last year and is expected to greatly exceed it in 2050 (1.7b vs 1.3b), while Pakistan (370m), Nigeria (360m) and Indonesia (320m) may then have populations comparable to the US’s (380m). (The European Union’s is already bigger, at 450m – without much change expected in the future.)*

Economists work on the basis that in the long run wars are decided by economic might once there is a commitment. As the war in the Ukraine prolongs, Putin’s only hope must be that the West has not the commitment to defeat Russia outright. I am not sure what the conclusion is over a short war with nuclear weapons except that no one wins. So while military strategists focus on the shorter term, the longer outlook is likely to be dominated by economic and related considerations.

So behind today’s incipient economic warfare and military machinations we face a multipolar world whose shape is uncertain. There may be regional hegemons. Russia is contesting with the West for Eastern Europe; China wants to be the hegemon in East Asia, which the US is contesting (especially over Taiwan); India has similar ambitions in the Indian Ocean; Iran’s ambition seems to be the Middle East hegemon although anyone who thinks they know what is going on there has not been following closely enough. However, while regional hegemony may be a local military and political solution, global economic connectedness means regions are interdependent.

The challenge for the world, then, is how to get from the current world order, in which the US acts the hegemon, to a multipolar world in which the US is but one of four or so big economies. Full multipolarity may be less than a quarter of a century away.

The US does not seem to see the issue this way. It is largely preoccupied with the short-term task of trying to maintain its current hegemony in a world whose order it sees as not too different from the immediate post-war one. It might have been the only effective global power in 1950, when it was producing around 27 percent of the world’s goods and services (measured in common prices – ‘purchasing power parity’, as all the output data in this column is), but by 2023, the US share was 15% (as was the EU’s, with China at 19% and India’s at 8% – everyone else was below 4%).

Trump admitted the weakening of the US when he insisted that the European nations increase their military spending. However, and ironically, it is Putin who has given the Europeans the spur to spend more, although that is partly because they no longer trust the US commitment to them.

The US strategy seems to be to compensate for its growing weakness by strengthening its alliances. When NATO invited Australia and New Zealand (and Japan and South Korea) to their deliberations, it was not with the intention of involving the two countries in a European war again (at least I hope not) but it was trying to entice the Europeans to make a commitment in the East Asia/West Pacific region.

Similarly, the AUKUS pact is trying to get Britain involved (Australia does not have much choice). The Pillar Two extension is probably more about involving Japan and South Korea than involving us. (Sorry, folks, we really are unimportant.) The difficulty with AUKUS is that it does not seem to be forward looking, contributing to a pathway to the oncoming multipolar world.

That faces New Zealand with a choice of looking forward or looking backward. In an earlier column, I pointed out the short-term conflict between our security and trade interests, between involvement with the US and with China. This column is about long-term concerns. (Parliament grounds must already be booked for demonstrations by educationalists, environmentalists, the gun-control lobby, healthcare advocates, Māori, those concerned with poverty, pro-Gaza and pro-Israel supporters, public servants and unionists. Does the Government need to take on peaceniks as well?)

All of which suggests we should not get too involved in AUKUS Pillar Two. Yes, the US is a friend, but you don’t always join in when a friend is behaving unwisely. Mind you, I am not sure that the US will listen to a friend advising the more prudent course of action of developing an international order which makes more room, especially, for China and India. (It is said that countries don’t have friends, only interests.)

On the economic front we should be encouraging economic interconnectedness, especially a rules-based international order. Disgracefully, the US is vetoing appointments to the WTO Appellate Body which deals with disputes arising from disagreements between trading partners. (Presidents Obama, Trump and Biden have all vetoed, so there is a structural problem here, not a whim.) That weakens the international rule of law.

The US has what amounts to a veto in the IMF and the World Bank, reflecting international circumstances in 1945, not those of 80 years later. With the weak IMF plus the Chinese and US treasuries and the ECB we have, in effect, four world central banks which is, for example, fouling up sorting out countries with serious debt problems.

These arrangements established immediately after the Second World War and reflect neither today’s world nor the future’s. (As do the five permanent seats on the UN Security Council, to which New Zealand objected when that it was established.)

New Zealand may have little influence over the evolving world order. In so far as we have, we should be putting our effort in assisting it to move towards the reality of multipolarity. Ultimately New Zealand is having to balance its short-term interests against its long-term ones. I am not sure our friends always understand this.

* UN Population Division’s central estimates. I also looked at various projects of economic output. They are all over the place but are insistent that the US share in the total will fall further.

The underlying economics of the Fair Digital News Bargaining Bill rests on intellectual property rights.

I have written elsewhere about the tension between information as a public good which economic efficiency requires to be freely available and yet, because it is costly to produce, may require payment to those who create the information. Any practical resolution of the tension will be imperfect.

A common resolution is to give the producer of the information an intellectual property right. Examples include patents and copyright. They are essentially human constructs. The details of the laws which define these rights vary from country and through time. A major factor in the evolution of intellectual property rights has been changing delivery platforms.

Thus arises the need for the Fair Digital News Bargaining Bill currently before Parliament. The rise of social media and its use of news poses issues which we may, or may not, want to resolve. News can be costly to produce – a comprehensive news service certainly is. Under what circumstances are the social media platforms such as Google and Meta – the two examples I use here, but there are many others – entitled to use news generated by newspapers (and broadcasters)?

In standard market terms, newspapers are very odd institutions. Purchasers do not pay for the full cost of the news they read. Historically, perhaps two-thirds of the media’s funding has come from advertisers who, in effect, pay the newspaper for access to the readership. The revenue coming from advertising meant that subscribers were getting a heavily subsidised product.

It was not an ideal solution to the provision of news but, especially in a democracy which depends on a vigorous independent news service, it was the best arrangement that it has been able to devise. (There may be a role for a government-subsidised news service. As valuable as RNZ, is, the existence of private sector media reduces the possibility of the government interfering with its public news service.)

The model which was successful for over a hundred years broke down with the arrival of the worldwide web. Many people shifted across to it for their news sources and so have the news providers. But their advertisers shifted to a different part of the web, especially social media, because it enabled them to better target the audiences they were seeking.

As a result the traditional news media has lost much of its advertising revenue. It tried to recover the loss by raising the price of its subscription to its papers, by charging for use of its websites and by donations and sponsorship. These additional sources have not covered all the lost advertising revenue and the news media has had to cut back on its news coverage – in practice that means fewer journalists chasing the news.

But the new social media also needs access to the news. Google would provide a limited service if the search engine did not include news stories; Meta uses news stories to attract the audience which its revenue-producing advertisers seek.

The Fair Digital News Bargaining Bill attempts to address this muddle by giving news media, in effect, an intellectual property right to their stories. Or rather, to extend existing their property rights. After all, both NZME and Stuff pay overseas news providers for the stories they republish.

Social media does not always republish the full story. Sometimes it is just the headlines which also cites the news site where the story sits. The effect of the proposed legislation is to make it clear that this infringes a property right of the news provider who is entitled to charge for that use. (The bill covers only particular sites; essentially news providers but not blogs. I suppose that others, in principle, could be covered by the proposed provisions – such as when this column cites a news site – but this is not the intention of the bill.)

How to enforce the new property rights? I suppose it could have been left to the courts but New Zealand has followed other jurisdictions, such as Australia, Britain, Canada and France, which have an arbitration process. Yes, it is clumsy and expensive – but it is likely to be less clumsy and less expensive than litigation. (Providing an alternative to expensive litigation is not new; small claims courts are another example.)

How has social media responded in these other jurisdictions? Google seems to have decided to accept the arrangement, paying large sums to the news providers. Canadian ones receive CD $100m annually (about NZ$15m on a per capital basis), perhaps t percent to the news providers’ advertising revenue. Presumably, the commercial judgement is that without the news sites the search engine would be crippled and people would go to others. The additional revenue will, one assumes, go into more news coverage; Google’s customers will be among the beneficiaries.

On the other hand, Canadian Meta has abandoned providing news from Canadian news sites so it pays nothing. Presumably its commercial judgement is that it will not lose a lot of custom as a result. Presumably too, the Canadian news providers have judged that it makes little difference to them if they don’t get referrals from Meta. On the other hand French Meta – it was Facebook then – not only agreed to pay up but agreed to provide news in French.

The Fair Digital News Bargaining Bill is at the select committee stage. It was introduced by the Hipkins Labour Government, but the Coalition Government has decided to proceed with it. (Despite, to my surprise, objections from some neoliberals who, I would have thought, would have welcomed improved enforcement of intellectual property rights.) When Parliament passes the bill, a step will be taken to making our news media more financially secure. Even so, its prospects remain fragile.

The claim that there are currently 14 layers of management at Health New Zealand, raises wider issues of how we organise systems.

I want to write a column about current proposals to redisorganise Health New Zealand but, frustratingly, the Coalition Government has not released evidence of its claim that the successor to the District Health Boards is projected to lose $1.4b in the current year, after running a small financial surplus last year. That is a massive turnaround. The cynic must wonder whether the projection involves a bit of creative accounting, a cynicism heightened by the delay in publishing it.

The political purpose may have been to change the top management of Health NZ by appointing a commissioner because the government has little confidence in the previous management. If so, that is their judgement, using smoke and mirrors to disguise what should be a routine governance decision.

Certainly there were smoke and mirrors in the government’s claim that there were ‘14 layers of management’ at Health NZ. The list was probably packed for political purposes. A better one might have been

1.         Commissioner

2.         Chief Executive

3.         Regional deputy CE

4.         Hospital manager

5.         Service manager

6.         Clinical director

7.         Ward management

8.         Clinical staff

With the Minister of Health on top.

The minister’s list had the Commissioner at its top and the Patient at its bottom, giving the impression that the purpose of patients is to support the managers – an absurd impression, but too often that is how the managerial hierarchies think and operate. (One recalls the university joke – I think it is a joke – that once the role of registries was to obtain funding to enable academics to work; nowadays academics generate funding to enable registries to work.)

There is a current government belief that there are too many wasteful bureaucrats on the government payroll and they should be made redundant. I was surprised at the ease with which the Chief Executives met and even exceeded their targets. The cynic might conclude that the apparent overstaffing of the agencies implied that almost every Chief Executive in the public service had allowed overstaffing and was  incompetent. My guess is that problems will occur on the frontline as a result of the back-office redundancies.

Whether Health NZ is overstaffed is a matter of contention. There are claims that the numbers of back-office staff have already been reduced. Even so, according to the government list there is at least one additional layer added by the creation of the centralised Health New Zealand and abolition of the DHBs. Even if this has resulted in fewer bureaucrats, its effect is to separate the most senior management even further from the front line of patients.

It is too easy for generic managers to isolate themselves from the real activities of their agency. Recall that the Senior Leadership team at Statistics New Zealand during the 2018 Census crisis had no experienced statisticians on it. The phenomenon is not confined to the public sector. When Fletcher Building had a crisis arising from failing building contracts, there was nobody on its board with building experience.

Universities are collegial enterprises (knowledge is collegial). However, they have become increasingly hierarchical to the point that deans of faculties (they have fancier names nowadays) are often appointed without consulting the college of academics and are simply imposed on them. In one case (only one?) the dean quickly proved incompetent and became thoroughly disliked. The dean’s response was a Praetorian Guard of management layers which appeared to do little, so the academics told me. They thought its purpose was to protect the dean when the academics became too bolshie.

Multitudes of management layers also reduce accountability. Nobody gets blamed for failure because there are always others to blame. The Peter Principle, that managers rise to their level of incompetence, does not apply in New Zealand; here they get promoted well beyond it.

Lacking the expertise to manage professionals, generic managers not only distance themselves with management layers but they also overuse consultants rather than developing the skills internally.  This also reduces managerial accountability, since failure can be attributed to the consultants – it is rare to point to poor management of consultants.

Recently there was severe under-staffing at the Dargaville hospital. Once upon time the complaints would have landed on the desk of the CEO of the DHB based a car-drive away in Whangarei. Instead, it landed on the Wellington-based Minister of Health’s desk (rather than Health NZ’s senior managers). While I have no doubt the matter is serious for those living in Dargaville, surely the Minister should not have got involved unless there was evidence of systemic failure in Health NZ.

What can be done to reduce the dependency upon hierarchical structures? An obvious step is to reduce the layers and sublayers of management. A second is to devolve responsibility; that was the point of DHBs being in charge. A third is to build into upper management connections with those at the front end. (Avis used to require their managers to spend one day a week on a front desk.)

Upper management is besotted by its agency’s finances, measured by the balance sheet. Perhaps the excess waiting that the sick face could be listed as a liability (assessed as the cost of eliminating it) in the balance sheet. The listing would confront those at the top with all those who were suffering. (Even so, it would soon manipulate the waiting list to reduce the liability without actually reducing the client discomfort.)

Do we need such hierarchical structures? Consider treatment in a hospital – say, an operation. Yes, there is a hierarchy in the theatre, but fundamentally it is a cooperative team – just as your local sports team has a captain but the team plays together (respecting the captain). The full health team includes administrators – like booking clerks – but they are working together, respectful of one another and in touch with their patients. Even the team captain typically interacts with the patient as a human being.

Where a hierarchy is necessary, Simon Sinek observed:

       Senior doctors and especially hospital administrators don’t know what their job is. When you ask them ‘what is their priority’, they say ‘patients’. It’s not. It is to take care of the people who work in the hospital – of the people who take care of the patients. Every administrator, every senior doctor, every senior nurse should be preoccupied with one thing and one thing only: are my doctors OK, are my nurses OK, is my staff OK? And if they get that right, the staff will devote their time and energy taking care of each other and the patients.  …

Each tier in a hierarchy should be looking down to the tiers below instead of, as happens far too often, looking upwards. If they insist on looking that way, turn the list of management provided by the Minister of Health layers upside down, putting patients at the top.

David Seymour describing himself as an ‘old-fashioned lefty’ caused a flurry in the commentariat.

The responses were not always informed. One thought he was saying he was a Marxist. In fact it is relatively recent when Marxism became an important strain on New Zealand’s left. Our Communist Party formed only in 1921, after the rise of the Soviet Union. In 1890 William Pember Reeves, a key New Zealand left-wing thinker, wrote a series of articles on socialism and communism covering a myriad of leftish thinkers. His treatment of Marx’s thought was described by his biographer, Keith Sinclair, as ‘inadequate … Marxism had not then, of course, achieved its pre-eminence among socialist systems, nor were Marxists the most numerous socialists, so [Reeves] neglect of them is not surprising.’ That is not to dismiss Marx. He was a great nineteenth century intellectual, but his ideas have not been at the heart of the broad New Zealand left.

What Seymour actually said was

      ‘And in many ways, I’m an old-fashioned lefty … I believe that we pay taxes for education so every child has the opportunity to be developed to their full academic potential. I don’t think we’re doing that right now.’

He is referring to the Fraser-Beeby principle articulated by Minister of Education Peter Fraser in 1938:

      ‘The government’s objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power.’ [1]

The two were only stating a sentiment which went back a long way in our history. When I was writing Not in Narrow Seas I was faced with the question of why Europeans came to New Zealand in the nineteenth century. If they wanted to migrate, North America and Australia were closer and easier.

Pursuing an answer proved tortuous, but the short one is that, while there were many and varied reasons, an important one was that our Pakeha ancestors pursued opportunity, especially the opportunity to live the rural life that was collapsing in England as a consequence of industrialisation. Their ambition was to own their farm. Initially, many of those farms were ‘subsistence’ – largely self-sufficient, only marginally interacting with the commercial market. But the advent of refrigeration proved seductive and the farms became profitable commercial enterprises.

As the country urbanised, opportunity remained a central aspiration of the nation, captured in the Fraser-Beeby principle and the claim that New Zealand was a class-free society. (‘Social class’ not Marx’s notion of political class as in ‘class conflict’.) Sinclair wrote in 1959 that ‘New Zealand is not a classless society. It must be more nearly classless, however, than any other society in the world’. Well, somewhere in the world there has to be a society which is at the top of the rankings and it just could be the one down-under.

Or was. Even as this was written Sinclair’s friend and colleague, Bob Chapman, was identifying emerging class divisions in urban New Zealand. They have continued, which has meant that there are fewer relative opportunities for many groups. Hugh Lauder and David Hughes showed that a child with a working-class background had to have, on average, a significantly higher IQ than one from the middle class in order to get to university. But this was based on 1980s data and we do not know whether things have got harder or easier after 1990; the increased access to tertiary education may have ghettoised the poorest. I do know, anecdotally, of able young people who have missed out on the education they were capable of because of class/family circumstances. One might argue that the Coalition Government’s education policies will sharpen class divisions as it will make it easier for those higher in the social rankings to buy educational advantage for their children.

The above discussion was primarily about Pakeha. The Māori story is different. We talk about it, ignoring that there is hierarchy in Māori society. Focusing on Māori/Pakeha as the most significant societal dividing line has suppressed discussion of class in Aotearoa New Zealand.

As class has evolved here, the equal opportunity goal faded. When do you last remember a politician – Seymour aside – talking about the Fraser-Beeby principles? [2]

So one might welcome Seymour’s raising the issue of educational opportunity, hoping his concerns will be taken up by a wider public. But in a fundamental way his conclusion is misleading. There has long been a tradition in New Zealand that the schooling system is key to providing opportunity. The implication is that it can compensate for family failings.

How families fail and succeed is largely outside the remit of economics, except in one key area. If we put families under economic pressure, they are more likely to fail. The 1990 Richardson-Shipley benefit cuts and the neoliberal twist of taxation away from the rich have put additional pressure on family incomes, increasing social divisions and reducing opportunity for those at the bottom.

In principle the 2018 Child Poverty Reduction Act was intended to address these pressures although its targets were not pursued at all vigorously by the Ardern-Hipkins Government. By softening the targets, the Coalition Government has indicated it will be even less vigorous. Children will continue to turn up in the education system poorly prepared to take advantage of it no matter how much money is poured into it. The irony is that Seymour wants to prioritise strengthening the state over strengthening families.

If Seymour wants to identify ‘left’ as support for promoting opportunity for all, so be it. But in that case the right, as far as he is concerned, are opposed to the notion. Maybe Seymour is really an old-fashioned lefty.[3]

[1] It was drafted by his head of department, Clarence Beeby and is gender-amended as, later, Beeby said that Fraser and he would have wished.

[2] There is one exception I know of. Some New Zealand economists – among then some in Treasury – discuss Amartya Sen’s notion of ‘capability’. The complicated idea is not too different from the Fraser-Beeby principle. It hardly touches our public policy.

There is also the 15-year longitudinal study Competent Children which demonstrates the importance of family.

[3] State solutions rather than supporting the private sector is a feature of the political right in other areas such as crime. Contrast Tony Blair’s claim to be ‘tough on crime; tough on the causes of crime’.

New Zealand is again having to reconcile conflicting pressures from its military and its trade interests. Should we join Pillar Two of AUKUS and risk compromising our markets in China?

For a century after New Zealand was founded in 1840, its external security arrangements and external economics arrangements were aligned. Britain, then the international hegemon, provided the security and the main export market together with the capital which flowed into this country. New Zealand even twice fought on the other side of the world (three times if you include the South African War) as a part of the deal.

But Britain was weakening relative to rising Germany and the United States. The Fall of Singapore in 1942 demonstrated that Britain could no longer guarantee New Zealand’s security and in 1951 it joined the ANZUS Treaty with Australia and the United States without Britain. That was a factor which led to New Zealand accompanying them into Vietnam between 1963 and 1975. The treaty began to unravel when New Zealand declared it was nuclear-free and in September 1986 the United States suspended its ANZUS treaty obligations toward it.

Neither country completely abandoned the other militarily. Since 2021 New Zealand has been considering joining Pillar Two of AUKUS, a strategic defence partnership between Australia, the United Kingdom and the United States. Pillar Two is about sharing advanced technology, like artificial intelligence and quantum computing. The technology could also include drones or support systems for hypersonic weapons. It does not involve nuclear weapons, which comes under Pillar One. (Japan is in a similar position.)

The unravelling of our economic ties with the UK came later. In 1966 more than 60 percent of our exports still went to Britain. Many might see Britain joining the European Community in 1973 as the switch point but it would be only symbolic. New Zealand had been rapidly diversifying; less than 30 percent of exports went to Britain in that year.

In 2008 New Zealand signed a free trade agreement with China which became our biggest export market. Today’s dominance of China in New Zealand’s trade is extraordinary. It is our biggest market for milk products, sheep meats (for beef it is only second), fish, apples, wine and honey (for kiwifruit it is third). Thirty years ago, China did not make New Zealand’s top ten export destinations in any of these products.

New Zealand now sends almost a third of its exports to China. East and South-east Asia and Australia are deeply economically interconnected with China and this wider group takes nearer two-thirds of New Zealand’s exports. (Britain now takes about 2 percent.)

China does not dominate our capital markets to the same extent. The big foreign investors in New Zealand are Australia, Britain, the US and Japan. During a financial crisis we would go first to the US (or the IMF which it dominates), as happened in 2008.

In principle, the mismatch between our security and economic alignments should not matter, but currently China and the US are at loggerheads. A simple explanation is that the US has been the world hegemon both militarily and economically for the 80 years since the Second World War. While the US military is still the largest by far, and its international reach is like that of no other power, China is challenging it in what it deems as its own region/neighbourhood (including Taiwan, which it regards as an integral part of China).

The economic story is different. The World Bank’s latest figures suggest that China’s GDP is more than a quarter larger than that of the US measured in comparable prices.* Of course with its bigger population, China is much poorer in per capita terms but the sheer magnitude gives it economic heft.

China wants to use its economic (and military) might to challenge – even overturn – the American version of world order. Detailing this, and its prospects, is a much longer article than can be fitted in here. Instead, the column focuses on New Zealand’s response in this uncertain world.

What is especially worrying is that neither the US nor China seems to be greatly committed to a world order based upon the rule of law, for each has undermined or ignored the rules when it has suited them. In a free-for-all world it is too easy for small nations to be bullied. Lee Kuan Yew commented that whether elephants make love or war, the grass gets trampled.

The danger is that as the two powers contest, we may be forced to take sides. The outcome could be unpleasant. Australia’s decision to side openly with the US led to China’s withdrawal of market access for some of Australia’s products to signal it was not happy.

This provides a context to the current dispute over whether New Zealand should join Pillar Two of AUKUS. No doubt there has been a vigorous debate within the Ministries of Foreign Affairs and Trade, and Defence. (There was one about sending troops to Vietnam.) The Coalition Government seems to be more pro-US than the previous one. On the other hand, exporters – the Auckland Business Community is prominent here – is nervous that moving towards the US will compromise the key export market.

That suggests that we should not get too close to the US militarily. Frankly, I am haunted by the experience of the Vietnam War when the US deliberately lied to us. It did the same to Britain to inveigle them into the Iraq War. The concern is whether a cumulative set of commitments will put New Zealand in a position of having to take sides if a shooting war over Taiwan or the South China Sea breaks out. Pillar Two probably would not make much difference but it is a shift towards that possibility.

That is not to side with China which, to be frank again, has some very unpleasant human rights (wrongs) policies. Even so, we should recognise China’s growing place in the world order, support its increasing involvement but insist that the evolving order should be one where the rule of law is strengthened rather than weakened.

Ideally irrespective of these strategic considerations, we should be diversifying away from the China economic complex. Easier said than done, for it largely depends on how entrepreneurial our exporters are.

Central government can support them by pursuing further trade liberalisation. About three-quarters of our goods exports are covered by free trade agreements. We are hoping for more with economies in the Middle East and Latin America (and we also seek further liberalisation in services). However, the two big outsiders are likely to elude us: the US and India.

While the US is enthusiastic for New Zealand joining in its military ventures, its five million farmers and those in agriculture-related jobs are far more politically important than five million New Zealanders living in a remote (unfashionable) corner of the world.

One might have thought that India would be keen to help us get out of the China-US quandary, since it does not want to be in it either. We will, no doubt, get a free trade deal with it in due course, but it will be limited, especially in dairy products. It has almost a billion households in rural areas, and while not all are farming, their numbers are sufficient to be politically significant. (Both countries have more dairy cows than we have: 300m odd in India, 9m in the US against 6m in New Zealand – there are 7m in China and growing.**)

In summary, most countries think we are too small and not strategically located enough to really matter. (Australia and some Pacific Island states would be the exception.)

Our quandary is not unique. It is even harder for the ten ASEAN nations. Vietnam was invaded by China in living memory and the Philippines and Vietnam are confronting China in the South China Sea. Yet their economies are even more integrated into China’s economic nexus. We should be paying much more attention to how they balance the pressures.

The ASEAN strategy has been described as ‘multi-alignment’, in which states form overlapping relationships with several major powers. Presumably that is what New Zealand means by its ‘independent foreign policy’. It can be tricky to apply. Singapore says it does not have a US naval base. Even so, there is usually a US navy capital ship tied up to a wharf, which a cynic might think was specially built for the purpose – just ‘visiting’.

Finding the balance to ease the quandary will not be easy. I had a friend who was on the Department of External Affairs Vietnam desk during the height of the conflict. Like me, he wished we had not sent the troops, but he understood the pressures. Years later, Tim commented that he thought Prime Minister Keith Holyoake, advised by the DEA, got the balance about right, doing the minimum necessary. One hopes for a similar wisdom from today’s leadership.

* World GDP shares in thee same prices are China 19.1%, US14.8%, EU 14.7%, India 7.9%, Russia 3.5%, Japan 3.4%, Brazil 2.4%, Indonesia 2.3%, Britain 2.2%.

** India produces 24% of the world’s milk (including buffalo milk), the US 12%, China 5%, New Zealand 2.5%.

As a momentous, historic weekend in US politics unfolded, analysts and commentators grasped for precedents and comparisons to help explain the significance and power of the choice Joe Biden had made. The 46th president had swept the Democratic party’s primaries but just over 100 days from the election had chosen to stand aside.

Some talked about Lyndon Johnson, who had initially wanted to run for another term in 1968 but a surprisingly slim victory in the New Hampshire primary and deteriorating health made him change his mind and pull out. But that was before most of the primaries, seven months before the election. Others talked about Harry Truman, who pondered another run in 1952 and even put his name on the New Hampshire primary ballot. But advisors convinced him he was too old and unwell to continue.

So both share similarities with Biden’s decision, but neither made their call as late or as dramatically as Biden.

“There is no direct historical analogy that I’m aware of,” said Russell Riley, a presidential historian at the University of Virginia, told the Washington Post.

Well, not in America. But there’s a recent one here in New Zealand. Not exactly analogous, of course, but pretty close. It’s the story of a man, a loyal servant of his party, who read the polls, the mood of his country, and recognised that in “putting people first” it was his duty to stand aside (however reluctantly) for a new generation. He stood down for a younger woman, his deputy, and a candidate who would break barriers just by standing. The man won praise for a “selfless masterstroke” putting country and party first.

I’m sure you get the comparison. In 2017, Andrew Little stood aside for Jacinda Ardern. In 2024, Biden has now stood aside, endorsing vice-president Kamala Harris. Events in the first 12 hours after his announcement have made it very unlikely any serious competition will stand against her. So commentators are now grappling with whether Harris has it in her to seize her moment, just as many of us watching Ardern’s rise to leader wondered if she had it in her to turn around National’s double-digit poll lead.

The answer here was “Jacindamania”. As Labour’s youngest ever leader, the 37 year-old held a stunningly impressive first press conference, told a breakfast TV host to butt out of women’s reproductive lives and harnessed a “mood for change”. Ardern failed to win the popular vote, but Labour’s surge and coalition partners meant she won power.

There are lots of reasons why the late resignation of a leader here in New Zealand may not have the same impact in the US. For one, Ardern an Opposition leader up against a tired, third term government. Harris, 59, has to defend an incumbent government, which has become poison in these fast-changing, polarised times.

But already there are similarities on many fronts. Harris moves centre stage with many in her own party harbouring serious doubts about her electability. Some talk about her  “uneven history as a campaigner”. Others have described her as a “promising” politician who flamed out on the national stage. Others still, a politician who knows what she knows but is weak on some cornerstones issues, especially the economy.

Ardern faced just those criticisms, and in both cases they aren’t without some merit. Harris and Ardern were both flawed candidates in some similar ways; both experienced yet somehow under-prepared, both people who wrestle with their own self-confidence, and both measured politicians who seem to act more on caution than on vision. Both have struggled with what these days is called “delivery” when in power.

But sometimes a moment propels a person and a person can capture the mood of that moment; sometimes not having too long to prepare allows a person to be authentic and inspirational in a way they never could have if they had more time to think; sometimes just by being someone else they become precisely the person the public wants. Dismiss it as “stardust” as some did in 2017, but that won’t stop them winning.

Harris has the potential to speak to a better future, in a way Ardern did, contrasting with familiar, older, male opponents. She has the potential to connect with younger voters just as Ardern did. And just by being something new, she can shake the cobwebs off what people thought they had to choose between at the election. Just like Ardern did.

Immediately following Ardern’s election as Labour leader, the party was swamped with donations, peaking at $700 per minute. In just seven hours after Biden stood aside, Democratic online fundraising platform ActBlue raised US$46.7m, mostly from small donors. Democratic-aligned analysts spoke on-air of a phone call organised Sunday (UST) by the Win with Black Women network. A thousand women had been expected to join the call. More than 34,000 called in (some sources say as many as 40,000).

Former advisor to President Barack Obama turned commentator, Van Jones, said on CNN, that he had his doubts about Harris even in recent weeks, but in just 12 hours the public response to her had changed his mind. “I’m watching a rocket take off,” he said. Yeah, we’ve seen that here in New Zealand, I thought.

So soon after Biden’s big call, there’s no way of knowing if Harris will be able to follow Ardern’s path to victory. But the comparisons are clear and worth considering. It’ll be fascinating to see whether Harris can manage her launch as well as Ardern did and capture the public’s imagination in the same way. To see whether Kamalamania will capture the US in the short months until election day.

 

The Minister of Housing’s ambition is to reduce markedly the ratio of house prices to household incomes. If his strategy works it would transform the housing market, dramatically changing the prospects of housing as an investment.

Leaving aside the Minister’s metaphor of ‘flooding the market’ I do not see how the announced strategy is going to quickly resolve New Zealand’s housing problems.

His strategy seems to have evolved over the last five years following the establishment of the Ministry of Housing and Urban Development and is much the same as a Labour Government would have proposed, point-scoring and minor differences aside.

Supply-side initiatives take time. It is not like the Reserve Bank changing the Official Cash Rate, with an immediate impact on financial markets which works its way quickly into the new mortgages and mortgage renewal markets.

We are currently adding about 30,000-40,000 dwellings a year to the housing stock. (There will be more new ones since some will replace demolished dwellings.) Suppose we add an extra 10,000 a year. That would not only be a strain on the building industry but the Reserve Bank might feel it necessary to further restrain the economy. Given there are over 2 million houses the additions to the total stock would be about 0.5% a year. Is demand so elastic to such a small change in supply? (For a review of the changes in the intercensal housing stock see here.)

In any case, it is unlikely that the announced changes will produce a sharp increase in the supply of new buildings. It is not just a matter of putting up a shed on new piece of land. There is the accompanying infrastructure including water and roading. That in will take time to be installed, even if the local authority is enthusiastic. So the strategy is about the long term and not ‘flooding the market’.

The Minister’s strategy includes a long-term target of the price of houses costing ‘three to five’ times (annual) household incomes. ‘What I want is for house prices to moderate over time, so that in 10 to 20 years’ time, we have essentially gone a long way towards solving our housing affordability problem.’ Currently the multiple is 6.6 nationwide. In Auckland it is 8.1, Wellington 6.1, Christchurch 5.8, Hamilton 6.6, Dunedin 5.7 and Queenstown-Lakes almost 15.

So the Minister wants a cut in the relative price of housing of between 25 percent and 55 percent. That does not mean he expects the nominal price of houses to fall 25 to 55 percent, a reduction which would cause widespread financial distress (particularly if it was to happen rapidly). Rather, the Minister is hoping that nominal incomes will rise faster than housing prices over the long term.

To make rough sense of it all, suppose he envisages a 40 percent relative cut in house prices in fifteen years (the Minister’s midpoints). Allow inflation at 2 percent per annum and real incomes to rise their long term average of 1.5 percent p.a.. Now suppose the average price of a house is $1m. (Quotable Value thinks it is about $900,000 but the million keeps it simple.) The 6.6 ratio would mean an average household income about $150,000 p.a. (Which is also a bit high – this is an illustration). In fifteen years’ time, under those moderate inflation and growth assumptions the household is likely to be earning about $250,000 p.a. The ministerial ambition for the ‘four’ ratio means the price of housing will still be $1m (i.e. four times $250,000). So the Minister’s target means that there will be no nominal capital gains in house prices for a long time to come.

You can fiddle around with these assumptions, but realistic alternatives suggest that, under the Minister’s ambition, capital gains on housing will be negligible and house ownership will be a poor investment prospect. For most people home ownership will make still make sense, even though they will make no capital gain when they sell (for neither will the next house they buy have gone up in price). However, treating your house as a financial investment or investing in property may not make as much sense.

Of course, it is only the Minister’s ambition. He won’t be the Minister of Housing in fifteen years. But he can be held to account while he is. Will housing prices be stagnant on his watch? In my judgement the proposed measures will not be sufficient to attain the ambition. My guess is that a serious effort to restrain house price rises will also require further fiscal and monetary measures.

Since the cost of building houses and providing infrastructure will go up with inflation, the value of land will fall under the Minister’s scenario.  That seems very unlikely. In the more stable past, house prices have rise a few percent annually faster than consumer prices. What the reverse would mean is difficult to analyse but there would be a very different housing and investing world from the one we are, or were, used to.

So will housing prices stagnate to the extent of the Minster’s ambition or will they rise much like they did in the quieter past. Your guess is as good as mine, but I shall be surprised if they stagnate. I am not holding my breath waiting for the flood.

I can’t say I’m shocked. As the US news networks offer rolling coverage dissecting the detail of today’s shooting at a Donald Trump rally in Butler, Pennsylvania, and we hear eye-witnesses trying to make sense of their trauma, the most common word being used is shock. And shocking it is. That someone should try to shoot dead a candidate in a democratic election in the developed world in 2024, as it seems happened just outside Pittsburgh today, is thankfully incredibly rare. It is therefore by definition shocking. And not just in the “surprise” meaning of the word, but also the “disgust” meaning. We should all without hesitation say violence has no place in democratic contests. Elections are battles of ideas, not of bullets.

However, that doesn’t mean anyone closely following US politics in recent years will, in their heart of hearts, be surprised that the violent rhetoric and protest has been upgraded to what is being investigated as an assassination attempt, and turned on a presidential candidate.

We reap what we sow and the bitter division and cynicism apparent in America’s public debate has been all too obvious for some time.

The Pew Research Center does remarkable work capturing the heartbeat of the nation and in September last year it reported only four percent of American adults believe their political system is working extremely or very well; only a quarter think it is working even “somewhat well”. The same survey showed 55 percent feel “angry” when they think about politics. So how surprising is it that one of those angry people picked up a weapon, found a rooftop, and decided to express that anger down the barrel of a gun?

Even in 2020 as President Joe Biden was stressing in his first speech as president-elect that he was committed to bridging the deep divisions in American society and uniting its citizens, Pew wrote “Americans have rarely been as polarized as they are today”. Covid, fragmented media, the two-party system, identity and religious politics, and the demonisation of people we disagree with… those are just some of the seeds sown that led to the sort of violence we’ve seen today. I’m sure you can name others.

The last time America saw these sorts of divisions was at the height of the civil rights  and Vietnam War protests in the late 1960s. One Trump supporter at the Butler rally told CNN he was reminded of 1968. That was the year both Martin Luther-King and Robert Kennedy were gunned down. As of June 30, 8,539 Americans have been shot dead this year. And it was only at the start of this presidential term that that US Capitol was attacked in an act of political violence.

So no, today’s shooting is not surprising. History itself has been warning us. And, as horrible as it is to write, it only make more violence this year more likely. (It’s worth noting with the Republican Convention starting next week and the Democratic Convention due in August, that 1968 was also the year the Democratic Convention in Chicago was the scene of violent street clashes between protestors and police).

So what impact will this have on November’s election? Social media posts are declaring all the reckons you might expect. Trump has become a martyr and the election is his. Trump is a victim of his own violent rhetoric. Democratic attacks on Trump comparing him to Hitler are the cause of this shooting. Republicans who excused the attacks on the Capitol must accept blame… and on and on.

The truth is no-one can know for certain how US voters will respond to this. Those already committed to one side or another will probably see their opponents as the sowers of what we reaped today. At most, 20 percent of voters are undecided, and when you boil those down to swing states, and beneath that key counties, the election is still likely be decided by mere thousands of voters.

Even as our understanding of what happened is still unfolding, I’m confident the influence today’s events have on the election result won’t be decided by the act of one shooter, but rather by how the parties and politicians respond to today’s violence. Those swing voters will be moved by the reaction as much as the action. It could be independents swing behind Trump as a martyr. But it’s just as possible they turn to Biden, as a more moderate and conciliatory candidate. It could be one party or another over-reaches in the emotion of the moment.

Perhaps the best hope we can have today is that the loudest voices over the coming weeks are voices of reason and unity. That those who try to use today to sow yet more division and discord are ignored or challenged. That America– to borrow a phrase from Abraham Lincoln, a man who knew a thing or two about bringing a country together and the deep tragedy of political violence – instead turns to “the better angels of our nature”. Perhaps we can dare to hope today that this is a wake-up call for those dividing America and a chance for the country to find common cause in its prayers for peace and reconciliation.

Midway through the news conference that many American political commentators had built up as critical to Joe Biden’s re-election chances, the US president said European leaders are not asking him not to run for a second term, “they’re saying you gotta win”.

The problem for Biden and his advisors is that many American voters – regardless of this press conference or that debate – are concerned that to ensure the latter, Biden has to accept the former. That ‘you gotta win’ is in fact code for ‘you gotta stand aside’ because Americans are losing faith in his ability to serve as president for another four years.

The Friday press conference (NZT) lasted nearly an hour and Biden spoke strongly. His grasp of history, details of his recent meetings, economic figures, casualty numbers and more were impressive, especially in contrast to the CNN debate two weeks ago, which he today called his “stupid mistake”. Foreign policy has always been his strong suit.

But there were still slips. He spoke about “Vice-President Trump” when talking about Kamala Harris, without recognising his error. He said he was getting advice from his Commander-in-Chief before correcting himself, saying he meant his Joint Chiefs of Staff.

Biden though was dismissive of public concerns, declaring he’d only stand aside if people could convince him he had “no chance of winning”.  (Which is a step down from last week when it was only the Lord Almighty who could convince him). In this press conference he said the only question that matters is “Am I getting the job done?”. He quite reasonably pointed to a successful NATO summit and new economic figures showing overall prices coming down for the first time in four years as signs he’s doing the business. This press conference affirmed that this is a man who wants to stand on his record and his ability to build consensus. He said he had decided to stand for a second term because he’s not only the best qualified to govern, he’s the best qualified to win. And nothing had changed his mind about that.

Biden’s problem is that while his mind may be set, voters’ minds are in flux. This press conference or the next one won’t make them forget his incoherent debate night. Biden’s capability as an 81 year-old – and an 84 year-old before the end of a second term – has been simmering as an issue with voters for some years, but now the cat is out of the bag and is the dominant issues of the nascent campaign. Voters are now primed to watch for every memory lapse or slip and even as new issues arise, his mental agility and ability to lead will put the Democrats’ chance of winning in jeopardy.

The night before this press conference a Washington Post-ABC News-Ipsos poll showed Biden and Trump neck and neck in the popular vote, both on 46 percent. But 67 percent of those polled and even 56 percent of Democrats polled said he should “step aside and let someone else run”. Many voters are desperate for a candidate – any candidate – who can string a sentence together and isn’t breaking record as the oldest presidential candidates of all time. More Democratic politicians are expected to call for him to let someone else run now that the NATO summit is done.

As much as some are talking about a unique moment in history, US politics always rhymes with the past. There has been another time, for example, when the Democrats had a president approaching a convention and nomination in a perilous state of health. People around him noticing his flagging energy and lapses in concentration. Questions about what the public have been told and a vice-president’s capabilities. A war and serious global threats hanging over it all.

In 1944 Franklin D. Roosevelt – who had battled polio for more than 20 years – was suffering with heart issues, bronchitis, and exhaustion but still accepted the Democrat’s nomination for an unprecedented fourth term, ran and won in November.

He did what he could to fight his condition and hide his ailments, but died in April 1945, early in the new term. It’s a sobering thought. And Biden cannot hide his issues in the way Roosevelt (or Kennedy or Lincoln) did. Even though he has done roughly half as many press conferences as Barack Obama at the same stage of his first term and is carefully managing his public appearances, he can’t hide the toll age his taking on him any more than he can control the memes on Instagram or flood of images on X.

Yet this is not a campaign the Democrats can afford to be about Biden’s age. Or one they can afford to risk out of deference for Biden’s status in the party. For all the difficulties of recent years, it’s worth saying out loud that the Democrats should hose this election. The economy is recovering, as data is starting to show; they have a push-button issue in abortion to get out women and independent voters; and the Republicans are about to nominate a candidate who has not only lost the last three elections he has stood in or tried to influence, he’s a convicted felon. The Dems should win comfortably.

Biden himself has warned the world of a potential Trump dictatorship as Trump has toyed with that word in speeches. Biden has said Trump embraces political violence and another Trump presidency would imperil many US political institutions. “We can’t let that happen,” he has previously said.

The concern for the Democrats and those around the world who fear what a second Trump presidency would mean for US and global democracy, is that they agree with Biden’s words that Trump must be beaten at all costs, but less with his words that he is best qualified to do it. Biden’s mental capacity is now on the ballot, so the question becomes political. It’s no longer whether Biden is doing the job, it’s whether Democrats think enough voters will hold their nose and tick Biden anyway or whether a new name on the ballot is needed to win. And with the party’s nomination due to be decided on August 5, they only have a few weeks to decide.

Whether Britain leaving the European Union was right or wrong, good or bad is for the Brits to decide. But there are lessons about international trade to be learned from Brexit, especially as it is very unusual for an economy to break so completely from its major training partner.

In Econ101 we are taught Ricardo’s theory of comparative advantage. In summary it says that specialisation makes economic sense; that it is a good idea for you (or a country) to do what you do best and trade the surplus for something you want from someone else who (or other country which) does it comparatively better. An economist then spends the rest of her or his life exploring the caveats and subtleties of the theory when it applies to the real world. It’s not logically wrong – it’s just that the real world is more complex.

For example, there are transaction costs in trade. I wrote a book, Globalisation and the Wealth of Nations, which explored the consequences of the costs of distance – transport, inventory, information … Standard trade theory was not a lot of help. It is a static account of the economy and when we measure the allocative gains from trade we get a small percentage increase. (Which, not incidentally, is why is was so hard to find the promised gains from Rogernomics.)

Yet the evidence points to economies thriving with international trade (although not necessarily everyone in each country). In the end I concluded that the growth came not just from the specialisation but was reinforced by economies of scale and economies of agglomeration, and by competition which stimulates innovation and competitive advantage.

This conclusion is orthodox. The book’s twist was to highlight the costs of distance. Think of them analytically as a natural tariff. As these barriers to trade decline, economic growth is stimulated. (The same happens between regions within a country.) The distance costs have fallen dramatically over the last two centuries and driven globalisation – increasing interconnection between economies. (Since they wont fall as much in the future, we are likely to see some slowing down – even stagnation – of the globalisation of the markets for goods. However, service trade is likely to continue to grow as information technology transfers becomes more efficient.)

So it is no surprise that the British economy has suffered from the rise in the barriers which resulted from the withdrawal from the European Union. The UK government’s Office of Budget Responsibility calculated that Brexit is costing 4 percent of GDP over the long term – that adds about three years of stagnation to the British economy. That is probably an underestimate because the dynamic effects are almost certainly greater. (Both investment and skilled labour have moved to the continent to avoid the barriers.)

Many of the barriers come from the fact that the two regimes no longer have the same regulations. The difference has resulted in increased documentation and phytosanitary requirements (measures to eliminate the spread of diseases transferred through livestock, plants and such like). Part of the point of the withdrawal, as far as the Brits were concerned, was to allow them to pursue their own regulatory regime because, it was argued, Brussels was too intrusive. (Some of the alleged rules, like how bent bananas could be, were very funny and entirely fictitious.)

The move to common regulation was the result of the 1992 Maastricht Agreement which aimed to convert the European Community (as it was then) of a multitude of markets into the single market of today’s European Union. (Just as we do not have different regulations between the North and South Islands.) There is a sense that the Brexit vote was a rejection of the transformation of the EC (which they joined in 1973) to the EU which they left in 2020. (I am not discussing here how badly the withdrawal was handled.)

What surprised me was how onerous and complex the regulatory barriers have been – how damaging they have been to trade and economic growth. It has not just been the queues of lorries awaiting documentation clearance at ports like Dover – vivid illustrations that they are. The delays have resulted in some British producers of fresh products where time is critical – like fish and flowers –giving up exporting to the EU altogether.

Sometimes the amount of documentation – pages and pages of it – has been extraordinary. I don’t think the EU is being bloody minded, although Brussels can be clumsy. Perhaps over time they will simplify their requirements and so will the Brits. Which means that there will be increasing regulatory alignment, which Brexit was trying break away from.

There is a lesson here which the Brits may yet learn. While one may yearn for sovereign independence, whatever the de jure situation once there is an international relationship – in trade as well as a host of other areas like human rights and defence – de facto sovereignty is compromised.

The problem of these regulatory barriers arising from misalignment and documentation apply elsewhere in world trade; an exporter to multiple markets may have to meet quite differing requirements. There have been attempts to reduce the barriers, but multilateral efforts have been half-hearted. Free trade agreements increasingly pay attention to them.

There cannot be total regulatory alignment. Our negotiating partners know that our bottom lines include the provision that Te Tiriti o Waitangi is sacrosanct; it protects the Māori broadcasting regime from international investors.

One place where we can do better is moving the trade documentation onto an electronic basis. I do not know just how much that will facilitate our exporters and trade generally. But the lessons from Brexit suggest that it will, probably more than one thinks.

Were I a Brit, I’d favour measures which reduced these transaction costs even if the resulting regulatory alignment reduced the country’s economic sovereignty.

Footnote: A new area of regulatory alignment is likely to be about carbon emissions. The EU is already moving towards requiring those who export products to it from the ‘heavy’ industries – such as aluminium, cement, chemicals and steel – to meet the EU’s domestic carbon emission standards.

They have not yet begun addressing farm emissions of methane and nitrous oxide. But they will. Our farm sector needs to be preparing for that. Rather than the government imposing an emissions regime, it might tell them:

 ‘Over to you. If you don’t get on with developing your own strategy you will be one day be excluded from some of your valuable export markets. The government’s advice is to get onto it as fast as you can. Biological change takes time. Inconvenient regulatory can change a lot faster. The government will give you all the reasonable support you require.’