Wednesday, 19 January 2022

Building materials

There's a bike path running through a forest. Thirty years ago, it had been well maintained. Now, it's an overgrown mess. A big branch across the path stops anyone getting past the first hundred metres. Clearing things that are past that branch won't do any good unless that first branch is cleared. Heck, if you start with stuff five hundred meters down the track, without addressing that first branch, people might even claim that there were never barriers in that next bit at all - because those parts just hadn't been hit yet.

The housing supply mess is a bit like that. Councils use zoning and consenting to protect their balance sheets against the costs of urban growth, so there isn't enough zoned land to build on. That's the first branch. But there are other branches past that one.

The Commerce Commission is looking into building materials supply; it's running a market study. 

That work should begin with a simple question. 

If I disassembled a perfectly good house or apartment tower in Vancouver, Seattle, or Toyko, and brought all the parts here on a ship, would anybody let me put them back together here? 

Whatever else is going on in the building supply sector here is almost irrelevant if you can just route around it through parallel imports. If parallel imports are de facto often impossible because councils won't sign off on plans that include them, because they buy all the downside risk of any building failures, isn't that going to be a really big problem?

This week's column in Newsroom, now ungated. A snippet:

Building materials supply seems like it should be far easier, at least in principle. If a construction company thinks that gib, or insulation, or nails, or any other building material is terrible value for money in New Zealand, there seems to be a simple solution.

During the import licensing era, Alan Gibbs urged JVC to disassemble perfectly functional televisions at the end of their assembly line so they could ship him the parts for reassembly in New Zealand. He undercut local suppliers while providing a better product. Could something similar be done with houses abroad, ideally before all the pieces were put together? Houses could be parallel imported, one piece at a time.

The developer able to do that would have a substantial advantage over others, if local building material costs really are out of line. And nobody has ever accused developers of not wanting profits.

If building material costs really are far higher here than they should be, why aren’t developers bringing in shiploads of building materials and ignoring local suppliers? Covid cannot be the answer; complaints about building material costs long predate the pandemic.

Framing the question properly would help the Commission decide where to focus its efforts. Imagine for the moment that there were some nightmare cartel arrangement among local building materials suppliers. Could it possibly matter if anyone could easily parallel import a few container ships of insulation and gib from Vancouver, or full kitset houses?

I probably should have said that Covid can't be the only answer. Covid is clearly wrecking supply lines. But that should be a transitory thing that should be looked through. The longer term issue is clearing the regulatory hurdles for the decade of serious building that's needed.  

Tuesday, 18 January 2022

Morning roundup

The morning's worthies! And a couple shockers too. 

Thursday, 13 January 2022

Sandwich cartels

A typically superb piece from Colby Cosh, looking at the real cartel villains standing between him and a decent sandwich. The Canadian Dairy Cartel strikes again. So, naturally, antitrust authorities chase after bread retailers instead.

My local grocer, without exaggeration, must now offer 40 or 50 different bread options perfectly suitable for sandwiches. There’s a mini-universe of rye breads now, and different varieties of sourdough. The whole-grain bread that children in my age cohort associated instinctively with disappointment has improved a thousand per cent. The best of these products would have seemed decadent and impossibly European if I had been handed them at age 11.

So, very well, grocers: I guess if some people are angry with you about an extra 12 cents on a loaf of Wonder Bread, or however much you’ve been clipping off unlawfully, you have no choice but to suffer the abuse and present a defence in court. I consider us square. The bread available to me as an urban shopper has gotten steadily, constantly better. Canadians can feed foreign guests without humiliation.

Unless, of course, someone intends to butter the bread. When it comes to supply-managed dairy products, price-fixing is not an abomination crying to God for vengeance, but the official long-standing policy of a long series of Canadian governments. As a result, it takes a wave of public outrage for our dairy oligopoly to rediscover the concept of quality control . Serious bakers have to engage in bootlegging to make a half-decent croissant, and our supermarket cheese aisles remain monuments to mediocrity and failure. And meanwhile, as you will have read in the Financial Post on Friday , our federal government is trampling U.S.-Canada free trade in defence of that same dairy cartel. This is, as of last Tuesday, the official finding of the dispute-resolution panel that oversees the continental USMCA trade zone. If you drill down into the dispute, you cannot help being shocked by the way Canada’s representatives have conducted themselves. 

Canada's been playing dodgy with American access to protected Canadian markets. 

Small American makers of cheese and butter thought they might have a chance to enter Canadian retail markets (free trade!), but we then did just what we promised not to do: we explicitly assigned most of the rising import quota to our own dairy processors, guaranteeing that the quota would be filled with U.S. commodity milk destined to be turned into “Canadian” value-added products.

Basically, the government acted so as to guarantee that you still won’t hurt yourself stumbling across any Wisconsin blue cheese at the grocery, and that you won’t inadvertently consume any American milk before Canadian Big Dairy has had the chance to squeeze a nickel out of it. If you argue with a dairyman about the supply management that keeps him fat and happy, by the way, he is almost guaranteed to assure you that U.S. milk is mostly white lead mixed with anthrax and filth. But the cartel he supplies is positively ravenous for that U.S. milk when a treaty requires it to be included in our import quota.

I'm not optimistic about real NZ access to Canadian markets, regardless of what Canada might have signed under CPTPP.  

Wednesday, 12 January 2022

Breaking Bertrand

New Zealand's two large supermarket chains seem to compete with each other for market share.

Anyone who's done undergrad IO knows that if you have two competitors who can each take the whole market by having a slight price edge over the other guy, you can wind up with a Bertrand outcome. The duopolists behave as though they're perfect competitors. Taking the whole market is valuable. 

Now, if they could sign some cosy deal with each other, splitting up the market between themselves, that would be best from their perspective. Undercutting each others' prices to take the whole market is great and will always be in the interest of each of them in the moment, but Cournot rents are far higher. 

But they can't sign such a deal because it would be illegal under competition law. 

And that made this proposal ... interesting.

In a cross-submission following the competition watchdog's public hearings last November, Coriolis MD and founder Tim Morris said the only way to break the power of the two main supermarket owners in NZ – Foodstuffs and Woolworths/Countdown – is to force divestments when market share gets too large. 

“If you want competition in traditional supermarkets in any meaningful timeframe, you will need to force separation (at Foodstuffs) and or divestment (at WW/Countdown)," he wrote in a submission published by the commission as part of its inquiry into supermarket pricing. Foodstuffs operates as a cooperative whereas Countdown and its associated brands are part of the ASX-listed Woolworths company. 

Divest at 27% 

“As a strawman, I propose by January 2024, any food retailer with more than 27% market share in any region of NZ (eg Canterbury) shall be forced to divest stores until they reach 27%” market share", a level chosen by reference to European and North American regional peers.

Foodstuffs and Countdown wouldn't be able to sit down in a room together and make a deal requiring each to sell off some stores if it ever crossed a market-share threshold. But it's being pitched as an antitrust solution. 

I expect that they are far from perfect Bertrand competitors. But banning them from going past some market share threshold tells them, when at the threshold, to stop competing. That doesn't seem like any kind of good idea. 

I still think all of this is stupid when the regulatory barriers to new entrants are the first-order problem that haven't been dealt with. 

Friday, 24 December 2021

A year in columns

I'm back in Christchurch for the summer. When I lectured at Canterbury, I often helped coordinate and host Erskine visiting fellows. With international borders closed, Canterbury's had to scrape the bottom of some barrels. So, I'm back as an Erskine. 

I'll be talking with the students in the Masters "Advanced Applications in Finance and Economics" on writing in economics. 

I figured I should look back over the columns I'd written this year. There are more of them than I'd thought. I've bolded some of the better ones. I'm sure I forgot to blog some of these; apologies.

Thursday, 23 December 2021

How can Immigration NZ keep being this bad?

RNZ reports:

Immigration New Zealand has received more than 10,000 applications for the one-off 2021 Resident Visa since it opened on 1 December.

It was set up to streamline the residency process for critical workers already onshore but has left some ICU nurses, already in priority queues, in limbo.

An ICU nurse - RNZ is calling Anna - moved to New Zealand with her partner two years ago with a plan to settle permanently.

She applied for a working residency visa last month and got put on a priority list as an essential worker, but this process has now stalled.

Anna said INZ had emailed to say her application was on hold so immigration officials can work through applications for the 2021 Resident Visa.

She has been told to apply for this newly-introduced visa, but while waiting on her residency application she missed the cut-off for its first phase.

"We don't qualify for that just yet. We will do next year but it's just another application with another set of paperwork and another fee we have to pay them.

"And it's just another wait when we were already on the pathway to residency which I find a bit frustrating," she said.

...

Anna said, although she would like to stay in New Zealand, her experience with the residency process doesn't make her feel like part of the team of 5 million.

"It's just incredibly frustrating to feel that you're just undervalued. You're needed somewhere else, you know. I could go somewhere else.

"I will try not to because we really love New Zealand but loving New Zealand if New Zealand doesn't love you back doesn't work."

RNZ understands there are 10-15 ICU nurses in Wellington alone in similar situations, and the problem is not isolated to the capital.

College of Critical Care Nurses chair Tania Mitchell said New Zealand was competing with other countries and must cut through bureaucracy and financially incentivise ICU nurses to stay.

The borders have been effectively closed since March 2020. The government failed to find adequate ways for critical medical staff to get through the system and enter. I hate that entry winds up being by government largesse. But priority entry for health workers ultimately helps the system accept more visitors: health system capacity is one of the many binding constraints floating around. 

But these cases don't even require finding an MIQ space. They only need someone at Immigration NZ to pull out the file, blow the dust off it, and stamp it. 

And they aren't managing it.

Tuesday, 21 December 2021

Medsafe Delenda Est?

Medsafe finally signed off on the Pfizer vaccine for 5-11 year olds.

Approval really was a forgone conclusion. It had been approved by the US, Canada, Israel, and others weeks or months ago. The odds that Medsafe was going to find something that bigger and better-resourced agencies hadn't found were close to nil. The only thing Medsafe provided was further delay in getting kids vaccinated, and Omicron is banging at the door. 

Over in the Dom (and the other Stuff papers), I wondered whether we need Medsafe at all. We could replace their approval process with a simple rule: if at least two trusted regulators abroad have approved something, we approve it automatically. 

I don't know what Medsafe adds after it's been approved in two places. 

Alternatively, rather than replace Medsafe entirely, you could augment it. Keep Medsafe on the off chance that somebody wants to work an approval through our system before others. But set a rule that, if a drug has been approved by two trusted regulators, Medsafe must follow suit immediately or provide exceptional justification as to why delay is warranted in this particular case.

I wrote:
Now imagine that Medsafe had never existed. New Zealand could rely on approvals provided by trusted regulators elsewhere.

If at least two of Australia, Canada, the United States, the UK, Singapore, the European Union, Israel, Switzerland or Japan approved a drug, it would automatically be approved here too. There are a lot of approval agencies out there. New Zealand would never be slower than the second-slowest trusted agency.

Why replicate the efforts of better resourced agencies elsewhere who are already on the task?

There could be a good reason.

If international regulators err on the side of being too slow, a New Zealand agency could be faster and nimbler than others. Where other agencies harm their public by taking too long to approve drugs, ours could avoid such errors.

That does not seem to be the role Medsafe plays.

Instead, Medsafe adds further delay on top of delays seen abroad.

Delayed approvals put us at the back of procurement queues for effective Covid treatments that will be in high demand. Those treatments keep patients out of scarce intensive care beds. Delays will matter.

Former head of the Salaried Medical Professionals Ian Powell gives the standard establishment line in response with a piece in BusinessDesk.  

My column began by noting that agencies optimally balance two risks. If they just approved everything, some bad drugs would get through despite pharmaceutical companies' reputational incentives to avoid that. I wrote:

Pharmaceutical companies have strong reputational reasons to avoid releasing unsafe drugs – not to mention liability concerns in some jurisdictions.

But an approval agency that simply rubber-stamped every application it received would risk approving a lot of unsafe drugs. And some people would be hurt or die as consequence.

That was the one polar extreme. The other is the agency that takes half a century to approve anything. No bad drugs get through, but a lot of people are harmed through treatment denied. 

I wrote:

But you could also imagine an agency that took half a century to approve any application. No drug would be approved unless the agency could determine, with certainty, that no adverse effects were encountered for decades after taking a drug.

So of course Powell chooses to pretend that my first polar case is actually me arguing for complete deregulation. Here's Powell:

I don’t know whether Crampton is familiar with Victorian satire but, if he is, he may have had the Charles Dickens novel ‘Bleak House’ in mind. In particular, the fictional Jarndyce and Jarndyce probate case progressing in the English Court of Chancery. The case has become a byword for seemingly interminable legal proceedings. The closest Crampton gets to satire is his metaphoric use of “half a century” to describe Medsafe’s approval process.

In the context of extending Pfizer coverage to children over five years, Crampton argued the pharmaceutical companies had sufficient motivation to give confidence over safety. He is right to the extent that it is not in the interest of pharmaceutical companies to intentionally or otherwise produce ineffective or dangerous vaccines. At the very least the reputational damage would be bad for business. Similarly, it is counter-intuitive for them not to employ competent scientists.

But these companies are driven by profit-maximisation. Not just profitability. They are a risky fit for the provision of a universal public good such as vaccines. Until the current coronavirus pandemic this meant their vaccine research and development was a lower investment priority. However, the pandemic generated a new lucrative market opportunity. Unfortunately profit-maximisation creates opportunities for standards and carefulness to slide.

I guess I must be worse at writing clearly than I'd thought because Powell completely failed to understand what I was getting at, or pretends not to. 

I was saying that agencies' processes can lie on a continuum from "approve everything" to "take half a century to approve anything". In the former case you get harms from drugs being released that shouldn't have been approved but no harms from delays; in the latter case you get zero harms from bad drugs being released but lots of harms from delayed access. The trick is finding processes that minimise the sum of those harms. 

Powell goes on to provide some examples of one agency or another getting things wrong. Fortunately, I did not suggest "Approve anything the FDA approves." I suggested automatically approving if two other agencies had approved. 

But he gives a great example of how medical types think about this stuff. Harms from delay seem not to factor into his thinking.

Crampton could not be more wrong. Medsafe should take as long as is needed before approving a vaccine application because the risk of harm to the innocent is too great. Efficacy is important. However, relying on what the results of clinical trials reveal or what other regulatory authorities in a small number of ‘approved’ countries decide is insufficient when there is an opportunity to drill down further.

I view a death or harm caused by releasing a drug that shouldn't have been released (in some perfect-omniscience world) as being just as bad as a death or harm caused by delaying a drug or treatment. But for people like Powell, only one kind of harm exists. Unfortunately, they're the exact kind of people who set the system and processes here, resulting in futile harmful delay. They're the reason we need a rule requiring approval of drugs approved elsewhere, and they're also the reason we won't get that kind of rule. 

"As long as it takes" is the wrong standard. "Investigate until another day's worth of process results in as many expected reduced harms from the drug as expected increased harms from delayed access" is the better standard. 

What would have been a first-best with kid-vax, where popular acceptance is a factor and where people here put some value on Medsafe that I don't? Simple. Allow the vanguard of the willing to be vaccinated early, while holding the broad rollout until Medsafe had done it's useless-but-for-building-public-confidence thing. There was a non-crazy case for saving the big rollout until a couple weeks of US and Canadian data showed that kids weren't having a pile of adverse reactions. That would have had rollout of first doses at school before the end of the school year. But we're having to wait for freaking January now. 

And I note, not for the first time, that neither Covid Classic, nor Delta, nor Omicron, had to pass any MedSafe approval process to be allowed to infect children. They could just go ahead and do it, without any clinical trial or assessment of potential long-term harm.