Afternoon roundup

The closing of the browser tabs brings some worthies:

• The shift to Zoom, and away from face-to-face, is costly. Fund managers losing access to the kind of information you can get through local contact reduces fund returns. "We show that soft information originates mainly from physical human interactions, primarily in cafes, restaurants, bars, and fitness centers; and the virtual world based on Zoom/Skype/Team fails to substitute physical interactions fully, thus cannot provide sufficient soft information." Now think about NZ firms seeking capital internationally, and the long-term effects of border systems that prioritise Ministerial pet projects over business travel. 
• The blackouts back in August? It was a Transpower screwup. Here's what we'd said at the time.
• Wellington ICU's co-director pleads that ICU nurses be added to the immigration skill shortages list.
• Avoiding Tarras while on any South Island holidays might be advisable. If they haven't enough vaccinated people to staff a cafe...
• Another Commerce Commission market study is coming: building materials. Like supermarkets, any lack of competition here is mainly due to crazy regulatory barriers to entry. For supermarkets: zoning and the Overseas Investment Act and consenting processes and uncertainties around liquor permits make it hard to be a new at-scale entrant. For building materials supply: good luck getting a house signed off by council if you've built it with imported materials. Ideally ComCom will recommend fixing the regulatory barriers to entry and easing councils out of joint-and-several liability for buildings they consent. But they could instead recommend breaking up each of the existing suppliers into little pieces and forcing separation between them and retailers. The latter would be stupid. The starting question really should be: if I get a container ship in Vancouver, fill it up with all the pieces needed to build a house there (flipping the 110 volt electrics to 220), would I be able to use it to build a house? If not, why not?

Enabling housing and the longer term

Right now, there's bipartisan consensus on the Enabling Housing Supply legislation that basically abolishes single family zoning across most urban centres. 

I hope that that consensus survives the National Party's current leadership turmoil.

While Labour has the votes to just pass the thing on its own, bipartisan consensus matters in setting longer-term expectations. And I worry that National pulling out from the thing could bring about the kinds of development that the legislation's opponents feared all along.

Suppose everyone expects that, because there's consensus on the legislation, it is politically durable. It will stick across changes in government. That sets expectations about ongoing development priorities, infrastructure needs, and the kinds of housing that's worth developing. 

There's a housing shortage and a building boom currently. With the legislative change, townhouses will be allowed everywhere. But if you slap something together in a hurry that isn't great quality (but still meets code), you shouldn't expect much buyer interest. They'll know that more houses are coming. And they could just wait for one that doesn't suck. 

Developers will know that and optimise accordingly.

Now suppose instead people expect a 40% chance that the legislation flips in 2023 and a 60% chance it flips in 2026. Under those incentives, you might want to rush to have things all signed off before any potential legislative change that would thwart you. You might at least want to get projects started, so that they'd be in ahead of any legislative change, on expectation that they can't retrospectively require that started projects need consent to finish. 

And that risks getting you a bit of a mess. Projects will start where they can get going in a hurry, rather than where they might make more sense if developers knew they'd be competing also against the new homes that buyers would be expecting to come on-stream after 2023. 

Or another way of thinking about it. Suppose you expected that, after the election, import of all non-electric cars would be banned. Do you maintain or lower the standards of cars that you might want to rush into the country ahead of the ban?

And if that happens, and it's all a consequence of short-term incentives provided by the prospect of a hammer coming down, nobody will see that that's what happened. They'll just blame liberalisation and work to stop its ever happening again. 

Anyway. I'd said on Twitter that I don't care about anything in the National leadership race other than that cross-party consensus on the Enabling Housing Supply legislation is maintained. I just can't care about the internal faction stuff. I hate soap operas. But it would be nice if they didn't wind up breaking important stuff in the process. 

Missed opportunities

Kate MacNamara keeps digging into New Zealand's botched vaccine procurement last year. 

Things could have been so different.

Labour Minister David Clark was sent a key Pfizer letter on June 30 last year, in which the drug company pressed the head of New Zealand's "vaccine taskforce" to meet and discuss its vaccine candidate.

Taskforce officials, however, were not equipped at the time to begin talks with the drug company, and over six weeks elapsed before a first meeting took place.

The Cabinet finally armed the taskforce with funds both to contract specialist negotiation expertise and to make vaccine purchases on August 10; officials signed a non-disclosure agreement with Pfizer on August 13 and a first meeting with the company took place the following day, on August 14.

Clark, the then Health Minister, refused to answer questions about the letter, including whether he read it at the time and whether he made any effort to hasten the readiness of the taskforce to begin meetings and negotiations with the drug company.

Clark was beset by calls to quit his post at the time the Pfizer letter arrived and he resigned as Health Minister two days later, on July 2. An upcoming election, then scheduled for September 19, added sensitivity to Clark's predicament.

...

Pfizer's June letter noted: "We have the potential to supply millions of vaccine doses by the end of 2020, subject to technical success and regulatory approvals, then rapidly scale up to produce hundreds of millions of doses in 2021.

"I would welcome an opportunity to discuss our candidate vaccine development in more detail, and open discussions on how we might work together to support planning for potential Covid-19 vaccinations in New Zealand and continue to build a strong partnership for the future," the letter said.

...

It's unclear whether earlier engagement with Pfizer could have secured a larger quantity of early vaccine doses for New Zealand.

New Zealand contracted to buy 1.5 million doses of the Pfizer vaccine candidate on October 6, 2020.

Earlier this year an Auditor-General Report noted that "the Taskforce wanted to purchase more doses of the Pfizer vaccine [in its first contract] but, at the time the agreement was signed, Pfizer was in negotiations with other potential purchasers and could not commit to supplying more doses of the vaccine to New Zealand. However, the purchase agreement included an option to purchase further doses of the vaccine if they became available."

By October, New Zealand lagged many of its peers in signing so-called bilateral advance purchase agreements with drug companies for vaccine candidates.

The delay in starting negotiations, because Clark was distracted and because, for incomprehensible reasons, the bureaus hadn't prepped themselves to think about vaccine procurement, meant we were competing against other places for supply. 

If we'd started when Pfizer sent the letter, decent odds we could have started the vax rollout with a lot more doses a lot sooner.  

Think about what that means.

The government made a laudable effort to push vaccines out to elderly Māori in remote communities. But they had hardly any doses at the time and were also trying to vaccinate border and health workers. They could have made that push a vaccination event, vaccinating whanau at the same time. The vax rates by ethnicity by age, at least when I'd last looked at them, had no particular ethnic gap for Māori at older ages - because of that push. But the gap at younger ages is substantial. How much of that gap could have been bridged if they'd had enough doses to vaccinate the whole community while they were out there? 

Here's the most recent data.

The lowest vaccination rates are for younger Maori in more remote places. 

But their grandparents are vaccinated. 

They could have been vaccinated at the same time, or at least everyone 16+ could have been.

But the government didn't have enough doses. 

And it's awful likely that that's because Clark, Bloomfield, and Crabtree sat on a letter from Pfizer for 6 weeks.

When the letter was released, only its main recipient was noted: Dr Peter Crabtree, the chair of the vaccine taskforce.

However, in response to a subsequent written question by Bishop last month, Hipkins revealed that the letter, delivered by email, was copied to Minister Clark and also to Bloomfield.

You'd think they'd have learned by now. But while Canada's vaccinating 5-11 year olds, and the US has been for weeks, New Zealand just isn't. And the odds-on bet on why we aren't is that they screwed up procurement again, because they didn't see any need to hurry.  

NIMBY tears

The taste of NIMBY tears. It's palpable in Simon Wilson's latest Herald column. 

But by my reckoning this new bill subverts the NPS-UD in at least nine ways.

Julie Stout, a leading architect and member of the Urban Design Forum (UDF), a coalition of design professionals, calls it "a slum enabling act".

Those nine factors:

1. While "up to three" dwellings can be built on any site, there are to be no minimum section sizes. You could put two extra dwellings on your section, or subdivide it into two, or three, or more, and put three dwellings on each new site.

That allows for more housing so more awesomeness. 

2. The "do it anywhere" provision is an invitation to developers to build where it's easiest and cheapest.

That also enables more housing so more awesomeness.

That, says Auckland Council, "would see widespread intensification dispersed across the city in places not served by essential public transport, water and community infrastructure and in areas located far away from employment centres. This includes smaller coastal and rural towns on the outskirts of the city." It's an invitation to urban sprawl.

The nice thing about bus routes is that you can redraw them if people move to different places. 

The Environmental Defence Society (EDS) says this could even lead to "areas with significant landscape and environmental values, like Waiheke Island, being destroyed".

The map of Waiheke already has piles of land cordoned off as sites of ecological significance.

3. Developers will no longer be required to consider sunlight, privacy, safe pedestrian access, access to nature, servicing and the interface with the street.

Buyers of the properties will consider those. Along with whether the house is comfortable, well-built, and everything else. 

4. There are standards governing size and location, but even they are flawed. They'll encourage what's called "sausage flats": rows of apartment blocks running back at right angles from the street, with little usable land for a garden or backyard.

The Coalition for More Homes submission encouraged getting rid of setbacks so that perimeter blocks could emerge as alternative. 

5. Want to object? Sorry, it's all "permitted activity". The council can't do much, either. Even on matters of national environmental significance, there's no recourse to the Environment Court. The minister for the environment will decide.

Housing should be a permitted activity. 

6. Will developers have to include any social housing in their projects? Nope. What about universal design standards, so at least some of the units are fit for people with disabilities? No again.

If you allow building everywhere, housing costs come down. Social housing issues will all get easier. Developers wanting to sell houses will build them to suit what people want. Shifting from housing scarcity to ample housing means developments compete for buyers. We have an aging population. Plenty of developers will want to cater to those needs to attract more buyers. And even if none of them did, there would still be far less pressure on existing accessible homes as buyers who didn't need those amenities would be looking elsewhere. 

7. Are they preserving environmental standards or keeping up with the demands of a changing climate? Also no. Encouraging urban sprawl fails that test. So do the lack of standards for construction techniques and emissions over the life of the building. There's no requirement for trees or other vegetation, either on sections or in public spaces near larger projects. "The first casualty," says Stout, "will be the trees of the city."

Oh come on. The building code still applies. That covers construction techniques. The Emissions Trading Scheme covers urban emissions, including building and transport. The city can put trees on the verges by the sidewalk if it wants. If a developer is putting in a larger project with public spaces, and figures the sections will have an easier time selling if there are trees in the public spaces, there'll be trees in the public spaces. 

8. The "rules and standards one might expect to find in a district plan", as the EDS puts it, now rest with the Government. It means councils could become bystanders in the development of the cities they are supposed to be running.

The rules and standards that one might expect to find in a district plan are the problem the legislation seeks to fix. 

9. Why the rush? The announcement was just over a month ago and already the deadline for submissions has passed.

Here I won't disagree. I will note though that this is a general problem. Lots of legislation is going through in rather hasty fashion. 

Our submission on it all is here. We're supportive of the legislation, and propose a few measures to make it even better. 

Update: the more I look at this piece, the weirder the framing is. The column's structure is "Here are a pile of people who initially said nice things about the legislation but then, on reading it, recanted or had second thoughts. The first half of the column cites politicians (Woods, Collins, Parker, Willis), organisations (NZ Initiative, Coalition for More Homes, and Infrastructure Commission), and an academic (Tookey) as supportive.

Then there's the bridge. It initially read, "Then they all read the bill. And were appalled." It's since been updated to "many" being appalled. 

After the bridge, it cites an architect, Stout, who says it enables slums. It cites Auckland Council/Mayor in opposition, along with EDS. 

It cites Tookey noting an urgent need for more "strategic investment, skills training and availability of finance. That's what the NZI said too." That's about right on our side, but hardly counts as opposition. It's more of a "Yes, and". I can't speak for Tookey, who may or may not have changed views. I don't know Tookey. 

And it cites Coalition for More Homes supporting the intent of the bill but wanting some tweaks.

I wonder whether a single one of the people or organisations cited at the outset would agree that they were appalled. 

International Ed

Australia's reopening to international students.

New Zealand isn't. 

This is just getting crazy. 

There are safe protocols that can be run here. 

New Zealand could allow travel from safer countries, with a pile of testing and vaccination requirements. 

Start by requiring up-to-date full Covid vaccination for getting a student visa. That's pretty simple. Vaccination requirements have been part of international student visa requirements all over the place long before Covid. 

Then add in some testing. Require the standard PCR test a couple days before travel. Add a requirement that travelers pass a rapid antigen test administered at the gate before boarding, with Covid-positive students denied boarding. Add another RAT on arrival, with any remaining positive cases shunted into isolation. Remember that this is the protocol that was used in a trial for travel between the US and Italy late last year through early this year. There were just under 10,000 travelers. The RATs caught 4 positive cases at the airport before boarding and one more on arrival - among a group of people who'd all recently passed a PCR test. The folks running the trial concluded the RATs were pointless because 5/10,000 wasn't that risky. But we could do it. We could require it for airlines departing for New Zealand. 

And we could make it even safer. Take a saliva sample on arrival for PCR testing, require everyone to get the Covid tracer app, and require them to provide contact details. Add in a requirement to present for a Covid test a few days after arrival. 

Sequences of tests make it increasingly less likely that anyone passing all the tests are infected. There's just no way that someone coming in on that regimen is more risky than the random-draw person in Auckland currently. 

Or do all that and have the universities run a few days of MIQ, as they proposed doing back at the start of all this. It's far less risky now that vaccination is available. 

The borders are looking increasingly absurd. There are safe ways of doing all this. 

Risk assessment of risk assessment

Great piece out today in Science on vaccination for kids.

I've copied it below, with a couple of updates for New Zealand. The strikethroughs are mine. So are the bolded bits. 

Earlier this month, the US Centers for Disease Control and Prevention (CDC) recommended Pfizer’s COVID-19 messenger RNA (mRNA) vaccine for children between 5 and 11 years of age—that’s 28 million children. Yet surveys show that 42 to 66% of parents of these children The Ministry of Health and MedSafe are reluctant or opposed to happy to impose substantial delays on seeking this protection. Without vaccination, it is likely that almost everyone—including young children—will be infected with severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) at some point in their lives. So, the question for parents and caregivers The Ministry of Health and MedSafe is: Which is worse, vaccination or natural infection?

Make no mistake—COVID-19 is a childhood illness. When SARS-CoV-2 entered the United States early in 2020, children accounted for fewer than 3% of cases; today, they account for more than 25%. More than 6 million US children have been infected with SARS-CoV-2, including 2 million between the ages of 5 and 11. At the end of October 2021, about 100,000 children per week were infected. Of the tens of thousands of children who have been hospitalized, about one-third had no preexisting medical conditions, and many have required the intensive care unit. Almost 700 children have died from COVID-19, placing SARS-CoV-2 infection among the top 10 causes of death in US children. No children have died from vaccination.

Many parents New Zealand officials are concerned that Pfizer’s mRNA vaccine was not adequately tested in young children. In a study of approximately 2400 children between 5 and 11 years of age, performed when the Delta variant was the dominant strain, vaccine efficacy was 90.7% against symptomatic disease. However, Pfizer’s phase 3 study in adults involved about 40,000 participants. How could the CDC be certain that the vaccine was safe in children given the small size of the study, specifically regarding the problem of myocarditis? In postauthorization studies, myocarditis occurred in approximately 5 per 1,000,000 individuals receiving mRNA COVID-19 vaccines, possibly as high as 1 per 10,000 in young men. But context is important. Vaccine-associated myocarditis has been relatively mild and self-limited—an outcome fundamentally different from the cardiac effects associated with acute COVID-19 or multisystem inflammatory syndrome, which typically involve cardiac dysfunction and require critical care. Moreover, both in Israel and the United States, the incidence of myocarditis in children 12 to 15 years of age receiving mRNA vaccines is less than that in the 16- to 25-year-old age group. And because the dose of Pfizer’s mRNA is one-third that given to older adolescents, myocarditis in the younger age group will likely be even rarer.

Myocarditis is only one piece of the risk-benefit analysis. Children need to go to school, play with friends, and participate in extracurricular activities for their social and emotional development. This is their life. Since August 2021, more than 2000 schools in the US have been forced to close because of COVID-19 outbreaks, affecting more than 1 million students. The disruption of school activities has harmed children more than any detectable vaccine side effect, including worsening of mental health, widening education gaps, and decreased physical activity. These harms have disproportionately affected people of color, Indigenous persons, and individuals of lower socioeconomic status, further exacerbating inequities. Avoidance of routine health care and routine vaccination has also emerged, with potentially devastating future consequences. Furthermore, children live closely with and rely on adults to whom they can pass SARS-CoV-2 infection—adults who can be overwhelmed by this infection. And children grow up. Countries are going to need a highly protected population for as long as COVID-19 exists in the world, which will likely be for years if not decades. Vaccinating all children against SARS-CoV-2 could be among the most impactful public health efforts the US New Zealand has seen in decades.

Although it is true that most children experience asymptomatic or mild disease, some will get quite sick, and a small number will die. It’s why children are vaccinated against influenza, meningitis, chickenpox, and hepatitis—none of which, even before vaccines were available, killed as many as SARS-CoV-2 per year.

Some parents regulators are understandably hesitant to allow parents to vaccinate their young children. However, a choice not to allow children to get a vaccine, or to delay vaccinating kids until 2022, is not a risk-free choice; rather, it’s a choice to take a different and more serious risk. The biomedical community must strive to make this clear to MedSafe the public. It could be one of the most important health decisions a parent Medsafe will make.

In the past two weeks, almost 10% of American kids aged 5-11 have been vaccinated. 2.6 million children. 

Canada is expected to approve on Friday, and they expect to receive about 3 million doses in the next few days. 

MedSafe might have a risk assessment paper ready in the next two to three weeks. We might get a small number of doses in December. 

I can understand wanting to delay a broad rollout until we had more data out of the US, if only to increase confidence.

I can't understand not making it available to those eager for it.

MoH and Testing

I wasn't particularly kind about the Ministry of Health's approach to Covid testing in this week's Dom Post. 

A snippet.

The Ministry of Health’s approach to Covid testing is going to kill people.

For the past year, the ministry has been horribly wrong about Covid testing systems. It has ignored substantial reviews of testing policy.

And it has allowed petty resentment against the only appropriately validated provider of rapid saliva-based PCR testing to drive its procurement policies.

A new Covid case popped up in Christchurch yesterday. 

Christchurch has about 400k people on over 1400 square kilometers. People can get a Covid test through their GP, but that's a substantial barrier for a lot of people. 

The city has two testing sites running limited hours taking swabs.

One is out near the airport, which will be impossible for anyone without a car to get to. It is open 9 am to 4pm, seven days a week, and can run later "if demand requires". I take that to mean that they'll stay open if they still have a queue to serve. 

The other one is on Pages Road in Wainoni, I believe at the National Marae. Unless you live nearby, you're not going to be walking there. It's about an hour's walk from downtown. It runs 9am to 3.30pm, 7 days a week, with the same "or later if demand requires" note. 

If the kid comes home from school with a sniffle, you'll be waiting until 9am the next day to get a test. And you're forbidden against using a rapid antigen test in the meantime. 

The University of Illinois's Urbana campus serves about 50,000 people and sits on some 2500 hectares. Presumably students there could also choose to go to their GP for a Covid test. But the University runs four different testing sites on that campus. You can be tested from 6 am to 6 pm, Monday to Friday, 8-3 on Saturday, and 10-3 on Sunday - but not all sites run the longer hours. 

So if it is between 3 and 3.30 on a weekend, and you live really close to a testing site in Wainoni, you may have an easier time being tested in Christchurch than at the University of Illinois. 

If it is between 6 am and 9am, or 4 pm and 6 pm, on a weekday, or between 8 am and 9am on a weekend, or if you do not have access to a car, it is far far easier to be tested as a university student at Illinois. 

Why can the University of Illinois run testing like this? Because they have a testing system built around simple saliva collection. Saliva collection isn't nearly as complicated as the swabs. It's easier to train people up to do it. That makes it easier and cheaper to have stations running all the time. 

That also then makes it easy for Illinois to have fairly comprehensive testing requirements. Vaccinated students only need to be tested if they've been in contact with a case (or have symptoms, or in case of outbreak). Unvaccinated students need to be tested every other day. You can do that when testing is cheap and easy. 

We could have it here too. It's the testing system that Rako Science here runs under licence. But the Ministry of Health isn't interested. 

FWIW, I have zero conflicts of interest here. Rako isn't a member of the Initiative, and neither is APHG.  It wouldn't affect how I've read this stuff in any case. 

The Ministry of Health's procurement panel sure cannot say the same thing.

Multiple poorly managed conflicts of interest, no formal procurement plan, and a failure to properly appoint a probity auditor are among the failings in the health ministry’s procurement of saliva testing in a report published today by the Office of the Auditor General (OAG). 

The watchdog makes a number of damning findings and expresses “serious concerns” about the way the ministry conducted the highly controversial $60 million contract to provide saliva testing that was awarded to Asia Pacific Healthcare Group (APHG) in May. 

Among key findings was that four of the five people on the panel selecting the saliva testing provider had declared possible conflicts of interest, including “past and current employment relationships with staff from potential respondents or associated laboratories”. 

The OAG also caned the ministry over its approach to the appointment of a probity auditor to oversee the process, as is required by public sector procurement rules.

From TEU to FSU

Jack Heinemann's take on academic freedom in New Zealand provides an excellent on-campus recruitment opportunity for New Zealand's Free Speech Union. 

The Free Speech Union, as a registered union, has rights to enter workplaces to talk to workers. They should plan a round of campus visits.

Here's Jack:

Making conscience central in all activities of a critic and conscience of society might avoid some future clashes in Aotearoa. Academic freedom is the right to bring forth unpopular or controversial opinions, not to promote opinions popular with those who have social or financial privileges.

For example, white/Pākehā academics making comment on mātauranga Māori in defence of “science” don’t need to use academic freedom because the westernized institution of science already has disproportionate power and influence in any clash with indigenous knowledge systems. So when a university takes a neutral position, treating the academic protagonists and academic responders equally based on narrow ideas of a right to free speech, the institution stumbles as critic and conscience of society. Moreover, it fails to both preserve and enhance academic freedom.

Other examples include attempts to use university campuses as platforms for racially or genderised “forums”. Those without power or privilege don’t need tertiary institutions to criticize them, turn their backs on criticisms of them, or to host it. The desire of majority members of white paternalistic societies to have their ideas spoken on campus is not equal to the right of minority ethnic and non-binary groups to feel accepted and safe there.

Privilege is an asymmetry of power that marginalizes and excludes others. No history of academic freedom is consistent with the notion that it speaks privilege to power.

So. If your research shows that claims of oppression in the case you're studying are overstated, or that an institution isn't as colonialist and evil as others have suggested, you should probably shut up about it because that doesn't count under critic and conscience. Because it reinforces power or something. 

If you haven't joined the Free Speech Union yet, and you're a New Zealand academic, they may be more likely to have your back than the TEU, if it comes to it.  

Teetotaling documentaries

The latest anti-drinking documentary will be on tonight. Would for a world in which we'd also get documentaries from former teetotalers extolling the merits of light to moderate drinking. Instead we just get ones going the other way. 

In anticipation of some of what we might expect to hear:

1. Price elasticity of demand varies by whether you’re looking at moderate or heavier drinkers. Heavier drinkers are less price responsive. Hiking excise does more to get moderate/light drinkers to cut back than it does to get heavy drinkers to stop. It doesn’t make sense to use a linear excise tax to address a harm that’s heavily nonlinear in consumption. It’s like trying to stop speeding by increasing petrol excise on the theory that speeding uses more fuel. Excise on spirits in New Zealand, if we were ranked against the European Union, would have New Zealand at third or fourth highest.
2. When you’ve got something that has minor baseline costs but harms that rise sharply with consumption, you need some kind of two-part tariff structure. Basically, use excise to offset the low-level stuff but use other targeted policies for the rest. There are available proven policy tools that directly address harms. The 24/7 sobriety project, run in South Dakota and then expanded to other states, imposes a monitored non-consumption condition on parole/probation for offenders who’ve shown a pattern of alcohol-related crime. In South Dakota it was aimed at repeat drink drivers. The thing just works. New Zealand is set up to do it. We have the Drug & Alcohol Courts that could be perfect for it. But the thing that makes the project work in the US is the certainty of spending a night in the cells if you breach the condition. Here it’s all airy. You’ll have to talk to your probation officer who may or may not do anything, and if he does something, who knows whether the judge will impose a night in the cells or not. It’s the certainty of a very small penalty that drives better outcomes elsewhere, and here we’ve just been reluctant to do that for whatever reason. I think I’m the only one the country that beats the drum for this one, and it’s just bizarre. It works. When Mark Kleiman talked with the NZ Drug Foundation about it circa 2014, he noted that some parolees coming off the programme asked to be kept on it to help them stay on the straight and narrow. There are some folks who just have a very very bad relationship with alcohol. Excise isn’t the way to solve that. 
3. Measures of social cost are kinda dumb just on their own. You might as well tally up all the money people pay for skis, lift tickets, food while they’re at the hill, the time off work, the ambulance and hospital and ACC bills and call that the social cost of skiing. Would it help with anything? No. You certainly wouldn’t ban skiing on the basis of it. But regardless of the number you come up with, it’s entirely possible that some safety measures pass cost-benefit analysis. Whatever the social cost of skiing, it might make sense to put padding around the pillars that hold up the chair lifts so people don’t hurt themselves too badly when they crash into them. If the measure is cheap, it could be worth doing regardless of whether the social cost of skiing is a big number or a small number. And even if the cost is a big number, putting a $1000 per lift ticket tax on skiing would be stupid. Similarly, regardless of some shonky tallied total social cost figure that ignores benefits, some measures could easily be cost effective. Like 24/7. They have to be evaluated on their own basis. Why spend time and effort on a process that’s just designed to come up with a big number to drive blunt policy measures when you could instead weigh up whether particular promising interventions really stack up?
4. There's likely to be complaining about alcohol advertising and such. That's all already regulated. And it's hard to see that more regs would pass muster - at least on the evidence I'd seen as of 2014 when I wrote this. 

I worry that watching tonight's show might require heavy drinking. And it's late enough at night that my usual barman will be in bed (it's a school night) and unavailable to make me a Manhattan. Maybe I could request one earlier in anticipation. 

Canterbury, vaccination, and ICU capacity

I'm supposed to be visiting at Canterbury Uni for a bit this summer. Back to the old stomping grounds, bit of teaching, catching up with people. 

I've been very disappointed that, thus far, Canterbury hasn't announced any vaccine mandate for students. Other New Zealand universities have.

On a straight business case, it seems odd not to have a vaccine mandate. The whole traffic light system is geared around vaccination requirements. If the traffic lights start changing colours, a university just can't function normally any more without vaccination requirements. 

The red light is likely where Auckland will start. This is the setting in place for when there is a fairly large outbreak in the community underway, and it risks overwhelming the healthcare system.

This is not a lockdown however. Visiting family members etc would not be banned, although larger gatherings would be curtailed.

Under this setting, schools and early childhood centres would remain open, but with some public health measures in place – think masks and cohorting. Tertiary education would also be allowed, but with vaccine requirements for in-person learning.

Announcing a mandate early makes sense.

Lectures only start in February. But students choose campuses well before that. Unless you're trying to corner the market in antivax students, you're making a mistake if you don't have a well publicized vaccine mandate when students are still deciding where to go. 

Even if the students aren't worried about Covid at all, they'd have to worry about their school being forced to go back to online learning when the traffic light turns red. 

Or that there'll be just a horrible mess that comes in where the university finally figures out at the last minute just what the traffic light system requires, imposes the mandate, but feels it has to run mixed setups to accommodate the students who wind up having to learn from home because nobody warned them early enough about the inevitable consequences of the traffic light system, because the university was way too late in setting a vax mandate.

The universities are all pretty good. There's minor differences at the margin but students generally have a choice of which one to pick. Why would you pick one that's likely to turn into a mess in a Covid outbreak, if others already have the mandate sorted? 

I remember being at Canterbury when they decided to turn the whole campus SmokeFree. It seemed completely ludicrous. A smoker out in one of the many, many wide open spaces on campus just isn't hurting anybody. There's zero harm. Ban smoking in classrooms, sure. That's required anyway. But banning it out in the middle of a parking lot? Out on Ilam Field? It was just nuts, right?

But they'd convinced themselves it was the right thing to do, set an example, and that it would attract far more non-smoking students than it would repel smoking students. 

It probably did nothing on the student-attraction margin either way - smoking rates are too low for it to matter. 

How can a place conclude that some guy having a cigarette out in the middle of a quad by himself has to be banned on example-setting kinds of grounds, or paternalistic grounds, but that it would be wrong to require vaccination for being in classrooms in a pandemic? 

Like at least be consistent here. I could understand a *very* hard-core interpretation of one kind of libertarianism that would allow both smoking and being unvaccinated in class in a pandemic. But this mix is just incoherent unless you believe that an unvaccinated person, in a pandemic, is less risky than a smoker out in an open space. And if you believe that you can't possibly be qualified to work at a university. 

It's all nuts. 

I also remember when the public health people at Canterbury completely freaked out that I'd done some alcohol-industry funded work, completely run through the Research Office, while on faculty. They thought it was going to wreck their chances of getting further public health grants. Somehow my doing that from my office on the other side of campus had contagion risk to their side of campus. But I don't see them freaking out about Canterbury not having a vaccine mandate in a pandemic. Maybe it's because I'm too far away. 

Anyway, Stuff printed their estimates of the shortfall in ICU beds by DHB, even if we hit 90% vaccination rates, in any larger outbreak. Canterbury is desperately short of ICU beds relative to what will be needed. 

That means they are far more likely to wind up in a red-light scenario because that whole thing is keyed to health system capacity. Which makes it even stupider that Canterbury hasn't yet announced a vaccine mandate for students. 

There is one sensible way of running a campus without a vax mandate - but I don't think it meshes with the traffic light requirements. The University of Illinois requires that unvaccinated students be tested every other day, using their excellent and accurate saliva-based PCR testing system. That can work. It would catch cases before they turned into campus outbreaks. But I don't think the traffic light system is currently flexible enough to allow that alternative. And, in any case, it would also require Canterbury having made arrangements for that kind of testing, and they haven't. 

It isn't good

The Auditor General confirms the general open secret around Wellington about shameless conflicts of interest in covid test procurement. 

It's good that he's written it down. 

He's unlikely to be sued for defamation by anyone involved. 

Nobody else has been able to say much, because while everyone knows, nobody who could officially know it would ever go on record, because they worried about being punished by the Ministry of Health in repeated games. 

Pattrick Smellie provides an excellent summary at BusinessDesk. You should subscribe to BusinessDesk.

Multiple poorly managed conflicts of interest, no formal procurement plan, and a failure to properly appoint a probity auditor are among the failings in the health ministry’s procurement of saliva testing in a report published today by the Office of the Auditor General (OAG). 

The watchdog makes a number of damning findings and expresses “serious concerns” about the way the ministry conducted the highly controversial $60 million contract to provide saliva testing that was awarded to Asia Pacific Healthcare Group (APHG) in May. 

Among key findings was that four of the five people on the panel selecting the saliva testing provider had declared possible conflicts of interest, including “past and current employment relationships with staff from potential respondents or associated laboratories”.

RNZ also reports on it. The Auditor General's discussion is here. 

So.

Rako's saliva testing was up and running from January. We could have been running accurate saliva-based PCR testing at scale since then. The incompetent Ministry of Health got bad advice from incompetent advisors who had not been able to make PCR saliva testing work on their own. That led Bloomfield to repeatedly make assertions about the inaccuracy of saliva testing at the 1pm standups. He was wrong every time. 

Then they ran a fundamentally flawed procurement process riddled with conflicts of interest that led to the awarding of the saliva testing contract to a provider with which the Ministry was well familiar, but which had no appropriately validated test. 

We still have no deployment at scale of saliva-based PCR testing. Rako provides its testing to private clients. 

We could have had mass deployment of far more rapid, and accurate, saliva-based PCR testing in every outbreak since January. It would have found and stopped things faster. But the incompetent Ministry of Health just did not want to. Remember that speed in getting results back matters. It helps in contact tracing. And it helps in avoiding test hesitancy. If you figure you're going to be stuck home for 2-3 days waiting on a test result because of a sniffle, will you bother? No. Test hesitance matters - though we have no clue in this case whether the likelihood of being stuck waiting for results was the specific barrier in Stratford. 

And now we have a large outbreak that is out of control and that has little prospect of the governments' getting back on top of. We could have had mass deployment of saliva-based PCR testing in South Auckland when this all started, as surveillance. That too could have caught things before it got out of control. But a different government-preferred advisor said it would be racist to run surveillance testing in the place where it would be necessary. And they didn't want to deal with Rako anyway, and they had nothing else as options. 

Yesterday, Select Committee reported back on the COVID-19 Public Health Response Amendment Bill (No 2). Labour dominates the committee. And so the Committee reported back that they see no problem in giving the government the power to just go and requisition all of Rako's test materials and testing capacity. I'd explained here all the problems in that part of the legislation. My submission to the Select Committee is here. 

I understand that one view is that the requisitioning bit is seen as no big deal, by the incompetent Ministry of Health and by the people who are happy to take advice from the incompetent Ministry of Health, because similar arrangements often get worked into procurement contracts in health. But there is a fundamental difference between a contractual deal where part of the bargain is that the government can compel supply at a fixed price in a surge, and just imposing that without any contract. If it's worked into the contracting, it works into the price. People take the deal or they don't. 

So we've wound up with botched procurement on covid testing, no real capacity to deploy at scale, massive public health cost, and consequent threats enacted through legislation to just steal all of the testing capacity from the provider who can deploy at scale. 

I do not understand how New Zealand maintains a clean record on corruption indices. Is everywhere else really that much worse? Or is it that passing legislation allowing this kind of expropriation doesn't count as corruption because it's all in the open and legitimized by Parliament?

Afternoon roundup

Another long-belated closing of the browser tabs:

• Requiring MIQ for people arriving in Auckland is nonsense when the Covid-positive rate among vaccinated and test-screened arrivals is lower than the Covid-positive rate in Auckland. Labour wants to ignore it, because the status quo is the thing always to be defended against challenges from the outside; National ignores that the recommendation here also says to strengthen the defences at the Auckland boundary. See also coverage at Politik ($). It's particularly messy for travel from India.
• Getting carbon accounting right matters. So this is depressing. 
• If you didn't already read it, and I did point to it earlier this week - Jenny Ruth's story on RBNZ burying research that contradicts Adrian Orr's assertions around systematic financial sector risk from climate change. 
• Select Committee has reported back on COVID-19 Public Health Response Amendment Bill (No 2). All the bad stuff is still there. They are still letting MoH supplant ISO standards with their own worse standards. They are maintaining the ability for the government to just take testing away from private providers. Our submission on it was here. At least National and ACT said how stupid this all is. 
• Singaporeans choosing to be unvaccinated will be out of pocket for more of their Covid treatment costs
• Kate MacNamara has another shocker. Te Punaha Matatini worked to block more Covid testing in South Auckland by claiming that it would be racist to have more testing in South Auckland. They wanted that relatively scarce testing resources be devoted to symptomatic testing rather than broad surveillance testing where it looked like there were undetected cases. You may recall my yelling around that time about getting more testing capacity, thinking about rapid antigen tests, finally getting Rako's saliva testing rolled out everywhere.
• The government will finally have some AstraZeneca available for those with allergies relevant to the Pfizer vaccine, and for workers under vax mandates who just don't like mRNA. I don't understand why this has to be so restrictive. AZ holds in fridges for a long time. Just make it broadly available. If that's the vax someone will take, it has to be better than their remaining unvaccinated. 
• The scrap between MoH and the folks who could actually get vaccines out in Northland continues. MoH doesn't want to give individual-level data to one agency. And one can imagine good reasons for that, especially if there are local iwi objections. But I'd wonder whether MoH couldn't give fine-grained meshblock detail on vax rates. Like, "Here are the census meshblocks in your area where less than half of the eligible population is vaccinated. If you go fishing there, you'll likely catch some." 
• Too many people still see climate change as a "We have to transform all of society into the vision I have for what good looks like". Like read this on urban planning and transport. It totally makes sense for councils to think hard about what a $100/tonne carbon price would mean for transport demand and how to build the infrastructure that people will want when the price gets there. But this isn't that. Turn GHG mitigation policy into some demand that everyone buy in to particular versions of urbanism, and you're not gonna build support for mitigating emissions.
• Sadly, I'll soon get to start pointing at NZ data rather than Alberta data on vaccines and Covid risks. The Spinoff's been tracking it. It's still not as good as Alberta data, because they won't have as fine-grained official data to work from. But it does show very clearly the overrepresentation of the unvaccinated in hospitalised cases, and the underrepresentation of the fully vaccinated. 
• The government had well over a year to prepare for the Covid outbreak. They spent it cheering themselves for having defeated Covid rather than preparing for what would be needed if it ever did get out. A few months ago, even suggesting that it was gonna get out and that obvious holes needed fixing was considered treasonous. And now, just look at this mess. 
• In a just world, this move would make it easier for older people to move to New Zealand. 
• NZ remains relatively unpolarised. 

RBNZ and climate risk

If climate change poses sufficient risk to the financial system to justify central banks having broad remit over anything in banking and insurance that relates to it, then you might as well conclude that the Reserve Bank should just get to run everything. 

Pandemics, worse pandemics, war between China and Taiwan - there's a lot of risks out there, and those risks could affect asset markets and companies' financial positions. 

Maybe banks should be required to disclose their exposure to things that could go south if there's a trade war with China, because of the risks there, and the Reserve Bank should start producing reports on global security and take over national defence and signals intelligence. 

It's all crazy. But there is no risk to the financial system from climate change that's likely to exceed the risks to the financial system from those other risks. You need to show that there is a real and substantial risk to financial stability. Not just that the problem is big and important in its own right. 

My colleague Matt Burgess released a report yesterday showing just how long a bow the Reserve Bank is drawing. They have not provided any evidence of risks that would warrant their regulatory expeditions into climate change. 

Over at Newsroom, I worry that the Bank is almost begging for an incoming government to sack the Governor, because of the overreach into areas of Parliamentary prerogative, and that it's not always easy to tell if those kinds of moves wind up restoring or ending Bank independence. 

Jenny Ruth, over at Business Desk, reports on the Reserve Bank's moves to hide its lack of evidence in support of its Governor's sweeping claims for regulatory mandate around climate risks. 

The Reserve Bank tried to bury its own research that found climate change is not a threat to financial stability. 

That research contradicts many statements by Reserve Bank of New Zealand (RBNZ) governor Adrian Orr that climate change is an existential threat to the economy and that the central bank needs to be at the centre of New Zealand's climate change response. 

For example, Orr said in a speech last month that "the financial stability risks associated with climate change are significant, necessitating an urgent and collaborative response". The RBNZ has a section of its website dedicated to climate change on which it says: "Climate change poses a direct challenge to financial stability." 

In this, Orr is not alone. Central banks around the world are expressing concerns about the impact of climate change on financial stability, and courting controversy in doing so. 

The 2018 paper said: "Our preliminary assessment is that the risks associated with climate change should not, in and of themselves, create a significant issue for the soundness and efficiency of the financial system." 

My colleague, Bryce Wilkinson, had been OIAing to get that material. RBNZ buried the paper they'd done showing there was no risk. Ian Harrison dug it up later. Sometimes, you have to know the exact name of the thing that you don't know exists in order to summon it up by OIA, when the officials really want to hide the cheese.

Ruth concludes:

Orr's claims to the contrary are an overreaction and "motivated more by attention-seeking than the science and sound economics", said Harrison. 

The RBNZ "deliberately hid their report for months and misled people seeking it under the OIA to promote its new, more catastrophist narrative", he claims. 

Looking at the timeline from the first request, and the long delay in publishing the 2018 paper, two years after it was written and only under threat of a complaint to the ombudsman, and its relatively obscure positioning on RBNZ's website, it's difficult to reach any other conclusion.

Saying that the Reserve Bank shouldn't have jurisdiction over foreign policy, or over trade agreements with Taiwan, or mandate to require Banks to disclose every possible risk on their balance sheets around war between China and Taiwan isn't saying that war between China and Taiwan would be a good thing, or that we shouldn't care about it.  

It's saying that some things are so tenuously linked to financial stability that it's incredible overreach for a central bank to try to take a leading role in it, even if it is really important in the bigger picture.

Affirmative action in NZ academia

David Farrar points to some changes coming for PBRF. 

Evidence portfolios submitted by Māori (and Pacific) staff will have a 2.5 (2.0) funding weighting applied. 

The subject area weighting for Evidence Portfolios assessed by the Māori Knowledge and Development panel (the Pacific Research peer-review panel) will increase from 1 to 3 (2.5).

I get the problem they're trying to solve here. I'm not sure this is the right way of going about things. 

I'd emailed a friend about it a while back, when news of this first made the rounds. A mildly edited version of that is copied below:

Here is my attempt to steelman the policy. Parts of it I disagree with, and overall I still don’t like the policy. But this would be an argument in favour:

PBRF weighs heavily research contributions. That’s its job. But assessment panels always have an easier time dealing with contributions that fit the international mold. And the top international journals in important disciplines simply do not care about issues that matter in New Zealand policy.

In economics, papers based on New Zealand data addressing New Zealand policy issues would make a top journal in the unlikely event that the issue accidentally creates a nice natural experiment that speaks to broader theoretical or methodological issues that economists publishing in the top journals care about. Otherwise, it will wind up in New Zealand Economic Papers, a third-tier journal. And PBRF rates top contributions highly.

International academic reputation already depends heavily on publishing in top journals. Combine that with a PBRF system that amplifies the already-huge rewards for publishing in top journals, and you have a recipe for discouraging NZ academics from doing any work at all that’s of relevance to NZ.

Māori academic staff who may be more naturally inclined to pursue research of direct interest to their home communities will be punished for doing so in their international academic standing, in their journal placements, in their PBRF rankings, and consequently in their promotion prospects. And similarly for Pacifica. A thumb on the scales offsets that effect.

But even more brutally, academia is an international game. The best in the world get their training in the US, and the best of those then get jobs at top US universities. Kiwis are a small proportion of the world's potential profs, and presumably an even smaller proportion of those who've gotten decent degrees in the US. And an even smaller number will either be Māori or Pacifica. If they come out of one of those schools with a doctorate, and they’re able to publish in top journals, they’d be a bit crazy to come back to New Zealand (or have strong preferences, which is kinda the same thing). A thumb on the PBRF scales encourages those who want to do this kind of work to come home to do it. 

Now why do I not like the policy anyway? It turns NZ academia into a niche play that’s outside of the global academic conversation. It sets too hard a division between the incentives in the local game, and the game that the rest of the world is in. It risks making NZ an insular academic backwater. 

If the government wants to fund more research on NZ-specific policy areas, particularly with a focus on Māori and Pacifica issues, it could boost Marsden for a dedicated funding line in it. Or set its own dedicated fund. And remember that PBRF also weighs external research grants.

The current set-up would more than double-weight the research portfolios of Māori academics doing work in theoretical physics, or abstract higher-order maths, or a host of other areas where there really isn't any relevant local-penalty. The local penalty applies for work in locally relevant social science questions that aren't quite aligned with questions of interest in the top international journals. I can see the problem in encouraging research in locally relevant stuff, and can see how that would particularly apply for Māori and Pacifica research. But I would have thought that just setting better contestable research funding in those areas would have made more sense.

Even worse than I'd thought

It just seems incomprehensible that the Commerce Commission spent two whole weeks in hearings on grocery competition, without zoning really coming up.

I'd not seen this when it came out. Yesterday, I was searching for the average footprint of a supermarket. Some OIO rules on sensitive land trigger if you're buying 0.2 hectares and some trigger at 0.4. 

So, Googling around, I found this, which noted the proposed construction of a 2787 square meter New World supermarket. 

Good, I had a number. 

Then I looked at the rest of the document. 

It's a 39-page report by Property Economics. They were commissioned by New World to produce a "Retail Impact Assessment" for a proposed New World on Dominion Road, March 2021.

This application was for one of the Covid fast-track consenting processes. New World presumably could have chosen the normal council consenting route, which means that the normal route is more restrictive than what we can infer from this piece of work.

The Report seeks to prove that a new supermarket would be very good for the neighbourhood. It does show by demonstrating that there is so much excess demand for retail grocery in the area that the supermarket could not have more than minor adverse effects on existing grocery retail. 

It argues that:

• the supermarket should be seen as an extension of a Dominion Road local centre, rather than being in direct competition with existing centres [clearly they expect the planners to see competition as bad]
• that neighbourhood demographics would support an additional 2-3 supermarkets by 2038, and that "demand for supermarket retail significantly outweighs supply... the market is unlikely to come to the point where a new supermarket is no longer viable." [If a new grocer could only earn customers by attracting them away from another, to the detriment of the other, that would presumably be viewed as bad by the planners - or at least the consultants believe that that is how the planners would decide]
• that the new centre would not impose adverse retail impacts on St Lukes, Mt Eden, and Balmoral Centres [presumably a new centre that were a lot better than existing ones and drew customers away would be seen as a bad thing by planners]
• that the new centre would not cause "retail distribution effects". What are those? Remember the old Discount Brands litigation. That stuff is still affecting things. The Courts decided that while the RMA shouldn't consider the harms a competitor imposes on another competitor, it should consider the effect on surrounding amenities. Basically, if your new centre draws people away from an existing one, then consenting should stop you not because of the effects on your competitor, but because your competitor's picnic area in the courtyard might not be as nice any more. Basically, if the effect is "significant", then Council can block you. But isn't one of the points of competition to have significant effects, or at least the potential for them?  
• Just listen to this, with an antitrust set of headphones on. "In Property Economics view, having undertaken the requisite analysis, there is little to no propensity for this New World to cause any additional trade competition effects that would flow over into significant retail distribution effects in the context of the CRA." In other words, if the new shop were too strong a competitor, that would be bad for the consent application's likelihood of success.

So to get the consent, New World had to commission a 39 page economic impact report showing that it would have no material economic impact on nearby competitors. 

If there's anyone that the Commerce Commission should have been raking over the coals for the last couple weeks, it's the ones responsible for a planning and consenting system that views competition as a harm to be mitigated. I'm a fan of criminalising cartel behaviour, when it comes to town planning systems. 

A hive of rent-seeking and villainy

I spent too much of the past couple weeks listening in to the Commerce Commission hearings on grocery retail. Ok, it was only a couple days of it. But even that was too much. 

Tex Edwards was pushing the Commission to force the two supermarket chains to sell a pile of stores, while wanting a host of restrictions on who could buy them. Foreigners shouldn't be able to buy them, anyone who does would have to have some commitment to healthy food provision and some kind of climate change commitment (supermarkets' emissions are in the ETS but whatever) and some commitment to serving regional New Zealand. It was hard to get a precise read on what he was after with all the restrictions. But narrow the field enough and Tex might be the only person allowed to buy the supermarkets that the Commerce Commission would force the current players to sell. I wonder whether that's a coincidence.

Tex got an awful lot of the Commission's time. The Commission seemed very keen on drawing out these kinds of suggestions. 

In the other corner was Sarah Balle, from online supermarket Supie. She repeatedly suggested that the government provide some giant capital support for her company. If only Supie had some $160 million (I can't remember the number but it was something like this. Maybe it was $120m. Maybe it was $180m. I can't remember. It was an offensively large amount.) dollars from some new KiwiEquity scheme, Supie could scale up to provide real competition. 

But despite supermarkets being alleged to be a giant profit-making duopoly, some capital market failure means nobody with their own money on the line would give Supie $160 million to hoover up those excess returns. You might think that when global markets are awash in capital seeking positive returns, the only real problem here would be overseas investment restrictions that make life tough if you have more than 25% foreign ownership. But Supie suggested foreign entry and foreign money should be banned because foreign retailers keep costs down by bringing in low-quality product. I'd not heard that critique of Aldi before. I bet that the incumbents said the same thing about the need to maintain a ban on parallel imports to keep options like The Warehouse from emerging. 

Supie also got an awful lot of the Commission's time. The Commission seemed very interested in hearing how excellent it would be to have government making giant investments in an online grocer. 

Kate MacNamara sums things up:

On the Commission's recommendation, the Government could ultimately provide financial backing to a new (or small) competitor in the sector, likely through a contestable process.

It could invest in a joint venture partner with a view to selling its stake once the partner was established. Or it could retain that mixed ownership model over the long term.

All three options were delineated in the Commission's draft report on the state of competition in the grocery sector published in July. Its preliminary findings were that competition in grocery retailing is weak, prices to consumers are inordinately high, and supermarket profits are uncommonly fat (the supermarkets contest this).

But just one party has used the conference - running over the last several weeks - to plump for Government investment in the sector by way of remedy.

Sarah Balle, founder of Supie, a new online supermarket, has repeatedly suggested her business, which she says is limited by access to capital and the power of the supermarket incumbents, could better grow and compete with the help of Government funds.

In contrast, Tex (Simon) Edwards, representing both the recently incorporated company, Northelia, and the lobbying entity, Monopoly Watch, has pushed for the forced divestment of existing retail stores, the sale or separation of which could help constitute a third major player.

Edwards has said he already has significant capital backing (should mandated store divestment take place) and he was uncharacteristically silent on Tuesday on the question of how the Government might improve competition by actively entering the market itself.

...

The last word in the forum didn't go to New Zealand Initiative chief economist Eric Crampton but his puckish suggestion was among the most memorable.

In considering ways to facilitate new competitors' entry in the grocery market, Crampton said, the Government could simply resolve to dismantle the barriers to entry of its own making.

The Commission, he suggested, could then write to international grocers with the following invitation: "Hello international grocer, New Zealand might not have featured in any plans you might have had for international expansion. Small markets at the far end of the world beset by regulatory impossibilities that make it hard for new entrants to set up shop are not the most enticing proposition. We at the Commerce Commission are writing you today to ask you to reconsider New Zealand or that you think about us for the first time…"

The letter would promise waving the cumbersome Overseas Investment Office approval process for foreigners buying land purchases for grocery stores, and easing council zoning and consenting rules to allow for the speedy building of stores.

Because I thought it was fun, and because it's the only thing that addresses the real problem and isn't a bunch of evil rent-seeking, I wrote up the letter that I think the Commission should send. Make a list of the big international players and even niche ones. Aldi. Lidl. Kroger. Sobeys. Loblaw. Trader Joe's. Whole Foods. 

Then send them this letter, after making sure that everything in it is true. This isn't hyperbole. This is what I actually want the Commerce Commission to do. This is a market study. It has broad remit. It can get to the source of the lack of competition and address it. It could tell the relevant parts of government what needs to be done to enable entry if government is serious about wanting more competition in grocery retail and lower prices. And then it could send this letter, after making the necessary changes. 

“Hello international grocer,

New Zealand may not have featured in any plans you may have had for international expansion. Small markets at the far end of the world beset by regulatory impossibilities that make it hard for new entrants to set up shop are not the most enticing proposition. 

We at the NZ Commerce Commission are writing you today to ask that you reconsider New Zealand, or to think about us for the first time.

Our market study into grocery retail concluded that a new entrant would be in the national interest. Consequently, the Government has instructed the Overseas Investment Office that no application for OIO approval is necessary for overseas persons purchasing land for grocery stores. This waiver is broad. If a new-entrant grocer proposes an apartment or commercial tower above their new supermarket, that is also allowed.

We have also instructed councils that they must issue zoning variations and consents for new grocers, and that grocers have recourse to the Commerce Commission if zoning or consenting processes are hindering the establishment of a new entrant in grocery retail.

New Zealand is open for business. For too long, regulatory impediments stood in the way of new entry. Those impediments are now gone. Please consider New Zealand in any plans for future expansion.”

The whole thing is depressing. There is a potentially very real and substantial problem here. Government has made it very difficult for a new international entrant to enter. 

A set of hearings on this, in a market study framework with wide remit, would have run very differently if the Commerce Commission cared about competition rather than about protecting Supie, or Tex, or just about punishing the existing grocers. 

The hearings might have heard from planning officers from Auckland, Wellington, Christchurch and others to point out on their maps where any new grocery entrant would be allowed by zoning to set up shop. It would have asked pointed questions about whether Council would actually allow grocers to set up shop in those spaces, or whether Council would pull its more usual kind of tricks: "Yes, it's zoned for grocery. But grocery uses a lot of water. And the wastewater pipes here would need to be upgraded to handle it. Ok, it's really decades of deferred maintenance and the things have to be replaced anyway, but we're going to pretend it's an upgrade so we can make you pay for it instead. Still interested?" 

It could have asked council planners whether competition ever enters into their considerations when setting plans, and if not why not, and whether reform of legislation to bring council planning into the criminal cartels regime would be appropriate. Like, if they're going to ask the head of each supermarket "Hey, if we were to order you to sell half your stores, even if they're actually owner-operator setups, how should we go about making that order?", they could at least ask Council Planners how best to apply criminal cartel provisions to council planning decisions. Could have heard from the folks doing up the new NBA on regional planning to ask them how they're planning to embed competition into regional plans. 

It could have heard from people from the Overseas Investment Office to ask them about barriers to grocery entry. And it wouldn't put up with their usual dissembling about high approval rates that ignores applications deterred by their processes. Has Aldi ever gotten in touch with them asking about coming here? Has anybody else? What would they do with an application from a grocer that had them buying some land currently zoned residential to package together into a new retail site? There's a ban on foreigners buying residential land. What about land that's adjacent to a reserve or stream? Lots of stuff can make land sensitive. 

The most glaring omission from the hearings? Potential international entrants. I understand that Aldi gave the place a serious look six years ago or thereabouts. What happened? Why didn't they enter? What barriers did they see as material? Do they still see those as material? Did the Commission even bother to ask the Aldis, the Lidls, or anyone like that about why they aren't here? 

Fix the underlying problem, then see what happens. If nobody enters, is it really likely that there are $20 bills all over the sidewalks here in grocery retail? Or is it more likely that we're just a small market at the far end of the world that is actually expensive to supply and there aren't really supernormal profits to be had? Let's find out!

Addendum: This is the list of questions that ComCom sent out on Friday afternoon signaling what they wanted to get into on Monday morning. I do not envy anybody who had to deal with this mess over that weekend. Think about the set of impossibilities that government has set in front of any potential entrant, then look at this set of questions. It's all about busting up existing supermarkets. I interjected briefly on entry facilitation to remind that real entry facilitation isn't subsidising Supie or destroying an existing supermarket to give to Tex. It instead should be about getting rid of legislated and regulated barriers to entry. 

This whole thing is destined to fail in exactly the same way that KiwiBuild failed. And ComCom just doesn't want to see it. They've got this fancy new market study provision, and they risk wasting it. 

Session 9:  Divestment and sponsorship of entry

A. Operational and structural separation

Topic 1:  Is Operational and Structural Separation appropriate?

• When should more significant interventions like operational or structural separation be considered?

• Would operational separation be technically possible?

• What would the costs of separation be?

• If structural separation occurred, could the business be run on an arms-length basis, without requiring divestment? For example, it could have the same shareholders but separate boards and management incentives aligned with the narrow interests of the separated entities.

• Would an independent wholesaler or wholesalers have market power that might require further regulatory intervention? 

B. Divestment

Topic 2:  What general principles should be applied when considering divestments

• In what circumstances might it be appropriate for the Commission to recommend a divestment remedy in the context of a market study?  What, if any, preconditions or criteria should be satisfied before the Commission recommends a divestment remedy?

• What criteria or framework should the Commission use in framing a recommended  divestment remedy in the context of a market study?  For example, is the framework for divestments set out in the Commission’s Merger Guidelines (Attachment F) suitable in this context?

• What are the potential negative consequences of government intervention of this type? What can be done to minimise any adverse impact on investment incentives or reputational risk for New Zealand?

Topic 3:  In what circumstances might a retail divestment be effective?

• What is the minimum efficient scale required or minimum number of stores which would need to be divested to create a viable and effective competitor to the major grocery retailers?

• What should be the process or criteria for selection of stores to be divested?

• What other assets would need to be divested or other arrangements put in place (possibly on a transitional basis) to ensure the acquiring entity would be viable and would operate as an effective competitive constraint on the major grocery retailers?

• How should a divestment process be conducted?

• Would a contestable sale process ensure a fair return to the divesting party or parties for the assets divested?  Or might some additional minimum price requirement or compensation mechanism be required to ensure the divesting party or parties are appropriately compensated for the divested assets?

• What are the likely potential challenges which would need to be overcome in implementing a retail divestment?

• What are the potential risks or unintended consequences associated with such a divestment?

Topic 4:  What would be required for the effective divestment of a wholesale business?

• If it were thought that adequate competition in the sector could be generated by establishing a stand-alone wholesaler, what assets would need to be divested to enable the establishment of a viable standalone wholesaler?

• What would the risks or potential unintended consequences be of a divestment designed to establish a stand-alone wholesaler?

Topic 5:  Would a divestment of an integrated wholesale and retail business or the assets necessary to establish an integraged wholesale and retail business be more effective than simply a retail divestment?

• Would the divestment of an integrated wholesale and retail business or the assets necessary to establish an integrated wholesale and retail business give a greater likelihood of successfully establishing a viable and effective competitor than simply the divestment of a selection of retail assets?

• What assets would need to be divested in order to establish a new integrated wholesale and retail business?

• What other arrangements would need to be put in place (possibly on a transitional basis) to ensure the acquiring entity would be viable and would operate effectively as a competitive constraint on the major grocery retailers?

• What are the likely potential challenges which would need to be overcome in implementing an integrated wholesale and retail divestment?

• What are the potential risks or unintended consequences associated with such a divestment?

C. Facilitation of entry and expansion

Topic 6:  What general principles should be applied when considering recommending facilitation of entry or expansion?

• In what circumstances might it be appropriate for the Commission to recommend to the Government that it considers the possibility of taking steps to facilitate entry or expansion in the grocery sector?  Would this require the same pre-conditions or criterial to be met as for a divestment or might some lower threshold or different criteria be appropriate?

• Are there barriers to entry or expansion that the Government is better able to overcome than private enterprise?

• What principles or framework should the Commission apply when considering whether to recommend facilitation of entry or expansion?

Topic 7:  Might a recommendation of facilitation of entry or expansion be appropriate in this case?

• What would it take for facilitation of entry or expansion to be effective?

• What is the minimum extent of facilitation of entry or expansion which would be required to make a meaningful difference to the competitive landscape?

• Might facilitation of entry or expansion occur in conjunction with a divestment remedy?

Session 10:  Reserved for overruns

• Topic 1:  Any overflow from Session 9

• Topic 2:  Is there any other strategic behaviour that may restrict new entry and access and how might it be redressed?

Gains from trade

This week's column in the Stuff papers: how government agencies never much like looking to the root causes of problems, when those problems are caused by government. 

Government sets a pile of restrictions that thwart entry by new grocers, then holds a two-week enquiry into whether they should break up the existing supermarkets to address the deficiencies in competition.

Government doesn't let the ETS generate credits from offshore mitigation, then has the Reserve Bank get all worried about whether there are market failures in climate finance. Let the ETS be more comprehensive and there'd be piles of potential financing. 

Snippet:

There are many promising projects for reducing net carbon emissions in poor countries. Gross emissions could be reduced through investment in cleaner technology. Carbon sequestration through protection or renewal of forests can be encouraged.

But in countries without carbon prices, there can be little value in making those investments.

Countries able to afford costly investments in cleaner technology as carbon prices rise will make those investments. The most promising options will be the first ones taken up, and carbon prices will rise.

Meanwhile, opportunities to reduce emissions at low net cost in poorer countries will fail to be taken up for want of the funds to do so.

Governments have seen this as a problem of market failure in need of their enlightened intervention. The Reserve Bank of New Zealand joined the Network for Greening the Financial System – a coalition of central banks that want to “mobilise mainstream finance to support the transition toward a sustainable economy”.

Despite reserve banks worldwide having printed enormous volumes of cash and despite global credit conditions being rather liquid, financing of carbon mitigation projects, particularly in poorer countries, is seen as a problem. And so they support Green Bond initiatives encouraging investors to seek social returns on climate investment projects rather than strictly economic returns.

And organisations like Climate Action Tracker rank countries’ commitments to climate finance on a scale ranging from insufficient, like Norway, to “highly insufficient”, like New Zealand and Switzerland, all the way to “critically insufficient”, like Japan, Australia, the US and Russia.

When the world is awash in investment capital searching for positive returns, the problem in carbon financing is unlikely to be a lack of capital. The problem will rather be a lack of returns.

And so we turn back to a potential root of the problem – and a more promising solution.

Reader mailbag - Let's Get Wellington Moving

In today's inbox, from an informed reader. I've edited for formatting only. 

A quick look through the LGWM "Carbon Analysis" paper is amazingly woeful.

No reference whatsoever to the ETS. Indeed the analysis claims there are risks of HIGHER emissions from more road capacity proposed (although it isn't more capacity, but ohhh the risk of removing a set of traffic lights from a road inducing more driving!).

P.15 the paper compares Wellington (city? region?) mode shares (for commuting? all trips?) to 8 European cities. Not Australian or North American cities, all of which have the new world urban form and development patterns shared in NZ, but very old European cities.  Including Erfut, which was part of east Germany (but hey, lowest driving mode share, can't imagine why?).

But then it all started off with these bold assertion in the background on page 1:

"When it comes to reducing carbon emissions there are a couple of basic principles which are not only common sense but have been validated through local and global experience over many decades. We do not need new modelling to confirm what we already know which is that:

• Quality investment in active and public transport modes will have a positive impact on reducing emissions.
• Cities that maintain and build on a compact urban form when accommodating growth will also have a positive impact on reducing emissions"

So you don't need evidence, just common sense and to assert how "validated" these principles are, not that it has never actually succeeded in case studies of cities that are much more like Wellington in urban form, trip patterns and employment/development patterns.

For a programme where the highest priority objective is reducing emissions (40% weighting), the evidence based for applying basically the philosophy of Julie Anne Genter and the Green Party, of North American style new urbanist thinking is completely absent - for advocating spending between $5.8 billion and $7.6 billion.

I like that the report at least gives estimates of the carbon savings. On the one hand, it's nonsense because the ETS has a binding cap and all this stuff is covered by the cap. So if Wellington Council thinks its transport strategy reduces the region's emissions by 5,721 tonnes per year, that just means somebody else buys those credits instead.* 

Council is spending billions on this and 40% of what they're trying to achieve is in carbon reductions that, even if carbon prices rose to $100, are valued at just over half a million dollars per year. 

It's just a little absurd. 

Council could, alternatively, have just committed to purchasing 10,000 tonnes of ETS credits every year and run them through a shredder so nobody else could use them. It would be more effective.

There is a non-stupid way of doing all of this. Ask the transport modelers to say what happens to transport demand once congestion charges are in place and once ETS prices are around $100/tonne. Set your infrastructure planning around what that world looks like. It's driven by best estimates of what people might want when fuel is more expensive and when travelling at peak times is a lot more expensive. 

Setting transport planning in an effort to reduce emissions is like pushing on a string. Let the ETS do the pulling instead. It'll pull transport planning along with, if you let it. 

*It simply isn't plausible to argue "Oh, well, doing this reduces demand for ETS credits which makes it easier for the government to cut the cap". It's 5,721 tonnes. Equivalent of planting about 7.5 hectares of trees. Imagine carbon prices increased to $100/tonne from the mid-$60s per tonne. That's still only $572,100 per year in reduced demand for carbon credits. It isn't going to do anything on that margin.