Treasury Episode IV: A New Hope

Episode 3 comes to a somewhat dark end. The State Services Commission that selected, appointed, and re-appointed Secretary Makhlouf damns his conduct in the budget hack during the press conference, but issues a more restrained report that finds the Secretary acted in good faith at all times, that his conduct was non-partisan, but that it was unreasonable in some statements made.

In summary, I find that, in relation to Mr Makhlouf's written and oral media statements:

a. Mr Makhlouf acted in good faith at all relevant times;
b. Mr Makhlouf acted in a politically neutral manner at all relevant times; and
c. Mr Makhlouf did not act reasonably in relation to:
i. his use of the phrase "deliberately and systematically hacked" in his Tuesday evening media statement;
ii. his use of the bolt analogy in his media interviews on Wednesday morning; and
iii. in his media statement on Thursday morning, continuing to focus on the conduct of those searching the Treasury website rather than the Treasury failure to keep Budget material confidential.

A better analogy to the bolt one might have been someone jumping on a trampoline outside of a second story window, taking snapshots of giant posterboards taped to the window with every bounce.

I doubt that anything in the report then reaches a level that would have the Irish Bank reconsider its offer of appointment - they'd signalled it would take findings of very very grave misconduct. I'm not great at interpretations of bureaucratic legalese, but "did not act reasonably" in a limited set of cases seems unlikely to hit that standard.

Bit of a downer of an end to Episode 3.

Anyway, on to Episode 4. The next Secretary will be Dr Caralee McLiesh, coming over from New South Wales. We'll call this one A New Hope. It could all yet end badly, but there's a lot of promise here.

I'd said that the next Secretary needs to bring the academic credibility needed to signal a change in emphasis, and the managerial ability to effect the necessary changes.

It's hard for us here in New Zealand to say much on the latter front - we just don't know. But on the former - Dr McLiesh is not only well trained, she also has a string of superb publications from her time at the World Bank. Absolutely superb. Imagine having this portfolio going into a PBRF round.

• Djankov, McLiesh and Shleifer. J Financial Econ, 2007. Private Credit in 129 Countries. 2593 citations. 
• Djankov, McLiesh, Nenova and Shleifer. J Law & Economics. 2003. "Who owns the media?" 992 citations.
• Djankov, Hart, McLiesh and Shleifer. J Political Economy. 2008. "Debt enforcement around the world. 873 citations
• Djankov, Ganser, McLiesh, Ramalho and Shleifer. 2010. AEJ: Macro. The Effect of Corporate Taxes on Investment and Entrepreneurship. 
• Djankov, McLiesh and Ramalho. 2006. Ec Letters. "Regulation and Growth."

Oh - and the data series on regulation produced by the World Bank in it's Doing Business in 2004 report? That's hers too - co-managed development and production of it; Djankov was team lead. 

What things do we know from that set of papers?

• Creditor rights matter in ensuring access to credit;
• Across a broad set of countries, government ownership of the media undermines economic and political freedom rather than working to remedy market failures;
• Making it hard for creditors to proceed against a defaulting debtor hinders the development of debt markets;
• Across a cross-section of countries, higher corporate tax rates adversely affect investment, FDI, and entrepreneurial activity;
• Better business regulations improve economic growth.

I'm optimistic about this appointment. A New Hope.