Friday 8 December 2023

A belated look at the coalition agreements

Things got a bit busy after the National-ACT and National-NZ First Coalition Agreements were released. 

A fair few things showed up in those agreements that we've been working on at the Initiative for rather some time, whether through reports, submissions, columns, panels and whatnot.

So that's been a bit busy, and I've been trying to clear through a few other bits before heading back to Canada and the US for a few weeks over the school holidays. So posting has been unduly light.

But I've been particularly pleased that these showed up in the agreements. 
A Rule of Two for Drug Certification

The government will require Medsafe to approve new pharmaceuticals within 30 days of them being approved by at least two overseas regulatory agencies recognised by New Zealand.

Loyal readers may recall series of tweets, blog posts, and columns from me on this one. I worked with a couple student teams at Canterbury to get a report up on the likely effects of a Rule of Two. 

It is in both coalition agreements and will be legislated. No "will investigate" or "will consider". It will happen. 

I am rather pleased about this one. 
Incentives for Growth

Weak incentives for councils to encourage housing development hasn't been the only problem blocking housing growth, but getting more housing despite current incentives requires heroes. And policy can't reliably depend on there being heroes around. The coalition agreements will introduce financial incentives for councils to enable more housing.

This has been core for the Initiative since before I got here. And now it will happen.

Easing Foreign Investment

The Overseas Investment Act will limit ministerial decision-making to national security concerns and make such decision-making more timely.

NZ has one of the OECD's most restrictive FDI regimes. Other places try to attract foreign investment; NZ does the opposite. 

Easing restrictions on FDI have been core for the Initiative since before I got here. Fingers crossed that the legislation interprets this as broadly as is implied by the text of the coalition agreements. 

Market Studies

Commerce Commission market studies will focus on reducing regulatory barriers to new entrants to drive competition. 

So far, ComCom has produced about one giant study per year. But the first-order problem is going to be in areas where ComCom has hitherto been precluded against poking around: matters falling under statutory exception. If a matter is authorised by Parliament, it doesn't get cartel investigation even if it is definitely behaving as a cartel. 

Instead of doing one giant study per year, ComCom would do a larger number of short studies focused simply on checking whether it is actually possible for a new entrant to get through NZ's regulatory and land use hurdles to provide potential competition. 

So here I disagree with my friend Donal Curtin. He worries about instances where the issue isn't regulatory barriers. Maybe I'll agree with Donal after the revised regime has run for a few years. But the low-hanging fruit simply is not going to be in places where ComCom has been able to use other tools. It will be in the place where they've been unable to shorten the way.

This shift in approach is something I've argued for in columns, submissions, at a CLIPNZ session, and in various conversations around town. 

Ben Hamlin and I have been, I think, the only ones really worried about the statutory exceptions. Ben's piece on it in the latest Law Review is very good; his gratuitous citing of my columns is inframarginal to that assessment. 

Monetary Policy

The Remit will be narrowed to focus only on price stability.

This too is excellent. In a normal environment, a dual mandate shouldn't matter. The long-run Philips curve is vertical. Maintaining price stability is the best way the bank has to ensure maximum sustainable long-term employment. 

We have worried about the broad Remit, which includes a preamble that encourages the Bank to give regard to basically the entirety of the government's policy agenda, for some time. 


The government will consider setting an income threshold above which a personal grievance could not be pursued.

Our Chair, Roger Partridge, has been writing on this for some time. The measure would make it far simpler for firms to dismiss underperforming high-paid managers who really aren't the people that employment law protections should focus on anyway. 


The government will allow the sale of cold medicine containing pseudoephedrine.

This is another one that loyal readers may recognise. I think me and Twitter's @BoxcarJoey have been the only ones making the case for this obviously sensible move. And now it will happen. 

There's a lot of other stuff in the agreements, mostly good, some less good. 

As another bit of fun, the Dom Post put out its latest 'Wellington Power' list. I think it needs an accompanying 'Wellington Mystery' list so we can figure out whose power is exceeded only by their mystery, or vice-versa, or both, somehow, simultaneously. 

But in any case, I made the cut for inclusion this time. But only barely. And possibly only because I also write a column for them. 
45. Eric Crampton

The stocks of think tank New Zealand Initiative’s chief economist have soared, with the ascendancy of ACT into Government. The Canadian is a prolific report-writer and commentator, with a free market bent, and incoming ministers are sure to be paying attention to his sharp, original (and often witty) thinking.

Friday 17 November 2023

Volcano powered

I love that GNS is looking at supercritical geothermal generation.

They've commissioned Castalia to look at timelines and economic feasibility. It's looking good, from 2037, if we can get fast-track consenting - and if there aren't other substantial hiccups. 

NZ will need a whole lot more generation as carbon prices rise and folks shift away from carbon-intensive energy sources.

Great thing about geothermal is that it just runs. It doesn't care if the wind blows or the sun shines.

Waste heat can be used for other processes - like milk powder drying, or making wood pellets.

As reminder, here's Eli Dourado's piece from a couple years ago on the big-picture on this stuff.

Thursday 16 November 2023

Afternoon roundup

The tabs!

Advice to an incoming government from Dominic Cummings

Or, at least, some very sharp observations on how the system works. It won't be much different in New Zealand. 

Here's Cummings on Dwarkesh Patel's podcast, and some snippets from the transcript. Superb throughout. If an incoming National government wanted to know what they're getting into, listening to this would be a decent start. 

Dominic Cummings 00:04:08

A fundamental problem with how the British state works is this question of prioritization and the Prime Minister’s time. So you have all of these normal parts of the system that essentially can’t really do anything quickly at all, even in a crisis. So the Prime Minister’s time and the Prime Minister’s prioritization is the most important asset. But also it’s something which is constantly pulled hither and thither by all of this craziness.

One of the things that obviously we wanted to do was fundamentally reorient Number 10, away from what it’s been since Thatcher, which is a kind of press entertainment service. Where the whole building is just built to respond to what the media says and instead say, “What do we actually think is important?” And what is the management system you’re going to build that actually can maintain focus on those things whilst the inevitable chaos goes on?


Again, one of the funny conversations I had with Boris was, you know, we should say to the ministers that here’s your actual priorities as defined by us. Whether or not you get promoted and whether or not your career goes well is going to be defined by how well your department actually fulfills these goals. We don’t care about all of your interviews. We don’t care if you are on TV or never on TV. That’s not how we’re going to judge. Because they’ve all grown up in a culture where they think whether or not they’re going to be promoted really depends on: Are they seen as a good media performer? Or do they botch things on the media? Well, that’s just a fundamentally bad criteria, not least because their definitions of what’s good on the media are themselves terrible. By approaching government like that, you’re incentivizing them to think that their goal is making friends with the media. So then they get good interviews. That also incentivizes them to leak everything. So again, the culture and the incentives are self reinforcing in a very negative way.


I’ll tell you a story about it that kind of summarizes it. At the peak of COVID craziness in March 2020, on the day itself that the PM tested positive for CoVID, a bunch of people come into Number 10 sit around the table and we have a meeting and it’s about supplies of PPE to the NHS.

They say, “None of this ppe that we’ve ordered is going to be here until the summer.”

“But the peak demand is over the next three to four weeks.”

“Sorry, Dominic, but it’s not going to be here.”

“Why not?”

“Well, because that’s how long it takes to ship from China.”

“Why are you shipping from China?”

“Well, because that’s what we always do. We ship it from China.”

But A, we need it now and B, all of the airlines are grounded. No one’s flying anything.

“So call up the airlines, tell them that we’re taking their planes, we’re flying all the planes to China, we’re picking up all our shit, we’re bringing it back here. Do that now. Do that today. Send the planes today.”

We did that. But only the Prime Minister could actually cut through all the bureaucracy and say, Ignore these EU rules on Blah. Ignore treasury guidance on Blah. Ignore this. Ignore that. “I am personally saying do this and I will accept full legal responsibility for everything.”

You multiply that kind of problem by hundreds and thousands of problems, you get a sense of partly why COVID was so crazy. This is normal government. But in a crisis, when no part of the system can actually move fast, all of these bottlenecks end up very dramatically escalating to the PM’s office. And if you read Jared Kushner’s book, Memoir about the White House, there are very, very similar tales there. That a lot of things that obviously should have been solved elsewhere couldn’t be solved at any other part of the system. They all end up cascading upwards in these centralized bureaucracies, because ultimately only the president or only the Prime Minister can give certain kinds of orders.


And in fact, In 2020, for example, when we did some things very differently, it was extremely disruptive and extremely unwelcome to the large part of the system. Hence why a lot of what we did was closed down.

Did they say, “Okay, the vaccine task force and operation warp speed and the state have been great successes. We should massively reinforce them. We should build the next generation of vaccines. We should spread the lessons of how the task force operated.”?

No, they basically closed the task force. Sewage monitoring closed. Rapid testing, basically closed and forgot to order enough tests the following year.

So if you look back at 2020, most of the people who were most wrong were given awards and honors by the system and promoted to new jobs. The people who were most obviously repeatedly right have almost all left.

What incentive is there for people to speak out about how these things work? No one expects anything to change. Even after something as big as COVID, when you see what the reaction is, everyone can now see the truth. You can have a once century pandemic. It can kill tens of thousands of people unnecessarily. It can be a complete carnage for the economy, and everyone will just basically go back to normal. MPs will ignore it and nothing much will change.

So if you’re a standard official inside the system, all the signals to you are very clear. In fact, in 2021, it was even more powerful than that. There were a whole load of legal actions brought to say that the real problem with 2020 was that we went too fast and we did things too quickly. People actually brought legal actions against the vaccine task force. They brought legal actions against rapid testing. They brought legal actions against all sorts of activities.

The system didn’t say “This is completely insane. Actually, the bureaucracy and the sloth killed thousands of voters.” It said “Yes, we’re going to investigate all of this.” Every signal propagated through the system was essentially back to normal. You will be promoted for being the most insane process, and you will be demoted and blacklisted if you say this process is insane and try to do better.


Dominic Cummings 00:24:16

Manhattan Project is much in the news with the Oppenheimer movie. If you look at the very last bit of General Grove’s book on Manhattan Project, he talks about what are the most fundamental principles about why it succeeded? And one of those principles is relevant to government. Actually, they’re all relevant to government.

One of the principles is that the quality of the people is fundamental. Another one is that responsibility and authority are always delegated together. The entire British constitutional system and management structure is based on the fundamentally opposite principle. Responsibility and authority are not delegated together. So if you’re asking about something like the vaccine task force, in the normal system, nobody really is in charge of anything. Lots of people can criticize, lots of people can complain, lots of people can argue about things. Lots of people can veto. Almost nobody ever has the authority just to build something or just to do something.

Why did we create the vaccine task force the way we did? Well, because we were trying to actually embody principles like responsibility and authority pulled together. We brought one person in, we said “You are responsible.” But once we’d gone, then what happens to that entity? It’s sitting there amid Whitehall while all the normal parts of Whitehall just start going back to being normal. So what happens? They say, well, they are exempt from all of these rules on HR that the Cabinet Office imposes on every part of Government. This should change because it’s going back to normal. They have to do the following things properly. We gave them special dispensations because of the extraordinary circumstances of summer 2020, but these now come to an end.

So those sorts of things come in. The treasury says, “The spending rules and how the people in the vaccine task force make decisions, that was an emergency thing. Now the normal rules apply again.” So before you know it, all the different parts of the system have basically said, the thing that you created outside of the normal system now has to obey all of the things that it was specifically created to avoid.

Now, the system will just do that automatically unless there is a very powerful counterforce. Fundamentally, again, only the PM can say,”No, we’re not having that. In fact, I want to strengthen the vaccine task force. We want to move on to the next generation of vaccines. etc.” If they don’t do that, and if the people in charge of it can’t call on the PM’s authority, the system will just devour the new entity very, very quickly and force it to conform with all of the normal system.

I’ll give you another example of this on rapid testing. One of the things that we did to get the rapid testing to work was we got a guy who formerly was commanding officer of the SAS, British Special Forces, and this guy got a bunch of his friends from Special Forces also to work on rapid testing. When we first got this pushing from Number 10, I got the critical people from procurement, commercial HR, etc, into the Cabinet room with the Cabinet Secretary, the single most important official in the whole country, and the two of us said, “The PM wants rapid testing dealt with as if this is a wartime crisis.” We’re going to have a second wave. There’s going to be thousands more people getting CoViD, there’s NHS. People are dying, etc. We can’t have any of the normal civil service HR. We can’t have any of the normal civil service bullshit on procurement. Exactly the same as with the vaccine task force. Everyone sits around the cabinet table, they all nod their heads.

A week later, I call this guy, a former SAS boss and say, “So, how’s it going? Are you getting who you want and is everything working great?”

He says, “No, it’s all the same shit show.”

So I have to get all the people back in the same room with the country’s most senior official and say, who the fuck have we got to fire around here to make clear that these people doing testing don’t have to do all of your bullshit HR?

That’s how extreme things have to be. It was only by doing that a second time and making clear that I would get the PM to actually just start firing senior people in the Cabinet office. It’s only then that the system will kind of part and go, “Okay, this element is allowed to.” But you imagine as soon as that countervailing force is removed, all the normal sea floods back.


Dominic Cummings 00:31:25

Sorry to interrupt, but imagine as well what the promotion system is like and who ends up getting to the top of these systems. A lot of people say, “Oh, you’re so negative about the civil service. You’re all saying that everyone there is rubbish, and it’s not fair.” That’s not my view. In fact, if you look at the civil service, you actually see a lot of very able people, but most of them are young. What happens is the young, excellent people get weeded out by self-selection, largely because they go in idealistic, they’re there for a few years, but then they look at what the process is to be promoted, and they look at their bosses, and the best of them look at it and go, “I don’t want to be like that.” I don’t want to have to make those decisions. I don’t want to have to make those compromises. I don’t want the job like that, where it’s almost all bullshit. We can’t actually build anything.

The most entrepreneurial, the kind of people who actually want to get on and do stuff now, leave and the most HR compliant, disastrous people to be in charge of supposedly fast moving agencies are the ones who are promoted to take over. And then that culture itself becomes highly self reinforcing. Once you get a whole cadre of leadership at the top that’s like that, it’s extremely difficult to break out of.

I'll stop clipping there or I'll wind up just having the whole darned thing. 

Monday 13 November 2023

Afternoon roundup

The tabs!

Preparing for the new government

Tova O'Brien at Stuff reports on leaked emails at MBIE that point to preparations for downsizings.

In a statement, MBIE said the cuts were in response to the savings targets imposed by the outgoing Labour government and being mindful of the cost of living crisis.

“This work to date has been based on the targets and expectations set by the current Government. We will have conversations with the new Government when it is formed on how we have worked to date to achieve the fiscal savings target,” Tremain told Stuff.

In late August, just ahead of the election campaign, Labour’s Finance Minister Grant Robertson announced $4b in public service savings including cutting back on contractors and consultants and trimming agencies’ baselines by 1 and 2% of which MBIE faced the largest cut at $110.8m

But further changes being considered may be in anticipation of the new government making good on its “cut the waste” campaign rhetoric; in the email, Tremain says “we are preparing for change” and that “this is inevitable as we get ready to support a new government and new Ministers”.

I was curious where some of this might be going and had put in an OIA a while back. 

Treasury had started a pre-election information exercise to help them prep for Budget 2024. I figured that whatever they got back from the Ministries would be a heck of a lot more informative than what's served up in Briefings to the Incoming Ministers. 

Because it would be a lot more informative, Treasury withheld all of it. And fair enough. 

But they did give me the questions they'd asked. I'll copy it all here. 

It's relevant to today's story from O'Brien because a lot of this process started before the election, and there was a Baseline Savings Proposal that was underway. 

But Treasury was also asking for substantive changes to stop or scale down current services or activities - as it ought to be. 

Also interesting - Treasury was asking what projects hadn't yet been started, presumably so they could be cut if needed. I wonder if any agencies started scrambling to start spending on projects to lock them in.

I wonder what all showed up as savings options in Section Two.

Friday 10 November 2023

Afternoon roundup

The end-of-week closing of the browser tabs

Making coal

Trees are very good at sucking carbon out of the atmosphere. Unfortunately, they eventually release it back into the atmosphere. Some gets stored for the longer term, but our ETS pretends it's all released at point of harvest. And there can be a good case for that if most of it does and if it's hard to track.

But there are other options.

I have no clue whether the economics of this option would stack up, but it should be allowed in principle.

Suppose a carbon forest owner harvested the forest, dug a very deep pit, put the harvested trees into the pit, and covered them with layers of clay so no gasses would seep up. The process takes carbon from the atmosphere and sticks it back into the geosphere. Give it time and it'll be coal.

I've always figured that if a carbon forest owner did that properly, that permanent sequestration ought to count against any surrender obligations that come with cutting down a carbon forest. For every tonne durably sequestered, a one NZU reduction in surrender obligation.

Turns out Bill Gates is backing a neater version of this. Story from December 2022 but I only just caught it.

A California startup is pursuing a novel, if simple, plan for ensuring that dead trees keep carbon dioxide out of the atmosphere for thousands of years: burying their remains underground.

Kodama Systems, a forest management company based in the Sierra Nevada foothills town of Sonora, has been operating in stealth mode since it was founded last summer. But MIT Technology Review can now report the company has raised around $6.6 million from Bill Gates’s climate fund Breakthrough Energy Ventures, as well as Congruent Ventures and other investors.

In addition, the payments company Stripe will reveal on Thursday that it’s provided a $250,000 research grant to the company and its research partner, the Yale Carbon Containment Lab, as part of a broader carbon removal announcement. That grant will support a pilot effort to bury waste biomass harvested from California forests in the Nevada desert and study how well it prevents the release of greenhouse gases that drive climate change. 

It also agreed to purchase about 415 tons of carbon dioxide eventually sequestered by the company for another $250,000, if that proof-of-concept project achieves certain benchmarks.

Whenever I've suggested "Why don't we consider just letting people bury trees," NZ climate people look at me like I'm crazy. 


A handful of research groups and startups have begun exploring the potential to lock up the carbon in wood, by burying or otherwise storing tree remains in ways that slow down decomposition.

Trees are naturally efficient at sucking down vast amounts of carbon dioxide from the air, but they release the carbon again when they die and rot on the ground. Sequestering trees underground could prevent this. If biomass burial works as well as hoped, it may provide a relatively cheap and easy way to pull down some share of the billions of tons of greenhouse gas that studies find may need to be removed to keep global temperatures in check in the coming decades. 

One of the usual objections from the kind of climate people who love to grope for excuses to ignore things that might help the climate (because those things don't force Radical Structural Change and Deep Decarbonisation) is that forests are risky because a forest that offsets emissions from a tonne of coal means a transfer of carbon from the geosphere to the biosphere, and the biosphere is risky. 

Well, carbon stored in trees can be stuck back into the geosphere. 

Look at all these approaches being tried. 

Burial costs

Other startups and research efforts are taking different approaches to the problem. 

The Australian company InterEarth believes that allowing trees to soak up salty groundwater before burying them will effectively pickle the wood, preserving it for extended periods.

The Carbon Lockdown Project, a public benefits corporation founded by University of Maryland professor Ning Zeng, has proposed creating pits that are lined with clay or other materials with low permeability.

In a paper this year, Zeng and a colleague also highlighted a number of other potential approaches, including storing biomass in frozen sites, underwater, or even in above-ground shelters. His earlier work found that harvesting and storing wood could potentially remove several billion tons of carbon dioxide a year at a cost of well below $100 a ton.

You don't need all of them to work. Or even any of these ones - there's lots of other projects being tried, including mineralisation. 

Run a clean ETS focused on net emissions and run the accounting properly. If any of these techs can scale up at low cost, we hit net zero at a low carbon price and could push for net negative, to undo the damage already done. If none of them do, we still hit net zero - just at a higher carbon cost.

I was on a panel discussion earlier this week about COP28 hosted by the NZ Institute of International Affairs - remotely, as daughter currently isolating with Covid and I don't want to impose risk on others (she's fine).  

But the whole discussion was so frustrating. 

A friend who'd attended said my presence there was felt, like a fart in Church, despite my being remote. 

I talked about the ETS, changes to help it drive to net zero durably, tech bets NZ should be making, other tech underdevelopment. 

Germany's climate rep wanted to focus on gross emission reduction. But when I asked about Germany turning off its nuclear plants and now having to rely on coal, she said nuclear is bad because of Chernobyl. I have a very difficult time taking these people seriously. Unfortunately, they set the agenda at COP.  

Anyway - burying trees isn't as crazy as it might have seemed. 

Wednesday 8 November 2023

Afternoon roundup

A closing of the browser tabs

A Rule of Two for new drug approvals

Requiring Medsafe to automatically approve any drug that had already been approved by at least two trustworthy overseas regulators would sharply hasten new drug approvals without adding particular risk. 

Giving Medsafe an emergency handbrake for use in exceptional circumstances, subject to ongoing review to make sure they were using it appropriately, would reduce what minimal risk might otherwise result. 

I call it a Rule of Two. 

It's my column in Newsroom this week, and a report we put out on Thursday last week

The FDA spends hundreds of millions of dollars more on drug approvals than Pharmac spends buying drugs. It is exceedingly unlikely that Medsafe would ever find anything that the FDA missed. It is even more exceedingly unlikely that they'd catch something that both the FDA and the European Medicines Agency had missed. Or the EMA and Australia. Or the FDA and Canada. Or Canada and the UK. 

Medsafe has about 60 staff. Take this job off them and let them focus on areas where they might add real value. 

It isn't just that Medsafe pulls stunts like taking fifteen months to approve Ozempic after it had already been approved by everybody else and after it had already been on the market overseas for four freaking years. It's that Novo Nordisk didn't bother to even apply here until December 2021, because what's the point? Medsafe is too much hassle relative to the size of our market. They haven't submitted Wegovy for approval here yet, for obvious reasons. 

The full delay isn't the fifteen months Medsafe spent evaluating. The full delay is the over five years from the drug's second overseas approval until its approval here. 

Government here, and especially during Covid, loved blaming pharmaceutical companies for not getting their paperwork into Medsafe early. 

It would be like requiring Ferrari to send six of their latest and most expensive models to NZ for destructive crash testing, rather than relying on overseas approvals, and then blaming Ferrari for that there are zero Ferraris on the market in New Zealand. In that case it would be the stupid rule that would be the problem, not Ferrari. It's crazy that we seem able to (sensibly) rely on foreign approvals for cars but not for medicines. I'd think relying on just one would be fine, but a Rule of Two would be sufficiently better than what we have that that's fine too. 

Our report draws on the work of a couple of teams of Canterbury econ students who checked whether Medsafe approval ever really actively protects Kiwis. Turns out there's basically no cases where Medsafe long-term declined drugs that would have been approved by a Rule of Two, and Medsafe withdrawals of drugs from the market tends to follow foreign leads anyway. 

So. Set a Rule of Two. 

Policy doesn't have to be stupid. 

Daycare socialism

Maybe it wasn't a good idea to try running a central planning model for daycare?

Susan Edmunds points to some of the really rather serious consequences, and their cause.

Centres in Cromwell, to which she and her partner moved to be able to buy their own house, are full. She was told they would not have space until the end of 2024 or 2025. She was also on waitlists for home-based care.

...The Early Childhood Council said it was a problem in several parts of the country.

Its survey showed 50% of centres were 91% to 100% full, 15.56% of all centres had a wait list of more than a year and 15% had a waitlist of seven to 12 months.

Chief executive Simon Laube said network management rules introduced in February had made it much harder to open new centres.

“Originally the problem was too many centres springing up in the same place – you might get three centres on opposing corners which is not good for anyone because all three don't do well. That is a problem, but in that problem, the providers lose because they don't hit the occupancy level and the business fails. The solution of stopping centres opening gets rid of that problem but parents and families are losing out.”

He said the council would write to the new government to ask it to remove that regulation.

“I don’t know what you could do to tweak it, there was a real problem that led to it, but it’s not the right solution.”

Too many daycares is a problem that sorts itself out, if you let it. Regulations blocking new daycares is not a problem that sorts itself out. And then you get a pile of people who cannot return to work after having a baby. That has serious consequences too. Longer spells out of work will make it harder to return to the workforce for a lot of professions. Skills deteriorate. Experience isn't gained. 

And remember that barriers to exit (from childcare) are barriers to entry into that circumstance. Some people will delay or reduce the number of children they'd be having because government has screwed this up. 

He said research showed the average amount of time it took to establish a new service was 2.6 years, including planning and consents. Regulation meant that operators might sink a lot of time and money into a business only to find they were not allowed to open, he said. He said 200 centres had closed in the last year.

Oh and there's also this. The government also screwed up the labour market for early-childhood centres. 

He said centres were also facing disruption from the pay parity opt-in scheme, designed to address disparity in pay between teachers working in kindergarten and those in education and care centres.

Is there any part of childcare that government hasn't screwed up? All the regulations might sound well-meaning. And maybe they give some sense of meaning to the otherwise futile lives of the bureaucrats who write the rules. But the rules cause harm. 

And there's this on top of it:

Under the Building Act a single missed or unrecorded inspection in the past 12 months, for example, would prevent the issue of the warrant. 

A building would instead be issued new forms to show there had been non-compliance, and there would be no way to obtain a warrant of fitness until the next year. 

Auckland Council had previously issued a “report in lieu” to building owners if this were the case and a warrant of fitness could still be obtained.  

But last month the council stopped using the lieu reports and began using the new forms, meaning the workaround was no longer available.  

Early childhood council chief executive Simon Laube said a centre’s licence was conditional on operating out of a building that complied with the Building Act, which for a large number of Auckland centres meant having a building warrant of fitness.

He said there was concern the Ministry of Education would be heavy-handed with following the letter of the law, if centres did not technically have one. 

“The Ministry of Education are taking licenses off providers for a lot less than this, anything in the kind of grey areas they're moving in really heavy-handed, so something that's black and white like this … we just know what the Ministry of Education is like and they don't go lightly.”  

The outgoing Labour government has handed a lot of awful hospital passes to the incoming National-led government. An utter mess in ECE is one of them.  

Tuesday 7 November 2023

Morning roundup

A closing of the browser tabs:

Monday 6 November 2023

Maybe spend less on stuff that isn't pipes?

If this is correct, it seems even more irresponsible for Wellington Council to be spending any substantial amount of money on anything other than the pipes for a while. 

A billion dollars a year is what it would take to fix Wellington’s water woes, but the boss of Wellington Water, Tonia Haskell, says that is a figure beyond councils to fund.

“Councils can’t afford it and a new water entity probably could not afford that either, unless the Government chips in,” Haskell said in an interview with The Post.

...She describes $1b as an “unconditional budget” and notes that it could take many years to do the work required. “I do not know at what point that tails off.”

The annual figure of $1b includes the cost of such things as a new wastewater outfall pipe for Hutt Valley, installing meters, new reservoirs, upgrading wastewater storage and treatment plants across the region and completely renewing the piping network.

I do not know whether there's gold-plating in the treatment plant upgrades that could be trimmed back. If the costs here include completely renewing the piping network, the costs of that renewing ought to be spread over decades rather than borne up-front. And note that these costs are for the whole region rather than just Wellington. 

But however you structure it all, the costs won't be small. The same set of households and businesses will be paying the combination of rates and water charges to cover the bills over the decades to come.

Spending a hundred million more than necessary on a central library, and another hundred million on town hall, and the convention centre, and who knows what bill yet to come on the Michael Fowler Centre and the Opera House and the insane-looking subsidy to a multinational movie theatre company and whatever's going on in transport... c'mon folks. Give it a rest until we know what kind of burden we're all looking at for fixing the pipes. 

Or at least quit whining to central government that you need bailouts when you're simultaneously deciding to spend a heck of a lot on projects that look pretty iffy while the pipes are falling apart. 

Forced de-banking

AML compliance in the US is imposing a lot of harm on people mistakenly suspected of moneylaundering. 

The New York Times provides a few worrying examples. The algorithm flags something, and accounts go poof. 
Bryan Delaney has owned several New York City bars over the decades, and he and his business partner and general manager, Jennifer Maslanka, have a longstanding system for handling cash: It goes to the bank on Fridays and Mondays.
As card use has increased over the years, the size of the deposits has decreased. To make the accounting easier on new staff who started working during the pandemic, Mr. Delaney and Ms. Maslanka often rounded deposits down to the nearest thousand and kept the rest of the cash on hand to make change.
This year, Chase closed the bar’s account, plus personal checking and credit-card accounts for Mr. Delaney, his wife and Ms. Maslanka, giving them a handful of weeks to make other banking arrangements.
Federal law requires depositors to fill out a form if they’re depositing or withdrawing more than $10,000 in cash. Sometimes, in an attempt to avoid the gaze of the authorities, account holders will engage in “structuring,” making a series of transactions just under $10,000. It’s one of the top reasons that banks file suspicious activity reports.
Mr. Dubrowski, the JPMorgan Chase spokesman, said the bar’s series of deposits was indeed the problem.
“We must know our customers and monitor the transactions that flow through our bank,” he said. “That includes instances where we see a pattern of cash deposits that are just below federal currency reporting thresholds.”
Mr. Delaney said he had not been engaged in structuring when depositing money in round numbers. All the cash had come from the bars, he said, and he reported his income and paid his taxes as he was supposed to.
The bank’s explanation is especially maddening, given that he and Ms. Maslanka had filled out plenty of the $10,000 forms over the years. “What’s to gain from not filling it out?” he said. “What’s the risk of filling it out? I’ve done both when deposits warranted that.”
“I’m still so confused,” Ms. Maslanka said. “Do you think I’m part of some underground Mafia, laundering money through my little beer bar?”

I wonder how common this is in NZ. 

Friday 3 November 2023

Morning roundup

The closing of the tabs....

Monday 30 October 2023

Just make it easy to delist buildings

My column in the weekend papers:

There is one other alternative. It is an alternative Wellington officials downplayed. But it is one that the council should take or that central government could progress instead.

Why not make it easy to remove buildings from the district plan?

A council needing legislation to address a local issue can propose a local bill. The Parliamentary Counsel Office can assist in drafting. An MP, who need not necessarily support the bill, puts their name to it. The bill is introduced and has its first reading on the third sitting day after introduction.

Wellington City Council could propose a local bill enabling the council to remove buildings from the district plan, or to pre-empt their listing, by a simple majority vote. The bill would make delisting nonjusticiable, with no opportunity for appeals or challenge. It would deem the delisted building to have no special value for any other consenting process.

Officials worried this option could take years, but local bills can be very fast. If an incoming government is a bit frustrated by a council that seems able to find hundreds of millions of dollars for everything other than its water network and is not too annoyed by shenanigans around Let’s Get Wellington Moving, it could well shepherd this bill quickly through committee.

The Michael Fowler Centre and the Opera House were listed as earthquake-prone in August. The Opera House is listed on the district plan. The Fowler Centre is covered by the Civic Centre Heritage Area. Heritage New Zealand has also received a nomination for Fowler’s inclusion on the New Zealand Heritage List.

Wellington’s officials are still exploring local bill options, championed by councillor Ben McNulty and a 9-7 vote in favour, with councillors John Apanowicz, Tim Brown, Ray Chung, Sarah Free, Iona Pannett, Tamatha Paul and Nicola Young opposed.

If the council proposes this kind of local bill, a newly formed government should let Wellington get on with the job.

Or it could find time to add a government bill to the agenda. How many towns and cities face similar problems, where cost-effective approaches to mandatory strengthening are just too hard?

A National-led government might also support increased accountability the option would bring. If a council chose not to delist a building, it could not blame others for the cost.

Easy delisting doesn't solve the underlying problem. The underlying problem is a heritage preservation system that foists incredible cost onto the owners of heritage buildings, particularly if they are in need of earthquake remediation, while providing little support. A comprehensive fix would flip the system - abolishing the regulatory restrictions and instead providing annual payments for provision of the public good. 

But easier delisting would ease some of the worst pressures in the interim. 

Real ESG

If you care about corporate social impact, start measuring consumer surplus. 

From the NBER:

An Economic View of Corporate Social Impact

Hunt Allcott, Giovanni Montanari, Bora Ozaltun & Brandon Tan


ISSUE DATE October 2023

The growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact (dwarfing profits, worker surplus, and externalities), suggesting that consumer impacts deserve more attention from impact investors. Existing ESG and social impact ratings are essentially unrelated to our economically grounded measures.

Meanwhile, the Financial Times provides an excellent synopsis of the other version of corporate ESG.

Born in sanctimony, nurtured with hypocrisy and sold with sophistry, ESG grew unchallenged for a decade, but it is now facing a mountain of troubles, almost all of them of its own making.

The problems of investing with an environmental, social and governance framework start with assessing what it measures, which has changed over time and reflects its revisionist history.

ESG started as a measure of goodness, built around a UN document enunciating the principles for responsible investing, with significant establishment buy-in. As the selling of ESG to investors ramped up, its salespeople recognised that goodness had limited selling power. So they switched gears, arguing that ESG was an instrument for delivering higher returns without concurrent risk.

That case worked well through much of the last decade, mostly because of ESG investors’ abhorrence of fossil fuels and embrace of technology firms, but the Russian invasion of Ukraine changed the calculus. As sector funds underperformed, advocates moved on to claim that higher ESG scores lead to less risk and lower costs of capital. Perhaps because both risk claims are questionable, they now contend that ESG’s primary purpose is disclosure about material issues.

It serves ESG advocates to keep the definition amorphous, since, like the socialists of the 20th century whose response to every socialist failure was that their ideas had never been properly implemented, the defence against every ESG critique is that it is incorrectly defined or implemented. The truth is that ESG scores today measure everything — consequently, they measure nothing.

Consumer surplus is more reliable. 

Friday 27 October 2023

Charting a course

My column in Newsroom this week makes a few guesses about where NZ local water policy may be headed

Labour forced the amalgamation of water services into new entities that National promised to throttle before they can get going. What happens next?

No election platform survives contact with post-election coalition negotiations.

But one outcome seems rather obvious – the Labour government’s Three Waters reforms will be repealed. In its place will be a model based on the Castalia model commissioned by the set of councils that objected to Labour’s reforms – Communities 4 Local Democracy.

The change could come reasonably quickly. The parties likely to be in coalition agree, at least at a high level, on a reform agenda. And an incoming government will have a head start on the necessary policy work and legal drafting.


Normally, this kind of policy reform work can take years. The set of officials who were strong advocates for Labour’s policy reforms may not be likely to deliver workable replacement legislation in any kind of hurry.

For the better part of this year, the New Zealand Taxpayers’ Union has been coordinating policy work to flesh out the Communities 4 Local Democracy/Castalia model – including drafting instructions and drafting for a replacement Local Water Infrastructure Bill.

Malcolm Alexander, former Chief Executive of Local Government New Zealand and with a background in electricity reform, chairs the Technical Advisory Group for the bill. I have assisted on the group, along with David Hawkins, formerly of Watercare and former Mayor of Papakura; Christchurch Councillor Sam McDonald, and NZ Taxpayers' Union economist Ray Deacon – who formerly served on the Major Electricity Users Group..

The proposed reforms would shift drinking water and wastewater assets into Council-Controlled Organisations (CCOs) – for councils where water is not set as a CCO. Stormwater is fundamentally different – with assets plausibly including parks, recreation areas, ditches and roads – and is left out of the proposed structure.

A CCO can be owned by a single council, or by a set of councils. If councils find it more effective to deliver water services through a shared service model, they retain ownership of the shared entity.

But unlike Wellington Water, council water CCOs in the proposed structure would own the water assets and earn revenue through water charges, rather than be stuck like Wellington Water in attempting to manage the underlying councils’ water assets on whatever funding the underlying councils might wish to provide.

It’s a far sounder model. And, at the outset, they could be required to satisfy the minister that they are appropriately capitalised and that councils have not loaded them with non-water debt.

Water CCOs would prepare and publish their own asset management plans and be accountable for outcomes.

They would also be subject to commercial regulation by the Commerce Commission ensuring that the Council-owned monopoly water providers were setting appropriate water rates..

Councils like Wellington have slowly stripped their water infrastructure assets by failing to maintain and renew the network, allowing Wellington Council to fund all manner of showy above-ground projects while not increasing rates proportionately.

The proposed CCO structure would mean water would stop cross-subsidising other council activities. Water utilities would be able to charge what is needed to bring their networks up to standard and to keep it at standard.

It would also mean that other councils, or taxpayers more generally, would not be on the hook for some councils’ long-term negligence.

An incoming coalition government that broadly supports the Communities 4 Local Democracy proposal can then have a running start. Much of the legal drafting for a potential replacement bill has already been completed, along with drafting instructions for sections requiring technical detail held within government.

That running start will be needed. National has committed to repeal Labour’s Three Waters legislation in its first 100 days, but legislation for a replacement regime will be needed quickly. Councils will need to know the regime within which their water services will operate if Labour’s Water Service Entities are abolished.

Post-election coalition negotiations usually make it hard to predict just what will come of parties’ campaign promises. But, in this area, the waters are reasonably charted.

Afternoon Wellington roundup

It's gorgeous days like today (well, the walk in this morning was grand) that help explain how Wellington can be so abysmally governed. If it weren't for days like this, who'd stay?

A closing of some tabs.

Councillor McNulty at least tried his best on some of this. I've been imagining him in lieu of the other McNulty, recreating that scene from The Wire, walking around the Town Hall site, pointing at things, and just repeating one word. 

Oh: rain's now shown up. 

How do you unbreak an egg?

I absolutely do not envy whoever in an incoming government gets stuck trying to fix the mess Chris Hipkins caused in the polytechs. 

The polytechs had issues before the merger. Some might well have fallen over. That isn't the end of the world. There are other polytechs. The stronger ones would have picked up more students. 

Now they're all mushed together in a dysfunctional centralised structure that possibly can't be unpicked without immediately causing some to implode, making all of it politically fun.  

Consequences of course go beyond the polytechs. The country's going to need trained tradespeople. 

I have no solutions here. But I wish the best of luck to the incoming Minister receiving this hospital pass. 

Thursday 26 October 2023

Morning roundup

The morning's worthies.

Friday 20 October 2023

There Is No Alternative - Wellington Council edition

It looks like Wellington Council officials are providing councilors with an offer they're not supposed to refuse.

Earlier this week, Council heard a presentation from officials on options around the Town Hall. 

As presented, there seemed no reasonable alternative to spending another $70 million to $147 million to finish strengthening works. 

Stopping works and closing the building off would only save $60 million relative to finishing. Demolishing it would cost $20m less than finishing it. And delaying would just escalate costs. 

If you look at it that way, why wouldn't you finish the thing? Sunk costs are sunk, and the choice before Council is whether to spend a small bit more to finish the project rather than aim for demolition. 

And especially when officials put a lot of time pressure on the thing, wanting a decision by next Wednesday.

But there are a few oddities in there. 

Closing up the building would have a year's worth of work finishing the basement to prevent flooding, completing critical structural works, reinstating heritage fabric and the like. Safety and other works like that are $33.42 million. 

Demolition would add $39.35m on top of close-up costs: Environment Court applications, demolition planning and works, professional fees and contingencies. 

But why would you complete critical structural works or finish the basement if you were going to bowl the thing? If they netted those costs out somewhere, it sure isn't mentioned. The only reason to finish the basement rather than fill it is if you were planning to sell the site for someone else to build on, and you'd only do that if the value added by finishing were more than the cost right?

Delisting the building from the District Plan (heritage buildings are protected because they're there listed) would open up a lot of options. 

But officials caution that if a delisting process started now, it could be in the courts until December 2027. And Council could easily lose. There is insanity in the rules around this stuff, but the rules are the rules. 

Officials noted that a Local Bill might allow faster delisting - but wind up warning against that too. 

It's pretty easy to imagine what an enabling Local Bill would look like. 

It would enable council to delist buildings by simple majority vote, without right of appeal. A delisted building would be deemed to have no special value, heritage, cultural or otherwise, when considering building or demolition consents.

With an enabling local bill in place, council could weigh up different options. 

A local bill enabling delisting could do a lot of derisking. If it turns out that preserving one bit that nobody would ever notice would add $20 million to the cost, they could just save the $20 million. They could weigh things up on a case by case basis without worrying about being sued. 

The council document notes that council carries the majority of the geotech and heritage risks. The geotech side is largely now understood, but paragraph 24 still has "heritage restoration costs and requirements" as one of the remaining risks council faces. At para 26 they note that heritage risk replaces ground risk when restoration work starts. 

But officials also suggest the local bill path is impracticable:
Pathway 3: Local Bill

95. Aside from a successful plan change, the only other path to demolition is to seek to
pass a Local Bill specifically for this purpose. This would then override the District Plan
and general RMA provisions.

96. A Council decision to demolish the building under an enabling Act could still be subject to judicial review challenging the lawfulness of demolition. Any Bill would need to be drafted in such a way as to leave no room for ambiguity in interpretation on this point.
As with the other pathways discussed, the Council would need to consider the significant precedent effects in pursuing this option, including that, in practice, a Local Bill is an option available to the Council but, unlike a resource consent, not necessarily one that could be pursued by other building owners.

97. Pursuing a Local Bill would be subject to similarly high levels of uncertainty as a resource consent and/or plan change process. The local MP would be required to manage the Bill through Parliament and Council would be required to draft the Bill and meet all associated legal costs. The Bill would need support from a majority of MPs to be passed and it may take several years from introduction of the Bill before it is passed into law. It would also be subject to public debate through that process. As an example, the Girl Guides Association (New Zealand Branch) Incorporation Bill is a private bill that was introduced in February 2021, and has still not had its second reading two-and-a-half years later.

This still feels like There Is No Alternative framing. 

Local Bills are fast. Rotorua's local bill was at Select Committee within two weeks of being introduced; it was there shot down. The Girl Guides bill is a private bill.

If an incoming government has had a gutsful of Wellington spending piles of money on things that aren't the water pipes, it may well be inclined to ensure speedy treatment of the Bill, so it gets through the Committee stages reasonably quickly. 

Worst for an incoming government would be Wellington Council being able to credibly say, 

"Look, we tried our best not to have to spend another hundred million dollars on this damned building, and likely another half billion yet to come on Opera House and Fowler Centre. And who knows what down the track. 

But we are entirely tied up by central government legislation. 

Priority buildings in Wellington have to have works or demolition completed within 7.5 years of being notified. 

Our officials tell us that if we started today to try to delist the Town Hall, we might have a decision out of Environment Court by December 2026 and up to another year for High Court appeal. That's four years of legal process. 

And the clock is already ticking on Fowler and Town Hall. If we started normal legal processes this year to delist the buildings and untie our hands, we'd have less than four years* to actually do the works on them afterwards.

We asked a red-tape-hating government to let us make the choices that were right for our community, and they forced us to waste hundreds of millions of dollars instead."

* If those are priority buildings as well; it's 15 years all-up if they are not. I have no clue which buildings get a priority label. If it's based on risk to others, Opera House seems riskier than Fowler. 

It would seem more surprising if central government knocked this back rather than supporting it, really. 

A few bottom lines then:
  • Wellington Council likes to pretend that it has no choice but to spend an extra hundred million or so on this building, and who knows how much more on buildings yet to come. But there is a potential choice. Wellington Council could support a Local Bill that would enable council to delist buildings and proceed on more rational basis. 
  • Regardless of whether they think an incoming government would support a local bill, Wellington Council should put one up. If central government says no, Wellington Council could more plausibly ask for help in dealing with the cost consequences of loopy central government regulations. 
  • Central government is in a caretaker mode now, but when it starts up again, it should say yes to a local bill while starting to think about entirely redoing how heritage amenities are supported. The current regulatory framework is utterly unfit for purpose. It imposes massive cost on owners of buildings but little financial support. It just doesn't work. Flipping the system to ditch the regulatory restrictions while providing payments to the owners of buildings for continued provision of heritage amenities would allow greater real support for a smaller number of valuable buildings worth supporting.