Dumb corporate welfare

Citizenship for Peter Thiel made a lot of sense. I laid out the case over at the Spinoff. 

Corporate welfare is different.

Matt Nippert asked me last week for comment on the government's venture capital fund, which wound up partnering with Thiel in some of his New Zealand investment. The government's fund effectively lets government share in downside risk but not upside.

Eric Crampton, economist and head of research for pro-market think-tank NZI, had previously defended the government's granting of citizenship to Thiel who gained approval after appealing to then-Internal Affairs Minister Nathan Guy to waive requirements he live or intend to live here due to "exceptional circumstances".
Crampton said that decision was a "bet worth making at the time, and one that should not be regretted in retrospect".

However, following revelations Thiel exercised a buyout option in his partnership with the publicly-funded New Zealand Venture Investment Fund - a move that netted the Paypal founder $24m in profits while leaving NZVIF barely breaking even despite both parties bearing equal risk of loss - Crampton said going into business with Thiel was a gamble the Government should not have taken.

"The Government should not be involved in investment pump-priming activities," he said.

"Government economic diversification schemes, in which the government shares in the downside risk if the investment turns sour but only benefits on the upside through increased tax revenues from a successful business, are adventures best avoided," Crampton said.

The government just shouldn't be in this kind of business.

Finance Minister Steven Joyce, whose previous tenure as Minister of Economic development covered the NZVIF during the entire period of the funds' operation and buyout, yesterday continued to blame Labour for Thiel's multi-million dollar payday.

The partnership between NZVIF and Valar was announced by Joyce in 2012 and bought out by Thiel last October. But Joyce said the buyout option had been a feature of the NZVIF's formation in 2002 by the fifth Labour Government until he had requested it cease being used in 2015.

"We've subsequently changed it, but it was done by the government at the time and it worked exactly as they intended it to," Joyce said.

Labour Party's immigration spokesman Iain Lees Galloway has previously labelled the arrangement a "sweetheart deal" for Thiel overseen by Joyce.

Crampton called on the political finger-pointing to end.

"It would be nice if National and Labour stopped trying to blame each other for this particular deal and instead came to common agreement on ending corporate welfare," he said.

It's also been written up at the Straits Times. I talked with Radio NZ's Panel about it.

Meanwhile, Canada throws money at airplanes....

The Tiwai Point Subsidy

Matt and Paul have both covered the subsidy to Rio Tinto that facilitated a new contract between RT and Meridian Power. There is not a lot to say about the actual policy; Matt's "Urg" pretty much sums it up. But a few points about the politics of this are worth noting. 

1. There was nothing inherently wrong about the a long-term contract between Meridian and Rio Tinto at favourable rates. I believe that in the past transmission constraints meant that the opportunity cost of power delivered to Rio Tinto was not necessarily the wholesale price elsewhere on the grid. And I also understand that the smelter was drawing power fairly evenly throughout the day rather than mostly at times of peak demand. I stand to be corrected on both those points, and maybe Meridian negotiated poorly in the past, but, absent government subsidies in the past, these were normal commercial transactions that should not colour our opinion about the subsidy announced yesterday. That subsidy should be criticised on its own merits. 
2. It is hard to believe that the decision was not affected by the political capital the government has tied up in its asset sales programme. Again, however, that should not colour our opinions about the policy. The policy would not be any better if it were motivated by different objectives. 
3. Labour are totally on the right side on this one, but it is notable that Clatyon Cosgrove's reaction reported in this Stuff article, framed things entirely in terms of it using taxpayer's money to facilitate the partial sale of Meridian. It would be good to hear a clear statement from Labour that they are opposed to corporate welfare of any kind, and, if it were them, they would have just let Rio Tinto close down the smelter. As it stands, they might be saying that National paid a subsidy for the wrong reasons, but they would have done the same in order to protect jobs in Southland. I haven't seen the news coverage. Has anyone seen if a journalist has put this question to Labour?