Procurement

Government should seek value for money in its procurement policies. Using procurement as a way of forcing or encouraging other ends is generally going to be a bad idea: You get a worse deal on what you're trying to purchase, and there are likely going to be more cost-effective ways of encouraging whatever goal you're after.

Or to put it another way, does it seem generally likely that the most cost-effective way of encouraging X is by paying more for goods and services produced by companies committing to X?

And so the cabinet paper on procurement is a bit of a worry. It's from October; I hadn't noticed it at the time. 

The paper starts off well, reminding us of the decent procurement framework we already have, and contrasting it with the messes elsewhere:

The government procurement policy framework in New Zealand consists of a combination of principles, rules and good practice guidance. It aims to support and encourage procurement practice that delivers good commercial outcomes. In contrast, some other international frameworks, such as in the European Union, have very prescriptive rules which result in procurement practices that are more compliance-driven.

...New Zealand is generally internationally perceived as having an exemplary government procurement framework and as being open, fair and transparent. In the World Bank’s Benchmarking Public Procurement 2017 report, New Zealand scored highly on the quality of its tender processes and is highlighted as having effective and efficient payment and complaints systems.

That approach is not universally loved - it's good to be hated for the right reasons:

Businesses can be, and often are, critical about government procurement. They have been most vocal about large contracts being awarded to offshore suppliers – such as the Christchurch Convention Centre contract, which was awarded to an Australian-based supplier that then engaged its own supply chain, rather than hiring local firms, to do the sub-contracting work. Some New Zealand businesses would like to see New Zealand take the Buy Australian, Hire Australian approach of some Australian states and territories.

I have no clue about the merits of various bids, but I would lean heavily against Buy NZ approaches. It would risk the rather nice outcomes we've been able to achieve:

Overall, New Zealand’s government procurement policy framework is effective. It treats businesses fairly, is open and transparent, and encourages good procurement practice. It promotes the use of simplified processes and documentation, early engagement with the supply market, and early notice of opportunities. It supports New Zealand’s exporters as tender responses are assessed on the basis of merit rather than country of origin. This enables New Zealand businesses to compete for government contracts in our trade partner countries on the same basis. I note that the Ministry will continue to work with agencies to improve procurement practices.

The Cabinet Paper starts going a bit ... off ... after that. It's making the best fist it can of a conflicting mess of coalition and agency objectives around procurement, where the different parties want to use procurement policy to push a pile of other barrows. The paper suggests four outcome priorities be bundled into procurement:

1. "Increasing New Zealand businesses' access to government procurement" - basically, support helping non-traditional suppliers to navigate the GETS system.
2. "Increase the size and skill level of the domestic construction sector workforce". I read this one as prioritising construction bids by firms committing to take on apprentices and the like.
3. "Improve conditions for workers and future-proof the ability of New Zealand business to trade. Agencies would require suppliers in targeted industries to ensure their business, sub-contractors and domestic suppliers comply with employment standards and demonstrate good health and safety practice. This priority aims to protect workers from unfair and unsafe behaviour, and incentivise well-performing firms while ensuring they are not undercut by firms who have reduced costs through adopting poor labour practices." - I expect that unionised firms would wind up getting preferential treatment in contracting through this one. 
4. "Support the transition to a net zero emissions economy and assist the Government to meet its goal of significant reduction in waste by 2020." This one makes little sense for contracting in sectors covered by the Emissions Trading Scheme. There's also mention in here of prioritising timber: "This would include consideration of the life cycle environmental benefits of timber reflecting the Think Timber policy currently being developed by the Ministry for Primary Industries." 

The first priority seems a non-crazy way of dealing with New Zealand's First's insistence on prioritising New Zealand suppliers - which would risk breaking international trade agreements from which NZ suppliers benefit when hoping for fair treatment in bidding for government contracts abroad. 

The second one could prove costly where construction projects start trying to achieve employment goals rather than just building stuff. From the document:

This priority has been agreed to by Cabinet as part of the Construction Skills Action Plan 68(DEV-18-MIN-0187). Its intent is to use Government procurement as a lever to encourage suppliers to invest in workforce development and training. Agencies will be required to give consideration and a weighting to skills development and training in the tender process of construction projects valued over $10 million. Other initiatives of the Action Plan will also support employment opportunities for targeted groups (e.g. NEETs, women, Māori, Pacific people) within those government construction projects.

The third one risks being a de facto way of skewing contracts towards union shops.

And the fourth one is guaranteed to be a more expensive way of mitigating carbon dioxide emissions than by contracting with the most efficient provider and using the savings to buy back and retire ETS credits. Some of it seems a sop to NZ First's timber interests.

But it could have been rather worse had they listened to all the stakeholders.

98. A number of agencies noted that leveraging broader outcomes is likely to add cost to contracts and complexity to procurement processes and operationalising the approach would need to minimise those costs. This has been covered in the implications discussion.

99. Several agencies have asked for additional outcomes or targeted areas to be prioritised;

99.1 The Ministry for Primary Industries proposes alignment of this proposal’s priority outcomes with the Think Timber policy currently being developed by the Ministry for Primary Industries. In response, the Think Timber proposed policy has been added to the list of potential areas for priority four.

99.2 The Treasury proposes that government suppliers be encouraged to adopt diversity and inclusion workforce policies and for those firms with boards – policies that support diversity of board members. The Ministry for Women have proposed that a gendered expectation of a minimum percentage investment across-government be included in all contracts.

99.3 Te Puni Kōkiri proposes the paper explores the possibility of preferential purchasing to support Māori firms or other demand side options within free trade rules and explain how the Government’s progressive trade agenda may lead to changes to the way New Zealand considers how procurement is dealt with in free trade agreements in the future.

99.4 The Government Communications Security Bureau and New Zealand Security Intelligence Service propose that security must be a guiding principle for government procurement decisions. In response, it is already planned that the next iteration of the Rules will have a reference to protective security requirements and protocols.

It's always particularly disappointing when Treasury is among the agencies pushing to skew policy.

Household wealth and housing wealth: first quintile oddities edition

In my column over at Newsroom this week, I noted one strange feature of New Zealand's household wealth statistics:

Unfortunately, data on wealth is far worse than data on income – the Government gathers a lot less data on wealth. For example, Statistics New Zealand reports that people in the least wealthy 20 percent have $1.75 in property debt for every $1 in property assets – but no bank in the country would extend a loan on that basis. It is more likely that the survey data misses some houses owned through family trusts where, for example, a 25-year-old takes over the mortgage and effective ownership of their parents’ second home held in the family trust. The mortgage payments and mortgage debt are noted in Household Economic Survey data, but the ownership may be missed. This means their parents’ net wealth will be overstated, their own net wealth will be understated, and measured wealth inequality among younger cohorts would be somewhat understated but overall measured wealth inequality would be somewhat overstated. 

There's an ungated version of the column here.

The effect wouldn't be large because there aren't many households in that situation. But it's odd. So I asked Statistics New Zealand what's up with that, wondering whether the trusts explanation might be what's going on. I'd also asked whether Stats were able to ask follow-up questions of their HES respondents to see what's going on.

Stats' Statistical Analyst Michelle Griffin helps me out:

We’ve had a look at the distribution of owner-occupied property assets and owner-occupied mortgages for those in net worth quintile one. There are about 30 more households (unweighted) with mortgages than homes, and because of this difference, you need to go further along the mortgage distribution to get to the median, resulting in a larger mortgage median and hence a larger debt to asset ratio. So it’s looking like the high ratio is due to a mix of under-reporting and distribution differences.

We’ve had a look at only those with both a home and a mortgage to see what they look like (this is excluding those with a home in a business or trust), and this brings the ratio down to $1.44. This drops even further when you take the median of each household’s individual debt to asset ratio (to $1.26).

We’ve had a quick look at the households with only a mortgage to try and see what might be happening. They appear to be a mix of households with the home in a trust or business which is assigned to someone else (which could be a situation like you’ve described below), and households which say the home is in a trust or business but then don’t mention this trust/business later on (could be partly due to misreporting or respondent burden leading to households not answering fully). I think the fact that there are so few households in net worth quintile one with owner-occupied property is making this quintile more sensitive to these issues. Unfortunately, we can’t follow up with the respondents later on to confirm these situations – although it would certainly be interesting!

So restricting things to those households in the first quintile fixes some of the problem, but we're still at a debt-to-equity ratio on housing debt well out of step with sane banking practice, let alone existing LVR rules. And while there aren't many households with mortgages without homes, it's hard to tell whether debt to asset ratios for a broader set of respondents elsewhere mightn't be wrong too. 

Michelle suggests that keeners might apply for microdata access to really drill down into what's going on. It would be a great Honours thesis for somebody wanting to get microdata experience who has a qualified supervisor.

Many thanks to Michelle and to Statistics NZ for the helpful and detailed response.

Update: An informed reader writes:

A couple of thoughts about the data on wealth:

• There is a wider problem with data for people at the top and bottom of the distribution. Surverys include lots of trade offs between clarity, comprehensiveness and accuracy. For instance survey data on the benefit population substntially under-reports income from second and third tier payments (that is all loans, one off payments, disability allowance and accommodation supplement). Since this is a relatively small part of the population, SNZ makes the reasonable decision not to overcomplicate their survey to deal with the problem, but the consequence is continuous understatement of income for many people. The same applies at teh top where it is hard for surveys to capture the many different assets people with many assets have.


• More technically there is problem using a small number of  discrete categories like quintiles to describe a continuous variable. The general point is that if someone makes a mistake they have have to go somewhere in the discrete categories, so effectively there is a cut off at the top and bottom that will skew the results. It's easy to think of this through an intuition. If a person's income is roughly in the middle, say $50 000, and they miss a zero then they drop to the bottom of the distribution ($5000) while if they add a zero by accident ($500 000) they go to the top of the distribution. However a person whose income really was $5000 who makes a mistake either stays in the same place or goes up (ie income is $500 or $50 000); while a person with income at $500000 either goes down, or stay at the top. Even if we assume the liklihood of a person making an error and its direction are independent of income, the measured income will be pushed to the extreme quintiles. "On average" it may be right, but it will overstate the dispersion. My guess is this will be even more pronounced with wealth because it is so much harder to measure and thus more likely to generate error-prone answers.


• Finally, they are using snapshots for variables that change over time. I know this is a problem with flows like income and employment, but I sometimes wonder what it means for wealth. In particular, there is an issue with measuring transitions. The following example is made up, but gives a clue what might be happening. Say some % of people selling a house to buy another spent a couple of weeks where they had two mortgages while the paper work was settled. For the individuals the cost might be a few hundred dollars - which is not a lot when you get real estate agents involved! - but two weeks is approx 4% of the year so you would expect your snapshot survey to include some small % of people with double the mortgage debt relative to their asset. It is not many people, but it does not need to be because they will be a small percentage of the population but they will concentrated in decile/quintile. 

To me the deeper problem is that surveys tend to be designed to be "on average right", whereas the data is often used to make distributional statements. And Bryan Perry’s incomes report notes the problems with the extreme tails of the distribution.

Fun studies for someone else to do: contraceptive access

The Dom points to a natural experiment waiting to be studied:

"While current dispensing restrictions limit how often a person can collect their Levlen ED prescription, this should not stop patients from accessing their medicine or taking it as directed.

"We thank pharmacies and wholesalers for their assistance in helping to manage this stock issue and apologise for any inconvenience," Fitt explained.

Concerns about the availability of Levlen in New Zealand were raised earlier this month.

Recently, pharmacies had been asked to dispense the pill in one-month courses, rather than the three-month courses usually given out.

But on Friday that request will become mandatory as officials step up efforts to maintain sufficient supply until the medication was restocked in late March.

So a fun Masters thesis for somebody: use regional variation in the timing here to check the extent to which the fixed costs of going to the dispensary affects both the likelihood of scripts being filled and unplanned pregnancies. Prescriptions like this should be in Pharmac data accessible in IDI.

I'm not sure what you could do with this second natural experiment though, noted in the same story:

In April, medical professionals were asked to ration prescriptions of Durex condoms for men with large penises, as increased demand contributed to a global shortage.

Durex Confidence 56mm condoms and Gold Knight Larger were the Pharmac-funded brands affected by dwindling supply.

At the time, Pharmac said the Durex condoms would be temporarily unavailable in New Zealand, but the brand's five other varieties in differing sizes were available.

In July, a disagreement between the brand's owner and its Indian partner cut up to 60 per cent of supply.

Of course, condoms remain accessible (at a somewhat higher cost) at the supermarket; it's just the subsidised ones that are short. No non-prescription options for birth control pills.

The Stuff comments thread is more amusing than most.

Wealth inequality

I go through some of the complications in trying to weigh up wealth and inequality in this week's column over at Newsroom ($).

A few fun (and perhaps surprising) facts:

• Government provision of some services can increase measured wealth inequality even if they result in no change whatsoever to anyone's lived experience. Converting each Kiwi's NZ Super entitlement into a private account would reduce measured wealth inequality by giving everyone a lump-sum. Converting each Kiwi's health system entitlement into a lump sum transfer into a medical savings account (with government top-up for big events) would have similar effect. 
• Stats NZ's data shows median wealth increased from 2015 to 2018.
• Credit Suisse data has half of all adults in the global top 10% for wealth - and showed a drop in NZ's wealth Gini coefficient from 2015 to 2018. 
• On the Credit Suisse Gini, NZ sits midway between France and Canada; on the OECD's measure of the share of wealth held by the top 10%, we're below Denmark, the Netherlands and the US, roughly on par with Canada, France, the UK, Ireland and Austria, and more concentrated than Japan and Italy. We're also more concentrated than Australia - but remember that Oz has greater reliance on private retirement accounts.

Update: we have an ungated version up here.

Red meat tax?

Boyd Swinburn's group wants rather a lot more controls on what we all get to eat. 

Radio NZ covers his report here; Chris Snowdon's summary of it is best.

The lead author of the report is Boyd Swinburn, a New Zealand doctor and food campaigner who declared last week on Twitter that the EAT-Lancet report shows where diets need to get to while his report shows how to get there. They are two sides of the same coin and whilst there is no shortage of policy suggestions in the EAT-Lancet document, including rationing and the outright prohibition of certain food products, the Lancet Commission takes it a stage further by calling for a global treaty.

Swinburn is obsessed with the web of corporate interests he sees all around him, thwarting his efforts to get the public to eat their greens. In 2017, New Zealand’s Ministry of Health commissioned the New Zealand Institute of Economic Research to look at the pros and cons of taxing sugary drinks. When the economists concluded, accurately, that ‘the evidence that sugar taxes improve health is weak’, Swinburn wrote a furious article denouncing ‘economists steeped in last century’s economic theories’, ‘merchants of doubt’ and the ‘vested interests of the food industry’. It is a theme he returns to with tedious regularity in the Lancet report.

...

Swinburn et al. seem to believe that the only barrier to governments leaping headlong into an extensive systems of taxes, warnings, bans and restrictions is ‘Big Food’. Whilst it would be naive to think that the various food lobbies have no influence on government policy, the authors never consider the possibility that this is because the industry’s arguments about trade, jobs, choice and prices appeal to politicians and, ultimately, to the public. ‘Big Food’ may not want tobacco-style regulation, but it is a logical fallacy to infer from this that politicians who reject such an approach have only done so because of ‘powerful lobbying’.

Whether or not the authors actually believe this narrative, it serves two useful purposes. Firstly, it allows wealthy activist-academics in the multi-billion dollar ‘public health’ industry to view themselves as plucky underdogs fighting Goliath. Secondly, it absolves them from answering difficult questions about whether their demands are reasonable, fair, or even realistic

Do read Snowdon's whole piece. Stuff has some of the government's response:

Associate Minister of Health Julie Anne Genter​ said the Government did not plan to tax red meat "at this stage", but an increase in awareness about climate change was affecting people's behaviour.

"Obesity and climate change are often framed as problems for individuals to change. This report shows it has been a failure of public policy and we need government action to protect our health and our climate."

The commission called for a global treaty, like those established for climate change and tobacco, to help governments restrict the influence of the food industry on policy and the establishment of a global philanthropic fund of US$1 billion (NZ$1.46b) "to support social movements demanding policy action".

The Lancet editor-in-chief Dr Richard Horton said the business model of large international food and beverage companies led to over-consumption of junk food in both high-income countries and, increasingly, low and middle-income countries.

Genter said she was "interested to learn more about how a global treaty would work, as politicians need to play their part too".

Swinburn said the food industry should be excluded from the "policy-making table" as the profit motive would always win out over improving health and reducing climate change.

There's a very good case for agricultural emissions globally coming under emission trading schemes or carbon taxes. In the absence of international coordination, the case gets tougher because you have to worry about whether production gets displaced to places where meat production is more carbon-intensive. Animal product prices would go up after agricultural emissions were included in the ETS, or in carbon taxes, but it would be a mistake to call that a red meat tax. It's more like, if you had a GST that excluded food products, getting rid of the exemption isn't a "food tax".

Going beyond that though, to tax and regulate and nudge and force everyone into eating and drinking only Boyd-Approved products - no thanks.

Previously:

• Sweet release
• The voice of presumption
• Winning hearts and minds

Reader mailbag - Licensing trusts edition

Karl du Fresne had a great 2017 story on New Zealand's anachronistic alcohol licensing trusts.

The West Auckland trust is coming under a bit of pressure from a residents' group that would like to see things opened up, removing the trust's monopoly.

TrustAction's Nick Smale writes to let me know what they've been up to:

I believe most of the licensing trusts' public support results from misinformation and misunderstanding. I've been surprised and disappointed with the actions of both our licensing trusts and our local public health service (ARPHS) in informing the public. For example, the Advertising Standards Authority recently found against The Trusts for making claims about alcohol related crashes. Also attached is a flyer published by the ARPHS which I think is effectively campaigning on behalf of The Trusts.

As a group of non-expert residents advocating for change, we feel somewhat overwhelmed by the public resource being used to support the status quo.

The Auckland Regional Public Health Service has been campaigning to keep the trust, at least according to their flyer Nick passes along.

For those of you living in West Auckland, here's the petition against the Trust's monopoly. 

Afternoon update

The worthies of the afternoon closing of the browser tabs:

• A decade ago, I recommended a method for selecting decent baby names that began with a domain of names with historic standing and selected out recently popular names (see also here). There's now a spreadsheet with the top-100 baby names in New Zealand going back to 1954 over on the government's Smart Start website (where you can register births, etc). HT: FigureNZ


• I'm not going to link to the NZ Herald's stupid clickbait version of an interesting story. China's using explosives rather than fluids in fracking - potentially more environmentally friendly given what those fluids are like. They're conventional explosives... of the types used to detonate nuclear bombs. The big headline "China plans to use a nuclear bomb detonator to release shale gas", with accompanying picture of a mushroom cloud. Most folks won't read through to the bottom of the story to find out, if they didn't already know, that a nuclear detonator isn't radioactive or anything like it. 


• Andrew Coyne has retweeted links to Macleans' excellent story on the Thai cave rescue about a hundred times this weekend. The story is indeed very good. 


• The Globe and Mail highlights how Stats Canada fails to provide open data. Similar stories in New Zealand. The Globe and Mail is putting together a list of knowable things that aren't known because data isn't open (or, in some cases, not collected). It would be very interesting to start compiling a similar list here.