Pharmacy cartel

BusinessDesk reports:

A group of independent pharmacies have gone to court claiming health authorities got the law wrong in letting Countdown run pharmacies and dispense prescriptions. 

New Zealand Independent Community Pharmacy Group (ICPG) is seeking a review in the high court at Wellington of decisions granting pharmacy licences to Countdown in Gisborne and Wainuiomata in Hutt City. 

The group argued that the Countdown pharmacies are not under the full control of its pharmacists as required by law and that the company was running a loss-leading strategy to drum up business.  

The ICPG said the decision-making processes were flawed because they were made with insufficient evidence, and there was no rational connection between the evidence that was available and the decisions made.

Difficult not to laugh on reading this assertion:

Lawyer Robert Kirkness said the two former DHBs made a number of errors in law when deciding to grant contracts to Countdown pharmacies.  

Kirkness said while pharmacies might have commercial interests, that was not the primary role of pharmacists in NZ, nor the driving force in the ICPG seeking the review.  

"It is not an attempt to protect commercial interests but to protect the quality of care to the New Zealand public," he said. 

Regulating entry

This week's column in the Sunday Star Times picks up on last week's post on grocery entry and the new grocery regulator.

It concludes

The surest protection consumers have in any market is vigorous competition among suppliers and potential suppliers for their trade. Economists know that even the threat of potential entry can provide substantial and real competitive discipline.

Hasty legislative drafting from a Government trying to get too many things done simultaneously is more likely to blame than a deliberate effort to prevent new grocers from entering. It could yet be fixed by select committees.

But legislative urgency makes it more likely that bad ideas and drafting errors turn into policy failures.

And any sufficiently advanced incompetence does become indistinguishable from malice.

I have to submit my SST columns on Thursdays. I didn't then know about the entrenchment games in the Three Waters legislation - the kinds of mess that happens under urgency. That one looks a lot more like malice. Good that they're retreating from it. But if there'd been no furore, they'd have kept it.  

Afternoon roundup

The closing of the tabs:

• Environmental review laws have long been used for NIMBY purposes. This is a new one. The best that could come of this is a recognition that environmental review needs to be fixed.
• If Australia starts enabling nuclear power, NZ should consider a trans-Tasman approach that would let us piggyback on some of their regulatory efforts. There are economies of scale in this kind of reg. And Australia should be sure to kick NZ out of the arrangement if we start behaving like dicks. 
• The simplest explanation for Labour's approach to labour-market regulation is that they base their expectations of employer behaviour on how government behaves when it is a monopsonistic employer. 
• The simplest explanation for occupational regulation for medical workers is that it's a cartel arrangement that proved sticky when conditions changed.
• They've stopped pretending to be playing at anything other than extortion. “By doing things with news organisations, Facebook was attempting to reduce the risk of government hitting them with a big invoice,” one publisher said. “By pulling out, they’ve made it more likely that they will be whacked with regulation.”
• Could make for a fun test around Peltzman effects, if they gathered numbers on it.
• More reasons to be sceptical of the value of peer review, in some disciplines. The most obvious explanation for the problem (department demographics will reflect international demographics in the field, with some home-country bias, rather than home-country demographics full-stop) is ignored. But the paper's problems are bigger than that. Almost reads as a Sokal hoax. But it seems sincere. At U Manitoba, where I went for undergrad, there were more profs who were US Vietnam draft dodgers than there were in the Winnipeg population overall. An overrepresentation of them necessarily means an underrepresentation of the Canadian-born. Which is totally fine. Canadians will be overrepresented on US university faculties too. 
• David Harvey on problems in proposed changes to hate speech regs.

Inflation accountability

Susan Edmunds at Stuff asked me whether the RBNZ is to blame for current inflation outcomes. 

She only had room for a shorter snip, so here's the full bit I'd sent through:

Economists say that the central bank moves last. That means, whatever else is going on that might affect inflation rates, the central bank gets to take it into account when deciding on monetary policy. So if a government runs imprudent deficits when the economy is overheated, an inflation-targeting central bank’s job is to undo the effect of that spending by increasing interest rates by more than it otherwise would have. Surprises can happen. But if a central bank is credible and everyone knows that the central bank will do what it takes to get inflation back within bounds, then that surprise does not much affect either inflation expectations or inflation. When credibility is eroded, everything becomes harder and more costly. 

So while many things contributed to the current inflation rate, including initial large and sustained monetary stimulus, Covid shocks, substantial and highly inappropriate fiscal stimulus, and war in Europe, inflation outcomes are the responsibility of the central bank and monetary policy. Remember as well that New Zealand has a floating exchange rate which provides a buffer between local inflation and international prices. If other countries run very loose monetary policy and New Zealand does not, the New Zealand dollar appreciates and international inflation does less to affect local prices in New Zealand dollars.

But it has not helped that the Remit of the Reserve Bank, which is the agreement between the Bank and the Minister of Finance about the objectives that the Bank will seek, has weakened considerably. When inflation targeting is only one of several parts of a Remit that also includes multiple references to other government policy objectives, it is easier for a central bank to stray from its core business in pursuit of other interests. And when the Reserve Bank and the Minister of Finance consider it a conflict of interest for academic economists with a specialist research interest in macroeconomics and monetary economics to serve as external members of the Monetary Policy Committee, external voices with expertise to break a misguided internal consensus are shut out. Responsibility for those lies jointly between the Reserve Bank and the Minister of Finance. And responsibility for the reappointment of a Governor who presided over these issues lies with the Minister of Finance and the Reserve Bank’s Board

Discouraging grocery entry

The main potential problem in retail grocery competition, in New Zealand, is the near-impossibility of at-scale entry. 

Now we have another one. New entrants could be forced to supply their competitors with products at regulated prices after having been here for five years - so why would they ever want to enter?

We'll save that bit to the end. 

First a refresher on the existing problem. 

A foreign entrant would face uncertain lags and outcomes through the Overseas Investment Office. Not many sites are zoned for grocery retail. The supermarkets have been voiding restrictive covenants that have tied up some zoned properties against use in grocery retail, but assembling a network of sites where large-footprint grocery retail is permitted will be a challenge. Then there are long and variable lags in council consenting processes. And the background suspicion that at least some towns, like Ashburton, are owned by cartels of existing town-centre property owners who'll block competitors no matter what the zoning is. 

Basically a pile of legislation, regulation, and standing practice caused by the regulatory thicket makes entry impossible. 

After the Commerce Commission's market study, the government moved to legislate in support of something the supermarkets were already doing - getting rid of those restrictive covenants.

But the Commerce Commission also had recommendations on zoning. It suggested that District Plans and Regional Spatial Strategies should be required to include sufficient land for choice of sites in development of grocery retail, that there should be minimum proportions of urban land zoned for retail grocery, and that positive outcomes of trade competition should be able to be considered in planning instruments. See 9.35 at page 386.

None of that's turned up in the draft legislation. Worse, the NBEB seems to forbid consideration of effects on trade competition full-stop. In parts it's ruling out rent-seeking uses of consenting to block a competitor's opening or expansion. And that's fine. 

But in other parts Commissioners, Independent Hearings Panels, and planning committee are instructed to disregard effects on trade competition full-stop. 

Some examples.

• The IHP, in formulating its recommendations, must disregard trade competition and the effects of trade competition. Schedule 7 126(1)(e).
• When formulating recommendations, commissioners must disregard trade competition and the effects of trade competition. Schedule 7 60(d).
• A person who could gain an advantage in trade competition through a submission may make the submission only if directly affected by an effect that (a) adversely affects the environment; and, (b) does not relate to trade competition or the effects of trade competition. Schedule 7 20 (4)(b)
• Note that this one blocks rent-seekers, but would also block Aldi from putting in a submission saying "Hey! You're zoning for only one supermarket! Make room for us too!"
• When considering a requirement and any submissions received, a regional planning committee must not have regard to trade competition or the effects of trade competition 512 (1)(d)

Just go to the bill, hit Control-F, type in "trade competition". Some restrictions against rent-seeking, some bans on considering trade competition full-stop. And ComCom said that they needed to make room to consider the positive effects of competition. 

Either it's poor drafting or they want to block pro-competitive effects from being considered. 

In any case, they're not easing the barriers to entry. And they haven't instructed the Overseas Investment Office to make darned sure it's simple for new entrants to come in.

Instead, they're doing something else. 

They're putting in a big new regulatory regime for existing groceries that will have a backstop of mandated wholesale access. Legislation being introduced under urgency, but with some time for submissions.

The regulation proposed is a mess. 

Leave to one side for now all the problems in regimes mandating that an integrated grocery operator supply competitors at regulated prices for heterogenous and perishable goods. 

Sections 22 through 25 say that additional retailers can be made subject to the wholesale supply requirements after having been operating here for 5 years. How does that work?

A grocer can be designated as having wholesale supply obligations under section 23, on the Minister's recommendation in Section 24. 

24

24 Minister’s recommendation for designation under this Part

(1)

The Minister may recommend that a person (A) be designated as a regulated grocery retailer under this Part only if—

(a)

the Commission has given the Minister a recommendation about whether A should be designated; and

(b)

the Minister has had regard to the Commission’s recommendation; and

(c)

A has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more.

(2)

In deciding whether to make a recommendation, the Minister may do any of the following:

(a)

accept the Commission’s recommendation that A be designated if the Minister is satisfied that the criteria set out in section 25(2)(b) are met:

(b)

reject the Commission’s recommendation:

(c)

request that the Commission reconsider any matter (such as an error, an oversight, or competing policy interests):

(d)

make any other decision that the Minister considers is in the public interest.

(3)

For the purposes of subsection (1)(c), A must be treated as carrying on a business referred to in that paragraph if—

(a)

A is a member of a group of interconnected bodies corporate, and that group (or any part of it) has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more; or

(b)

A acquires (directly or indirectly) the whole or any part of the business of a regulated grocery retailer.

Ok. So suppose the Minister receives a recommendation from the Commission not to designate a retailer as being subject to the wholesale supply requirements. 

That satisfies 24(1)(a). The Minister has received a recommendation. Doesn't say anything about the direction of the recommendation now does it? 

The Minister can then have regard to it in (1)(b), reject it (2)(b), and make any other decision that the Minister considers is in the public interest (2)(d).

In short, if the Minister considers it as being in the public interest to force Costco, or Aldi, or any other new entrant to provide rent-seeking New Zealand competitors with access to its products at regulated prices, the Minister can go ahead and do that. 

Unless the legislation is changed. Like maybe they just assumed that the Minister would only proceed if the Commission had recommended that a grocery retailer fall under the designation. But nothing in the legislation specifies that. The Minister need only have been given a recommendation about whether the retailer should be designated. 

Anyone with kids is smart enough to see the problem here. If you tell the kids they can do something only if they ask their mother, without having said that their mother has to say they can do the thing, you're just asking for trouble. "You can if your mother also confirms it is okay with her" is safer. 

Now. Suppose you're an international grocer who's spent decades building supply chains. And New Zealand's started looking potentially more open for business. Maybe zoning and consenting does get fixed, and maybe the Overseas Investment Office eventually gets told to approve new grocery retail.

If you figure that five years after you're considered to be operating as a grocery retailer in New Zealand, you'll be forced to open up access to every rent-seeking New Zealand competitor at regulated prices at the whim of the Minister, why would you ever want to open up shop here?

I guess one bottom line is that the Commission should refuse to provide any recommendation unless they actually want the Minister to make the designation - unless the legislation gets changed to require a positive recommendation. 

But more substantively, government needs to be assuring potential entrants that they won't just be expropriated after having been here for five years if you want them to open here, rather than spelling out an obvious mechanism for existing and potentially preferred incumbents to get access to new entrants' supplies.

Everything is stupid and broken and getting stupider and more broken. 

Afternoon roundup - everything is stupid and broken edition

The tabs:

• There's a desperate shortage of housing in Queenstown, so Commissioners insist that a development plan reduce some 13-storey towers by five storeys. The buildings would have had apartments, hotel rooms, and commercial space. Even hotel rooms take pressure off housing given the number of houses serving as Airbnbs. 
• There's a desperate shortage of nurses, so the process that the Nursing Council runs for recognising foreign nurses' qualifications takes so long to sort anything out that nurses who started their applications in March have now given up. 
• There's a desperate shortage of GPs. Salaries for GPs in Australia are much higher than in New Zealand. The government closed the border to the normal flow of foreign medical staff for a couple of years but wasn't able to keep NZ-trained staff from leaving for Oz. It hasn't done anything to make it easier, now that the borders are open, for GPs from comparable systems to show up and hang up a shingle. When asked why training hundreds of GPs led to a net increase of only 15 GPs, the Minister of Health said "I haven't interrogated that figure." 
• The government believes there to be too few competitors in grocery, so rather than open up the Overseas Investment Act and zoning/consenting so that it's easier for foreign entrants to come in, it's proposing legislation that would, among other things, let them force any new international entrant to open up its wholesale side to rent-seeking Kiwi competitors after a five-year grace period. If that doesn't encourage international chains to jump through OIA hoops, nothing will.

Resource Management and degrees of freedom

The Natural and Built Environment Act has eighteen different outcomes and sub-outcomes that regional planning must seek to achieve, without hierarchy among them. 

When I see this many outcomes, with no way of weighing across them, and without a requirement to run some kind of CBA across the set, I see infinite degrees of freedom for a regional planning body to just go ahead and do whatever the heck it wanted to while justifying it by pointing to one or several of the outcomes.

I mean just look at this.

5 System outcomes

To assist in achieving the purpose of this Act, the national planning framework and all plans must provide for the following system outcomes:

(a) the protection or, if degraded, restoration, of—

     (i) the ecological integrity, mana, and mauri of—

          (A) air, water, and soils; and

          (B) the coastal environment, wetlands, estuaries, and lakes and rivers and their margins; and

          (C) indigenous biodiversity:

               (ii) outstanding natural features and outstanding natural landscapes:

               (iii) the natural character of the coastal environment (including the coastal marine area),  wetlands, and lakes and rivers and their margins:

(b) in relation to climate change and natural hazards, achieving—

     (i) the reduction of greenhouse gas emissions:

     (ii) the removal of greenhouse gases from the atmosphere:

     (iii) the reduction of risks arising from, and better resilience of the environment to, natural hazards and the effects of climate change:

(c) well functioning urban and rural areas that are responsive to the diverse and changing needs of people and communities in a way that promotes—

     (i) the use and development of land for a variety of activities, including for housing, business use, and primary production; and

     (ii) the ample supply of land for development, to avoid inflated urban land prices; and

     (iii) housing choice and affordability; and

     (iv) an adaptable and resilient urban form with good accessibility for people and communities to social, economic, and cultural opportunities; and

(d) the availability of highly productive land for land-based primary production:

(e) the recognition of, and making provision for, the relationship of iwi and hapū and the exercise of their kawa, tikanga (including kaitiakitanga), and mātauranga in relation to their ancestral lands, water, sites, wāhi tapu, wāhi tūpuna, and other taonga:

(f) the protection of protected customary rights and recognition of any relevant statutory  acknowledgement:

(g) the conservation of cultural heritage:

(h) enhanced public access to and along the coastal marine area, lakes, and rivers:

(i) the ongoing and timely provision of infrastructure services to support the well-being of people and communities.

6 Decision-making principles

(1) To assist in achieving the purpose of this Act, the Minister and every regional planning committee, in making decisions under the Act, must—

     (a) provide for the integrated management of the environment; and

     (b) actively promote the outcomes provided for under this Act; and

     (c) recognise the positive effects of using and developing the environment to achieve the outcomes; and

     (d) manage the effects of using and developing the environment in a way that achieves, and does not undermine, the outcomes; and

     (e) manage the cumulative adverse effects of using and developing the environment.

(2) If, in relation to making a decision under this Act, the information available is uncertain or inadequate, all persons exercising functions, duties, and powers under this Act must favour—

     (a) caution; and

     (b) a level of environmental protection that is proportionate to the risks and effects involved.

(3) All persons exercising powers and performing functions and duties under this Act must recognise and provide for the responsibility and mana of each iwi and hapū to protect and sustain the health and well-being of te taiao in accordance with the kawa, tikanga (including kaitiakitanga), and mātauranga in their area of interest.

I don't think there exists a possible regional spatial plan that can meet all of the objectives without trade-offs between the objectives. And there's enough of them that you could write up whatever spatial plan you preferred (based on aesthetics or whatever else), and then just point to how any alternative worsens one or several of the named outcomes relative to your starting point. 

"Oh, we'd love to allow more density in this region. But as I'm sure you're aware, that area's important for the preservation of cultural heritage. And while we'd like to enable urban expansion at the fringes, we're simply surrounded by land that either has high agricultural value, or is ancestral land, or both. So I'm afraid our hands are tied. We aren't NIMBYs who just hate change and newcomers; we'd love to be able to do what you recommend. But we must give regard to a broad set of outcomes. It is unfortunate."

Unless councils have a lot stronger incentive to want growth, they'll have plenty of degrees of freedom for blocking it. 

My column at Newsroom this week covers it. Ungates tomorrow by dropping /pro from the URL. 

The game of whack-a-mole in which central government legislates against each new way that councils find to obstruct growth seems likely to continue – unless councils are made to welcome urban growth by sharing in its benefits.