Catching up with Australia

New Zealanders have a little brother relationship with the continent sized nation next door. We feel smaller and less confident. We hate it when they beat us at sports and we we hate it that they have warmer weather and a bigger economy. But what we really hate is that Australia is so much richer in terms of GNP/Capita than we are.

"no fair" we cry. How can we catch up? politicians demand to know. And so various pointy heads are dispatched to return a solution.

Perhaps the pointiest head in New Zealand, belongs to former National Party leader and Reserve Bank Governor, the ultimate uber-geek, Don Brash. He leads the 2025 Taskforce ( http://www.2025taskforce.govt.nz/ ) which was set up by the Government as part of deal with ACT ( http://www.act.org.nz/ ) to study ways to catch up with our Aussie big bro.Their report ( http://www.2025taskforce.govt.nz/pdfs/2025tf-1streport-nov09.pdf ) effectively comes down to better government management, incentives for research and development and more incentives for making money - starting with a lower tax rate for the highly paid


Now it certainly is true that those earning over $100,000 pay one helluva lot of tax in this country. This table from Treasury( http://www.treasury.govt.nz/budget/2009/taxpayers/01.htm#whopays ) shows that the top three percent of income earners pay 26% of the 23 billion dollars of income tax earned by the Government. (roughly half the total tax take). Were I in this select minority doubtless I would feel somewhat aggrieved as well. However I find it hard to believe that, fringe benefit taxes not withstanding, anyone earning over $100,000 from a productive enterprise can't find ways of investing it in that enterprise to their own advantage. As a Cockie I knew once memorably said
"Income tax ? I'll pave the drive before I pay income tax!".

And the biggest problem with the argument is that the effective tax rate in New Zealand is actually lower than the effective tax rate in Australia. Now it wasn't me who said this. This was the argument of a much cleverer person named Professor Philip McCann who economic consultancy Motu has trotted around the country speaking to audiences interested in such things. http://www.motu.org.nz/news-media/detail/philip_mccann_concludes_seminar_series_for_2009.

Professor McCann's point is that New Zealand scores really well on a bunch of very important indicators for public policy. We have a rational tax system. We have bugger all corruption. We actually do pay relatively low taxes. But despite doing much that is right in terms of the Institutions that the 2025 taskforce speaks of ( and certainly better than Australia) we still don't show any signs of catching up ( See Gapminder ). Why not? His answer is actually very simple:

You are too small.

His point is that the biggest growth in GNP/Capita (GDP per capita counts money exchanged in a country but not repatriated wealth) has come from cities which have grown the fastest. It's called the agglomeration effect. Where you get a lot of people exchanging ideas and interacting value per hour worked increases fastest. Its why an apple in Tokyo costs $7 and you can get just about any kind of sandwich in New York.

What he is talking about is employment. It is easier to get work where there are lots of people than where their are none. Hence the formation of megacities over the past fifty years. Of course having a big heap of people doesn't automatically mean wealth. The top Megacity is Tokyo (33m) but Mexico City is number 3, Dehli number 4 and Mumbai number 5 and their income per capita is certainly not as high as New York (number 6).

In fact if you want to worry about wealth or income you can't go past cities like Copenhagen, Zurich, Geneva and New York. Indeed if you look closely at UBS's survey http://www.citymayors.com/economics/expensive_cities1.html#Anchor-Earnings-47857 wealth isn't really about agglomeration its about industries. And what are the main industries of these cities? Well the Gnomes of Zurich are already well known and New York's financial centre needs no introduction. But Copenhagen http://en.wikipedia.org/wiki/Copenhagen#Economy is also a finance and distribution centre of consequence as well. Interestingly Copenhagen, Zurich and Geneva are tiny cities all much smaller than Auckland. In short wealthy cities are banking cities because big piles of cash always have a habit of lining the pockets of those looking after them.

But Professor McCann says that like it or lump it New Zealand has to coalesce with Australia just as the Netherlands has coalesced with the rest of the European Union. And he says we have to get used to the idea that there are no "strategic assets" like Auckland Airport. In fact they are just assets which need investment and (as they aren't going anywhere else anytime soon) so we should get used to them being traded, just as the British have had to get used to Heathrow being owned by the Spanish.

So who is right? Is it time to form the United States of Australasia ? Is it possible to catch up with Australia ? What is our place in the world anyway?

I am not an economist. There is something about economics which seems to elude me. My belief is that money follows industry, not the other way around. Economists, however, seem to think industry follows money. They therefore worry a lot about money rather than industry. I personally think this is hogwash. Worry about industry first (including the finance industry) and the money will sort itself out.

Now there are some industrial fundamentals that Prof McCann, despite his erudition, did not talk about. The most important of which is the debasement of intellectual capital since China joined the WTO. What do I mean by this?

I used to get very grumpy that New Zealand exports Pinus Radiata logs. We have no Ikea to add value to them, we just strip the bark and branches and sell great lumps of tree. However if you look at MAF log prices ( http://www.maf.govt.nz/forestry/statistics/logprices/ ) you'll soon see that a tonne of wood is worth around $100 and that is about two cubic metres, so a stem of about ten cubic metres is worth about one ipod (retail). [I mention Ipod's because they are now used in the Ipod index].

Now compare the two. Believe it or not there is a bit of technology in a lump of pine tree. Its been genetically cloned and managed. But in the end most of the work is done by the tree itself. The wood becomes more valuable with every passing year while the Ipod factory depreciates rapidly. The Ipod can be reverse engineered in less than six months while the log is just a log. In short my point is that in an environment when engineers are a dime a dozen logs have a surprising amount of value for not very much effort. Even more if you start adding carbon prices into the equation.

My point is that there is no point competing in the engineering space when everyone else is competing there too. It all comes down to what the world is short of has more value than what it has lots of. The world has lots of people. We don't. We have lots of space. To Professor McCann that is a less than optimal thing. To me, well, that's just the way it is and we should be thankful for it.

So let's look at Australia and New Zealand from an industry perspective. First of all Australia industrially is one humungous great mine. 41% of Australia's exports by value are dug up. The Diggers are digging up their vast continent and racking in Chinese cash. They can probably do that for a very long time because Australia is enormous. New Zealand has a lot of minerals too but we aren't digging ours up. We hide them in national parks which we treat as holy and sacrosanct places (which the Australians don't).

Australia has a number of manufacturing industries which contribute to 29% of exports by value nearly all of which have some kind of assistance or protection. The Australian trade unions are way tougher than ours and fight to maintain employment and working conditions. Despite dire warnings that such behaviour defies economic rationalism it hasn't done the Australians any harm at all. Why not? My belief is that manufacturing enterprises have to be regarded as training establishments. That's why it doesn't really matter who owns them initially. Unless a nation has a working manufacturing base it has nowhere for workers to learn the most basic routines of manufacturing practice. Thus while one wouldn't want to prop up completely uneconomic industries there is a point to preserving knowledge bases if they can springboard into broader industries.

Australia is also an agricultural nation, although agriculture is less than 5% of exports and 5% of GDP. This doesn't prevent the Diggers getting weirdly protective of their Apples or their Mac's Fries or their yoghurt every time a New Zealander shows up who might want to compete with them.

Australia also has banks. Believe it or not they aren't insignificant banks either. Westpac is no.9 in the world with the other three of the big four around 15-17th ( http://www.theaustralian.com.au/business/news/big-four-join-global-elite/story-e6frg90f-1111118663656). The stability of Australia's banks is actually what is keeping New Zealand out of the Nightmare on Wall Street that has hammered the United States and Britain.

On the other hand the $155 billion in mortgages we owe to (mostly) Australian banks is about the same as New Zealand's GDP. Australia's bank's 1 million odd mortgages means they practically own a lot of New Zealand already. Moreover it means we pay Australia for the benefit of living in our own country!

Looked at industrially its pretty bloody obvious that a country which relies on cheese and tourism for the bulk of its income is not going to be as rich as a nation which is literally a gold mine, protects its industries and keeps us in hock to them.

Does agglomeration matter? In a New Zealand context, frankly I think not. Auckland is a poorly integrated large city and its always going to be beaten by Sydney which is three times larger. For all his erudition I am afraid that Professor McCann's insight is only of marginal interest because it has no heuristic value. New Zealand is small Professor, get used to it.

However in the unlikley event that anyone gives a toss what I have to say about catching up with Australia here are a few random thoughts:

1. Fonterra needs a bank. Why not sell it Kiwibank on reasonable terms. That would give Kiwibank industrial backing and solve its capital structure in one fell swoop. Let's not forget Rabobank is owned by Dutch dairy farmers.

2. Keep the immigration valve wide open. If they want to come and have the money, let 'em in.

3. Its not central Government mismanagement that holds us back it's local government which is close to dysfunctional. We seriously need a new model for local Government that is 1. no longer reliant on rates, 2. entrepreneurial 3 far more efficient. To me that means Government taking in rates revenue and local Government getting funded by central Government. It means far more centralised expertise for some functions and local decision-making for others. It means joining up local oversight of health, transport and planning, education and police through regional level Government and the re-emergence of the local borough for the "pot-hole on whatsit road" issues . It means serious responsibility and accountability.

4. The IRD kills policies because of its own structural inflexibility. Its computer system is a tottering tower of COBOL and it needs re-piling. Indeed the Government needs to invest far more in managing its software asset and its software renewal programme. This should involve Treasury, the Audit Office and State Services Commission.

5. The Resource Management Act. Good grief.

6. We need an infrastructure development plan based on making money. Agglomeration is nice but its not everything. We need to worry about improving land values through improved incomes. Its why we used to have a Public Works Department. We need a Treasury/MED equivalent.

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Online auctions, feedback and monopoly

One of the fascinating things about the online world is the way it creates monopolies. Almost anyone in the world with access to the internet can create an online auction site. All you need is a web hosting account with Fantastico and its easy to create an auction site.

Of course you will be very lonely on your site because you will probably be the only user. Everyone else will be on eBay or, here in New Zealand, Trademe. Why? Because everyone else is there! In other words these sites are successful now because they are successful and its too late for anyone else to get a look in.

There are obvious problems with monopolies that go way back to Standard Oil. Monopolies can do what they like and don't really need to listen to anyone else. For a long time there, here in New Zealand, Telecom New Zealand was basically an unfettered monopoly. Its share price was huge and competitive entry was esentially a publicity stunt.

But slowly over time the Government stepped in to regulate the market monster.

It began with taking telephone numbers off Telecom. This was a big deal because before then Telecom regarded your telephone number as a subscriber number it allocated to you. The fact you may have spent a fortune advertising it was not Telecom's problem. By introducing number portability the Government effectively said that users had a stake in their numbers of greater importance than the allocation of subscriber numbers by a monopoly supplier.

I mention this because in my view the same principle applies to feedback reputations on auction sites. On online auction sites users conduct transactions and place feedback on one another following the completion of their transaction. The accumulation of positive feedback provides a form of leverage which encourages users to conduct their affairs honestly.

It is also the foundation stone on the auction site's monopoly. If a trader has 20,000 successful trades to their name on one auction service they are not likley to start with one on another.

But why should the auction service provider own the traders reputation. The conduct of the transaction had nothing to do with the transaction facillitator. The quality of the goods, the representations made about them, the timeliness of payment and the carriage and transfer of the goods: indeed all the aspects of the transaction on which the feedback is based has nothing to do with the online auction house. So who should own the feedback?

In my view there is a good case for a feedback data standard and feedback portability. It should be as possible for a trader to shift from one transaction facillitator to another as it is for a person to change their electricity provider or their domain name service provider. The property right of the feedback should be between those who carry out the transaction.

What I am really suggesting is the establishment of an electronic transactions feedback standard that can be implemented by any number of service providers. Customers can register their identities on any of these services and have their feedback accumulated on them. If they desire they could also shift their service to another provider. This would allow any number of retailers or transaction facillitators (online auction firms) to flourish and offer competing services. Retailers could offer their goods across a range of different providers and customers could subscribe to different facillitation services. They could also trade directly.

Seperating out feedback would also allow for a better approach to gathering this data. On trademe feedback is summarised into positive, neutral and negative plus comments. But it could just as easily be different for sellers and purchasers. Purchasers could be rated for timeliness of payment ( with Immediate Average Slow Abandoned ) and then Sellers could be rated on disclosure (with Excellent Average Poor Deceptive) and responsiveness ( with Helpful Average Unhelpful No delivery). The value of the transaction should also be recorded. While obviously this data might be private individually Sellers and Purchasers could have counts for these categories published in aggregate. Comments would be an optional extra.

Great concept huh?

Unfortunately I doubt very much if the monopoly providers are going to rush into the implementation of this kind of facility. Why would they? They have a monopoly. And lets face it online trading is still new and exciting and there is no enormous demand yet.

What will be interesting to see is when it will happen

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The future of news

Sex! Violence ! Tits ! Teeth ! Sports ! Celebrity !

The focus of the world's official media seems to become more and more banal with every passing day. There was a time when I confess I lamented the lack of in-depth reporting and analysis. Now I can't even be bothered with that.

Call it the commercial radio effect. Commercial radio has always struggled. The total market size is roughly 12.5% of the available advertising spend. It isn't much to carve up between dozens of broadcasters. So what does commercial radio do to survive? It does what it has to do - it gets in your face. So we have morning hijinks, song requests, talk-back, shock-jocks and all the usual blah-blah of people trying to hussle for attention in order to turn a buck.

For a long time TV didn't have to do that in New Zealand. It had 25% of the market and there were only two operations competing for it. TV could do what it liked.

Then along came the internet.

Well, magazines were questionable and newspapers classifieds vanished. Then slowly TV began to get more and more desperate. It had already strong links to radio and it began to become more and more like commercial radio. The ads became louder, simpler and more strident. There were more events. TV discovered the joy of watching people being bullied by celebrities. Documentaries became more and more about the act of making documentaries and less about the topic. And finally along came Australian broadcaster Rove McManus and the 'morning crew' was now the evening crew on the box.

And as they have for decades where TV went newspapers followed in their ponderous and boring way. And now newspaper websites are full of the same trite crap that TV pushes. Material that not only requires a reading age of 12 but, indeed, a mentality of 12 to find it interesting.

The mistake of bloggers, in my view, is to treat the mainstream media as anything other than a distraction. I have seen YouTube videos of people giving their opinions about events in other countries they have obviously never visited and clearly don't understand, as if what the media had told them about those nations needed rebuttal. It doesn't! Responding to media lies and half-truths with incomprehension and braggadacio is pointless. Who cares?

The answer in my view can be found in those lovely lines of disederata:

"Go placidly amid the noise and haste, and remember what peace there may be in silence.

As far as possible, without surrender, be on good terms with all persons. Speak your truth quietly and clearly; and listen to others, even to the dull and the ignorant, they too have their story. Avoid loud and aggressive persons, they are vexations to the spirit.."

Thus in my view the news is what we make it and the way we choose to record it. It is the effort of attention we make in our own lives and those special things which we notice be they good or bad, great or small.

And so to the news:

This morning as I waited for the bus, with a quickening Spring wind suggesting I should have worn more than a thin jersey, I noticed we have three Tuis in our Macrocarpa who don't seem to have quite worked out a nesting regime as yet. I suspect there are two males and an undecided or perhaps flirtatious female. On the other hand I suppose there is no particular reason why not there shouldn't be two males.

I learned today that our long awaited Matangi trains have nowhere to store passenger's bicycles, so when they enter service next year taking one's bike on the train will be a lot more difficult. So much for alternate modes.

I also learned that Metlink is now on Google transit - the first new Zealand service in the country and that NZTA is extending its dubious travel information system.

None of this is earth shattering, alarming or even very significant. It is the mundane of daily life. But in my view this minutae is the future of news. It is the news of every person that becomes the news of the whole world.

It is how the mundane but real can defeat the banal but imaginery.

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Copenhagen

I have to say that young Keisha Castle-Hughes is a fine wee actress. She's one of three kiwi actresses brought on TV lately by Greenpeace to convince New Zealanders that we need to sign up to cut GhG emissions by 40% by 2020. Right at the end Keisha gives us a bit of pure Magnum to get our attention.

Greenpeace is showing a bit of muscle. They've had Keisha in the islands to promote the concept of 40%. Amusingly while Greenpeace was happy to imply Keisha had sailed in by protest ship Keisha herself spilt the beans on the Greenpeace email network by saying she was surprised everyone thought she had sailed in, instead of flown.

And that of course is the problem. Keisha seems like a nice girl but she has no idea what impact reducing New Zealand's emissions by 40% in 11 years would do to the country. I am sure she likes driving to the airport and flying to LA. uh-uh. I'm sure she likes warm showers and keeping clean. uh-uh. I'm sure she likes living in a country that competes in world markets by offering affordable food, so it can import the things we can't make ourselves. uh-uh.

New Zealand's emissions have grown 12% since 1990 for one simple reason. We added 800,000 more people to the population. That means more demand for electricity and more oil. The cows are still farting and belching away as they always did and that's still our major income earner and still 50% of our emissions.

The problem really is 40% is just a number. It isn't a plan. Anyone can say they are going to save 40% of their income but that doesn't make it a practical possibility. Nore does it mean they are really willing to go without all the things they are currently spending that 40% on. In the end the answer is in practical changes to the way we live our lives, not signing up to notional numbers that don't really mean anything.

Can we make more electricity without burning fossil fuels? Of course we could. Unfortunately the Green Party killed Project Aqua and the Makara Guardians held up the wind farm there for decades. The very laws that the green people use to "Save the [your cause here]" are the very laws that prevent us achieving the climate goal.

Could we make more cheese without cows? No. Three generations of dairy cows later they will fart and belch same as they ever did. So if agriculture can't make huge cuts then to achieve 40% who would? Guess. Go on.

Of course details like this don't bother the likes of Greenpeace. Its problem is not actual solutions. Its problem is sales. Stunts are good for sales. Getting NZ to sign up to 40% is just an international stunt. It would be good for sales.

So too are celebrities and endorsements. As Bjorn Lomquist pointed out in "The Skeptical Environmentalist" Greenpeace is just a big corporate that sells green good will to people who live in cities and chow lattes all day.

That is not to say Greenpeace is not problematic. I don't see so called big business funding any ads on climate change. The simple reason being that big business doesn't get any sales from such things. That leaves Greenpeace all alone, and unchallenged in the media, largely because most journalists with any brains left the profession years ago. The rest are unshaved wonders who were working for Greenpeace for nothing until a few years ago.

In the big wide world of reality committing to rip our guts open on the altar of green-ness so Greenpeace can praise us to the world is not actually a very sensible strategy. Greenpeace will not pay for our kids education or our parents medical care. They are only interested in sales.

There is no doubt that the election of Barack Obama and the colossal recession in the US have changed global politics significantly since Al Gore invested in making movies instead of Tobacco. On the one hand there is more willingness to discuss the issues in a vaguely serious manner. On the other there is less capability to actually take economic pain.

What is for certain is that Kyoto must be seen as what it was. A half-baked, absurdly ambitious con job. If the world is going to take climate science seriously enough to actually allow it to reshape the global economy it will need to do a number of things.

First it must let science be science and stop gerrymandering with it via ideology. Both sides have been guilty of this. The world wants good honest science, not an agenda set by Greenpeace ( which as I may have mentioned is only interested in sales).

Second, it must adopt policies that can actually be implemented via international agencies. Many of these will be about technological specifications and standards. Standards for electric vehicles. Standards for packaging. Others will be about marketing standards and claims such as ISO 14000 etc.

Third it must not attempt to interfere with the taxation rates (effective or otherwise) in sovereign nations. There is simply no way this can be fairly done across a world which includes nations as diverse as America and Zimbabwe.

Fourth, and most difficult of all, something must simply be done about sustainable land management, and in particular tropical rain forests. Unless the rich world can pay the poor world to keep rainforests as rainforests rather than burning them down, we are all going to be in big trouble. This will not be easy because the people who do the slashing are often not the people pocketing the money.

Fifth a world voluntary carbon exchange to support the marketing claims standards needs to be developed.

Unfortunately I suspect that what will happen will be the normal kind of chaotic politicking that usually attends these events. And the result will end up like Kyoto, half baked, unworkable and a giant con job.

The only good news: there will be scope for new sales for Greenpeace!

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Put the phone back on the hook for Ahmadinejad

The most annoying thing about dangerous and evil men is that there is always a sliver of truth in what they say. And it is that sliver which festers under the skins of the susceptible and erupts into the deadly diseases of hate and intolerance.

The speech by Iranian president Mahmoud Ahmadinejad on April 20 2009 at the Durban 2 conference on racism has been reviled by a lot of important white* men and UN Secretary General Ban Ki Moon. While it is easy to find many examples of distortion, overlooking of basic history and a Khruschevian disregard for the niceties of international diplomacy none of this is actually important if one's goal is a resolution to on-going cold war in the Middle East.

The fundamental accusation is that Israel does not treat all its citizens equally, and discriminates on ethnic grounds. No amount of shouting about the Shoah or the threat that Ahmadinejad's regime may be developing nuclear weapons to rain down death on Israeli or Palestinian alike absolves Israel from the responsibility to face this accusation. Either a nation discriminates on ethnic grounds or it does not.

Unfortunately for Israel's defenders there is rather a lot of evidence that Israel does discriminate on ethnic grounds. Indeed most of it is provided by Israeli citizens who in the long and proud tradition of Jewish anti-racism have had the courage to face up to racist short-comings of their own political leadership.

Indeed when the Israeli newspaper Ha'aretz (March 11 2009) is decrying Israel's trend towards becoming a racist state with the "the Jewish National Fund Law" and stating "If the Knesset legal counselor did not consider the bill entitled "the Jewish National Fund Law" as sufficiently racist to keep it off the agenda, it is hard to imagine what legislation she will consider racist." then it is clear that for all the international posturing against Ahmadinejad it is impossible to deny that the man has a point. Moreover doing precisely that can only incense every Arab, every Moslem and indeed every disinterested person in the world.

If only a dangerous madman can stand up at a UN Conference on racism and raise concerns about Israel's racism then what does that say about the capability of UN Conference's to discuss this issue at all? How can the white world expect the rest of the planet to sit by and let institutional racism backed by repeated outbreaks of asymmetric violence be excised from the agenda of a conference on racism? The failure of the white world to address this issue is legitimising Ahmadinejad's repressive and dangerous regime.

The white world's failure to challenge Israel is not a problem for world peace, it is the fundamental problem for global peace. Israel is a well-spring of bitter resentment for every anti-white radical the world over. Moreover when pictures of cruel murder of hapless Palestinians are beamed all over the world on a regular basis it is no surprise that the cupboard of good-will toward Israel is becoming quite bare.

There is no longer any point in rehearsing the view that Ahmadinejad is merely the inheritor of the genocidal politics of al-Husayni even though it is probably true. Nor is there any point accusing Ahmadinejad of running a brutal and corrupt regime, which is also true, as any Iranian emigre will tell you. The point is that Israel has always claimed to be morally better than its Middle Eastern neighbours under a system of values ultimately derived from Jewish ethics. And the problem is that claim was tacitly understood to mean orders of magnitude better not just marginally better - as the current Knesset seems to be aiming for.

Two hundred years ago white men began arriving in New Zealand; the island nation where I live. Over time they drove the indigenous Maori from their lands with guns, germs and legalisms Maori had no answer for. Maori could not fight the white horde so the assimilated with it. Intermarriage was far more common in New Zealand than in many other British colonies. And slowly there has been a realisation that Maori were robbed and that restitution is called for. That process is still on-going and while it does not eliminate racism in individuals it is, at least dealing with it within institutions. New Zealand is not perfect but it is, at least, an example that Israel should consider.

For the fact is that there is no military solution to terror. As an echo of 1930s strategic axioms counter-terror police know no matter how good they are no system is 100% perfect. Eventually the bomber must get through the line of defence. And one day the bomb will be made from Uranium or Plutonium or Anthrax spores or Marborg viruses instead of Semtex. Then thousands or even millions will die and a nuclear exchange after the event will not help anyone. The only lasting solution to the Middle Eastern cold war is not Palestinian or Jewish genocide but Palestinian and Jewish reconciliation. As in New Zealand that must inevitably mean restititution - no matter how repugnant that may seem to many Israelis today.

Ahmadinejad makes a number of fair points about the foundation of the United Nations with its roots in the manifestly racist institutions of the League of Nations. As the economic centre of the world gradually shifts from Europe and the United States towards China, Asia and India it becomes obvious that we need better processes to reform world governance than those that shaped the UN in 1946. We need a process of peaceful rebalancing of representation from reflecting the interests of a few European colonial powers to the rest of the world in general. The only alternative is a non-peaceful rebalancing and that could be terminal for global civilisation.

As I have stated before the man best placed to lead this transformation is the black leader of a white nation: Barack Obama. Only Mr Obama is in a position to resolve the contradictions and find the path to peaceful live and let live common-sense practised daily by Christians, Jews, Muslims, Hindus, Buddhists, non-believers and others. Against him will be the despots who need other despots to legitimise their crimes; the xenophobes who seek ethnic purity; and the war-mongers who delight in conflict as a source of revenue. Such people are as active in Israel as they are in Iran, as China, or the United States.

Ironically it is the more open-minded traditions of those global assimilators, the Jews, which must help lead the world to live in harmony. If only the Israelis will let them.

President Obama's vision of inclusion of Ahmadinejad is being tested right now. The longer he sticks with diplomatic business as usual vis-a-vis Israel the more Ahmadinejad saps Obama's moral authority, the less Obama can contribute to the transition to a world based on trust and fair play - values he has embodied in his candidacy. If Ha'aretz is prepared to question Israel on its slide toward racism then it is time for President Obama to do so too. Only by this action can Obama regain world moral authority and completely marginalise the already marginal Iranian president.

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white*. Throughout this piece I describe nations as "white". By this I mean that white people dominate the commercial and bureaucratic sources of power, not that they hold them exclusively. Certainly there are black, brown, red and yellow people in nations like Canada, the US, Australia and Britain but they do not dominate the commercial or political life of these nations as white people do.

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John (Jeykell) Key and Bill (Hyde) English

The (New Zealand) Minister of Finance Bill English is obviously getting worried. Recently he pulled all his State Owned Enterprise chief executives into a huddle and rarked them up about the need to achieve a reasonable return on capital.

like 9%.

To which I respond, "Are you insane?"

Look around man! Who in the private sector is making a nine percent return on capital at the moment? Come to think of it, in some sectors who is making any return on capital at all?

The whole objective of the Government charging for capital is a sensible one. It is about opportunity costs. If we let Whangerei District Health Board spend $3 million on a Magnetic Resonance Imaging machine then that is three million denied to other users of the health system. If it cheaper to get all MRI patients down to Auckland by bus, ambulance or helicopter then we should encourage Whangerei DHB to do that instead. That means we have to operationalise the cost of capital - and we do.

But. And this is a big but. It relies on the Government being a bit realistic about the opportunities for returns it might get from this capital. And in the current economic environment these are not high.

Because its all very well to say that bank deposits and ten year bonds may return 5% but that is for cash. Not used MRI machines or car manufacturing plants or other illiquid assets. Indeed some of these may have no saleable value whatsoever.

This brings us into a chicken-or-the-egg question of valuation. Should these State Owned Enterprises write-down the value of their assets because of their reduced ability to generate income or be sold? Well, not yet because that hasn't been proven. On the other hand keep the target for return on capital high and it soon will be because customers will rebel.

And this brings us to another point.

Why does the Government own NZ Post; 75% of the electricity industry; huge swathes of farmland; ACC; Air New Zealand; KiwiRail and numerous other enterprises? Well because they are near monopolies or it is too politically sensitive to sell the buggers. In other words these companies are held by the Government not private interests because the capital they have invested is regarded as having an element of public good about it.

And the Government wants them to return a usurous return on capital?

We know where it will come from already. It will come from customers most of whom are the taxpayers the Government has just given a moderate tax credit too. So the Government is planning to give with one hand (financial stimulus and all that) and take with the other (cripes we're in deficit!).

It's like we have John Key as Dr Jeykell and Bill English as Mr Hyde. How long will it take the brainless dizzies in the Press Gallery to tell the nation this? Maybe when somebody tells them because they'd never work it out for themselves, that is for sure.

In some sectors like electricity it is very hard to see what benefit the deregutaion/SOE model has actually brought. Simplification makes sense. In others like NZ Post the SOE model has worked well. In all cases one has to look at the circumstances.

In my view the short answer is yes, pour the acid on the whole state sector to cut costs and rein in spending. Its hopelessly, stupidly bloated and needs trimming. But don't set stupid numerical targets like a high return on capital that will encourage political and economic stupidity at SOE boards in a time of financial delicacy.

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Whither Labour ? Wither the Greens?

The long expected resignation of the Greens female co-leader Jeanette Fitzsimons brings to an end an extraordinary chapter in New Zealand's political history. For Jeanette and the late Rod Donald were two of the most effective political leaders this country has ever seen.

Both were children of the Values Party which itself was a political expression of 60s idealism, an idealism somewhat out of place in short-back-and-sides New Zealand. The Values Party might have remained a curiousity in the margins of New Zealand politics had it not been for the efforts of one man: Robert Muldoon.

Robert Muldoon was a conservative and a bully but he was also capable of extreme brinkmanship. His election victory in 1980 relied on a razor-thin single seat margin. The fact that National had contrived to gerrymander the electoral boundarys such that it held power but not the support of the majority of New Zealand electors incensed left-of-centre voters when the new Prime Minister continued to embark on divisive policies - such as the Springbok Rugby Tour of 1981.

Muldoon's defeat at the hands of property magnate and political stirrer Robert Jones, whose short lived New Zealand Party split National's vote and assured a Labour landslide, put in motion the wheels of reform in almost every part of New Zealanders lives. Perhaps because most of the Labour 'reforms' were not Labour policy but New Zealand Party policy the disillusionment of New Zealanders with their political system increased even further during the 1980s.

It was in this environment that Rod Donald, acting as a Values Sleeper, began a campaign to introduce proportional representation and it is to the credit of the broadminded National Prime Minister Jim Bolger that this campaign was allowed to proceed to a referendum which selected a Mixed Member Proportional representation system for the New Zealand parliament. Now the stage was set for a Values come back.

After a brief accomodation with Jim Anderton's my-way-or-the-highway Alliance, the Greens finally got their party into gear and pulled away from their former ally to establish themselves as the most powerful left of centre political organisation with Rod and Jeanette in the van. Aided by "non-Governmental Organisations" as "backing vocals" the Greens quickly achieved significant mindshare among former Values supporters, 60s types, rebels, drop-outs and students. It was enough and the Party has repeatedly shown that it can run political campaigns of extraordinary effectiveness based on 'feel good' non-specific platforms.

The Greens reached the zenith of their power when they entered into Confidence and Supply arrangements with Helen Clark's Labour Government of 99-08. Operately obliquely, deftly and discreetly and despite the shock death of Donald in 2005 Jeanette Fitzsimons gradually weaned the Labour Party from a policy of pursuing economic growth (as the country was registering high growth due to property inflation) to one of winning the race to achieve sustainability before other nations. It was, if you like, a case of Values as supreme puppet master to the Labour Party.

Fitzsimons was able to achieve policy wins in energy, energy conservation and transport policy beyond the wildest dreams of a Party with less than 7 percent of the vote. It was achieved by maximising use of subtley placed targets, leveraging off obscure local government organisations, and seizing the policy initiative. Like a brilliant general she bypassed and cut-off opposition rather than battled through it. While she was exchanging barbs with Labour's finance spokesman she had the Prime Minister Helen Clark, energy Minister David Parker and various others eating out of her hand.

And yet the fundamental problem with Fitzsimons success is that it was, and has always been intensely anti-democratic. For Fitzsimons is, and always has been, a zealot. Her entire political career has been built around the mission to reduce energy intensity. Peak oil, climate change true or not have all been stepping stones. Jeanette stands for reducing energy intensity because she deeply believes it is the right thing to do.

The problem is the rest of New Zealand does not. Like Americans and Australians, New Zealanders love big cars, boats, air travel, long hot showers, spa pools and generally indulging their egos with energy. National Conservation Minister Nick Smith was able to score an important 08 election campaign win against the Clark Government by citing Green regulations which would limit the flow rate of New Zealand showers. The frustration New Zealanders felt during the 08 oil price spike was palpable and someone was going to pay for it.

Labour got the serve in November 08. Helen Clark stepped down and was replaced by the traditional hero Minister (trade negotiations) role which was occupied by Phil Goff. The Greens ran an excellent campaign playing to their strengths and despite a mighty swing of the pendulum to the right came back to Parliament in relatively good shape.

The problem is, with the departure of Helen Clark and Jeanette Fitzsimons, both the Labour and Green Parties are dead men walking. Winston Peter's New Zealand First is simply dead and buried.

Labour is carrying on like a zombie that doesn't know it's been blasted with a shotgun. It attacks National in the house as if it had nothing to do with the last nine years in power. Its as if Phil Goff was out of the building when Labour made all the decisions that cost it power and nobody wants to tell him what was happening. Top marks for confidence. Zero marks for self awareness. There are no signs that Labour has learned a thing from its massive election defeat and while that remains true it has almost zero chance of ever making a comeback.

The fundamental problem is that Labour is breaking up. Its connections between its trade union roots, its trendy gay political wing, and its student environmental wing are tenuous to say the least. The old guard of former Ministers are experienced liabilities who remind the electorate only of past arrogances and there is no sign of any contrition or humility. The Party is a shell and it would not surprise me in the least if it exploded or a complete new broom took it over.

By contrast the Greens are strong organisationally but have weak leadership. Russell Norman who only came to New Zealand in 1997 and who has spent most of his life doing odd-jobs clearly has political acumen, having wormed his way up from political secretary to the current Ministers to Party leader, but he does not have the kind of vision or strength of a Donald or a Fitzsimons. Indeed he comes across as an Aussie whinger.

This is not the time to be without vision. Fitzsimons demonstrated great vision but her sly inveigling pissed people off. It demonstrated the danger of the Greens in having strong ideals but little practicality. Like Pacifists after World War One it is impossible to argue against the ideals of disarmament but the issue is practicalities. Russell and his new co-leader need to show a strong grip on practicality which his on-going attacks on New Zealand's main export earner (the dairy industry) with an Australian accent does not suggest.

This next three years is an important one for both parties. Labour needs to rally back around its core values of workers rights and employment. The Greens need to demonstrate that they can be trusted to do more than protest. In fact the Greens are engaged in a battle of survival against Labour. The Greens problem is that in these straightened times the Environment loses its importance. People want to keep their jobs. Labours job is to fight for the poor and that isn't easy to do when all your staff are guppies. In times of financial crisis the public has no time for smart-arses. Both parties need to get noses to grindstone because National's leader John Key is doing a suspiciously good impression of that master of concensus Jim Bolger - and nobody outside National ever beat him.

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Toward a global currency.Ready when you are Mr Obama?

Over the past few months the figures being talked about for stimulus packages around the world have started to become more and more outrageous.

The United States has now settled on an US$827 billion package; China is spending US$586 billion; Japan US$276 billion; Germany US$68 billion; France US$33 billion; Britain US$20 billion; Australia US$26 billion; and so on and so forth. New Zealand has recently announced a rather modest US$0.25 billion package.

Looked at sceptically it is hard not to question whether these "stimulus packages" shouldn't simply be termed pork. But that somewhat understates the scale of the undertaking. We are talking a whole new genera of pig. Megasuidons: MEGAPORK. There is money for infrastructure, money for industry, money for new technology, money for climate change. In most cases this is money from Government to be allocated by Government to those Government deems deserving cases.

As President Obama said during the election campaign "you can put lipstick on a pig.." and while he declares he never intended to dole out pork in such vast slices, he clearly feels he has no choice. The alternative is too much pain.


In fact this is a de-facto admission that corporations are fundamentally extensions of the state. Banks, aerospace manufacturers, auto manufacturers, even porn moguls - indeed nearly everyone has their hands out for capital, having unfortunately lost the capital they had been relying on. Why should they get any of it? Why should the people who destroyed so much value be reimbursed by the Government when, when they had money, they spent so much effort avoiding giving any to the State?

In some ways this raises the question:"what is money". Officially it is the medium of exchange issued within sovereign nations. But the monetary value that has evaporated into thin air over the past year was never really issued by Governments. Essentially it was money created by a vast tower of leverage.

Think of it this way. A huge balance. On the left hand side is real sovereign issued money and on the right side another balance representing the banks. On the left hand of this second balance is bank issued money and on the other side - yet another balance, representing merchant banks and large corporates. They issue their debt and stock. Repeat n times. But not with smaller balances (that would be far too sensible) but with bigger ones. Then just for fun cross the towers over between countries so you can make them even bigger.

The creation of money is now no longer in the hands just of Governments. Everyone is at it. And inflation becomes a global phenomena with the Reserve Banks juggling huge towers by fiddling with interest rates at the bottom to try and get through to the guys building for the stratosphere at the top.

Eventually like a game of Jenga, someone builds the tower too high, the whole tower collapses, and takes out balances all the way down the line. It's best described as catastrophic deflation. Asset values collapse and in theory prices would collapse too were they not based on the levels achieved under the previous inflation and people have no stomach to reassess their ideas of their own monetary value - particularly in terms of their own incomes.

In theory, of course, what would happen is that everyone would take a massive pay-cut, all assets would be written down and the currency would plummet. There would be no money around for investment for decades. This is what happened in 1929-32. The result was unemployment, hunger and misery for all. This was thought by some rich aristocrats to be a cure for the immorality of the 20s, although the cure was visited on the poor, rather than the rich who were really the ones up to all the immorality.

Thanks to Milton Friedman and Anna Schwartz what we do now is create money to restore the lost towers of leverage. In effect we are building a bridge from the present over a chasm of doubt which is obscured in fog. We build hoping that the other side (future optimism) will appear sooner rather than later so we can gain support from it.

Of course this created money has to come from somewhere. The state really has two options here. The option of borrowing it from other nations is gone. It can either borrow the money from the future earnings of the economy (ultimately taxes) or it can simply print some more. If it prints money it would normally take a hit in the form of inflation and currency value loss. But in a period of catastrophic deflation it doesn't actually matter because in the absence of inflationary pressures from credit expansion the Government has ample room to move. So states can get away with highly inflationary actions but only for a short time. The question for the Pork sandwiches is whether they are really too large and will end up creating havoc by the time they end up reaching the market.

The conundrum is this. Unencumbered by political expediency the private sector has pursued the logic of profit. By contrast the state pursues the logic of politics. The private sector is bankrupt and the state is in charge. But the logic of politics is a dangerous way to allocate resources. The command economies of Stalin and Mao were ultimate war economies and could not operate in Peacetime. In peacetime profit under social restraint is by far the best way to allocate resources. This applies for both the state and the private sector. Politics without social restraint (eg North Korea or Zimbabwe) is by far the worst way to allocate resources. But profit outside of social restraint is de-stabilising (eg Dafur or the credit crunch).

So do you give money to the people who stole it just because they say they are sorry and they will neeever dooo it agaain? I don't think so.

The problem has been social constraint. For decades now international finance has been working without it. It has wriggled furiously and slipped free of regulatory entanglements every time Governments have tried to catch up. So much so that even George Soros, whose Quantum fund profited from this immensely, started to worry that the whole system was simply unsustainable over a decade ago.

As Soros pointed out long ago in "The Coming Crisis in World Capitalism" the fact is that international monetary arrangements simply don't work. The World Bank isn't the world bank, its just a UN NGO that ruins countries by giving them money on stupid conditions set by Washington. It is entirely possible that this credit crunch will be the best thing Africa has had in decades. Finally its nations will have to put their palms away and get to work. Meanwhile the IMF lost all credibility as an agency for monetary stability a decade ago. The problem has been that since the collapse of the Soviet Union America has simply led an anarchic bumbling based on a hotch-potch of commercial law from various states.

What is seriously needed is exactly what the Robber Barons who are currently sobbing into their hankies for the cameras in the hope that they will get a fat bail-out don't want. What is needed is an international framework for commercial law which limits the ability of large funds to create unstable towers of leverage. Unless the US and Europe and Russia and India and China start work on this, all we will get in another decade is another crash even bigger than this one. Because the simple fact is that capitalism has now found a sure bet - bet all the money in the world and you have to win because even when you lose nation-states have to make more of it. This cannot be allowed to continue.

Pouring money into the top of the capitalist system in the hope that it will get to the bottom seems to me to be pouring gasoline on smouldering embers. It was stolen before and it will be stolen again. Where the money should come from is the bottom. Then it will be allocated by taxpayers to services taxpayers want. Yes, it will mean that some bow-tie wearing types in New York will have to sell their yachts and holiday homes, but frankly I don't really give a damn. Better a few "lords of the Universe" (as Tom Wolfe termed derivative dealers in Bonfire of Vanities) wankers suffer than millions of ordinary workers.

What does this mean? It means nationalising a lot of stuff. Retail banks, large corporations, everything that keeps the flow of goods and services in the high street in circulation. It means building stuff. Contractors are the largest potential pool of unemployment. Keeping them busy provides assets for future expansion. The good news is when private capital structures recover the state will be able to re-sell these assets for a good deal more than they paid for them

All of this is already happening but so far there has been precious little talk about the architecture of a new monetary order. The history of the world war one shows that people are very good at responding to catastrophe in the short term but apalling bad at addressing the deep seated issues. Unless we as a global community come to some sort of understanding about what money is, how it should be traded and what avenues lead to failure, we are sadly destined to repeat the same mistakes we are seeing today.

What we need to do is start laying the foundations for a global currency. Yes it is early days. Yes the world is not ready for such a thing. Yes there are huge issues relating to sovereignty and the ability of nations to use exchange rates as an instrument of policy. But when the Common Market started 30 years ago nobody dared dream that it would be the foundation of the Euro. Ultimately a common set of commercial laws and a common medium of exchange is the only thing which can bring sustainable stability to world trade and without an evolutionary process to get there nothing will happen.

For all his smooth talk we have not yet seen President Obama begin to act as anything more than a local leader in a time when global leadership is called for. The World Bank and the IMF need to be completely rebuilt as international agencies rather than instruments of American imperialism. Trust on a global scale is vital. Now at a time of crisis is the only time these wheels can be set in motion. Its a huge ask but someone has to do it, and nobody else has the momentum or the kudos at this current juncture in global history.

To paraphrase an old movie joke: "ready when you are Mr Obama".

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