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Insights 6: 4 March 2022
Newsroom: Eric Crampton on what we now won't know about Covid
2022 New Zealand Economics Forum: Oliver Hartwich on institutional quality
Podcast: Eric Crampton discusses the expert consensus among economists

New Zealand shares West's negligence
Roger Partridge | Chairman |
Two years ago, the coronavirus pandemic took most of the world by surprise. Twenty-four months later, Russia's invasion of Ukraine caught us equally off-guard.

Neither should have. Not the risk of a global pandemic. Nor the risk of a totalitarian super-power invading a neighbour. Like China's designs in the South China Sea, Vladimir Putin's plans for a Russian sphere of influence have been hiding in plain sight. Russia's 2014 'annexation' of Crimea was hardly covert.

Yet the West - Kiwis included - have been culpably complacent. And not just to the threat posed by Putin.

New Zealand's culpability has several dimensions.

Our failure over the past week to match our allies' sanctions on Russia is a national disgrace. The lack of independent sanctions laws that would allow the Government to act unilaterally may have suited us in the past. By hiding under the UN's coattails, we could avoid taking sides. But this is no longer good enough. Not when one or other of China or Russia has the power to veto UN sanctions. The criticism of New Zealand’s inaction in the international press is well-deserved.

Our foreign investment regime is also problematic. It is hostile to benign overseas investment but impotent in the current crisis. As the Initiative's research has shown, there is scant need to regulate foreign direct investment. The obvious exception is to control the assets of hostile foreign interests – or their acquisition of assets. That the heavy-handed OIA provides the Government with no assistance in the current crisis is dismayingly ironic.

Beyond this, New Zealand has been careless with whom it is friendly and to whom it gives a cold shoulder.

We have shown indifference to foreign powers attempting to influence our media, universities, and political parties, even to the point of having had a foreign spy as a Member of Parliament.

And our lack of investment in any credible defence force and naïve disinterest in defence alliances leaves us poorly placed to help defend others or to defend ourselves.

All of these have contributed to our country's to-date lame response to Russia's war crimes in Ukraine. And they have exposed us to the risk of a similarly lame response when confronted with the next crisis.

Russia's invasion of Ukraine means we can no longer neglect our values. We must get our house in order. And we must take our place alongside other liberal democracies and stand up to evil, totalitarian regimes.

Flying blind
Dr Oliver Hartwich | Executive Director |
Even in ordinary times, it is difficult to govern a country well. During a crisis, it requires much greater skill, experience and judgment.  

New Zealand faces several crises at once. The war in Ukraine is reshaping the global order. The pandemic is raging. World commodity markets are fragile. Supply chains are under pressure. Energy prices are soaring. Inflation is rising. 

Challenges, threats, and severe risks abound. But does New Zealand have the institutions to handle them? Does the government have the necessary capabilities?

The core economic agencies in Wellington do not inspire confidence.

The decline of economic competence at the Treasury under former Secretary Makhlouf is well documented. In responses to many requests under the Official Information Act dating over the years, we learned that Treasury had lost many of its most qualified economists without adequately replacing them.

In stakeholder surveys, perceptions of Treasury’s competence have also declined. In the most recent survey, in 2019, only 57% of stakeholders had confidence that the Treasury does its job well – down from 68% in 2017.

Over the past decade, Treasury has shifted its focus away from rigorous economic methods to more fuzzy ones. The confused Living Standards Framework has not just distracted the organisation from cost-benefit analysis; it has displaced it.

Though there are still pockets of excellence within Treasury, especially in its housing team, that cannot be said for other parts.

The Reserve Bank’s story is similar. The RBNZ has recorded an enormous increase in full-time jobs over the past few years. However, several key appointments were filled with candidates from unrelated backgrounds. Then again, the RBNZ nowadays also concerns itself with issues far removed from its core responsibilities.

On the RBNZ’s Monetary Policy Committee, the situation is the most bizarre. Members should be knowledgeable about macroeconomics and monetary policy. However, those with research backgrounds in these fields, are automatically disqualified for these roles. Apparently, this prevents conflicts of interest, but I am not aware of any other central bank in the world operating that way.

Last but not least, the Productivity Commission rarely contributes to the issues it was established to address. Sometimes, its current chair appears almost embarrassed to lead an organisation tasked with increasing overall prosperity.

With well-established institutions, declining staff capabilities might not matter much, at least in business-as-usual times. Yet these are no ordinary times.

New Zealand’s key economic agencies are facing a multitude of interconnected crises, probably the most serious in two generations. But they are ill-prepared for them. Lack of economic expertise has led them astray from sound analysis and alienated them from mainstream economic positions.

Without competent institutions, policymakers are flying blind at a time when they most need high-quality advice.

This is a summary of a presentation given to the University of Waikato’s Economics Forum 2022. You can watch the speech here.

The West stands tall
Matt Burgess | Senior Economist |
It was all going so well for Vladmir Putin. In the days after he invaded Ukraine, the West’s response was predictably tepid.

Italy carved luxuries out of Europe’s economic sanctions so Russians can still buy Gucci. Belgium exempted diamonds.

Germany sent 5,000 helmets to Ukraine. Kyiv’s mayor, the former world heavyweight boxing champion Vitali Klitschko, was so grateful he wanted more. “What kind of support will Germany send next? Pillows?” he asked.

Meanwhile, Britain’s Spectator magazine covered all the big news in this week’s Edition podcast. It had three stories: “What does Putin really want for Russia?” “Should there be women-only places on trains?” and “Why do old men like stripping off?”

The UK and European Parliaments lit their buildings in blue and yellow. Russia was kicked out of Eurovision.

All of this was no doubt a great comfort to the people huddling in Kyiv’s subways as the missiles exploded above their heads.

New Zealand’s response was equally devastating.

“Aotearoa New Zealand condemns the advance of Russian military personnel and equipment into Ukraine,” said the Foreign Minister on Twitter. “Aotearoa New Zealand has conveyed our support directly to the Government of Ukraine,” thundered the Ministry of Foreign Affairs.

The government changed entry rules for Russian diplomats. This put members of the Russian government into the same category as pregnant New Zealand women trying to get home.

The Minister for the Prevention of Family and Sexual Violence said we should use “our good relationship” with China to rein in Russia. Yes. Because that is how international diplomacy works. Thanks, Minister.

And we turned the Sky Tower blue and yellow at night.

Take that, Putin.

But it turns out the West was just getting started.

Perhaps inspired by Ukraine’s brave President, or the threat of Russian boots on their turf, or voters’ demands, Western governments found their backbones.

At a rare Sunday session of the German Parliament, centre-Left Chancellor Olaf Scholz declared “we fully intend to secure our freedom, our democracy and our prosperity.” He announced €100 billion of new defence spending, and sent Germany’s army to Lithuania and its air force to Romania.

Countries voted to exclude Russia from the SWIFT financial system. The Rouble collapsed. Putin fired his military chief. The Ukraine government remains intact.

In these strange times, it is a relief that when threats turn real governments can still find the strength to stand tall.

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