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Insights 12: 12 April 2024
Newsroom: Dr Eric Crampton on the problem of broad-stroke regulations for buildings
The Australian: Dr Oliver Hartwich on how Australia could learn from NZ's housing progress
NZ Herald: Dr Matthew Birchall discusses if congestion charging could fix Auckland's traffic woes

Retreating for good
Dr Eric Crampton | Chief Economist |
Adam Smith warned that meetings of people of the same trade quickly turn into conspiracies against the public or contrivances to raise prices.

He neglected to mention the benefits of meetings of people from vastly different trades. Their common interest is in good policy, sound markets, and an environment for prosperity.

The Initiative’s members span the breadth of the economy. Our annual Members’ Retreat last week was excellent.

Members discussed the challenges they face in their sectors, heard from Ministers and Opposition spokespeople about their policy agendas, and learned from subject experts on important topics.

The two retreats we have had in the first year of new governments seem to have had a different energy than others. Ministers are fresh to portfolios. There has not been time for them to be captured by officials or to be shuffled away from the portfolios over which they have laboured for years in opposition.

Our members heard from the Ministers of education, transport, social development, regulation and housing. In each case, Ministers were not just passionate about fixing the policy messes that they face. They also presented ideas for change that reflected sound public policy principles – often guided by work the Initiative has produced.

We will continue to help advance better policy. Senior Fellow Michael Johnston leads a team reforming the curriculum for Minister Stanford. During his address, Minister Bishop said I am to be on a small team of urban economists helping with housing reform. I served on a similar team advising on Associate Minister Twyford’s urban growth agenda.

We heard great ideas from outside of government policy circles, too.

Canterbury University engineer Alan Scott outlined new research at the country’s universities on carbon sequestration and storage.

One of those ideas is being trialled by a Canterbury-based startup led by Mark Chadderton, who told us about his work. If their project is fully successful, global warming becomes a solved problem. Their work is recognised by Bill Gates’s Breakthrough Energy initiative and is in contention for Elon Musk’s XPrize for carbon removal.

Ngāti Whātua Ōrākei’s Rangimarie Hunia explained how their iwi is driving better outcomes for their community.

And The Australian’s Greg Sheridan challenged us to take foreign policy more seriously. The geopolitical environment is far less benign.

This year’s retreat was excellent. And if next year’s brings reports from Ministers delivering on the vision they outlined this year, it will be even better.

The bigger is better fallacy
Nick Clark | Senior Fellow |
New Zealand has an obsession with size. Maybe the inferiority complex of a small country makes politicians and policymakers assume bigger must be better.

In recent years, we have seen centralisation on steroids. The previous Labour government centralised water, health, polytechnics, and district planning into national or supra-regional entities despite local opposition and evidence that reforms would add costs without delivering promised benefits.

Even before the reforms, New Zealand was one of the most centralised OECD countries. Kiwis ‘enjoy’ larger local authorities and smaller roles for local government in public infrastructure and services than almost all our peers. Meanwhile, the relationship between central and local government is characterised by mutual distrust and suspicion.

Councils haven’t always helped their cause, and poor performance sometimes harms their collective reputation. People complain about rates increases, which this year are looking to be eye watering. Councils have struggled to boost housing supply.

But their heavy reliance on rates means councils do not have incentives to make them encourage housing or economic development. Councils must also implement central government legislation without being funded for it.

Over the past decade, The New Zealand Initiative has researched the place of local government. We have come out in favour of localism—the idea that government functions should be carried out locally unless regional or central government would do so more efficiently and effectively. This is the principle of subsidiarity.

Efficient and effective functions do not require fewer or bigger councils. In 2022, the Infrastructure Commission found council size neither increases nor decreases cost efficiency.

The new government has promised a different approach to its predecessor. It has been talking about localism and city deals for infrastructure. It has scrapped Labour's three waters and resource management legislation. It has commented positively about infrastructure funding and financing. And it would give councils a share of the fruits of growth.

On the other hand, Ministers have discussed support for merging Wellington councils and made national funding proposals for Auckland roads that its mayor criticised.

Localism and city deals mean different things to different people. Deals should not just be about councils extracting more money from central government. Deals should encompass a range of agreed actions to grow local and regional economies. Ultimately, they could enable councils to try different regulatory approaches or devolve some national activities to the local level.

Smaller can be beautiful when it comes to local government. We do not need ever-larger centralised entities. Empowering communities to make decisions and innovate can improve outcomes nationwide.

ComCom antics
Max Salmon | Research Fellow |
Last week the Commerce Commission announced its concern with a proposed merger between Foodstuffs North Island and Foodstuffs South Island. Their concern is a decrease in competition in the market.

It sounds crazy when you first hear it, but it’s even weirder when you see what the Commerce Commission is actually worried about.

At first glance it’s ludicrous. It isn’t like there are vast numbers of inter-island shoppers, ferrying and flying between north and south to secure precious grocery bargains from the New World on the other side of the Strait. Price differences between Tauranga’s PAK’n’SAVE and Dunedin’s New World won’t lead to many shopping trips.

But that isn’t what the Commerce Commission is worried about. They worry instead that the combined entity will be too efficient. It will be able to purchase in bulk for both islands, passing some savings along to consumers, and making life harder for their suppliers.

And maybe, if suppliers are pushed too hard, maybe there could be harm to consumers down the track.

Now your first thought might be that the Commerce Commission is also the grocery regulator. One of its specific jobs is to enforce a Grocery Supply Code aimed at protecting suppliers against large retailers. The case for that Code is dubious to begin with. But concern about the merger is hardly a vote of confidence for the Code.

Let’s run with this new form of market harm and see where it takes us. Over the last several years New Zealand has experienced an influx of over 50 pharmacies from Australian juggernaut Chemist Warehouse. As a brand that sells itself on its low prices, the group utilises its combined purchasing power with suppliers to deliver quality goods, from pharmaceuticals to sunscreen, at low prices to Kiwi families.

However, according to the commission’s logic, this could well wind up hurting their suppliers. And really, that’s what competition policy is all about.

Therefore, is seems clear that we ought to split Chemist Warehouse into two separate entities for the North and South islands. Their costs will go up, and somehow consumers will benefit.

Maybe we should also break up Pharmac and have Pharmac North Island and Pharmac South Island. Isn’t it terrible how the merged Pharmac negotiates lower prices?  

I think we can all be glad that this is the steady hand responsible for investigating commercial malpractice in New Zealand.

On The Record

Initiative Activities:
  • Podcast: Education for neurodivergent students, Dr Michael Johnston talks to Holly Gooch and Izzy Bremner from The Hyphen Project about what it might be like for neurodivergent students in a mainstream education system, 11 April 2024

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