Friday, August 23, 2013

New Zealanders to get it good and hard

So, the New Zealand Parliament has passed into law the odious GCSB Amendment Bill that allows the government free reign to spy on its innocent citizens.  In today's political environment, where vague threats of terrorism justify almost any repressive act of government (such as kidnapping people off the streets of friendly nations, summary executions of individuals anywhere in the world with unmanned drones, and torture to obtain confessions), it does not surprise me that the New Zealand Government wants to join in all the fun. What surprised me about the debate leading up to this law passing is the depth of support that Prime Minister John Key has for these dictatorial spying powers.  I guess it just goes to prove what I've always suspected - most New Zealanders are more interested in feeling secure (not matter how much of an illusion that might be) than freedom.  That is, of course, why we have one of the world's most extensive welfare states.

H L Mencken said, "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."  Well, New Zealanders are going to get it good and hard.  As the vacuous waiter said, "Enjoy!"

Wednesday, August 21, 2013

A Sad Day for New Zealand

Today, if Prime Minister John Key gets his way, the GCSB Amendment Bill and Telecommunications (Interception Capability and Security) Bill, will pass their final reading in the New Zealand Parliament and become law.  For those overseas folk who have not been following the progress of these prospective laws, they have been introduced by the Prime Minister (who is also the cabinet minister in charge of the security services) because it was discovered that our Government Communications Security Bureau (NZ's equivalent of America's NSA and Britain GCHQ), had been illegally spying on New Zealand citizens and residents.

GCSB is part of the "Five Eyes" close community of anglophone government security officials that includes USA, Britain, Canada and Australia.  We know from the revelations of Edward Snowden and Bradley Manning that the United States and its intelligence allies have been circumventing their own laws by spying on their citizens without warrants or with unconstitutionally broad warrants from patsy judges.  We know, for example, that these agencies have used each other to spy on each other's citizens, thereby avoiding legal restrictions on domestic surveillance.  In the case of New Zealand, it was revealed that the GCSB was illegally spying on Kim Dotcom, a New Zealand resident, at the behest of the US authorities - as well as many other New Zealanders.  The response of our Prime Minister and Government was not to prosecute those security agency officials involved but rather to change the law to allow GCSB to spy on New Zealanders. The only oversight will be that of the Prime Minister and an official he appoints.

There is something very worrying about a government changing the law to make legal that which is has been caught doing illegally.  It completely subverts the principles of the Rule of Law and makes a mockery of the law itself.  Why would anyone have respect for the law if the government itself does not?

The Prime Minister has justified the change on two main grounds, firstly because of some vague threat from New Zealanders being trained by Al Qaeda, and secondly because he says he will apply it judiciously.  In regards to the first justification, I simply do not believe there is a credible and immediate threat to New Zealand from Al Qaeda. I am sure John Key has been told there is by US intelligence agencies but they would tell him that, wouldn't they?  In regards to the second justification, why would we trust his discretion in a matter where it is clear he knew about the law-breaking in the first place (at least in the case of Kim Dotcom)?  In any event, such grounds do not begin to justify the sort of wholesale invasion of innocent citizens' privacy we have already seen in the US and now increasingly in this country.

We live in a Westminister democracy.  The Prime Minister is accountable to Parliament, not the other way around.  These bills will pass today with a majority of one vote unless someone in the governing National Party or its allied MPs John Banks and Peter Dunne choose to vote against it.  I think it is a forlorn hope that one of them has the principles and gumption to cross the floor on the final vote.  It will be a sad day for New Zealand if none of them does.

Sunday, August 11, 2013

Fonterra a Perfect Example of Crony Capitalism

New Zealand faces a number of major economic risks with the world economy continuing to experience slow or no growth, but one of the worst is our dependence on the dairy industry.  This country of just over four million people has the largest dairy export industry in the world, accounting for around one third of global cross-border dairy trade.  It provides one quarter of New Zealand's merchandise export earnings, worth nearly $15 billion last year.  This is all good, I hear you say, and you'd be right except for one thing - the entire trade is controlled by one company - Fonterra.  

Fonterra traces its history to the formation of the New Zealand Dairy Board in 1930.  It is a cooperative structure, owned by its farmer suppliers.  From its beginning, the organisation has had a statutory monopoly on the export of dairy products and ownership is restricted to its farmer suppliers.  In 2001, the Dairy Board was merged with the two dominant cooperative processing companies, NZ Dairy Group and Kiwi Dairy Company to form a monolithic, vertically-integrated organisation that controls every aspect of production and distribution of New Zealand dairy products from the farm gate to the overseas supermarket.

The monopoly has produced two negative effects, both of which were predicted by those who opposed the 2001 merger - it has led to domination of the domestic market with correspondingly high prices for New Zealand consumers, and it has created a systemic risk of market and brand failure. The latter has been demonstrated twice in the last few years, both times in the lucrative Chinese market - firstly with the horrific 2008 scandal involving Fonterra subsidiary Sanlu that led to the deaths of six babies and the hospitalisation of 54,000, and most recently with the Chinese suspension of imports of Fonterra's milk and whey powder due to botulism.  As this article in Bloomberg points out, the impact of this latest incidient is likely to go beyond Fonterra and the dairy industry. It has already led to a decline in the New Zealand Dollar and knock-on bans in other countries such as Sri Lanka.   

The failure of one company ought not to affect an entire economy.  In a competitive market, other companies with equally strong brands would be largely unaffected and would step in and fill the gap in exports caused by the failure of the offending brand.  This cannot happen with New Zealand dairy exports because of Fonterra's statutory monopoly.

Contrary to popular belief, monopoly is not the natural end-state of capitalism.  Monopolies may occur in a totally free market but only where the dominant player has some huge competitive advantage such as control of critical patents, and even then such monopolies are usually short-lived. Perhaps the greatest monopoly of the them all was John D Rockefeller's Standard Oil but even his monopoly wasn't absolute and was relatively short-lived - being confined to lighting oil in the late 19th Century. Contrary to popular belief, the end to Rockefeller's monopoly didn't come from the US antitrust Sherman Act enacted in 1906 (although this was vindictively used to break up his company) - Standard Oil's dominance was already being eroded by the innovation of electric lighting and the development of new oil products for automobile fuel.  In a free market, all monopolies are short-lived because they can never counter all the likely sources of innovation over the long term. We have seen this with Microsoft, which has not been able to extend its dominance in desktop PC software to the new markets for smartphones and tablets.

The one situation where monopolies do thrive, however, is when they are government-mandated.  The only reason Fonterra and its predecessors have monopolised the New Zealand export dairy market for so long is their legislative protection.  A free market might have produced a dozen Fonterras by now.  If you want to see the potential, you need only look at another dairy cooperative in another country that was set up at the same time - Nestle in Switzerland.  Nestle has grown without the legislative protection of Fonterra to be a highly-diversified food manufacturing company and one of the best known brands in the world.  Fonterra by comparison, has remained largely a commodity producer.  A ban on the import of Nestle milk powder products to China would have minimal effect on the whole of Nestle's business and would be virtually unnoticed in Swiss export trade figures.   

We seem to especially like government-mandated and government-owned monopolies in New Zealand. Our energy, transport and accident insurance markets are totally dominated by such structures.  We pretend that these monopolies are the best for New Zealand but we never try to assess the opportunity costs.  It is no surprise that we have no other large, internationally-competitive private sector companies of the scale of Fonterra. So much of our capital stock in tied up in these protected, crony capitalist entities that there is little incentive or appetite to make New Zealand the home of an Apple, Nokia or Ikea. Perhaps that is one of the reasons New Zealand continues to languish at the bottom of OECD income-per-capita tables. 

Friday, August 2, 2013

The Narrowing Gap Between the Forbidden and the Compulsory

I was recently talking with a friend of mine about the inexorable encroachment of the power of the state into every area of our lives and he made a very insightful comment. There have always been things that are forbidden by the government - traditional crimes against person and property such as murder and theft; and there have always been things that are compulsory as well - taking care of your own children, for example. For most of the last few hundred years, in Western nations at least, the gap between these two areas of state proscription has been large and the State did not consider it to be its business to interfere in areas as broad as where and how you work, whether you save for your retirement, whether you make provision for personal medical care, how you are educated, what you eat and drink, and what you sell to your neighbour. We regarded countries that did try to interfere in all these areas of its citizens lives to be feudal and dictatorial.

The West, led by Britain and the United States of America, valued individual liberty and rights as important foundations of their ways of life. Of course, individual liberty and rights were not absolutes and there were significant exceptions to the rule, such as slavery in the United States before Emancipation, but the general principle was that the state left people alone unless there was good reason not to.  It is this principle that has been abandoned in much of the western world today where governments consider it not only their right but their responsibility to interfere in every area of every citizen's life. The gap my friend talked about is now almost non-existent. Sure, there are a few areas of increased personal freedom such as around the removal of state sanctions against homosexual relations, but the generally the trend has been far in the other direction.

Today we face new challenges to the narrowing gap that remains. Governments across the Western world are trying to ensure we do not say or do anything that is contrary to the narrow view of acceptable behaviour as defined by the small, often unelected, elite in the executive branches of our governments.  These people claim the right (often disregarding legal and constitutional restraints on their power) to watch our every move, listen to everything we say and read everything we write. As always, they claim this is for our own good, to protect us against poorly defined threats and enemies. They often claim these powers are temporary but of course they never give them up.

In the past the mainstream media would have carried the flame of the protests against this encroachment of the state but now most in the media are apologists for it. There are a few who are prepared to stand up and act against this existential threat to free, democratic society from within. Edward Snowden is one of the few. He has exposed illegal an unconstitutional activity by the US Government against its own citizens. Americans should stand up for Edward Snowden before it is too late.