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On this site you'll find posts and pages from recent years. The site began as part of my public law practice after leaving Parliament in 2005. Accordingly it records my opinions, not necessarily those of Franks & Ogilvie of which I am a principal, or any client, or the National Party for which I contested the Wellington Central electorate in November 2008.

From the Wellington Writers’ Walk:

“It’s true you can’t live here by chance, you have to do and be, not simply watch or even describe. This is the city of action,the world headquarters of the verb”

– Lauris Edmond, from The Active Voice

Congratulations Jessy Edwards for Uber story

  • September 22nd, 2015

Yesterday’s post complained that MSM reporting doesn’t mention the consumer’s great win from internet disintermediation in accomodation and taxi markets. This morning’s DomPost seemed to prove my point with a sorry beat up from the Taxi Federation of the Uber passenger safety risk.

The risk is real but we consumers properly dismiss it. Like my risk of being knocked off my bike, or a heart attack from what I eat, there are many consequences a free society leaves us to choose individually according to our feeling whether the  benefits outweigh the risks.  The Federation does not want to accept the lessons of TradeMe, Uber,  AirBnB and so on, that reputation feedback mechanisms are beating regulatory precautionary prohibitions in both efficiency and effectiveness.

Then I found on Stuff Jessy Edwards’ engaging survey of the issues. She has explored the consumer benefit, psychic as well as financial, and the delight of drivers freed to work for themselves under the Uber contracting model.

Our dreary employment lawyers and the Ministers who feed them ambiguous law could yet put a stop to this. But for the present I back the infectious enthusiasm of  Transport Minister Simon Bridges for keeping regulators away from this incredible improvement in consumer welfare. He’s a consolation in this government.

I hope he can spare time to suggest to Paula Bennett as Minister of Local Government, that she fire a warning shot in her portfolio. Local government should be told that the law changes in the offing could include one requiring them to reduce or remove barriers to competition that benefits consumers. So Councils looking to dong people who let their baches privately or through TradeMe and its competitors should first have to prove that the ratepayers who rent baches are costing the Council more than permanent residents. Better yet would be rigorous cost benefit evaluation, taking into account the revenue to the district from the visitors.

And moteliers should not be paying more just because they are commercial. They should pay more only as a reflection of extra cost to the Council, if any.

What about the customers?

  • September 21st, 2015

Where is the interest of consumers in this stuff story of a Motelier Association call for nationwide local government regulations to nobble private bach rental competition with moteliers?

The story approaches the issue as one of competition – moteliers facing commercial rates and zoning and other unspecified unfair disadvantages, against bach owners (represented by Trade Me) taking their trade.

No one in this story reflects on the real losers should councils follow the lead of:

The Thames-Coromandel District Council [which] proposed a $200 “bach tax” for anyone renting a home as short-term accommodation, which was then put on hold after a backlash from property owners and booking services.

The losers will be the hundreds of thousands of New Zealanders who miss out on the experience of ‘going to the bach’ if owners decide instead to withhold their baches from the market.

In typical balanced reporting the story cites two sides - what the bach owners get, and what moteliers don’t like. But there is no mention of the primary losers when regulators reduce supply of something people choose to pay for – the experience itself.

The real loss in being forced back to motels and family friends is the lost right to share in the privileges of being a New Zealander without being a member of the bach owning caste. Instead of it being a privilege, most of us can taste bach experience without tugging forelocks. A couple of families can be the temporary exclusive occupiers of some of that magic space. We can delight in someone else’s decor, check their books, be amused by their home handywork, imagine them enjoying the wind protected corner, the swing under the tree, the grape vine’s last bunch just ahead of the wasps, and many others, all unique, unlike the row of motel rooms in their arid car-park commons .

The Stuff report’s absence of instinctive respect for choice and the consumer is sadly not an astonishing omission – most reports of taxi industry unhappiness with Uber suffer similarly. The issue is reported as a fight by an incumbent business for survival against an interloper able to ‘cut corners’ or otherwise unfairly take advantage of a gap in law that ‘protects’ consumers.

Until I tried it I had no idea of how much better the Uber service is. Price is only a fraction of the Uber advantage. Being able to see the car coming on my phone, to know the driver’s name, his car type and number plate, his phone number are all new ‘privileges’. Getting out at the destination without payment is a further joy.

I gladly trade the spurious quality assurance and safety ’protection’ of the taxi licencing system, for the reputation based rating service offered by wonderful Uber.

But the regulators will be sure they are doing God’s work when they interfere. The poor moteliers are probably the realists. They should have been calling for freedoms equal to those of bach owners. Fat chance. Instead they see their only choice as to ask for equally damaging burdens on the competition. Why should they care about consumers – goverment only pretends to.

NZX gets key measure right in NXT market

  • September 18th, 2015

The slow take-up of the NXT market opportunity does not surprise me.

It may yet take off. But the listing rules turn too many aspirational principles into minimum conduct obligations enforceable with savage penalties. They make it rational for entrepreneurial companies to stay clear of listing.

The NXT market needed a clean break. It should have offered a persuasive promise that dishonesty would be pursued implacably, but not mis-judgment. Low quality decision-making in bad luck is hard to distinguish from current lawyer views of negligence. So entrepreneurial companies which must make decisions under high uncertainty and with information that could always be improved by spending more or waiting longer, are often best to stay private if they can. So the public are deprived of the opportunity to invest in them.

Even the modified continual disclosure obligations create too much risk of harsh and very expensive hindsight judgment as to what should have been appreciated and disclosed. They do not exclude the risk of being forced into premature disclosure that can damage the business, or damage reputations as events unfold unexpectedly. At the least the compliance burden of listing will distract board and management. It sits beside another risk of being listed – that some management become addicted to public attention, and invest too much in managing perceptions and not enough on managing the business.

Nevertheless the NXT market has pioneered some great new features. I’m impressed by the KOMs (Key Operating Measures) in the post float reporting, after identifying them in the offer docs. They may differ for each company. It seems to be a sensible mechanism to substitute for the clutter and irrelevance of much IFRS material.

I imagine that it is helpful in the preparation of offer documents, and in guiding management after listing, to focus the  company hard on the factors most relevant to its real prospects.

I hope the NXT market develops enough momentum to cement into market expectations generally that investors should be looking for KOMs particular to each company.

Local Government Commission responsibility for wasted amalgamation costs

  • September 16th, 2015

Ron Mark MP in Parliament today excoriated the recent performance of the Local Government Commission. I’m hopeful that it will improve under Sir Wira Gardiner. It has much ground to make up. The LGC should be extremely humble after obvious failure to produce any valuable reform over the past few years, and after voters showed  no respect for its recommendations.

Ron urged the government to read my firm’s submission in May this year to the Local Government Select Committee. This post notes a few conclusions set out in that submission based on some years of dealing with the Commission.

First, we argued that there is a vital role for a Local Government Commission committed to intellectual quality. We submitted that:

“…the Commission should be a stimulating centre of knowledge, research and excitement about local government excellence. It should be promoting rigour and wide thinking about the possibilities and the problems, drawing from experience across New Zealand and around the world. It should help protect local councillors and local democracy from temporary fashions in reform enthusiasm, misinformation and unreasonable expectations of local government. It should be ready for those purposes with sober, objective and clearly independent and neutrally authoritative comparative information. It should be trusted by government and parliamentarians as being unbiased and expert in its role. Its contributions should be so inherently compelling they would be sought. It should be respected enough by local authorities that they refer disputes voluntarily. It should have a reputation for independent excellence sufficient to lead local authorities to welcome it as a nominator for positions on CCOs or other multi-authority bodies.”

We went on:
It currently offers none of the above. Some of that could be remedied with suitable changes to its governing statute. But it does not presently deserve confidence that it would not abuse, or fail to deliver with, such powers.
This submission sets out circumstances that lead us to that assessment, including the Commission’s;
a) odd interpretations of its governing statute, including a bizarre attempt to persuade us that legal white is black;
a) false presentation of important provisions of its governing statute in public information, with an apparent intention to persuade citizens that the Commission’s decision criteria were both lawful and satisfied;
b) lack of research (or curiosity) about important reform decision factors it is legally required to evaluate;
c) obvious bias;
d) origination of misleading description used in propaganda to the public;
e) use of unsupported emotive language in reports that should have been objective and research based;
f) indifference to delay in correcting established material errors in published material while citizens were being encouraged to make submissions in reliance on it;
g) seeming lack of interest in obtaining objective appraisal of the Auckland experience;
h) commitment to the “single voice” objective for local government without any critical appraisal or research, or even intuitive reflection on pros and cons;
i) failure to reflect on or to research the relative performance and experience of councils of differing sizes, including the contribution of small Councils in the response to the Canterbury earthquakes.”
We described instances of the Commission making up “statutory” language to support its view of what its objectives should be because the actual statute was inconveniently different. When we drew this astonishing deceit to the attention of Wellington Fairfax reporters, unbelievably it was not reported. The DomPost evidently agreed with the great and the good of Wellington that the outlier peasantry would be better off ruled from the centre, and a little thing like a statutory commission lying about the law was an inconvenient truth not worth exposing.

Our submission to the Select Committee set out chapter and verse:

Missed out the ‘local’¯ from democratic local decision-making

The purpose of local government is (s 10):
j) to enable democratic local decision-making and action by, and on behalf of, communities; and
k) to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses.
In explaining the legislative requirements [in its published assessment of proposals for amalgamation], the Commission misquoted the LGA, saying:
“(8) The purpose of the local government is to enable democratic decision-making by, and on behalf of, communities”.
The LGA [conveniently omitted the words “local” and “and action”].
There are three mistakes in this misquote of the legislation. The legislation is critical and directly affects the decision the Commission is evaluating. To alter key criteria from “democratic local decision-making” to simply “democratic decision-making”¯ materially changes the meaning of the criterion. Similar mistakes are made elsewhere in the proposal with “local”¯ being left out in key considerations . This is contrary to the purpose of the LGA. As Justice Collins in the NAG decision said “communities [must]be the focal point of the way local government is organised”¯ and “Parliament’s intention [is] that communities be more empowered to influence the basis upon which local government is reorganised”¯.
Instead of concentrating on “local”¯ decision-making the draft proposal focuses on the need for a stronger and more effective regional leadership and a strong voice with local government . This example shows a misapplication of the law.

We expanded on the Commission’s invented (and illegal)  ’strong voice’ criterion

We think the mistakes may be due to the Commission focusing on the need for a “strong voice” or “single voice”¯. This is not a legislative criterion. Nor is it a criterion that is subject to any disciplined analysis. They seem to have given no consideration whatsoever to:
1) the enhanced risk for a community if the “single voice” is discredited and not widely respected;
2) mechanisms to reduce the “all our eggs in one basket”¯ risk of single voice suppression of dissenting voices;
3) ways to [improve] the quality of the voices contending for local leadership.

This “single voice”¯ mistake was at the heart of the Draft Proposals for Reorganisation of Local Government in [Hawkes Bay and Northland]. Both proposals referred to the need to have a “single voice to advocate to central government”.

On 18 July 2014 we wrote to the Commission requesting information on the “single voice”¯ references. Their reply of 18 June 2014 [enclosed] said:
“The Commission sees this as closely relating to effective representation of communities of interest, a criterion under clause 11(5) of Schedule 3 of the Local Government Act 2002. Effective representation of communities of interest is an important contributor to enabling democratic local decisions-making by and on behalf of communities, being part of the purpose of local government and a criterion under clause 12. The Commission will be taking such matters into account in determining how it will proceed with the current proposals.”

But in fact as we explained to the Commission:

“Clause 11(5) requires the Commission to be satisfied that the local authority proposed will “contain within its district or region 1 or more communities of interest, but only if they are distinct communities of interest”¯. There is no mention of “effective representation of communities of interest”¯ in clause 11(5). The first purpose in section 10 is “to enable democratic local decision-making and action by, and on behalf of, communities”¯. The statutory purposes make no reference to representation; rightly, as representation of voters is a condition of legitimacy, but representation of a territorial area would be among the least important functions of local government.
The only use of the phrase “effective representation” in Schedule 3 is in sub clauses 15(5)(b) and (7). The first is to ensure enough local board members to “provide effective representation of communities of interest within the district”. The second has a similar purpose.
Clause 15 is a strong direction to ensure that particular communities are not left without effective representation. Far from being authority to promote a “single voice”¯, by reducing the likelihood of multiple views being expressed, it is an instruction to protect one of the fundamental purposes of representative democracy. In brief, it is about local voices, not single voice.
Furthermore, even if it had not been an attempt to mislead us and others, with a patently false claim to statutory legitimacy, the Commission should have been sufficiently expert, analytical and well informed to ask itself whether having one strong regional voice to central government is as important as ensuring representation of competing views.
They should have been examining the Auckland experience to see whether having a single voice means that voice will be a sensible or representative voice.”¯

Misleading advertising
The Commission distributed propaganda for the Wellington amalgamation instead of objective description. It included passages very similar to those which the Advertising Standards Authority Complaints Board ruled, when used in GWRC propaganda:

“represented its own assumptions and opinions as fact which was misleading and was likely to exploit the lack of knowledge of the readers”¯. The Board found statements in the advertisement were in breach of Basic Principle 3, and Rules 2 or 11 of the Code of Ethics. Consequently, the Complaints Board ruled these parts of the advertisement had not been prepared with a due sense of social responsibility, breaching Basic Principle 4.”¯

On the now failed Hawkes Bay proposal the Commission said:

“One council and one Mayor, supported by a Maori Advisory Board, would work to advance the interests of the entire region and would provide strategic leadership across Hawkes Bay as a whole. One Council would also address concerns that Hawkes Bay is being held back by rivalry and a lack of cooperation between existing councils”¯.

This press release was a subjective promotion of amalgamation despite overwhelming feedback against it. The Commission produced nothing to substantiate the contention that rivalry and a lack of cooperation was “holding back”¯ Hawkes Bay. There was no apparent awareness of the research literature which evaluates the benefits of “regulatory competition”¯ to discipline bodies susceptible to abuses of power. There appears to have been no interest in the vital contribution of small local authorities Waimakariri and Selwyn, given the poor performance of Christchurch City Council and Environment Canterbury before the appointment of Commissioners.
Lawrence Yule, Mayor of Hastings and LGNZ head, has shown how to take a lesson in his response to losing the amalgamation vote in Hawkes Bay. I’m reasonably confident that the Gardiner LGC will be a similarly good learner.

But the acid test will be whether the Commission and LGNZ now turn to investigate ways to improve local democracy. See here, and here for some suggestions.

Different regions should be set free to experiment (given that this government is already experimenting with tailor-made models in Auckland and Canterbury). We will need law changes to secure better Councils. They must eliminate some of the perverse incentives and unfair liabilities that distort decisions. They could reduce the trend toward elections being name-recognition exercises even for avid followers of public affairs.  And they could reduce the time frustrations that steer high calibre people away from local government.

LEANZ on dairy industry issues

  • September 14th, 2015

I’m looking forward to hearing Prof Keith Woodford of Lincoln University, at this evening’s Wellington LEANZ session.

The fate of Fonterra and the dairy industry remain of intense interest to me though I have not worked in that industry for some time.
It is interesting to gather all the digestible data and views offered when there is so little consensus on the level of risk facing our biggest single industry (and NZ with it).

A neighbour economist tells me the risks of a Bank mortgagee sale collapse are very low, because the NZ currency is so tied to world dairy prices, albeit with a 6 month or so lag. In other words our currency will ensure we all share the misery and dairying will remain viable for all but the most over-stretched.

I’m sure Keith Woodford’s opinions will be similarly challenging. And I owe him as a contrarian more than I do any economist. His book on A2 milk lead directly to what has been a profitable investment for my family after Cathy told me he would be worth heeding. So he deserves some loud applause, whatever I end up thinking of his views this evening.

From the obituary of a true liberal

  • September 4th, 2015

In a wonderful New Criterion obituary of Robert Conquest, John O’Sullivan reminds us of the courage it took to be among the few in the intelligentsia willing to expose the tyranny of Stalinism and to support freedom’s champions like Margaret Thatcher, despite a previous lifetime of voting Labour.

But on a day when that bouyant spirit Maurice Williamson is forced to pretend regret for upsetting some lemonsuckers, it was comforting to read of Conquest’s joy in offending the clerisy.

The obituary offers this memorable verse aimed at the education elite.

“Those teach who can’t do” runs the dictum,

But for some even that’s out of reach:

They can’t even teach—so they’ve picked ’em

To teach other people to teach.

Then alas for the next generation,

For the pots fairly crackle with thorn.

Where psychology meets education

A terrible bullshit is born.”

But Maurice might like this comfort for this dark day:

My demands upon life are quite modest,

They’re just to be decently goddessed.

Astarte or Isis

Would do in a crisis,

But the best’s Aphrodite, unbodiced.

Leave Fonterra to sort itself (or not)

  • August 28th, 2015

The amalgamation/monolith structure of Fonterra was a mistake. But it is what we have and pulling it to bits now could compound the mistake.

The Fonterra monopoly came from a conjunction of  dairy politics with the instincts of a leftist Clarke Cabinet, at a time when they needed to rebuild trust with business. The Fonterra ‘capture the value chain’ slogans appealed to a Cabinet nurtured on coop=good/big battalions/commanding heights socialism. So they legislatively outflanked the Commerce Commission, relegated official reservations, and created the monolith.

The Herald has an excellent review of the reasoning and the outcomes by Tony Baldw, an official at key times. But his recommendations could be used to support those who’d like now to pull levers the other way, and impose new structures, equally well meant, equally sloganistic,  and equally without knowing the future any more reliably.

I led the legal team working for the Dairy Board on the Globalco proposal that got killed by the Commerce Commission in 1999.  As an MP I sat on the Select Committee that refined the Dairy Industry Reform Act after the deal to set up Fonterra.

My personal view had been that the stand-out best solution was to set up two competing coops, preserving the competitive challenge of their different cultures. But deliberately creating a cluster effect instead of a monolith was anathema to the coop fundamentalists of that era.

The McKinsey and Boston Consulting Group work focussed on the potential gains from size. In my opinion they were too influenced by what they thought was politically acheivable. They  knew what Dairy Board people who were expected to win the internal political struggle wanted to hear. So the relative sophisticates of NZ Dairy Group from Hamilton were subordinated to the cult figures of Kiwi, gathered around Craig Norgate in Hawera. The latter seemed  better at shed politics.

I am a strong believer that coops are a robust and sensible mechanism for collective farm gate marketing by and for farmers. I do not share the scepticism about the ability of farm leaders to become excellent directors. But I am deeply sceptical about the group think that emerges in any institution insulated from the constant reality challenge of genuine competition in its key operations. ‘

I am aware of no evidence that business is necessarily better when it is bigger, and especially when it gains monopoly power. Jeremy Moon’s business did not come out of the Wool Board. It was not an insight of raw material suppliers. Whittakers Chocolate is tiny by world standards but it is taking on Nestle and Cadbury and their big owners and winning in Australasia, apparently without the outside capital people believe Fonterra must have, and without legislative preference. But the rewards for that kind of entrepreneurship go to those whose unique skills and experience create the value. Farmers can’t buy that income stream just by recognising that it is a great source of value, and setting out to capture it.

This is not to contend that scale is irrelevant. It was sensible to create coops at least big enough to afford efficient scale processing plant, and to attract the kind of management talent that might develop breakthrough gains to match the huge gains in on farm productivity.

However the farmer-rule faith folk had persuaded themselves that coop needed monopoly, to eliminate “weak sellers” and competition at the farm gate. They believed that size gave the power to dictate to markets and consumers, so you could cut out the returns that otherwise go to ‘parasitic’ middlemen, like marketing experts and entrepreneurs.

So we got a single dominant player, with all its problems, including a lack of local alternative employment for ambitious execs who challenge orthodoxy within Fonterra.

Baldwin cites the Aus Competition and Consumer Commission’s common sense:

“if you cannot beat your rivals at home, how can you hope to do so overseas?”

His material from the Australian Productivity Commission (ACP) may have been covered in agricultural papers in New Zealand before, but if so I’ve not seen it.

The farmers pressing for the merger of Alliance and SFF, and legislative ‘rationalisation’ of killing capacity, wanted the Fonterra model. Were they asked for the analysis to justify ignoring the ACP “dismissal of the claim that a single dairy co-operative would give it market power to influence international prices — a myth that has dominated and constrained the New Zealand industry for so many decades?

Baldwin goes on “While the Australians have preserved effective competition at the farm gate, New Zealand’s industry leadership has for decades focused on eliminating it. Fonterra claiming that it’s our “national champion” is equivalent to saying we should have the All Blacks without the Super 15 and ITM rugby competition”

But does that mean Fonterra should now break up?  The logic is not obvious just because the value added businesses could use more capital. Successfuly challenging Nestle et al needs much more than capital. Quantitative easing has made debt capital almost free. But even if removing the capital constraint would set that side of the business free, it would still be risky. We’d get the benefit of knowing what the market saw as the increased risk from what it might pay for those businesses separately.

Baldwin implicitly treats returns of 5-8% on capital as inadequate. If they are relatively low risk over the long run, they are actually good. Just not as good as pomised by the Fonterra creation puffery. And if he is ignoring the return from land values the criticism is misleading. All around the world increases in rural production are captured into land value increases. They always make returns on capital employed in farming look poor. But they are real gains, obtained over centuries.

What alternative investments would farmers make with capital released from Fonterra? Cutting debt probably. But we need to know if the return on that is better than the return on the under-performing businesses withing Fonterra, as they are now valued. If  they have option value for Fonterra it may not be worth splitting them out. It is  a respectable achievement not to lose money consistently in ancillary and experimental businesses.

In the absence of compelling analysis I hope Fonterra now holds its course against criticism. But the NZ government should ensure there is nothing in the legal environment to prevent  its (NZ owned)  competitors from growing rapidly:

  1. so New Zealand farmers have more eggs outside the Fonterra basket, and
  2. so Fonterra has more domestic competition for milk, for employee brains and for strategies.

Inequality presentation on Monday evening

  • August 22nd, 2015

I’m looking forward to the LEANZ session on 24 August. Max Rashbrooke, author of Inequality: A New Zealand Crisis (2013) will present. This inequality issue has long interested me, starting with passionate student egalitarianism.

Max is universally respected as a nice and well intentioned man, but the Spirit Level believers (financial inequality causes social pathology) have a lot of explaining to do. Recent reports suggest that New Zealand ‘inequality’ in spending power terms has not deteriorated over many years.  Max will undoubtedly comment on those reports.

I hope he also addresses others, such as the Spirit Level’s flawed statistics on health correlations with inequality.

My main concern about The Spirit Level emerged on first reading. It appeared to show strong correlations, but it assumed causation. That might be fair enough, but my first edition did not contain anything convincing on the direction of causality.

I’m told that  a new edition has a chapter on the direction of causality. Hopefully Max will have evidence on whether poverty causes poor personal and human capital (e.g. lack of persistence and other characteristics that accompany, and seem responsible for relative wealth and economic outperformance). Or do cultures that fail to train for such traits come first and cause inequality?

That is a far more important question than whether there is a correlation. Because if the culture causes the inequality, and not the other way round, the poverty may not be remediable by financial transfers to reduce inequality. If the transfers merely subsidise and cement poor cultural values in place, they may exacerbate poverty.

If that is the case (which became the subject of bitter argument after disclosures of decades of huge transfer payments to the population of rioting Ferguson, Missouri) then investment should be in forms of education that are explicitly culture changing.  That is if there is evidence that such efforts work, presumably when targeted at the right time of life (for example young mothers).

After billions spent in 40 years of our DPB, and a great deal of good will and hope, it seems to me our increases in inequality (where established) suggest a causality in the direction our grandparents would have thought, intuitively.

But of course the first requirement in all this is an open mind, trained to recognise the power of self delusion.

Former Auckland Medical School man Graham White QSO reminded me of this when he sent a link to the 2014 IEA paper (linked above) with:

“The Unnatural Nature of Science”  -  Lewis Wolpert  -  ”The capacity for self-delusion, even among scientists, should never be underestimated: conviction can have profound effects on observation.”


“Thinking Fast and Slow” – Daniel Kahneman  - “The prominence of causal intuitions is a recurrent theme in this book because people are prone to apply causal thinking inappropriately to situations that require statistical reasoning …     System2 (viz., thinking slow) can learn to think statistically but few people receive the necessary training.”


Cunning RMA move is Constitutionally dodgy

  • August 18th, 2015

Every young Aucklander unable to afford a house should applaud the Hon Nick Smith’s cunning scheme to force planners to take that cost into account. If Dr Smith uses his plan boldly enough he may gut the paralysing Auckland PAUP and negate the Hon Peter Dunne’s veto on RMA reform. The scheme also highlights the constitutional barbarism lurking in last year’s Supreme Court “King Salmon” decision.

The details so far are sketchy (described by Kiwiblog drawn from behind Richard Harman’s Politik paywall). But it seems to be a delightful fulfilment of prescient comments by Patrick Smellie in April on the Supreme Court decision.

The King Salmon decision was welcomed by those who fear changes to the status quo, but it contained the seeds of a constitutional time bomb.  Effectively it may say (see here and here) that Cabinet policy documents could trump words of the statute under which they had been issued.  It interprets the authority of National Policy Statements with an effect akin to validating them as products of  a “Henry VIII clause”.

Normally Parliamentary intention is supreme, and Cabinet (the Executive) instruments will always be treated as subordinate to contradictory implications of the legislation. In defence of the Supreme Court, the RMA is drafted with no respect for normal rule of law or constitutional conventions. The Court is obliged to try to make it work.  ’Environmental law’ is like family law, scarcely predictable enough in result to justify the term ‘law’. It has become a contradiction in terms. The RMA is a conglomeration of worthy slogans and powers. They authorise often incompetent mini-rulers to issue decrees which reflect and express their uncosted aesthetic, spiritual, class and political or tribal prejudices.

Now the Court approach may have given the National government a get out of jail card to end the economic sabotage of Peter Dunne, and the planners. Unfortunately for the rest of us there is a risk that Cabinets will become keen on the device. They may start defacing other statutes with similar versions of “Henry VIII clauses”. They will thwart the certainty and constraint on executive power intended by  Parliamentary conventions. They effectively delegate back to the executive the power to decide what a statute will mean from time to time.

That in turn will likely lead the Courts into attempts to confine the King Salmon approach and distinguish it out of existence.

An obvious tactic will be to draw on the Supreme Court’s King Salmon focus on the care and deliberation that had gone into the relevant National Coastal Policy Statement. A Court trying to undo the damage of that decision could decide it must examine closely the quality and procedures of subsequent Cabinet policy statements designed to corral the planners. Such court interest will set up constitutional tensions we might have avoided if the Hon Amy Adams had not been blocked by Mr Dunne.

But lets appreciate the genius in the current proposal.  If Dr Smith uses his plan boldly enough he may at least end the planners’ assurance of unearned, untaxed wealth for Auckland’s property incumbents at the expense of the rest of New Zealand. And if the device is likely to become discredited over time, and negated by fresh court decisions, Dr Smith might as well be hung for a sheep as for a lamb in the meantime.


Was our Saudi sheep farm wasted money whatever happened?

  • August 6th, 2015

A startlingly blunt report in the Telegraph says that “If the oil futures market is correct, Saudi Arabia will … be in existential crisis by the end of the decade“.

If correct it also makes our ‘ investment’ in a desert sheep farm to secure a FTA look  unrewarding. Even if the bribe had secured the the FTA instead of exploding in our faces with more ill will and mistrust, the Telegraph scenario would have Saudi Arabia unable to buy much from us within this decade.

The report says:

” The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6 million barrels a day (b/d) into the teeth of the downturn.

Bank of America says OPEC is now “effectively dissolved”.  

If the aim was to choke the US shale industry, the Saudis have misjudged badly…”

The Saudi central bank’s latest stability report is cited:

“The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience,” it said.

But it appears that everyone has misjudged the extraordinary inventiveness of the US drillers who created and are still developing the fracking miracle.

“The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45 per cent this year – and not only by switching tactically to high-yielding wells.

Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $US300,000 a well. “We’ve driven down drilling costs by 50 per cent, and we can see another 30 per cent ahead,” said John Hess, head of the Hess Corporation.

It was the same story from Scott Sheffield, head of Pioneer Natural Resources. “We have just drilled an 18,000 foot well in 16 days in the Permian Basin. Last year it took 30 days,” he said.

You have to be awed at an industry that can innovate as fast as the US drillers. The report cites an insider’s warning that:

the resilience of the sister industry of shale gas should be a cautionary warning to those reading too much into the rig-count. Gas prices have collapsed from $US8 to $US2.78 since 2009, and the number of gas rigs has dropped 1200 to 209. Yet output has risen by 30 per cent over that period.

… even if scores of over-leveraged wild-catters go bankrupt as funding dries up, it will not do OPEC any good.

The wells will still be there. The technology and infrastructure will still be there. Stronger companies will mop up the cheap, …. Once oil climbs back to $US60 or even $US55 – since the threshold keeps falling – they will crank up production almost instantly.

OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output. The only constraint is the scale of US reserves that can be extracted at mid-cost, and these may be bigger than originally supposed, not to mention the parallel possibilities in Argentina and Australia, or the possibility for “clean fracking” in China as plasma pulse technology cuts water needs.”

The result?

“Saudi Arabia is effectively beached. It relies on oil for 90 per cent of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.

The article goes on to highlight the costs of the Saudi royal family’s leadership of the Sunni cause in the bitter struggle between Sunni and Shia across the Middle East.

“The country has  been burning through its foreign reserves at a vertiginous pace.

The reserves peaked at $US737 billion in August of 2014. They dropped to $US672 billion in May. At current prices they are falling by at least $US12 billion a month.

It then cites Standard & Poor’s negative outlook:

“We view Saudi Arabia’s economy as undiversified and vulnerable to a steep and sustained decline in oil prices,” it said in February.

The Telegraph concludes:

“The Saudis are now trapped. Even if they could do a deal with Russia and orchestrate a cut in output to boost prices – far from clear – they might merely gain a few more years of high income at the cost of bringing forward more shale production later on.

Yet on the current course their reserves may be down to $US200 billion by the end of 2018. The markets will react long before this, seeing the writing on the wall. Capital flight will accelerate.

The government can slash investment spending for a while – as it did in the mid-1980s – but in the end it must face draconian austerity. It cannot afford to prop up Egypt and maintain an exorbitant political patronage machine across the Sunni world.

Social spending is the glue that holds together a medieval Wahhabi regime at a time of fermenting unrest among the Shia minority of the Eastern Province, pin-prick terrorist attacks from ISIS, and blowback from the invasion of Yemen.

Diplomatic spending is what underpins the Saudi sphere of influence caught in a Middle East version of Europe’s Thirty Year War, and still reeling from the after-shocks of a crushed democratic revolt.

We may yet find that the US oil industry has greater staying power than the rickety political edifice behind OPEC.”

But Peak Oil will rescue them, no doubt.

Thanks Phil for drawing this to my attention.

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