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
Andrea Vance and others in RNZ’s MediaWatch this weekend have been bewailing the absence of public concern about their allegations (or disclosure) of politician lying.
They are right to be anxious that democracy may not be safe if lies have no cost. The questioning in the programme tested the concern.
But most revealing was an incredible lack of elite awareness of their own intellectual limitations (or blinkers). Some journalists are intelligent enough to understand that ordinary citizens will not care what is thought by journalists who despise them and their values. But few political journalists know why ordinary people think as they do.
When they find out they despise them. A remarkable demonstration last week of elite arrogance from a Treasury pet intellectual reminded me of my experience with political journalists. Bernard Cadogan has been paid to advise Treasury on Brexit, from his English academic perch. In an extraordinary hour he sneered and preened in a revealing display of why ordinary English voters would have ceased to listen to his class. Toward the end he purported to illustrate how stupid were the Leave advocates and popular referenda generally with a comparison to the NZ “Law and Order referendum” of 1999. According to him it “rabbited on and rabbited on and rabbited on…” and was “impossible for a judge to apply”.
It read “Should there be a reform of our Justice system placing greater emphasis on the needs of victims, providing restitution and compensation for them and imposing minimum sentences and hard labour for all serious violent offences?”. This measure passed by 91.78%.
In fact that vote reverberated in Parliament, and helped overcome the status quo defense of the Justice establishment. It played a significant role in the toughening up that may have belatedly helped reverse our climbing serious violent crime rates.
I spent my years in Parliament with virtually no media interest whatsoever in criminal justice facts, research or policy analysis. As a typical swot, I fondly thought when I entered Parliament that they would be important. Instead all the work I put into criminal justice policy was repaid by constant repetition of the media’s brand of me and ACT as “far right”. In fact most of the policy innovations I advanced were drawn from Bill Clinton’s 1996 reforms, and much of the political language from the UK Labour Party website.
None of that stopped routine reports as if of fact that our policy was cynical populism we could not possibly believe (because we were perceived as intelligent) . I recall not one attempt over 6 years to investigate the policy details or the material my digging got out of official statistics.
The journalists who are realising that most voters no longer care what the media and elite say to each other, will not find a route back to public respect. They despise the public who voted for the Norm Withers referendum too much to apply open minds and sympathy to ordinary values, beliefs and fears.
The media bubble is oblivious to how thoroughly it has suppressed the expression of ordinary people’s real opinions, even by their Members of Parliament. Only Winston Peters can defend many common sense expressions without a collective media swoon then hysterical screeching. Even within families ordinary people often keep their thoughts to themselves to avoid derision from the bien pensant family members.
In consequence politicians and media can lie to each other without the rest of us caring much at all.
Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own by Garett Jones has attracted little public attention in New Zealand, despite celebration of the Otago Longitudinal Study, and the international fame of Otago University’s Prof Jim Flynn. The book draws heavily on the research conducted after his shattering insight established the Flynn Effect.
The Hive Mind thesis is that a nation’s average intelligence can predict and probably determines whether a society can reliably achieve economic and cultural and political institutions and outcomes that we commonly consider good.
Hive Mind wisely steers clear of deep discussion of genetics (and race) in its astonishing nation to nation comparisons. They correlate high wealth and successful institutions, with high national average IQs (and low with low).
Hive Mind is essentially upbeat, because it is clear that average intelligence can be raised. It argues that nations with low averages could and will achieve much more as conditions are changed to generate higher average intelligence.
But now Nature.com summarises current science reporting on one of the issues so prudently avoided by the author of Hive Mind.
Genetics and intelligence differences: five special findings says that nature (genes) trump nurture conclusively for intelligence. And of course nearly everyone has heard something of the many studies showing that intelligence is the best predictor for common relative measures of individual economic, social and health success.
This area of science is a slow slip intellectual earthquake. It could collapse some of our the key political verities (sacred and immune from question since eugenics and Nazis discredited all challengers) the way Darwin undermined established religion. The Nature.com report is not dumbed down enough for me to understand it confidently. But there is enough to tell me we are heading toward some knowledge that could be as awkward for democracies (and as tempting to dark forces) as Darwinism was for the Victorians.
The liberal establishment may try to ignore the contradictions for as long as possible. Currently for non-scientists it is simply a heresy to be marginalised. It has not even reached the challenger status of bio-engineering, which the Green clerics are fighting to keep out of disciplined national debate. But religious loons, even establishment ones, eventually get swept away if they fail to develop intellectual ways to reconcile (abandon or render meaningless) wishful falsehood (Adam and Eve) with established fact (evolution).
That at least is the confident expectation of our civilisation.
But other outcomes are possible. The Islamic world was far ahead of the warrior culture primitives from Europe for several hundred years. But when it came to competition between the priestly class and the other intellectuals the former won. They banned knowledge that could imply the Koran did not contain all that was necessary for a [virtuous] life. I was fascinated in Samarkand by the astronomy developed by one of their great rulers. He calculated the circumference of the earth while Europeans were still worrying about falling off the edge.
But even he could not survive when the imans ganged up and had him and his brilliant scholars killed, to create a Central Asia version of the Dark Ages.
Hopefully our establishment will respond as it did eventually to 19th century science. There are very good reasons for concern about connecting inheritance, including racial inheritance, to intelligence. Racism needs little encouragement. But we need to work out how to live with inherited differences without embedding inherited privilege in our law and government.
The US Founding Fathers (some of whom were as near to atheist as political prudence allowed them) were concerned that their constitution could not work without the social glue and bounds of fervent Christian belief. We may be right to wonder if it is possible to keep racism out of the exercise of coercive state power, if there is widespread disbelief in the fond official conviction that we can all be born with equal potential.
We should be trying to develop a coherent reset now, to avoid being swept away by the forces we’ve rightly fought for decades. The winners could be neo-clerical oppressors (suppressing unwelcome knowledge and ruling as the arbiters of what may be thought and said) or the more commonly feared meritocratic indifference to the poor, or even racists who think they no longer need to apologise.
What if “the poor are always with you”ť by birth-decreed definition despite the very best a determined welfare state can do. With Bill English and Paula Bennett trying mentoring, social investment and other “interventions”, the hand-up is getting a good fresh go.
But assortative mating (e.g at tertiary education campuses) may be stretching the tails at both ends of the distribution. Is it making the vital capacities to postpone gratification, and persistence (for example) less evident and less possible for many? Can institutions that assume and rely on general self respect, self reliance and self control survive if they must cater for people who would prefer, and prosper better in, more paternalistic (authoritarian) environments? Can we create new institutions or mechanisms that respond to such differences? Without the risk of us being all put in them, or the unwanted or dangerous aspect of their cultures infusing all institutions? There is literary and folk memory of satisfaction for many in military careers and master/servant relationships we now officially regard as demeaning.
Such institutions or mechanisms might not be compatible with the pervasive hind sight lawyer exposure and micro-management we have evolved.
I suspect the drunken and drug addled despair of Aboriginal communities in Australia could be how our families might respond if our intelligence in tracking and living in an impossible environment suddenly became irrelevant, and a significant proportion of our whanau were unlikely to be able to follow and contribute to the conversation of those who’ve rendered our special skills and aptitudes worthless. From Australia’s struggles, it is not obvious that liberal individualism, or ”non-judgmental” (values indifferent, non-authoritarian?) welfarism can create a setting to remedy that despair.
It might need a more realistic recognition of the wish of some communities for a kind of chosen rule that is more paternalistic and communitarian. Can such communities co-exist alongside communities that want more individualistic liberty, (and its accompanying self-reliance)?
A much younger and more beautiful friend tells me:
“According to my Facebook feed, Brexit has highlighted some obvious flaws in the democratic system. This is what I’ve learned these past few days:
(1) Votes should be weighted in favour of the professional and cosmopolitan classes
(2) Better still, only the above classes should be allowed to vote at all, as the rest are either not uber-cool or can’t be trusted to know what’s good for them
(3) Exceptions to (1) and (2) would apply to anyone who identifies with being female, LGBT, of a non-Caucasian ethnicity or religious persuasion (other than Christianity or Judaism) or who has a physical or mental disability as that would be obviously discriminatory
(4) If anyone under 25 elects not to vote, it’s not their fault and they should be able to cast a late vote if they don’t like the outcome
(5) While we’re at it, anyone under 25 should get at least two votes, as they have more of a future than the rest of us
(6) If we must have a one person-one vote referendum, then MPs should be given a power of veto to prevent any Silly-Billyness
(7) Well, maybe not every MP …”
Rt Hon Winston Peters this morning delivered his stump speech to a Wellington Club room stuffed to the gills with the city’s elite. He called on his great memory of events to keep them absorbed, despite random barbs for them as his natural enemies.
Chatham House rules prevail as Peter Cullen has reminded me. But I can say there was nothing I heard which would surprise anyone who has heard him speak recently, including his invitation speech on Brexit in London.
Election themes were foreshadowed with no surprises – inequality, immigration, arrogance and faults of government on behalf of a shadowy elite.
The significance of this is the huge number who got along at 7am to hear him, and the serious attention he is receiving. Peter Cullen tells me there was a large waiting list. They don’t turn up for a free breakfast. The courteous donate expense contributions. And the “breakfast” is token
Accordingly I see even lower prospects that Winston Peters will not decide who governs after the next election.
And we may be grateful. The media will not cover anyone else who calls out the NatLabGreen ruling consensus on immigration, and race entitlements that trash equality before the law. He alone may be able to ensure we do not need a Brexit style uprising against the elite before such stupidities are reversed.
If he does not find it just all too much work.
Trump and the Rise of the Unprotected Why political professionals are struggling to make sense of the world they created.
The Wall Street Journal: February 25, 2016
We’re in a funny moment. Those who do politics for a living, some of them quite brilliant, are struggling to comprehend the central fact of the Republican primary race, while regular people have already absorbed what has happened and is happening. ….But in my experience any nonpolitical person on the street, when asked who will win, not only knows but gets a look as if you’re teasing him. Trump, they say.
In America now only normal people are capable of seeing the obvious.
But actually that’s been true for a while, and is how we got in the position we’re in.
Last October I wrote of the five stages of Trump, based on the Kubler-Ross stages of grief: denial, anger, bargaining, depression and acceptance. Most of the professionals I know are stuck somewhere between four and five.
But I keep thinking of how Donald Trump got to be the very likely Republican nominee. There are many answers and reasons, but my thoughts keep revolving around the idea of protection. It is a theme that has been something of a preoccupation in this space over the years, but I think I am seeing it now grow into an overall political dynamic throughout the West.
There are the protected and the unprotected. The protected make public policy. The unprotected live in it. The unprotected are starting to push back, powerfully.
The protected are the accomplished, the secure, the successful, those who have power or access to it. They are protected from much of the roughness of the world. More to the point, they are protected from the world they have created. Again, they make public policy and have for some time.
I want to call them the elite to load the rhetorical dice, but let’s stick with the protected.
They are figures in government, politics and media. They live in nice neighborhoods, safe ones. Their families function, their kids go to good schools, they’ve got some money. All of these things tend to isolate them, or provide buffers. Some of them …..literally have their own security details.
Because they are protected they feel they can do pretty much anything, impose any reality.
Here too the anointed/protected impose their virtues on the proles, punishing them if they smack their children, or ride quad bikes without helmets, or drink from glasses of more than 50ml, choose schools that union leaders hate. They force racially inherited (probably life-time) slots on councils where until now voters could eject any who lose their trust. They make secret the names of elite offenders before the courts, and so on and so on.
They’re insulated from many of the effects of their own decisions.
One issue obviously roiling the U.S. and Western Europe is immigration. It is the issue of the moment, a real and concrete one but also a symbolic one: It stands for all the distance between governments and their citizens.
It is of course the issue that made Donald Trump.
Britain will probably leave the European Union over it. In truth immigration is one front in that battle, but it is the most salient because of the European refugee crisis and the failure of the protected class to address it realistically and in a way that offers safety to the unprotected.
If you are an unprotected American with limited resources and negligible access to power you have absorbed some lessons from the past 20 years’ experience of illegal immigration. You know the Democrats won’t protect you and the Republicans won’t help you. Both parties refused to control the border. The Republicans were afraid of being called illiberal, racist, of losing a demographic for a generation. The Democrats wanted to keep the issue alive to use it as a wedge against the Republicans and to establish themselves as owners of the Hispanic vote.
Many Americans suffered from illegal immigration’s impact on labor markets, financial costs, crime, the sense that the rule of law was collapsing. But the protected did fine – more workers at lower wages. No effect of illegal immigration was likely to hurt them personally.
It was good for the protected. But the unprotected watched and saw. They realized the protected were not looking out for them, and they inferred that they were not looking out for the country, either.
The unprotected came to think they owed the establishment (another word for the protected) nothing, no particular loyalty, no old allegiance.
Mr. Trump came from that.
Similarly in Europe, citizens on the ground in member nations came to see the EU apparatus as a racket – an elite that operated in splendid isolation, looking after its own while looking down on the people.
In Germany the incident that tipped public opinion against Chancellor Angela Merkel’s liberal refugee policy happened on New Year’s Eve in the public square of Cologne. Packs of men said to be recent migrants groped and molested groups of young women. It was called a clash of cultures, and it was that, but it was also wholly predictable if any policy maker had cared to think about it. And it was not the protected who were the victims, not a daughter of EU officials or members of the Bundestag. It was middle – and working-class girls, the unprotected, who didn’t even immediately protest what had happened to them. They must have understood that in the general scheme of things they’re nobodies.
You see the dynamic in many spheres. In Hollywood, as we still call it, where they make our rough culture, they are careful to protect their own children from its ill effects. In places with failing schools, they choose not to help them through the school liberation movement – charter schools, choice, etc. because they fear to go up against the most reactionary professional group in America, the teachers unions. They let the public schools flounder. But their children go to the best private schools.
This is a terrible feature of our age, that we are governed by protected people who don’t seem to care that much about their unprotected fellow citizens.
And a country really can’t continue this way.
In wise governments the top is attentive to the realities of the lives of normal people, and careful about their anxieties. That’s more or less how America used to be. There didn’t seem to be so much distance between the top and the bottom.
Now is seems the attitude of the top half is: You’re on your own. Get with the program, little racist.
Social philosophers are always saying the underclass must re-moralize. Maybe it is the overclass that must re-moralize.
I don’t know if the protected see how serious this moment is, or their role in it.
Last month I had a short (3 weeks) and humbling look into the Central Asia that launched Tamerlaine and Ghenghis Khan and many other less well known but regionally devastating conquerors.
I had several weeks in Kazakhstan and Uzbekistan, taking advantage of an offer by friends working there to join them as they explored some of it.
Uzbekistand in particular was awe inspiring (though Astana, the new purpose-built Kazakhstan capital is architecturally fascinating).
In Uzbekistan 35m hard working though poor people offer a warm welcome to awe-inspiring Samarkand, Buhkara, Khiva and post earthquake reconstructed Tashkent. Good food, knowledgeable guides, interesting wines from a very large wine industry, comfortable hotels, reliable transport. Why is it not over-run? Borat may have a lot to answer for.
The two Central Asia countries offered none of the expected badgering by hawkers or anyone else. 70 years of Soviet atheism has given Uzbekistan what Turkey is losing (officially secular state power co-existing with a mild Sufi Islam).
They’ve stayed mostly secular, despite infiltration and threats from neighbouring countries. They beat out a determined mainstream Islamist challenge 10 years ago, with no apologies for seeing it as a life and death matter.
It is challenging to one’s liberal beliefs to work out how the relative freedom and security of such countries could survive with the religious tolerance demanded by “Western”ť values.
10 years ago I did a job in Pakistan. Its intellectual life is dictated by the risk of prompt death for anyone who challenges Islamic orthodoxy, even if the mullahs represent only a small percentage of the population , and few of the qualified people who keep the country running.
For how long can a country survive if it tolerates those who do despise tolerance. How does it stop gaining a critical mass (which may be less than 5%) people whose religion says toleration by a ruler is sinful, with death and martyrdom as the proper responses to deviation, heresy, apostasy?
I felt last week what I feel every time I walk from Auckland International to the Domestic terminal. It is a huge privilege to be here. And this was added gratitude that I do not have to reconcile the diametrically conflicting certainties that drive so many ignorant people in our countries.
“Do mergers make for better councils? The evidence is against ‘bigger is better’ for local government“. That’s how The Conversation on 31 March summarised some unequivocal Australian research findings.
They confirm just how lucky Wellington region, Hawkes Bay and Northland were to dodge the amalgamation bullets prepared by the nobs of New Zealand local government, and recent Ministers. The Australian research is consistent with international evidence reviewed by economist Phil Barry of TDB Advisory before his advice confirmed for Hutt City Council that resisting amalgamation was in the interests of their city and ratepayers.
Of course that resistance attracted snobbish scoffing from the Wellington great and good. They’d planned a fait accompli. They feared that the Hutt bourgeoisie might not comprehend that rule by their betters in Wellington would be best for them. Fortunately, law changes to nobble voter resistance to amalgamation were poorly drafted. A poll could not be prevented. And as voters learned more, they stayed suspicious of what the nobs were telling them.
Astonishingly no authority who pushed for amalgamation has ever thought it necessary to respond to the research. No media “opinion leader” has pressed them to explain themselves. Our Local Government Commission has never thought to apologise to the public for peddling baseless claims. Nor has LGNZ demanded evidence based policy. Instead, with divided membership it has struggled to stay out of the debate.
Wellington “business leadership” organisations came out for amalgamation, with slogans, not analysis. Property Council branches around the country spent time and money pushing amalgamations as solutions to problems they never dissected. I’m not sure why, but I speculate that brown-nosing to bigness comes naturally to many in business.
The voter rejection of that takeover wave gives New Zealanders another opportunity to become aware of the evidence. As the Aussie researchers report:
“NSW experienced a sharp dose of forced mergers in 2004. Queenslanders underwent draconian council consolidation under the Beattie government in 2008.
NSW is now on the cusp of a further round of mergers being inflicted on unwilling councils.
In all three cases, the architects of compulsory amalgamation have been under the sway of the dogma that “bigger is better” in local government. Ratepayers are told amalgamation will herald a new dawn of lower rates, cheaper services, improved service quality, enhanced financial viability and superior administration and planning.
In NSW, the Baird government has especially emphasised the financial advantages of municipal amalgamation. These claims are typically presented as the outcome of careful research and deliberation.
In New Zealand there were similar claims but little pretence of research. Most assertions had little more to them than the ’rank’ of those who devised them. The Conversation’s report carries on:
Are these claims consistent with the empirical evidence? My colleagues Brian Bell and Joseph Drew and I investigated this question for NSW’s 2004 forced amalgamations.
We took advantage of being able to use 2014 data to compare the performance of merged councils with their unmerged counterparts over ten years.
We compared amalgamated “general purpose” councils with their un-amalgamated peer councils in the same local government classification. We thus had the benefit of a “natural experiment”, being able to compare the two groups of “like” councils against a common set of performance indicators.
Our peer-reviewed research paper will be published shortly.
The criteria we used for this comparison included four the Baird government is using under its “Fit for the Future” program – operating performance, own-source revenue, building and infrastructure renewal, and asset maintenance ratios – as well as council employees per capita.
We found no statistically significant differences in the performance of the two groups of councils against these criteria.”
No difference, and this does not take into account the transition risks, the extraordinary costs they often incur, the loss of local self determination and democratic accountability, losses in potential for local initiative and local experimentation and reduction in available seedbeds for emergence of local leadership.
But the researchers also:
“examined the outcomes of forced amalgamations in Queensland in 2008. These reduced the number of councils from 157 to just 73.
Our research demonstrated that this resulted in a greater proportion of councils exhibiting diseconomies of scale. That is, mergers created entities that were simply too large to be run efficiently.
Furthermore, of the 31 new councils the mergers created, 58% exhibit decreasing returns to scale. Comparing their efficiency through time, we found merged councils performed worse than unmerged councils.
This is more blunt than the Hutt’s TDB Advisory report to which the LGC failed to respond. But there is more. The 31 March report refers to other research that:
“tested the claim that “bigger is better” by examining the financial performance of Australia’s largest council by population, Brisbane City. In our recently published analysis, we compared Brisbane City Council to Sydney City Council, the average of six southeast Queensland councils and the average of ten metropolitan NSW councils.
We did so using four measures of financial performance – financial flexibility, liquidity, debt service capacity and asset management. Between 2008 and 2011, the three comparator groups outperformed Brisbane Council in financial flexibility, liquidity and debt-servicing ability.
Taken together, these three papers cast doubt over the continuing dogma that “bigger is better”. They also add to the empirical literature on municipal mergers by demonstrating that “biggest is not best” either.
In particular, the financial performance of local authorities does not improve as advocates of amalgamation contend. On the contrary, amalgamated municipalities often perform worse than their unmerged counterparts.
…our findings underline the foolishness of making public policy in an “evidence-free” manner.
If forced amalgamations proceed, we may well see hundreds of millions of dollars in taxpayer and ratepayer funds squandered simply because policymakers preferred dogma to empirical evidence.”
The mayors of the Local Democracy Coalition beat the amalgamators. I’m proud of my firm’s work for them
But unfortunately the nobs are fighting back. A 44 page Cabinet Committee Paper obtained under the OIA treats voter rejections as mere interruptions in the march to the sunny uplands of consolidation. It is just possible that cost benefit analysis was excised from the release copy, but there is no sign of a disciplined statement of assumptions, let alone questioning of them. There is no indication that evidence could be important. Instead the LGC which failed so abysmally in the last round is to get more authority, including to impose solutions.
Cabinet seems to be relying for more wisdom on recent changes of LGC Commissioners. So far, however, nothing from the new LGC shows more disciplined thinking. The Cabinet paper may not be theirs, but the LGC should have made unlikely such unpenetrating advice to Ministers. It should be educating us all.
I’ve finally sent in my vote in the flag referendum. I’ve vacillated. I do not like the black without red. When my subconscious finally formed a preference that held for more than a week, it seemed unfair that my vote might cancel out the vote of another (including in my family) to whom the issue obviously means much more. I will not care about the result.
I thought we should have taken the tino rangatiratanga flag. It is a great design, instantly recognisable. And if those who wave it persist with the false claim that we’ve wrongly stolen their sovereignty we might as well steal their flag. They want to feel wronged in any event.
I don’t much care about the referendum because I know familiarity with the puerile new flag would eventually turn to acceptance and possibly affection. On the other hand I’ve never had sympathy with those who need gestures of repudiation to feel “grown-up”. I feel no need to doff my cap to any Pom, but I’m glad to be part of the British family. Then again I’ve always wanted to be able to remember how our flag differs from Australia’s.
If they now change theirs I’d want to get our current one back.
If the new flag is not approved, I hope the referendum attention results in lots of flags flying. I must get a flag pole. When we’ve all been flying our preferred designs for a few years perhaps a consensus preference will emerge. Over time it will become our collective choice, and eventually a government will only need to make it official.
Will I dare start with the best – the tino rangatiratanga flag? Or the even better flag going unclaimed at the moment – the imperial rising sun of Nippon? We see the rising sun before them each day. We were in the team that defeated the soldiers carrying that flag. Victors commonly took home captured flags.
I know that appropriating it could be too soon after the horrors visited under it.
But it is a great flag.
My last Arts Festival attendance last night confirmed two things –
first the iron law of Arts Festivals - attending more than four events without express endorsement of each from a trusted friend guarantees that at least one of them will be hideous. For us it inoculates us against more than token early bookings next time. We have to wait for word of mouth reports, and just take the risk of missing out.
A couple of years ago I bewailed the absence of anything like the ratings/reputation mechanisms that make filmgoing so much more reliable. I googled before last night’s ghastliness - but found no equivalent to Flicks or iMDB to provide protection.
That leads to the second reminder – there’s no accounting for taste. We were encouraged to attend an unpromising show by an enthusiastic friend. She was going for the second time. I’ve always seen her as notably level headed.
Now I have to wonder if I’ve been missing the snap of the whip and the whiff of Weimar about her. She warned us it was extremely sexy.
I suspect that being bawled at by a lip syncing overweight aging boy would pretty much eliminate lustful thoughts in most folk.
I know we were not alone in our desperate desire for it all to end. Others in our row had their fingers jammed in their ears. Yet sections of the audience seemed enraptured.
If only we had stayed wandering up and down Cuba St enjoying Cubadupa. Few were there without feeling privileged to be in Wellington at its best.
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Specialist farm lending can be very profitable. Competition does not seem to wipe out the premium farmers tend to pay compared to other mortgage lending. It has puzzled economists from time to time.
Andrew Little’s stupid threats reported on Stuff this morning remind me why good farmers pay too much for their mortgages. I suspect he has just helped ensure more years of super-profits for farm lenders.
I’ve seen no recent study, but the farm sector interest margin was estimated to average over half a percent over many years when I was a lawyer for various farm financing institutions and a director of Wrightson and its finance company arm.
Stock and station agencies were able to profit in that market, despite higher costs of funds and lower prospects of ‘back office’ economies of scale, because of information synergies. They could draw on the knowledge of their agents and branch staff to appraise risk, and to know early when to pull the plug. They were rarely caught having to enforce their securities with formal mortgagee sales. But other lenders too had low loss experiences most of the time, certainly low enough in the main study I recall to justify a narrowing of the gap between farm lending interest rates and the rates charged on other mortgages with similar security.
We concluded that farmers were paying hundreds of millions extra in interest mainly because of a unique sector risk specifically created by farmer politicians, and farmer activist groups. In no other sector will the borrowers as a class gang up to prevent enforcement. Selling up a farmer was often difficult, emotionally draining, expensive in legal costs and very slow. Farmer blockades, threats to bidders at mortgagee sales, and the risk of political intervention created a sector profile that added a precautionary extra risk premium smeared across the whole sector.
It affected even the best borrowers, because of the theoretical possibility that political intervention could put even their mortgages into a compulsory forgiveness regime, as was done in the 1930s, or enable unilateral deferment of payments, or prevent practical enforcement.
I recall discussing it with Federated Farmer board members. They pointed out that it had been many years since anyone in their leadership had been calling for farmers to use force or threats collectively to over-ride contractual obligations. They agreed that those sold up were usually in a hopeless position, and often much better off emotionally after it was all over than when they were trying to fend off the inevitable. Sometimes even the activists would admit privately that the person they were trying to “protect” was actually a dud farmer, and would never make it work.
But they still felt good damning the banks and organising collective action. They were much less interested in the actual consequence.
It was not fair, but all farmers paid (and still pay) the price. The sector is landed with a premium because of the long history of anti-mortgagee sale campaigns from groups like the breakaway Northlanders. More recently those who have been campaigning to make banks liable for letting farmers enter currency risk deals, or otherwise lending “imprudently” have queered the pitch for the upcoming generation of entrepreneurial farmers.
David Farrar summarises well the stupidity in Andrew Little’s attack on the lenders. There may be reasons to worry about Aussie bank domination. But they are protected in it partly because of knee jerk regulatory responses to the GFC finance company collapses. The Reserve Bank supervision regime (and costs like AML/CFT) now protect the big banks from what should be the understory of new finance companies coming through in business lending to challenge them.
Even more worryingly, the Labour leader wastes his business credibility pandering to people who won’t make an electoral difference for him. How many less competent, or stretched farm borrowers are there? Little should let David Parker handle the finance portfolio and stay well away from it. I’ve heard Andrew speak to business people. He would have been better not to show his inability to understand them, or the economy.
In the meantime Mr Little has just reinforced the profitability of mortgage lending to farmers. His calls will not change anything tangible, because most farmers and their advisers know it could be disastrous long term. But in the meantime Labour has handed banks a justification for their premium, just as Mr Little’s colleagues ensured super-profits for those of us who invested in the electrity generation share offers. Their stupid nationalisation threats added risk to the floats, and therefore rewarded those who were willing to accept that risk.
PS For another puzzled and expert reaction, try Croaking Cassandra here