Category Archives: Business & Finance

Savings and Loan, Loan, Loan (review)

SAVING THE SUN: Shinsei and the battle for Japan’s future by Gillian Tett
Listener: 27 March, 2004.

Keywords: Business & Finance;

One day in 1999, banker Takashi Uehara checked into a suburban hotel in 1999 and then hanged himself. His suicide note read, “I am so sorry.” It was a traditional hara-kiri, except that ritual disembowelment –– slashing one’s stomach open with four precise strokes of the sword –– was considered too selfish and messy, whereas the anonymous event in the hotel spared his family the shock. To this mixture of Japanese and Western values was added those of the finance sector, for the shame Uehara wished to expunge was that his bank was going bankrupt.

Waccy Economics: Are There Clear Rules Governing Public Investment?

Listener: 6 September. 2003.

Keywords: Business & Finance;

Not learning from the past often results in repeating its mistakes. So a short history of “project evaluation” is called for. In the 1950s, overseas economists proposed Cost-Benefit Analysis (CBA) as a systematic way of appraising government investment. By the late 1960s, it was being applied in New Zealand, but various government departments applied it differently.

A Visit to Poyais

Review of SIR GREGOR MACGREGOR AND THE LAND THAT NEVER WAS: The Extraordinary Story of the Most Audacious Fraud in History: David Sinclair (Review $59.99)
Listener 5 July 2003.

Keywords: Business & Finance; Political Economy & History;

The story told here is so extraordinary that I wondered whether the book was a hoax. Its writer, David Sinclair, is a reputable English financial journalist with non-fiction books to his credit (notably The Pound: A Biography), but belongs to a profession which often has a hankering for fiction. However, his key references appear in international bibliographies, while a Google search found independent mention of the country of ‘Poyais’ about which the fraud occurred.

Infrastructure

Chapter of TRANSFORMING NEW ZEALAND. This is a draft. Comments welcome.

Keywords: Business & Finance; Environment & Resources; Globalisation & Trade;

One of the curiosity of standard economics as it is presented to the public and, indeed, often as it is taught, is the neglect of transaction (and information) costs. Ronald Coase, recipient of a Nobel Prize in economics in 1991, for some seminal insights (identified 30 years earlier) into the way that economic behaviour is modified by them. The section on the Resource Management Act below, sketches the insight. Subsequently, a handful of economists, most prominently Joe Stiglitz who received the Nobel Prize in 2001, have elaborated their role. In fact a considerable amount of government activity is focussed on reducing transaction costs, despite their role often being overlooked. All the more puzzling because those most involved in the economic debate – economists, accountants, bureaucrats, lawyers, politicians, even managers of businesses – are at the transacting end rather than the providing end, of the economy.

Frankenstein’s Corporation: Why the Cult Of the Manager Is So Dangerous.

Listener 8 March, 2003.

Keywords: Business & Finance; Governance;

Underneath the world economy’s financial crisis is one of corporate governance. A decade or so ago there was considerable confidence that the best way to run the great businesses of the world (and just about everything else) was the way in which they were run.

The Best Deal: How Should We Deal with Monopolies?

Listener 22 February, 2003.

Keywords: Business & Finance;

Economists have an ambiguous stance towards monopolies. Is the advantage of being one ‘the quiet life’ (John Hicks) or are they the key to technological innovation (Joseph Schumpeter)? Are the profits they make unfair, or is the problem that they distort the price system? There is a sort of compromise in the view that all businesses seek to be a monopoly, but the competitive process frustrates them. But what steps have to be taken to make sure the competitive process works?

Competition and Monopoly: Index

Highly Concentrated (February 1981)
The Stock and Station Agent Industry (November 1995, but originally written in 1986)
The Public Interest in Competition Policy (October 1989)
Risking Dialogue: Electricity Outages Show How Consumers Are Powerless (August 1998)
Electric Rhetoric: Sneering Instead of Thinking (July 1999)
The Air New Zealand-QANTAS Merger: An Application in the Public Interest? (December 2002 )
Waccy Economics: Are there clear rules governing government investment? (September 2003)
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Footnote for Listener 13 March 1999

It was Watties

Twenty-five years ago a colleague, Tony Rayner (now, alas, dead), received a letter from a large New Zealand corporation complaining that he had described them as a “monopoly” in a first year economics lecture. We were not concerned by the reporting – lectures are public events, although students must distinguish between the presentation of an argument and the presenter’s views. We were aghast because surely Watties was a monopolist.

About the same time, Watties took on a young accountant, David Irving, who eventually rose to chief executive, retired, and has just written (with Kerr Inkson) a book about his time with the firm. The book, It Must Be Watties, reports Irving’s view that the company was indeed a national monopoly then. It goes on to describes the travails that the firm went through, as the economy opened up and firms became subject to the pressures of competition, here and in its new export markets. Eventually, intensely nationalist Watties was taken over by the giant transnational Heinz, which previously had been its main competitor. For those interested in the impact of market liberalisation, this business history is a must-read.

The Air New Zealand-Qantas Merger: an Application in the Public Interest?

Paper prepared for Debate Air New Zealand.

Keywords:Business & Finance;

Major factors in the background to the proposed merger between Air New Zealand and QANTAS are the Australian reneging on its open skies agreement with New Zealand, so that Air New Zealand does not have simple access to the Australian domestic air travel market, and the subsequent hurried – and with hindsight, foolish – purchase of Ansette Australia by Air New Zealand to obtain that access. I draw two immediate and relevant conclusions:

The Borrowers: Don’t Be Too Hasty Condemning So-called Loan Sharks.

Listener 16 November, 2002.

Keywords: Business & Finance; Macroeconomics & Money; Regulation & Taxation;

Tamaloa wants to go back to Samoa for an aiga maliu (family funeral). With no spare cash he needs to borrow. He has no record with any core financial institution, no assets to secure a loan, only the prospect of repaying out of future earnings, which sadly are not as secure as those of the Palangi. No bank will advance him a loan, so he goes to a fringe financial institution, and ends up paying a much higher interest rate.

Economic Reforms: Index

History
Sequencing (December 1983)
Freeze and Thaw
(July 1984)
Ssh …It’s the Big ‘‘D’’ (August 1984)
Confidentially Yours (August 1984)
Devaluation!: Five Turbulent Days in 1984 and Then … (July 1985)

Economic Liberalisation: Where Do People Fit In?
(May 1987)

From Run to Float: the Making of the Rogernomics Exchange Rate Policy (September 1989)
Liberalization Sequencing: The New Zealand Case (December 1989)

Towards A Political Economy of New Zealand: the Tectonics of History (October 1994)
The Wild Bunch?: An Inquiry is Needed to Restore Treasury’s Integrity (August 1996)
The Great Diversification: Ch 9 of Globalization and a Welfare State (December 1997)
The State Steps In: Michael Bassett Makes A Case for Intervention. (August 1999)
Remaking New Zealand and Australian Economic Policy by Shaun Goldfinch (August 2001)
The Treasury and the Nationbuilding State (December 2001)

Evaluation
New Zealand’s Economic Performance This is an Index
Economic and Other Ideas Behind the New Zealand Reforms
(October 1994)
For Whom the Deal Tolls (Of Dogma and Dealers) (August 1996)
The Economic Impact of the Employment Contracts Act (October 1997)
Microeconomic Reform: The New Zealand Experience (February 1998)
Some Macroeconomics of the Employment Contracts Act (November 1998)
View From Abroad: What Do We Know about Economic Growth? (May 1999)
The Model Economist: Bryan Philpott (1921-2000) (August 2000)
Comparison with Australia: New Zealand’s Post-war Economic Growth Performance (August 2002)

The Debate
Waist Deep in the Big Muddy? (February 1991)
Friends in High Places: Rogernomic Policies Have Powerful Allies in Australia (April 1994)
Systemic Failure (December 1995)
Ignoring the Critics (February 1997)
A Permanent Revolution? (March 1997)
In the Dark: The State of Research Into the Economy is An Embarrassment (June 1997)
The New Zealand Experiment: A Model for World Structural Adjustment? (Review) (July 1997)
Out of Tune: Even the Officials Admit the Health Reforms Were Fatally Flawed. (December 1997)
Money for Jams: the Government Response to Roading Reforms is Commercialisation. (January 1998)
Reforms, Risks, and Rogernomics (March 1999)
The London Economist and the New Zealand Economy (December 2000)
Locked Out: of Free Press and Free Economics (May 2001)
A Surplus of Imitation (June 2001)
Government Spending and Growth Rates: A Methodological Debate (January-May 2002)
From Pavlova Paradise Revisited by Austin Mitchell (July 2002)
Manure and the Modern Economy: Has Economic Policy Hardly Changed? (September 2002)
From is This As Good As it Gets? (December 2002)
1999 and All That (January 2004)

Books
The Commercialisation of New Zealand (1997)
In Stormy Seas: the Post-war New Zealand Economy (Chapters 15-16) (1997)
The Whimpering of the State: Policy After MMP (1999)

Imbalance Of Power:

Are Double Dipping US Corporations Symptoms of a Double-dipper World Recession?

Listener 10 August, 2002.

Keywords: Business & Finance; Macroeconomics & Money

Almost all recent New Zealand forecasts have accepted the international conventional wisdom that the US economy was in recovery. However, some forecasters have private reservations that a ‘double-dipper may be on’.

Corporate Chaos: Is the Collapse Of Enron and Worldcom the Beginning Of an End?

Listener 27 July, 2002.

Keywords Business & Finance, Macroeconomics & Money

Because there is no coincidence of wants, money acts as an intermediatory in the conversion of something we have (including our labour) into something we want (perhaps the groceries). This role can be summarised as C→M→C* where a commodity (C) is converted (sold) into money (M), which is used to purchase a different commodity (C*). In this way money facilitates the specialisation of production upon which modern standards of living depend, because it enables each to concentrate on producing one thing well, and convert it into all the other things they want to consume.

Guard Dogs That Fail to Bark

Management and Shareholders
Listener 6 April, 2002.

Keywords: Business & Finance; Governance

In 1932 Adolph Berle and Gardiner Means showed that there was an increasing separation between the shareholders who legally own the corporations and the managers who control it. Their seminal insight suggests that managers may have sufficient independence to pursue their own objectives – higher pay, better conditions, prestige, technological excellence – at the expense of shareholders. (The New Industrial State by J.K. Galbraith is the best know book setting out the case.) Those committed to the pure market approach responded that the shareholder can sell the shares of under-performing companies to others whose managers would produce higher shareholder returns. They described the sharemarket as the ‘market for management’, where competition would result in higher returns to shareholders, as efficient managers took over inefficient businesses.

Who’s Hugh

Review of BATTLE OF THE TITANS: Sir Ronald Trotter, Hugh Fletcher and the Rise and Fall of Fletcher Challenge Bruce Wallace (Penguin $34.95)

Listener 17 November 2001.

Keywords Business & Finance; Political Economy & History

In 1908, James Fletcher, a 22 year old Scot arrived in New Zealand with ‘a few pounds in his pocket’ and carpenter skills which he used to found a building company which expanded into Fletcher Holdings. By 1955, his son, also James, persuaded father and the New Zealand government that not only should Fletchers build the huge pulp and paper factory at Kawerau, but it should own part of it. In 1981, Hugh Fletcher, the son of the son, amalgamated Fletcher Holdings, Tasman Pulp and Paper, and the sprawling Challenge Corporation to form Fletcher Challenge, the biggest New Zealand business amounting at the time to almost a tenth of the capitalisation of the New Zealand share market.

A Hubris Of Managers: when Corporate Takeovers Go Bad

Listener 17 November, 2001.

Keywords Business & Finance; Governance

Why should New Zealanders be abused when a Singapore owned company closes down its Australian operations? That is what happened when Air New Zealand shut down Ansette Australia. Yet, when the New Zealand government privatized the company in 1989, nobody mentioned that there would still be such ongoing attachments. They were certainly ignored in the 1984 Treasury paper setting out the case for privatization of all government trading activities. That paper had a very narrow focus, justifying private ownership using a theory without empirical content and ignoring the practicalities of the real world. Like that Ansette workers disregarded that it was a mainly Singapore owned airline dumping them, and picketed the New Zealand prime minister.

Global Players: The Secret Of Some New Zealand Businesses’ Success.

Listener 4 August 2001

Keywords Business & Finance; Growth & Innovation

Despite being used as a text book in some business schools in the 1990s, Theory K: The Key to Excellence in New Zealand Management was always a bit of a joke, for the crash of October 1987 put an end to some of its best examples of ‘excellent’ New Zealand businesses. The book devotes most space to Equiticorp (although a number of other did-not-survives were also praised). One is left wondering how a firm founded only two years before the book was published could be given such prominence. (You will find part of the answer in Ollie Newman’s “Lost Property”, which explains how public relations had a key role in gulling the investor public. )

Bursting Out: Don’t Panic – the US Slump Might Be a Good Thing in the Long

Listener 31 March, 2001.

Keywords Business & Finance; Macroeconomics & Money

As I write, there is vigorous debate about the current US economy downturn. In the jargon the question is whether it will be a V, U or L – the second half of each letter indicating a quick rebound a slow rebound, or a drawn out depression. It is noticeable that informed opinion is moving towards the more pessimistic end of the possibilities, although most commentators currently reckon on the U rather than the L.

There Is a Jungle out There

The Stock Exchange is where small fry get eaten by lions

Listener 17 March, 2001.

Keywords Business & Finance

There is no necessity for a stock exchange. In the early days, people traded shares by personal contact. But shares could not be readily bought or sold, and investors could not readily liquidate their investments. The stock exchange created a common knowledge of prices and availability. It became easier for corporations to raise risk capital, because investors were more willing to put their money in, knowing it was easier to get it out. Businesses could raise equity for a new venture or major extension. Banks provide the additional funds at a lower cost, because the shareholders took the risk.

Metrology and the Economy (lecture)

Paper to the National Measurement Conference, 14 July, 2000.

Keywords Business & Finance

In October, the Mars Climate Orbiter spacecraft burnt up in the Martian atmosphere because the acceleration data for controlling its thrusters had been provided in pounds of force (US customary units) but entered into the space craft’s computer as newtons (the SI unit). Little information was obtained from the trip, so most of its $US240 million was a complete waste. This is a spectacular example of how measurement failure can be costly, but in some ways it is misleading. The costs of a failure to have a sound measurement system are generally more subtle than that, as are the benefits. In total, a system failure from an inefficient measurement system may be relatively more expensive than the loss of a single spacecraft.