Details are scarce, but we’ll pay $1 billion
The Greens sent an email yesterday offering some kind of a national development plan so we vote for them in the election. Russel Norman says:
Yesterday I announced the first of the Green Party’s economic policies to build a smarter greener economy that benefits every New Zealander.
At the centre of our plan is an additional $1 billion of government investment in research and development, including tax breaks for business.
That’s a lot of money, but it’s what’s needed to shift our economy onto a smarter greener footing.
Please share this graphic on your Facebook page to help let New Zealanders know the Greens are ready to lead our economy in a smarter direction.
[image of circuit board inscribed: “$1b innovation boost for a smart, green economy.”]
This election New Zealanders have a real choice about the direction of our economy.
National’s simplified pollution-economy that creates few jobs and delivers uneven results. Or a smarter greener economy where innovation flourishes and we develop high end export products the world needs.
I know which option I prefer!
At the centre of our plan is an additional $1 billion of government investment in research and development, including tax breaks for business.
That’s a lot of money, but it’s what’s needed to shift our economy onto a smarter greener footing.
Under our policy more businesses can participate in R&D through tax breaks, while the government can refocus the grants system towards research into building a cleaner and smarter economy.
Yes you read that right, our plan is for the Greens to work in partnership with business to build a better economy.
Our vision is of a society that develops its wealth by tapping into New Zealand’s can-do spirit and using our smarts, not polluting our rivers and just exporting raw milk [sic] and raw logs to China.
People like Bill Hamilton of jet boat fame, Bill Gallagher who developed the electric fence and Rod Drury who is building Xero into an accounting software giant have shown how Kiwis can truly innovate and lead the world.
We have a rich history in innovation. Let’s honour it, by building a more diverse and robust economy that’s smarter, cleaner and greener.
Thanks,
Naturally, this reeks of pork-barrel electioneering, and it is never efficient to attempt to coerce industry, but what will they actually do with our money?
We need a lot more detail before agreeing to this.
Incidentally, it didn’t sound right, so I checked, and we don’t export raw milk anywhere except a drop in the bucket to Taiwan. Dr Norman’s research has let him down for the sake of setting a scene.
We’re doing fantastically well in innovating, adding value and setting up free trade zones, and of course showed wonderful tenacity in replacing the lost ‘home’ market of Britain after they joined the EU in 1973. New Zealand is now the largest exporter of dairy products in the world, but of course the Greens aren’t happy with that and they’re trying to get people disgusted with our performance.
Climate-change hocus-pocus
Never mind that dairy exports already have value added (unlike the raw logs), and don’t ask about the details of the proposed ‘green’ subsidies — the Greens will continue stupidly pushing commerce in the desired direction. They have never understood that the only desire commerce truly understands and willingly responds to is that of free consumers with money to spend. When it does that, our innovation is unleashed, our energy abounds, efficiency leaps and our spirit soars.
Government’s job is just to oil the wheels, fix injustices and and punish crimes. It should otherwise stay resolutely out of our way.
He mentions the Hamilton jet motor and the rest; he’s quite right that Kiwis can lead the world in innovation. But they do it when they’re free.
We don’t need or want and we certainly never requested the assistance or compulsion of an overbearing government doling out our own money in subsidies to satisfy some save-the-planet mish-mash of climate-change hocus-pocus.
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I think the Greens planned to print a couple of billion dollars but that idea might have been dumped
Maybe we should make sure of that; until we know the details, that brassy notion could very well underpin this bold, bright development plan.
An old article on NBR is here
http://www.nbr.co.nz/article/greens-govt-should-print-billions-cover-cost-earthquake-bonds-ck-130269
but then Kiwiblog report a year later that the Greens dumped the plan
http://www.kiwiblog.co.nz/2013/06/greens_dump_printing_money_plan_-_for_now.html
and then later, the Greens announced that they would finance a Green Bank which would be bankrolled by the Oil Industry, which Greenpeace NZ had a hissy fit about
http://www.greenpeace.org/new-zealand/en/blog/is-the-green-party-banking-on-an-oily-future/blog/49222/
It’s hard to keep up, and it will get worse once electioneering starts
The greens keep telling us that we should stop exploring for oil and invest in the “multi billion dollar” Greentech industry.
Can anyone in the Greens help me find a job in the Greentech industry? If it is so big, there must be hundreds of jobs going, but I can’t find any.
Maybe I am looking in the wrong place, but Seek doesn’t have any.
A bit on this at WhaleOil
http://www.whaleoil.co.nz/2014/07/green-innovation-policy-really-crony-capitalism-drag/#more-145696
That’s illuminating. How much longer will I continue under the impression and in the expectation that the Greens, Greenpeace, WWF and enviro warriors of all stripes actually behave better than the rest of us? I keep forgetting and being disappointed. Because they ARE us.
I gave up thinking that the NGOs and all the various “hangers on” were better than us a very long time ago
>[Whaleoil] – “There is a [Green policy] requirement for businesses that are sold to overseas owners that they must repay their grants”
Huh? Current grants are repayable anyway. See ‘Minister announces Business Incubators’ downthread. Relevant bit:
“Technology-focused incubators will be able to access a new repayable grants tool on behalf of the start-up companies they incubate. These grants will be administered by Callaghan Innovation. The Government will contribute up to $450,000 over two years to eligible companies resident in technology-focused incubators, matched 1:3 with incubator owners contributing up to $150,000. The Government grants will be repayable out of the company’s revenue.”
>[Whaleoil] – “Part of the Green’s economic innovation policy is to keep startup companies Kiwi owned”
Why? Startups are sold down eventually – period. That is the point of startups, IPOs, and capital markets. To limit the buyers to a miniscule global sector (NZ) is to limit the selling opportunities (to say the least).
Trademe was a 1999 startup sold to Fairfax Media (Australia) for NZ$750 million in 2006 i.e. the proceeds went to the NZ owners who are in turn backing other NZ startups. Fairfax realised around $NZ364 million when it floated a third of Trade Me on the NZX and ASX in December 2011. It gained another $NZ202 million when it sold its stake down to 51% in June 2012. Fairfax sold out its last remaining 51% stake for A$616 million (about NZ$665m) in Dec 2012. NZ$1.23bn capital plus dividends to Fairfax for an outlay of NZ$750m = $480m+ in 6 years. Trademe market cap in 2012 was $A1.6bn (NZ$ about 1.73bn), Fairfax’s market cap was less at $A1.20 billion at the time so why did they sell Trademe?
‘Disbelief as Fairfax sells 51% Trade Me stake’
http://www.nbr.co.nz/article/disbelief-fairfax-reportedly-sells-remaining-trade-me-stake-ck-134062
Fairfax had to sell the family silver (Trademe) to repay non-Trademe Fairfax debt (just as the Nat govt is doing) i.e. Kirk’s Trademe purchase saved Fairfax 6 years later (see below). OK, “concern” about foreign ownership:
‘Fairfax completes Trade Me sale’
……funds management sources said Fairfax’s 51 per cent stake in Trade Me was likely to end up with mostly foreign institutions. “There is some concern in the market this morning that a very high proportion of this stock may go overseas,” said one fund manager. Fund managers said the stake was unlikely to end up with a single major player in the online shopping space. “I’m sure that this (stake) would have been shopped around among potential `trade’ buyers and it is interesting that no one has really put up their hands,” he said. “If there were other trade buyers, one would have thought that this would have been an opportunity,” he said. “But who knows what might happen a year or two down the track,” he said.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10854685
Trademe was never going to NZ$750m, let alone NZ$1.73bn (or whatever it is now), without some foreign ownership. There’s just not that much NZ capital looking to buy directly from a startup, or an IPO, or the major purchase on the secondary market. NZ Fund managers (or any other managers) don’t do the “hands-on” that Fairfax did to create the extra value that they realised by IPO.
NZ funds will have Trademe on their books from the IPO and secondary market but they wont load up on just one NZ company, they spread (diversify) domestically and overseas as the foreign funds are doing by buying Trademe on the ASX and NZX. Besides, they (the NZ fund managers) will know the school of thought that Fairfax managment believed Trade Me’s value had peaked (see NBR ‘Growth topped out?’ in the link above).
There is very little (if any) difference between selling products and selling companies to foreign buyers whether product or company is innovative or not. It is a market transaction in both cases – willing seller to willing buyer. The foreign buyer also accepts sovereign risk for the duration of ownership of a NZ company. I don’t think Sam Morgan could have sold to a NZ buyer for $750m or anywhere near that. Who in NZ would have bought? For some context from a company that benefits from Trademe and for which Trademe would have been a vertical fit, Freightways market cap is $782m in 2014:
http://www.findata.co.nz/Markets/StockQuote/NZX/FRE.htm
At 2006 half year when Morgan sold Trademe for $700m (plus ($50m), Freightways net assets were $77.7m of which $0.43m was cash:
http://www.freightways.co.nz/html/halfyear_reports.html
Except for massive leverage (extremely doubtful), I don’t think Freightways was a potential buyer of Trademe (still isn’t). Neither was any other NZ company in a position to trump Fairfax (or Packer’s PBL) and it was thought at the time, even in Australia, that Fairfax paid over the odds:
BOOK EXTRACT
Killing Fairfax: Packer, Murdoch & the Ultimate Revenge, by Pamela Williams. Published by HarperCollins.
Our extract begins as Sam Morgan makes his decision between rival Trade Me suiters Fairfax and ACP. At the time of the action described in this chapter (‘Rivers of red”), Ron Walker was chairman of Faifax; while James Packer’s PBL owned publisher ACP…..
[…]
Sam Morgan said later that other more subjective factors than price had played into his final decision about which way to go. Like Morgan, David Kirk was a New Zealander and he made Morgan feel at home in separating from his baby. The Packer entourage left Morgan with the sense that he was an item on a menu.
[…]
Kirk regarded TradeMe as a significant achievement and it was consistent with his strategy to diversify revenue away from classified print advertising revenue in the metropolitan newspapers.
But he had not counted on the scepticism in the market and many analysts bagged him. The outspoken founder of 452 Capital, Peter Morgan, declared that there were bigger issues for Kirk to deal with than internet purchases in New Zealand. The announcement of the TradeMe deal overshadowed the half-year results to 31 December 2005, announced by Kirk on the same day.
A number of investors stood up in the meeting and asked him who he thought he was, going out and spending $600 million of the company’s money when he had barely been there for five minutes. Kirk held his ground, retorting that you didn’t have to be around for long to recognise a good business.
Kirk’s purchase of TradeMe in New Zealand was ridiculed too when compared to the AUD $552 million (US $580 million) paid in July 2005 by Rupert Murdoch’s News Corp for MySpace, one of the hottest social networking sites in the world. (Later, MySpace would prove to have been a costly mistake: News sold it in 2011 for $35 million to a company backed by the singer Justin Timberlake.).
Kirk said he felt comfortable with TradeMe because he understood how it planned to make money for the next ten years.
He knew too, that he had out-manoeuvred James Packer and delivered to Fairfax the first online deal that really mattered — ten years after the early green shoots that gave rise to the likes of SEEK, realestate.com and car sales.
http://www.nbr.co.nz/killing-fairfax
# # #
The Greens are completely out of their depth when it comes to business policy. They want to spray $1bn extra tax-funded R&D a year around willy nilly in the hope something “smart” happens. But business innovation, and especially business risk (think MySpace above), requires significant acumen and integrity, and still no guarantees. Obama sprayed subsidies at supposedly ecologiically “smart” startups that had neither qualities so guarantees were out of the question. Startups went bellyup and subsidies were simply pocketed. The Greens, naive as they are, could never learn from that or the Trademe story.
If you have a memory going back far enough we did have an economy that backed sectors with subsidies, which this is about. What Russell is saying without subsidies, the green tech industries will not survive.
The term used for this type of economy was Muldoonism, and Russell was one person that did not have to endure that part of NZ history.
Yes, I remember, Gary. Our farmers have done wonderfully without the sheep subsidies and all the rest. We’re stronger now, resilient and confident — in our laid-back-nothing’s-really-too-much-trouble kind of way we have. Back then, subsidies were probably needed for the size of our economy. Now that we most definitely stand shoulder-to-shoulder with anyone on earth we have no need of them.
So the Greens can be told to take their nose out of our business and stop picking up discarded conservative ideas from the 1950s to help them impose their restrictive political theories on us.
I’m interested to know why the email is signed “thanks Russell”
When his name only has one “l”
As indicated by Wikipedia and several other sources
http://en.m.wikipedia.org/wiki/Russel_Norman
Maybe “Russel” or whatever he is called didn’t actually write the email and it was Clint?
When I read your comment, I wondered, too. I’ve just checked.
It turns out to be my doing. The rest of his email has been copied. Rather than include a little bitmap of “Russel’s” signature, I simply typed his name in. But without looking very carefully!
Well spotted, Andy. Here it is as supplied by the Greens:
Hmm. Now that I’ve had to convert, save and upload the file in admitting my error, I might as well add it to the post. [Done. – RT]
Who’s Clint Norman?
>”Under our policy more businesses can participate in R&D”
R&D of what? Jet boat tech, electric fence tech, and the software dev mentioned were not necessarily “re” search into anything. They were either innovators with ORIGINAL ideas who went ahead and developed them (“innovate and lead the world”) but nothing “green” or subsidized. This is the Xero and Hamilton story. That goes on in many businesses anyway (startups usually) and will continue to do so because venture capital chases those people. There are two funds doing exactly that in Wellington and Tauranga that I know of funded by high net worth individuals (“Angels”). Or they are ongoing operations like Gallagher who are dependent on their R&D i.e. it is part of their business model.
R&D in business is more about an existing scope of operation and innovation within it (e.g. Gallagher above). The post harvest operator I work for set up the most advanced RFID cool storage system in at least the Southern Hemisphere at the time and which did involve REsearch because the technology was already available. It was a matter of adapting it to the facility and systems. They had to do something because they burnt out three managers who were trying to find pallets to fill specific orders among the hundreds stacked in each of several rooms, different packaging, different varieties, different markets. It was costing hundreds of thousands in marketer penalties for unfilled orders at the port. Now the RFID system tracks where a forkie stacks any pallet in storage.
So there’s 2 dynamics here:
1) Original ideas that no amount of govt R&D money will stimulate. They are simply human endeavour with a desire to create something new and venture capital bets big on them (I think about one success in nine backed is the strike rate in California). Picking winners is not the function of govt because for every winner there’s many more losers. And,
2) Businesses adapting to their operating environment, or dependent on their own R&D, or both. That’s not a govt function either.
Just “more businesses can participate in R&D” is not a plan for any outcome of any benefit to anyone and it doesn’t differentiate between 1) and 2). This is typical woolly green thinking and waving their hands around. Both 1) and 2) must be profitable eventually (Xero is still in a growth phase and hasn’t turned a profit yet).
For 1), venture capitalists are experts in nurturing startups into growth but not necessarily to profit. ONLY THEN govt comes in i.e. at what stage and time lapse does govt start taxing profits e.g. when for Xero? This is the Green’s “tax breaks for business” i.e. they are proposing a tax regime that is already in place.
For 2), R&D is a planned function, not a whim i.e. it is either necessary in-house continually or out-sourced from consultants from time to time as necessary. It is not for govt to decide how this works for each operator but it is for govt to pave the international pathways for operators requiring knowledge, expertise, technology or whatever.
The Greens appear to be particularly clueless about all this. I think they are taking their cue from Obama’s US business boondoggles. Except the Greens probably see that as a raging success.
Nice essay, RC. You give us interesting, explanatory insights, thanks.
The Greens plan is to fund their mates, not just anyone. See the WhaleOil link I provided
>”I think they [the Greens] are taking their cue from Obama’s US business boondoggles. Except the Greens probably see that as a raging success.”
‘Obama’s Big Green Boondoggles’
Reward cronies, waste taxpayer money, and make no dent in the jobless rate.
By Michelle Malkin, September 14, 2011
http://www.nationalreview.com/articles/277124/obama-s-big-green-boondoggles-michelle-malkin
‘Obama’s Green Fiascoes and Boondoggles’
A barrage of news headlines on the Solyndra scandal continue to remind us that President Obama made green jobs one of his administration’s priorities. Those headlines also reveal this initiative to have been a costly mistake
Mark W. Hendrickson — November 18, 2011
http://www.westernjournalism.com/obama%e2%80%99s-green-fiascoes-and-boondoggles
‘Green boondoggles’
President Obama hasn’t abandoned his jobs-killing global-warming agenda, just wrapped it in the rhetoric of “clean energy.”
By Shikha Dalmia, March 2, 2011
http://nypost.com/2011/03/02/green-boondoggles/
‘Obama’s green-energy boondoggles leave taxpayers in red’
China gets the cash meant for American jobs
By Justin Sykes, April 18, 2014
http://www.washingtontimes.com/news/2014/apr/18/sykes-obamas-green-energy-boondoggle/
And so on. Greens don’t read this stuff.
>”There are two funds doing exactly that in Wellington and Tauranga that I know of funded by high net worth individuals (“Angels”)”
Wellington 20/04/2011:
A group of original Trade Me investors is seeding a new venture capital fund to help more early- stage companies. Wellington investment firm Movac, which consists of several of the first Trade Me shareholders, has announced a new growth capital fund in conjunction with the New Zealand Venture Investment Fund. The fund, of between $25 million and $50m, aims to crash- start New Zealand’s high-risk venture capital industry, which has been struggling to find financiers following the financial crisis. Movac managing partner Phil McCaw said a growing number of angel-funded companies had no access to critical “follow-on” capital for expansion. “The new fund represents a shift in focus for Movac from start- up angel investment to early expansion,” he said.
More>>>>>>>
http://www.stuff.co.nz/dominion-post/news/4908248/Wellington-firm-seeks-25m-to-help-companies
Tauranga:
Enterprise Angels primary objective is to facilitate investments by its members in innovative companies with high growth potential. We invest more than money; our investor members are highly experienced business people who actively support and facilitate the growth of the companies we invest in. We consider investing in businesses from all industry sectors and at any stage of growth, however we invest most actively in things we can ‘kick’ – innovative businesses in the agriculture, dairy, horticulture, engineering, food and clean tech industries
http://www.enterpriseangels.co.nz/
Government assistance:
Callaghan Innovation accelerates the commercialisation of innovation by firms in New Zealand.
We have the talent, resources, knowledge and connections to help businesses turn ideas into internationally marketable products and services more quickly and successfully.
We give businesses a single front door to the innovation system, working in partnership with New Zealand Trade and Enterprise, economic development agencies, business incubators, universities, polytechnics, Crown Research Institutes, the venture capital community and industry associations.
https://www.callaghaninnovation.govt.nz/
Minister announces Business Incubators
9 July 2014
Science and Innovation Minister Steven Joyce has announced the successful business incubators Callaghan Innovation will award funding to under the Incubator Support Programme.
Callaghan Innovation is appointing a new type of technology-focused incubator designed to launch more high-tech start-ups in New Zealand. These incubators will focus on commercialising complex IP-based technology, sourced from publicly funded research. They will be able to access a new pilot repayable grant through Callaghan Innovation on behalf of the start-up companies they incubate.
The new incubators are part of a hybrid model that will include five founder-focused incubators and three technology-focused incubators.
Callaghan Innovation and the successful applicants are now in contract negotiations.
https://www.callaghaninnovation.govt.nz//news-events/minister-announces-business-incubators
Funding and Grants, Business R&D funding
We administer more than $140m a year in business R&D funding through three programmes, designed to help accelerate innovation by firms in New Zealand:
R&D Growth Grants: Designed to increase R&D investment in businesses with a strong track record for R&D spending in New Zealand.
R&D Project Grants: Designed to support greater investment by businesses in R&D activities, especially those with less established R&D programmes.
R&D Student Grants: Designed to support New Zealand undergraduate and postgraduate students to gain and develop their technical skills in a commercial research environment, while bringing capability into New Zealand businesses.
[Incubators: govt contributes $450,000 over 2 yrs, 1:3 with incubator owners contributing up to $150,000]
https://www.callaghaninnovation.govt.nz/what-we-do/funding-and-grants
Company incubator network expands
09 July 2014
By Hon Steven Joyce, Science and Innovation
New Zealand’s nationwide network of business incubators is being expanded, with the introduction of a new type of technology-focused incubator designed to get more high-growth start-ups off the ground, Science and Innovation Minister Steven Joyce announced today.
The list of incubators approved by the Callaghan Innovation Board includes three of the new technology-focused incubators and five founder-focused incubators, previously known as Business Incubators. The technology-focused incubators will have access to the pilot repayable grant programme announced in Budget 2013.
“The response from the market has been really positive, with a considerable number of high quality applications from across New Zealand,” Mr Joyce says.
“It has been encouraging to see a number of new applicants entering the incubation space and the keen interest in the new technology incubators.”
After a rigorous assessment process and a final recommendation from an independent panel, the Callaghan Innovation Board approved the following applicants:
Technology-focused incubators:
PowerHouse (Auckland, Wellington, Christchurch, Dunedin)
Astrolab (Auckland)
WNT Ventures (Tauranga)
Founder-focused incubators:
The Icehouse Ltd (Auckland)
The Bio Commerce Centre (Palmerston North)
Creative HQ Ltd (Wellington)
eCentre Ltd (Auckland)
Soda Inc Ltd (Hamilton)
Callaghan Innovation and the successful applicants are now in contract negotiations.
Mr Joyce says there was a high rate of collaboration between parties on proposals, especially within regions.
“Collaboration bodes well for developing and growing new companies in our high tech sector, which is crucial to growing our economy. If we can work smarter across industries and improve our access to innovation we will have a competitive edge in this dynamic and challenging sector,” Mr Joyce says.
The Incubator Support Programme from Callaghan Innovation offers support and funding to two types of business incubator companies, the existing founder focused incubator model and the new technology focused incubators.
Technology-focused incubators are privately owned businesses that will focus on commercialising complex intellectual property primarily sourced from publicly funded research organisations, such as universities and Crown Research Institutes.
Technology-focused incubators will be able to access a new repayable grants tool on behalf of the start-up companies they incubate. These grants will be administered by Callaghan Innovation. The Government will contribute up to $450,000 over two years to eligible companies resident in technology-focused incubators, matched 1:3 with incubator owners contributing up to $150,000. The Government grants will be repayable out of the company’s revenue. This pilot repayable grants programme has been allocated $31.3m over four years.
# # #
The Greens are a bit late to this party.
WNT Ventures (Tauranga) is made up from local leaders of Wharf 42, Newnham Park (including Plus Group and Locus Research), and the Titanium Industry Development Association (TiDA). Incubator pitch supported by SCION, BoP Regional Council, Quayside Holdings, and Enterprise Angels (100+ member group of high net worth individuals).
The titanium industry development in Tauranga is a startup success story on its own.
>”The titanium industry development in Tauranga is a startup success story on its own.”
TiDA – “Developing New Zealand’s titanium industry to enable the design and development of world-class products using powder metallurgy.”
Powder Metallurgy:
Powder metallurgy begins as a metal or ceramic in a powdered form, which is then consolidated in a variety of different ways to produce high quality parts.
http://www.tida.co.nz/
>”Funding and Grants, Business R&D funding [$140m a year from govt]”
Apparently needing “refocus” according to the Greens:
“….a smarter greener economy where innovation flourishes and we develop high end export products the world needs.”
“….the government can refocus the grants system towards research into building a cleaner and smarter economy.”
Enterprise Angels – “we invest most actively in things we can ‘kick’ – innovative businesses in the agriculture, dairy, horticulture, engineering, food and clean tech industries”
Presumably, the world doesn’t actually want the dairy products it pays us NZ$13.7 billion for each year (29% by value of the country’s merchandise exports), engineering isn’t about “smarter” technology, and the Angels just don’t get it.
But why “refocus” to “cleaner” when the Angels have already identified, and are investing in, “clean”? Should the Angels really kick “squeaky clean” instead of just “clean”, to be green?
And what exactly are the “high end export products the world needs” that NZ will produce if not the $13.7bn, 29% dairy mainstay? This leads to comparative advantage in respect to international trade. NZ has advantages which provide premiums for what we produce best. It would be insane to surrender an advantage (rather than address environmental issues) to do something we don’t have an advantage in (whatever that is).
International economics (from Wiki, abbreviated):
Classical theory
The law of comparative advantage provides a logical explanation of international trade as the rational consequence of the comparative advantages that arise from inter-regional differences – regardless of how those differences arise. Since its exposition by David Ricardo[6] the techniques of neo-classical economics have been applied to it to model the patterns of trade that would result from various postulated sources of comparative advantage. However, extremely restrictive (and often unrealistic) assumptions have had to be adopted in order to make the problem amenable to theoretical analysis.
The best-known of the resulting models, the Heckscher-Ohlin theorem (H-O)[7] depends upon the assumptions of no international differences of technology, productivity, or consumer preferences; no obstacles to pure competition or free trade and no scale economies. On those assumptions, it derives a model of the trade patterns that would arise solely from international differences in the relative abundance of labour and capital (referred to as factor endowments). The resulting theorem states that, on those assumptions, a country with a relative abundance of capital would export capital-intensive products and import labour-intensive products. The theorem proved to be of very limited predictive value, as was demonstrated by what came to be known as the “Leontief Paradox” (the discovery that, despite its capital-rich factor endowment, America was exporting labour-intensive products and importing capital-intensive products[8])
[Worth noting here that NZ now imports labour (“RSE”s) for seasonal fruit harvest from Indonesia, Malaysia, Vanuatu, Samoa and probably other places too, along with backpackers from Chile, Brazil, Argentina, Uruguay, Europe etc. The volume of NZ fruit exports now would be impossible without that imported labour. Similar with Mexicans in US for fruit and vegetable harvest and Bangladeshis in Gulf States construction. See “Globalization” at the link – in economic terms it refers to the move that is taking place in the direction of complete mobility of capital and labour]
Modern theory
Modern trade theory moves away from the restrictive assumptions of the H-O theorem and explores the effects upon trade of a range of factors, including technology and scale economies. It makes extensive use of econometrics to identify from the available statistics, the contribution of particular factors among the many different factors that affect trade. The contribution of differences of technology have been evaluated in several such studies. The temporary advantage arising from a country’s development of a new technology is seen as contributory factor in one study.[13]
Other researchers have found research and development expenditure, patents issued, and the availability of skilled labor, to be indicators of the technological leadership that enables some countries to produce a flow of such technological innovations[14] and have found that technology leaders tend to export hi-tech products to others and receive imports of more standard products from them. Another econometric study also established a correlation between country size and the share of exports made up of goods in the production of which there are scale economies.[15] The study further suggested that internationally traded goods fall into three categories, each with a different type of comparative advantage:
# goods that are produced by the extraction and routine processing of available natural resources – such as coal, oil and wheat, for which developing countries often have an advantage compared with other types of production – which might be referred to as “Ricardo goods”;
# low-technology goods, such as textiles and steel, that tend to migrate to countries with appropriate factor endowments – which might be referred to as “Heckscher-Ohlin goods”; and,
# high-technology goods and high scale-economy goods, such as computers and aeroplanes, for which the comparative advantage arises from the availability of R&D resources and specific skills and the proximity to large sophisticated markets.
http://en.wikipedia.org/wiki/International_economics
# # #
Ok, NZ actually produces high-tech goods already (e.g. aeroplanes) and low-tech goods (e.g. steel) but they are no match for the Ricardo goods where NZ has comparative advantage (e.g. dairy, agriculture, horticulture) in value. Australia is learning this lesson the hard way in their car manufacturing sector where they don’t have comparative advantage .
But the Greens seem to be advocating a move from Ricardo (food essentially) and low-tech goods to “cleaner” and “smarter” high-tech. What are these magic $13.7bn a year green beans? I want some. They cost $1bn a year in exchange for cows apparently – much like the fairytale:
‘Jack and the Beanstalk’
Jack is a young boy living with his widowed mother and a milk cow who is their only source of income. When the cow stops giving milk, Jack’s mother has him take her to market for sale. On the way, he meets an old man who offers “magic beans” in exchange for the cow and Jack makes the trade. When he arrives home without any money, his mom becomes furious, throws the beans to the ground, and sends Jack to bed.
A gigantic beanstalk grows overnight which Jack climbs to a land high in the sky. There he comes to a house (or in some cases, a castle) that is the home of a giant. He asks at the door for food and the giant’s wife takes him in. When the giant returns, he senses that a human is nearby:
Fee-fi-fo-fum!
I smell the blood of an Englishman,
Be he alive, or be he dead,
I’ll grind his bones to make my bread.[3]
Jack is hidden by the giant’s wife and he overhears the giant counting money. When the giant sleeps, he steals a bag of gold coins and makes his escape down the beanstalk.
Jack returns up the beanstalk twice more. Each time he is helped by the wife, learns of another treasure, and steals it when the giant sleeps: first a goose that lays golden eggs (the most common variant is a hen; compare the idiom “to kill the goose that laid the golden eggs.”), then a harp that plays by itself. He is almost caught with the harp, however. The giant follows him down the beanstalk and Jack calls to his mother for an axe. Jack chops down the beanstalk, killing the giant, and they live happily ever after with their riches.
http://en.wikipedia.org/wiki/Jack_and_the_Beanstalk
Right, where’s that old man with his “magic beans” – we’ve got some cows to trade.
In response to the question “how is Clint?”, Clint is the spin doctor who tells Gareth “UFO Boy” Hughes what to think
See here, for example
https://www.youtube.com/watch?v=AaOMGLINdpw
UFO Boy is so-named for his boyish looks and relevant degree studies in UFO Cults which would make him an ideal energy minister in a Labour/Green coalition
Green Party: Trade and Foreign Investment – Policy Summary
Just and sustainable production and trade
# Reduce our dependence on imported goods, eg food we can grow here.
https://www.greens.org.nz/policy/summary/trade
Wonderful. We can grow wheat here and in 1972, 1976, and 1977 we didn’t import any wheat above 1000 tonnes i.e. NZ was as close, but not even then, self sufficient in wheat as it has ever been:
‘New Zealand Wheat Imports by Year’
http://www.indexmundi.com/agriculture/?country=nz&commodity=wheat&graph=imports
Times have changed, 561,000 t (ignore “1000 MT” units) imported 2011, 475,000 t so far in 2014.
‘NZ history of wheat growing’
……..wheat production peaked in 1969 (456 640 tonnes). The total yield for 1993 was 219 414 tonnes. ……….. The figures for wheat production in New Zealand do not represent the total quantity of wheat used in New Zealand, however, as we have rarely reached self-sufficiency. Wheat for use in bread making has been imported primarily from Australia to ensure sufficient quantity for New Zealanders’ use. This has been common since the early 1930s. The quantity imported has ranged from none to over 250 000 tonnes
http://www.bakeinfo.co.nz/Facts/Wheat-Milling/Wheat-and-Milling-History/History-of-wheat-growing-in-New-Zealand
There were complications:
‘NZ wheat growers get less than half the imported price’
15 February 2009
New Zealand is not self-sufficient in milling wheat and imports a large amount from Australia each year. The price gap between prices paid for New Zealand grown grain and imports has been a long-running issue for local growers. But prices offered for New Zealand grain fell significantly in the final quarter of last year, from about $500 a tonne to less than $350. Large quantities of New Zealand wheat were sold at the lower prices as growers cleared their silos ready for the next harvest. The mid-Canterbury grain growers’ chairman David Clark says the merchants told them the prices had to drop because large quantities of Australian grain were being imported at much lower prices. But Mr Clark says import statistics told a different story. He says the import statistics for the October to December period of 2008 show that there was just over 60,000 tonnes of wheat imported from Australia during that three month period, at an average price of $725 a tonne.
http://www.radionz.co.nz/news/rural/906/nz-wheat-growers-get-less-than-half-the-imported-price
In other words, “Just and sustainable” wheat production and trade, like it or not, is at the mercy of international markets and players (not to mention climate).. NZ growers of any food commodity not under a coop umbrella e.g. Fonterra (dairy) or Zespri (kiwifruit), rarely receive optimum prices. For wheat, Australia had/has the similar AWB (NZ has United Wheatgrowers – see below), from Wiki:
AWB Limited was a major grain marketing organisation based in Australia. It was a government body known as the Australian Wheat Board until 1 July 1999, when the AWB was transformed into a private company, owned by wheat growers. In 2010, AWB was acquired by the Canadian firm Agrium, and in 2011 the company changed its name to Agrium Asia Pacific Limited.
AWB had veto power over any other prospective exporters of wheat, which effectively eliminated competition on the export market for Australian wheat, thereby capturing freight differentials. Exports are typically managed through commodity pools, which are managed investment schemes. The beneficial interest in the export grain is distributed to participants in the commodity pool.
[Also “oil for wheat” Saddam Hussein scandal – ‘nuther story]
http://en.wikipedia.org/wiki/AWB_Limited
2012 AWB (Australia) Pty Ltd. http://www.awb.com.au/growers/
NZ domestic and Australian imported wheat prices appear to have equalised since 2009 to around $NZ414/tonne, possibly due to the AWB transformation:
United Wheatgrowers (NZ) Ltd, Prices and Trends:
http://www.uwg.co.nz/prices/index.cfm
United Wheatgrowers (NZ) Ltd is a wheat grower-driven organization whose main activity is managing a disaster relief insurance scheme for all wheatgrowers and administering a Quality Assurance Scheme.
United Wheatgrowers (NZ) Ltd also work co-operatively with The Grains Section of Federated Farmers of New Zealand and together have confronted and successfully challenged many issues relating to the business of wheat growing over the last 30 years.
http://www.uwg.co.nz/aboutus/index.cfm
# # #
So will the Greens issue directives to both wheat growers (grow more wheat somehow) and wheat merchants (import less wheat, buy the extra domestic production that will surely accrue from the grower directive) in accordance with their policy, even though NZ has always been dependent on imported wheat for about half the quantity used?
Sounds like central planning – what could possibly go wrong?
Today on the GETS site – (government tender site) – some jobs for the boys
“EECA BUSINESS is seeking proposals from qualified consultants to become programme partners for the Lower Carbon Meat and Dairy Programme. Programme partners will be able to apply for funding to …75% of the costs, up to a maximum of $15,000 per site.
“The Programme has targets to support BC [business case] Reports at 50 Meat or Dairy Processing Sites from 1 July 2014 – 30 June 2016. These reports are expected to result in 0.1PJ per year of energy savings and 7000 tonnes per year of carbon emission reductions. [the carbon savings are of course a construct off the energy savings]
“To enable energy saving and fuels switching, the Lower Carbon Meat and Dairy programme will rely on consultants to deliver quality and compelling BC reports.
This looks like jobs for the boys. Fonterra have dedicated staff all over this major cost component to their business and I don’t imagine need low level “consultant” assistance. The non-Fonterra plants are all pretty modern and likely to be efficient users. Presumably the target is Meat Plants which compared to Dairy will be trivial users of energy, and mainly in the form of electricity.
Death by a Thousand Consultants