Scoop Election 08: edited by Gordon Campbell

Foreign ownership rules, and California’s support for Chief Justice Sian Elias

July 24th, 2009

To its critics, the government’s response to the recession has looked like an Eighties Revival. Psychologically speaking, that’s not so surprising, When in trouble, politicians of a certain age are prone to revert to the old time religion: cut taxes, slash government spending, and pray. Yet, as time goes by, it may be more accurate to regard the government’s response to this recession as a revival of Hooverism.

Meaning: when faced with the biggest recession since the Great Depression, the Key government seem to be repeating the sort of contractionary policies that US president Herbert Hoover resorted to in the early 1930s, thus making the Depression cut deeper and last longer. Here’s how US political analyst Ed Kilgore recently http://www.thedemocraticstrategist.org/strategist/2009/07/fun_for_fiscal_hawks_in_califo.php:

One of the odder political phenomena of 2009 has been the strength of the neo-Hooverite argument that the most appropriate response to the deepest recession since the 1930s is radical retrenchment of public spending policies to mitigate (or, at the state and local level, avoid) deficits. Most Republicans and some Democrats have embraced the rhetoric of hard-core fiscal hawkery, with particularly tough words for those state and local governments who have suddenly, through no particular fault of their own, watched revenues drop through the floor.

As Kilgore says, deficits are occurring for reasons that have virtually nothing to do with public servants. It was private sector greed that caused this recession – and in New Zealand, it was the Aussie owned banks that poured gasoline on the fire. Yet by refusing to investigate the banks and focusing instead on public sector spending, the government is treating effects, not causes – and not all the causes for New Zealand’s current situation lie offshore.

Yes, but isn’t the blogosphere always moaning? Always shouting from the sidelines that people are doing it all wrong. OK, so here’s a positive suggestion. In California this week, the politicians finally got a deal on the table for a workable state budget. Here’s what Kilgore says in the same article about one aspect of the spending side of this Budget deal:

It includes $1.2 billion in unspecified cuts to prison expenditures. [These are] virtually guaranteed to force early release of prisoners, a practice that earlier led to public demands, in California and elsewhere, for mandatory sentencing rules and restrictions on parole and probation.

California has a huge prison population. This is the state that pioneered the “Three Strikes and You’re Out” policy of zero tolerance for crime. As Chief Justice Sian Elias eloquently warned earlier this month, New Zealand has gone down the same socially and economically ruinous road – of high imprisonment rates, mandatory sentencing and restrictions on parole and probation.

So how do the Key government – and its Act friend David Garrett in particular – explain this proposal to release an estimated 27,000 prisoners from California jails in a home detention amnesty, as part of a budget balancing effort ? According to the Los Angeles Times, this proposal has been set aside for further discussion so that it does not impede immediate passage of the main Budget measures. Here are the details:

The plan, which won endorsement from a police chiefs group Wednesday, would allow the state to place on home detention prisoners with a year left on their sentences and those who are elderly or infirm, and to change sentencing and parole rules to reward offenders who show evidence of rehabilitation.…

The proposal for a prison amnesty has the full support in principle, of the California Polcie Chiefs Association :

Before the prisons proposal was put on hold, it received a boost from at least one law enforcement group, the California Police Chiefs Assn. Pasadena Police Chief Bernard Melekian, president of the association, said the plan takes “huge steps in the right direction” by including home detention and by targeting specific offenders who behave well, are sick or have the least time to serve. He said the plan was far better than an unvarnished early release of inmates that his group had feared would be approved by state leaders.

Isn’t this exactly the kind of sensible, humane approach that Dame Sian Elias was advocating only a few weeks ago? Sure, the measure has temporarily been put on hold while other more urgent state business takes precedence. But if the police chiefs in the state that originated “Three Strikes” can embrace in principle the idea of a home denetion amnesty scheme for non-dangerous and low risk prisoners–- shouldn’t our government start taking some steps to explore the feasibility of what the Chief Justice has so lucidly signposted ?

Here’s how it could proceed, and save a bundle of taxpayer money in the process. We already know how to identify high risk prisoners. Shouldn’t we task the Corrections Department to do the reverse – and identify the 250-500 least risk prisoners within the prison system ?

As in California, this would be the old, the sick, the low risk cases with less than a year left to serve – with a view to saving taxpayers the need to keep these people in prison, at a cost of $100, 000 a year each ? Much less the cost of building $315 million prisons to house them, or the safety risks to staff and to prisoners that are an inevitable part of the double bunking option, If we were talking about an early release programme for 300 prisoners, that could mean a potential gross saving of $30 million, this year and every year.

True, some of that $100,000 saved on each prisoner would have to be diverted into community measures, to try and ensure that those who qualify for home detention do not re-offend through lack of adequate support on release. Still, California is seriously engaged in the re-evaluation of its penal policies in exactly the way that our Chief Justice has advocated.

Therefore, what is stopping the government from commissioning a pilot programme to test the feasibility of early release into home detention – is it ideology ? Or is it a concern that sensible clemency might limit the business opportunities for its friends in the private sector who want to build and run private prisons?

Overseas ownership rules

Foxes, meet henhouse. Who would you get to review the rules on overseas ownership of strategic assets? Chances are, you probably wouldn’t set up panel comprised only of the lawyers who could easily stand to make gains from the sales. Isn’t there a perceived conflict of interest when you hire Chapman Tripp, Bell Gully, Simpson Grierson, Russell McVeagh and Minter Ellison Rudd Watts to review the existing rules,and come up with a new test of what the’national interest ‘ should be ? Incredible. Mightn’t these lawyers be tempted to conclude that the rules need to be relaxed, to the benefit of their clients, whom they could then bill for a share of any sale proceeds ?

Greens Co-Leader Russel Norman has already raised the issues of conflict of interest, and he’s dead right to do so.

We’ve been here before. New Zealand came to rue the involvement of Fay Richwhite in the NZ Rail saga, and that history alone should have made the government gunshy of handing this review to such a narrow group of potentially self interested players. The Greens press release contains links to OIA evidence, and other material that includes this :

In a February publication foreshadowing the current review, Chapman Tripp – a law firm represented on the review declared that it would be raising its concerns over the current Act “with the government on behalf of its clients.”’

On Morning Report this morning, Nick Wells of Chapman Tripp gave every indication that his firm has prejudged the review that his colleague is still supposedly engaged in. Plainly, we are about to see a revival of those famous Fay Richwhite’ Chinese walls’ where – cross my heart and hope to die – one part of the firm just doesn’t know what the other part is doing.

In Wells’ opinion “The [current] thresholds and the procedures…just aren’t working. They’re bogging down business in red tape quite severely…what’s in place now just isn’t working.” Personally, I’d have thought the current rules worked just fine in preventing Auckland International Airport from falling into the hands of foreigners in general, and those of that Canadian pension fund in particular. (Any news, by the way, on how that fund has fared in the global recession? Would it have been such a great idea to have sold one of the key strategic assets in our tourism and transport sector to one of the hedge fund/pension plan vehicles that have taken such a hammering over the past 12 months? But I digress. )

In fact, there is no evidence to substantiate Wells’ decision to prejudge the review that Chapman Tripp is still supposedly engaged in carrying out with an open mind. The reality is that business is complaining that it can’t get its own way. That dreaded ‘red tape‘ is standing in the way of its desire to get its hands on publicly owned assets – which, if the private sector’s track record on Air New Zealand is any indication, will see either a valuable asset run into the ground, or monopoly rents extracted from it. No matter. Chapman Tripp’s ’clients’ in February were unhappy, and they want those assets that we own put at their disposal, quick smart !

Pathetically, in the same Morning Report clip, Bill English was talking about foreign investment being needed “to get the jobs and get people back into work.” When, exactly has that happened as a result of such a process? We have had 20 years of foreign firms buying and asset-stripping our assets. Judging by that track record, foreign investors are more likely to cut jobs – to boost the returns to shareholders – rather than create them.

Power and communication assets, English says are on the government’s protected list. Yet in future under the relaxed rules, it also seems that governments will not be able to intervene in a sale process once the negotiations for sale have got under way. One would have thought that would be precisely the point at which the public would want the government to intervene – in order to weigh, in an objective fashion, the relative costs and benefits to the nation of such a sale before allowing it to proceed. In future, that kind of evaluation may well be rendered impossible. Welcome to the Eighties Revival.

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    1. 8 Responses to “Foreign ownership rules, and California’s support for Chief Justice Sian Elias”

    2. By James on Jul 24, 2009 | Reply

      There is nothing fundamentally wrong with John Keys response to the current global recession.

      Firstly, we are experiencing a ‘Recession’, which is different from a depression, and significantly different from the ‘Great Depression’

      As identified by Milton Friedman and Anna Swarts in their 1963 book, 1963 book: A Monetary History of the United States, the Great Depression was initially caused by the policies and actions of the central banking entity, the United States Federal Reserve. This was recently admitted by its current chairman Ben Bernake.

      The recent path the Obama administration has chosen to pursue, i.e. attemping to spend your way out of a recession is a Keynesian approach to the problem.

      Whilst this was a viable solution to the Great Depression, Friedman noted that earlier steps could have been taken by the Federal Reserve to prevent to stock market crash from becoming a national and global financial crisis.

      The problem with applying that approach today, is its merely a band-aid on a long-term problem. While you can pump the economy up on debt, eventually a more indebted nation and populace will have to pay that money back. The further indebted they become the higher the cost of borrowing.

      This does not solve the underlying problem that we are importing significantly more than we are exporting, and the only way to finance such consumption is through borrowing internatinoally or letting foreigners buy up our assets.

      Thus I believe Key’s approach is not only prudent, but the correct path to take. He has preserved our triple A credit rating, which if we let slip would increase the borrowing cost of productive enterprise, affecting our exports.

      America on the other hand is heavily leveraging its balance sheet with debt it may never be able to pay back, not to mention by flooding its economy with new liquidity it is setting itself up for long-term inflation, and eroding its economic fundamentals.

    3. By Clarke on Jul 24, 2009 | Reply

      It’s a bit hard to take English seriously when he noted on Morning Report that 98% of applications under the foreign investment rules were already being approved. Does he seriously expect us to believe that the last 2% represents an onerous red-tape burden on the hard-pressed commercial sector?

    4. By S M Creighton on Jul 24, 2009 | Reply

      I remember one of Key’s campaign promises is that no state assets would be sold in the first term of this National Government. A poli breaking his promise? I’m crestfallen!

    5. By Dr Strangeglove on Jul 27, 2009 | Reply

      James- what would you say is Key’s response to the banking credit crisis/ the current global recession?
      Are you excited about the restructuring SOE’s and selling them off cheaply to foreign investors, the private public partnerships, or is it the Carbon Trading scheme that gets you going?

    6. By Dr Strangeglove on Jul 27, 2009 | Reply

      It was a Ruddy horrible response.

      “While you can pump the economy up on debt, eventually a more indebted nation and populace will have to pay that money back. The further indebted they become the higher the cost of borrowing. The other hand is heavily leveraging its balance sheet with debt it may never be able to pay back, not to mention by flooding its economy with new liquidity it is setting itself up for long-term inflation, and eroding its economic fundamentals. “

      … thus James I believe what you really meant to say was that the Key ‘response’ is not prudent.

    7. By stuart munro on Jul 28, 2009 | Reply

      Never mind the borrowing – having pursued an ideological chimaera (free trade) that has consistently failed to pay off, NZ’s manufacturing industries are essentially extinct, so that the consumer society model no longer works for us economically.
      To be even an ordinarily decent PM, John Key would need to make a credible intervention to revive our economy.
      Sadly, we have not had a remotely decent PM in living memory, and Key’s policy amounts to tired rhetoric and a conspiracy to end superannuation.
      “They shall not grow old as we who are left grow old.”

    8. By Dr Strangeglove on Jul 28, 2009 | Reply

      But Stuart, free trade has got us
      Kraft’s ‘Cheese Whiz’, an ultra processed cheese that unnaturally vomits out of a can in a pretty pattern for NZ kids that do not yet suffer health problems.
      Big pharma will profit off us later with the new range of “preventative drugs”.

      The green shoots of the multinationals
      tapped into the key response.

    9. By Rich on Aug 7, 2009 | Reply

      I love you Gordon.

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