thinking: relating- celebrating :-)

Following on from yesterday it seems that some of the ideas in the draft strategy for coming out of the crisis stronger -Download Full Document here have got a bit more traction with National.

*Later in the day – John Key announced that he would be looking for the NZ Super Fund to invest 40% of its total in NZ rather than the 23% it does currently.  As John Armstrong notes -(16th Oct NZHerald)

“Cue the balalaika music. Cue the dancing cossacks. Let’s electioneer like it’s 1975 in reverse.”

such a move in the recent past for the National Party would have been seen as pure communism.

1975 was the first election I remember taking an interest in. I was still at school and not able to vote and the whole election campaign with a Prime Minister called Piggy Muldoon was straight out of George Orwell’s Animal Farm. Completely bizarre. Hopefully 33 years later the voting public is a bit smarter than in 1975.

The policy of re-weighting Super Investment from 23% to 40% within NZ is in fact one of the ideas in the draft paper referred to above from the NZX / NZ Institute release.

The real difficulty here is that such a policy change fits more naturally with Labour than the National Party and there is no reason why they couldn’t adopt the same view and neutralise any gains from the policy.

I would have said in an election you want to differentiate your policies and people not just adopt the other teams policies and pretend this is your idea. I may have missed it – but it would also be polite for My Key to give a hat tip to David Skillings and Mark Weldon. (Correction: the hat tip has been made.)

On Page 14 “Re-directing taxpayer funded savings institutions”

“The government owns financial institutions that control in excess of $30 billion of financial assets (NZ Super Fund, EQC, ACC etc). These assets exist to fund specific liabilities, and are managed according to orthodox investment and portfolio allocation criteria.

However, the current crisis creates a case for examining whether these assets are being invested in a way that maximises the national interest.

Given that New Zealand firms will find it more difficult to access credit for investment, directing these financial institutions to place a specified proportion in New Zealand investments seems appropriate.” (my italics)

Along with the earlier recommendations on adopting a KiwiCo investment vehicle such as Temasek in Singapore and Khazanah in Malaysia a re-weighting of Government sector institutions towards NZ companies would seem to be at least partly the inspiration for Mr Keys’s policy announcement.

What do you think?

My view is that Labour and Mr Cullen in particular should say this is a good idea and that Labour would definitely look at the re-weighting of local investment from 23% to 40% and is they want to go one better they could expand the scope from Kiwisaver to include the EQC & ACC and noted above.

“Finance Minister Michael Cullen this week hinted he, too, was interested in getting the fund to invest more in New Zealand.

But yesterday, he said there was no way Labour would change the law so a minister could tell the fund what to do.” from Super Plan: meddling or a Good Idea

There are always ways to influence investment policies and I would have said risk management needs and urgent review given the global meltdown on equity markets.  The second part of this is that redirecting EQC and ACC may be part of the answer as well.

My concern is that most larger NZ businesses are owned offshore anyway. It must be a concern and part of the macro-direction for NZX to encourage more local listings.

The other hidden factor in this equation is that the NZ Equity market is very thin and misses a fair number of substantial $100m+ businesses that are either family owned or owned by unlisted funds; and almost completely invisible to the investing public / NZX.

Note: Update On 22 Oct Lance Wiggs did this analysis which puts a different spin on many of the suggestions.

Following on from the NZ Institute / NZX draft document from Economy on the edge: Swan dive or belly flop? Or as another Jason commented - How can we take this to the next level?

A draft strategy for coming out of the crisis stronger -Download Full Document here is a closer look at one section; but first some other comments on the wider political environment in NZ.

The global credit crunch is an opportunity for politicians everywhere to show real leadership and especially in NZ where we have some unique challenges.

NZ has a general election on November the 8th and we have two politicians (Clark & Key) in the hot seat. So far the big wins go in favour of the Prime Minister who is clearly relishing the chance to step up.

That other candidate. The one who used to be a successful derivatives trader at Merrill Lynch and SHOULD know more about this type of crisis appears to be alternately smug and clueless.

Could it be that the very paradigm Mr Key was clearly successful in – might be his Achilles heel in this election campaign? Being good at abstract structured finance might not be such a good qualification for leading the real economy? (*See note at bottom though)

It is not just me who thinks so either: Over at Hard News / Public Address Russell Brown writes

“I’ve been telling anyone who asks that National is 75-25 odds on to form a government. I think it’s evident that those odds shifted Labour’s way on Friday: it’s just not clear how much.

And not just because of the polls per se: the 3News report on the poll results was more damning than the numbers themselves, which must be weighed against the thumping lead that messrs Colmar and Brunton gave National two nights later.

It was the look. Key was interviewed sitting down and, as is sometimes case when he’s nervous, his diction started to go off the rails (“the issues that matters to New Zealanders”). He looked a bit spooked. Clark, by contrast, was standing, smiling and enunciating every word like she meant it.”

The Deposit Guarantee Scheme announced over the weekend by the Reserve Bank will help but it highlighted the difference in vision between the two parties.

At this point I should disclose that I am a Green Party voter and while I am more sympathetic towards Labour than National this is a time for a bi-partisan approach.BTW I’m picking that the Greens will get 7-9% of the vote this election and the Maori Party will do much better.

Dr Pita Sharples is altogether a much more savvy politician and very capable thinker than Tariana Turia who always used to take 1 step forward and 2 steps back.

If Labour and National in particular (as the largest parties) work together on a smarter economic future for NZ then we can filter out some of the less important factors to pick a winner on the day.

Although my guess is both parties will need to form a minority governement leaving the Greens and the Maori Party with the balance of power.

Returning to the Draft Document here Perhaps some of you had a read over the weekend – on page 11 of 18 – italics and emphasis are mine

The focus of the proposed solutions on the real economy is deliberate, and reflects the particular nature of New Zealand’s exposure to the global crisis.

Unlike many other developed economies, our immediate exposure is to the impact of the credit crunch on the real economy rather than the liquidity and solvency of the banking sector.

The proposed New Zealand response is therefore fundamentally different to the measures recommended in other countries.

100% tax depreciation on capital investment
Given New Zealand already faces deep productivity issues, a reduction in capital investment when capital is scarce is a real risk to our medium term competitiveness. Firms are already cutting capital investment. Without any incentives to accelerate such investment, any delay will in turn delay the timing and strength of the economic recovery. The opportunity is to accelerate that process, and thereby strengthen our new champions.

We propose that for the next 24 months (through to 31 December 2010) capital investment and IT spending be allowed a 100% depreciation write-off for tax purposes.

For firms to invest meaningfully in capital, they either have to have been well managed with strong cash flows, or still have access to credit or equity.

We can therefore expect that the firms that take advantage of this tax window will be the ones who will drive the economy forward, and around whom the economy should recalibrate.

As someone who works on the edges of IT sector I understand how much effective capital spending and capability improvements can have in this area.

Build flexibility and smarts into your business system using IT as an asset and platform. I spend most of my time unlocking IT capabilities so that marketing and sales can deliver the results we expect.

Happy to provide more services in this space as well so I agree with the direction as long as we all utilise the existing and new systems rather than thinking we just have to buy a license which never gets us very far.

I’d be interested in what you think about this as a policy direction. But even more important read the full document and go over to the main NZX blog to add your feedback and ideas.

*National has adopted one of the ideas in the draft strategy at least in spirit if not directly. A small win for Mr Key. Go here to keep reading.

On Thursday / Friday I wrote a long piece trying to make more sense of the credit crisis. Well that post snowballed and I kept making updates. This means some of the regular visitors may have missed parts.

For that reason I have cut the post into 2 sections – here is Part 2 which is more focussed on NZ and Australia.

All markets are not the same and that is an opportunity.

The velocity of change is a bit scary but just as we now learn of bad news early there are also pockets of recovery in markets that are more stable.

It is a tough time for banking regulators. If they act in haste it looks bad for confidence but if there is a big time lag the uncertainty can delay lots of business decisions.

“Governor Alan Bollard yesterday ruled out an early review of the official cash rate, saying the New Zealand financial system was working satisfactorily and moves to help it over the past year had been “sufficient at this stage”. Bollard on 10 Oct

“Westpac economist Dominick Stephens supported Dr Bollard’s decision.

He said interest rates were being cut not only because of the economic situation, but also to shore up confidence.

“In New Zealand there is no crisis of confidence in our banking system, therefore why go early?”

There are linked institutions for sure and we are facing down a black swan here, so there is a magnitude of linked risk that is hard to unravel but partly because we are all affected in some way I remain positive that a problem shared can be solved.

And hopefully we can all think about how to build a stonger morer sustainable economy with a lower risk profile. I must say that I like the list of positive actions from NZX chief Mark Weldon titles below go there to read the full version at NZX and David Skilling of the New Zealand Institute.

We need insightful leadership and the risk in NZ is that the general election fudges the short term for vote catching when we should be taking a longer term view.

“Political parties were not adequately discussing it and were instead playing “tick tack” over small amounts of money to taxpayers that will only fund consumption.” Source:NZX

Ironically the impression is that Labour hasn’t done too badly over the past 3 terms and National are struggling to differentiate themselves despite John Key having been a big cheese at Merrill Lynch. Weldon was also famously at McKinsey and is a qualified economist in the hot seat so his (and Davids”) suggestions make the RB and other look a bit sleepy.

Also congratulations to NZX who have finally got a blog on WordPress as well so that is even better.

1. Defer all provisional tax payments for next 24 months.
2. 100 per cent depreciation of capital investment.
3. Bring talented Kiwis home.
4. Attract new firms to New Zealand.
5. Retain the R&;D tax credit, to ensure that R&D investment is made in New Zealand.
6. Converting KiwiSaver, currently a voluntary scheme, into a compulsory retirement savings plan.

From Economy on the edge: Swan dive or belly flop? A draft strategy for coming out of the crisis stronger -Download Full Document

Note: I should make it clear that I am not a qualified economist – however I do read very widely on the topic and John Ralston Saul, George Soros, Nassim Talib, Hazel Henderson, Paul Ormerod, Lester Thurow, Jerry Mander, Edward Goldsmith and many others have made it very clear that deep change is needed.

If you enjoyed reading this you may also care to check out these other posts

• John Ralston Saul in Wellington
• Thinking Global (JR Saul)
• Seen Any Black Swans Lately? Noticed a few people searching for the manifesto Few & Far Between (by Nassim Taleb – you may download here) which has been made available by www.ChangeThis
• Banks Falling Like Dominos – Thanks Raf.

Update: Oct 11 – Dave McClure is based in Silicon Valley where it is always tough – but you need to be positive to get through. Among other thinks he references the litany against fear…

• Fear is the Mind Killer of the Silicon Valley Entrepreneur (we must be Muad’Dib, not Clark Kent):- Dave McClure – make a lot of very good points – caution -this post uses very forceful language which might get stopped by your firewall – but its passion and essence is right on.
  

  “while i don’t profess to understand credit or capital markets, i do know that internet startups cost less money than ever to get started. and unless i missed something, there are more people online now than ever, spending more money online than ever.

  and i doubt any of these trends will likely reverse in the long-term — lower costs, more people online, more e-commerce. doesn’t that seem like a pretty good environment for building new online businesses?”

And special thanks to Noric for listening to some of these ideas and making better sense of them.

Finally – today is the start of year 3 for this blog. More about that later in the week but somehow I have posted close to 100, 000 words over the past 2 years and getting a second wind now.