The size of the pie matters of course, when thinking about how it is shared. So thanks should go to the nice people at Grant Thornton who have compared (pdf) the market performance of groups of companies in NZ and Australia. The sample is biased by being bourse-bound (listed firms) but is still interesting.

Here are the rates of return on assets over the 5 years to September:

Notice that for industries supplying many of the essentials of life in NZ, the rates of return are much higher in NZ than Australia: food, building products, telecommunications, construction materials, airfreight & logistics. Further digging required.

My conclusion is that it could, if designed well.

My starting point is the idea that we all collectively invest in (i.e. pay) our government(s) and therefore we own/control our governments. TABOR is legislation would regulate the terms of this bargain between we kiwis as investor/owners of government, and our position as beneficiaries/victims of the system of government that results.

Viewed this way, the TABOR idea is similar to price-cap (CPI-X) regulation of natural monopolies, which also involves a bargain between investors and the general public, so lets start there. We can then use the logic of regulated private investment to get an idea of what we should and should not accept from regulated government.

Price (or sometimes revenue) caps are calculated so that the regulated firm has just enough cash to (a) cover essential operating costs and (b) earn a reasonable but not excessive return on capital. Prices are allowed to trend at the rate of CPI inflation minus some efficiency factor X to account for reasonble differences in (unavoidable) cost changes between the regulated firm and the broader economy.

If the regulated firm can be more efficient (i.e. cut costs), it may continue to charge at the price cap and retain the benefit of any cost reductions. So it has an incentive to keep costs down. Then, every five years or so, the model is reset based on current information. The regulator considers and may mandate a one-time price adjustment (which could be down) and a new X factor, and the whole thing kicks off again for another 5 years.

Its an imperfect system for sure, but it has the great benefit of getting efficiency and discipline into what could otherwise be a recipe for rampant profiteering (which has happened) or outrageous waste (which can also happen).

In this utility regulation context we can think of the regulator as procuring services on behalf of the population. It is obviously in our interests for it to be done efficiently. And since the same applies to local government, maybe similar ideas could work.

After all, government is a natural monopoly. Democracy is the process of competition for the right to  govern, but 2 governments at once is a recipe for civil war, which is not an efficient way to compete for power!

Although they are both natural monopolies, there are big differences between a government and a powerlines company. And those differences are very relevant to how you regulate them.

The most obvious ones that matter are service definition and service quality. Unless you can define what is to be provided, and in what quality, it makes no sense at all to regulate prices or revenues. Firms will just redefine/degrade the service to maintain profits without charging high prices.

So if you cap local government rates, you might just get really crappy service. Some would say we already have that, but it could be worse and we need to make sure it isn’t.

Also, investors expect to get their money back. One aspect of the Colorado experiment that would not be tolerated by private investors is the ratchet effect referred to in Wikipedia, whereby if revenues fall due to recession they stay down. I can’t see any reason to have a ratchet.

Another issue relevant to local govt in NZ is that central govt keeps passing it obligations that are costly to manage. There would need to be an allowance built into any TABOR to allow (efficient) costs of this type to be passed on to ratepayers.

Still, if these issues were managed well, the concept could work. It will be interesting to see what (if anything) emerges.

New Zealand performs poorly relative to advanced economies on several of these innovation measures. Our relative performance indicates that we do not yet have the conditions in place to compete successfully.

I’m sure there is scope for improvement, but here are a few reasons to be a bit more cheerful…

First, to the extent that the WEF report makes sense, we’ve done OK, moving from up 4 places to 20th in the world over the last year. Second, all the WEF rankings are heavily influenced by surveys of selected business people, so they’re susceptible to a fair bit of sampling error if not actual bias. Also, for some reason NZ was under-sampled (47 instead of the average of 97 per country). Third, some might quibble with the answers those 47 gave, which among other things result in NZ being ranked in 1st place for

corporate ethics, the strength of auditing standards, and protection of shareholders

I find this a bit hard to square with finance company meltdowns, the Securities Commission’s weakness and  investor protection issues more generally.

Turning to the inferences NZ Institute draws for policy, the list starts out well with this idea

Focus on the requirements for innovative economies where we can make an improvement

But then it rapidly descends into a possibly worthy but very question-begging list that includes:

• Increase the availability of scientists and engineers
• Develop business clusters
• Penetrate more layers of the value chain
• Increase FDI and technology transfer
• Address the brain drain
• Improve hiring and firing practices

After that, I needed something uplifting. So naturally I thought of two NZ entrepreneurs who are doing exactly what we’re supposed to be hopeless at: turning science into business.

First up is Peter Beck from Rocket Lab in Parnell, who (among many other things) is preparing NZ’s first space rocket launch scheduled for November. It is expected to get 100km high.

Second is Glenn Martin from the Martin Aircraft Company in ChCh, which has built and is now selling a functional JetPack.

The last one that got me interested was the superb “Should assault, as part of a good relationship be a criminal offence in NZ?” group that attracted almost 2000 members and many more hilarious spoofs on the ridiculous referendum question.

But now I’m following this little cracker. It was set up as “A group for people who are against Maori getting a free pass to university with no qualifications”, in which form it attracted over 7000 members and elicited opinions every bit as repulsive as the worst of David Farrar’s unmoderated comments sections.

More recently, David Small (who is my brother) has acquired administrative control, changed the description to “This group is a demonstration of the nature of racism in New Zealand”, and started challenging the group. Join the fun here.

Here is a thought experiment: suppose we wanted to refresh/develop New Zealand’s brand. How would we do that, and what would be the result? If this question seems crazy, ask yourself what foreigners think of when they hear “New Zealand”. Like it or not, New Zealand already has many brands: they are whatever people associate with the country.

A strategic (NZ Inc) branding exercise would start by recognising and getting better information on this starting point. We would then think seriously about how we want NZ to be perceived. Who are we? What do we offer? What are our values? To what do we aspire? These are nation-brand building questions. They transcend party politics. We absolutely need to confront them.

Delivery on the brand promise is critical. If NZ Inc is to act like a business we need to avoid the dreaded over-promise-under-deliver trap. The brutal truth is that we either need a replacement for the flagship 100% Pure brand, or a very convincing way to explain it. People are asking questions.

Obviously its been a great brand. But 100% Pure?  This doesn’t sound like a country identified by the OECD as a leading waste producer.

If 100% Pure is to have lasting value as a brand we need a stringent quality assurance regime within NZ. Some firms would miss the cut, perhaps many. We might even want to ban certain activities on the grounds that they are inconsistent with the national brand. That’s how commercial brand management would work. It seems pretty dangerous to have a brand and allow it to be undermined.