Saturday 2 August 2014

Xenophobia is not a good basis for economic policy (updated)

Isaac Davison writes in the New Zealand Herald:
Economic Development Minister Steven Joyce has accused Labour of "xenophobia" in their opposition of the potential sale of Lochinver Station to the Chinese company that bought the Crafar Farms.

Mr Joyce and Grant Robertson, economic development spokesman for Labour, appeared on TV3's The Nation this morning and discussed the sale.

Mr Robertson said under Labour the sale would not go ahead.

"Our criteria would definitely mean that a sale like this would be highly unlikely."

Mr Joyce said the opposition were "electioneering" in relation to the issue.

"When did [Labour] go out and oppose the purchase of James Cameron's land?"

"A little xenophobia from the Labour Party to start the day," he said.
Let me make a couple of points here. For efficiency reasons we want resources to be in the hands of those who value them most highly and the way to do that is sell them to the highest bidder. We want land (and other resources) to be used in the most efficient manner and the country of origin of the buyer is irrelevant to this. A thought experiment: ask yourself, Why are auctions used for so many goods? Its a way of finding out who values the good most highly. Whoever bids the most gets the goods. This is how we maximise the probability of getting an efficient allocation of resources. Secondly would a Labour government compensate the seller of the land for their policy? Under the Labour policy the seller would be forced to sell their land at a lower price than they would otherwise get (or not sell at all) and would a Labour government make up the difference between the actual sale price and the highest possible price? And if not, Why should the seller receive a lower return than they otherwise would?. And if this is a good policy for land why not implement it for other goods as well? What makes this idea land specific?

While I'm thinking about this let me add that the "logic" of our xenophobic friends must be symmetric. That is, if it is bad for foreigners to invest in New Zealand it must be equally bad for foreign counties to have New Zealanders investing in them. So why are New Zealand First, the Conservatives and Labour not announcing their intention to introduce legislation preventing New Zealanders from investing overseas?

Update: There are comments on this issue at Kiwiblog and Homepaddock and by Tim Worstall.

9 comments:

Mark Hubbard said...

Lovely post.

Jim Rose said...

If someone wants to pay over the odds for is New Zealand land, let them.

Why would any seller be opposed to a buyer paying too much?

The foreign investor ends up with the land because he thinks he can make more of it than anyone else competing for that land.

What happens to the money that the New Zealand seller.from the buyer? That is always forgotten by these rabble-rousers.

Paul Walker said...

Thanks Mark. I just wish a major party like Labour thought more about the issue.

Paul Walker said...

Exactly Jim. Actually shouldn't we encourage overseas buyer to pay over the top!!

Donal Curtin said...

Right on. And the asymmetric logic point is good, too. It's obvious that NZ companies investing overseas create jobs there, but what's the typical reaction to foreign companies investing here? It's never "Excellent, higher NZ employment", but drawbacks like "It'll be a drag on the balance of payments"...

Paul Walker said...

Donal. You're right there is some weird thinking that goes on when you mention overseas investment. great when e do it but not when others do it here. And when people talk about it they don't seem to see the contradiction in those two positions.

jh said...

For efficiency reasons we want resources to be in the hands of those who value them most highly and the way to do that is sell them to the highest bidder.
...........
Says who?
There is an economic value to being the member of a nation. New Zealand's history is one of land reform where large accumulations were broken up for closer settlement.

jh said...

What happens to the money that the New Zealand seller.from the buyer? That is always forgotten by these rabble-rousers.
....
Probably because it is never clear what happens to the benefits apart from a sugar rush somewhere.

jh said...

Right on. And the asymmetric logic point is good, too.
.....
I don't think it matters what a minority can do (a corporation or a John Key), what matters is like for like. China is threatend by climate change and is grossly overpopulated
Why cant land just be leased?
As John Stuart Mill said ' “The land of Ireland, the land of every country, belongs to the people of that country."
Neville Bennet suggests land taxes
http://www.interest.co.nz/rural-news/53668/opinion-land-crisis