Tertiary Education Minister Steven Joyce’s recent policy announcements  have received a generally positive welcome.  Tying an element of institutional funding to students’ course and qualification completion, requiring a reasonable pass rate for continued access to student loans, and rationalising the many redundant or overlapping qualifications; all seem to have gone down well.  Even the usual naysayers have been muted in their response.

I find all this both gratifying and somewhat ironic. In 2001/2, the reports of the Tertiary Education Advisory Commission effectively recommended doing the same things.  In July 2002, the people named to be the board of the Tertiary Education Commission (including me) reiterated their support for such initiatives.  However, some were ruled out of bounds for TEC, eg. student support was deemed to a welfare issue not an education issue. Some we didn’t have the funding mechanism to implement (and for nearly 3 years we weren’t allowed to address that either, even though we rated it the number 1 problem to fix). Some the institutions weren’t ready to concede there were problems - eg. qualification rationalisation and completion rates.  Some, like polytechnic governance, were, frankly, just too politically difficult for the then Labour-led government.  However, we’ve been jawboning away on this stuff for all of the last decade and, like water on stone, we’ve worn down the obstacles.

Given the name of this weblog - Isambard Kingdom Brunel’s personal motto En Avant or “Get Going” - you’d be right to assume that I have been very frustrated by the time taken for all this. Smart policy development and implementation seemed often to have been trumped by the need to not upset anyone.  To be fair, all the ministers I’ve dealt with have had their merits, and we’ve made increasingly faster progress.  However, there’s a palpable difference when dealing with confident and capable ministers who understand the big picture and can drive through policy change, despite the naysayers inside and outside government and the bureaucracy.  Governments can implement sweeping change quickly if they so chose and have the right people on the job.

There are still some big issues to address, not least being pricing - how much, how it’s presented, and who pays what to whom.  Any good marketer knows the importance of price presentation.  The new minister has already stated he’s interested in price as an issue, although he acknowledges this might take a little more time to work out.  Given the current pace, that shouldn’t be another decade.

Declaration: I am a non-executive board member of the Tertiary Education Commission, and was recently reappointed for a third term. 

Like any Telecom XT Mobile customer, I’m unhappy with the recent spate of outages, but I’m sympathetic to the harassed engineers at Telecom and Alcatel-Lucent striving to find and cure the problems.  Anyone who’s ever built a large new system dreads a spate of apparently unrelated problems which act like pouring acid into an open wound.  The shrilling and wailing of customers, competitors and often-ill-informed commentators does nothing to help.  However, I’m struck by one curious feature of the New Zealand environment which should have alleviated the problem - roaming. One of the advantages of GSM-based systems is that roaming is very easy for customers and operators - it’s a built-in aspect of the technology and the business model. If I’m overseas, my phone selects a network from all those with coverage for my location (in my preset preference order), which I can easily override if I so chose.  But back home, even though I can see other networks on my phone, my SIM card bars me from choosing them.  That’s anti-competitive, as well as being a damned nuisance.I’m normally anti-regulation but telecommunication seems to need it. Operators naturally want to maximise revenue spent with them and not their competitors, but that should be achieved through pricing, service, quality and loyalty.  Local roaming won’t diminish payment commitments under pricing plans and phone purchase agreements.   If I was the regulator, I’d definitely be taking a hard look at mobile network operators barring their customers from using other networks (and while s/he’s at it, local and international roaming charges relative to own charges).

Elected governments set policy, not government agencies who can advise but ultimately do what they’re told. That’s democracy. Readers may recall that I was a member of the board of New Zealand’s Tertiary Education Commission. As an office holder, my opinions on tertiary education policy could be expressed privately, but not publicly. With my second term about to expire (two terms is the normal maximum) I’d been thinking of writing an opinion article tentatively titled “What I’d do if I was in charge of tertiary education, now I’m not.” It would have been radical and provocative. However, the new government has seen fit to appoint me for a third term.  So I am and I can’t!

However I would like to pay tribute to my departing colleagues Kaye Turner and John Blakey, both members of the founding board, and Graeme Fraser, who joined us  a year or so after we’d started. This requires a little history. From 1999 until 2002, I was on the board of the NZ Manufacturers Federation and somehow became an advocate for industry’s views on what was wrong with the country’s tertiary education system, critical of the policies of both the existing National government and then the subsequent Labour government.  So you can imagine my surprise when, in July 2002 I was asked to accept appointment to the board of a new government agency to manage the funding of all tertiary education in New Zealand. (Lesson - sometimes it’s better to keep your mouth shut!)

The Ministry of Education did most of the policy development in those early days. The new Tertiary Education Commission implemented those policies once the Minister approved them.  Some things were very challenging to deal with; for example:

• inheriting (with a guarantee of no redundancies) 300 staff who administered one important but relatively small policy and funding stream and less than 50 staff who struggled to administer another 20 times bigger in money and complexity;
• officious and sometimes bizarre micro-management from other government agencies;
• contradictory policies;
• out-of-control funding mechanisms;
• dealing with a large, incredibly diverse group of over 700 education providers (public and private), some of whose primary goal seemed to be maximising the money they could get out of government, irrespective of credible educational outcomes.

It was, frankly, a mess.

I remember the first time the nascent commission met one evening in August 2002.  With our (at the time) tiny staff, we each presented our take on the situation and what we saw as the big issues.  Our combined list of Top Ten Issues has proven a huge task ever since.  Getting the political, institutional and operating stars to align before many of them could be addressed took a very long time (and is still a work in progress as I write this).  There have been false starts and mistakes made, battles with bureaucracy, mangled communications, litigious education providers (both public and private sector), and a perpetual high-profile political context to everything.

One of the oft-made criticisms of the TEC is that it grew into a huge bureaucracy,  Actually, the TEC has never been bigger than the combined size of the various agencies it replaced or absorbed, except when we were finally able to rejig the organisation to fit its purpose while also changing the fundamental design of the funding process.  The old system and organisation still needed to work while we built the new one, but was quickly down-sized once we’d got it implemented. There’s an important general message - if you want less bureaucrats, having fewer regulations and simpler policies is a major part of the way forward.

Many things required smarter policy thinking, and over time, the TEC has taken over much of that task - a credit to the quality of the people.  There’s still a lot to do and some of those Top Ten Issues are still to be nailed.  As Sir Humphrey Appleby might say, some problems require “a very bold and brave minister” to tackle them.   Choosing between the lesser of two evils and occasional dead-rat-swallowing are things you have to get used to! However, many things have steadily improved, and the system is starting to work as intended.

When after 3 terms of Labour-led government, a National-led government took over, there were only 3 board members who’d been there from the beginning, all of whose second terms had expired. Our appointments were extended while the new administration settled in, learnt how things worked, and developed its policy direction.  It’s gratifying that the administrative machine we’ve built at the TEC has proved more than capable of quickly and relatively easily enabling the new government to make some significant policy changes in the confidence that implementation will be relatively straightforward.  That’s again a credit to the commission’s staff, my past and present colleagues on the board, and those officials from other agencies and ministries who supported us.

So I say thank you to Kaye, John and Graeme for your unflagging commitment, support, advice, thoughtful criticism and friendship.

Now, Minister, I have got one or two radical suggestions to make.

Further to my last post on the limitations on what governments can do to promote economic development, for those that want to read some arguments from “the other side”, there’s a  major debate going on at the Harvard Business Review Voices blog, following an HBR article “Restoring American Competitiveness,” by Gary P. Pisano and Willy C. Shih, who argue that outsourcing has undermined that country’s high tech sector. Here’s a list of posts to date:

Does the U.S. Need a Manufacturing Sector?

• Gary P. Pisano: The U.S. is Outsourcing Away Its Competitive Edge
• David B. Yoffie: Why the U.S. Tech Sector Doesn’t Need Domestic Manufacturing
• Robert H. Hayes: Global Outsourcing Is High Tech’s Subprime Mortgage Fiasco
• Andy Rappaport: Outsourcing Isn’t a Problem for Silicon Valley But Is for Detroit
• Willy C. Shih: The U.S. Can’t Manufacture the Kindle and That’s a Problem
• Laura D’Andrea Tyson: Think U.S. High Tech Isn’t Healthy? Look at the Data

Is Short-term Thinking Eroding U.S. High Tech?

• Ed Catmull: Pleasing Wall Street is a Poor Excuse for Bad Decisions
• David. A. Patterson: Scientists and Engineers on Boards Will Keep Focus on the Long Term
• Andy Rappaport: Outsourcing: The Culprit Is Capitalism, Not Wall Street
• Bob Pozen: Can We Break the Tyranny of Quarterly Results?

Is Washington the Solution or the Problem?

• Stephen R. Hardis: Beware of Gov’t Solutions for America’s High Tech Sector
• David A. Patterson: Revamping DARPA Is Vital to Preserving the U.S. Lead in IT
• Deborah L. Wince-Smith: Washington Must Help U.S. Regain the Lead in Manufacturing
• Robert H. Hayes: Gov’t Should Enlist Foreign Companies’ to Rebuild America’s Industrial Infrastructure

Update: HBR advise that the unlinked article has yet to be published online, but I’ll update ASAP.

Contrary to popular belief, a wind farm is (barring its manufacture and installation) at best carbon-neutral.  So how come my local taxi firm can buy carbon credits from a wind farm to offset the taxis’ use of fossil fuels, and claim to be carbon-neutral?  It’s a nonsense.

And don’t give me that claptrap about avoiding carbon-emitting electricity generation. I haven’t seen any power stations closing recently. Even if it were so, the logic is still specious.

If you want to minimise or penalise carbon emissions, tax the emitters or their fuel suppliers. That includes the suppliers of coal, gas and automotive fuels.

Anything else is, to use the French phrase, une usine à gaz or “gas factory”, an unnecessarily complex and bureaucratic mechanism of dubious benefit for the purpose intended. The term seems seems highly appropriate.

I have a lot of sympathy with hardworking citizens who argue that “I’ve paid taxes all my life, so the government should look after me in retirement”.  The bad news for those hardworking, taxpaying citizens is that the government has spent all the money, and it won’t make enough in future to keep its side of the deal.  Basically, you’ve all been conned on a scale far beyond anything achieved by Charles Ponzi or Bernard Madoff.

According to Wikipedia, a Ponzi scheme is “a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going“.

Most state-funded universal health and retirement pension schemes are pay-as-you-go systems, i.e. current taxpayers pay for the benefits of those who have gone before. Sounds like a Ponzi scheme.  And like a Ponzi scheme, “the system is destined to collapse because the earnings, if any, are less than the payments“. The retirement welfare system was designed for a life expectancy on retirement of less than 5 years, not 20 years as now.  So a much higher level of earnings is required.  But in a few years, baby-boomer retirees will represent over a quarter of the population, not less than 5% as was the case when the welfare state first emerged. So the higher tax burden will be borne by substantially fewer people. A double whammy.

Bernard Hickey has called this intergenerational theft and suggests younger people leave the country. Where to? It’s just as bad elsewhere. For example, the  Peter G. Peterson Foundation, established by a former US commerce secretary and investment banker, has calculated the true scale of US welfare and debt obligations at US$56 trillion, or roughly US$184,000 per American. That’s 5 times  the current already-massive level of US government debt. You’ll find similar stories throughout the developed world.

For over half a century, governments and politicians have refused to face up to the problem.  Political squabbling, point-scoring, vote-buying and short-termism meant that it was constantly put aside for someone else to fix, even though most citizens understand that the system is unsustainable. Worse, our governments have squandered the past 20 years of economic growth, and our countries face at least a decade of massive debt just to get back to where we were 5 years ago, which would still leave us with an unfunded and growing welfare burden.  We citizens share the blame, with our insatiable appetite for more and more government support of our lives, and our relentless willingness to pay higher and higher house prices (classic “bigger fool” investment).

I wrote two years ago that, although I’m usually a free marketer, occasionally I accept that civil society does have a role enabling long-term incremental change; not a one-off token scheme, but a steady sustained year-on-year change.

A lot of people don’t save for retirement. Quickly enforcing big personal savings just engenders political strife. Haranguing people to give up a major chunk of their income now won’t work either - their lifestyle is geared to their current after-tax income, especially those on lower incomes. Instead, you might persuade people to forego just an extra 1% of their pay each year for 10 years. Each year’s additional sacrifice is tiny and probably less than any pay rise or tax cuts. In 10 years, they’re saving 10% of their income, and hardly noticed the change. Paternalistic, maybe, but it’s what a lot of people who’ve worked for me over the years have said they’d prefer. A pity more national retirement schemes weren’t introduced on these lines, and 20 years ago. (Note: I’m not saying who adminsters these schemes, nor how).

… Doing nothing while everyone bewails the lack of progress is not the answer… small incremental change can get you to where you want to go, and it can be absorbed by society, but - and these are big ones - you need to have leadership, with long term confidence and commitment, and you need to get started.

We will emerge from recession in the not-too-distant future.  The looming baby-boomer retirement and the parlous state of national finances requires more urgent action on personal saving for retirement pensions and healthcare, not less. Sadly, I’m not hopeful anything will happen.

PS I don’t favour governments using debt to fund routine expenditure or retirement funds.  But then, I hate being in debt anyway, other than for short-term bridging funds.

Economist Willem Buiter was an early proponent of the good bank/bad bank solution to take all those toxic assets out of the finance system without crippling the taxpayer and the ordinary depositor.  Unfortunately, despite the support of many economists, that proposal was largely ignored by most governments, who instead lumbered the taxpayer with huge borrowing, printing money and other future-hocking solutions.  Undeterred, Buiter has now turned his attention to a related major policy issue - banks that are “too big to fail” because they would bring down national and global economies.  On his Financial Times blog, Buiter covers a broad range of options and concludes that “there is quite a list of effective instruments for cutting leveraged finance down to size“.

• Legally and institutionally, unbundle narrow [high street] banking and investment banking (Glass Steagall-on-steroids).
• Legally and institutionally prevent all banks (narrow banks and investment banks) from engaging in activities that present manifest potential conflicts of interest. This means no more universal banks and similar financial supermarkets.
• Limit the size of all banks by making regulatory capital ratios an increasing function of bank size.
• Enforce competition policy aggressively in the banking sector, by breaking up banks if necessary.
• Require any remaining systemically important banks to produce a detailed annual bankruptcy contingency plan.
• Only permit limited liability for narrow banks/public utility banks.
• Create a highly efficient special resolution regime [SSR] for all systemically important financial institutions. This SRR will permit an omnipotent Conservator/Administrator to financially restructure the failing institutions (by writing down the claims of the unsecured creditors or mandatorily converting them into equity), without interfering materially with new lending, investment and funding operations.

However, Professor Buiter reckons that governments aren’t facing up to this problem, either. Instead, it looks like the surviving big banks will get even bigger.

Struggling to get your head around current thinking on what governments are doing or should be doing to deal with the global economic crisis?  The New York Review of Books recently hosted a symposium with leading economics pundits Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, and Robin Wells.  Reading the summarised text of their discussion will give you a reasonably straightforward understanding of the various camps’ viewpoints.  Although the participants do look at the bigger world picture, inevitably their discussion is somewhat US-centric.  However, the USA’s situation and policy responses will affect us all, and similar debates are happening in every country and in international forums. The NYRB article is well worth the time to read.  Just don’t expect a consensus conclusion: the debate still rages.

Thanks to SPD for the link.

The report’s recommendations needed to be implemented, permanent senior management was needed to replace those in acting roles, the IT system needed an upgrade worth $117 million over four years and the entire process needed to be taken apart and looked at “from top to bottom”.

That snippet is from today’s Dominion Post, commenting on the need for a major overhaul of New Zealand’s Immigration Service. I’ve already heard much about the shambolic state of this government agency, so the need for a root and branch renewal is not surprising.  What caught my eye was the size of the proposed IT upgrade.

I know that government IT projects suffer from very bureaucratic (and often ineffective) environments: unengaged and unempowered users, long-winded decision-making, overly complex legislative and procedural requirements, etc, etc..  Even if that isn’t always so, government IT will still usually be more expensive than commercial IT.  Unique requirements (well, nationally idiosyncratic, anyway) tend to demand bespoke solutions, or at least customised implementations of standard case management and workflow systems.  Allowing for that, $117 million still seems way too much.  After all, this organisation only does a few core tasks:

• receive applications, process them, and issue visas for tourists, students, temporary workers, and permanent residents.
• weed out dodgy applicants (at least that’s the theory).
• provide information on the process to potential applicants and employers.

Let’s look at the IT investment per process worker (a useful metric for process/people-centric operations). Assuming that the NZIS still employs approximately 750 people (the last number I could find) and that 2 out of 3 staff are engaged in the process (as distinct from support functions and executive staff), that’s $234k per person.  That is ridiculously high. What complex business process does this organisation operate that requires such a high IT investment? If I was the Minister of Immigration or the Minister of Finance, I’d be demanding alternative proposals for the business process and supporting systems.

Curiously, that $117 million is a very specific precise number, given that “the entire process needed to be taken apart and looked at ‘from top to bottom’.”   I’m smelling the pungent scent of of desperation - let’s throw lots of money at a big IT project to give the appearance of decisive action.   More cynically, it buys 4 years of plausible excuses while the project is underway, and in 4 years time, everyone senior will have moved onto pastures new.   Sadly, you’ll find similar stories in every government in every country.

Yesterday, I wrote grumpily:

As a new non-executive member of a big-spending government agency’s board, I’d frequently ask “Why is the taxpayer’s money being spent on this?”   I learnt quickly that, contrary to popular perception, we actually had very little power over what we spent, why and with whom.  That was principally decided by the ruling politicians, whose decisions (either logical or appeasing some political constituency) were effectively concreted in place until overturned, if ever, by another set of ruling politicians who had decided the issue was important enough.  We could move money at the margin, but the bulk of spending was effectively predetermined under rules set down by Cabinet, and very much seen as an entitlement by the often large and influential organisations that received it.  Getting anything significant changed takes years of argument, followed by more years to implement those changes.

This begs the question “why bother being on a government agency board, then?”  A government agency is a tool of the elected government, with a duty to carry out the wishes of that government. A government board position isn’t a platform to push your own agenda and political views; after all, it’s the government that was elected, not you.  Essentially, you bring your knowledge, skills, independence and brainpower to the boardroom, not your politics.

The strategic direction comes from the government of the day, not the board.   However, although you may not sway the outcome, in reality, often you do have some input at the policy formulation and implementation design stages.  And a key role in the major operational  decision-making within that policy context when it isn’t continuation of the status quo.  You can make a difference, promoting constructive ideas, striving to make the implementation of policy more effective, mitigating some of the crazy stuff, using good judgement in the decisions you can make, and being a champion for positive change. And sometimes, even governments can move quickly.

In other words, you can be of service to your country, your community and your industry. That’s why most people do it.  (Well, it ain’t for the pay and the hours!)  But it’s very different from being on a private sector board.

Yesterday, we had New Zealand’s annual government Budget presented in Parliament.  I’m not going to comment much on the Budget - politics is not an area I stray into often.  I’ll just say that I have a sense of wasting a good crisis. My politics is classic liberalism - economic and social liberalism based on universal individual rights and responsibilities, not the American or British versions which have morphed into woolly-woofter centrist camps. So I’d have gone a lot harder on cutting the state’s activities while setting things up for the long term economic and social well-being of the country, firms and individuals.  But that isn’t my focus today.  I want to look at entitlements.

It’s a curious term  - entitlements - especially when used by a centre-right government.  It was used frequently yesterday, particularly by Prime Minister John Key in phrases like “No beneficiary will have their entitlements cut” or words to that effect.  You wouldn’t say that the supermarket is “entitled” to your money every week, nor the petrol station, nor the hotel owner if and when you take that annual holiday in Fiji, nor even the charities to which you donate.  You make choices on whether or not to spend your money, on what and with whom. But somehow, when a government spends your money for you, the recipients see it as an entitlement.

Every government spending programme - every single one - was initiated at some point by a government deciding that spending this money on that programme was a better idea than spending it on something else, or putting it in the bank, or reducing taxes. Before that decision to spend, there was no “entitlement”. The new recipients are usually intensely grateful - for about a year.  Then they start to see the continued uninterrupted and unquestioned supply of that government money as an entitlement, an inalienable right which must be maintained and grown in line with any expansion of the use for which the money was originally supplied.  Once a government starts spending on a programme, it’s extremely hard to stop, especially when citizens and institutions (public or private) receive those funds directly.  Even if the original need has gone or morphed into some unintended or even dysfunctional application.

As a new non-executive member of a big-spending government agency’s board, I’d frequently ask “Why is the taxpayer’s money being spent on this?”   I learnt quickly that, contrary to popular perception, we actually had very little power over what we spent, why and with whom.  That was principally decided by the ruling politicians, whose decisions (either logical or appeasing some political constituency) were effectively concreted in place until overturned, if ever, by another set of ruling politicians who had decided the issue was important enough.  We could move money at the margin, but the bulk of spending was effectively predetermined under rules set down by Cabinet, and very much seen as an entitlement by the often large and influential organisations that received it.  Getting anything significant changed takes years of argument, followed by more years to implement those changes. [Update: see a more positive perspective from me here.]

Let me be clear.  Although I’d probably do things very differently, most institutions and the intent for which the money is spent are  worthy and legitimate. I also recognise that changes to funding mechanisms are disruptive.  But this notion of entitlement is a real problem for us as citizens and taxpayers. It creates an ever-growing burden over generations, it ossifies society’s institutions and mechanisms, and it is a major barrier to improvement and innovation.

PS Having said all that, the Tertiary Education Commission, of which I’m a board member, contributed a very significant portion of the government’s expenditure savings. Although we also cut our operating costs - largely in line with the plan we put in place 3 years ago - the bulk of savings will come from pruning some of my pet hates, such as hobby courses funded as Adult and Community Education, industry compliance training, and various other silly funds of dubious merit. Result! 

There was understandable public and political outrage over a Commerce Commission report which pronounced that New Zealand electricity generators had garnered $4.3 billion in excess electricity pricing.  Yet when I first heard the news, I found it hard to believe.  It seems my suspicions were warranted.  Several commentators have spotted fundamental flaws:

• The report’s author used the Californian electricity market as a comparator.  NZ is nothing like California.  The NZ system is heavily reliant on hydro-electricity, versus coal, gas and nuclear in California.  Due to geographic topology, our hydro stations have limited lake storage, unlike California’s out-of-state hydro-electricity suppliers.  And most importantly, we aren’t connected to a continental power grid with hundreds of other generators able to supply electricity in a locally dry year.
• The report focused on wholesale pricing, not retail.  No evidence was provided as to whether excess wholesale spot prices were passed onto consumers. The typical electricity customer is shielded from wholesale price movements because the retailers charge the same price all year.  That pricing effectively includes an “insurance policy” against high pricing during periods of high demand or low availability.
• While wholesale spot prices can vary wildly every half hour, most actual wholesale pricing is smoothed by hedge contracts (yes, financial derivatives can be useful).  It is only at the margin that higher (or lower) spot prices have an impact.
• The overwhelming bulk of retailing is by the generators themselves. The wholesale market and the associate hedging contracts are between those players, so it’s a nett-nett effect.
• If excess profits were being made, extra generating stations would be built by competing generators to win greater shares of those excess profits.  Yet, growth in long run capacity has closely matched growth in demand.

Typical of the naive reaction to this fundamentally flawed report has been the call for electricity to be priced at the lowest cost of generation, not the highest.  No-one would build new generating capacity. Put it another way, would you sell your house for what it cost to build forty years ago? No, thought not.  Electricity is no different.

The present NZ electricity market mechanisms have some problems, but the system works better than anything before, and it works reasonably well.  NZ has some of the lowest power prices in the world, and its electricity generation is on the whole cleaner than most.

Everyone in the NZ electricity industry that I’ve met in the last few days had the same instant reaction.  Why, before the report was released, wasn’t it reviewed by someone who actually knew something about the logic of the NZ market?

I doubt that the media frenzy over the report’s release will be matched by a similar level of media attention to the fundamental flaws in the report and its misinterpretation. Nor will there be a serious media investigation into the motives of a part of the Commerce Commission that is under political pressure over its effectiveness.

This was a beat-up that shouldn’t have happened.

The Economist reports on a proposal to make quiet vehicles noisy!  Yes, that’s right.  One of the anticipated benefits of electric vehicles is much reduced noise.  You’ll still get the sound of the tyres on the road, but an electric motor makes barely any noise compared to an internal combustion motor.  In a noisy world, this is a problem for blind people - and people in general, given we rely partly on noise to alert us to cars coming.  A bill currently going through the US Congress stipulates a minimum noise level for vehicles. In effect, if your new electric car is too quiet, you’ll have to install a noise-maker.

While the transition period - between all cars making engine noise and most making almost none (when tyre noise would be adequate warning) - may create some awareness problems, it’s crazy to throw away such a great improvement in the ambient environment. And noise-making is energy-wasteful as well.  The US draft bill is the  modern equivalent of making someone walk in front of a train with a red flag. It’s the wrong answer to the wrong problem.  Surely we can come up with a better design solution than this?

US president Ronald Reagan once described the role of government in the economy: “If it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidise it.“  That certainly sums up government behaviour right now.

At at an Institute of Directors breakfast this morning, economist (aka. dismal scientist) Andrew Gawith spoke about the global economic crisis and the need for change. I had the mixed privilege of delivering the vote of thanks.  I say mixed because, while Andrew is a nice chap and a great presenter, he had me grateful that the windows don’t open in the 5th floor dining room of the prestigious Wellington Club; otherwise his audience might have been jumping out of them. (Update: I was wrong - they do open.  Eek!) Andrew’s presentation was  largely a summary of the scale and causes of the current global crisis.  He doesn’t offer much hope that we’re through it yet - 2009 will get worse and 2010 will be flat at best, he says. (One bright note for NZ readers - China and India’s demand for protein will keep climbing, and so Kiwi farmers will once again save the day).

I won’t rehearse Andrew’s case - you’ll be largely familiar with the themes by now if you read the financial pages of your morning newspaper.   I will paraphrase some points he made regarding the role of government and regulation.

• Deregulation arguably went too far (notably the repeal of the 2nd Glass-Steagall Act in the USA, the emergence of unregulated players in mainstream savings and investment everywhere, and the loosening of bank equity ratios).
• Regulation didn’t cover some of the more recent  “innovative” financial instruments.
• Even where regulation existed, the regulators were either woefully indifferent or incompetent.
• Financial institutions have become so big, at an order of magnitude dwarfing the largest industrial corporations, that governments have no choice but to prop them up, even if the cost will cripple future generations.  Yet no-one is looking seriously at how to address this “too big to fail” problem.
• Regulation won’t stop unethical behaviour.  You can’t legislate for morality.

Andrew concluded with a strong message for his audience.  The economic crisis wasn’t only a failure of regulation, but also a failure of morality. Boards of directors set and enforce the moral stance of their organisations; ethics, values and responsibility - old-fashioned virtues that are still highly relevant.
Disclosures: Andrew Gawith is a principal of economics consultancy Infometrics and of Gareth Morgan Investments, which manages part of my family trust’s investment portfolio. I am a member of the Wellington Club.

Courtesy of Capital Chronicle, here’s Global Finance magazine’s list of the world’s safest 50 banks.  I’m glad to see that the list includes all the ones in which I have an interest, directly or indirectly.  The list shows great variety in size and ownership. As Capital Chronicle observes, “public ownership or a cooperative structure certainly do not guarantee prudence.” In that light, NZ readers will note one notable absentee from the list - the so-called “people’s bank”, government-owned KiwiBank.