Maybe allow competition?

The Initiative's Insights newsletter generally concludes with a more light-hearted column.

The case that our Michael Johnston took on in it this week lent itself to lots of different approaches. 

This was my take on the same topic - but from a different angle. Because I tend to think about things in terms of statutory barriers to entry. And Jennifer Roback Morse lives in my head. 

Imagine that you lived in a small town with one pharmacy. The next town is a long drive away.

And the town’s pharmacist is the most culturally insensitive, if not outright racist, person you’ve ever met.

Friends avoid going there to avoid being ridiculed for their health conditions.

You’ve had enough. You know that the town would be better off with another pharmacy. So you decide to open one.

You buy a shop right across the street from your soon-to-be competitor.

You’ll hit your first roadblock pretty quickly.

You aren’t a pharmacist. You’d obviously planned on hiring a pharmacist, but you were going to own and control the business.

The pharmacist cartel has ensured that nobody except for pharmacists can compete with other pharmacists. It’s in the Medicines Act. And it helps protect the shop across the street.

Because you care about your community and because you refuse to give up at the first bureaucratic impediment, you find a solution.

Instead of hiring a pharmacist, you partner with one. You loan that pharmacist a lot of money to buy into the business. Your partner gets 51% ownership and effective control of the pharmacy’s operations. You get 49%, interest payments on that loan, and the joyful anticipation of driving the other guy out of business by providing your town with better service.

But then you hit your second hurdle.

You need a license to dispense funded prescription medicines. That licence comes from the government. And the government prioritises applications for licenses in places that are underserved.

Your town is small. It can’t sustain two pharmacies. Your plan is to drive the racist across the street out of business by providing a better and more inclusive service.

But your application to dispense funded medicines goes to the bottom of the pile. Because the town that can sustain one pharmacy already has one.

The Pharmacy Councill this week announced that all pharmacists will be required to undertake ongoing cultural competence training and activity.

Their guidelines are as cringe-inducing as you might expect. And I doubt that cultural competence training does much to help a racist to achieve enlightenment.

I wish instead that it were legally simple for new pharmacies to drive culturally incompetent ones out of business.

It would be more effective.

But I doubt the pharmacists’ cartel would like it.

Another pitch by the pharmacy guild

Recall that Chemist Warehouse found a structure that let them operate in New Zealand despite pharmacy guild regulations that had seemed aimed to block such entry. 

The pharmacists are having another tilt at it.

In Australia, a pharmacy that wanted to fill prescriptions could not set up within 200m, 1.5km or 10km of an existing pharmacy depending on whether it was in a shopping centre, suburb, or town.

Community pharmacists were calling for similar regulations here, warning if nothing changes, the community bond that came from knowing every customer by name could be a thing of the past.

Right.

"Hello, I am the owner of the local pub, where everybody knows your name. I worry about the potential entry of a new pub in a 10km radius, not because of its effect on my profitability!, but because it would erode the community bond that comes of having a single pub where everyone goes and where everyone knows your name. Please ban any such entry. Thank you."

And repeat for the local dentist. Or the local greengrocer. Heck, even the local bank. Could roll this one out for all kinds of things.  

A belated look at the coalition agreements

Things got a bit busy after the National-ACT and National-NZ First Coalition Agreements were released. 

A fair few things showed up in those agreements that we've been working on at the Initiative for rather some time, whether through reports, submissions, columns, panels and whatnot.

So that's been a bit busy, and I've been trying to clear through a few other bits before heading back to Canada and the US for a few weeks over the school holidays. So posting has been unduly light.

But I've been particularly pleased that these showed up in the agreements. 

A Rule of Two for Drug Certification

The government will require Medsafe to approve new pharmaceuticals within 30 days of them being approved by at least two overseas regulatory agencies recognised by New Zealand.

Loyal readers may recall series of tweets, blog posts, and columns from me on this one. I worked with a couple student teams at Canterbury to get a report up on the likely effects of a Rule of Two. 

It is in both coalition agreements and will be legislated. No "will investigate" or "will consider". It will happen. 

I am rather pleased about this one. 

Incentives for Growth

Weak incentives for councils to encourage housing development hasn't been the only problem blocking housing growth, but getting more housing despite current incentives requires heroes. And policy can't reliably depend on there being heroes around. The coalition agreements will introduce financial incentives for councils to enable more housing.

This has been core for the Initiative since before I got here. And now it will happen.

Easing Foreign Investment

The Overseas Investment Act will limit ministerial decision-making to national security concerns and make such decision-making more timely.

NZ has one of the OECD's most restrictive FDI regimes. Other places try to attract foreign investment; NZ does the opposite. 

Easing restrictions on FDI have been core for the Initiative since before I got here. Fingers crossed that the legislation interprets this as broadly as is implied by the text of the coalition agreements. 

Market Studies

Commerce Commission market studies will focus on reducing regulatory barriers to new entrants to drive competition. 

So far, ComCom has produced about one giant study per year. But the first-order problem is going to be in areas where ComCom has hitherto been precluded against poking around: matters falling under statutory exception. If a matter is authorised by Parliament, it doesn't get cartel investigation even if it is definitely behaving as a cartel. 

Instead of doing one giant study per year, ComCom would do a larger number of short studies focused simply on checking whether it is actually possible for a new entrant to get through NZ's regulatory and land use hurdles to provide potential competition. 

So here I disagree with my friend Donal Curtin. He worries about instances where the issue isn't regulatory barriers. Maybe I'll agree with Donal after the revised regime has run for a few years. But the low-hanging fruit simply is not going to be in places where ComCom has been able to use other tools. It will be in the place where they've been unable to shorten the way.

This shift in approach is something I've argued for in columns, submissions, at a CLIPNZ session, and in various conversations around town. 

Ben Hamlin and I have been, I think, the only ones really worried about the statutory exceptions. Ben's piece on it in the latest Law Review is very good; his gratuitous citing of my columns is inframarginal to that assessment. 

Monetary Policy

The Remit will be narrowed to focus only on price stability.

This too is excellent. In a normal environment, a dual mandate shouldn't matter. The long-run Philips curve is vertical. Maintaining price stability is the best way the bank has to ensure maximum sustainable long-term employment. 

We have worried about the broad Remit, which includes a preamble that encourages the Bank to give regard to basically the entirety of the government's policy agenda, for some time. 

Employment 

The government will consider setting an income threshold above which a personal grievance could not be pursued.

Our Chair, Roger Partridge, has been writing on this for some time. The measure would make it far simpler for firms to dismiss underperforming high-paid managers who really aren't the people that employment law protections should focus on anyway. 

Pseudoephedrine

The government will allow the sale of cold medicine containing pseudoephedrine.

This is another one that loyal readers may recognise. I think me and Twitter's @BoxcarJoey have been the only ones making the case for this obviously sensible move. And now it will happen. 

There's a lot of other stuff in the agreements, mostly good, some less good. 

As another bit of fun, the Dom Post put out its latest 'Wellington Power' list. I think it needs an accompanying 'Wellington Mystery' list so we can figure out whose power is exceeded only by their mystery, or vice-versa, or both, somehow, simultaneously. 

But in any case, I made the cut for inclusion this time. But only barely. And possibly only because I also write a column for them. 

45. Eric Crampton

The stocks of think tank New Zealand Initiative’s chief economist have soared, with the ascendancy of ACT into Government. The Canadian is a prolific report-writer and commentator, with a free market bent, and incoming ministers are sure to be paying attention to his sharp, original (and often witty) thinking.

Afternoon roundup

The tabs!

• Universities continue to be very quick to cancel events. 
• NZ Pharmacists warn that if the $5 co-pay on prescriptions returns, customers might start using Chemist Warehouse again rather than community pharmacies. 
• David Harvey argues for a licensing regime instead of the Fair Digital News Bargaining Bill. I don't think it'll work either. If the fee is high enough to save the media, the platforms would probably block news links altogether. Just let the Bill die at committee.
• Reasonable Covid wave coming through; your reminder of what to do.
• Which cuisine will reign supreme? All of them, thanks to globalisation. 
• Consumer NZ wants to turn audiology into a government-enforced cartel. That outfit's becoming increasingly reliable as a "do the opposite of whatever they're on about" signal. 

Afternoon roundup

The end-of-week closing of the browser tabs

• Seeing like a Bank. Superb explanation of bank IT systems, tradeoffs between customer fees and customer experience, how helpdesks actually work, and problems in cobbled-together systems. It explains a lot more than banks. 
• Interesting piece on price dispersion in generic pharmaceuticals. One snip: "Regulations around pharmacy ownership in Australia and New Zealand make them more difficult to compare." Indeed. 
• If you think the social discount rate should be very low, you should support reductions in transfers to the elderly. Forthcoming in Econometrica. 
• The Rocket Lab launch failure a while back comes down to an electrical arc in a power supply under partial vacuum; they're enclosing and pressurising the power supply system. 
• Wellington Council selling its shares in the airport to have less exposure to quake risk seems sensible. 
• Low attendance at school, Covid is given as one reason. Meanwhile, schools still aren't properly ventilated, nobody uses masks, and the government bans boosters for those under 16. Kinda crazy. Government requires scaffolding for jobs where a ladder would be perfectly safe, with company directors liable for risks. But government bears no liability for unsafe schools and prohibitions on full youth vaccination. 
• "What's so scary about Bryce Wilkinson?" The caption under a smiling picture of Bryce. What indeed! Bryce is lovely. 
• An 88 megawatt solar farm blocked in the Mackenzie Basin. There's uncertainty about how some native plants might change because of shading and sheltering from the panels on a sheep paddock. NZ officials do not want net zero. They want a return to the Pleistocene. 
• Turns out that there's a summer camp for training left-wing activists in NZ. Wonder whether the reporting on a pro-liberty version would be as friendly.

Afternoon roundup

The tabs...

• Earthquake strengthening costs on one Wellington performance venue have increased from $90m to $182m and now to $329m (Dom, Herald). We have no clue what strengthening the recently quake-designated Michael Fowler Centre and Opera House might cost. Would it be crazy to expect a billion dollars across all three? After $100m more than necessary on a library? All for a town of about 200,000 people where the water pipes are a century-old collapsing mess? It's a good thing Wellington's pretty...
• Mothers of underweight babies below a cut-off get substantial US government support; those just above the cut-off don't. Run the RDD and find no effects of funding on outcomes. 
• NZ's National Party promises non-finance spending two percentage points of GDP higher than Ardern promised in the 2019 Wellbeing Budget. 
• Devastating New Yorker piece on the Ariely / Gino mess. Harvard's Business School is not a serious place. 
• Admin staff at the Auckland Uni law school are substantially happier than faculty. I keep wondering when somebody might set up a union that represents only academic staff. 
• Superb BusinessDesk piece on Sean Colgan, who backed Rako in its fight with the Ministry of Health. And has leant David Seymour a plan for the election campaign. 
• My piece in this past weekend's Stuff papers covers two recent NBER working papers on zero-sum thinking. 
• California's math curriculum is nuts. Unfortunately, this kind of nuttiness is also infecting New Zealand.
• A lot of US voters are confused about whether Robert F Kennedy Jr is Bobby Kennedy. They identify the picture of Bobby Kennedy from the 1950s, the father of Robert F Kennedy Jr, as being Robert F Kennedy Jr. He's aged remarkably well if so; the father would be turning 98 later this year. Every time you learn a little bit more about voters, just be amazed that the world isn't even worse. 
• For six years, NZ had a government that expressed commitment to wellbeing as its highest goal, and yet this. 
• So Sanitarium ran into some supply issues and cut supply to The Warehouse before either Foodstuffs or Woolworths. Which seems more plausible: that the whole thing is a stitch-up by the big supermarkets to get Sanitarium to cut out a low-price potential competitor, with a new grocery regulator watching? Or that the big supermarkets have longstanding contracts where they pay a bit more to have clauses providing greater security of supply? I'd bet on the latter, but nobody else seems to have considered that possibility.

Afternoon roundup

The worthies, on a long-overdue closing of the browser tabs:

• Colby Cosh explains to Canadians something Kiwis have known for some time: the Party commanding the confidence of the house gets the Prime Ministership. And that might not be the largest party in Parliament. 


• New Zealand's judges keep bringing the administration of justice into disrepute. 


• Attempts to stop people from renting their houses to tourists on AirBnB. If cities just let people build more housing, none of this would be any kind of issue. 


• Agriculture emission pricing gets punted to post-election. It would have been heroic for Hipkins to hit this while milk prices are tanking.  


• ACT proposes weakening the medical licensing cartel. 


• The government adds a pile of cost-increasing conditions for receipt of film subsidies. It may have the laudable effect of reducing demand for film subsidies. Or, perhaps down the track, lead to higher subsidies to offset the cost imposed by stuff like carbon footprint audits. 

Morning roundup

The morning's closing of the browser tabs:

• Labour is determined to push its resource management reform through before the election. National and ACT say they'd repeal it if elected. The current Resource Management Act is bad, but the new legislation looks worse - though it's hard to tell. The National Planning Framework that would set out how all the different outcomes and priorities might be weighed against each other still hasn't been released. 
• In a better world, the NZ Commerce Commission could go after NZ Independent Community Pharmacy Group for cartel behaviour...
• Economics on rooftop solar don't really seem to stack up. But lots of utility-scale investment going on. 
• Good piece on how the government's consultation on ETS changes around forestry erodes property rights. "On the ground, I’m being told by angry Māori landowners and foresters that the Government’s actions feel like “yet another punch in the face”."
• Betfair currently says that it's about 70% likely that the next election results in a National Party Prime Minister. 
• Excellent piece by Bronwyn Howell and Dave Heatley on the effects of price regulation for NZ universities. 

Afternoon roundup

The tabs do pile up. A few days out at the NZAE meetings, a couple days leave, and then digging out from under the pile...

• If the government forbids asylum seekers to work, it ought to be providing them income support. Instead it bans them from working and requires them to live off of any savings they might have, and charity. It really is a kind of administrative evil. 
• Anton Howes with some fun history of freight infrastructure
• Paul Walker with some fun history of the firm
• “You’ve got this cool thing that will get you the youth market and make you look innovative. But if there’s even the tiniest chance it will lead to a big fraud investigation or AML problems, you have really stuffed up. And you can never prove something 100 percent won’t go wrong.”
• Christchurch is pretending that its sun is different from the sun elsewhere as an end-run around MDRS rules. It'll be a test of how government responds to these kinds of shenanigans. 
• Industrial and process heat is covered by the ETS. Nevertheless, central government requires councils to consider climate change when consenting industrial process heat. An ETS means councils shouldn't have to think about this. 
• National has proposed a third medical school. But it won't do a lot of good without expanding the number of supervised practice positions at hospitals. Right now, there are international doctors who could practice here, in a desperate doctor shortage, but there aren't enough of those slots, and those slots are mandatory. Some catch, that catch-22.
• There has now been an increase in clinical practice positions so that we can get more nurses. Three years into the pandemic, but better late than never. 
• The great thing about carbon prices is that people really don't have to understand what actions are associated with reducing global warming. Prices give them all the guidance they need. Good thing, because a survey of Kiwis had 'rallying behind recycling' as doing the most good for the climate. Recycling has negligible effects on GHG. But it doesn't matter, because waste is in the covered sector... 
• StatsNZ isn't likely to hit census response rate targets.
• "Since when are monopolies for private companies a good thing?" Well, they can be. But they're less likely to be when granted by statute, as they are here...
• The pharmacy guild advances implausible arguments for maintaining guild restrictions on pharmacy ownership. 
• Me, in Newsroom, with a reminder about Alchian's shipping the good apples out. 
• Police response-time targets have been curved...
• Willie Jackson wants to have a big nationalistic fight with Big Bad International Platforms to take to the election. Only sensible way of reading this. 
• Tech to reduce nitrogen runoff from fertilizer. Neat. 

Afternoon roundup

The worthies, on the closing of the browser tabs

• I still have great difficulty understanding why it is worse to draw up to 5000 cubic meters of water per day from an aquifer to put into bottles for people to drink than it is to run the same amount of water through cows.


• We have a desperate shortage of nurses. Meanwhile, the Nursing Council is blocking a nursing school from training new nurses. It's just nuts that ComCom is likely going to waste its next market study on a populist beat-up on bank mortgage interest rates. The opportunity cost is high.


• Lianne Dalziel on the review into the Auckland cyclone response. Good thoughtful piece from someone who's been there [should ungate tomorrow by removing the /pro from the URL]. 


• Transpower's increased the expected amount of solar generation coming onto the grid by 2030. In 2020, they expected about 1 GW by 2030. Now they expect over 7 GW. Wow. 


• Ice cream is associated with lower risk of diabetes. Unsurprisingly, the NZ public health people aren't having a bar of it - their latest recommendations on diabetes stick to the ban-and-tax stuff. Why not make ice cream part of school lunches? 


• Good summary from Pattrick Smellie on the work that Robin Oliver commissioned from Sapere looking at effective tax rates (average and marginal) across different income bands and family situations. I had a chat with Robin about that work yesterday. 

Tilting at bank profits

RBNZ Chief Economist Paul Conway wants a ComCom market study into banking. He's worried about 'profiteering'.

But this is the first time the Reserve Bank, which is statutorily tasked with regulating banks, has stepped in so explicitly. It's been warning of "profiteering" in some sectors during the cost of living crisis and in the aftermath of Cyclone Gabrielle, and singled out the widening gap between mortgage and term deposit rates.

"It's a very legitimate thing for the central bank to be concerned about and to be keeping an eye on," Conway says. "It's a general warning across the New Zealand economy that now is not the time for profiteering. Now is actually the time to start paying the price, for climate change and, in this instance, for the cyclone."

Commerce Minister Dr Duncan Webb says no decisions have yet been made about the focus of the next market study. "However, I am focused on using the tool to ensure markets operate fairly for consumers," he tells Newsroom. "I am particularly interested in improving markets where the greatest long term gains can be made for ordinary New Zealanders."

I've also thought a market study into banking, and insurance, could be well warranted - but with a very different focus.

I've worried that barriers to entry look awfully high and that we may be missing out on innovations happening overseas as consequence. 

Last year I'd urged that ComCom change how it does market studies. Rather than a giant draft study that tries, and inevitably fails, to estimate weighted cost of capital and potential excess returns, start with a desk-based analysis of barriers to entry. 

Because whatever you wind up doing will depend on barriers to entry anyway.

Suppose that you really strongly believe that there are high excess profits in whatever sector. If you're right, what's stopping anyone from coming in and eating away at those profits? Remember that profits are a signal that tells other to enter. If they aren't entering, is it because you're wrong about your guess on excess profits? Or is it because there are regulatory, legislative, or other barriers preventing entry? 

When ComCom thought there were excess profits in supermarkets, and I was yelling about barriers to entry, some folks argued for KiwiGrocer as cartel-busting parallel to KiwiBank. But now we're talking about banks, and KiwiBank's already there as KiwiBank. And for whatever reason, it seems far less profitable than other banks. Surely that should give some pause.

Now banks wouldn't be the first place I'd be aiming a market study: medical services really should be first in line. But barriers to entry in banking and insurance are obvious things to look at. 

But man it's a worry if the RBNZ is wanting the thing aimed at 'profiteering'. If that's the kind of advice the Minister's getting, then expect a request for a very different market study. Instead of looking at barriers to entry, it'll be more like the Supermarkets draft study - where they raked the CEs over the coals for weeks and tied up supermarket exec teams for months in inquiries. 

If that's the request that ComCom winds up getting, then it's a test of ComCom. 

Do they indulge the Minister's preference for a highly politicised and populist bash on the banks in an election year? Or do they do the work that actually needs doing: checking whether barriers to entry, including the nonsense that RBNZ layers on top of the industry, and CCCFA regs, make for less competition than would be desirable?

Heck, RBNZ is undertaking an investigation into whether it should make it even harder for foreign banks to operate here. And Paul Conway's pointing fingers at banks for profiteering.

Jonathan has a few bits from me in his piece. It'll ungate tomorrow if you pull the /pro from the URL. But the bit including my quotes is here:

Dr Eric Crampton, chief economist at the NZ Initiative think tank, says the appropriate use of a market study would be to ascertain what barriers there are to new entrants to this country's banking market. 

New Zealand has been a slow follower on structural changes like open banking, and such easy wins as account number portability. When phone number portability was introduced in this country's cellphone market, it played a critical role in breaking apart the Telecom-Clear duopoly.

It's expected bank account portability would make it easier for bank customers to move their money (or their debt) to more a competitive bank.

What all this means is it can be difficult for a new player to get a toehold in banking here, Crampton says. "In groceries, the Commerce Commission found zoning and consenting proved substantial barriers preventing entry. In building materials, the commission’s draft study pointed to substantial barriers to using foreign-sourced building materials. In both cases, easing barriers to entry would improve competition," Crampton says.

"If the Commerce Minister told the commission to look at barriers to entry in banking, or in insurance, that could be worthwhile. The combination of barriers to entry and regulatory measures like the Credit Contracts and Consumer Finance Act may have had substantial detrimental effects on competition.

"If so, it would be great to document the barriers, their effects, and how those barriers could be eased. Is New Zealand seeing the same innovations in FinTech and InsuranceTech as are being seen overseas? Could a foreign online financial service provider easily enter the New Zealand market, or would it be impossibly hard given our scale? What are the effects on consumers?

"But I would greatly worry that, in an election year, a minister could be tempted to send the commission off on more populist tilts against the banks," he says. "Sending the commission off to interrogate the banks about interest rates and mortgage rates would be politically tempting and help divert attention from the prior government failures that led to rising rates. I would also hope that the commission would push back against proposed studies that would shed a lot more political heat than provide actual light."

It would be exceptionally disappointing if ComCom got put to populist electoral purpose this year.  

Afternoon roundup

Oh the tabs. 

• Chris Quin is CE of Foodstuffs North Island. His chat with Morning Report on what they've been doing to get groceries through to Hawke's Bay, including helicopters....
• The nastiness is intrinsic to Dahl's work. Erasing it is a mistake. I still think that when rights-holders abandon the original works by making them unavailable, those works should enter the public domain. Especially if the author is already dead. 
• Looks like business-as-usual continues on at least one front. Government is set to impose a pile of compliance regulations on incorporated societies and there just isn't time to let them look at the regulations before they take effect. Government, despite the change at the top, is still trying to do too many things at the same time and risks making serious messes. 
• Dileepa Fonseca also points to government capacity constraints. "...Wellington's workforce is already overwhelmed coping with the central government's demands at the moment..."
• Yeah, it'd be great if it were easier to import and use plasterboard in rebuilding from a cyclone. 
• Headline says it all about building anything: "New Far North council dog pound balloons from $200,000 to $2.4m and can house fewer dogs."
• Look, if they were really serious about it, they'd have made it some kind of Commandment.
• University of Canterbury's Covid response was risible. 
• Effective Altruism in the classroom!
• Genetically modified trees that are sterile and so no wilding problem. But GE regs mean they can't be planted. 
• Bryce Wilkinson on some of the problems in the RMA replacement bills
• The perils of trying to curtail hazily defined 'disinformation'
• The Future of Long COVID
• We don't need laws against scapling. And if a platform like Viagogo can't reliably make sure it isn't selling fake tickets, people won't use it. 

Economics of regulation and medical licensing

The economic theory of regulation, following Peltzman, highlights regulation as a bargain that's subject to cost pressures. Change the cost conditions enough and you'll change the equilibrium.

Regulation of medical services seems ripe for disruption.

Over at The Conversation, Johanna Thomas-Maude documents the problems facing foreign-trained medical professionals wanting to work in New Zealand. It's basically impossible. And that's by design. 

The system is set, deliberately, to frustrate entry, with chokepoint after chokepoint. The player at each chokepoint will blame all the other chokepoints for the problem. 

Want to train more doctors? Ah, we can't. Only two med schools and they only can train so many.

Want to open a new med school? Ah, we can't. The universities' cartel reminds us that there aren't enough supervised positions at the hospitals, so even if more graduates were trained, there wouldn't be places at the hospitals for them to get their final sign-off. We'd just be training doctors to go and practice abroad. And who wants to put taxpayer money into that?

Want to solve it with foreign-trained doctors? Can't do that either. Not enough supervised positions at the hospitals. And even if someone's demonstrated competence elsewhere, that's just not good enough for New Zealand. No. They have to prove it in a supervised role here too. But there aren't any supervised roles for them. 

Want to increase the number of supervised slots? Afraid we also can't do that. None of the doctors want to take on more supervisions, you see. They're all flat out because there aren't enough doctors. 

It has long been a horrible cartel - one of the ones protected against ComCom action by the Commerce Act exemption of statutory regimes, even if they are absolutely a cartel. 

But the conditions seem ripe for change. When doctors are leaving the profession or the country because working conditions are terrible because there aren't enough doctors, there's opportunity to fix the regulations so that competent doctors from elsewhere could practice more easily. 

Here's Johanna:

Potentially hundreds of other doctors already in New Zealand are also waiting to take the required local clinical skills exam (NZREX), which is only open to 30 people at a time. The exam has only been offered four times – instead of the usual nine – in the past three years, with only one currently scheduled for 2023.

A few hundred doctors may not sound like much, but patients are being turned away from GPs all over New Zealand. Up to half of practices are not accepting any new patients.

Just one GP can safely have around 1,400 patients on their books, although this number is currently up to 2,500 for many overworked GPs.

Dr Orna McGinn, Chair of the New Zealand Women in Medicine (NZWIM) Charitable Trust, recently surveyed almost a thousand doctors working in New Zealand. McGinn noted that doctors’ concerns around a medical workforce crisis have been dismissed and diminished.

Read her whole column; I'd chatted with Johanna a few months ago as she was getting going on this project. She's been interviewing foreign-trained doctors who want to practice here. Simplest seems to be to pass the exam here, then go and practice in the UK for three years, and then consider coming back. 

All of it feels like it's ripe for change. The doctors' survey suggests lack of colleagues is biting, and that'll eventually have to feed its' way up into the licensing cartel. 

If the Commerce Commission did decide to take up medical services for its next market study rather than some populist boondoggle demanded by the Minister in an election year, it could do an awful lot of good. 

ComCom's punt on building materials

The Commerce Commission's final report on building materials supply recommends some patches that would make a bad situation less bad, but fails to strike on important root of the problem.

Councils under joint-and-several liability stand very high odds of being last-man-standing if anything goes wrong with a building. Work by Sapere, commissioned by MBIE not too long ago, found that councils wind up 100% liable in 48% of cases in which damages are assessed. 

That drives councils to avoid risks. They bear zero upside for allowing anything new and innovative and have about even odds of being 100% responsible if anything goes wrong.

And a pile of pathologies flow on from there.

Because councils are reluctant to sign off on anything new, architects and engineers specify plans with materials and methods that council officers are comfortable with. That's a huge advantage for incumbents, and especially where councils won't easily sign off on equivalent substitutions by the builder because council can wind up liable for that too. 

Getting councils out from under joint and several liability would start fixing the problem. Lots of ways of doing it. They could be carved out and held only proportionately liable, but that requires that you trust that the courts wouldn't decide that the council's proportion is 100% if there's nobody else with pockets deep enough to compensate someone who didn't get insurance. Capping councils' proportion could be less risky. Or taking them out entirely and setting a compulsory builders' warranty or insurance programme that would shift liability over to insurers. 

I covered the mess in this week's column for the Sunday Star Times. 

The Commerce Commission’s own findings suggested that liability is a far bigger issue than MBIE has claimed.

But the commission presumably saw the area as politically futile, saying: “Given the previous consideration of these matters, the position statement, the ongoing work of the reform programme, and the lack of any clearly better alternatives, we have not focused in this study on the nature of liability faced by BCAs or its impact on competition.”

But there is a rather obvious alternative – like the plug for the leaky boat.

Exempting councils from joint and several liability would encourage sharper diligence when purchasing and commissioning homes. If that kind of bare caveat emptor regime were too harsh on its own, the Government could add the kinds of building insurance or warranty requirements that are common internationally.

Liability would shift from councils to insurers or warranty guarantors who would have stronger reasons to weigh both the costs and the benefits of new materials, making them easier to use. A warranty or insurance scheme would add to the cost of a house but could pay for itself through lower building material costs and better buildings.

The commission’s recommendations will help. But the boat will still be leaking. A closer look at the most obvious plug for that hole would have been warranted.

Pharmacy cartel

BusinessDesk reports:

A group of independent pharmacies have gone to court claiming health authorities got the law wrong in letting Countdown run pharmacies and dispense prescriptions. 

New Zealand Independent Community Pharmacy Group (ICPG) is seeking a review in the high court at Wellington of decisions granting pharmacy licences to Countdown in Gisborne and Wainuiomata in Hutt City. 

The group argued that the Countdown pharmacies are not under the full control of its pharmacists as required by law and that the company was running a loss-leading strategy to drum up business.  

The ICPG said the decision-making processes were flawed because they were made with insufficient evidence, and there was no rational connection between the evidence that was available and the decisions made.

Difficult not to laugh on reading this assertion:

Lawyer Robert Kirkness said the two former DHBs made a number of errors in law when deciding to grant contracts to Countdown pharmacies.  

Kirkness said while pharmacies might have commercial interests, that was not the primary role of pharmacists in NZ, nor the driving force in the ICPG seeking the review.  

"It is not an attempt to protect commercial interests but to protect the quality of care to the New Zealand public," he said. 

Regulating entry

This week's column in the Sunday Star Times picks up on last week's post on grocery entry and the new grocery regulator.

It concludes

The surest protection consumers have in any market is vigorous competition among suppliers and potential suppliers for their trade. Economists know that even the threat of potential entry can provide substantial and real competitive discipline.

Hasty legislative drafting from a Government trying to get too many things done simultaneously is more likely to blame than a deliberate effort to prevent new grocers from entering. It could yet be fixed by select committees.

But legislative urgency makes it more likely that bad ideas and drafting errors turn into policy failures.

And any sufficiently advanced incompetence does become indistinguishable from malice.

I have to submit my SST columns on Thursdays. I didn't then know about the entrenchment games in the Three Waters legislation - the kinds of mess that happens under urgency. That one looks a lot more like malice. Good that they're retreating from it. But if there'd been no furore, they'd have kept it.  

Afternoon roundup

The closing of the tabs:

• Environmental review laws have long been used for NIMBY purposes. This is a new one. The best that could come of this is a recognition that environmental review needs to be fixed.
• If Australia starts enabling nuclear power, NZ should consider a trans-Tasman approach that would let us piggyback on some of their regulatory efforts. There are economies of scale in this kind of reg. And Australia should be sure to kick NZ out of the arrangement if we start behaving like dicks. 
• The simplest explanation for Labour's approach to labour-market regulation is that they base their expectations of employer behaviour on how government behaves when it is a monopsonistic employer. 
• The simplest explanation for occupational regulation for medical workers is that it's a cartel arrangement that proved sticky when conditions changed.
• They've stopped pretending to be playing at anything other than extortion. “By doing things with news organisations, Facebook was attempting to reduce the risk of government hitting them with a big invoice,” one publisher said. “By pulling out, they’ve made it more likely that they will be whacked with regulation.”
• Could make for a fun test around Peltzman effects, if they gathered numbers on it.
• More reasons to be sceptical of the value of peer review, in some disciplines. The most obvious explanation for the problem (department demographics will reflect international demographics in the field, with some home-country bias, rather than home-country demographics full-stop) is ignored. But the paper's problems are bigger than that. Almost reads as a Sokal hoax. But it seems sincere. At U Manitoba, where I went for undergrad, there were more profs who were US Vietnam draft dodgers than there were in the Winnipeg population overall. An overrepresentation of them necessarily means an underrepresentation of the Canadian-born. Which is totally fine. Canadians will be overrepresented on US university faculties too. 
• David Harvey on problems in proposed changes to hate speech regs.

Discouraging grocery entry

The main potential problem in retail grocery competition, in New Zealand, is the near-impossibility of at-scale entry. 

Now we have another one. New entrants could be forced to supply their competitors with products at regulated prices after having been here for five years - so why would they ever want to enter?

We'll save that bit to the end. 

First a refresher on the existing problem. 

A foreign entrant would face uncertain lags and outcomes through the Overseas Investment Office. Not many sites are zoned for grocery retail. The supermarkets have been voiding restrictive covenants that have tied up some zoned properties against use in grocery retail, but assembling a network of sites where large-footprint grocery retail is permitted will be a challenge. Then there are long and variable lags in council consenting processes. And the background suspicion that at least some towns, like Ashburton, are owned by cartels of existing town-centre property owners who'll block competitors no matter what the zoning is. 

Basically a pile of legislation, regulation, and standing practice caused by the regulatory thicket makes entry impossible. 

After the Commerce Commission's market study, the government moved to legislate in support of something the supermarkets were already doing - getting rid of those restrictive covenants.

But the Commerce Commission also had recommendations on zoning. It suggested that District Plans and Regional Spatial Strategies should be required to include sufficient land for choice of sites in development of grocery retail, that there should be minimum proportions of urban land zoned for retail grocery, and that positive outcomes of trade competition should be able to be considered in planning instruments. See 9.35 at page 386.

None of that's turned up in the draft legislation. Worse, the NBEB seems to forbid consideration of effects on trade competition full-stop. In parts it's ruling out rent-seeking uses of consenting to block a competitor's opening or expansion. And that's fine. 

But in other parts Commissioners, Independent Hearings Panels, and planning committee are instructed to disregard effects on trade competition full-stop. 

Some examples.

• The IHP, in formulating its recommendations, must disregard trade competition and the effects of trade competition. Schedule 7 126(1)(e).
• When formulating recommendations, commissioners must disregard trade competition and the effects of trade competition. Schedule 7 60(d).
• A person who could gain an advantage in trade competition through a submission may make the submission only if directly affected by an effect that (a) adversely affects the environment; and, (b) does not relate to trade competition or the effects of trade competition. Schedule 7 20 (4)(b)
• Note that this one blocks rent-seekers, but would also block Aldi from putting in a submission saying "Hey! You're zoning for only one supermarket! Make room for us too!"
• When considering a requirement and any submissions received, a regional planning committee must not have regard to trade competition or the effects of trade competition 512 (1)(d)

Just go to the bill, hit Control-F, type in "trade competition". Some restrictions against rent-seeking, some bans on considering trade competition full-stop. And ComCom said that they needed to make room to consider the positive effects of competition. 

Either it's poor drafting or they want to block pro-competitive effects from being considered. 

In any case, they're not easing the barriers to entry. And they haven't instructed the Overseas Investment Office to make darned sure it's simple for new entrants to come in.

Instead, they're doing something else. 

They're putting in a big new regulatory regime for existing groceries that will have a backstop of mandated wholesale access. Legislation being introduced under urgency, but with some time for submissions.

The regulation proposed is a mess. 

Leave to one side for now all the problems in regimes mandating that an integrated grocery operator supply competitors at regulated prices for heterogenous and perishable goods. 

Sections 22 through 25 say that additional retailers can be made subject to the wholesale supply requirements after having been operating here for 5 years. How does that work?

A grocer can be designated as having wholesale supply obligations under section 23, on the Minister's recommendation in Section 24. 

24

24 Minister’s recommendation for designation under this Part

(1)

The Minister may recommend that a person (A) be designated as a regulated grocery retailer under this Part only if—

(a)

the Commission has given the Minister a recommendation about whether A should be designated; and

(b)

the Minister has had regard to the Commission’s recommendation; and

(c)

A has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more.

(2)

In deciding whether to make a recommendation, the Minister may do any of the following:

(a)

accept the Commission’s recommendation that A be designated if the Minister is satisfied that the criteria set out in section 25(2)(b) are met:

(b)

reject the Commission’s recommendation:

(c)

request that the Commission reconsider any matter (such as an error, an oversight, or competing policy interests):

(d)

make any other decision that the Minister considers is in the public interest.

(3)

For the purposes of subsection (1)(c), A must be treated as carrying on a business referred to in that paragraph if—

(a)

A is a member of a group of interconnected bodies corporate, and that group (or any part of it) has been carrying on business as a grocery retailer in the whole or any part of New Zealand for 5 years or more; or

(b)

A acquires (directly or indirectly) the whole or any part of the business of a regulated grocery retailer.

Ok. So suppose the Minister receives a recommendation from the Commission not to designate a retailer as being subject to the wholesale supply requirements. 

That satisfies 24(1)(a). The Minister has received a recommendation. Doesn't say anything about the direction of the recommendation now does it? 

The Minister can then have regard to it in (1)(b), reject it (2)(b), and make any other decision that the Minister considers is in the public interest (2)(d).

In short, if the Minister considers it as being in the public interest to force Costco, or Aldi, or any other new entrant to provide rent-seeking New Zealand competitors with access to its products at regulated prices, the Minister can go ahead and do that. 

Unless the legislation is changed. Like maybe they just assumed that the Minister would only proceed if the Commission had recommended that a grocery retailer fall under the designation. But nothing in the legislation specifies that. The Minister need only have been given a recommendation about whether the retailer should be designated. 

Anyone with kids is smart enough to see the problem here. If you tell the kids they can do something only if they ask their mother, without having said that their mother has to say they can do the thing, you're just asking for trouble. "You can if your mother also confirms it is okay with her" is safer. 

Now. Suppose you're an international grocer who's spent decades building supply chains. And New Zealand's started looking potentially more open for business. Maybe zoning and consenting does get fixed, and maybe the Overseas Investment Office eventually gets told to approve new grocery retail.

If you figure that five years after you're considered to be operating as a grocery retailer in New Zealand, you'll be forced to open up access to every rent-seeking New Zealand competitor at regulated prices at the whim of the Minister, why would you ever want to open up shop here?

I guess one bottom line is that the Commission should refuse to provide any recommendation unless they actually want the Minister to make the designation - unless the legislation gets changed to require a positive recommendation. 

But more substantively, government needs to be assuring potential entrants that they won't just be expropriated after having been here for five years if you want them to open here, rather than spelling out an obvious mechanism for existing and potentially preferred incumbents to get access to new entrants' supplies.

Everything is stupid and broken and getting stupider and more broken. 

Afternoon roundup - everything is stupid and broken edition

The tabs:

• There's a desperate shortage of housing in Queenstown, so Commissioners insist that a development plan reduce some 13-storey towers by five storeys. The buildings would have had apartments, hotel rooms, and commercial space. Even hotel rooms take pressure off housing given the number of houses serving as Airbnbs. 
• There's a desperate shortage of nurses, so the process that the Nursing Council runs for recognising foreign nurses' qualifications takes so long to sort anything out that nurses who started their applications in March have now given up. 
• There's a desperate shortage of GPs. Salaries for GPs in Australia are much higher than in New Zealand. The government closed the border to the normal flow of foreign medical staff for a couple of years but wasn't able to keep NZ-trained staff from leaving for Oz. It hasn't done anything to make it easier, now that the borders are open, for GPs from comparable systems to show up and hang up a shingle. When asked why training hundreds of GPs led to a net increase of only 15 GPs, the Minister of Health said "I haven't interrogated that figure." 
• The government believes there to be too few competitors in grocery, so rather than open up the Overseas Investment Act and zoning/consenting so that it's easier for foreign entrants to come in, it's proposing legislation that would, among other things, let them force any new international entrant to open up its wholesale side to rent-seeking Kiwi competitors after a five-year grace period. If that doesn't encourage international chains to jump through OIA hoops, nothing will.

Medical cartels

The Medical Board of Australia has proposed new guidelines under which anyone going for cosmetic surgery, including face lifts, nose jobs, liposuction and breast augmentation, would need a GP's referral. 

Australian Doctor expects (HT Dylan Mordaunt) this could involve up to 100,000 GP consultations per year. 

All patients going for cosmetic surgery would require a GP referral under proposed new guidelines from the Medical Board of Australia, which aim to protect patients from aggressive marketing tactics.

The board has gone a step further than its independent cosmetic surgery review — which merely noted that GPs were often out of the loop — by suggesting patients “must have” a GP referral before undergoing major cosmetic procedures.

These included procedures that “involve cutting beneath the skin”, such as rhinoplasty, surgical face lifts, liposuction and breast augmentation, its consultation paper published on Monday states.

“The referring GP must work independently of the medical practitioner who will perform the procedure and must not perform cosmetic procedures themselves,” it adds.

And at least two consultations would be required before surgery. 

They claim it's to protect patients from aggressive marketing - like pictures of people with perfect bodies or unrealistic before/after shots. 

I expect that Australian consumer law has the same kinds of restrictions against false advertising that are prevalent elsewhere and that cosmetic surgery would be under the same restrictions as other services. 

The simplest explanation is the standard bootleggers-and-Baptists drill that operates in medicine. The public interest rationale is just veneer over top of measures that restrain competition. 

Mandatory superfluous consultations pre-surgery prevents anyone from chiselling on cartel arrangements by offering speedy services. 

GP referrals can block new entrants or force new entrants to go and work for an established practice, if the GP's recommending where to go for the surgery. 

And the GPs, and everyone associated with them, will convince themselves that it's all part of protecting patients.

I really hope that NZ's Commerce Commission will run a market study on medical services, focusing in on whether Medical Council rules unduly restrict entry. It's a tough problem. Government hasn't the knowledge to set the rules in a complex, changing, high-stakes area. It has to rely on experts to tell it what the standards have to be. But delegating standard-setting to a body whose members have a financial interest in restricting entry and restraining competition is also risky.

Cartel-stuff isn't everything going on in this. But it's certainly consistent with some of it. 

If the doctor's cartel were solely acting to maintain standards, rather than to maintain standards and restrict competition, wouldn't doctors from Canada or the US in good standing with their own professional bodies, and not under investigation for malpractice or misconduct, be able to just set up shop here after some short course outlining how systems here work and to reminding them that some parts of NZ are more developing-country than developed?