Shakedown

The government's released the Fair Digital News Bargaining Bill.

It sounds a lot like what Canada put in place - and that resulted in Facebook blocking all links to news rather than being compelled to go into arbitration that could lead to unpredictably humongous settlements against it for linking to news. 

Over at BusinessDesk, Dan Dunkley notes that one of the government's justifications for the bill is that government funding of media undermines trust in media. I really don't get how strongarming tech companies into funding media companies is that much better: avoiding that threat requires being deemed to have given 'enough' to whichever media companies the BSA (and presumably the Minister behind the scenes) figure ought to be paid off. 

My column in the weekend's Dom Post:

Shakedown rackets are, thankfully, illegal.

Except when government legislates them. In that case, all bets are off. And if I were Facebook, I’d be off too – or at least thinking about it.

The Government finally released the Fair Digital News Bargaining Bill this week. The bill aims to improve news funding by requiring payments from those who link to news online.

Similar legislation caused Meta, Facebook’s parent company, to block all news links in Canada.

So what’s in the New Zealand version?

The legislation puts the Broadcasting Standards Authority (BSA) in charge of a new bargaining framework.

News outlets overseen by a recognised regulatory body like the Media Council, or subject to a standards code, can apply for registration.

It’s the other side of the bargaining table that gets trickier.

Any internet service that makes news content produced by news media entities available to people in New Zealand is considered a digital platform. The definition is very broad – simply facilitating access to news content, for example, by linking, is sufficient.

If you control such a platform, whether directly or indirectly, you’re considered an operator, and potentially subject to registration under the legislation.

The legislation is obviously aimed at Google and Facebook, and potentially Twitter and the Microsoft start page. But the definition of ‘platform’ is much broader. It probably covers Dr Bryce Edwards’ daily online news roundup at Victoria University, and my organisation’s own weekly newsletter. Both link to news.

But the BSA will only register some platform operators. If the BSA believes the platform operator has more than a minor power advantage over a news media entity, it can impose registration.

It’s an odd thing, that power imbalance. A news outlet can set a paywall and can prevent platforms from indexing or scraping content, at the outlet’s sole discretion.

But here, the BSA would consider bargaining power in deals over whether a platform will pay a news entity for the privilege of providing links. And since a platform operator can always decline to pay for links – because links have been free since the Internet was first created – there will be some power imbalance.

The BSA may give regard to a host of different considerations when deciding whether to register an operator. But just how that will work will be impossible to tell until the BSA starts making decisions. And that makes it risky to be a potentially registered operator if the bill passes.

Once a platform is registered, news outlets can initiate bargaining. Parties are under a duty to bargain in good faith and are subject to hefty penalties otherwise. If they cannot come to agreement, a panel of arbitrators is appointed. The parties put up their final offers.

And the arbitrators must choose the offer that “fairly compensates the news media entity party for that party’s news content being made available”.

The whole process is incredibly risky from a platform operator’s side. The news company takes on no risk. Even though the consultancy report produced for the Ministry of Culture and Heritage found that platforms provide considerable commercial benefits to news companies, payments here will only go one way. But it’s impossible to tell just what kind of final offer an arbitration panel would consider ‘fair compensation’.

In a traditional shakedown racket, a mafia boss threatens vague terrible harms if the ‘protected’ business owner doesn’t pay up enough protection money. It’s an offer you’re not meant to refuse.

The Fair Digital News Bargaining Bill has its own shakedown option. A platform can be granted a five-year exemption from bargaining processes if the BSA thinks the platform already makes “a fair contribution” towards news production.

What counts as a fair contribution? It’s hard to say. Broadcasting and Media Minister Willie Jackson has made clear that he wants the platforms to make deals with media outlets. Offer enough, and you won’t have to deal with complicated risky arbitration. Do you feel lucky?

But instead of facing the certainty of a tax code, platforms would face the constant uncertainty of trying to figure out which media outlets need to be paid off by how much to satisfy the minister and the BSA.

As in Canada, there may remain a safer way of avoiding all of it – though I expect anyone with skin in this game is talking it through with lawyers rather than economists.

Arbitrators are required to choose the offer that provides fair compensation to the news outlet for news content being made available.

If the platform stops providing access to news, its final offer in arbitration could be simple. “We do not provide access to news, so our offer is $0.”

Hopefully the bill dies on the order paper after Parliament rises for the election and is not picked up again after the election.

But it is disgraceful that shakedown legislation of this sort has even made it to Parliament for consideration.

 

Level playing fields

It is possibly possible to grow bananas in New Zealand. In greenhouses. At great expense. 

Suppose that New Zealand had no way of importing bananas. For purposes of the thought experiment, the things just rot in transit.

So we have a banana industry here growing bananas at high cost. 

Then, an innovation! Bananas become tradeable and imports are possible - and no biosecurity issues. The boats start landing, laden with the tasty luxury.

Local industry complains. Production costs here are very high compared to islands where there is no need for greenhouses. Surely that kind of competition is unfair to local producers. The playing field should be leveled. The New Zealand government should provide subsidies to offset the unfairness of foreign climates.

We'd be nuts to do that, right? The ability to import low-cost bananas means that banana-producers here can shift to doing other, more valuable work. And we all get to eat more tasty bananas. Or not, depending on our preferences. 

Complaining about foreign subsidy regimes makes as much sense as complaining about foreign climate for growing bananas. With one difference. If it were possible to get an international treaty banning climates good for growing bananas, that would be terrible. It would hurt others to no overall benefit. 

But if we could get an international subsidy-control regime, like an arms control treaty, banning subsidies on films, or on video game production, that would be to the good. 

Dileepa Fonseca goes through some of the pleading for video game subsidies over at BusinessDesk ($). The Australian subsidies are claimed to be on the order of 40-45%. Just ridiculous. 

The climate for growing bananas abroad is a lot better than in NZ for reasons entirely outside the control of the NZ govt or NZ producers; we oughtn't subsidise banana-growing here to match it. 

The climate for growing video-games is better in Oz because the Australian government has the equivalent of a giant subsidised greenhouse. They're showing no signs of wanting to tear the thing down. It would make a ton of sense for NZ to try to lead international agreements against these kinds of subsidies - in videogames, and in film, that just induce industries to flip jurisdiction in pursuit of subsidies. 

But it doesn't make sense to subsidise our own greenhouses. If Oz wants to throw ridiculous amounts of money at videogame making, it just doesn't make sense to try to keep up. The industry here will shrink; resources will be released to work in other sectors. Stupidly, one of those sectors will be the subsidised NZ film industry. 

Dileepa quotes industry giving the standard line that taxes paid by workers in the subsidised industry could wind up being higher than the amount of the subsidy. But that's completely irrelevant. Absent the subsidy, people would work in other industries where they'd pay taxes. If we extended that argument generally, it would mean giving every damned company a subsidy of up to a dollar less than the amount of tax paid by its workers. It's nuts.

He also has a bit from me:

However, there are many who are deeply sceptical, critical, or both, of the benefits of such rebates and offsets. 

NZ Initiative chief economist Eric Crampton acknowledged the Australian scheme could see gaming jobs shift across the Tasman, but he said this was an argument for NZ to advocate that Australia remove theirs not that NZ taxpayers match their contribution. 

“Getting into subsidy races would be a terrible mistake. If an industry can only thrive here if it is heavily subsidised, should it really be based here? “Or should the workers and capital that it would be using instead shift over to industries that can do well even without subsidies?” 

Crampton also said it would be a mistake to participate in a subsidy war with countries that had deeper pockets. 

He said film industry subsidies enabled more highly skilled domestic film production and this was the major benefit he accepted came from such subsidies rather than other oft-touted aims like employment. 

But Crampton also said film subsidies were expensive and NZ's experience of using them showed such measures had no real endpoint. 

“And we then wind up in the bizarre situation in which we have subsidised training programmes to encourage kids to pursue careers in the film sector rather than other industries – careers that can only be viable here if large subsidies to the industry sector continue. 

“Every year we subsidise the training of the next set of hostages to be held to ransom against any threat of ending film subsidies.”

I should have said "held AS ransom". Doh. 

Anyway: don't get stuck in more subsidy traps, like we're stuck in with film.  

Subsidies beget subsidies

The video game industry wants subsidies so they can compete for CGI workers with the subsidised film industry, and to keep up with the subsidised Australian video game industry. 

If they get subsidised, what industries are going to need to be subsidised so they can compete with the subsidised video game industry in hiring programmers? The whole software sector, but also anyone else who needs programmers, right?

If Xero then gets a subsidy so it can compete for programmers with the subsidised video game sector, that will give it an advantage in hiring accountants too. And then the accountancy firms are going to need a subsidy so they can operate on a level playing field with Xero in hiring accountants. 

Subsidies for everyone! And we will all be rich. Just like we were in 1981.

I'm quoted a bit in the Newsroom piece linked up-front, along with some rent-seekers. 

Dr Eric Crampton, the chief economist at the New Zealand Initiative, rejected the idea the New Zealand Government should try and match overseas subsidies by using the example of film subsidies, which he called a “bad deal”.

“Film companies play countries off against each other, seeking the largest subsidies and tax breaks. While consultancy reports tout large benefits for the countries bidding the most, academic work struggles to find any real benefit at all,” he said.

He said subsidies like this have unintended side effects, like companies being able to outbid for workers whose skills may be needed in other industries.

“New Zealand learned in the 1980s that heavy subsidies are an unsustainable response to foreign subsidies,” he said. “Better to abolish our own subsidies, and encourage others to do likewise.”

Crampton argued making sure Immigration New Zealand is equipped to quickly process visas would be a more approach, making sure sectors like video games have access to overseas staff they may need.

A permanent petrol holiday?

Just a terrible dynamic here.

Transport NZ CE Nick Leggett argues for an indefinite extension of the road user charge discounts.

New Zealand’s road transport industry has today called on the Government to extend the reduction in fuel excise and road user charges (RUC) indefinitely.

“Extending the reduction is vital in order not to increase the pressure on hardworking families and struggling businesses,” says Ia Ara Aotearoa Transporting New Zealand Chief Executive, Nick Leggett.

“Many kiwis are only just keeping their heads above water at the moment and we need the Government to do what it can to help them through.”

The current fuel excise reduction scheme is set to come to an end in the coming months.

Mr Leggett said 93% of New Zealand’s freight travels on the back of a truck and the road transport sector continually strived to drive efficiencies in their businesses.

And the railways want a subsidy to compete with the now-subsidised trucks, and the ports will want the same. Nick Leggett is helping to push us back to the bad old days of a government-directed transport system. 

A clean system would start from user-pays. Roads would be built when they could pay their way. Users would cover their costs. Goods would ship by rail when that was the most cost-effective, as judged by users, facing the real costs of transport. And same for coastal shipping. 

There's some work to get there. Congestion charging, with fees set to maximise system throughput, would help. It would also provide a price signal about places where more investment might cover its cost. Flipping petrol excise over to RUC, and then looking at getting more tolls on roads as a way of financing the things. 

But Leggett's path doesn't lead to any sensible system. If you run land transport out of general revenues or the Covid fund instead of out of fees from users, why should the system even care about driver demand? If government decides to ban trucking between places that could be served by coastal shipping, regardless of cost, what principled leg does Leggett have to stand on?

The best thing that happened in the 80s reforms was that businesses all agreed to stop doing this kind of thing. Leggett is trying to push us back to a rent-seeking equilibrium, and probably has no clue that he's doing so. 

Extortion shouldn't be a good business model

My column in last week's Insights newsletter:

For decades, newspapers’ business model was simple.

Classified ads paid most of the bills. Print ads paid much of the rest. Subscribers paid a bit, sometimes just for the sports section. A few news-hounds demanding in-depth journalism were cross-subsidised by everyone else, including newspaper owners who enjoyed the prestige.

That model is long gone. Classified ads fled online in the 2000s. Companies wanting to advertise have a broader and better targeted set of online options. And a small number of infovores willing to pay for rigorous journalism has a hard time covering the cost.

There have been many experiments in finding better models but the most unfortunate recent gambit is, at its heart, an extortion racket.

Australia’s News Media Bargaining Code can compel online platforms to bargain with new sites, under threat of final offer arbitration. Simply linking to a newspaper’s website can there lead to compelled payment.

This week, the Commerce Commission granted preliminary authorisation for New Zealand’s media companies to launch their own collective bargaining efforts with online platforms.

But bargaining seems the wrong word when any negotiations will fall under the shadow of potential regulation or compulsion if the government does not like the results. Extortion may be more accurate.

The whole approach is misguided.

The web is built on links. Any website can link to any other website, can choose to set a subscription paywall, and can decide to block search engines from indexing their site.

Coercing payments for links breaks fundamental principles of the web.

Doing so when Sapere’s report for the Ministry of Culture and Heritage, released in February, concluded that “digital platforms provide considerable commercial benefits to news firms” is absurd.

No principle of public economics justifies taxing platforms like Google and Facebook to subsidise news.

If you think that web platforms are undertaxed, support multilateral efforts around tidying tax on multinationals – but you may find that plenty of tax is already being paid.

If you think that good journalism deserves better funding, contribute to it and encourage others to do likewise. If that isn’t enough to support the public goods provided by rigorous journalism, look at measures like the public interest journalism fund.

But extorting web platforms to pay for journalism is worse than taxing hipsters’ beard oil to fund tīeke recovery. It breaks principles of good tax policy and foundational principles of the web.

Viable business models should not rely on extortion.

Morning roundup

The morning's worthies! And a couple shockers too. 

• Best news in rather some time. I'd want to see it extended out over a larger sample. But they're not seeing any difference in "long covid" symptoms between vaccinated people who've had breakthrough infections and people who never caught it. 


• The Australian Broadcasting Corporation would know better than to promote antivax cranks. But they'll write this stuff on econ without a second thought. Just to keep in mind next time someone tells you how awesome public broadcasters are. ANU Prof of Econ Rohan Pritchford is on point.


• Looks like Boston is following New Zealand's example - they're getting their own version of the National Policy Statement on Urban Development. 


• Writing pieces on the climate change effects of Covid in New Zealand because of effects on city transport, while ignoring that transport is covered by the Emissions Trading Scheme, is pretty stupid. 


• The coal tit is a careful shopper, but the weka is a crafty little rent-seeker. 


• Amazing. They're using laser pulses on fibre networks under Auckland to find tiny earthquakes that may predict volcanic activity. 


• Businesses still face difficulty in figuring out whether vaccination mandates for workers are legal. 


• BusinessDesk has put together a network map of people in the public sector. So you can see who is who, and who is connected to whom. 


• Pattrick Smellie's predictions for 2022. 

A hive of rent-seeking and villainy

I spent too much of the past couple weeks listening in to the Commerce Commission hearings on grocery retail. Ok, it was only a couple days of it. But even that was too much. 

Tex Edwards was pushing the Commission to force the two supermarket chains to sell a pile of stores, while wanting a host of restrictions on who could buy them. Foreigners shouldn't be able to buy them, anyone who does would have to have some commitment to healthy food provision and some kind of climate change commitment (supermarkets' emissions are in the ETS but whatever) and some commitment to serving regional New Zealand. It was hard to get a precise read on what he was after with all the restrictions. But narrow the field enough and Tex might be the only person allowed to buy the supermarkets that the Commerce Commission would force the current players to sell. I wonder whether that's a coincidence.

Tex got an awful lot of the Commission's time. The Commission seemed very keen on drawing out these kinds of suggestions. 

In the other corner was Sarah Balle, from online supermarket Supie. She repeatedly suggested that the government provide some giant capital support for her company. If only Supie had some $160 million (I can't remember the number but it was something like this. Maybe it was $120m. Maybe it was $180m. I can't remember. It was an offensively large amount.) dollars from some new KiwiEquity scheme, Supie could scale up to provide real competition. 

But despite supermarkets being alleged to be a giant profit-making duopoly, some capital market failure means nobody with their own money on the line would give Supie $160 million to hoover up those excess returns. You might think that when global markets are awash in capital seeking positive returns, the only real problem here would be overseas investment restrictions that make life tough if you have more than 25% foreign ownership. But Supie suggested foreign entry and foreign money should be banned because foreign retailers keep costs down by bringing in low-quality product. I'd not heard that critique of Aldi before. I bet that the incumbents said the same thing about the need to maintain a ban on parallel imports to keep options like The Warehouse from emerging. 

Supie also got an awful lot of the Commission's time. The Commission seemed very interested in hearing how excellent it would be to have government making giant investments in an online grocer. 

Kate MacNamara sums things up:

On the Commission's recommendation, the Government could ultimately provide financial backing to a new (or small) competitor in the sector, likely through a contestable process.

It could invest in a joint venture partner with a view to selling its stake once the partner was established. Or it could retain that mixed ownership model over the long term.

All three options were delineated in the Commission's draft report on the state of competition in the grocery sector published in July. Its preliminary findings were that competition in grocery retailing is weak, prices to consumers are inordinately high, and supermarket profits are uncommonly fat (the supermarkets contest this).

But just one party has used the conference - running over the last several weeks - to plump for Government investment in the sector by way of remedy.

Sarah Balle, founder of Supie, a new online supermarket, has repeatedly suggested her business, which she says is limited by access to capital and the power of the supermarket incumbents, could better grow and compete with the help of Government funds.

In contrast, Tex (Simon) Edwards, representing both the recently incorporated company, Northelia, and the lobbying entity, Monopoly Watch, has pushed for the forced divestment of existing retail stores, the sale or separation of which could help constitute a third major player.

Edwards has said he already has significant capital backing (should mandated store divestment take place) and he was uncharacteristically silent on Tuesday on the question of how the Government might improve competition by actively entering the market itself.

...

The last word in the forum didn't go to New Zealand Initiative chief economist Eric Crampton but his puckish suggestion was among the most memorable.

In considering ways to facilitate new competitors' entry in the grocery market, Crampton said, the Government could simply resolve to dismantle the barriers to entry of its own making.

The Commission, he suggested, could then write to international grocers with the following invitation: "Hello international grocer, New Zealand might not have featured in any plans you might have had for international expansion. Small markets at the far end of the world beset by regulatory impossibilities that make it hard for new entrants to set up shop are not the most enticing proposition. We at the Commerce Commission are writing you today to ask you to reconsider New Zealand or that you think about us for the first time…"

The letter would promise waving the cumbersome Overseas Investment Office approval process for foreigners buying land purchases for grocery stores, and easing council zoning and consenting rules to allow for the speedy building of stores.

Because I thought it was fun, and because it's the only thing that addresses the real problem and isn't a bunch of evil rent-seeking, I wrote up the letter that I think the Commission should send. Make a list of the big international players and even niche ones. Aldi. Lidl. Kroger. Sobeys. Loblaw. Trader Joe's. Whole Foods. 

Then send them this letter, after making sure that everything in it is true. This isn't hyperbole. This is what I actually want the Commerce Commission to do. This is a market study. It has broad remit. It can get to the source of the lack of competition and address it. It could tell the relevant parts of government what needs to be done to enable entry if government is serious about wanting more competition in grocery retail and lower prices. And then it could send this letter, after making the necessary changes. 

“Hello international grocer,

New Zealand may not have featured in any plans you may have had for international expansion. Small markets at the far end of the world beset by regulatory impossibilities that make it hard for new entrants to set up shop are not the most enticing proposition. 

We at the NZ Commerce Commission are writing you today to ask that you reconsider New Zealand, or to think about us for the first time.

Our market study into grocery retail concluded that a new entrant would be in the national interest. Consequently, the Government has instructed the Overseas Investment Office that no application for OIO approval is necessary for overseas persons purchasing land for grocery stores. This waiver is broad. If a new-entrant grocer proposes an apartment or commercial tower above their new supermarket, that is also allowed.

We have also instructed councils that they must issue zoning variations and consents for new grocers, and that grocers have recourse to the Commerce Commission if zoning or consenting processes are hindering the establishment of a new entrant in grocery retail.

New Zealand is open for business. For too long, regulatory impediments stood in the way of new entry. Those impediments are now gone. Please consider New Zealand in any plans for future expansion.”

The whole thing is depressing. There is a potentially very real and substantial problem here. Government has made it very difficult for a new international entrant to enter. 

A set of hearings on this, in a market study framework with wide remit, would have run very differently if the Commerce Commission cared about competition rather than about protecting Supie, or Tex, or just about punishing the existing grocers. 

The hearings might have heard from planning officers from Auckland, Wellington, Christchurch and others to point out on their maps where any new grocery entrant would be allowed by zoning to set up shop. It would have asked pointed questions about whether Council would actually allow grocers to set up shop in those spaces, or whether Council would pull its more usual kind of tricks: "Yes, it's zoned for grocery. But grocery uses a lot of water. And the wastewater pipes here would need to be upgraded to handle it. Ok, it's really decades of deferred maintenance and the things have to be replaced anyway, but we're going to pretend it's an upgrade so we can make you pay for it instead. Still interested?" 

It could have asked council planners whether competition ever enters into their considerations when setting plans, and if not why not, and whether reform of legislation to bring council planning into the criminal cartels regime would be appropriate. Like, if they're going to ask the head of each supermarket "Hey, if we were to order you to sell half your stores, even if they're actually owner-operator setups, how should we go about making that order?", they could at least ask Council Planners how best to apply criminal cartel provisions to council planning decisions. Could have heard from the folks doing up the new NBA on regional planning to ask them how they're planning to embed competition into regional plans. 

It could have heard from people from the Overseas Investment Office to ask them about barriers to grocery entry. And it wouldn't put up with their usual dissembling about high approval rates that ignores applications deterred by their processes. Has Aldi ever gotten in touch with them asking about coming here? Has anybody else? What would they do with an application from a grocer that had them buying some land currently zoned residential to package together into a new retail site? There's a ban on foreigners buying residential land. What about land that's adjacent to a reserve or stream? Lots of stuff can make land sensitive. 

The most glaring omission from the hearings? Potential international entrants. I understand that Aldi gave the place a serious look six years ago or thereabouts. What happened? Why didn't they enter? What barriers did they see as material? Do they still see those as material? Did the Commission even bother to ask the Aldis, the Lidls, or anyone like that about why they aren't here? 

Fix the underlying problem, then see what happens. If nobody enters, is it really likely that there are $20 bills all over the sidewalks here in grocery retail? Or is it more likely that we're just a small market at the far end of the world that is actually expensive to supply and there aren't really supernormal profits to be had? Let's find out!

Addendum: This is the list of questions that ComCom sent out on Friday afternoon signaling what they wanted to get into on Monday morning. I do not envy anybody who had to deal with this mess over that weekend. Think about the set of impossibilities that government has set in front of any potential entrant, then look at this set of questions. It's all about busting up existing supermarkets. I interjected briefly on entry facilitation to remind that real entry facilitation isn't subsidising Supie or destroying an existing supermarket to give to Tex. It instead should be about getting rid of legislated and regulated barriers to entry. 

This whole thing is destined to fail in exactly the same way that KiwiBuild failed. And ComCom just doesn't want to see it. They've got this fancy new market study provision, and they risk wasting it. 

Session 9:  Divestment and sponsorship of entry

A. Operational and structural separation

Topic 1:  Is Operational and Structural Separation appropriate?

• When should more significant interventions like operational or structural separation be considered?

• Would operational separation be technically possible?

• What would the costs of separation be?

• If structural separation occurred, could the business be run on an arms-length basis, without requiring divestment? For example, it could have the same shareholders but separate boards and management incentives aligned with the narrow interests of the separated entities.

• Would an independent wholesaler or wholesalers have market power that might require further regulatory intervention? 

B. Divestment

Topic 2:  What general principles should be applied when considering divestments

• In what circumstances might it be appropriate for the Commission to recommend a divestment remedy in the context of a market study?  What, if any, preconditions or criteria should be satisfied before the Commission recommends a divestment remedy?

• What criteria or framework should the Commission use in framing a recommended  divestment remedy in the context of a market study?  For example, is the framework for divestments set out in the Commission’s Merger Guidelines (Attachment F) suitable in this context?

• What are the potential negative consequences of government intervention of this type? What can be done to minimise any adverse impact on investment incentives or reputational risk for New Zealand?

Topic 3:  In what circumstances might a retail divestment be effective?

• What is the minimum efficient scale required or minimum number of stores which would need to be divested to create a viable and effective competitor to the major grocery retailers?

• What should be the process or criteria for selection of stores to be divested?

• What other assets would need to be divested or other arrangements put in place (possibly on a transitional basis) to ensure the acquiring entity would be viable and would operate as an effective competitive constraint on the major grocery retailers?

• How should a divestment process be conducted?

• Would a contestable sale process ensure a fair return to the divesting party or parties for the assets divested?  Or might some additional minimum price requirement or compensation mechanism be required to ensure the divesting party or parties are appropriately compensated for the divested assets?

• What are the likely potential challenges which would need to be overcome in implementing a retail divestment?

• What are the potential risks or unintended consequences associated with such a divestment?

Topic 4:  What would be required for the effective divestment of a wholesale business?

• If it were thought that adequate competition in the sector could be generated by establishing a stand-alone wholesaler, what assets would need to be divested to enable the establishment of a viable standalone wholesaler?

• What would the risks or potential unintended consequences be of a divestment designed to establish a stand-alone wholesaler?

Topic 5:  Would a divestment of an integrated wholesale and retail business or the assets necessary to establish an integraged wholesale and retail business be more effective than simply a retail divestment?

• Would the divestment of an integrated wholesale and retail business or the assets necessary to establish an integrated wholesale and retail business give a greater likelihood of successfully establishing a viable and effective competitor than simply the divestment of a selection of retail assets?

• What assets would need to be divested in order to establish a new integrated wholesale and retail business?

• What other arrangements would need to be put in place (possibly on a transitional basis) to ensure the acquiring entity would be viable and would operate effectively as a competitive constraint on the major grocery retailers?

• What are the likely potential challenges which would need to be overcome in implementing an integrated wholesale and retail divestment?

• What are the potential risks or unintended consequences associated with such a divestment?

C. Facilitation of entry and expansion

Topic 6:  What general principles should be applied when considering recommending facilitation of entry or expansion?

• In what circumstances might it be appropriate for the Commission to recommend to the Government that it considers the possibility of taking steps to facilitate entry or expansion in the grocery sector?  Would this require the same pre-conditions or criterial to be met as for a divestment or might some lower threshold or different criteria be appropriate?

• Are there barriers to entry or expansion that the Government is better able to overcome than private enterprise?

• What principles or framework should the Commission apply when considering whether to recommend facilitation of entry or expansion?

Topic 7:  Might a recommendation of facilitation of entry or expansion be appropriate in this case?

• What would it take for facilitation of entry or expansion to be effective?

• What is the minimum extent of facilitation of entry or expansion which would be required to make a meaningful difference to the competitive landscape?

• Might facilitation of entry or expansion occur in conjunction with a divestment remedy?

Session 10:  Reserved for overruns

• Topic 1:  Any overflow from Session 9

• Topic 2:  Is there any other strategic behaviour that may restrict new entry and access and how might it be redressed?

Afternoon roundup

The browser tabs, there are so many.

• I'm quoted in the Dom on the 1 April minimum wage increases. I hadn't gone through MBIE's advice before. MBIE's review has a decent summary of the literature, provides the necessary warnings about substantial real minimum wage increases in the current environment. Alas. The analyst would had to have known that the advice would be ignored, but be darned if the advice wasn't going to be provided anyway.


• If iPredict still existed, what would be the fair price on a contract paying $1 if NZ had US-style rent controls before 2022? $0.60? It feels like Robertson's set up a self-fulfilling prophecy. The changes to the tax deductibility of interest for debt on property investments are terrible policy. Bryce and I put out a short research note on it last week. Rents are likely to increase with the changes. Robertson has warned about rent controls if rents go up, or at least didn't rule them out. The Minister will "take action if necessary." Suppose you were a landlord who hadn't put up rents but you worried that the government was set to ban future rent increases if others put up their rents. You have no control over their rents, but you know they're running the same calculus that you are. Solve for equilibrium. Then Robertson will find himself pressured by journalists asking him to make good on his March threats, for the sake of tenants. And then we get rent control. 


• Berlin will tell you how great rent control can be. The freezing of rents in 2014 on existing builds, exempting new builds, saw shortages in existing builds (nobody moves out of them because you lose the low rent) combined with skyrocketing rents in the uncontrolled sector. Here's the IFO Institute paper on it, only the abstract is in English though. 


• Matthew Hooton's Herald column on the government's very slow vaccine rollout is excellent. The Herald also has a dataviz on it. 


• I wonder whether any of the building materials shortage would be eased if NZ didn't make it so hard to import building materials. BusinessDesk has been following the timber shortage. 


• My Newsroom column this week went through the rather cruddy legislate-in-haste policies we've been getting. 


• In praise of chain stores on Cuba Street. Finally. Excellent piece from Georgina Campbell. 


• And there's a new weird Creutzfeldt-Jakob kind of brain disorder in Canada's maritime provinces.
• Wellington's pipes? Nobody knows how much of a mess they're in. 


• Border workers who don't want to be vaccinated? This is dumb. Minister Hipkins has a giant sword. He can issue Public Health Orders. A Public Health Order could forbid anyone from border-facing work unless they had been vaccinated. Knot-sword-solved. Folks could redeploy or work elsewhere. There is unbelievable continued muppetry in the border system. It cannot afford to have unvaccinated people. 


• If I were still teaching Public Choice, the Tourism Industry Taskforce's report would feature in one of the assignments.
  
  "The Tourism Futures Taskforce report says:

  1.3 Efficient competition – Government endorsement of Commerce Commission authorisations for supplier collaboration We need to prevent competition that results in wasted surplus capacity and triggers downward competitive pricing. Authorising businesses to coordinate more sustainable pricing and supply through use of Commerce Commission authorisations will enable supplier-led capacity and price management, or government intervention. We recommend that the Government provides a policy direction to the Commission supporting such authorisations with a mechanism to value the public benefits in a consistent manner. The result of authorised collaboration will enable better economic returns on capital assets, more coordinated management of destinations and further investment by businesses in other wellbeings (which would be a clear requirement of the authorisations – for example: better wages, biodiversity, and climate and community outcomes).

  Discuss with reference to theory as developed in class. Particularly check through the weeks on rent-seeking, and sections on raising rivals' costs.

Krueger!

Anne Krueger will be providing this year's Condliffe Memorial Lecture at Canterbury University. 

I don't know if I can make it down for the talk, but if you're able to get to Christchurch, go!!

Here's the blurb. The talk is Wednesday, 18 July, 5.30 - 6.30.

Many policy makers and academics claim that changes in the global economy make the obstacles to rapid growth of poor countries even more challenging than it was a half century ago. They cite technological change, with emphasis on automation and IT replacements of both unskilled and middle income jobs, and on the emergence of China as a formidable competitor as major reasons.

In this lecture, I shall argue that while the future is never entirely foreseeable, there are a number of considerations that point to greater ease of development now than in the past. These include: the diminishing rate of increase in populations in most low income countries; the fact that much more is understood now (albeit still imperfectly) about development (and especially how not to achieve it); that global markets are much larger; and obtaining information of all kinds is much easier.

There are also some technological advances that make development easier: mobile phones; continuing discoveries of improved technology in agriculture; advances in materials sciences; and so on.

This does not mean that development is easy. Mistakes can still be made.  There is no avoiding the need to improve health and education and bring rural residents into more productive jobs outside farming. Competitive conditions in the world economy make the adoption of an appropriate set of economic policies even more critical than it was in earlier years. Temptations to resort to excessively expansionary fiscal and monetary policies are still attractive to politicians.

Nonetheless, as the lessons from past experience are learned, those policy makers sufficiently committed to sustainable and rapid growth will be able to achieve results on a par, or better than, those that took place in the past.

Unfortunately, the Canterbury promo page says nothing about Krueger. Sure, she's self-recommending - but unless you follow econ, you wouldn't know it.

In a better world, Krueger would have received a Nobel for rent-seeking along with Gordon Tullock sometime in the 90s or early 2000s. They independently discovered the phenomenon. Tullock was first, but wasn't able to get his article on it in any journal higher than the Western (1967). Krueger gave it the catchy name, and had some data from India, and published it in the AER in '74.

She's also done great work on trade.

But her positions at the World Bank and at the IMF (in some views) were seen as a hindrance: a Nobel might then be taken as endorsement for whatever either of those organisations were then up to. Plus, awarding her a prize for rent-seeking without Tullock would have been impossible while Tullock was alive - the 1986 award to Buchanan without Tullock was bad enough. And the Swedish Academy (at least back then) demanded appropriate obeisances be paid by prospective nominees - and Tullock don't play that.

Anyway, it would be a great year for a Krueger prize - and especially as corporate America turns to lobbying Trump for special favours. Rent-seeking's back again!

An end-run around film parallel imports?

I've been annoyed about New Zealand's film classification regime for a while. I hadn't considered the copyright and licensing angle on it.

Recall that New Zealand generally runs a free parallel importation regime. If some brand wishes to enter into restrictive licensing arrangements for retail distribution, the New Zealand government generally sees no reason that it should go about enforcing those deals where they restrict Kiwis' access to imports. So if some retailer is the only officially licensed supplier of a brand of shoes, The Warehouse can still import a container load of them for sale in their stores. The producer can punish the wholesaler who sold the the shoes to The Warehouse, but there's no recourse in the New Zealand courts. Parallel importation is legal. There is a carve-out in which you cannot parallel import films for nine months after the films' first release anywhere in the world, to give some time for the theatres to have a go, but otherwise things are open. Here's MED's FAQ.

Now recall further that the folks with local distribution rights are mightily annoyed with parallel importation. And the film distribution companies that sell rights to Netflix prefer being able to engage in pretty serious geographical market segmentation. Where Kiwis can pretend to be American through use of ISP global modes, or Hola!, or any of the various other VPN arrangements, geographic market segmentation breaks down.

New Zealand's censorship regime then gives an end-run around parallel importation: you can't legally import a film that hasn't been classified here and you can't distribute one that doesn't have the New Zealand film classification. Having the US one isn't good enough. Where some NZ ISPs advertise a global mode that facilitates subscribing to Netflix, the Censor's Office reckons they're complicit in helping the importation of films that haven't been rated. I would have thought that 122 (3)(b) and 122 (4)(b) meant that ISPs couldn't be liable, but I'm not a lawyer.

And so it's all rather interesting that The Film and Video Labelling Body has weighed in on the Censor's Office's legal run against Slingshot and Orcon.

The Film and Video Labelling Body, an incorporated society whose members include the likes of Sony, Universal, Paramount, Spark and The Warehouse, does most of the legwork involved in issuing labels to non-R-rated films.

Operations manager Sharon Rhodes said it expressed concern to the Office of Film and Literature Classification about online services bypassing the New Zealand labelling system early this year, but had not specifically mentioned Slingshot or GlobalMode.

Spark, which launched online television service Lightbox in September, had raised concerns with the labelling body last year, she said. "I brought it up at our annual meeting in May and members were pleased to see it was something we were looking into."

Rhodes said she agreed with the chief censor's view that Slingshot had breached the Films, Videos and Publications Classification Act by offering GlobalMode as a means for New Zealanders to access services such as Netflix.

The cleanest solution? Fix the law so that a New Zealand classification is no longer required. Require instead that films carry the rating of any country's classification office from some list of countries whose classification decisions generally seem to make sense, or that tend to correlate strongly with New Zealand's prior decisions. It makes no kind of sense that a small country should re-classify every movie for the New Zealand market; we should be relying on others' work here.

Tragedy of the AntiCommons: reviewer veto edition

Shaun Hendy reports on an accidental experiment in the effects of the number of referees on grant decisions.

In mid-2012, the newly formed Ministry of Business, Innovation and Employment (MBIE) inadvertently conducted such a trial, albeit by accident. When it assessed the quality of the funding proposals that it had received, the Ministry failed to ensure that each proposal received an equal number of external peer reviews. Some proposals received just a single peer review while others received up to four.

As I wrote in a post last year, this exposed their funding decisions to a potential bias. Even if two proposals were of equal merit, the proposal that by chance received more reviews would also be more likely to have at least one negative review. A cautious Ministry might be reluctant to fund proposals that received a negative review, even if all others were positive. Proposals that received more reviews would then be less likely to be funded than equally good proposals that, by chance, received fewer.

Indeed, more than a third of the proposals that only received one review were funded, while only one quarter of those that received two or more were successful. Was MBIE too conservative in its funding decisions?

To answer this question, we need to know how likely it is that this could have been generated by chance in the absence of bias. It turns out that without bias, one in every twelve funding rounds would produce such a skewed result, so while one might be suspicious, the data does not allow us to draw a solid statistical conclusion. Nevertheless, this example illustrates how we might use randomness to evaluate the effectiveness of our decision-making processes.

Hendy's post is excellent throughout, including some assessment attempts on the productivity of Marsden grants. He writes:

Closer to home, Adam Jaffe, Director of Wellington-based Motu Economic and Public Policy Research, is currently undertaking a similar study of Marsden funded projects. Using the discontinuity regression method, Jaffe is comparing the subsequent academic performance of those who just made it over the threshold for funding to that of those who just missed out*, on the assumption that differences in the quality of proposals and teams that are being compared will be small. Proposals that just missed out on funding are effectively being used as a control group for those that just made it.

Once the study is complete, Jaffe will be in a position to estimate the scientific impact that a Marsden grant generates. If he finds that the Marsden allocation process suffers from the same problems as that of the NIH, the fund may be able to take steps to improve this process and thereby increase its impact.

While that could tell us the output effects of winning a Marsden grant, it would be a really big mistake to aggregate up from that figure to the overall effects of the Marsden system. Why? The also-rans invested enormous effort into the grant-seeking process, some of which is then sunk on the grant's failure. So we start by overestimating the effects of the Marsden grant: the relevant counterfactual ought to be equally capable research teams who didn't bother applying for Marsden.

Second, even if there were a strong productive effect on those teams receiving funding, it's still possible for the system as a whole to be a waste: if total investments in grant-seeking exceed the returns from the granted projects, then the system does net harm. One study found that Canada's Natural Science and Engineering Research Council grants do net harm on this kind of basis.

I've watched colleagues put weeks of work into Marsden applications that went nowhere. I've seen the College run huge time-consuming workshops on how to improve your Marsden grant applications. Outcomes, at least in Marsden's Economics section, seem to be random-draw with weighting towards prior recipients. After being part of three unsuccessful Marsden applications from the Department and observing how the thing seemed to work, I concluded it a mug's game and not worth the effort. But because universities put just tons of weight on Marsden grants as compared to industry funding, people still invest in those lottery tickets.

It would be interesting to calculate NZ academia's collective person-hours invested in Marsden applications, both by applicants and by the reviewers. That time cost has to be part of any honest assessment of the system.

Occupational licensing: NZ Edition

David Smith points out that New Zealand isn't as pure as I'd like. In comments over on last week's post on New Zealand's generally "less stupid" policy stance, he wrote:

Eric,I'm afraid your comment on NZ occupational licensing is not correct. You can see the official list here.This just refers to regulations that have a specialist body. (Even so, it includes Real estate agents!) You will find many interesting anomalies in the way these organisations work. For instance, of particular interest to a Cantabrian would be the building regulatory bodies that have set up a system that means the average age of an apprentice is 28 (twenty eight). There is no overview whatsoever of how these bodies go about their regulatory task. Such overview is not about specialist knowledge, but simply asking those organisations how they implement legal obligations to protect consumers. e.g. I do not know how to be a dentist, but they could be obliged to show how they assess patient safety and the criteria they use to decide whether or not a procedure could safely be done by a non-professional. No regulatory body in New Zealand is asked to do this.However, this is scratching the surface. The two tricks in New Zealand are highly restrictive "health and safety" laws that in practice exclude many low skilled people from jobs because they have not done low value courses costing a few hundred dollars. Low cost to you and me, high cost to a kid on welfare if they have no guarantee of a job. The other restrictions are demanding academic qualifications. Three decades ago it was possible to be an an academic with a masters degree. Now a PhD from an overseas university is needed. That's what I call a restrictive practice!

David Smith

Here's the list provided by Immigration NZ:

SM19.5 Occupations requiring registration

In New Zealand registration is required by law in order to undertake employment as one of the following:

Architect Barrister Barrister and solicitor Cable jointer Chiropractor Clinical dental technician Clinical dental therapist Dental hygienist Dental technician Dental therapist Dentist Dietitian Dispensing optician Electrician Electrical appliance serviceperson Electrical engineer Electrical inspector Electrical installer Electrical service technician Financial adviser

Immigration adviser Line mechanic Medical laboratory scientist/technologist Medical laboratory technician Medical practitioner Medical radiation technologist Nurses and midwives Occupational therapist Optometrist Osteopath Pharmacist Physiotherapist Plumber, gasfitter and drainlayer Podiatrist Psychologist Real estate agent Cadastral (land title) surveyor Teacher Veterinarian

I last week also discussed how doctor licencing in New Zealand works to support what's effectively a cartel.

I don't know how binding a barrier any of these licensing requirements prove in practice. It would be a pretty interesting research project for someone like the New Zealand Initiative to find out. But in all of these with which I've had any experience as consumer, the barriers here seem lower than those in the States, with evidence mostly coming from prices.

Here's one example. Dentists are pretty cheap here relative to the US. I typically pay about $150, including GST, for me and the two kids when we get a check up and cleaning - we have no dental insurance, and there's no kid subsidy.* This survey of NZ dentist fees says an exam and x-ray is $95 and a filling is $160. Susan had a root canal, under sedation, for about $600. Dentistry is an undergrad degree here with a registration exam after your degree. In the US, it's a graduate degree after a biology-heavy undergraduate programme. Here's the US recommended undergrad prep for entry into dental school. Raise the entry bar, you lower the number of people passing through and so hike the fees.

Dentistry still does have restricted entry: the only school in the country allowed to teach it is Otago, and they only take 54 domestic students per year. But foreign dentists are allowed to practice here; I have no sense of how onerous the examination and registration requirements are for those wishing to do so.

While I agree with David that we'd do well to have a much better sense of the scale and severity of occupational licensing here, it's also worth noting that the problem's really rather worse in the States. Colorado's list** includes acupuncturists, addiction counselors, athletic trainers, barbers, funeral home operators, massage therapists, private investigators and social workers, for example. Don't try braiding people's hair for money in Utah, or many other states. Here's the Reason Foundation's work on occupational licensing. Kleiner and Krueger estimated that 29% of employed Americans were fully licensed by the government for work in their profession; licensing brings a 14% wage premium. I wouldn't be surprised if the wage premium in New Zealand were on that order, but I would be pretty surprised if the proportion of Kiwis working under occupational licensing were over 20%.

File under future honours projects.




* There is a no-cost-to-patients dental service for kids, but we don't use it. We don't want to clog up the public system when we can afford to pay and I don't want the hassle of having different appointment times for me and for the kids. For a while, we kept getting voicemail from the government-provided dental service. They sounded pretty annoyed that we're not using their service. I'd left a message on their voicemail saying the kids are with our family dentist; that didn't stop the calls. I don't know whether our message didn't get through to them or whether their KPIs involve having all kids seeing a government-provided dentist rather than just seeing a dentist. There's also cheaper medical visits in general for those qualifying for Community Services Cards, eligibility for which is based on household income. The price I'm quoting is the full-price, no-subsidy version.

** Not trying to pick on Colorado: they just came up first on a Google search.

Unstable equilibria: Conan Doyle edition

Gordon Tullock saw the equilibrium in Competing for Aid: the most pitiable beggar will be the one drawing the rent, and so all will compete to be the most pitiful.

Conan Doyle didn't. From The Man with the Twisted Lip's dramatic climax (spoiler alert for those who haven't read it):

“You are the first who have ever heard my story. My father was a schoolmaster in Chesterfield, where I received an excellent education. I travelled in my youth, took to the stage, and finally became a reporter on an evening paper in London. One day my editor wished to have a series of articles upon begging in the metropolis, and I volunteered to supply them. There was the point from which all my adventures started. It was only by trying begging as an amateur that I could get the facts upon which to base my articles. When an actor I had, of course, learned all the secrets of making up, and had been famous in the green-room for my skill. I took advantage now of my attainments. I painted my face, and to make myself as pitiable as possible I made a good scar and fixed one side of my lip in a twist by the aid of a small slip of flesh-coloured plaster. Then with a red head of hair, and an appropriate dress, I took my station in the business part of the city, ostensibly as a match-seller but really as a beggar. For seven hours I plied my trade, and when I returned home in the evening I found to my surprise that I had received no less than 26s. 4d.

“I wrote my articles and thought little more of the matter until, some time later, I backed a bill for a friend and had a writ served upon me for £25. I was at my wit’s end where to get the money, but a sudden idea came to me. I begged a fortnight’s grace from the creditor, asked for a holiday from my employers, and spent the time in begging in the City under my disguise. In ten days I had the money and had paid the debt.

“Well, you can imagine how hard it was to settle down to arduous work at £2 a week when I knew that I could earn as much in a day by smearing my face with a little paint, laying my cap on the ground, and sitting still. It was a long fight between my pride and the money, but the dollars won at last, and I threw up reporting and sat day after day in the corner which I had first chosen, inspiring pity by my ghastly face and filling my pockets with coppers. Only one man knew my secret. He was the keeper of a low den in which I used to lodge in Swandam Lane, where I could every morning emerge as a squalid beggar and in the evenings transform myself into a well-dressed man about town. This fellow, a Lascar, was well paid by me for his rooms, so that I knew that my secret was safe in his possession.

“Well, very soon I found that I was saving considerable sums of money. I do not mean that any beggar in the streets of London could earn £700 a year—which is less than my average takings—but I had exceptional advantages in my power of making up, and also in a facility of repartee, which improved by practice and made me quite a recognised character in the City. All day a stream of pennies, varied by silver, poured in upon me, and it was a very bad day in which I failed to take £2.

“As I grew richer I grew more ambitious, took a house in the country, and eventually married, without anyone having a suspicion as to my real occupation. My dear wife knew that I had business in the City. She little knew what.

If one could have earned a great living in London by being an excellent object of pity, other beggars would have used self-mutilation as substitute for our Mr. St. Clair's make-up skills; it must then have been St. Clair's particular rhetorical skills that drew the rent. Perhaps St. Clair is better considered a busking performance artist in a winner-take-all market. But it still seems a pretty unstable equilibrium.

Pernicious housing equilibria

Homeowners are the worst.

Living in cities lets us reap the benefits of agglomeration: being near others in similar or complementary industries makes each of us more productive. Wages are higher in cities not because of the cost of living but rather because people are more productive there - otherwise, firms would just move out to the sticks. Higher productivity in cities is what allows the cost of living there to be higher.

In the latest AEJ: Microeconomics (ungated), Ortalo-Magne and Prat build a nice little model explaining how urban homeowners manage to appropriate the agglomeration gains. They invest in housing, then vote against any policy that would allow the supply of housing to increase, whether from suburban growth or increased density. When cities can't grow up or out, prices go up.* The better the city, the stronger the incentive for homeowners to start siphoning out the agglomeration gains via restrictive housing policy. Here's their political economy mechanism:

...we assume that (i) adding a house to a city requires a building permit, and that (ii) local residents have a say (vote) on the number of permits to be issued every period. The issue of building permits affects voters through three channels. First, new housing construction reduces their housing rents for the remainder of their lives. Second, lower future rents imply an immediate drop in the price of their housing investment. Third, voters may capture some benefits from any windfall gains deriving from the new construction permits if permits are sold to developers and the revenues are used for local services (for example).

 ...We find there are stationary equilibria, where a city is below its optimal size, yet the median cohort and all older agents oppose urban growth because they have made sizeable housing investments. Agents also continue to invest heavily in housing, because they expect the majority to oppose urban growth in the future. Before they made purchase decisions, all agents would have preferred a larger city, so that housing would have been cheaper and more people could have located there but the equilibrium is sustained because the median voter is someone who already owns housing.

They find that subsidising housing encourages greater investment in housing and greater homeowner opposition to urban growth, making housing even more expensive. Other implications:

• Moving land use authority away from local governments and up to central government shifts the identity of the median voter and reduces the rentiers' power;
• Splitting up cities into multiple smaller competing jurisdictions can facilitate greater housing supply: basically, the permit fees paid by a developer are split across the smaller number of people in the smaller jurisdiction, but the capital losses from lower house prices are spread over the broader jurisdiction. 

So: don't amalgamate cities. If you do, you'll need to have a central government putting a strong boot to the throat of local councils to force them to ease up on land supply. We're starting to see some of the latter in New Zealand.

* I'm sure I stole this line from Ed Glaeser.

Competing for Aid

Don't give money to mutilated children if you want to discourage child mutilation.

Sounds terrible? It's true. At least in places where it's plausible that money induces mutilation.

Gordon Tullock explained the basic principle in his 1967 article, The Welfare Costs of Tariffs, Monopoly and Theft. Where there is some rent available, real resources will be devoted to attracting the rent. In The Cost of Transfers, Tullock made it more explicit:

Suppose that T perceives that K may make a charitable gift. Under these circumstances, he would be well-advised to invest resources in becoming a more suitable object of K's charity. ... When I was in China, I used to occasionally see beggars who had deliberately and usually quite horribly mutilated themselves in order to increase their charitable take, and I always found the mutilations inflicted a considerable negative utility on me.

In the Western world, of course, these drastic measures are not normal, but anyone who is at all familiar with people who are objects of charity must realize that they do engage in a certain amount of resource expenditure to improve their receipts. 

That was 1971.

Here's Jillian Keenan at Slate, 2013:

Tourists should never give money to child beggars we meet abroad. Not even the cute ones. Not even the disabled ones. Not even the ones who want money for school. Don't give them money, or candy, or pens. It's not generous. In fact, it's one of the most harmful—and selfish—things a well-meaning tourist can do.

Many travelers already know that when we give money (or gifts that can be resold, such as pens), we perpetuate a cycle of poverty and give children a strong incentive to stay out of school. You also may already know that giving candy to children in some areas of the world actually causes enormous suffering, since many communities do not have the resources to treat tooth decay. But the reasons to never, ever give to child beggars go much deeper than that. Organized begging is one of the most visible forms of human trafficking—and it's largely financed and enabled by good-hearted people who just want to help.

In India, roughly 60,000 children disappear each year, according to official statistics. (Some human rights groups estimate that the actual number is much higher than that.) Many of these children are kidnapped and forced to work as beggars for organized, mafia-like criminal groups. According to UNICEF, Human Rights Watch, and the U.S. State Department, these children aren't allowed to keep their earnings or go to school, and are often starved so that they will look gaunt and cry, thereby eliciting more sympathy—and donations—from tourists. And since disabled child beggars get more money than healthy ones, criminal groups often increase their profits by cutting out a child's eyes, scarring his face with acid, or amputating a limb.

Feeling good, doing harm. Even in-kind gifts can be a very big problem where they can be on-sold: the article talks about child beggars in Brazil selling milk powder given them by tourists to get crack cocaine.

None of this would have been surprising to Tullock. Jillian Keenan concludes:

So we can’t say no. And we absolutely cannot say yes. What can we say?

Find an inventive, responsible way to be kind. Recently, I’ve been traveling with a small hand stamp. When kids approach me, I put a stamp on my own hand and give them the option to do the same. I’m sure some parents aren’t thrilled to see their kid come home with a stamp on her hand—or, in the case of one particularly excited boy I met in the Philippines, directly in the middle of his forehead—but it has been a fun and minimally disruptive way to interact and prompt a few smiles, including my own. One friend of mine travels with a lightweight animal puppet and another always ties three long ribbons to her backpack and uses them to show child beggars how to make a braid. The options are endless.

The imperative to not give money or gifts to child beggars doesn’t mean we have to turn our backs on them. Donate to responsible NGOs, and look for creative new ways to be kind to children that won’t disrupt familial dynamics, encourage long-term poverty, undercut local businesses, or abet human trafficking. Be generous: Leave those coins in your pocket.

Dirty sick rent seeking

Well, this one isn't very blatant, is it?

Revelations that the workplace sickness is costing the Government millions of dollars in sick leave alongside lost productivity are behind growing calls for the introduction of a National Standard for the NZ cleaning industry.

"There are government departments spending over $1 million each year on sick leave payments which we believe can be reduced and not only provide healthier workplaces, but save taxpayers this expense," said Crest Cleans' managing director Grant McLauchlan.

Figures released under the Official Information Act that Crest has sighted, shows that the NZ Police topped the list of government departments for sick leave spending over $21 million during the 2009/2010 financial year.

Of the 58 government departments that responded to questions about costs being incurred as a result of workplace illness, 17 spent over $1 million in annual sick leave payments.

"Crest believes that there is a significant opportunity to reduce these costs and put a renewed focus back onto the health element instead of solely looking at the safety message," said Mr McLauchlan.

"Show me another NZ industry sector with an annual spend of $1 billion that does not have any minimum standards. Commercial cleaning has impact in all corners of our economy from business, to health and education. The loss to our economic output and productivity from poor hygiene practices warrants review."

Crest Clean believes New Zealand needs a comprehensive set of National Standards to tidy up the cleaning industry and is pleased that the Ministry of Economic Development is looking into this. However there is no time-frame around the introduction which is frustrating for the cleanng industry.

"With recent reports that ill-health is costing the economy at least $5 billion a year and affecting the country's productivity levels, the sooner these National Standards are introduced, the sooner we can see workers health improve and taxpayer dollars saved," Mr McLauchlan said.

That's right. Regulate my competitors out of business and save the country $5 billion in social costs! Believe me! All that's standing between New Zealand and the end of sickies is national standards and regulations on the cleaning industry!

I'm not sure I've seen a call quite as shameless as this one. Kudos to you, Crest Cleaning!