Beware the bogus claims

By Brian Gaynor

Investment

A favourite strategy of the Business Roundtable is to bring well-known overseas academics to New Zealand who have similar views to the business lobby group.

The main objective is for the visitor to receive plenty of publicity and to meet the country's important decision makers, including government ministers. Minimal publicity is given to the Roundtable's sponsorship of these visits.

A regular visitor under this scheme is Professor Richard Epstein, the James Parker Hall Distinguished Service Professor of Law at the University of Chicago.

Professor Epstein is a brilliant academic who can speak on a wide range of topics with clarity and incisiveness.

He came to this country in 1995 and 1996 and lectured on a wide range of topics including education, judges, human rights, disclosure of information, accident compensation, health care and employment law.

Professor Epstein made a return visit at the end of March when he spoke on takeover regulation, employment law, telecommunications regulation, MMP and educational theories.

The lecture on takeover regulation was held under the auspices of The University of Auckland. A small, invited group attended this address but there was no mention on the invitation or at the meeting that Professor Epstein had been brought to New Zealand by the Business Roundtable.

Professor Epstein admitted that he was not an expert on corporate law or takeovers but he believes that government should not be involved in contractual issues.

He strongly opposed the Williams Act in the United States where bidders were forced to make a pro-rata offer to all shareholders. He said he is a firm advocate of the New Zealand situation where there is no takeovers code.

He praised the New Zealand Stock Exchange for offering companies three different takeover options but claimed that it didn't go far enough - he would like to see the Exchange offer a "wild west option". In other words, Professor Epstein's utopia is a world where contracting parties could opt out of all rules and regulations.

Professor Epstein went on to say that New Zealand has the preferred takeover regulatory regime and the United States is a long way behind. He shrugged off suggestions that the vastly superior performance of the New York Stock Exchange seems to indicate the opposite.

This begs the question; is the main objective of our economic reforms to achieve positive results or to slavishly adhere to an economic ideology? Professor Epstein and other visitors sponsored by the Business Roundtable keep telling us that we have adopted the correct policies, albeit we have not gone far enough, but financial and economic statistics tell a different story.

Take the sharemarket for example. When the reforming Labour Government was elected in July 1984 the NZSE40 Capital Index (then called the Barclays Index) was higher than the Dow Jones Industrial Average. Our sharemarket index remained higher than the Dow for several years as the New Zealand market went on a wild speculative spree.

In recent weeks the Dow Jones Average has reached 10,000 while the NZSE40 Capital Index has struggled to breach 2,200. In the past five years the Dow has risen nearly three fold while the New Zealand market has been almost static.

The local market has underperformed most of the western world's markets even though Telecom has performed outstandingly well. The performance of the sharemarket reflects the strength of the economy, corporate profitability and investor confidence in the market.

In turn a strong and vibrant sharemarket provides capital for companies to expand and generate economic growth. The relationship between the sharemarket and economy is circular; a strong economy boosts the sharemarket and vice versa.

The relationship breaks down when there is a wild speculative bubble facilitated by a lax regulatory environment.

This occurred in New Zealand in the 1980s. It is totally unrealistic for overseas academics to tell us that we have a better regulatory regime than the United States. Our light handed regulatory environment was a major contributor to the sharemarket boom and bust of the 1980s. Neither the market nor the economy have fully recovered from the excesses of that era.

While on the subject of the Business Roundtable, Roger Kerr, its executive director, has written on Ireland in recent weeks. The central theme of his comments is that Ireland's economic success is not due to government intervention but to policies that are "remarkably similar to the key features of New Zealand's post-1984 reforms".

The main source of Mr Kerr's information seems to be Ireland's deputy prime minister, Mary Harney, who recently visited New Zealand.

Ms Harney is the leader of the Progressive Democrats, which is a breakaway group from the traditional ruling party, Fianna Fail. Ms Harney's party fills a similar position in the Irish political spectrum to ACT in this country. The Progressive Democrats have four seats in the Irish Parliament and form a coalition government with Fianna Fail, which has 77 seats.

When speaking about the Irish economy, Ms Harney gives it a Progressive Democrat spin. This is normal political behaviour. One would expect Richard Prebble to talk about policies brought by ACT to the cabinet table if it was a member of a coalition government.

Roger Kerr is correct in saying that Ireland's economy is open and its industries compete without protection in European Union markets. However, it is incorrect for him to imply that Ireland has abandoned its industrial policies and is now adopting New Zealand style reforms.

This is another strategy, along with its visiting academic programme, that the Business Roundtable uses to convince us that the world is following New Zealand's lead.

On the contrary, the Irish government has an aggressive policy of promoting and encouraging sunrise industries, particularly in the technology, pharmaceutical, financial services and international call centre sectors. These policies have been more successful than the hands-off approach adopted by governments in this country and this is reflected in economic statistics.

These are:

* Since our reforms began in July 1984, the New Zealand sharemarket has risen by 75 per cent and the Irish sharemarket by 950 per cent.

* The market capitalisation of the Irish sharemarket is 2.6 times greater than New Zealand's, even though Ireland's population is 130,000 lower.

* Since 1984, the Irish economy has grown by 118 per cent and the New Zealand economy by a mere 25 per cent. The performance gap has accelerated in recent years.

It is disappointing that the Business Roundtable does not invite overseas visitors with broader economic perspectives. It is also disturbing that it tries to drum up support for its policies by erroneously claiming that countries with high economic growth rates have adopted New Zealand-type reforms.

The Roundtable has made a strong contribution to the economic debate but its influence is waning because of its slavish support of an economic philosophy that has not produced the promised results.

The lobby group could restore its standing if it looked at the New Zealand economy from a wider and more realistic viewpoint. In the final analysis, it is the performance of the economy that counts, not patronising critiques by overseas visitors whose own governments are unwilling to implement New Zealand type reforms.