Insights
26 October 2012, Issue 21

In this issue:
• New Zealand and Canada: Economic fellow travellers | Luke Malpass
• Are the Finns worth following on education? | Rachael Thurston
• Measuring intrusive regulation | Bryce Wilkinson
• All things considered ...
• On the record

New Zealand and Canada: Economic fellow travellers
Luke Malpass | Research Fellow |
If New Zealand were anywhere other than right next to Australia, our current rates of economic growth, unemployment and proximity to developing global markets would be the envy of the world.

As it is, comparisons with Australia are not always useful. But there is one developed country whose problems closely resemble ours, that is worthy of comparison: Canada.

A recent Knowledge@Wharton note from the Wharton School at the University of Pennsylvania has a rich description of the Canadian economy and the challenges facing it. The parallels with New Zealand are remarkable.

Called a ‘hewer of wood and drawer of water’, Canada is as reliant on its natural resources and primary exports industry as New Zealand. Indeed, the success of Canada’s primary exports industry, combined with prudent government debt levels, has pushed the Canadian dollar to historically high levels, raising fears of the so called Dutch disease – where the success of export commodities pushes up the currency and squeezes the rest of the export sector.

Canada’s exports as a share of GDP have dropped from 45% to 30% since 2000, and its traditional primary exports comprise two-thirds of that figure.

Meanwhile, productivity in Canada continues to be poor, and private sector R&D lags like in New Zealand. The consensus is that neither tax cuts nor government support (i.e. more cash) will help the situation: Canadians simply aren’t innovating enough.

Another common problem is the lack of international brands. The number of global corporate brands held by Canadians has been steadily decreasing. (Research In Motion, maker of BlackBerrys, used to be cited as a great example of a global Canadian brand – who is buying BlackBerrys now?)

Also in common is Canada’s ageing and insufficient infrastructure. Canada has intra-regulatory issues in trade and capital flows between provinces, and external trade and regulatory issues with its larger neighbour – the United States. Trans-Tasman regulatory barriers, such as the lack of mutual recognition of franking and imputation credits, play a similar role for us with Australia.

New Zealand and Canada have much to learn from each other. It will be worthwhile watching how Canada deals with its challenges.
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Are the Finns worth following on education?
Rachael Thurston | Intern |
Around 50 years ago, the newly independent Finland identified education as a key nation-building exercise. Ever since, Finland’s public school system has been of interest to other countries.

Pasi Sahlberg, Director General of the Centre for International Mobility and Cooperation in Helsinki, is the Finnish herald of educational success. A teacher by trade, Sahlberg recently addressed PPTA and NZEI conferences in New Zealand. His non-dogmatic approach in explaining the successful reform of Finland’s education system was refreshing, but he did caution that it might not be possible to replicate its success in other countries.

All schools in Finland are publicly funded, but control is decentralised, and positive discrimination is widely practised to funnel more resources to students with greater need. In fact, more than a third of Finnish students receive some kind of early schooling assistance. The Finns adopt a ‘whatever it takes’ approach to ensure all children benefit from high quality education in their own communities.

New Zealand is also committed to equality of educational opportunity; however, results at the lower end are disappointing. Underperforming schools in New Zealand have two distinct characteristics: they are situated in poor areas and have high proportions of Māori and Polynesian students.
So while New Zealand’s education system performs well in international comparisons, the bottom 20% of students are failing.

So what lessons does Finland hold for New Zealand’s conundrum? Perhaps not many.

There is almost no ethnic diversity in Finland, and 80% of the population is Lutheran. It is an extremely homogenous society.

New Zealand is starkly different. Four significant ethnic groups were recorded in the 2006 Census: 67% European, 14% Māori, 9% Asian, and 7% Polynesian.

As a result, comparisons between a heterogeneous settler society such as New Zealand and an old homogenous society such as Finland are not to be taken lightly.

So while there are lessons to be learnt from Finland, and it would be foolish to ignore them, adopting the Finnish education system in New Zealand would be a foolhardy exercise.
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Measuring intrusive regulation
Bryce Wilkinson | Director of Capital Economics |

George Mason University’s Mercatus Center is a top public policy think tank based in Virginia near Washington, DC. Some of its 2012 publications might be of interest to readers of Insights:

• a 28-page blueprint for regulatory reform in the United States (the blueprint could be easily applied to New Zealand).
• a 27-page US policy guide highlighting the scale of the nation’s fiscal problems with the strong message that taxes cannot be increased enough to fund spending.
• a 128-page second edition of its primer on regulation. The review of theories about why governments regulate is concise and useful (chapter 2). The primer reported that federal spending on writing, administering and enforcing regulations had risen from $3.4 billion in 1960 to $60 billion in 2013, in constant 2012 dollars!
However, the really new piece of research is this: Until now, the common default option has been to use the growth in the number of pages of regulations as an indicator of the increase in regulatory intrusiveness. This approach has obvious deficiencies, and allows no industry breakdown.

Last month, Mercatus released a new text-count way of measuring by industry the burden of growth in intrusive federal regulation in the United States.

The essence of the methodology is to use computer software to count the number of words of a restrictive or prohibitive nature in each regulation in the Code of Federal Regulations. Currently, the software counts words such as ‘shall’, ‘must’, ‘may not’, ‘prohibited’ and ‘required’. These are words that anyone would associate with the finger-wagging nanny state, albeit not exclusively.

To illustrate the results, in 1997, there were 834,949 instances of these words in the register. By 2010 (the last year for which data is available), the count had risen to 1,001,153 – an increase of 16.6% in 13 years. That is an average increase of 12,808 of these finger-wagging words per year.

A major effort has gone into using word string searches to identify which industries are affected by each regulation in the code. An SSRN working paper explains the methodology.

Mercatus is calling the new database Regdata. The database is interactive and free, with videos explaining how to access and use it.

A similar research project on Kiwi regulation would no doubt be an interesting exercise.
All things considered ...
• Graph of the week, courtesy of the Daily Telegraph of London. The faces of shame: we all knew drug cheating on the Tour De France was bad, but did we know it was this bad?
• Here is why you don’t build a government monopoly, especially in telecommunications: Australia’s National Broadband Network is turning into a fiasco.
• The holier-than-thou BBC will chase corrupt priests to the grave but not pederasts in its own organisation despite widespread evidence of Sir Jimmy Saville’s proclivities.
• Do the Germans still have any gold reserves? And if so, where are they hiding them?
• The vice-minister of the People’s Armed Forces of North Korea has been shot for drinking during the official mourning period for the late leader Kim Jong Il.
• Former media tycoon Lord Conrad Black is back … and better than ever. After time in the can, he is protesting his innocence in a typically abrasive manner.
• In case you have been on Mars for the past week, the new governor of the Reserve Bank of New Zealand has left the official cash rate unchanged.
• Closing some of Wellington's streets for outdoor tables and imbibing is a good move; hopefully, the wowser brigade won’t put a stop to it.
• Speaking of anti-alcohol propaganda, don’t let the earnest British ‘experts’ on New Zealand’s liquor laws deceive you. They won’t let facts get in the way, as Eric Crampton points out.
• Dr Crampton also points out the continued use of bad statistics to support the moral panic around alcohol consumption.
• And finally, the magnificent Rowan Atkinson (Mr Bean) stands up for free speech and the right to give offence.

On the record
• Austerity? What Austerity? Oliver Hartwich, Business Spectator, 25 October 2012
• Revamping local government Oliver Hartwich (interview), Radio NZ National, 21 October 2012

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