Professor Robert MacCulloch: Are the reasons behind the Cook Straight Ferry Debacle at the Root of NZ's Cost of Living Crisis?....

Are the reasons behind the Cook Straight Ferry Debacle at the Root of NZ's Cost of Living Crisis? (Being a dearth of top shelf micro-economists in Wellington who can design incentive systems?)

Is State ownership, on top of the lawyers & accountants who've been running KiwiRail (being the just-resigned Chair & current CEO, who have law & accounting degrees, respectively) to blame for the Cook Strait ferry mess? Maybe not.

Last week the privately owned Bluebridge ferry also broke down, drifting for hours. Could there be a more fundamental problem, at the heart of our productivity & cost-of-living problems? 

In Britain, many private operators cross the English Channel, like P&O and the Stena Line. They compete with the Channel Tunnel, which is majority-owned by the French Government's National Rail SNCF. On one side lies France with 70 million people, and on the other the UK, also with around 70 million. NZ's South Island, by comparison, has 1 million people. 

What would happen if our government didn't run the Inter-island ferry and privatized it? Then you'd create a private monopoly, or duopoly with Bluebridge, which may open all kinds of (lack of) competition problems. As a consequence, you'd probably have to introduce a regulatory regime, which may itself have problems. 

Isn't this issue at the center of a swathe of market failures across the entire country, from our supermarkets (which we can't criticize anymore without risking a defamation suit of the kind that Foodstuffs, via Chapman Tripp law firm, threatened against one of my economist colleagues) to our banks, to our airports, to our building industries?

So you're damned if you privatize in NZ, and damned if you don't. We currently face either a market failure, or a State failure. Take your choice. 

There are solutions to this problem, so why hasn't the army of bureaucrats in Wellington designed them? They've had 30 years since the reforms of the 1980s. What've they been doing since, apart from criticizing the 80's reformers? 

Here's one reason no solution has been provided: there are no longer top draw micro-economists working in Wellington with the required expertise, particularly, I believe, in the fields of "mechanism design", "procurement" & "regulation", which are hard. Instead Wellington is now dominated by a management class with little specialized knowledge who want to boss around the folks in the engine room, who they call "number crunchers" and "techs". 

Worse still, this class has arisen from a non-meritocratic system, where how you talk-the-talk matters more than anything. 

Elon Musk is a geek, number cruncher and tech. So is Jeff Bezos. They're the two richest people in the world. At least overseas, things changed long ago - now it's the geeks, crunchers and techs who are the owners & bosses & management. Lawyers & accountants are just their back-room advisers. But not in throwback 1970s Wellington. 

NZ needs a culture change as to which professions are highly valued.

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.