Nicholas Kerr: A Eulogy to Sir Ron Trotter by My Father

I came across the eulogy Dad [Roger Kerr] gave at Sir Ron Trotter's funeral almost 10 years ago - and thought you might be interested...

Reflections on a Life Well Lived 

- Tribute to Sir Ron Trotter

Eulogy by Roger Kerr, Old St. Paul’s, Wellington, 17 August 2010

Margaret and the family have asked me to reflect on Sir Ron’s role in business and public affairs and I’m honoured to do so. 

Roger Kerr: Anyone for Another Vote?

New Zealanders don't get to vote very often about parliamentary matters.  On 26 November we get to vote in the general election and on the future of MMP.  We can be thankful that we live in a country with such firmly rooted democratic freedoms.

Yet some countries, such as Switzerland and the United States, provide greater opportunities for voters to participate directly in democracy than occurs in New Zealand.  Might New Zealanders be better off with more of a direct say in key parliamentary decisions?

Roger Kerr: Does Workfare Work?

Work-for-the-dole or ‘workfare’ schemes frequently appear on the menu of measures considered by welfare reformers. Indeed the Welfare Working Group proposed one in its final report, currently being considered by the government as part of its election manifesto. Do such schemes work, and what are they intended to achieve?

Work-for-the-dole usually entails continuation of a benefit payment in return for undertaking some community service activity. The idea often finds favour with taxpayers who want both a return for their money and a moral, mutual obligation enforced.

Roger Kerr: Lessons for Government from Household's Investments Management

At any point in time a household has a collection of assets that it owns – a house, a car, an interest in Kiwisaver, or maybe a some shares or a rental property.  Few people think of their portfolios as fixed forever.

Central government has a range of assets which is much more arbitrary.  Leaving aside those that it would not contemplate selling, like roads, the government has a jumbled collection of assets that reflect history rather than an assessment of the government’s needs in today’s economy.  The same is true of local government.

Roger Kerr: No Need to Idolise the Rich

Reflecting recently on his experience as a philanthropist, Microsoft founder Bill Gates spoke about the relative failure of his efforts to promote so-called renewable sources of energy. He told Wired magazine that it was ‘cute’ and ‘kind of cool’ to have solar panels on your roof, but that the economics were ‘so, so far from making sense’. And yet, he acknowledged, that’s where the subsidies are going now. Asked if that meant there’d be no solar cells on the roof of the Gates family residence, he replied “Oh, we like to be cute like everyone. For rich people, this is OK.  Rich people can do whatever they want.”

This prompts several observations.  For a start, we should not idolise the rich. We should acknowledge that the rich can spend foolishly and self-indulgently, just as they can be wise and generous philanthropists.

Roger Kerr: The Diabolical Student Loan Problem

The student loans scheme was introduced in 1992. It provided loans to tertiary students for tuition fees, and course-related and living costs. The loans were repayable (at the rate of 10 cents in the dollar) only when the borrower's income exceeded a threshold.

The scheme has become hugely politicised and concessional since then. During the 1999 election campaign the Labour Party promised to remove all interest charges while borrowers were in full-time study. In a more outrageous election bribe, the Labour Party promised in 2005, apparently against the objections of finance minister Michael Cullen, to make the loans interest-free over their entire life, provided the borrower resides in New Zealand.

Roger Kerr: Have Business Leaders Lost their Mojo?

I was struck by a recent ‘economic state of the nation’ article by award-winning business journalist, Jenni McManus. The article was a kind of valedictory for McManus, one of this country’s finest journalists, who recently left the media for the corporate world. Her article reported on a survey she had done of the off-the-record views of 40 business people and industry sector leaders on the government’s management of the economy over the past three years. Collectively those interviewed, or their members, employ hundreds of thousands of people in more than 100,000 companies.

Those surveyed, on average, gave the National-led government five out of 10 for its management of the economy during the past three years. I was one of those surveyed and that also happened to be my score. The survey revealed “a widespread perception that the Government has squandered the huge mandate for change it was handed at the 2008 election, opting for timid and incremental tinkering around the edges instead of tackling the big – and contentious – issues such as tax reform, superannuation and welfare.” Respondents had “no confidence" that the Government had a clear economic vision.”

Roger Kerr: From Passive to Conditional Welfare

Recently John Key announced plans to introduce a form of what’s known in the world of welfare as income management.  The hands-on approach, targeting ‘disengaged’ 16 and 17 year-olds and teen sole parents, would put oversight of their benefits into the hands of private sector social service organisations. A ‘competent adult’ would provide intensive mentoring in life skills such as budgeting and parenting, manage the young person’s bill payments and rent, and ensure they were in education, training or work-based learning. Money for basic living costs would be loaded on to a payment card that could only be used on food and other necessities and not on things like cigarettes and alcohol.

While the move is undoubtedly paternalistic, the state is in effect being asked to be father and mother to these teenagers anyway.  And who could argue that it makes sense to hand a bundle of money over to an at-risk young person already in difficulties and with few positive role models in their lives, and expect them to manage it well?

Roger Kerr: Education - for many there is no choice

Recently the Maori Into Tertiary Education (MITE) Summit brought together 200 Auckland tertiary education providers to tackle the problem of young Maori dropping out of school with little or no qualifications.  They noted that of Maori who started secondary school in Auckland in 2004, well over half had left before completing five years, and little more than 10 percent went on to do any tertiary study.  

Across the country and all ethnic groups, Maori have the lowest rate of achievement of basic numeracy and literacy standards and the highest rate of dropping out of school with no qualifications.  But the problem is not confined to Maori: far too many students in low socio-economic groups of all ethnicities are failed by our school system. Put that alongside our youth unemployment rate of 17.4 percent, Maori youth unemployment of 24.8 percent, and 62,000 NEETS (15 to 24 year-olds not in employment, education or training), and an obvious question arises: what is wrong with our education system?

Roger Kerr: Are Warnings About Minimum Wages Dickensian?

Responding to a recent article of mine on minimum wages, a correspondent to the ODT wrote, “Reading Roger Kerr’s position on the minimum wage I am left wondering if he is a real person or a character from a Dickens novel.”

My article warned of the dangers of legislating for minimum wages above market rates, and discussed the devastating effects of the abolition of youth rates. I decided to regard the feedback as a challenge: how does one get across the potentially harmful effects of minimum wages to those who see them as self-evidently beneficial?

Roger Kerr: Productivity Commission Should Examine Kiwifruit Monopoly

Every Econ 101 student learns that monopolies are bad.  They maximise profits by restricting output and raising prices.  Consumers are exploited and national income is lower than it would otherwise be. Note that it is not just a matter of a monopoly producer raising prices (above some competitive level) and reaping higher profits.  The normal supply and demand factors that determine prices continue to operate.  To be successful in raising and maintaining higher prices the monopolist has to be able to restrict supply as well.

In today’s open and competitive economy, opportunities for monopoly behaviour are few and far between.  In addition, we have laws – in particular the Commerce Act – aimed at curbing such behaviour.

Roger Kerr: Teach Your Children Well

A young family friend completing her general practitioner training at a South Auckland medical centre recently told me of a difficult task: she’d had to break the news to a 15 year-old schoolgirl that her pregnancy test was positive.  To the young doctor’s great surprise, the girl, on hearing the result, punched the air with her fist and shouted elatedly “Yes!”

How could she be so pleased? Perhaps a welcome escape from an education that was going nowhere? A chance to be ‘independent’? Something to love?  Or a way of meeting a requirement to pull her weight in a benefit-dependent household? Who knows.

Roger Kerr: Property Rights, Regulatory Takings, and Compensation

Sleeping with elephants is a risky business.  Australian car manufacturers learned this lesson again recently. In October 2008, industry representatives negotiated a $1.3 billion Green Car Innovation Fund with the Rudd Labor government.  This would have provided $1 in taxpayer money for every $3 in investment from multinational car companies, with the aim of accelerating production of locally made hybrid cars.

Last February, barely two years later, with only $400 million of the Fund spent, Julia Gillard’s government pulled the pin on the scheme – by way of a media announcement, not even a call to the companies concerned.

Roger Kerr: A Ban-Happy Country

An ingrained New Zealand characteristic is the urge to ban things that some people don’t like. Part of the urge may stem from our propensity for knee-jerk reactions to social problems. Rather than live and let live, or face the fact that the problem might be a matter of encouraging people to take responsibility for themselves, we look to the ‘gummint’ to pass a law against it.

Or it may derive from what the American journalist and humourist H L Mencken defined as Puritanism: “the haunting fear that someone, somewhere, may be happy.” Today we might call this paternalism or wowserism rather than Puritanism.

Roger Kerr: Removing Barriers to Employment

The government is evaluating the recommendations of the Welfare Working Group with a view to including welfare reform in its election manifesto.  The group’s report, launched just before Canterbury’s February earthquake, has not yet had the attention it deserves.  The 180-page report and its 43 recommendations take some digesting, but it’s worth the effort. Two strong themes run through the report: the alleviation of child poverty, and a focus on work.

The group was right to highlight child poverty and New Zealand’s sorry record in this area.  We have 220,000 children growing up in benefit- dependent households, and over half of all children are in benefit-reliant households at some time in their first seven years of life. Of 30 OECD countries, New Zealand ranks 29^th for child health and safety, 21^st for infant mortality and 26^th for injury deaths among one to four year olds, along with shameful and deteriorating rates of child health problems such as pneumonia, whooping cough, rheumatic fever and measles immunisation coverage.

Roger Kerr: If We Know What To Do Why Don't We Do It?

Last week journalist Deborah Hill Cone posed an interesting question. If we know what it takes to be a prosperous country, why don’t we do it?, she asked.

It’s certainly the case that we know what makes for prosperity.  For over two hundred years the essential nature of the ‘wealth of nations’ has been understood. Adam Smith didn’t get everything right, and economics has been refined since his time, but his basic insights into the virtues of free markets and limited government have stood the test of time.

Modern economics confirms that the key to prosperity is the institutions (broadly the rules that govern economic and social interactions) and policies that nations adopt. Institutions and policies in democracies are decided through the political process.  Thus it is how people vote that matters, and whether we choose prosperity or not depends ultimately on public understanding.

Roger Kerr: Minimum Wage Claims Make Minimum Sense

The Labour Party is promising to increase the statutory minimum wage to $15/hour (from its present level of $13/hour, an increase of over 15%) if it forms the next government. The announcement gave rise to the usual range of claims and counter-claims. Prime Minister John Key said that “if anyone thinks we can just magically increase the minimum wage with no implications for the labour market or costs to employers, they don’t understand basic economics.”

Labour leader Phil Goff argued that unemployment went down, not up, when the last Labour-led government hiked minimum wages, and that the increased spending power of workers would grow the economy. 

Some simple tests help us to evaluate these claims.

Roger Kerr: Is Tax the Rich Good Policy?

The Labour Party plans to increase the top personal tax rate on higher income earners if it wins office at the November election.

We have gone down this path before. The last Labour-led government raised the rate from 33 to 39 cents, ostensibly to gain more revenue for social spending.

The move was unnecessary. With economic recovery and reasonably prudent spending in its first term of office, that government soon found itself with large fiscal surpluses.

Roger Kerr: Government Size And Economic Growth

My reading of Treasury material in the last decade on whether high government spending harms economic growth is that size doesn’t matter in its view – the public sector can in principle spend taxpayers’ money as well as they can spend it themselves.

This view implicitly holds that the government is not constrained by problems of information and incentives.  Therefore if there is a problem it is only because not enough is being spent on ‘productive’ categories of spending and too much on ‘unproductive’ categories.  Treasury papers have also been at pains to make the trite observations that government spending can be too low as well as too high, and that the quality of spending matters, which of course it does.

Roger Kerr: Tax Changes Wide Of The Mark

In the Herald on Sunday Bernard Hickey wrote that the tax changes announced in the May 2010 budget had failed. “The company tax cut was supposed to encourage companies to invest here and employ more people.” Together with changes to personal tax, GST and depreciation, this “would bring down the budget deficit and transform the economy from a consuming and borrowing junkie into an investing and exporting powerhouse.”

“Transform the economy”?  No one made that claim.  A Treasury paper released with the budget indicated that GDP might be a modest 0.9% higher in seven years’ time as a result of the tax package.