Steven Joyce gets it right

He’s seen the light and has called for a review of the Greenplated Waterview extension project for SH20. Understandably so, as the previous PM pushed for it to be underground as a bored tunnel, the most expensive option, and only for four lanes. It would save hundreds of millions to make it a cut and cover tunnel, and save hundreds of millions more to make it a trenched route – and start recognising that it is not WORTH saving the local environment there. It is more important for people to be able to move freely around Auckland.

Meanwhile, the NZ Herald has called lobbyist Stephen Selwood, from the NZ Council for Infrastructure Development (NZCID), an infrastructure expert. Well yes, but what is the NZCID? It is a lobby group for road builders. He is there to promote more spending on roads, and that means more expensive options for them. He doesn’t want this “crucial” project delayed for rather obvious reasons, which the NZ Herald negligently forgot to note.

Well it isn’t “crucial”, it is desirable. Last time I saw a benefit/cost ratio for it, it was 1:1 and that was after some massaging and before the cost blowout. One way of looking at it is whether you’d rather have $2 billion spend on this single road, or on improving and widening other roads around Auckland (such as four laning SH1 from Puhoi to Warkworth), or you’d rather just pay less fuel tax and put up with delays. You see investigations on tolling indicated that if the road was tolled to try to recover a significant part of the costs, hardly anyone would pay it – which kind of proves how “crucial” Aucklanders think the road is. In short, they aren’t prepared to pay to use it to save 10 or so minutes, so perhaps it’s fine to have a motorway from Manukau to Mt Roskill.

Before you ask, no the private sector wont build it through its own accord. It’s far too expensive for the amount of likely users.

My expectation is that National can’t easily delay the project excessively, for political reasons, unless it could show transparently that it would be better spending the money elsewhere. Clarity may come when the Mt Roskill extension opens later this year, as we will see if queues develop between that stretch of motorway and the North Western Motorway at Waterview. That should then determine the priority for this project. However, in the big scheme of Auckland, I’d rather priority be given to upgrading Victoria Park Viaduct and the Newmarket Viaducts. They are choked parts of the motorway network that need addressing, but doesn’t this just show how poor politicians are at setting priorities?

Recycling questioned

The Daily Telegraph today reports that Peter Jones, former director of Biffa, a waste disposal company and now environmental advisor to London Mayor Boris Johnson, claims that much recycling contributes to "greenhouse gases" and it would be better burning the waste to generate electricity.

This comes on top of the collapse of the market for recycled commodities (hardly surprising). Jones suggests that kerbside recycling, which inevitably mixes different materials, effectively contaminates them making much useless for recycling.

Quite simply, recycling is a good idea when it is viable to do it. Planes and cars have always been recycled because the materials they are made of are in sufficient abundance that scrapping made sense, much like ripping up unused railway lines has often been worth it. However, your taxes shouldn't be taken to subsidise the supply of commodities to producers. Similarly you shouldn't be subsidising waste disposal. If landfills and kerbside rubbish collection were all privatised, then they would be user pays activities, required to make a profit. As a result, recycling as an alternative for some waste would be viable for those commodities that are worthwhile recycling.

THAT you see is the problem of rubbish disposal. Sadly in the UK, recycling has become a religion, because it is one in Brussels. Like many Green fads, it isn't driven by rational analysis, but a fervent belief that recycling is always good. However, when it costs more to recycle a bottle than it does to make one from scratch, you might ask yourself whether that difference is due to government interference (taxes or subsidies), or simply reflects that your premises of recycling are wrong.

WTO Director General warns of protectionism

It's hardly surprising, all of the "bailouts" funded by stealing from future taxpayers are raising alarm bells in the mind of WTO Director General Pascal Lamy.

According to Reuters, Lamy said that "it was critical to keep commerce flowing at a time when overall economic growth slows. "It has become more urgent for the WTO to strengthen multilateral disciplines that will reduce the scope for increased trade restriction," he said, repeating his call for countries to finalise the Doha round, a global free trade accord that has been under negotiation since 2001".

The WTO has noted a growing list of countries whose response to the recession is to further hinder trade - when the last time this was done, in the 1930s, the result was disastrous.

Some of those measures include:

-- India raised tariffs on some imported steel products

-- Ecuador raised tariffs on 940 products including butter, turkey, crackers, caramels, blenders, cell phones, eyeglasses, sailboats, building materials and transport equipment

-- Indonesia limited the number of ports and airports serving as entry points for certain imports, such as electronics, garments, toys, footwear, and food and beverages

-- Argentina imposed licensing requirements on products such as auto parts, textiles, TVs, toys, shoes, and leather goods

-- The European Commission said it would re-introduce export subsidies for butter, cheese, and whole and skim milk powder.

The Greens call this "economic sovereignty" when it is only sovereignty for the state, not for those producing or consuming - they get no choice.

It is critical that John Key fight hard to push for a renewed Doha Round, and for the Obama Administration to listen. Sadly, it has precious few credentials from any who believe in free trade, unlike the Bush Administration. Not that the Obamaphiles noticed or cared.

Roads under National

So the excitement in Auckland has been with the opening of the “Northern Gateway” toll road, previously known as ALPURT B2 (Albany Puhoi Realignment) which basically means State Highway 1 bypasses Orewa. All good stuff, although we will soon see whether the financials as a toll road stack up. You see, oddly, the motorists using the toll road wont actually pay a cent to pay for the systems installed to charge them. Fuel tax and road user charges paid for the tolling system, because (shhh) the finances behind tolling under the last government didn’t exactly stack up. Nevertheless, it is good to see a road where users actually will pay directly, as well as indirectly. Don’t worry, half the cost of the new motorway has been paid for by fuel tax and road user charges, like all the others.

However, the opening was marred slightly by the chronic congestion on the highway NORTH of the new motorway. So what will National Minister Steven Joyce do? Well, as you’d expect, I have a hoard of advice for him, far too much to put on this blog (thank god! You all say), so just about roads and just about now, here are some thoughts. No it’s not libertarian, but within the confines of what’s likely under this government.

1. Do some reading. Ask your officials for a copy of the Roading Advisory Group reports, and a report called the Land Transport Pricing Study. It will explain to you why, fundamentally, running roads and funding roads in a bureaucratic, tax and spend model, will ALWAYS mean significant inefficiencies, including congestion, overspending in some areas and underspending in others. It also foretold of many of the problems of the last ten years. Quietly talk to Maurice Williamson about it. In 1998 the Economist said “If roads continue to be operated as one of the last relics of a Soviet-style command economy, then the consequence will be worsening traffic jams and eventual Bangkok-style gridlock.” New Zealand is experiencing that.

2. Cut back on greenplating. Some of the big road projects that are in the pipeline have been grossly overdesigned, and are gold plated (or green plated) solutions to bottlenecks. The big ones that need your attention are:
a. Waterview extension of SH20. It no longer goes through the Prime Minister’s electorate. It doesn’t need to be a bored tunnel, you could save hundreds of millions by delaying this another 6 months to get it scaled back to something sensible.
b. Victoria Park Tunnel (SH1 central Auckland). This was once going to be simply a duplication of the Victoria Park Viaduct, but the ARC demanded it be a tunnel (local government again!). Diving into a tunnel before rising at quite an incline to spaghetti junction is madness. You can save a good hundred million or so by getting rid of the tunnel. An Auckland Harbour Bridge toll could pay for this of course.
c. Transmission Gully. You already know this one. The problem has largely gone with much cheaper improvements, the bigger problem north of Wellington is through Kapiti and north to Levin. You need an independent review of this as it is one thing that gets Peter Dunne’s knickers in a twist, but basically you’ll save around NZ$400 million by developing the current route. However, more kudos by looking to Kapiti and the north, it needs attention that has been neglected.

3. Think local. One of the biggest areas of neglect is local roads. Local authorities are often tight on spending ratepayers’ money on roads. It needs care as your problem is making councils accountable for spending road taxes central government collects. So longer term you need reform of the Local Government Act and for local roads to be run by commercial entities, partly funded by property access fees (instead of rates), but in the meantime you need to increase the Financial Assistance Rate for local road improvements with a high benefit cost ratio (over 3:1). 75% would make a big difference. Don’t forget, most congestion in Auckland is on local roads.

4. Cut subsidising slow modes. Your easiest tool to change spending are the priorities you can set for the National Land Transport Programme. There are lots of pet diversions Labour introduced into it that should go. This includes regional development, community focused activities, domestic sea freight and the way passenger transport is subsidised. Look at how you can slash much of this, and consider a more fundamental review of the role of government in public transport. The subsidy per passenger carried has been soaring under Labour, you might want to cap this in real terms at least.

5. Bring back efficiency. You know you don’t know what road projects should come first, local government doesn’t know much better. Get the NZ Transport Agency to change its funding allocation criteria to more strictly apply economic cost-benefit analysis. Projects with a cost-benefit ratio less than 2:1 shouldn’t go ahead. You’ll find that the best new road spending is on small projects to straighten bends, passing lanes, widen existing roads and fix bad intersections or bridges. You’ll find some big new roads you CAN advance that are worthwhile. In Auckland that means Newmarket Viaduct, in Waikato it means Te Rapa Bypass, etc.

6. Be creative with the private sector. Don’t get tied down to the acronym PPP. You’d be better off leasing off a stretch of state highway to the private sector for a very long period, such as the Northern Motorway from Spaghetti Junction to Constellation Drive, with the ability to toll, and let it finance improvements and a second crossing. In other words it will happen when it is worth doing, not when politicians think it is worth doing. Beyond that, simply tell the private sector it can build a new road and toll it as it sees fit, and government will allow its roads to interconnect with them. It works in the US, and in France, yes France, most highways are built and financed by commercial road companies.

7. Let priorities be set nationally not locally. Get rid of R and C funding for future NLTPs and reallocate future funds on a national priority basis. Local government shouldn’t be setting priorities with centrally collected taxes. Consultation is enough, and Labour used R and C funding to vote buy. A good funding system allocates funds where they are best spent.

8. Consider ways of letting motorists contract out of road taxes to pay directly. The trucking sector wants it replaced with diesel tax, but that’s because government doesn’t enforce it well and charges could be applied more fairly by weight and location. However, to address this properly you need more private sector involvement, and for highways to be run more on commercial lines. You should let local authorities approve heavier trucks than currently allowed, as long as they charge them for it and use the money to offset maintenance costs.

9. Funder and provider shouldn’t be the same. Start planning to split up the NZ Transport Agency back into a Highways Authority and a Funding Agency. It makes it easier to hold the Highways part accountable, and then make sure the Highways part seeks funds, and doesn’t expect funds. You can also allow it to borrow, toll and enable truck operators to opt out of paying road user charges to government, and pay them directly to road operators.

Finally, most of all, consider almost everything the Greens say about transport and remember almost always the opposite is true. Labour did, to be fair, boost spending on roads enormously in the last nine years. Now you can go open some of the roads funded under that regime and people will think things have improved. This is the part of the transport sector needing the most attention, and one which Labour spent not enough time on.

Oh and the other modes? Here's a quick and dirty guide:

Rail? A disaster ready to suck money from the state. Once you've got a few more months under the belt, then worry about this bottomless pit for money. Some hard decisions are going to have to be made about this one. Auckland will be first in line begging for a fortune to gold plate its system, you might want to get some independent review of its business case figures, just to see how bad it really is. Wellington's rail is already funded, you needn't worry about it.

Air? It's pretty much ok, maybe the big challenge is that Air NZ could do with some capital longer term, but at the moment it wont be coming from anywhere. Don't worry too much about this mode.

Sea? Ports and shipping will tick over nicely, Labour spent too long trying to placate protectionist moves from unions and shipping firms over foreign competition. Throw anything about that in the bin.

Davos Economic Forum? Why bother

There is not inconsiderable hype in the business world and among some in governments about the annual exercise in mutual onanism called the Davos Economic Forum in Switzerland. Like many conferences of high profile people, one of the key objectives is to get people to agree and put out nice sounding statements that will offend no one and look like some enormous intellectual capital has been applied to the economic issues of the world.

Quite simply if you look at the 2008 World Economic Forum it will speak to you in abundance about how little intellectual capital is applied - after all, that Forum hardly predicted the worst recession since WW2. You can get the Summit report yourself here (pdf) and read it.

The most it said was "the unfolding financial crisis should be viewed as a chapter in a much larger, more profound story – the rebalancing of global wealth away from the West and toward the emerging economies of Asia and the Middle East" except, of course, that the recession is global. Oops didn't see that coming, that export led economies can't grow without anyone buying their goods.

If you don't like buzzword cliche phrases, then don't read this with a meal. This statement should be enough to provoke cynicism:

"Fourteen global CEOs and company chairmen representing a range of industries and regions
issued a call to their peers to join collaborative efforts to strengthen public governanceframeworks and institutions as a core element of their approach to corporate citizenship."

However, what's most telling are the "achievements" of the forum, which, barring one initiative, would do next to nothing for the global economy. These are:

- Japanese Prime Minister Yasuo Fukuda unveiled a five-year, US$ 10 billion fund to support efforts in developing countries to combat global warming (apparently forgetting this is an economic forum);
- Agility, TNT and UPS, three leading logistics and transport companies, are joining forces to help the humanitarian sector with emergency response to large-scale natural disasters (nice, but this isn't economic is it);
- The World Economic Forum launched a landmark report on the interfaith dialogue between Muslim and Western societies. Islam and the West: Annual Report on the State of Dialogue (oh nice, a book);
- The World Economic Forum released the first part of the most comprehensive investigation into private equity: "The Globalization of Alternative Investments Working Papers Volume 1: The Global Economic Impact of Private Equity Report 2008" (nice another book);
- Mayors, regional governors and the private sector launched the World Economic Forum’s SlimCity Initiative, an exchange programme between cities and companies to support action on resource efficiency in urban areas, focusing on energy, water, waste, mobility, planning, health and climate change (yes noticed how well cities run anything they touch? Yep congested roads, undermaintained water supplies, first class health care systems);
- British Prime Minister Gordon Brown, Microsoft Chairman Bill Gates, Irish musician Bono et al issued a joint statement vowing to make 2008 a turning point in the fight against poverty. (well it certainly turned out to be a turning point. Just as politicians, businesspeople and musicians get together, economies start folding inwards);

Ok enough. Besides a few privately led development initiatives, it was onanism on a grand scale.

What the forum COULD do is be a platform to actually point the finger at some of the most appalling actions by government globally. So while the Davos Forum gets ready to be held, here are a few tips for those who are going- if they can put away their onanistic business consultant speak for a few days:

1. For many developing countries it is corruption, rank, explicit, corruption that destroys the ability of citizens to produce and retain wealth. War needs to be declared on this, as this IS unfair distribution of wealth, because it is governments granting privilege to those who pay them off. Failing to note this corruption, which also exists in wealthy countries, is ignoring one enormous elephant in the room.

2. It is property rights that need defending and protecting, but the World Economic Forum says nothing about that, as so many countries either have little notion of it (as in African kleptocracies) or sacrifice it for expediency (US concept of eminent domain). Without property rights, creating and producing wealth becomes a momentary exercise for immediate consumption. The lack of property rights, protected by a free, open and uncorrupt government, is the number one reason so many countries stagnate.

3. It is free trade that needs advancing and yes, protection. The damnable procrastination of the EU and Japan, and to a lesser extent the USA, in protecting agricultural markets, subsidising farmers and dumping their subsidised goods on world markets helped exacerbate the crisis in food prices in 2008. If governments could push for a multilateral liberalisation of trade in primary products and services, then it could spark off some recovery - like the GATT did in liberalising trade in manufactured goods in the 1950s and 1960s. Forget collaboration, businesses need to tell governments to get the hell out of the way - let those inefficient French farms fail.

4. Finally, it is the wealth shredding obsession with unpriced environmentalism, that is sucking productivity out of economies in developed countries. Recycling commodities that are worth little, taxing car parks to discourage car ownership, in essence spending more directly or indirectly for the environment than the benefits people get from that spending. It is an abominable trend in policy that the evangelism of environmentalism has hardly been challenged by objective analysis.

However, that would require confronting the countless vested interests, NGOs, businesses, governments and labour leaders who wouldn't like it. So instead Davos will be a lot of nice words, and talk about collaboration, working together, synthesis, co-operation, understanding, investing, refocuses, refreshing, rebuilding, blah blah. You see it is explicitly politically neutral, which of course can only take you so far when politicians and their lackeys are the problem.