Opinion: Yet more political grandstanding over foreign ownership

GUEST OPINION

Democracy is a very fine thing, yet is worth dying for, and it is humbling to think of all those who have.  

Yet general election campaigns do not bring the populace's best instincts to the fore. Instead we commonly see "what's in it for me" greed, "soak the rich" envy, fear and xenophobia (masquerading variously as compassion), fairness and the national interest. This time we can add disgraceful personal vindictiveness.

New Zealanders' prosperity greatly depends on access to world markets for goods and capital. Both inward and outward foreign investment help strengthen these links, particularly with respect to technology, knowhow and market access. 

Yet last week saw unsavoury grandstanding over the planned sale of a 13,483ha farm near Taupo, Lochinver, to a Chinese firm, Shanghai Pengxin. 

Conservative Party leader, Colin Craig, was reported as saying that it would be "a tragedy to lose it to a foreign business interests."

New Zealand First leader Winston Peters reportedly said he would "put a stop to sales of land and houses to non-residents." 

Labour Party leader David Cunliffe would stop the sale because "we don't believe it would add value to New Zealand." He also said all purchases by foreigners of farmland over five hectares would be restricted but later apparently excluded Australians – at least for the moment.

Green Party leader Russel Norman baldly asserted that selling farmland to foreign investors increases environmental degradation. He introduced a member's bill in 2010 that would rule out overseas ownership of farmland over five hectares.

As one colleague humorously observed, "we" hate foreign money coming into New Zealand and "we" hate it when foreigners take their money out, for example as expatriated profits.

Perhaps it would be judicious here to remind international investors that National Party leader and Prime Minister John Key defended the planned purchase "as long as due process is followed." He has also tried to explain to the electorate the importance for local job prospects of foreign investment generally, whether from "China, Germany, the United States or Australia."

ACT party leader Jamie Whyte also came out in support, pointing out that this was a debate about the right to sell one's own property. "Private property is the foundation of a liberal and prosperous society. All political parties in New Zealand except ACT and National now reject it."

Anyone who thinks this is a bit extreme might note that New Zealand's Legislation Advisory Committee Guidelines unreservedly acknowledge that "the protection of property is generally regarded as one of the fundamental values of a liberal society."

The guidelines also raise the question of the acceptability of legislation that takes away a property right without providing for compensation. The Public Works Act, for example, has always provided for compensation where private property is taken or impaired for public works.

Environmentalists usually support the compensation principle – in the form of the 'polluter-pays' slogan. Another widely-accepted principle is that those who benefit should pay. 

Economists have usually been the strongest advocates of arrangements that confront those who want a resource to be put to a particular use with the forgone benefit to others from alternative uses. 

Competitive bidding situations, such as property auctions, do this. They force each bidder to assess whether the benefits of ownership outweigh the costs of out-bidding everyone else. This is a 'for real' cost-benefit analysis in action. 

Tellingly, none of those clamouring to deprive the owners of Lochinver of the gain from selling their farm to Shanghai Pengxin appear to care a fig about the cost that would impose on the owners. 

People don't have to care about the cost when they are not confronted with it.  Labour has made it clear that it has no intention of addressing the compensation question. That approach favours unfair majoritarian exploitation.

A fair and principled way to stop the sale would be to make the national interest case, invoke the Public Works Act and purchase the property, paying the vendor full market value.

But can such a national interest case be made? At least two commentators have tried – unconvincingly. Rod Oram, in the Sunday Star-Times, ignored the benefit to the New Zealand vendor, effectively assuming the farm was being gifted to the Chinese. No rational commercial or economic analysis would ignore this benefit.

The other commentator, David Atkinson, writing at interest.co.nz, did at least recognise that the seller must benefit but opined that this would only benefit New Zealanders if "most of it will end up being spent in the local economy." Again this makes no commercial or economic sense. New Zealanders' overseas investments do benefit New Zealanders.

Both commentators feared that vertical integration might give Shanghai Pengxin efficiency gains. Neither considered that New Zealand might have captured this benefit in the selling price, because other potential bidders could also see the potential gain.

Unhappily, the criteria for assessing benefits and costs in the Overseas Investment Act also exclude consideration of the primary benefit from any sale – the benefit to the New Zealand vendor.   That makes a recognisable national interest test impossible.

The New Zealand Initiative's 2014 report Open for Business: Removing the Barriers to Foreign Investment addressed this problem. Its recommendations included amending the act to ensure that the New Zealand vendor's gain is counted as a national benefit, creating a presumption in favour of the proposed transaction, and better protection for private property rights.

After all, the proposed transaction must benefit both parties, otherwise it would not occur.  There needs to be a robust case for depriving them of those benefits. Populist prejudice doesn't make the cut.

Bryce Wilkinson is senior research fellow at The New Zealand Initiative.