At last, National draws a line

The government has finally showed it has a backbone as well as soaring popularity, and that these attributes are not mutually exclusive.

The changes to ACC announced this week are far-reaching and provide the opportunity to show how government-run services can be improved and how taxpayers can get a better deal.

Naturally, the barrage of media coverage ran against this proposition, as supporters of state monopolies trotted out their worst fears and, yes, the “p” word was used.

It is, as ACC Minister Nick Smith emphasises, nothing of the sort; it merely restores the limited period during 1998-99 when choice for employers applied.

When the Labour government abolished this, the scheme soon became another extension of the welfare state, leading to a boom in payouts that has taken a couple of years to unwind and threatened the future of the whole scheme.

The recent survey of Crown business assets shows ACC is the most effective manager of the lot, and its turnaround has been remarkable. The focus back on insuring against workplace accidents is also to be commended, rather than the alternative means of income support to anyone making a claim.

The private sector must play a larger role in the health sector and the new ACC model points the way forward.

While the changes will be subject to voter choice at the next election, the best way to achieve public support is by example.

The private health funds lobby says the gap between what New Zealanders pay privately for healthcare and what is the average in the OECD has nearly doubled – from 4.6% in 2001 to 8.2% in 2008. For example, Australians pay around 32% of their health costs while in New Zealand it has slipped below 20%.

This has resulted in the inevitable – New Zealand’s public spending on health is rising faster than the economy’s growth – an increase of 41% during 2004-10 – and the ability of taxpayers to foot the bill.

Beware the class warriors
When assessing whether the ACC should be based on actuarial principles or be a free-for-all with no limit on liabilities, look for arguments that emphasise the class struggle.

These have been expounded by Massey public policy academic Dr Grant Duncan:

“This issue is a symptom of the clash of class interests – those of employers and shareholders versus those of the employees who risk injury daily at work. Employers argue that they need the competitive financial incentives of an insurance contract to reduce the incidence of deaths and injuries at work. So they’re admitting that they aren’t already making every effort to protect workers’ lives and personal safety.”

By contrast, the private sector should be able to show – as in other activities – it can improve services and reduce costs.

Already, safety-conscious employers and workers are ahead with no levy rises next year and the introduction an experience rating scheme from April 1. This means companies with 30 or more employees can get a discount of up to 50% of their levy if they have good claims records, or pay up to 50% more if they don't.

Considerable overseas research shows these incentives work better than the one-size-fits-all approach and overcome most of the criticisms of ACC as buraucratic and costly.

Dr Smith is to be congratulated for choosing a path that keeps ACC as a provider alongside private competitors. By no means can be described as “privatisation.” It merely puts workplace accident insurance on the same basis as many other services, while removing a government monopoly.

Hobbit bites back
The unions and their friends must have been chuffed when they found an email sent to Economic Development Minister Gerry Brownlee from Sir Peter Jackson over the Hobbit films affair.

They took a battering from public opinion and the appearance Sir Peter was sending out contradictory signals could have vindicated their case against kowtowing to foreign film producers.

In the email, Sir Peter said there was “no connection” between the Actors Equity blacklisting of the Hobbit films and the choice of the production base.

Although no one has posted the full contents of Sir Peter’s riposte, he is reported to have said, inter alia, the blacklist was "essentially illegal" and the unions were trying to extract themselves from threatened legal action by the studio [Warner Bros]. (Come to think of it, the full original email hasn't been released, either, suggesting the one sentence chose to be quoted may not be in context.)

Anyhow, the latest email goes on:

"This face-saving conversation with the studio dragged on for weeks, and, in spite of repeated calls to lift the blacklist, NZ Equity, under the stewardship of [union boss] Simon Whipp, refused...This is why Warner Bros lost all confidence in filming in New Zealand, because they had just witnessed how a tiny and capricious union, manipulated by an offshore agency, could bring a multimillion production to its knees – for no legitimate reason."

“Worse, it was clear to ourselves and to the studio that the MEAA [union], had an agenda to unionise the NZ film industry by exploiting a grey area that existed in employment law. The change in the law, which clarified the independent contractor status of film industry workers, gave the studio confidence that the film could made in New Zealand without the threat of unjustified ongoing industrial action and for that we remain very grateful.”

Yes, as his critics allege, Sir Peter did use all his means to change the employment law to cement the nature of contracts in the film industry – and quite rightly, too.

The Khodorkovsky discount
The downward spiral of freedom in Russia has produced some hard capitalist thinking about the state of its investment environment and capital markets.

As mentioned last week, the trial of former oligarch Mikhail Khodorkovsky has placed him in the unlikely role (for a businessman) of a worthy success to Sakharov and Solzhenitsyn.

Now, the Wall Street Journal has drawn attention to the impact on foreign investors, who are often happy to divorce matters of money from the accepted norms of a free society.

The Journal’s Liam Denning notes Russia’s lack of long-term investment capital, weak demographics (health, longevity, etc) and poor governance.

Power and wealth is highly concentrated, with nearly half of all equities owned by the government and the business elite (oligarchs). Denning concludes:

This, along with the country's continuing leverage to commodities prices, is why Russian valuations are so volatile and stocks trade at a 30% discount on forward price/earnings multiples compared with other emerging markets.

So don't expect a mass sell-off when Mr Khodorkovsky is likely handed more jail time later this month. Do maintain, however, a healthy degree of scepticism about Moscow fulfilling promises of reform and modernisation. Expect this, in turn, to continue restraining Russian valuations from realising their full potential.