Time for fear, not panic

The annual Breakfast with the Economists seminar offers a refreshing tonic on how the banks see the world.

The panel is chaired by sponsor Standard & Poor’s chief economist David Wyss and comprises representatives from the big four banks.

They seldom defer from others’ opinions and when they do it is with a hint that someone else has got it wrong – usually the Reserve Bank.

I suspect the gentlemanly comments, which I reported at NBR Online, would have been livelier if they were speaking after the South Canterbury Finance bailout rather than before.

Only Dr Wyss was prepared to be outspoken, which comes naturally as he is a regular among the many “squawkers” on CNBC.

His summing up:

the recession is over as the bottom had been reached. “The bottom is defined as things are not getting worse.” But he agrees the recovery is at half-speed due to consumers holding back, paring their debt and building their savings. “Panic is being replaced by fear,” he says, There is a one in three chance of a further crash.

Back from Jackson Hole
The economists’ nemesis is Reserve Bank governor Alan Bollard, who will be given a lot of airtime this weekend with the launch of his new book, Crisis, an insider’s account of the global financial crisis. 

Dr Bollard no doubt took copies with him to Jackson Hole, Wyoming, for the annual central bankers’ get-together last weekend. The compact volume will be must reading for all bankers over the coming weeks.

Investors and bondholders can also thank Dr Bollard, whose nightmares of a panic run on the banks nearly two years ago turned into dreamtime for South Canterbury Finance’s depositors and bondholders.

The Retail Deposit Guarantee Scheme was drawn up from scratch over that fateful weekend in October 2008 when the world banking system was crumbling.

Local banks had increased their orders for $100 notes by seven-fold, and Ireland had triggered off a worldwide scramble by government to guarantee bank despotis.

Australian Prime Minister Kevin Rudd announced his just after he phoned Helen Clark, who was about to make her election campaign opening speech on Sunday afternoon.

Everything was in place by that night. One of Dr Bollard’s more intriguing revelations is that four days after that fateful weekend the Reserve Bank directors held a scheduled meeting in, of all places, Timaru.

Bullish on bosses
Business Roundtable executive director Roger Kerr has come out swinging in defence of New Zealand managers from a government report that claims they are not up to scratch. 

The report, Management Matters, was commissioned by the Ministry of Economic Development draws on a report by Sydney’s University of Technology and management consultants McKinsey & Co. The report has been explained in the NBR and elsewhere but it was a Listener article, in particular, that has drawn Mr Kerr’s ire.

In the piece, called “Our slack bosses,” Rebecca Macfie states that “one of New Zealand’s dirtiest little secrets is that our businesses are not very well managed” and that “the poor quality of New Zealand managers is holding the country back”.

In fact, as Mr Kerr notes, the report relates only to the manufacturing industry in New Zealand and other countries, and finds local managers deficient only in “people management” compared with Australia.

“Manufacturing is only 17% of GDP,” Mr Kerr writes. “Even if its findings were valid, it is not a basis for generalisations across the whole economy…”

He goes on to note local managers have a restrictive labour market efficiency – the World Economic Forum’s latest Global Competitiveness Survey puts New Zealand in 90th place for hiring and firing practices compared with Australia
at 62nd – concludes a more rigorous analysis of management performance would focus on two issues that were not considered in the MED report:

The first is whether New Zealand firms make normal returns on investment – returns that cover their cost of capital. The evidence is that on average and over time they do. This is to be expected: if they earned less, investors wouldn’t keep putting money into them and if they earned more, competitors would enter markets and drive returns down.

Second, it is openness to competition that does most to keep managers on their toes. This means openness in all dimensions: the markets for goods and services, corporate control, international capital, and managerial labour.

Firms least likely to exhibit good management performance are those that enjoy monopoly positions, such as ACC or public entities more generally. Thus to a large extent it is the quality of a country’s institutions and policies that drives economic and management performance, not the other way
round.

Class struggler in the boardroom
Earlier in the week, I spoke to Mr Kerr about the references to him in the new biography of trade unionist-turned-boardroom bruiser Ken Douglas, Man For All Seasons. Mr Kerr was one of only two critics historian David Grant cites on Mr Douglas’ shortcomings as they saw them (the other was feminist trade unionist Teresa O’Connell).

“I hold Ken responsible for holding up market deregulation in the 1980s which stopped workers from finding jobs,” Mr Kerr is reported to have said in 2005 (in the TV documentary Ken Douglas – Traitor or Visionary?). “To this day he does not understand how the market economy works…I have never heard him say sorry for promoting those ideas.”

Grant’s book falls well short of hagiography and I hesitate to say more ahead of review in the NBR. It runs to nearly 500 pages and is a good read, particularly if you skip all the union stuff and concentrate on Douglas’ ideas on Marxism, his personal life and rebirth as a class warrior in the corporate world.