It’s been a busy week in this household, so this time I’m just going to comment briefly on two current news items that I’ve expounded on in the past.
1. Kiwibank and its possible partial sale
I am again disturbed by the renewed suggestions by the right-wing elements of the government and some of the business community (you can tell them by the glint in their eyes as they envisage getting a piece of the action) that shares in Kiwibank be made available to the public.
(I was going to link here to a blog article I wrote last July, setting out my thoughts at that time. Unfortunately, the link to that article seems to have been lost, so I’ve copied it and placed it at the bottom of this current article.)
My comments last July were made at the time when some pundits were suggesting that the government-owned bank be expanded to provide full trading services and therefore needed vast new investment – presumably from shareholders.
Now we seem to be one step on, wondering how the extra money might be obtained. But my main problem remains with the underlying assumption – that because Kiwibank is a business it must seek to grow. Businesses cannot stand still, it’s said. You grow or you die.
I challenge this assumption. There are plenty of cases where this does not need to happen. As a simple example, consider the web design business I ran for 9 years. After a few years working hard to build a viable and sustainable operation, I faced the decision of either maintaining the limited (but, it seemed, much appreciated) service as a one-man band, or taking on staff and pushing harder for a much larger and richer client base. I chose the former, and never regretted it. I worked on improving my service and my expertise, but not on growing beyond what one person could handle.
Kiwibank was set up for the specific purpose of mainly serving the indigenous domestic and small business market, and apparently it is now running that quite profitably and offering services that the privately owned banks are not interested in providing (such as small, part-time teller services in NZ Post shops).
But this is not enough for Big Business. They demand that Kiwibank grows to compete with the big boys. For this, it needs private investment. But then it would have to please its shareholders as top priority and offer unprofitable services next. And it would probably have to play in the international money market and borrow larger amounts from overseas.
I reject that. I suspect that Kiwibank’s boss, Sam Knowles, rejects it too, and has announced his resignation because he doesn’t believe that this sort of quantum leap in investment to fund wider trading operations is good for Kiwibank’s core customers.
With the exception of Jim Anderton’s input, the argument seems to have “moved on” to one of who should own shares in Kiwibank, but for me (and Jim) it should be back at a more fundamental issue: Does the bank have to grow through external stimulus? Should it not retain the business model it started with and grow organically within its own capabilities? Should it not continue to be the one larger bank with national coverage that offers banking services to ordinary Kiwis first and making profits and growing second?
2. Three Strikes law
I also wrote about this in January when the policy was announced and steps began to enact it. You can read what I had to say then.
Since then I’ve done a great deal more reading on this topic and listened to various commentators and visiting legal experts, and my view has changed somewhat.
I still think that there will be some gains when the really hard-core violent criminals who are unlikely ever to be capable of rehabilitation. But I do believe that they can (and should) be dealt with within existing law (or what was existing law until this week).
My opinion has modified (or hardened) in two major ways:
1. Considering that only crimes committed from now on can contribute to the “three strikes” tally, it may be 10-20 years or even more before these targeted criminals are even considered for their 3rd strike. That is just so far out that it doesn’t register. Do we really have to wait that long before the main supposed main benefits – the ability to lock up the real nasties for ever – are manifest? It appears so, and therefore the law is just a bit of pandering to alarmists without actually doing anything in the short to medium term.
2. One of the most consistent claims for the need for harsher penalties is that they will send a deterrent message to potential criminals that it’s not worth it, and therefore there will be fewer crimes. Now if this does in fact hold any water at all, we should see immediate effects. Like, from today onward. We have sent the message. If it’s to have any effect, it must cause violent crime rates to slow right now. If they don’t within a statistically adequate period like one year, then the deterrence argument is just a load of hogwash. I know which outcome my money would be on.
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Earlier comments on Kiwibank, written July 2009:
I may be wrong but . . . . I get a feeling that Big Business is making another push to get Kiwibank gobbled up into the game playing and greed of the more-market business world. And that possibility disappoints and concerns me.
Last Saturday (July 17th) the Christchurch Press newspaper published a feature report on Kiwibank in the Businessday pages, written by Roeland van den Bergh. As we’re all aware, Kiwibank was set up at the start of this decade, and in the eyes of ordinary, supportive Kiwis it had two clear primary purposes, as summarised by van den Bergh: to “look after ordinary New Zealanders and keep profits onshore”.
Through the 1990s large numbers of people were becoming unhappy at the growing fees being charged by the four main banks, all Australian owned, along with increasing profits remitted to their Australian shareholders. So . . . despite complaints from the ideologues and big players of the business world, Kiwibank was set up and initially funded by the government to provide a viable nationwide, New Zealand-owned alternative. And it has done surprisingly well, putting some pressure on the big four and reminding us of the days when banking meant financial services for ordinary people rather than speculating on world markets to foster greed and maximise profits for remote shareholders.
Kiwibank, we’ve been told, has grown steadily to the point where its market share is edging up toward the space long occupied by the big four, especially among domestic customers. Apparently it’s been working mainly on the business model that I always thought (in my naivety?) is or should be the basic operation of banks – borrowing from people with excess money (paying interest for the privilege) and lending re-packaged money to suitable people who needed it (charging interest for the service).
As van den Bergh wrote, referring also to the other main locally-owned bank TSB, “both banks fund their lending almost entirely from domestic retail deposits, while the big banks have been hamstrung by their need to borrow on international money markets, which have been frozen”.
That confirmed for me something that has bothered since last year’s financial crash – why was it such a huge problem that nervous banks were not lending to each other, causing the system to grind to a halt? Shouldn’t banks just be borrowing from savers (people and businesses) and lending to borrowers (other people and businesses)? Why do they need to spend so much effort borrowing off and lending to each other? (Apart, that is, from extracting fees for every transaction.)
Back to Kiwibank. So far so good with the Press article. Then I became uneasy as I read that as Kiwibank “grows its balance sheet beyond $10b it will have to increasingly diversify its funding to include international wholesale lending to maintain its growth.” (my italics).
Here we see again the Big Business ethic that growth is imperative. Apparently it’s not enough to just do what you do well or better, to grow organically by getting more and more customers to use and appreciate your core services. And according to the growth imperative if the growth rate is not being maintained, then it’s not enough to operate on a plateau.
Why does Kiwibank need to keep growing in size and reach, even when it may mean that its whole raison d’etre is imperilled? Ah yes, of course . . . it’s because the people pulling the strings – the government – are aligned with the business world. They’re not satisfied with providing a service that can pay for itself, grow organically, and offer the bonus of an optional, modest dividend. Forget about serving customers and retaining income within NZ, just make money for the government and its business friends!
As van den Bergh wrote, “The Government has discussed expanding Kiwibank amid calls for it to beef up the State-owned bank to help push interest rates lower.” OK, beef it up and take advantage of the bank’s ability to affect domestic interest rates, but don’t get into the same silly corporate money games with overseas markets that have caused so much grief recently to the private banking industry and society as a whole.
Posted by David Armstrong 
