Surprised by the biosecurity issue

08/08/2013 § 4 Comments

The issue with botulism bacteria in Fonterra’s whey powder has been in the news all week. There’s been lots of talk of milk prices, exchange rates, marketing images and damage to brands. Most of it is fairly simple. A lot of it, at least over the weekend, was speculation about what could or might happen — filler more than news.

I have one small note to add. I have been working in agricultural economics in New Zealand for the last ten years, all across the sector. Dairy, sheep/beef, apple, kiwifruit, potatoes, forestry, wine, lettuce — lots of different products. I’ve also worked on many different issues: trade, technology, consumer trends, productivity. One area in particular has been biosecurity, which in New Zealand refers to keeping bugs out (in other countries, it refers to biological terrorism, which led to some confusion once when I visited the OECD).

In the biosecurity work I’ve done or seen in New Zealand over the last ten years, the focus has been primarily on (a) trade and tourism, (b) farm-level practices and (c) the environment. There’s a big programme called Better Border Biosecurity, which should be self-explanatory. They are trying to keep the bugs out of the country (although there’s nothing they can do about the occasional organism swept across the Tasman by the wind). Farm-level research on the potential impacts of biosecurity issues has been around things like foot and mouth or tuberculosis. Or, take a look at this webpage that lists biosecurity publications for New Zealand — lots of marine pests, on-farm pests, etc.

And then a dirty pipe lets the side down. It wasn’t the biosecurity scare we expected. Just a guess, but the systems may therefore not really have been in place to deal with it.

Why weren’t we ready? Again, a guess. The work I do and see tends to come from Ministries or the public good science system (FRST, MoRST, MSI, MBIE, CoREs). Environmental biosecurity is a public good (non-rival, non-excludable), and so gets funded through those channels. Farm-level biosecurity is also a public good, but in a different way. Agricultural production has long been acknowledged as an appropriate area of public funding because of the non-rival, non-excludable nature of knowledge.

On the other hand, cleanliness in the supply chain is seen more as a private good — embedded in a commodity product that is rival and excludable. Therefore, it is seen as the domain of private firms — Fonterra, in this case. They should invest in cleanliness or biosecurity in proportion to the business risks, without public funding.

This is a debatable proposition, of course, depending on the spill-over impacts on marketing image and exchange rates. We are now getting some data on how big those spill-overs might be. I hope someone gets a chance to do a proper analysis of the whole situation when it is over.

Let’s get the taxes right

13/03/2013 § 8 Comments

The ‘fury’ at the suggestion of applying fringe benefit taxes (FBT) to carparks is utterly misplaced. The only proof I need of this is that ‘Unionists and business groups have joined forces in a rare alliance to lash out at the new tax’. What better indication that this new tax is being applied even-handedly?

It’s about time, too. I have to pay, every day, to park my car in a commercial parking lot. Part of my salary — my compensation for the time I’m in the office — goes to paying for that carpark. People who don’t have to pay for their carparks are getting tax-free benefits, and that’s not cricket.

I can only hope that the Government doesn’t lose the courage of its convictions. This effort should be extended to all the little perks and compensations given people in lieu of money.

Take those cellphones and laptop computers that employees get for free. Sure, during the week they might need a cellphone to keep in touch with the office or with clients. But after hours? That cellphone is still in use, receiving texts about completely personal dinner parties, making calls about entirely private gossip. And the laptops? They are getting into Facespace and Youtelly not just during office hours but also on the weekends.

The technology is there to shut down this rort of the tax system. All that’s needed is an app to disable devices outside of business hours. Then, those electronic toys would be completely tax-compliant. If the international IT cabal won’t do it, the Government needs to step in and take its rightful share.

The Government can’t stop there, either. From my office, I can see any number of buildings with stunning views of the Wellington harbour. The sun sparkling on the early-morning ripples, the picturesque hills — those views aren’t available to everyone. Some workers are clearly receiving much more of these benefits from their offices than others. It’s about time the Treasury sorted out some non-market valuation studies of the amenity value of offices and made sure that those perks are properly taxed.

In fact, it isn’t just the views and the sunshine. Some workers get more floor space, larger desks, nicer office coffee. What we really need is a ‘defined office package excess’ (DOPE) tax. The Government can set minimum standards for office workers, and any provision of amenities in excess of that minimum gets taxed. Once the process is in place for the Auckland and Wellington CBDs, it can be rolled out to other localities and other types of workplaces.

The most egregious evasion of taxes on benefits, though, is going to require collaborative intervention by economists and psychologists to tax properly. It is my understanding that some workers are receiving an additional benefit beyond their wages and salaries, cellphones, nice office surroundings, and the like. A tax system can be properly calibrated only if it contains a PFT — a Personal Fulfilment Tax.

Technology policy — never satisfied

11/12/2012 § 2 Comments

It doesn’t seem like the government can win with technology policy. When it spends on technology R&D and nothing happens, people complain about the waste of money. When a company with a government grant looks like it’s going to be bought out for US$130m, people complain about the waste of money. Damned if you do, damned if you don’t.

I have two contradictory thoughts on this latest tweet-spat. The first is that evaluating tech policy with headline case studies is fruitless. The second is that these people have a point.

The first problem results from policy design meeting sample selection bias. The specific grants in question — grants to businesses to help them develop R&D — are intended to help businesses become more commercially successful. The idea is that (a) people under-invest in R&D because of public-good aspects of research, and (b) people in business have a better sense of what might be commercially viable than academics or bureaucrats, so (c) government should provide money and businesses should provide direction (and more money) and the economy will be better off.

R&D is a chancy thing. It might work, it might not. As a result, many initiatives fail, some muddle through, and the odd one does really well. When you give the grant, or better yet, when you establish the funding policy, you don’t know what’s going to work. It’s easy to look back and say, ‘given what we know now about the value of the company, maybe it didn’t need that grant after all.’ It’s harder to make that decision at the time the grant is given. In fact, the more grant recipients are successful, the more it calls into question the grants themselves. Perverse, eh?

As it happens, I’ve done quite a few case study assessments of technology programmes and companies. You can learn a lot from case studies, because they allow you to delve into how programmes develop over time. One of the key tasks is selecting the right ones to analyse. Obviously, the ‘right’ one depends on what you are trying to achieve. You always have to remember that there is a selection bias — it isn’t a random sample.

My second thought, though, is that Selwyn Pellett has a point, and we should keep debating our tech policies. One of the main reasons to provide late-stage R&D funding is to build New Zealand’s technology capacity. We are trying to create self-propelling agglomerations of technology companies, and these grants are supposed to be getting the process started. If, in fact, they are just funding single companies until they can be sold offshore, then we aren’t meeting our goals. And, given the lack of capital gains tax, we aren’t even getting our money back.

I’m not sure that taking an ownership stake is necessarily the solution, either. That could get quite complicated, and I’m not sure that the government has the skill to be a good shareholder in a bunch of small tech companies.

We do need to know whether these grant policies are ‘value for money’. Some analysis has been done: one on the Research for Industry Fund (pdf) comes to mind. Most analysis, though, is piecemeal — this specific institution, that particular research programme. Analysis that is more sustained and comprehensive would greatly inform the debate.

How ya gonna keep’em down on the farm?

23/03/2012 § 5 Comments

I got out of the office yesterday. Away from Wellington, in the company of non-economists. Yes, it does happen.

The subject of rural de-population came up. The rural regions of New Zealand are concerned because they aren’t attracting more people, and some areas are actually shrinking. The peri-urban areas that are growing are seeing increasing numbers of retirees and lifestyle blocks (hobby farms). People in those areas aren’t sure that’s what they want — communities that once had families and employment now servicing the old and absent. The demographic change also changes the services required in the town centres. Less need for farm equipment, but more demand for doctors and pharmacists.

I don’t have any solutions, just a few observations:

  1. It’s the tension between the individual and the collective. Each person is individually seeking what’s best for them, but people — some people, at least — aren’t happy with the aggregate outcome. Younger people are going out into the world to seek their fortunes. Other people are moving into rural areas for peace or isolation. The result is that these two groups are more segregated than either necessarily prefers. It’s a bit like Schelling’s model of housing segregation,  only with an active regional council. But it’s hard to see how this is a bad result, except to the extent that people weakly value the communities in which they live.
  2. It’s been going on for years. People have been moving off farms and into towns and then into cities for as long as they have had the option. There are technology pushes — we don’t need gangs of milkers, anymore, for example. There are pulls, too — cities allow specialisation, so people can produce more and earn more. But given the long-term trends, is worrying about de-population just trying to hold back the tide?
  3. Technology isn’t going to be the saviour of rural New Zealand. We’ve been hearing for years that new communications technologies (will) allow us all to work from home, the cafe, and the beach. We do that to some extent. A few people do build business empires on the back of broadband. But we also spend lots of time in our offices, seeing and talking with our co-workers. One of the interesting economic geography arguments I’ve seen is that technology is making face-time more valuable. As a result, work that requires us to spend time with each other is becoming more highly paid, and work that can be made routine and parceled out in bits and bytes is becoming less valuable. New Zealand is on the wrong side of that trend, and rural areas even more so.

No pithy observation, no happy thought to end this post. Just the vague feeling that we’re watching the future unfold and there’s not much we can do to change it.

Technology in the service sector

26/01/2012 Comments Off on Technology in the service sector

Over the last few decades, the service sector hasn’t extracted large productivity gains from new technology. Manufacturing and the primary sector have done better. Services are becoming larger parts of advanced economies, so the lower productivity is a worry for total economic growth. Baumol (1967) provided the basic model. Although the Brookings Institution along with others proclaimed the disease cured in the 2000s, other research suggests this isn’t true.

I’ve eaten in many, many restaurants, bistros, and cafes over the last few weeks. The wide range of technology has been fascinating.

In midtown New York, we had breakfast in a diner. From our booth, we ordered pancakes, eggs, bacon, and toast. The waiter wrote our order in an order pad, the same kind I used 20-odd years ago in my restaurant jobs. Then, he gave the order slip to the cook who made our food. When we asked for the bill, he wrote the prices from memory and added it up.

In Aix-en-Provence, we went to a steak house that was part of a national chain (I had a salad — *sigh*). The waitress had a handheld electronic device for taking our order. The device sent the order to the kitchen. When it came time to pay, the order was in the electronic till, which added up the prices. The waitress also brought a wireless device to the table for EFTPOS payment.

The food and beverage sector has had very low productivity growth. Looking around, though, you see lots of different technologies being used. This is a heterogeneous sector, so there’s no surprise that you see heterogeneous technology.

At a guess, the most efficient technology depends on several aspects of these businesses. If the staff and the menu don’t change much, then paper tickets are probably more efficient. Staff know the details of the dishes, they know the prices, and inventory management is fairly routine. Higher staff turnover or more frequent menu changes mean that new information has to be provided to staff more often. Those restaurants can use IT to do that efficiently.

Also, more impersonal workplaces — ones with lower levels of trust — need more monitoring. If ordering, preparing, and billing are all tied together, it is harder for an employee to pocket the money from a bill paid in cash.

There is a story here of a sector trying to figure out what works and what doesn’t. It would be great to have enterprise-level data to analyse the productivity impacts of different technology choices.

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