Sunday, 22 April 2012

Economic b/s from Michael Fay

From the TVNZ website,
New Zealand will lose around $15 million in earnings every year from the sale of Crafar farms, according to a group opposed to the sale.
Sir Michael [Fay] says at the forecast payout of $6.35 a share, the new owners would earn $30 million a year, half of which will go to state-owned enterprise Landcorp for farming the land.

"This transaction with Shanghai Pengxin is a very, very bad investment for New Zealand. It doesn't stack up on any economic basis," said Sir Michael.

"It's hard to see that half of it going overseas constitutes an economic benefit to this country. It's a cost, it's hard to define it as an investment."
Let us assume for a moment that these evil foreigners make a NZ$1 profit which, in an effort to piss-off Michael Fry, they wish to take it back to China. How do they do it? Clearly a New Zealand dollar isn't worth anything in China so the Chinese holder of NZ currency will have to sell their NZ$1 to buy Yuan. But why would anyone want to buy said NZ$1? The only use for a NZ$s is to buy something made in NZ. Thus the buyer of the NZ$s must want it to buy a NZ export of some kind. What is Michael Fry's problem with this? The NZ$1 doesn't go overseas in any meaningful way, it gets spent on New Zealand produced goods and services no matter who gets the profits from the ownership of the farms. If a New Zealander gets the profits they spend them on New Zealand made goods and services, if a foreigners gets the profits they sell the NZ$s to someone who wants to buy New Zealand made goods and services.

In short New Zealand will not lose "around $15 million in earnings every year" if the Crafar farms are sold to the Chinese. For New Zealand's wealth and prosperity, it does not matter where the profits from New Zealand businesses end up. All that matters for the New Zealand economy is that New Zealand remains a place where business transactions take place – irrespective of who owns the business. New Zealand's (real) wealth is the amount of goods and services produced each year, no matter who owns the business that do the producing. What we want is for firms to be owned by whoever will use those resources most efficiency, no matter what their nationality. Any investment that moves resources towards an more efficient use is a good investment for New Zealand, again no matter what the nationality of the investor.

Micheal Fry seems to be trying to trade on the economic ignorance of the general public in an effort directed at xenophobic scaremongering.

1 comment:

Mark Hubbard said...

Fay must read Hickey :)