Watchdog 94 paid credit to the Labour/Alliance government’s positive moves since coming to power in the 1999 election. But we have no illusions about this Government making any major changes to policy on foreign investment. There is a detailed article elsewhere in this issue about its refusal to al-low the sale of Brierley’s stake in Sealord to overseas fishing companies, and, for that, it deserves to be congratulated.

But major overseas takeovers continue. The sale of Fletcher Paper (with more of Fletchers to follow), increasing overseas ownership of our worldbeating wine industry through BRL Hardy of Australia and Lion Nathan of Japan, and increasing overseas ownership of the wreckage of our electricity sector are just some examples since the Labour/Alliance government took power. In addition, Air New Zealand, surely a strategic asset, is now in South East Asian control, through Singapore Airlines, supported by Singapore-based, Bermuda-headquartered, Brierley Investments.

The trigger point for investments to require Overseas Investment Commission approval was raised from $10 million to $50 million by the outgoing National Government (just days before the 1999 elec-tion), and nothing has been done to reverse that.

"The Government Welcomes Foreign Investment"

Indeed, the Government has gone out of its way to proclaim its support for foreign investment. This was one of the key points made by the Prime Minister, Helen Clark, when she addressed the Gov-ernment/business summit in Auckland, in October 2000 (immigration and education were the other two key areas for economic growth highlighted in her speech). Michael Cullen, the Minister of Fi-nance, has gone out of his way to trumpet the virtues of foreign investment and what the Government will do to assist transnational corporations (TNCs).

Appropriately, one of his main speeches on the subject was delivered to the Singapore/NZ Business Council, in Singapore, in September 2000. Appropriate because the Government has signalled its unchanged adherence to unrestricted free trade by signing the Closer Economic Partnership with Singapore, a free trade treaty process inherited from the previous National government. To its credit, the Alliance exercised its Coalition Agrement right as Labour’s junior partner and voted against the treaty (see cover story for full details. Ed.). Some quotes from Cullen’s Singapore speech:

"…It is important to be clear about what is not changing in New Zealand. We have retained the major legislative and philosophical framework for macro-economic management

"The Reserve Bank Act has not changed.

"The Fiscal Responsibility Act has not changed.

"The State Sector Act has not changed.

"The State Owned Enterprises Act has not changed.

"The Government is running a tight fiscal policy and budgeting for good surpluses over the forecast period.

"Government spending is actually decreasing as a proportion of Gross Domestic Product (GDP).

"The Government welcomes foreign investment to grow the economy, and

"The Government is committed to promoting open world trade…

"…We welcome foreign direct investment and we are encouraging companies to locate their busi-nesses in New Zealand. There has been no policy or attitude shift in regard to foreign invest-ments since the change of government except, perhaps, that we are now going out and actively seeking high quality investment (emphasis added. Ed.).

"As a general rule, foreign investment needs no authorisation. Where the amount involved is over $50 million, and the overseas person is going to control 25% or more of the asset, it does. However, there is only an ‘investor’ test applied: does the applicant have business experience and acumen, demon-strate financial commitment and is of good character (see the article elsewhere in this issue on US agribusiness TNC, Archer Daniels Midland, to gauge the reality of testing the good character of appli-cant foreign investors. There is more on that subject in the article on Brierley’s attempts to sell its Sealord stake overseas, also in this issue. Ed.).

"The exception is where land and the offshore fishery are involved. These are seen to be sensitive and strategic resources. In these land and fishery areas, a national interest test is applied in addition to the investor test. There is nothing new in this. It has applied, largely unchanged, since the mid 1970s.

"There was one application which the Government refused that has been cited as an example of anti-investment policy. This decision, the Sealord case, was about the ownership of a particularly large amount of fish quota in a particularly valuable species. It was also for a 50% shareholding in the com-pany owning the quota. Any Government would have applied a robust, national interest test to that sort of proposal.

"I have often said that on that particular application the decision would have been the same regard-less of who was in government. The Opposition has not challenged this view.

"The door is still open for a foreign investor to take a cornerstone shareholding or forge a strategic alliance with a local owner on processing and marketing the fish. If necessary, the national interest test will have to be applied to the specifics of any proposal.

"The only thing that happened in the Sealord decision is that the law and due process were properly followed (see Sealord article, for full details. Ed.).

"There has been no anti-investment switch, indeed, the new Government is spending more, not less, to attract high quality foreign investment (emphasis added. Ed.). Since taking office the Overseas Investment Commission has approved over 140 applications with a net investment value of $1.136 billion. I personally have given the green light to 62 applications and of the eight applications I have considered and refused, all but two were related to the Sealord matter.

"The Government is moving to level the playing field for investors. For instance, we are reviewing the regulatory regime governing the telecommunications and electricity industries (see Watchdog 93 & 94 for CAFCA’s submissions to these Inquiries. Ed).

"There are a number of other regulatory reviews under way. I think it is clear that there has been some concern about our laws on takeovers, the protection of minority shareholders during takeovers, and laws and practices governing insider trading. We are moving to address these concerns.

"The Government is spending $330 million to boost industry and regional development over the next four years. A new agency called Industry New Zealand will be coordinating and delivering services and programmes. The heart of these programmes is our aim to boost our export earnings. We have set out quite deliberately to shift the emphasis of growth from the consumption of wealth to the pro-duction of wealth.

"We have implemented a number of different programmes: to support regional development, to help get good business ideas up and running and to help entrepreneurs raise finance early on in the life of a new venture.

"We are also looking at ways of improving access to expertise and capital for small to medium sized players. We want to help firms with high growth possibilities achieve their potential.

"Critical local knowledge is the missing factor for many overseas investors. Industry New Zealand will help bridge that gap by matching small to medium sized business with investors seeking to make an investment of $50,000 to $500,000, in what we are calling the ‘angel network’

"We have launched a new proactive strategy to attract overseas investors to New Zealand (em-phasis added. Ed.). This includes:

• A visiting investor programme.
• Support for high value-added investment.
• A one-stop Government shop.

"A complementary programme on the drawing board is the Strategic Investment Support Services (emphasis added. Ed.). What we are trying to do here is to identify major New Zealand investment opportunities. It is the domestic partner to our efforts to attract overseas investment. We will be asking "how can we help?" to New Zealand businesses which are looking to expand or to relocate… (Dr Mi-chael Cullen, Minister of Finance, 8/9/00; speech to the Singapore/NZ Business Council, in Singa-pore).

Cash Grants To TNCs: A Slippery Slope

What is of most concern to CAFCA is the proposed programme of Strategic Investment Support Grants, to be doled out by the Strategic Investment Support Service (itself part of the newly created Industry New Zealand, which is to administer Jim Anderton’s pet project, the generally worthy one of regional development). To quote from the relevant papers (from the Office of the Minister for Industry and Regional Development; to the Cabinet Economic Development Committee, June 2000; supplied to us under the Official Information Act), Strategic Investment Support Grants would include:

• grants for pre-feasibility and feasibility studies", and
• grants for significant implementation projects. These would be allocated on a case by case basis.

"Grants would go to investments that could demonstrate

• significant net benefits to New Zealand through a:
• substantial increase in employment
• substantial investment, either tangible or intangible (just what is an intangible substantial investment? Ed.)
• no negative competitive consequences domestically

"As a rule of thumb, to be considered for a grant the project/investment would have (the potential) to meet at least one of the following criteria, for example:

• $50 million of investment over the next five years
• 250 new jobs over five years

"If the project were located in a ‘priority’ region (eg. Northland, East Coast) the threshold could be re-duced to $10 million or 50 new jobs (these criteria are indicative only).

"The quantum of assistance would be considered on a case by case basis but in normal circum-stances should not exceed:

• $1 million for any one project
• $5 million in any one year (less in the first year when less funding will be available).

"Services would only be provided on the basis that:

• the investmnent would not be likely to occur in New Zealand without the incentive
• the investment complements New Zealand’s areas of competitive advantage.

"The service should be available to all NZ businesses. Grants would be paid on the basis of a mini-mum contribution of 50% of non-Government funding sources…"

(The rest of the paper, which need not concern us here, is a fascinating read on the mechanics of regional development, venture capital, etc. My favourite section is that on "business angels", who are the shy creatures who stump up the money. "Business angels generally are elusive and value their anonymity" {ibid}. Perhaps Jim should ask the Fairy Godmother).

So there you have it. The Government is proposing to hand over millions of taxpayers’ dollars to TNCs. We realise that the hands on policy is deliberately intended to be in marked contrast to the ideologically (idiotically, more like) pure hands off policy of governments of the previous 16 years. There’s nothing wrong with an interventionist Government committed to regional development – that was the hallmark of all Labour governments pre–Rogernomics. Jim Anderton is very much a product of that Labour tradition, so he is just following his political instincts on this. But there is a world of difference between helping some little Kiwi battler in the back of beyond to get started, and handing over money to transnational corporations. This seems to be based on a reliance on "targeted, smart" foreign investors but is, in fact, an old variation on the discredited policy of "picking winners". Handing out taxpayers’ cash to transnationals is a very retrograde policy for this Government to adopt, heading down a very slippery slope.

Offering incentives to TNCs, particularly of the cash in the hand variety, has led to all sorts of abuses overseas. In the US individual states, counties and cities have undercut each other to attract foreign investments such as car assembly plants, with guaranteed union free workplaces. Some US states have paid TNCs hundreds of millions of dollars to pick them. In a number of Third World countries, such as the Philippines, governments have established "export processing zones", which effectively belong to the TNCs, being deliberately alienated from the country and its laws. The Bolger National government seriously debated setting up such a system here, in the early 90s, before discarding it on the grounds that the TNCs would find us inherently attractive. This whole process has been graphically described as "the race to the bottom".

The current example of this is Motorola, the huge US electronics TNC. It played off Australia versus New Zealand (specifically Christchurch) for the best deal to site its new Australasian research labo-ratory. In the end, it settled on Australia. In June 2000, it was reported that Motorola was looking for about $3 million from the Government as a condition of setting up the lab, and matching Australian offers (this on top of the fact that the Christchurch City Council had already offered Motorola a rates holiday if it picked Christchurch). In November the New Zealand Herald reported that Motorola had wanted cash and favours as a prerequisite to setting up shop. The favours were, alllegedly, to be preferential treatment in bidding for Government contracts. As well as the cash, which was reported to be the $4 million needed to start up. The Herald further reported that Motorola had asked for prefer-ential treatment from the Government in the auction of the radio frequency spectrum. Motorola denied all this: "That is not the way we do business" (Press, 6/11/00). A Government source rubbished Auckland reports of an $8 million offer to Motorola as being very wide of the mark, but agreed that the Government had offered to help Motorola recruit software engineers overseas and to smooth their path through immigration procedures.

Motorola is not alone in wanting handouts. Jack Matthews, chief executive of Telstra Saturn, has ad-vocated that the Government offer incentives to technology TNCs. Tony O’Reilly, the Irish media baron and baked beans king (an appropriate combination, as they both involve flatulence) toured the country decreeing that New Zealand needed to do all manner of things to attract TNCs, starting with corporate tax cuts (of course) and including incentives. He cited the example of the Irish "miracle", and said that Ireland would have done anything to secure the Motorola deal. Yes, it’s true that Ireland has attracted TNCs like flies around the old proverbial, but there are a number of reasons for that, which are not applicable here – such as whopping great subsidies to business from the European Union, and the geographical fact that Ireland offers access to the huge European market. (As for old Tony, the boyo with the blarney always attracts a splendidly grovelling coverage from the NZ media - because he owns great chunks of it – but also because he still dines out on the fact that, in a rugby worshipping country, he was the star winger in the 1959 British Lions team that toured here, setting a try scoring record, and wowing the girls with his very short shorts and his red hair. As a Wellington primary schoolboy, I saw him play that year, at Athletic Park, and he was a great winger. I can’t re-member if he was the left or right wing, but he’s definitely Rightwing now. But that was 41 years ago, and no longer any good reason to hang on his every pontification as if it was the received word of God).

Not only is the Government going after the so-called new economy, it’s making overtures to the very old one. Jim Anderton opened the 2000 conference of the minerals industry (no National ministers had attended the previous one, in 1997), and praised the contribution of mining to the NZ economy. Paul Swain, Associate Minister of Energy, told the conference that the Government is reviewing the Resource Management Act (one of the betes noir of the resource TNCs for the past decade). He said that the basic principles are sound, but that some councils had pllied it in an overly strict fashion. That should set alarm bells ringing. Whole regions (starting with the Coromandel) have fought the hole in the ground merchants for decades, to stop the mining TNCs from despoiling their communities (the conference concluded that the industry had failed to explain what it does to the wider community. Now where have we heard that before?).

It’s no surprise that Labour’s front bench is gung ho for attracting foreign investment, but the Alliance needs to be very careful about where Jim is taking them. It’s one thing to sell yourself but the Gov-ernment seems to have forgotten the basic principle of the world’s oldest profession - it’s the prosti-tute who gets paid, not the customer.