The complicated political business of investment

The government has a “social investment” programme. But how active an investor is it overall?

The quotation marks around “social investment” reflect questionmarks over the “forward liability investment approach” at its core. That approach essentially aims to avoid future fiscal costs with action now.

There are co-benefits if it works: people in sustainable work, paying taxes, getting sick less, bringing up children to be educable and be constructive members of society. This goes far beyond headcounts of beneficiaries.

But the cabinet’s primary focus so far is on avoiding future costs, not building such assets.

Likewise in environment policy.

The climate change emissions trading scheme (ETS) review launched last week, just before the Paris summit, canvasses options for significant tightening, a reversal of the 2009 big step backwards.

But all four review objectives focus on international and other constraints and pressures, not opportunities. The review exempts agriculture until other countries do more, which has some logic for short-lived methane but not for long-lived nitrous oxide. It worries about costs to business.

So far the ETS has contributed very little, if anything, to emissions cuts. There is no cap and no floor price. Emitters surrender only one unit for every two they emit and have been able to buy super-cheap, often dubious, units from abroad. Trees are not being planted.

Only with big change can the ETS take us on the “transition to a low-emissions economy” Climate Change Minister Tim Groser talks of in the review’s foreword. The review does canvass significant change but repeatedly emphasises the fiscal and economic costs and the need for “protection of competitiveness”.

Claiming fewer low-cost mitigation options than other developed countries, the review all but ignores the at-hand opportunity to expand renewable electricity generation and thus switch light vehicles and building heating from oil.

That cost-focused zero-sum mentality also underlies both last week’s Resource Management Act rewrite and the reluctance to work actively with local councils on meeting the knotty long-term challenges posed by future sea level rise, analysed well by the Parliamentary Commissioner for the Environment two weeks back.

The irony is that investing in the environment and ecosystems is akin to investing in other infrastructure such as roads, broadband and education, which ministers embrace. Bill English issued two performance monitoring reports yesterday on 409 of these “projects” after this was filed. Steven Joyce also now does talk of science as investment but still underinvests.

The cabinet does see water as infrastructure. It is investing in water. Managed irrigation means more cows and carrots.

Last Friday’s fourth consensus report by the Land and Water Forum (LAWF) of 60-odd interest groups takes that on a step: to allocation, both of freshwater and of pollutants from water use.

It says freshwater allocations must be transferable so they “move to their highest-value uses”. Residential areas should be metered.

It wants a system of “individual discharge allocation” for pollutants into waterways from fertiliser and animal waste, a national regulation to exclude stock from waterways and more urban waste water and stormwater action.

But can — should — this capitalist-minded cabinet go beyond infrastructure and emulate actual capitalists by actively investing in the businesses it holds in trust for us owner-taxpayers?

Take Landcorp, or Pamu, the te reo transliteration of “farm”, as it is rebranding itself.

Landcorp has 140 farms. Under chief executive Steve Carden it has ambitious programmes to build environmental integrity (a technical oversight group includes fierce environmental academic Mike Joy), develop new techniques and new products, such as sheep milk (good for lactose-intolerant Asians), and climb upmarket.

It is linking with high-end processors, such as for strong wool in Danish fashion slippers.

Landcorp is big and diverse enough to try things individual farms can’t. It can take risks because it can absorb failures. Its successes can be applied by individual farmers.

Thus Landcorp might not only pay dividends to the Treasury but also be an innovator and source of technical and marketing advice for the whole sector — not just a business the government happens to own but a mechanism to lift general farm performance.

Instead, to the annoyance of some board members, the cabinet’s standout comment this year was to worry about the debt level — at 12% of assets and heading for 15% at most, modest by commercial standards.

The question is whether the cabinet better serves the country as a passive or an active investor in its — our — businesses. Others include MetService, which has done well internationally, and Kiwibank, a small counterbalance to the Australian domination of our banking.

Behind that question is another: is ministers’ caution pragmatism or ideology?