Gareth Morgan on foreign investment

As Labour retreats to 1970s protectionism, Gareth Morgan points out the consequences:

If foreigners can’t use New Zealand dollars to buy New Zealand assets why would they be willing to hold New Zealand dollars? …

Foreigners who sell us the imports we covet don’t really want to be paid in our quaint currency. So a pass-the- parcel process occurs until some foreigner is found who will either extend us credit (by holding our Reserve Bank’s IOUs) or buys one of our assets, thus giving us the foreign currency to buy those imports we crave.

So what happens when you try and stop foreign investment?

Ban foreigners from buying our assets, though, and there certainly will be a sharp shock to the system.

If foreigners can’t use New Zealand dollars to buy New Zealand assets why would they be willing to hold New Zealand dollars?

Those dollars would become like debentures in just another New Zealand finance company, in quick time worth much less than their face value – in effect the kiwi would cease to have any asset backing. It would fall and that would deter further lending from overseas. …

A prohibition of land and business sales to foreigners would be one solution – it would drive down the currency and scare off foreign lenders and investors. Argentina is currently banning greater exports of its beef despite huge international prices, simply because they want to eat it themselves and at cheap prices.

I can’t imagine how that might do anything but damage the supply of Argentine beef but it shows these sorts of whacky interventions are not unheard of. Ban land sales to foreigners but expect lower incomes as a result.

Lower incomes and even lower purchasing power as a falling dollar will push up the prices of many goods.

I have a financial interest in a dairy farm and processing factory in Brazil. For that economy such foreign investment brings growth and jobs – and milk it would otherwise have to import.

It sees also a technology transfer from New Zealand to another country – the real worth after all in our dairy industry lies in the decades of intellectual capital, productivity and technology that we have been silly enough to roll up into our per hectare land price. The benefit to New Zealand from that activity is significant as well – an inflow of profits we wouldn’t otherwise have.

If instead I’d invested in dairying in New Zealand I would simply have pushed land prices up and, I’m reasonably sure, have made less money. So it’s being argued by the xenophobes that a win-win for New Zealand and Brazil is worse than if I’d spent my money developing a farm up the slopes of the Southern Alps.

Get real. Foreign investment is how countries develop.

Remember that every transaction needs a willing seller and a willing buyer. If you ban sellers from being able to sell to the highest bidder, you are reducing the value of farms to their current farmers. The PM has also pointed out that this may push the value of the farm below the equity in it – ie banks will be more likely to bankrupt struggling farmers under Labour’s policy.