Too Successful To Be Allowed to Continue

Bureaucratic Bumblers

The present Labour government is fast gaining a reputation for incompetence.  The latest "thing" is the imbroglio over the presence of a Ukrainian family in New Zealand.  They have been guilty of the unpardonable: they have bought and developed a successful business and they are being deported for their crime.

A Ukrainian family facing deportation once their work visa expires in July have received an influx of support from MPs and the public.  Nataliya Shchetkova, her husband Alex Derecha, and their five children, face an uncertain future after Immigration New Zealand's decision to deny the family residency because it does not believe their business adds significant benefit to New Zealand.

The family run Auckland restaurant La Vista which had a turnover of $1.6 million last year and employs 26 staff - 17 of whom are full-time.  Since the Herald shared their story this time last week, the family have received an influx of support from members of the public, MPs and Act Party leader David Seymour.  A petition has been launched and backed by Seymour, asking Parliament to urge the Minister of Immigration Iain Lees-Galloway and Associate Minister of Immigration Kris Faafoi to grant them residency by special direction.  The petition has received almost 10,000 signatures of support in two days.

Seymour has organised a rally for next Sunday to support the family.  "Nataliya Shchetkova and her family are much-loved community members and successful proprietors of La Vista restaurant in St Heliers," the petition reads.  "The Government has declined their application for residency despite the family building a successful business as required by their visa requirements. . . .

 Immigration NZ manager Michael Carley said . . .  residency was denied because her business did not add significant benefit to New Zealand.  "We do not consider the immigration officer who assessed the application made an error in advice and we consider the decision to decline, and the process followed, was correct," Carley said.  "A core reason for the decline was the business did not add significant benefit to New Zealand by creating sustained and ongoing employment, over and above the existing level of employment.  [NZ Herald]

Let's get this straight.  The business has been slammed for not adding enough benefit to New Zealand.

Hypocrisy--Thou Art a Jewel

For Corporate Social Hypocrisy, See Unilever’s CEO

A multinational boss fancies himself King of the World.

By Deroy Murdock
National Review Online


Polman is CEO of Unilever, the Anglo-Dutch consumer-products multinational. Managing a corporation that operates in 100 countries, markets 400 different brands, employs 169,000 people, and grossed $56 billion in 2016 should be enough to keep Polman at his desk. But this Dutchman has had his mind on far bigger things since he took the helm in 2009.

“I am really more interested in development,” Polman declared in February.

Polman co-authored a 2014 essay in which he announced that capitalism has “proved dysfunctional in important ways. It often encourages shortsightedness, contributes to wide disparities between the rich and the poor, and tolerates the reckless treatment of environmental capital.”

Polman has directed his employees to avoid a singular focus on ROI [Return on Investment] and instead implement USLP: Unilever’s Sustainable Living Plan. Its latest annual report trumpets the slogan: “making sustainable living commonplace.”

CEOs need not aspire to be Gordon Gekko. But they need not strive to be Mahatma Gandhi, either. Polman fancies himself as the latter. “As CEO of Unilever, my personal mission is to galvanize the company to be an effective force for good.”  The liberal media love Polman’s shift from generating black ink to pursuing a crunchy, green Weltanschauung.

Paradigm Shifts Put Entrenched, Privileged Business at Risk

Monopolists and Rent Seekers

Various investment gurus, Warren Buffet included, have sometimes described the best investment opportunities come when one discovers a business protected by a wide, deep moat.  The barriers to competition are high.  The business in question is market dominant.  Such businesses are able to operate as a virtual monopoly.  They sit at the toll bridges over the moat and click each passing  ticket to pecuniary advantage.  If you can find a business like that buy it.  It will reward you handsomely.

But, and it is a big "but", all too often such wide-moat businesses are allowed to exist because they are protected by perverse government rules, regulations, and laws.  Competitors are not able to enter the market and drain the moat.  It is not that they themselves are not efficient, or their service or products are sub-standard, it is more that the incumbent company is protected by unjust and perverse laws rather than the loyalty of free consumers.

A market place and economy which truly respects the property rights of all citizens will abhor state licensing, rules, and regulations which impede competitors coming into the market.  When competition is free and open, watch the feather-bedded monopolies collapse; watch the water levels in the moats drain away.

One such case being played out right now is in the taxi industry, facing competition from Uber.  New York is providing an instructive example.

New York’s Taxi King Is Going Down

People don’t deserve to be millionaires because they can get government to let them pick people’s pockets.

By Jared Meyer 

The Federalist

Evgeny “Gene” Freidman is no fan of Uber. The increasing popularity of this vehicle-for-hire (or ridesharing) company has lost him millions of dollars. He has even asked New York City taxpayers for a bailout. As difficult as bailing out the big banks was to swallow, bailing out a taxi mogul—who at one point owned more than 1,000 New York City taxi medallions—is an even harder sell. A bailout would be especially outrageous considering that Freidman and his financial backers are actively working to make consumers pay more for fewer options.

Freidman reluctantly took over his father’s modest yellow taxi business as a young man. He brought his experience in Russian finance to the industry, and started to accumulate increasing numbers of taxi medallions using highly leveraged financing. Freidman expanded a company with just a few taxis into a conglomeration of three- to five-car mini-fleets. 

As Freidman’s taxi empire grew, he expanded into other cities, including New Orleans, Philadelphia, and Chicago. He gained control of hundreds more medallions that are also now in financial trouble. His willingness to bid on practically any medallion that came up for sale helped drive a rapid increase in medallion prices across the country.

Subprime Taxi Medallions

This model can work when times are good but, as the housing crisis showed, it has its dangers. It works until another technology emerges, consumers move on, and funding dries up.  This is where Uber comes in. Competition from Uber has left investors wondering how much the company will grow and what further effects its growth will have on taxis’ market share. While yellow taxi medallions were selling for $1.32 million as recently as May 2013, now they may be worth as little as $650,000.

This drastic drop in price has made the banks and credit unions that fund Freidman’s vast enterprise nervous. For example, his companies still owe around $750,000 for each medallion financed by Citibank. Without new loans to meet existing obligations and expand his fleet, Freidman’s companies became insolvent. This is why he sought the bailout and wants the government to support the medallion market by offering taxpayer-guaranteed loans.

Adding to this financing crunch, the lease rates Freidman now can charge taxi drivers who rent his cars have declined. Many taxi drivers switched to Uber, which offers increased earning potential, flexible work schedules, and improved driver safety. Competition led Freidman to complain that he is no longer able to charge the city’s legal maximum lease rate. This is promising news for drivers, but problematic for Freidman’s income.

There’s Not Much Argument for a Monopoly

Medallions commanded such astronomical prices in New York because yellow taxis had, and still do have, a monopoly on street hails in Manhattan south of the northern boundary of Central Park. Ubers come rapidly, but they are not street hails, because people summon them beforehand with a smartphone. In cities across the country that also use a medallion system, the same reasoning applies. Government restricts the supply of taxis below the level of demand, and medallion owners reap the profits—all at the expense of consumers.

It is not just Freidman’s companies that are in trouble. The banks and credit unions that funded him and other medallion owners are also worried. Just four credit unions hold security interests in over 5,300 medallions, for which they are on the hook for about $2.5 billion. In the face of greater potential losses, these companies have resorted to calling people who work in policy (myself included) to try and convince researchers that Uber is illegal and needs to be banned.

The credit union argument progresses as follows:

1. Yellow taxi medallion owners were granted a monopoly on street hails.
2. For-hire vehicles are only allowed to offer pre-arranged rides.
3. Uber uses street hails, not pre-arranged rides, to connect riders with its driver partners.
4. Therefore, Uber is illegally using street hails, and this infringes on yellow taxi medallion owners’ government-granted monopoly.

If the third premise is true, this argument could hold some rule-of-law water. It is not. The law governing New York City’s street hails date back to the Haas Act of 1937. This law restricted the number of New York yellow taxi medallions to 16,900, which was lowered and now stands at 13,437—even though the city’s population has grown by over 20 percent since 1940.

The Haas Act also set the stage for other common carrier regulations that apply to the taxi industry. These regulations place substantial limits and requirements on taxi owners and drivers in exchange for their monopoly privileges. For example, the city’s Transportation and Limousine Commission sets fare prices, and fares cannot change with increased demand for rides. This is one of the main reasons it is so difficult to hail a taxi in the rain or at the beginning of rush hour.

Updating regulations takes time, but New York City taxis were finally granted the ability to accept ride requests from smartphones (e-hails) early this year. Once taxis were allowed to accept e-hails, something they needed to compete with new technologies, four credit unions argued that the technology was now off-limits for Uber—the company that had popularized e-hails. They sued New York City for infringing upon medallion holders’ monopoly privileges.

This makes no sense. How can a decades-old law covering street hails be construed to cover ride requests made through smartphones? Anyone who has tried to hail a taxi on the side of the road, and then used Uber, knows that the two experiences are vastly different. Simply put, holding your hand up is not the same as pressing a button on your phone.

How to Save Taxis Without Squeezing People

The path forward is not to ban ridesharing or bail medallion owners out. It is to make taxis more like Ubers. This takes more than simply allowing taxis to accept e-hails. Rather, the only ways to save taxis are greater flexibility in pricing and service and increased competition.

As Uber’s rise has made obvious, when the crucial aspect of competition is missing from markets, established companies do not have to worry about improving their services to attract and keep customers. Regulations need to be continually modified and updated in light of new technology.  There is no reason to require New York taxis to have expensive (and annoying) Taxi TVs. Pointless mandates such as this only increase the cost of taxi rides.

Even with a relaxed regulatory framework that embraces ridesharing and competition, taxis will still have an advantage. No one is talking about taking away New York City’s yellow taxi monopoly on street hails. Applying antiquated laws and regulations to new technology is what laid the groundwork for the rise of Uber and other ridesharing services in the first place.

Everyone Shouldn’t Pay for Some People’s Bad Bets

Credit unions oppose allowing Uber to grow because they want to protect their investments. The Queens County Supreme Court ruled against the credit unions last month. The court found that the credit unions did not have a cause of action against the city and its Transportation and Limousine Commission. This was a major win for Uber and consumers, but a death-knell for Freidman’s business and its financers.

The whole yellow taxi financing model is crashing, along with medallion prices. After the ruling, Montauk Credit Union, one of the plaintiffs, was seized by the New York State Department of Financial Services because of “unsafe and unsound conditions.” The day that New York City’s proposed cap on Uber’s growth was defeated, 22 of Freidman’s mini-fleet companies filed for bankruptcy.

Even if medallion holders such as Freidman lost a lot of money, it does not follow that the public should subsidize their losses. The returns from a yellow taxi medallion in cities such as Philadelphia, Chicago, or New York far outpaced the stock market or gold for many years. The values of these medallions about doubled in each city from 2009 to 2013.

Investments carry risk, as Freidman knows from his background in finance. He made a poor calculation that the Manhattan yellow taxi street hail monopoly would continue to provide him enough future cash flow to satisfy bankers, who would loan him more money to expand his fleet. Freidman and his investors have no claim to a taxpayer-funded bailout to cover their poor business decisions. Perhaps they should consider investing in Uber instead.

Jared Meyer is a fellow at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter @JaredMeyer10.

Plain Packaging Has Other Fish to Fry, Not Tobacco

All the Plain Packaging Lobby Really Wants is to Hear Tobacco Companies Squeal

The lessons from Australia are clear: plain cigarette packs may are a dream come true for the counterfeiters and may not even reduce smoking

Christopher Snowdon  
The Telegraph 
January 22, 2015

So much for evidence. With every indicator showing that plain packaging in Australia has been, at best, a damp squib, the campaign for this risible policy was won with the one oft-repeated question: "Why would the tobacco industry spend so much time and money lobbying against plain packaging if it didn’t work?"

Like all rhetorical questions, it is supposed to answer itself: "Because they know that plain packs will deter people from smoking, stupid." The answer is clear, simple and wrong because it confuses profit with volume. Profit margins are bigger on premium brands, which is why big cigarette brands - just the brands, not the cigarettes - are worth billions. Get rid of the branding and many smokers will turn to cheaper brands which have tighter margins.

This point was made by Professor John Britton on the Today programme this morning when he said that plain packaging was likely to lead smokers to switch to cheaper fags. This, he said, “makes tobacco less profitable, which is bad news for the industry and that’s why they’ve been opposing it.” It is rare for an anti-smoking campaigner to state this so explicitly, but with the battle won the truth can be told. It is quite conceivable that plain packaging could harm the industry without reducing its customer base. Indeed, the law of demand suggests that a shift towards cheaper cigarettes could lead to more cigarettes being sold.

Business People Dangerous When It Comes to Politics

Banal Business Naivete

Stephen Franks
February 14th, 2015

Few business people are good at democratic politics. They expect what works in business to work in democracy. They’re frustrated by the messy necessity to maintain a working consensus, by multiple conflicting objectives, and by the unreliability of delegates.

They think that if only the right people were in charge, the best structures and systems would be like those in business, where everyone accepts single prevailing decisions from nominated rulers, and he who pays, rules.
Business people who get embroiled in politics commonly hate it so much they eject before they flame out. Those who survive and learn may be small in number but they are among the best we have, and we owe them a lot for their patience.

Many good business people are equally hopeless in assessing policy. I could not count the number of times I’ve heard the idiocy that the Resource Management Act ("RMA") is a good law, with nothing seriously wrong with it except how it is administered by council people who are stupid or wrongly motivated. These business defenders have no idea that they’ve just explained exactly why the RMA is  so badly conceived and written as to besmirch the rule of law.

Letter From New Zealand (About an American Who Met Reality)

How George McGovern Discovered the Real World

Liam Hehir
Manawatu Standard

. . . I have always liked the story of how former United States senator and Democratic presidential nominee George McGovern came to appreciate this. After losing a re-election in the Republican wave election of 1980, McGovern needed something to do in his retirement years. Having long held an interest in hospitality, he decided to use his savings to buy a small hotel and conference facility in Stratford, Connecticut.

It was not long before a terrible truth dawned on McGovern: being a small businessman was much, much harder than it looked when he was a history professor and a politician. His business went under in less than three years. Most of McGovern's savings went with it.

In the years that followed, McGovern often wrote about his business failure with great intellectual honesty.

The Visible Reign of Christ

Well Done

An issue which bubbles to the surface from time to time concerns the form and shape of Christendom.  What does a society look like when it becomes thoroughly Christianised?  More and more evangelical Christians appear to be thinking seriously about such a question.

One aspect of Christendom--the visible reign of Christ over a particular society or nation--is that Christianity has become culturally "thick" in the sense of pervading, influencing, controlling, and shaping everything.  It encompasses the small and the great, the least to the most significant, the weak and the powerful.  Because the Christian faith involves the regeneration of human souls and the progressive conformity of men, women, and children, and their families and households, to the image of Christ Himself, Christendom thereby encompasses the depth and breadth of human culture.

Every so often we are given a glimpse of what this might look like.  A recent obituary published in the Washington Post provided just such.  Probably few people have ever heard of Truett Cathy, who has just passed away, aged 93.  Millions of people, however, will be familiar with the business he founded--Chick-fil-A.  What is instructive in the life and ministry of Cathy--and in the business he founded--is the insight it provides into how Christendom takes shape.  Mr Cathy was a Christian and he wanted to build a Christian business.  What form did it take?

Keeping Business Honest

Rotten Eggs

It is a truism that in the heart of every merchant lurks a craven monopolist.  Given the merest chance monopolist conspiracies will arise in the throat like nauseous bile to hobble competitors and corrupt the market.  We believe strongly that civil courts must be open, accessible, and vigilant to break up such conspiracies--whether upon the unsuspecting customer, or competitors, or upon regulators.  The civil courts need to be vigilant to prosecute with alacrity all forms of fraud, deception, theft, and false weights and measures.  The civil courts must be accessible to plaintiffs and inexpensive. 

Unfortunately, due to the ceaseless flood towards centralised government, none of this is the case.  Civil courts have long since languished into a very weak and expensive and anaemic relation of justice, whilst central government rules and regulations flood websites and exhaust printing presses.  Which suits the monopolists just fine.  They have sufficient funds, industry associates, and cabals of fellow merchants to massage and morph regulations to suit their own interests.  The consumer consequently becomes a well gnawed carcass.

The egg industry in New Zealand is certainly oligopolistic in structure if not virtually monopolistic. 

Keeping Business Honest

Industry Groups and Associations Represent Conspiracies

It may come as a surprise to some to learn that business owners and capital investors are evil people--not in any specific or particular sense (as Marxists believe) but in the general sense of universal human depravity shared by all human beings, born and unborn.  This general truth is at the core of the Christian faith, being explicitly declared in Holy Writ, (Romans 5:12-14) and professed in its creeds and confessions (for example, ". . . all mankind descending from him [Adam] by ordinary generation, sinned in him and fell with him in his first transgression."  [Shorter Catechism, Question 16].

Business owners and capital investors share, along with all men, the blight of universal human depravity.  Therefore, it is a reasonable expectation that given half a chance they will take any opportunity to advance their own position, wealth, and well-being at the expense of  fellow men.

Envy at Work

Hating  Business

The Left's pathological hatred of business is nothing more than a hangover from antediluvian cloth cap socialism.  It continues to seethe palpably in the rank and file of the unions, the Labour Party and the Green Party. 

This contempt for business springs from primitive socialist principles such as its dystopian egalitarian ideal (from each according to his ability, to each according to his need); the idea that all profit represents exploitation of labour; and the notion that businesses run for profit represent institutionalised theft, whereby if a business makes more than break even financial results it is charging too much; it is "ripping off" its customers.  Finally, the Left believes that business owners are lazy: they allegedly make money off other people's hard work whilst they themselves do little or nothing.  

This cluster of bizarre, incoherent cluster of  beliefs make up the Left's antipathy to business and business owners.  Beneath it all lies a more sinister, destructive social evil--envy. 

Rodney Hide takes the on the Left's pathology up front.