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Tuesday, 17 July 2018

Winston tells China to SOV(erign) off: We will buy our guns; please keep buying our butter

The first draft of this article was far too sarcastic even for me. The second draft was not sarcastic enough, while the third was just right.

There was an interesting confluence of events in politics last week that caught my attention that had something to do with China, P8 maritime surveillance planes, Defence commitments, Winston Peters and some nurses going on strike.

Unfortunately in the winter of our political discontent, where public servants, low wage workers, teachers and nurses are going on strike, 3.2 Billion dollars (said like Dr Evil from Austin Powers) is a lot of cheddar cheese to be putting out for three planes.

So, how do you sell these fantastically expensive pieces of equipment to a public clamouring for cheaper housing and increased wages? How do you make a bona fide, fool proof case for spending 3.2 billion dollars on military hardware when that money could go a long long way to addressing issues like the housing hernia and 30 years of stagnant wages.

Answer, you cook up a defence report which specifically names a threat which these, and only these planes, can counter; in this case Chinese submarines, correction, insidious Chinese submarines, prowling through our territorial waters, sowing higher property values and corrupting National party MPs as they go.

Unfortunately there was one small problem which was that China (rightly or wrongly) did not appreciate being labelled a threat by some pip squeak nation which it expects to just shut up and sell its land to so China issued a strongly worded piece of propaganda response demanding that we all just get along in peace and harmony (like China is doing in the South China Seas) and all will be well.

This caused some problems for Gollum Ron Mark who immediately realised that with no manufactured credible threat there would be no rational to buy those expensive planes that the top brass in the Air Force had been telling their Australian and US counterparts they would be buying, so they could go to the Generals Ball.

But wait, whats this, is it a bird, is it a plane (if it’s a P8 it is), no it’s the acting PM, Winston Peters, coming to the rescue with a unconditional reply which stated that it’s the sovereign right of a nation to decide who is a threat and who is not, so there!

Economic Interlude (play this music while reading)

In economic theory the balance between military and civilian spending is called the Guns verses Butter model. It’s not quite an either/or situation but it is supposed to highlight the limited resources a nation state has in a time of competing demands for those resources.

Do you buy guns to defend yourself against the enemy next door or food (the butter) for the people?
Neither answer is correct per se but if posed properly it should force the decision maker to prioritize or even balance competing demands against the strategic environment they operate in.

In New Zealand’s case we don’t have any real military threats to our nation but we seek (some would say sycophantically) to be a part of various western based military and international orders which, both militarily and economically, promote open markets and liberal democracy, so in order to be a part of that order we have to align our interests with those of the bigger actors (both economically and militarily).

Therefore while not subject to a traditional gun versus butter analysis there is still a decision to make regarding the price to pay in remaining part of the economic, political and military order.

And in New Zealand’s case the question is around staving off growing social/political/economic discontent in the general populace against the need to be part of a larger social/political/economic order which, in many cases, is creating and driving the aforementioned discontent at home and then the need to sell our products (and ourselves) to a nation we just named a threat to us.

Interlude ends

So, did NZ make the right choice? Will the Chinese retaliate? Is it worth all this cost to be part of a club which increasingly seems to be only marginally better than the states it opposes?

And why can the government invoke the “sovereignty” option so bloody quickly when it comes to buying some military hardware but not when faced with land and asset sales to foreign interests, spies of foreign powers roaming the halls of the Beehive or where we have hitched a large part of our economic wagon (ie all that butter and milk we sell to China) to the nation we just invoked our sovereignty against that has a social, economic and political system in direct opposition to ours.

And just for those whose perspicacity may be waning, sovereignty, in this context, means the authority of a state to govern itself.

I suppose I should be thankful because under National we would have still gotten the planes but not the cheap catharsis of watching Winston telling China to buzz off, at least when it comes to the findings of the defence report that is. National would have just pandered to China (yes the pun was intended) and maybe asked for another spy to replace Jin Yang.

And there is an argument for NZ having maritime patrol planes, one which I do support but in politics, like music and humor, timing is everything.

Sovereignty in this country has long been a highly abstract concept as when Labour recently ratified the TPPA, citizenship is up for sale to any billionaire who wants it, we still remain a haven for money laundering while tourism and dairy sales are destroying our environment for the short term gain of a small few.

In the end Winston coming out and playing the sovereignty card was merely symbolic so that buying the P-8s can go ahead with the clear conscious of the NZDF and the politicians, who will also be hoping that China will keep on buying our butter and dairy. Let’s hope the Chinese see it that way.


  1. "we still remain a haven for money laundering "

    interesting, I work in a major international finance company and we do not list New Zealand as a location that is high risk for money laundering.

    Would you advise us to update our risk metric to take New Zealand's money laundering activities into account?

  2. Given that I work right next to people whos job is dealing with money laundering in NZ and I used to deal with similar issues for INZ I would say yes.

  3. Sure, money laundering happens, but money laundering happens everywhere. There are people in Canada who do the same job, that doesn't mean Canada is a haven for money laundering.

    Are you aware of the Basel AML Index? It is basically the international standard for money laundering country risk.

    As you can see New Zealand is at #142 (lower is worst), which puts it in the top 3%. Sweden and Ireland are considered riskier.

    Could you comment?

    Perhaps you could ask the people who you work next to if they believe the Basel Index is incorrect?

    1. The Basel Index is one source used by people in AML and as far as I know its a secondary one so while useful its not the primary driver of how the AML risk is assessed (and no I cant give you the full list for reasons but we use the Fatf database more than Basel).

      In any analytical activity its always advised to use multiple sources (ie triangulate your sources) rather than simple indexes. Also such an index as Basel rely on its own sources which may not always be verifiable or sufficient.

      However consider this, NZ has only recently changed its AML regulations to include a broad swath of sectors and areas which it did not previously cover (lawyers, proprty and others) and this has necessitated a major increase in the staff and widening of the scope in AML.

      Previously AML in NZ was severely constrained to a limited range of actors (mostly banks).

      Also consider that while this is an improvement the powers newly minted are still relatively regulatory and rely mostly on detection via remote/disclosure methods rather than stricter controls or direct means like investigations and prosecutions (those only occur in the most serious cases).

      Finally the recent changes to banking regs (ie around info disclosure) are an improvement but have yet to be proven tools rather then just weeding out the most obvious cases.

      The problem being that countries like Afghanistan are obvious cases for AML activities (due to their high levels of corruption) but its the more sophisticated economies (often deemed less corrupt) where AML is the greatest risk because such economies provide more sophisticated means to launder money (ie no one is going to use the housing market in Afghanistan to launder money but in NZ they might).

      So the recent major increase in NZ's AML regs means that yes the risk has been acknowledged but that does not means its adressed yet and nor is it a simple case of pointing at a measure and saying its good or bad.

      AML/CFT work can find the greatest risk not in corruption but in ignorance, lethargy and inaction which is where NZ was for a long time on this matter. Recent changes are definitely a step in the right direction but dont forget John Keys lawyer was shilling for offshore money havens in NZ only a few years back.

    2. "In any analytical activity its always advised to use multiple sources (ie triangulate your sources) rather than simple indexes."

      I am not aware of a single source - Basel, FATF or any other - that puts New Zealand at high risk for money laundering. Are you?

      "So the recent major increase in NZ's AML regs means that yes the risk has been acknowledged..."

      I don't think the update in AML regulations is relevant to proving either your point or my point. Almost every country regularly updates its anti-AML regs every 5-10 years; this is true for countries at all levels of AML risk. It proves nothing in either direction - I'm not sure why you brought it up.

      "The problem being that countries like Afghanistan are obvious cases for AML activities (due to their high levels of corruption) but its the more sophisticated economies (often deemed less corrupt) where AML is the greatest risk "

      So just to be clear, you would say there is a greater risk of money laundering in New Zealand than in Afghanistan?

    3. In regards to your first question I was merely referring to your reference to the BASEL but the point being is that you saying "look at this refference" as an indication, pro or con, that money laundering was/was not an issue is only one part of the picture.

      On the second point I got that straight form the horses mouth so to speak, ie someone far up in NZs AML regulatory structure and if you don't think nearly 60 new staff and a major build up for a govt regulatory arm is not an admission of risk then i don't know what is.

      Third: size and scale my friend, size and scale. As I noted money laundering requires relatively sophisticated financial systems and services to avoid detection (also because in countries without that you don't need to money launder) so yes, the risk in NZ is greater.

  4. Any government is free to name any foreign state as an enemy, just as Winston Peters is free to exercise his right to walk into any public bar and shout out the names of patrons who he would like to fight, with or without provocation. But would it be prudent to act in such a way? Was he, the Labour-led government, and the Realm of New Zealand wise to name the Peoples Republic of China as an enemy?
    If the Realm of New Zealand had offered such a provocation to the United States of America all hell would have broken loose. But perhaps fortunately for us, China is not the United States. New Zealand will no doubt be hoping that China will react the way that anyone does when faced with a loudly yapping but very small lap dog. That is, with a bemused smile. That, however, cannot be safely taken for granted. Welcome to Wellington's year of living dangerously.

    1. Nice analogy about the yapping dog Geoff and I like the idea of Wellington living dangerously for a year.

      In regards to the difference between the US and China is that while its not the mother country the US has more significant and stronger links (both cultural and otherwise) with NZ than China.

      That may change over time but to go beyond a certain point we would need to embrace Chinese political ideals and most of NZ would not be down with that, although given how Winston is going with the Waka Jumping Bill we might just get there.

      So yes Wellington is living dangerously at this moment.

    2. China's attitude to NZ will be shaped largely by pragmatic considerations, not declaration, on that we can all agree.

      But what this means is that, while it's true that NZ's declaration that it views China as a risk will not necessarily cause conflict, it's equally true that, were NZ to declare that it did not consider China a risk, this would not necessarily prevent conflict either.

    3. Hi Anon: I'm inclined to agree in the pragmatic sense but while NZ's comment did not cause conflict with China it did not make them happy and in that sense its more of a by degree shift than an open break.

      Think of it as NZ going from "friend" status to frenemy status.