Tuesday, May 13, 2008

Tiwai shrugs?

It's not possible to accurately model or predict the effect of new taxes, new regulations and new impositions by governments.  However much politicians and treasury officials might wish it were otherwise, every new tax, regulation or imposition will fall differently on every producer -- the fact is that no one person knows or can know what the cost is going to be of any new law or tax.

Despite the polished ease of treasury mandarins in predicting that the latest fashionable ban, regulation or tax will cost exactly 3.765 quintupple spondulicks (predictions backed by a forest of hefty paperwork and a library's worth of OECD figures), the result of any ban, regulation or tax is not a smooth function easily modelled by sleek treasury mandarins -- it's not a smooth function easily modelled because the overall cost is really a product of every producer doing his own equations to determine whether or not the extra cost on his production is worth it.

In other words, he's deciding on his own tipping point. He's deciding whether or not it's time to shrug. 

There's just no way a central government planner or treasury mandarin can predict that point even for one producer, let alone a whole country's worth (although the government makes their job easier by actively trying to reduce the number of producers able to stay in business in this country) and there's no way at all they can predict the knock-on effects of all these individual tipping points.

This in essence is what Hayek used to call "the problem of knowledge" that is faced by government planners.  (It's strange that a party of Hayekians seems to have forgotten this basic point.  If you want to know more about it, you can read Hayek's basic point here.) 

{76C81E68-8C98-4153-8B35-094F11C62F8B}If you found all that talk just a trifle too obtuse, an example of this very thing was thrown up in this morning's news all the way from the very bottom of the country.

While the talk around the government's emissions trading scheme has been around what the precise cost will be to New Zealand business in the aggregate, sums that treasury officials and David Parker have been waving around with some abandon, the CEO of Bluff's Tiwai Point aluminium smelter has been doing his own sums on what it will mean to his business in particular: he says that if the scheme passes, the Tiwai Point smelter will be "on the path to closure."

    The smelter’s owners, Rio Tinto Alcan, said the proposed emissions trading scheme was likely to make its operation unviable and the work it does would be moved to a country without such costs.
    Rio Tinto said the move would be a blow to the Southland economy as it directly employed more than 900 staff and contractors, while sustaining 2600 jobs and 20% of the region’s economy.
    The multinational flew in its regional president, Xiaoling Liu, to warn the select committee considering the climate change legislation that it could close down the operation.

This closure will not help "the environment."  Rio Tinto will simply move operations to location without this particular brand of lunacy.  It will simply help pauperise the country, with no gain at all to New Zealand.

And this is not just about jobs in Southland -- it's a sign of which every economist should take note, and which every business should take understand.   Make no mistake, the effect on the New Zealand economy of just this one closure would literally be incalculable.   Every New Zealand fridge is full of aluminium cans -- cans made with aluminium that came from Tiwai; nearly every New Zealand home is replete with aluminium windows -- windows made with aluminium that came from Tiwai; every single manufacturing operation still left in New Zealand is be the beneficiary of aluminium components made vastly cheaper because they come from Tiwai. 

Cups, cans, pens, torches, cooking pots, cars, ladders, lightweight scaffolding ... every house, fridge, garage, workshop and factory in New Zealand has taken advantage of the relative cheapness of local aluminium, and all because of what was once cheap power.  And Tiwai is only the most obvious of locally-based businesses doing their sums in the face of this forthcoming new imposition.

This is how an economy goes.  Not with a bang, but with a series of quiet shrugs.  This is what the first of the 'last straws' looks like. 

But don't worry, say the advocates of emissions trading, those apostles of punishing business.  Don't worry, we've heard this whimpering before, they say, and Tiwai Point is still with us.  This is tantamount to saying that no matter how many hurdles are placed in the way of producers, they'll  always find a way to "do something"—even in the face of the most irrational and impossible demands.  How?  Somehow .  As the head of the American Transport Workers' Union said when announcing yet anther city transit strike a few years ago, "A lot of people are thinking we are taking this to the brink. But it so happens that every time we went to the well before, there was something there." Do you think he, or any of today's politicians, would know a 'last straw' when they saw one?

What happens when the well has run dry and there's nobody left to shrug -- when the Fisher and Paykels and the Rio Tintos have gone offshore for good, and the likes of Dubai Aerospace and Canada Pensions has been told to sling their hooks, and we're left with just high taxes, lush forests and the rusting carcass of a nationalised rail network -- nationalised in the name of this same environmental lunacy. 

Who will be the "rich pricks" then?

UPDATE 1:  The Hive has spotted that The Wall Street Journal is Laughing At Us, and kindly reproduced their  scathing editorial on NZ's cap-and-trade madness.  As The Hive comments,

Just what we don't want at a time when foreign funds are more difficult to access, an Editorial in the Wall Street Journal pointing to enormous country risk! Well it happened to New Zealand today.

UPDATE 2: Wouldn't you know it.  Labour's SubStandard bloggers play the Venezuela card:  "Rio Tinto should fuck off," they say, leaving behind their "state of the art smelter and trained workforce in Bluff" so Labour can nationalise it.

They really are evil, ignorant scum-sucking bastards.  (And some people still say politics is about playing nice.)

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12 Comments:

Anonymous Falafulu Fisi said...

PC said...
Rio Tinto will simply move operations to location without this particular brand of lunacy.

I think that if they look somewhere to take their business to, then King Tupou 5th of Tonga would be happy to welcome them in the kingdom island. Cheap labour indeed. It would be good for Tonga's economy. Rio Tinto needs to build its own power station, and King Tupou could be persuaded that t nuclear power station is what's needed to generate power for Rio Tinto's plant operations .The only resources required from overseas are some trained engineers , business managers, and they would be up and running in a year or two.

5/13/2008 02:18:00 pm  
Blogger PC said...

Tongan nuclear power. I love it. :-)

5/13/2008 02:22:00 pm  
Anonymous Elijah Lineberry said...

One other point on the "we have been here before" front...when Tiwai has been in situations of the Government diddling them over electricity costs or other matters in the past, it was not owned by Rio Tinto.

They are 'hard men'..very ruthless, and would not hesitate the way Comalco [did].

5/13/2008 02:50:00 pm  
Anonymous Elijah Lineberry said...

An amusing and highly entertaining to watch example of why Rio are not the sort of chaps to mess with...

A few weeks back when the talk about BHP taking over Rio was at its peak, the Rio people started shorting BHP shares... one parcel of 50,000 was offered for $10..and it was fascinating to sit here watching to see if the order was actually going to get filled (the BHP share price being around $42 a few minutes earlier)...so yes, Clark/Cullen et al would be well advised to pull back from a showdown with these people.

5/13/2008 02:55:00 pm  
Blogger Comrade MOT said...

Just in case you would like to know act is opposed to the emissions trading scheme.

5/13/2008 03:31:00 pm  
Anonymous Anonymous said...

The socialists don't have a good track record of understanding that the private sector will close/walk away from under performing assets.

They would be prudent not to call their bluff (If that word is in their lexicon).

But then perhaps they could buy Tiwai as a strategic asset and then subsidise all the aluminium sold?

5/13/2008 04:21:00 pm  
Blogger PC said...

"But then perhaps they could buy Tiwai as a strategic asset and then subsidise all the aluminium sold?"

Oh gawd, don't even joke about it!

5/13/2008 04:43:00 pm  
Anonymous JC said...

"Oh gawd, don't even joke about it!"

It's actually a good idea. We get the Cullen Fund to buy the train set and an abandoned Tiwai as the foundation of top assets to fund future retirement plans.
What could go wrong?

JC

5/13/2008 05:56:00 pm  
Anonymous LGM said...

FF is quite right. And if the King ever did make the decision to do this you can guarantee he'd put together a very lucrative and compelling deal.

BTW Tonga was once the most powerful group in the Pacific. They had territorial holdings as far away as Samoa and Fiji.

A resurgent Tonga would be a very good thing to occur for the Pacific.

LGM

5/13/2008 06:50:00 pm  
Anonymous hanso said...

Long live the King!

5/13/2008 09:30:00 pm  
Blogger libertyscott said...

The SubStandard - the blog for thieving cunts - there is no other way to describe them. Envy ridden grubby little nobodies who want to take, but don't produce. The slobbering beast.

5/14/2008 09:12:00 am  
Blogger KG said...

"Envy ridden grubby little nobodies who want to take, but don't produce. The slobbering beast."
LOL! Bullseye!

5/14/2008 09:24:00 am  

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