Is all investment good?

I read this morning (admittedly I’m late to the news here) that Chinese investors have gobbled up over 300ha of vineyards in the Awatere Valley (the old Otuwhero Estate Wines). Although I’m sure there will be a little soul-searching over here as to what that means, the last say on the matter went to those in charge of overseeing the sale:

Jarrold told the Marlborough Express that the acquisition was ‘a good thing’ for the land and for local jobs.

Before I begin launching into this I have to make it quite clear (not least after my previous post) that there is no xenophobic level to this post, I only want to question why we see investment and acquisition as a good thing.

My point is that praising investment is all too easy in business-speak and it’s a business-speak that rarely gets too much attention. After all, investment must be good right? Essentially it comes from the notion that money in our society is distributed to the people from the top down. It implies that investment in a region means that the money from that investment will eventually dribble down to the vineyard workers, the bottling lines and the peripheral businesses of winemaking.

For starters, its a nasty notion. It effectively condones the lifting of skirts for any amount of cash you care to name.

I remember reading an outraged post by someone on facebook recently who pointed to the fact that women beggars in London were hoooked on alcohol and drugs, giving the cash from their begging to their ‘landlords’ (organised crime bosses) and distributing the small children with which they went begging on the Underground between each other. The reason these children were always asleep during the day was because they’d been kept up all night by their ‘mothers’ drinking. Finally, the post urged people not to give their spare change to such beggars because the children saw nothing of it and it was all handed over to organised crime.

I couldn’t help thinking that in our current adoration of top-down wealth distribution, precisely the opposite should be demanded: that we give more money to the beggars so that it had more chance of filtering down to the children.

So we should ask ourselves, every time we hear that investment will be good for a region, what exactly that investment entails. As an extreme (and unfair) example, we could wonder whether the Chinese investors in Marlborough will try to maintain their country’s working hours and wages in the region. Were this the case, would the people who have to work in these vineyards be better off?

A lot of commentators will say that such an investment is better than people being redundant – an argument I understand but one I have very great misgivings about. For two reasons. One is the rhetoric: a job is better than no job – accept this and you open the gates to exploitation (and, incidentally, you break the absurd Free Market mantra that people are always free to leave their jobs). The second is Oscar Wilde’s point:

Just as the worst slave-owners were those who were kind to their slaves, and so prevented the horror of the system being realised by those who suffered from it, and understood by those who contemplated it, so, in the present state of things in England, the people who do most harm are the people who try to do most good.

In doing good, we bring investment to a region. In itself, it’s not a bad thing, but all investment must be regarded with open eyes and an understanding of what it might represent to the people that it affects. Something we seem ill-equipped to do.

The next time you hear someone praising investment in a region (by insiders or outsiders), just take some time to wonder who is getting the most out of that investment. After all, I remember conversations with close friends telling me that the British invested heavily in the likes of India and Kenya when they were part of the empire.

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3 Responses to Is all investment good?

  1. Julian Hofmann says:

    Olly, forgive me but this article isn’t financially literate. I think you’ve confused the deployment of capital to create a measureable return with the trickle-down effect of lower taxes, a theory that was fashionable in the 1980s. Cutting taxes, in this context, is a way of boosting consumption by allowing individuals to allocate resources in a way that fulfills their needs/wants/desires, whereas investment is a way of increasing capital by risking it.

    Buying 300 hectares of productive land is about using capital to create a return, either through an intangible rise in asset prices, which is beyond our control, or through the production of a saleable commodity such as wine. Far from trickling down, with investment, if anything, there is a trickle-up effect as our savings are often used to finance or guarantee projects such as this through company pension schemes. Investment of this kind can also be good for markets and countries where the availability of domestic capital is limited. NZ fits into this category.

    You could also argue that such a large investment from overseas is a sign of confidence in the country’s economic model – no one is going to arbitrarily grab it, for example. It is also actually quite canny – with interest rates due to rise, the Kiwi will probably increase in value in relation to major currencies, giving an automatic return. However, there are still risks: the arse could fall out of the world wine market – wine is as subject to boom and bust as any other commodity – land prices could fall drastically as interest rates rise. A vineyard, despite its product, is essentially an illiquid asset that stay stuck on the books.

    Turning to your labour point. Any impact on peoples’ terms or conditions arising from inward investment is irrelevant to how capital is deployed. The main factor in determining wage rates is the availability of labour, not of capital. In a small country with a tight labour market, workers in fact enjoy a relatively good bargaining position and canny employers recognise that paying decent rates means creating the consumers who’ll buy your product. Whether wages are enough to live on depends on governments and central banks keeping inflation under control.

    Overall, the market in this case seems to be working remarkably efficiently and the Chinese should be applauded for their vision 😉

    • Oliver says:

      My point is (whether it is economically accurate or not – I’m obviously saying it isn’t always) that people generally have a tendancy to equate investment with being a good thing on the assumption that we somehow benefit from that money (that capital risk, as you put it) – you certainly imply that the financial sector (the market) will.

      As you point out, there is not necessarily a positive (or negative) corollory to capital investment – it depends on which vista you chose to use. I take the side of the vineyard worker, not the guys sitting in banks in Wellington or Auckland for whom I’m sure more investment/money/confidence is a good sign (you might even argue that eventually a growing economy is good for the vineyard workers and I’d be inclined to agree, although I remain highly sceptical given that the modern economic model is low growth, low wages and high profits, something which clearly benefits only a small sector of the population, no matter how much you hold people’s pensions to ransom with it).

      The availability of vineyard labour is considerable and thus, as you have said, cheap. Wages and conditions can be pushed down and regularly are. Two years ago certain wineries in the Wairarapa weren’t even providing rudimentary sanitary conditions (i.e. toilets) for pickers during harvest. I am led to believe this has now changed but I would not be greatly surprised if there are still examples of this within New Zealand (and not limited to the ‘grape’ sector).

      But even taking most of what you say as being true, I don’t see any of your points as saying that investment is good for the people who will eventually have to work that vineyard. From what I can tell, all it has done is improve (maybe?) the capital of the seller and (maybe?) the picture (albeit slightly) for the New Zealand economy.

      I’m very happy for the market but, as you point out, capital is simply deployed. It is not responsible. Thus (and we get back to the point of my post) it is as unreasonable to say that investment is a bad thing as it is to say it is a good thing. I just wanted to debunk the notion that we should somehow praise all investment, much like we did when Phoenix bought Rover off of BMW.

  2. Julian Hofmann says:

    Clearly there is good and bad investment, though mostly we won’t know until after the event. The Phoenix/Rover case, though, is not an example of either but of a futile attempt at subsidising a failing business. Undoubtedly, it was socially responsible not to triple the short-term unemployment rate in Longbridge – it was the then-Labour government that underwrote the deal. However, the Phoenix consortium risked none of their own capital and left the taxpayer with a massive loss when Rover inevitably folded and the directors looted the company. If proper investment decisions had been made and the hadn’t government ignored a viable alternative bid that would have turned rover into a specialist car maker – something which has since happened with the revival of the MG brand – then the outcome would have been significantly different.

    Not to overdo the point, but in the case of the Chinese and and the vineyard example. The vineyard was bought from the receivers Deloitte Touche. If the previous owners could not run the business profitably – one suspects they were hindered by a lack of capital investment – then the purchase by new owners with better sources of finance seems to be a positive development. The Chinese have a good deal and new investment in the estate will create its own benefits for employees if it is run properly.

    Anyway, old bean, good to see you blogging again and I hope you are enjoying life on the Great White Cloud.

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