Kiwibuild good for big business and bad for small businesses

Liam Hehir writes in the Manawatu Standard:

There is a persistent assumption that big business suffers under Centre-Left governments and prospers under Centre-Right governments. …

But this is an overly simplistic analysis. Consider Labour’s “Kiwibuild” policy, under which it promises to build 100,000 cheap houses in the next 10 years.

Hehir continues:

Last week, spokesman Phil Twyford claimed that in some instances they would sell for as much as $125,000 less than current market prices.

This is to be achieved through the state leveraging its buying power and the contracted building firms agreeing to take a smaller profit per unit in the hope of making it up through sheer volume.

Without commenting on the overall viability of the proposal, it is certainly ambitious.

For its targets to be achieved, the programme would need to have an average of 10,000 new houses built every year. That works out to more than 27 new houses being completed every single day.

The question is: Which businesses will be in a position to undertake work on such a grand scale? It is not likely to be your typical small, medium or even large regional operators. At best, some of these people might pick up employment or subcontracting work.

However, the number of companies that could take on the scale of work required to make such a venture profitable is actually small. The most prominent firm normally mentioned here is Fletcher Building – the largest company listed on the New Zealand sharemarket. In fact, Labour met with the multibillion-dollar company to discuss the policy when it was first launched last year.

So how is that for corporate welfare and crony capitalism!

Once you grant that government intercession often privileges big businesses, it is easy enough to find other examples of the principle in action – often to the detriment of smaller competitors.

For example, something that has been suggested is that only those businesses that can pay their employees the “living wage” of $18.40 should be eligible to tender for public sector contracts.

Naturally, big businesses are much more likely to be able to absorb a 30 per cent increase in labour costs than start-ups or smaller competitors.

Were such a rule put in place, it would be much harder for those smaller players to compete in that key segment of the economy.

So small businesses go under.

Where the cumulative expense of new restrictions and mandates might slow down big business, they can be fatal to smaller firms.

Is this a problem? The answer probably depends on what your interests in the matter are.

First Union secretary Robert Reid was criticised last year when he said small businesses that could not operate under the conditions his union demanded should go out of business. In the context of his job, however, those comments were not totally unreasonable.

Unions advance the interests of their members – few of whom work in small businesses. Any benefit big corporations get from union proposals is incidental to the union’s purpose.

The union’s purpose is to get their preferred parties into power, so they get policies that help boost union coffers.

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