Scoop Election 08: edited by Gordon Campbell

On the plans for privatization

January 27th, 2011

Hard to see how opening the door to greater demands for higher profits from state energy companies will result in reduced power prices – or that “Mum and Dad” investors will be the real beneficiaries of the plans for partial privatization announced yesterday by John Key. Leave aside the ideological point that “Mum and Dad” investors already own the state assets concerned and are thus being asked to re-buy a stake in their own possessions. Let’s also avert our eyes from last year’s massive state bailout of such investors in the Hubbard empire.

The reality is that New Zealand investors have a habit of selling up quickly for short term profit – even when they are investing in companies with long term growth prospects. The evidence is here

Air New Zealand peaked at 42,111 [investors] in 2001 but since then has fallen steadily, The decline has accelerated in the past twelve months.

Ironically the two best performing privatisations have lost the most number of shareholders. Auckland International Airport is down from 65,411 since listing and Contact Energy, the other top performer, has experienced a huge fall, from 220,000 on listing day to 95,623 this week.

The Contact Energy figures indicate that New Zealand investors like to crystallise profits, even if their investment has great long-term prospects.

So much for John Key’s vision that his partial privatisations will be an engine to drive investment in the nation’s long term growth. Only the state can do that in a country as small as New Zealand. The existing evidence is that most “Mum and Dad” investors will buy in fast and sell up to the first buyer offering them a profit – and currently, those buyers are likely to be cashed-up Australians looking for easy pickings.

Make no mistake: the partial privatization plans are a mechanism that will deliver Australians and Asians even greater control of the New Zealand economy. As Greens Co-leader Russel Norman has argued, the process will see more profits siphoned offshore, and cause a further deterioration in our current account deficit that will– in the medium term – raise, and not lower, the cost of overseas borrowing.

John Key is now using his mismanagement of the economy as an excuse to sell public assets and cut important social and environmental spending,” added Dr Norman.

“The fact is that in a small country, like ours, we need state assets to drive innovation and investment in our economy.

“Public assets are also vital to prevent corporate monopolies that stifle innovation and drive up costs for ordinary New Zealanders, as we have seen in the banking sector.

“If the Government wants to create opportunities for Kiwi investors then it should look into State Owned Enterprises issuing investment bonds. This is a much better option than selling off the assets.

Even in the hands of a personable salesman like Key, yesterday’s message rang very hollow. Given the dire performance of the private sector both here and globally in recent years, the claims in Key’s speech about the inherent superiority of private sector disciplines were laughable: truly, the myth of private sector efficiency is the myth that just will not die. Yet back on planet Earth, we are all still suffering from the global effects of market failure and private sector de-regulation. Locally, one can also point to our recent history, and the bungled sales of the BNZ, Telecom, Air New Zealand and NZ Rail…

Air New Zealand has been the prime example of private sector mismanagement and poor investment decisions being bailed out by the state… but the list goes on and on. For over a century, the reality is that the New Zealand state has been the entity that has built and managed the vast majority of the wealth and assets of this country – a dependency on state efficiency, imagination and creativity that is still being reflected today in the fact that the vast proportion of the research and development work in this country is carried out by the state, on behalf of a private sector unwilling to pay its own way on R&D.

As a consequence, our private sector has one of the lowest rates of investment in R&D of any in the OECD. Lest we forget, it is also responsible for the vast bulk of the nation’s debt problems – and stands in constant need of being propped up by the state via R&D handouts, company tax cuts and a discounted exchange rate for exporters vis a vis its trading competitors. In the circumstances, the fact that our captains of industry dare to lecture the public about the innate superiority of private sector performance is simply breathtaking.

True, the plans announced yesterday by Key are for partial privatization – which suggests that something at least has been learned from the failures of the privatization programme of the 1980s and 1990s. Only discredited figures such as Richard Prebble (on RNZ this morning ) are still cleaving to the outright sale of state assets as the best option. In fact, as business analyst Brian Gaynor pointed out long ago, some $8 billion would have been saved in wealth transfers to foreign investors if Telecom had been only partly privatized in the late 1980s, along the lines of the Telstra partial sale in Australia. By selling Telecom outright, Gaynor pointed out, New Zealanders lost more on this one asset deal alone than the $7.4 billion lost in the Think Big projects of the Muldoon years.

Not surprisingly, Solid Energy chairman John Palmer welcomed the prospect of partial privatization on RNZ this morning [press release here] and – in the process – gave some inkling of how this projected influx of investment money from local and foreign investors might be spent: on mining large lignite deposits in the South Island. So… we are to sell shares in the family silver in order to finance the ravaging of our environment for globally destructive purposes. Fantastic. Its like living in a country run by Ricky Gervais.


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    1. 6 Responses to “On the plans for privatization”

    2. By ultron 5 on Jan 27, 2011 | Reply

      brilliant Gordon, bang on the money. Gets so depressing knowing half the country will eat it up but encouraging that you and others are at least telling it like it is. How do we take you mainstream…again?

    3. By Pamela L on Jan 28, 2011 | Reply

      I do wish John Key would stop waffling on about MUM and DAD investors. MUM and DAD are having hard times struggling to pay the mortgage, utilities, and put food on the table.They don’t have any extra money to invest.
      What cuckoo land does the PM live in?

    4. By Ron on Jan 28, 2011 | Reply

      IO’m not a Mum or a Dad. Will I be able to buy shares?

    5. By Joe Blow on Jan 29, 2011 | Reply

      It’s interesting how, unlike in the past, this privatisation policy is being used as an election campaign policy. Key is really intent on maintaining trust with National voters. It looks like the party has learnt its lesson.

      Still, you’re right Gordon, the way this policy is being dressed up stinks. The “transparency” flag waving is really a bunch of new spin doctoring. Specially on using government debt as the reason for privatisation without being open about how much of our external debt is in fact government debt. In his state of the nation speech he cites external debt being at 85% of GDP without mentioning that government debt only makes up about 20-25% of the total external debt as a percentage of GDP and that this is quite low when compared with other OECD countries.

      Clearly the vaste bulk of the external debt is private but my understanding is that this is largely due to the property boom, which resulted in private debt increasing to feed the bubble in house and farm prices. Businesses have taken on more debt recently but that’s due to hard times not necessarily mismanagement or low investment in R&D.

      It would be nice to see a truely transparent break down of who’s holding what proportion of New Zealand private and public debt…

    6. By chris on Jan 31, 2011 | Reply

      Selling off the nations assets.

      It makes you wonder whom John Key’s boss is.

      The people are saying no, no, no, and we don’t want any Private Public Pillaging (PPP) either.

    7. By Bill Peddie on Feb 7, 2011 | Reply

      This is a perfect example of what Brian Easton calls Zombienomics – the lifeless but still walking failed economics. The economists talk of the Pareto Principle – when someone benefits by a change of policy – someone else loses out. In this case the ones who own the assets and those rich enough to buy shares will benefit – some profits will move off shore – net result the rest of us have less to go around. I would have thought John Key’s solutions would have caused rather more cynicism. Before the election: For the unemployed – promise – but have unemployment increase…his solution to narrowing the gap with Australia – promise – but increase the gap with Australia
      Take the Maori under his wing – promise – but have more Maori unemployment Look after the poor with dribble down from the rich tax breaks
      – great promise – but increase in child poverty and huge increase in overseas borrowings. Have I missed something? His nice smile.

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