Partial privatisations by a government without courage
John Boy's announcement today of his intentions for partial privatisation of so-called state “assets” is the weak-kneed response of a lily-livered government to the realisation that has taken three years to dawn on them that theirs is a government unable to pay its way—and that somehow, somewhere, there must be a way to get more without giving anything away what they’ve found under the mattress.
Partial privatisation of entities in which the government should never have been involved is the worst of all worlds. It’s like sex without the friction.
This is a government out of control. A government deeply in debt, yet committed to spending more than one billion more every new year. The state over which they preside is already
- The biggest owner of dairy farms in New Zealand;
- The biggest fund managers in New Zealand;
- The 50% owner of a large chain of petrol stations;
- By far the biggest owner of rental properties;
- The dominant generator of electricity;
- The dominant owner of our trains and planes;
- The owner of our most aggressively growing bank
The assets already controlled by government have a book value around six times the value of all the shares on the local stock exchange. Instead of turning this around, this new policy asks for that shrinking private sector to instead further prop up the inexorably expanding state—with taxpayers in their position as willing investors paying again for “assets” originally paid for by the with money extracted from them in their position as unwilling tax-victims.
It is the illusion of real business activity that only a government could promote.
It is an alliance of dollar and gun for the benefit of everyone and no-one.
It retains government involvement in what are supposedly commercial organisations—leaving the referee in the position of writing rules for itself, and investors in the position of signing up to share in the rent-seeking have government favours (ands monopolies) may bestow up on them.
But at the same time, it pits commercial incentives against political incentives—the latter of which are always certain to triumph over the former, leaving any potential profits severely diminished by the conflict, and few of the new investors able to fully exercise their entrepreneurial acumen with their new assets.
Which means that any of New Zealand’s diminishing stock of investment capital that does find its way into the various entities of mixed ownership will produce far less value from that investment capital than it would if invested instead in purely private profit-making enterprises—leaving the already denuded pool of local investment capital all the poorer for the association.
And it leaves the co-owners in the position of being unable to establish the true value of the state enterprises divested so partially—which in the case some of them (KiwiRail being a glaring example) is a price that without continued taxpayer “investment” is virtually zero. Which means that any investors in these lemons will be in the position of constantly lobbying for more favours from their government partner, and more dollars from the long-suffering taxpayer—seeking as they do to privatise their profits and socialise their losses.
Which takes us back the first objections above. This is an alliance between dollar and gun in which consumers (in their position as purchasers from these aggrandised monopolies) and taxpayers (in their position as ripe sucks) will assuredly be the losers.
We have seen partially privatised companies remain political playthings, a prime example being the former Auckland Regional Council’s nationalisation of Ports of Auckland. Earlier experience with the partial privatisation of the Bank of New Zealand was also unhappy.
[The authors of a recent trial balloon for the policy that ran in the Herald] note that the New Zealand sharemarket would benefit from partial listings, as did the Capital Market Development Taskforce. But, other things equal, it would obviously benefit more from full privatisation. Moreover, partial privatisation of the small entities they give as examples – Quotable Value, Learning Media and Asure New Zealand – would hardly be worth the candle. Game-changing policy must involve major SOEs such as those in the electricity sector. [But note that these are essentially coercive monopolies enjoying the use of a restricted market to extract usurious rates from consumers.]
The article cites Air New Zealand as a model of partial privatisation but unaccountably fails to note that the company’s share price performance since the government resumed majority ownership has been poor.
They also commend the Singaporean Temasek holding company model. This is also dubious. The performance of the underlying businesses is not sharply reflected in such a model.
The authors mention the possibility of restricting privatised company shares to New Zealand nationals, and rightly note that this would depress the share price. The arguments for such restrictions could only be political. The idea that foreign ownership is a cost of privatisation is misplaced. The level of foreign ownership in the economy is determined by the cumulative current account deficit or surplus in the balance of payments, not by which assets are for sale. If foreign ownership of some assets is blocked, foreign stakes in other assets will be higher. If this is an issue, a better approach would arguably be to simply give SOE shares to their true owners, New Zealand taxpayers.
The value of partial privatisation should not be over-stated . . .
… and there is no serious argument against full privatisation. By which I mean privatisation that returns whatever assets still exist to those who’ve already paid for them.
All that is lacking from National’s limp-dicks is a spine.