Bunji’s post yesterday on the pro-privatisation myths was great. I thought I would follow up with some facts on privatisation.
Fact 1) We – the ‘mums and dads’, the brothers and sisters, even the aunts and uncles – already own Kiwibank and other public assets. We directly benefit from them from their dividends. The SOEs will pay $3.3 billion in dividends into the Crown’s accounts over the next five years. That money pays for things we all enjoy – schools, nurses, roads, Working for Families and Bill English’s mortgage. If these assets are privatised (even partially), every dollar of dividend that goes to a private owner would be one that isn’t going to pay for public services.
Fact 2) ‘Mums and dads’ don’t end up owning privatised assets. Companies provide a break down of their shareholders by number of shares owned. In every case, privatised former public assets are mostly owned by large, nearly always foreign, companies. Here’s the portion of shareholders with 0-10,000 shares in former public assets:
|Auckland Airport: 9.95%||Forestry Cutting Rights: 0%|
|Vector: 6.55%||New Zealand Rail: 0%|
|Telecom: 4.51%||NZ Timberlands: 0%|
|BNZ: 0.6%||State Insurance: 0%|
|Synfuels stocks and current assets: 0%||Post Bank: 0%|
|Export Guarantee Office: 0%||New Zealand Steel: 0%|
|Government Supply Brokerage Corp: 0%||Petrocorp: 0%|
|Housing Corporation Mortgages: 0%||DFC: 0%|
|Taranaki Petroleum Mining Licences: 0%||Shipping Corp: 0%|
|Wrightsons Rights: 0%||Rural Bank: 0%|
|Government Printing Office: 0%||GCS Limited: 0%|
|Wellington international Airport Limited: 0%||Communicate NZ: 0%|
|Forestry Corporation of New Zealand Ltd: 0%||Tourist Hotel Corp: 0%|
|NZ Liquid Fuel Investment: 0%||VTNZ: 0%|
|Capital Properties New Zealand Limited: 0%||Maui Gas: 0%|
|Works and Development Services Corporation (NZ) Limited: 0%|
|Fletcher Challenge Limited Ordinary Division and Forest Division Shares: 0%|
Uh, huh. So, not a lot of ‘mum and dad’ ownership, huh? Not even among the ones for which there were public offerings.
Fact 3) Privatisation harms markets. Look at the awful mess that the electricity sector has got in since partial privatisation and corporatisation. Look at rail, telecommunications, the banks after BNZ was privatised and before Kiwibank.
A publicly-owned player can reignite competition by taking on an oligarchy, as with banking. Kiwibank’s influence has brought down fees and it leads the market on interest rates. As Bright Red noted yesterday:
Kiwibank operates a low fees, low rates, low profit model to keep the others honest. What’s the first thing that a private investor would want out of an investment in Kiwibank? Higher profits. Same with a lot of other SOEs. Do you think that money would come out of thin air? No. It would come out of your pocket as a customer.
Fact 4) Privatisation leads to asset-stripping. Private buyers, especially those that buy pieces of national infrastructure (airports, ports, Telecom, power companies), know that the government can’t afford to let the infrastructure fail because of the wider economic benefits that would be lost. What’s the logical, profit-maximising thing to do in that situation? Asset-strip – up prices, take dividends as big as possible, let the infrastructure detiroate and wait for the government to step in to save the infrastructure either with a buy back or some kind of bail out (like the government’s broadband plan).
Fact 5) We also get a bad deal on SOE sales. Almost invariably, the buyers have made massive profits (the asset-stripping helps). We would be better off keeping the profit stream rather than getting too little cash from selling out. If people are so keen to buy, why the hell would we be so keen to sell? We’re not up to our eyeballs in debt, and that would be the only time to sell assets that are contributing so much value to the government and the wider economy.
Fact 6) Kiwibank doesn’t need to be partially sold to get money for expansion. The cheapest source of capital is the government. For a tenth of what it is borrowing to give tax cuts to the wealthiest Kiwis, it can borrow the capital at sovereign rates (or Kiwibank can retain its profits and not pay out a dividend, which amount to the same thing).
There is no economic logic to selling SOEs. This ‘mum and dad’ stuff is just feel-good fluff to disguise the real agenda – taking quality companies that have been built up by taxpayers over the generations and selling them off cheap to the capitalist class so they can make a quick buck