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Capital market taskforce pushes asset sales scam

Written By: - Date published: 1:00 pm, December 16th, 2009 - 47 comments
Categories: privatisation - Tags:

Another government-appointed taskforce of rightwing, market ideologues (this time appointed by Labour, the fools) has reported and, surprise, surprise, their report is a rightwing prescription without any supporting argument that it would be good for the country.

The headline recommendation of the Capital Market Development Taskforce is that the government sell shares in SOEs. The reasoning behind this major recommendation that would mean privatising the profits of billions of dollars worth public assets forever is incredibly lightweight. Just two pages in the 134 page report* are devoted to explaining why we ought to part-sell our our assets and half of that is taken up with a graph that supposedly shows other countries have allowed private investment in public assets but in fact shows nothing of the sort (Australia, that country we are supposedly trying to catch, actually has a higher portion of its state assets entirely publicly-owned than we do now).

Here is the entirety of the Taskforce’s reasoning for telling us to sell off our hard-built assets:

1.
It would materially increase investors’ choices of domestic assets. Government holdings are extensive in the energy, land and environment, transport and infrastructure, and telecommunications sectors. In many other countries, such companies would be listed on the stock market and could be part of investors’ portfolios. Given the lack of perfect international integration in capital markets, the ability to invest in similar assets offshore does not fully compensate for the lack of these assets domestically.

2.
The government, as owner, would benefit significantly from the capital market discipline and monitoring that would occur with a partial listing. Private sector participants with personal wealth at stake in these companies will be more effective monitoring agents than government can ever be.

3.
It would materially improve the depth of our capital market, particularly in some of the areas in which central and local government is a key holder of assets. Partially floating some of these assets is the only way in which our share market can markedly increase in size in the near term. Bulking up the market in this way will also have the spillover benefit of making it more attractive to other companies considering listing on the market, by increasing activity and investor interest.

No facts, no modelling, no proof. Not even any argument that doing this would benefit us as a country, which is surely meant to be the point.

The clamour for the sale of state assets is coming from one source – the people who would make money off it. They reckon they would get our assets at knock-down prices (like they did last time) and then be able to extract greater profits out of them by demanding higher dividends, which would require asset-stripping (just like last time).

The notion of selling part of the asset to ‘free up capital’ is like those dodgy companies that encourage you to take loans out against your house. We would get some cash up front, and then end up paying back far more from the profit streams of our assets.

It’s a scam. We were tricked into selling our assets by lying neoliberal governments back in the 1980s and 1990s. We’re not dumb enough to be fooled again.

*(there’s little content in those 134 pages. most of the pages are half empty, there are even some pencil sketches to take up space – it’s like what you would get if you asked for a 20 page report from a lazy fifth former.)

47 comments on “Capital market taskforce pushes asset sales scam ”

  1. grumpy 1

    A timely post Marty. as i see it this taskforce was to develop capital markets. It seems simple to me that NZ suffers from a lack of capital and the easiest way to get some more is to take it from the State. Certainly much easier than developing the private sector.

    So, stupid solution but understandable.

    Privatisation of State assets in NZ has always been just a rip-off to benefit a small clique. Show me one example where privatisation has left an organisation better off and compare that with Kiwibank, a prime example of a well run state owned organisation.

    Hope this “taskforce” didn’t get paid for this.

    • Tim Ellis 1.1

      Auckland Airport. Wellington Airport. BNZ. State Insurance. Rural Bank. Works Development Services. Capital properties.

      Almost all the international empircal studies show that privatisation delivers more efficiency in the businesses and greater benefits to consumers.

      I don’t think you can argue when the government is creaming billions of dollars in near monopoly profits from electricity generation that you can argue that consumers are getting a good deal.

      • Kirsten 1.1.1

        Nice assertion but unfortunately not actually backed up by the facts. Most public services were created because of market failure – the failure of the private sector to be able to provide these services at a sufficient standard to support social and economic development.

        Public infrastructure (clean water, roading, waste disposal, public education, health and social services etc.) weren’t established because of ideology but because the market failed to provide for them adequately and governments recognised that they were esstential for social and economic development.

  2. bobo 2

    Funny how this announcement is timed with Key being overseas. Just another scheme like the power company privatization of the 90s. Goff should be attacking on this and getting some traction. Oh and we are dumb enough as a nation to do it again, how else do you explain Nact being so high in the polls?

  3. Lanthanide 3

    Seems to me that the government needs to run these taskforces much more like the 5th form assignment you compared it to.

    If you just do a shallow repeat-the-textbook job, you get shoddy marks. You get good marks when you do in-depth analysis and form a plan backed by data.

    Only in the case of the government and taskforces, marks = money.

  4. IrishBill 4

    From the preface: At the same time, we are aware that financial system
    ‘failures’ including recent finance company collapses
    have greatly undermined public trust and confidence in
    our markets.

    ‘failures’, in speech marks. Just in case you thought that the collapse of a finance company leaving thousands of people in financial ruin was some tangible, objective, real world failure rather than a “perception”. These f*ckin people can’t even confront the reality of their f*ckin banckrupt ideology and yet we’re seriously listening to their advice to give them and their mates our family silver???

    • grumpy 4.1

      I agree with you Bill, but why is the NZ financial/business system so piss poor?

      I know that the US and Aussie are not much better but crap like Toll/TranzRail and all the crooked finance company failures mean National will NEVER fight an election on Private v Public.

      In any reasonable country (capitalist or otherwise), Hotchin and Watson et.al. would be looking at real punishment. Not this crap.

      http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10615792

    • Rex Widerstrom 4.2

      That really is shoddy fifth former work.

      For instance they could have left out the speech marks and instead said:

      “… financial system profitability downsizing…”

      “…recent monetary redistribution events…”

      and so on. Or done the old “it’s actually all your fault but we’re not going to say so directly” trick and said:

      “…profitability failure by key stakeholders…”

      “…failure of market forecasts to align with outcomes…”

      Better yet, just get Sarah Palin to write the next one.

  5. Sanctuary 5

    This will founder on the rock of “no privatisations in our first term”. Of course, the more O’Sullivan and the rest of the crony right fume and demand the more the next election will be fought on privatisation.

    I’ll be interested to see the public reaction to English’s next budget. His 2010 budget will be an ideologically driven austerity budget and he is prepared to risk a winter of massive discontent with public sector workers like nurses.

    And race has a lot more to run yet. It’s already been signalled that Tariana Turia will get her wish of getting large sums of taxpayer funded dollars syphoned off to her fat cat buddies in the Iwi authorities to run “welfare programs for Maori”. When the public realise THEIR money is going to privare, unaccountable race based organisations the Hone emails and the flag issue will be very small potatoes indeed.

  6. tsmithfield 6

    We are currently borrowing $250 million per week to fund our deficit. If the crown has surplus assets, why not sell them off to reduce our borrowing?

    That doesn’t mean I don’t support retaining some state assets. For instance, in hind-sight, I would probably support state control of electricity and similar services. However, the government owning things that would normally be in realm of the private market seems silly. Also, many public bodies have excess assets in terms of land, buildings etc. Whats wrong with selling these off to reduce our level of borrowing.

    • grumpy 6.1

      I have no problem with selling surplus assets as any prudent business would do. I do have with selling things like railways, electricity networks etc. that we have to buy back after they have been run down through asset stripping, price gouging etc.

    • Kirsten 6.2

      All governments (like all households) run with a level of debt they feel comfortable with – this is a capitalist world after all. The amount of government borrowing may sound impressive but actually it is proportionally much lower than pretty much all of Europe, the UK, Australia, the US, Canada….So, not quite time to sell the family silver quite yet.

  7. Bored 7

    This is just another of the ongoing attempts from those with money to privatise the commons. What they are really saying is that democratically controlled voter owned infrastructure and services are better controlled by undemocratic private ownership. What these people will never ever mention either is the cost of capital that they wish to recoup and the profit margin they add. It means that you and I will pay 10% plus more for dividends etc for the same outcome. That’s the economics.
    The politics are more severe, to corporatize (i.e to privatise the commons for the benefit of a small sectoral interest group of wealthy investors) means that the democratic process loses breadth and control over what we all commonly utilize. When the commons becomes so limited (as is the thrust of this ‘plan’) we the public will no longer have any democratic share in the “commons’. This is a fairly accurate description of what fascist Italy achieved. What business is really saying is that the public should not make any decisions over anything except through transactions in a “market’ that they own; we are to be reduced to mere transactional units. It sort of out does communist tyranny because their enemies of the state were still regarded as people, in the corporate (fascist) model you are merely a unit of consumption.

  8. tsmithfield 8

    Why should the state own an airline, for goodness sake?

    • snoozer 8.1

      because we sold it and the private owners ran it into the ground (unfortunate metaphor) and we were left with three options

      a) let it collapse
      b) let it be bought out by Singapore Air
      c) buy it back ourselves

      a and b would have meant the end of regional flights in New Zealand, Singapore Air would have had no interest in running such small, low-profit routes.

      knowledge changes things, eh?

      • kelsey 8.1.1

        Incorrect.

        Michael Cullen was a significant cause of the collapse by vetoing an increase in Singapore Air’s minority stake because he preferred it to be bought out by Qantas and have a single Australasian carrier.

        When that fell through he was left with little choice.

        Source:

        http://www.wsws.org/articles/2001/nov2001/nz-n03.shtml

        Knowledge changes things, eh?

        • Julio 8.1.1.1

          The ‘World Socialist Web Site’ is hardly a credible source. The guy who writes their NZ stuff, John Braddock, is just a typical trot with an axe to grind.

      • Kirsten 8.1.2

        Also because of its strategic importance to our geographically isolated country – our trade with Japan rose only after sufficient flight services were put in place. Likewise South America.

        And actually quite a few countries have stakes in their national airlines – Air France etc.

    • Because it makes a return for the Country, which can be reinvested to other areas like Health ,Education, roading, public transport. Oh and it was the NZ tax payers under Labour that bailed out Air New Zealand last time. Why shouldn’t the NZ tax payer get a return on their money.
      Why should it only be rich private people making money. Explain to us all tsmithfield why the NZ tax payers interest shouldn’t be advanced.

  9. Why should the state own a commercial TV? Scrap TV one as it is, invest in a genuine public service model and sell TV2.

    The state needs to selectively invest in assets where it’s needed.

    • snoozer 9.1

      TV1 as a true public broadcaster I agree with.

      Selling TV2 – before agreeing I would like to see a business case for it. Something that this report fails to provide.

  10. tsmithfield 10

    Snoozer “because we sold it and the private owners ran it into the ground (unfortunate metaphor) and we were left with three options

    a) let it collapse
    b) let it be bought out by Singapore Air
    c) buy it back ourselves

    a and b would have meant the end of regional flights in New Zealand, Singapore Air would have had no interest in running such small, low-profit routes.

    knowledge changes things, eh?”

    So, the state should bail out every private organisation that fails because some consumers might be disadvantaged by the change? Even under the scenario where Singapore Airlines purchased Air New Zealand there were options that would have preserved the uneconomical routes. For instance, the state could have subsidized the Singapore airlines for operating on those routes if it wanted to. So, I don’t see the problem with private ownership of Air NZ from any perspective.

    Look at it this way from a leftist perspective. Money not tied up in Air NZ is money that could be invested in hospitals, schools etc.

    Heres another one. Why should the state own a valuation company when there are plenty of private ones that can do the job perfectly well?

    • snoozer 10.1

      “So, the state should bail out every private organisation that fails because some consumers might be disadvantaged by the change?”

      No, don’t be silly now. We do need to perserve our transport networks though. We get a lot of value from the regional air network, far more than the airline gets in profits.

      “the state could have subsidized the Singapore airlines for operating on those routes if it wanted to”

      Yeah, because that model has worked so damn well with the rail. If the choices are between owning the company and running it in a way that benefits New Zealand as a whole or annually being blackmailed by some foreign company with the threat of losing our regional air network, I know which I would choose.

      The money isn’t ‘tied up’ in New Zealand. We’re getting a healthy return on equity. Nearly $600 million in dividends on a $885 million investment in 8 years. That return can be spent on hospitals etc.

    • felix 10.2

      For instance, the state could have subsidized the Singapore airlines for operating on those routes if it wanted to. So, I don’t see the problem with private ownership of Air NZ from any perspective.

      So you’d like us, the taxpayers, to subsidise a foreign-owned company so they can make a profit flying us around our own country.

      You’re so opposed to public ownership that you’d actually rather have us pay other people to own our assets so they can profit from our use of them.

      • tsmithfield 10.2.1

        Its called a private/public partnership, Felix. I thought Labour quite liked the idea of private/public partnerships, if I remember correctly.

        • felix 10.2.1.1

          And Labour has what to do with me exactly, tsmithfield?

          Should I start comparing your statements to that of some political party or other or would that be a moronic, arrogant, insulting and presumptuous thing to do rendering me looking as much of a smug, ignorant prick as you do now?

        • Kirsten 10.2.1.2

          Public Private Partnerships – as proposed by the current government for schools. This will mean we sell off education land to a private company who will build a school (financed privately at greater cost as the Government can actually get better rates than the private sector) and then lease back the school to the government and charge for school maintenance.

          Of course for this to be attractive to the private “partner” they will need to factor in a decent wodge of our taxpayer dollars as profit. After around 30 years the State will be able to take ownership of what by that time will be a clapped out facility in a location that may or may not still need a school.

          Of course some time in that 30 year period the private “partner”‘s shareholders may decide they want to move their capital elsewhere and owenership of what should be the centre of a community will be up for grabs. Or, as is just as likely, the “partner” may at some point end up in financial schtook and the shareholders may want to extract maximum benefit from their asset before the company folds – leaving the State to pick up the pieces. This is what has happened in some very high profile cases in the UK.

      • prism 10.2.2

        sounds like that guy Prebble.

    • IrishBill 10.3

      Yes because it’s not like we’re a geographically isolated island trading nation that needs an airline so much that having it fail would devastate our economy. No wait. We are.

      • gitmo 10.3.1

        How would having Air NZ fail devastate our economy ?

        How would having the Canadian Pension Fund own part of AIA Ltd be risky ?

        How can people on this website breath by themselves ?

        • felix 10.3.1.1

          We simply turn away from you to inhale.

        • Kirsten 10.3.1.2

          See my comments above. Our increases in trade with different countries has directly followed the establishment of air services. Just like the advent of refridgerated ships to carry lamb to the UK led to substantial economic growth in NZ, the establishment of regular flights to Japan and South America enabled, for example, the kiwifruit boom.

  11. tsmithfield 11

    Craig “Because it makes a return for the Country, which can be reinvested to other areas like Health ,Education, roading, public transport. Oh and it was the NZ tax payers under Labour that bailed out Air New Zealand last time. Why shouldn’t the NZ tax payer get a return on their money.
    Why should it only be rich private people making money. Explain to us all tsmithfield why the NZ tax payers interest shouldn’t be advanced.”

    When considering where to put state money the question of return on assets and risk needs to be considered. I am not sure this was really a consideration when the government decided to buy out Air NZ. But it may well have been better to put the money into some other investment to get a better return for the taxpayer with a lot less risk. As I recall it, Air NZ was looking very shaky when the government bailed them out. Therefore, public money was put at considerable risk, but the public had no say in it.

    If the shares for Air NZ were simply floated on the market, then of course, NZ taxpayers would have an opportunity to benefit from the profits of Air NZ. However, they would do this out of their own free choice understanding the risks balanced against the returns.

  12. tsmithfield 12

    snoozer: “No, don’t be silly now. We do need to perserve our transport networks though. We get a lot of value from the regional air network, far more than the airline gets in profits.”

    But the service won’t disappear if the private company fails. It will just be taken up by another operator.

    Now, going back to the rail situation. As I recall it, what price did we pay to get rail back under public ownership? As I recall it we may have paid a teeny weeny bit too much. So, was public money well spent? I don’t think so. But thats what tends to happen when the state gets involved where it shouldn’t.

    • grumpy 12.1

      Funnily enough, I once worked for NZ Rail (and even more funnily was a Uniopn Branch Secretary). The operation needed to be sold in order to be reformed but NOT at such a HUGE profit to Fay Richwhite and certainly not bought back at such a ludicrous inflated price from TOLL.

      Who made the money – unscupulous operators.
      Who paid – the taxpayers.

      • tsmithfield 12.1.1

        Thats because public servants are generally to thick and naive and will get screwed by cunning private operators. Thats why its best to leave these sorts of companies in the private sector.

        • grumpy 12.1.1.1

          Interesting point of view and generally correst.

          BUT – it wasn’t public servants who paid a huge price to Toll. In general I have found the PS attracts the mediocre where they are managed by the incompetent. I doubt that happens in Singapore Air – or Kiwibank.

          It is not the fact they are public serbvants that makes them thick and naieve – it’s as much the environment they live in when they get there.

        • felix 12.1.1.2

          generally to thick

          Priceless.

    • snoozer 12.2

      will it be taken up by another operator?

      big punt there. Kind of like saying that it didn’t matter if Toll ran the rail network into the ground because someone else would build a new one.

    • felix 12.3

      You’re absolutely right, tsmithfield – the govt should’ve compulsorily renationalised the rail network (for a fair price determined by themselves) without negotiation.

      It’s a public asset, bought and paid for by the taxes of generations of New Zealanders and no govt was ever in a position to sell it.

      Same for all the rest of them.

      Not yours to sell. Hands off.
      .

  13. I knew Birch’s electricity market reforms were simple asset-stripping and would be a disaster for the nation as a whole, but I snapped up all the Contact shares I could at the float, have hung onto them and done very well out of them, thank you. It would have been stupid not to have done.

    On the Taskforce’s point 1 – “Given the lack of perfect international integration in capital markets, the ability to invest in similar assets offshore does not fully compensate for the lack of these assets domestically.” I have no idea what this means – I receive dividends in A$, US$ and Sterling from holdings in similar assets offshore, which I convert to $NZ and spend here quite happily.

    On point 2, “Private sector participants with personal wealth at stake in these companies will be more effective monitoring agents than government can ever be.” Quite right – I want the public utility etc. companies I hold shares in to maximise their profits for the least possible investment. That the people of Australia, the US, the UK etc. have to pay through the nose for it is no skin off mine.

    On point 3, “Partially floating some of these assets is the only way in which our share market can markedly increase in size in the near term.”

    I’ve also seized my share of other privatisation floats – Capital Properties comes to mind along with another of the power companies – which were, amongst other things, intended to ‘bulk up and help ‘capitalise’ the market, only to have them forcibly bought from me in a hostile take-over which resulted in their disappearance from the New Zealand exchange.

    The only way ‘our’ share market can markedly increase in size in the near or any other term is for New Zealanders to start investing, and that ain’t gonna happen because, frankly, it’s minor league and with a country smaller in every respect except landmass that a hundred or more cities around the world, it’s always going to be.

  14. Herodotus 14

    So from what I understand we list govt asets to boast the sharemakets size allow overseas investment (As many mums & dads cannot afford to buy shares). So we take from NZ and send the profits off shore. How will that effect or current account?
    And what happens when a capital fund takes over majority ownership or a controlling interest?
    Was there not a film made about this dumb and dumber?

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