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Privatisation: The Myths

Written By: - Date published: 10:57 am, May 26th, 2010 - 66 comments
Categories: assets, privatisation, spin - Tags:

So Blinglish’s new and improved less-bitter poison is part-privatisation. In much the same way as marketing a filling as more fun than a full root-canal, he thinks that if he sells each of his mates one piece of the family silver (and keeps the spoons) instead of flogging off the whole set to one of his mates, we’ll be much happier.

Myth 1: We’ll sell to “Mum and Dad” investors.
They may well not sell direct to just one or two of their mates, but most ordinary New Zealanders will still be lucky to get any share of their assets. Those who can afford to take advantage of the cheap share offer will be mostly “rich prick” NAct voters. They’ll get a fine deal as it’ll no doubt be a little below market-value, justified as helping ordinary New Zealanders get a start in share investing. Which will make it too tempting to do anything other than sell when an Aussie bank / foreign company immediately comes and offers everyone 25% extra for their shares. Several thousand rich NAct voters several thousand better off – hopefully the donations and votes will flow in, and they’ve achieved their objective of getting rid of our assets.

Myth 2: It’ll allow Ordinary Kiwis to truly own a part of Kiwibank/Solid Energy/their Power Company/…
We already truly own these things between us. All equal shares, regardless of our monetary wealth. I don’t need a starchy share certificate to feel like Kiwibank is ours. What it will allow is a foreign company to make Kiwibank/Solid Energy/Power Companies truly theirs.

Myth 3: We need to find ways to make better use of our capital
Much as I hate the “government as company” meme, if a company feels it has some under-utilised assets, it doesn’t necessarily sell them off. For the company to grow it will borrow against them and invest in a more lucrative way. Like, say, borrowing at the cheap interest rates governments can get and investing in shares to earn a much higher rate. This might cover our impending pension gap. I may not be the first to think of this though; something called the Cullen Fund rings a bell.

Myth 4: We need something for Ordinary Kiwis to invest in to get our capital markets going
When this government wants something doing, it sets up a Task Force of people who say what they want to hear and waits for them to deliver a report with the answers they want. So it was with the Capital Markets Task Force: they came back with the suggestion we should part-privatise SOEs to give Ordinary Kiwis something to invest in. But the reason Ordinary Kiwis aren’t investing isn’t because of a lack of investments; it’s a lack of savings. What we need is more savings – probably created by a compulsory super saving scheme, like the one National scrapped in 1975, or just a compulsory beefed up Kiwisaver. Australian capital markets do well as they have a lot of savings: they have compulsory super backed by 12% of salary contributed by their employer.

As it stands selling something like Kiwibank would soak up all the savings of Mum and Dad investors, meaning there’d be none left for all the medium-sized businesses we’re trying to grow. If we want to channel our limited savings into capital investment (a far better idea than going into the inflated housing market) what we need is better regulation and structure so Ordinary Kiwis feel safe, having been burnt by the share-market crash in the 80s and by finance companies in the 00s.

Myth 5: If we sell to Mum & Dad investors it’ll encourage savings
Oo! There’s Kiwibank shares! I know I’ll buy them and won’t buy this 51 inch plasma and sky subscription: after all I’ll be far too busy watching the money roll in to bother with the rugby anymore anyway. I might skip paying the school fees and see if I can get a couple of extra shares.

If we want more savings we need higher wages and more compulsory saving from companies.

Myth 6: When you have a debt problem, you look to sell assets
This I heard from Michelle Boag on National Radio Afternoons. Apparently as individuals, if we have a debt problem we look to sell assets. Bollocks. If we have a debt problem we look to reign in spending and/or how we can earn a bit extra. We don’t sell our house unless things are really bad. And we certainly don’t make the situation worse by giving our rich mates a great big slice of our income. If Blinglish pulls his “we’re borrowing $240 million a week” line after his big cash hand-out to his mates, he deserves to be slapped in the face with a kipper for his sheer cheekiness.
In fact the NZ government doesn’t have a big debt problem, unlike we (New Zealand) collectively do as private individuals. So the government doesn’t need to sell anything. Certainly selling things that make us money isn’t going to help the balance sheet either.


66 comments on “Privatisation: The Myths ”

  1. Lanthanide 1

    Very good post. Well done.

  2. joe bloggs 2

    History lesson 101:

    Anyone remember the June 1988 Budget, when Labour announced a comprehensive programme of privatisation. $20 billion would be raised by 1992.

    State asset sales under Labour:
    State Insurance
    Post Bank
    Air New Zealand
    Tourist Hotel Corporation
    New Zealand Steel
    Government Printing Office
    Development Finance Coorporation
    National Film Unit
    Rural Banking and Finance Corporation
    Shipping Corporation
    New Zealand Liquid Fuel Investment
    Maui Gas
    Forest Corp + two generations of cutting rights
    the unconditional sale of NZ Rail

    Labour’s subsequent policy on asset sales, this comment from Hon Trev. Mallard June 2006:
    “mum and dad New Zealanders might get a chance to have shares in subsidiary companies” of State-owned enterprises to be listed on the stock exchange

    • Draco T Bastard 2.1

      And that’s the reason why Labour are still in lala land. They really haven’t shifted from the delusion of neo-liberal economics yet.

      • Nick C 2.1.1

        Yep as soon as Labour gets back to marxism we can REALLY sort the country out…

        • lprent

          Ummm since that has never happened in the past, you’re really saying……

          • RobertM

            Surely the Nash, Savage, Lee, Sutch government was pretty close>My mother a karori girl shook in her boots with loathing for the 35-49 Govt till the day she died. She hated the regimentation, the plain clothes, the socialism, the lack of choice. What most bloggers seem to object to is capitalism and free society which is based on the limited liability joint stock company. The whole aim is to redistribute money from the old and stupid to vigorous young investors who will take entreprenurial risks. I don’t want to be associated with the ludicrous fire sales of the like of NZ Steel to Equiticorp and Hawkins but the reality is the steel plant at Gleenbrook, the urea plant and the Gisborne line should never have been built. The reality is that Fay Richwhite were just hard business men who ran the rail at Maximum speed for ll years. They did not close it down as the economists, Treasury and Roundtable wanted. Most of the new right actually think Fay Richwhite showed remarkable restraint and social responsibility in maintaining and perservering with the rail.
            Surely if you want enviromentally efficiency privatisation and the market is often the way to go. For eg ,privatisation of the Lyttleton Wesport rail line would determine whether mining and pike river is viable. Could the miners pay for the tracks, train and tunnel as the law, RMA an dprotestors will stop them using dump trucks through the Lewis Pass to carry the coal to the port.

    • Bright Red 2.2

      yeah those sales were when Labour was taken over by the neoliberals who now run ACT.

      The Left deserted Labour in droves for what it did in the 1980s and many still don’t trust it.

      Privatisation was wrong then and it’s wrong now.

      And Labour didn’t list any SOE subsidaries, despite Mallard’s brain fart.

      • joe bloggs 2.2.1

        The Left deserted Labour in droves for what it did in the 1980s and many still don’t trust it.

        … plus the desertion of the green electorate in the 1990s – and many still don’t trust it, especially after having the door shut in their faces in 2005 … plus the desertion of the Maoris in 2004 – and many still don’t trust it…

        Keep up the good work, you’ve still got Jum Anderton’s party of 1, Peter Dunne and his radical christians and Winnie’s geriatrics and altzeimers who believe in you

        • Bored

          Joe, I think you are missing something….that flood of people from Labour did not leave to go to your side of the track. They can still see the right for what it is, a pack of theiving venal grasping bastards. And a core of the same are still inside Labour. The only thing I can say is that it is time for a clean out, starting with Gough. Then watch these people flood back.

          • Jim Nald

            Indeed. Labour continues to be subject to the Rabid Right hijacking the agenda just like the rotten and rorting Right who try to hijack The Standard’s discussions.

            • lprent

              I (and the other moderators) keep an eye out for anyone trying to hijack discussions, and we tend to overreact when it does happen.

              However, if people stay roughly around the topic (except on OpenMike of course), respond to challenges to assertions made by other commentators, and don’t bombard the discussion with unresponsive crap – we generally let the debate run.

              Of course sometimes people just irritate us because they’re too damn unintelligently ‘noisy’, and we will take nasty actions because it quietens the bickering in the back-seat. But that is the risk of writing comments here. It drives the newbies crazy because that is essentially random past a vaguely defined threshold.

              In our experience, the semi-random actions helps people learn some self-moderation quickly after they receive one of those. We consider them to be a public service 😈

              • Jim Nald

                Cheers, lprent. I do enjoy reading the posts and comments when the discussions get going. And I was recently put off by some of the attempted spins I read. I decided to go away and get on with my life.

                And then I see a comment today re Leaky Homes that sounds quite wrong. Guess we have to put up with inaccuracies that people post. And hope others will comment in response as appropriate.

    • Bunji 2.3

      Nice history lesson, but I’m not sure what the 80s Labour (aka first ACT) government’s bad behaviour has to do with the left’s thinking in the 10s. Other than to make sure that we don’t have a party get hijacked by the extreme right again.

      And I’m not suggesting that the government should own everything, and possibly that government was right to sell THC and State Insurance. I think it make sense for the government to own natural monopolies and vital communication/transport/economic links. Kiwibank is a bit of a special case; if we had a thriving bank sector with NZ owned banks that were doing a good job of looking after NZ interests it may not have been necessary for a government owned bank to be created. But we don’t, and as it is it could be a very useful tool for the government to add funding to it to allow it to do business development loans to grow NZ businesses.

      And as far as Trevor’s comments go, allowing partial floats of the like of Orcon and other subsidiaries of SOEs doesn’t seem to be quite on the same page as Kiwibank, Solid Energy and the electricity companies with which Blinglish was starting his list.

      • insider 2.3.1

        What exactly has kiwibank delivered that was not already available in the banking sector?

        • Lanthanide

          Branches in many small towns that the other banks don’t have branches in?

          A credit card that if you use it at least once every 3 months, you don’t have to pay any annual fees on?

          • insider

            TSB had branches in every town via the NZ Post network well before KB existed.

            Wow a feeless credit card…that makes the investment so worthwhile

        • Customer satisfaction? Retention of profits this side of the Tasman? Low fees, access, friendly staff, my mortgage and lots more, insider. Time you ditched the banks from over the ditch and put your money where it’s going to do us all some good.

          • insider

            I can buy shares in all the Aus banks operating here so retain profits, I pay no fees and that was long before KB was a dream, I can access them nationally and internationally. AS for friendly staff, well they are all staffed by NZers so not sure KB has an inherent advantage, and my bank was considtently rated the best in NZ.

            • clandestino

              Could be something to do with the fact the dividend get’s paid to the government and can thus be used for either paying down debt or social spending (i.e. roads, schools, your doctor), or that it has increased competition on interest rates. Combined with the fact there are many who kind of like the idea, I think it is a sufficient reason to exist. 700,000 customers I do believe. Just no farmers, apparently that’s what you lot need to increase the dividend so those savvy investors can make more money for themselves.

              • insider

                “Combined with the fact there are many who kind of like the idea, I think it is a sufficient reason to exist. ”

                A lot of people “kinda like the idea” of free money and subsidised everything. IS that sufficient reason to do it?

                AS for dividends, most of the SOEs don’t make a great return. KB want $200m to expand- that is nearly 10 years of profits.

              • Bright Red

                that’s because 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.

              • insider

                Their rates aren;t that low – compare them to a range of lenders – they still charge fees. Can you demonstrate any significant change in the banking market as a result of KB’s arrival?

                I’d rather the $200m KB wants to expand to come out of the pockets of custoemrs than out of my pocket as a taxpayer, expecially when I can’t see any market void KB is filling. Wouldn’t you prefer that money gets spent on education or health or direct support for the poor?

              • clandestino

                Sam Knowles has said this morning that the capital needed for sustainable growth would be ‘certainly less than $100m’ so I don’t know where you got that figure from. Not only have KB come through the recession strongly, they have kept the Aussie banks honest and have satisfaction ratings way above the big four. Here’s a good summary (funnily enough this article would agree with you I suspect):

                I do not think like Hickey does however that any privatisation is a good idea.

    • MikeG 2.4

      Interesting list there Joe – there’s a number where privatisation hasn’t really worked e.g. Air NZ. It’s now doing quite well back under Government ownership.

      I presume that you (personally) are not making the same mistakes that you made 20 years ago – the current Labour party seem to have learnt from the mistakes of the Act Party founders, and don’t want a repeat.

    • All of the above asset sales were a mistake.
      Think of where NZ might be if they’d been held on to.
      While it was wrong, I am more concerned about who is going to sell assets in the future than who has in the past.

      Labour has repudiated the hard-edge of Rogernomics. National has not/never repudiated Ruthenasia.

      Case closed. To stop privitisation, vote Labour or Green.

    • SPC 2.6

      Yeah sure joe bloggs, you have nailed it.

      The prototype for National was the 1988 budget – selling assets and cutting income tax rates (then later increasing GST to 12.5% when that was not going to work).

      It was appeasement of the Douglas lead faction and the foreign lenders concerned about the loss of their convert Roger. But Labour has given up belief in such voodoo economics, National is still the same old tax cut junkie it was then.

      Then the opposition National made no opposition to the planned sales – did not question the unwise rush and advise a more reasonable attempt to part-sell in a phased way to maximise price and retain majority holdings. They should have.

      Now at least there is an opposition that seeks to counsel against asset sales and demand a public debate – hopefully this will prevent further mistakes.

      This time there will not be a failure of the oppostion to question flawed economic decisions on income tax cuts and asset sales.

  3. Pat 3

    Using Kiwibank as an example: I think we can all agree Kiwibank needs capital to enable it to grow. Therefore the debate is really about what options Kiwibank has to obtain that capital, e.g:

    – NZ Govt as owner borrows and injects the capital.
    – Partial float of shares to the public.
    – Direct the Cullen Fund to inject capital.
    – Open up a partial shareholding to KiwiSaver providers.

    Any other ideas?

    • george 3.1

      How about Kiwibank’s very large parent company providing the capital? Its shareholders are in a position where they can cope with a decreased dividend return in the short-term in order to gain medium to long term growth.

      • NZ Post has problems of it’s own, george. Mail volumes have dropped to the point where Kiwibank is a significant provider to the group’s overall profit. And the budget bribe/payback means that the Nats are in no position to take less dividends from Post.

    • Bright Red 3.2

      Pat. the cheapest option of those would be the government borrowing. Nothing bets sovereign borrowing rates.

  4. MikeE 4

    “We already truly own these things between us. All equal shares, regardless of our monetary wealth. I don’t need a starchy share certificate to feel like Kiwibank is ours. What it will allow is a foreign company to make Kiwibank/Solid Energy/Power Companies truly theirs.”

    If you can’t sell something, then you don’t own it.

    What the Nats should do, is split it into X amount of shares and distibute these to the general “tax paying” public, then it will truely be in public ownership.

    It should then be left to the public as individuals to choose whether they wish to retain ownership of the family silver rather than English and co. For those of you (such as standard readers) where ownership is a priority you will retain (or possibly put your money where your mouth is and buymore) ownership. For those of us who don’t care or want ownership we can sell it.

    It should not however be sold by the Govt so the money can be “reinvested” (and I use the term very loosely) into whatever the pet project of the day is.

    • joe bloggs 4.1

      ah communism – the longest road from capitalism to capitalism…

    • george 4.2

      You don’t own your feelings toward your wife or children? That’s really sad.

    • Bill 4.3

      “If you can’t sell something, then you don’t own it.”

      Which entails devising a piece of devious shit that will transfer the common wealth of a society, which of course has no discernible ‘individual owner’ insofar as it belongs to society, into the hands of those individuals who seek to stand apart from society and appropriate and sell societies common wealth for their own personal gain.

      way to go

  5. joe bloggs 5

    George you are a sexist prick – where have I ever indicated my gender?

    Oh, and as far as I’m aware my family, whether it exists or not, is not a state owned asset (despite the last labour government’s efforts to nationalise us all)

    • Tigger 5.1

      Actually joeb, you’re making the assumption that George was assuming you were male. You can have a wife and children and be either male or female. Your assumption is known as heterosexism.

      And, of course, whether assuming the sex of a blogger with an archetypal male name is sexism is no doubt up for debate…

    • felix 5.2

      Your assumption that the remark was directed at you (when it was clearly a reply to MikeE) and subsequent knee jerk reaction kinda paints you as an angry stupid solipsistic prick joe, whatever your gender.

      And btw, your next sentence demonstrates that you didn’t even understand what george said. Quite clearly.

      • Lanthanide 5.2.1

        Normally we have to rely on Fisiani and Big Bruv for this sort of comedy.

      • joe bloggs 5.2.2

        yeah well my bad

        doesn’t overcome the issue that there’s a bunch of pots here calling kettles black.

        Far from being a figment of my fevered solipsistic imagination, and putting to one side all your clever sophistry, Labour has already done everything and more that you now decry National for suggesting.

        Labour’s been an avid seller of state owned assets in the past and Honorable members such as Trevor Mallard still espouse those principles. And all of that is on record.

        • felix

          Tell it to a Labour supporter then – why should I give a shit?

          Do you support privatisation or not? I don’t. Whether it’s Labour, the Nats, ACT, the Maaaries or anyone else doing it.

          p.s. that “sophistry” you refer to is called “English”.

          • joe bloggs

            yes I do support privatisation. Take assets out of the hands of politicians and give them to managers who know a little more about managing New Zealand Inc.

            ps you can relabel ‘sophistry’ as “Cosgrove” or “Goff” for all I care – it still amounts to wordplay of little or no substance

            • The Voice of Reason

              It’s not in the hands of politicians, Joe. It’s in our hands. And if KiwiBank didn’t have good managers, how did get so profitable that the Nats feel it needs to be gifted to their mates? Try looking up ‘governance’, ‘management’ and ‘ownership’, and see if you learn anything that might make your comments less naive.

            • felix

              ps you can relabel ‘sophistry’ as “Cosgrove’ or “Goff’ for all I care it still amounts to wordplay of little or no substance

              Care to point to it? I have no idea where this sophistry or wordplay is. I’ve been entirely straight with you as far as I can see.

            • Lanthanide

              “Take assets out of the hands of politicians and give them to managers who know a little more about managing New Zealand Inc”

              You mean like an SOE that operates as a business separate from political meddling? You know, we already have that.

            • clandestino

              May I suggest you read ‘The Unconscious Civilisation’ by John Ralston Saul. Contains some interesting insights into ‘management’ that I think you could learn from Mr/Mrs/Ms joe

        • lprent

          Ah so?

          National has members who have knowingly rorted the expenses system (double dipton and others come to mind) and are on record as doing so. By your process, you would have to say that National are into supporting widespread corruption by elected MP’s.

          In the past National has gerrymandered electoral seats for political advantage. By your process, you’d have to see that National are currently venally politically corrupt.

          In the past (and present) you have made some incredibly stupid and half-arsed comments that I’d ban a newbie for. Now I let them ride because you are often quite readable. So you have accumulated mana that I bear in mind when making moderation calls.

          By your process, you think that is incorrect and people can’t learn from their mistakes. Should I ban you for congenital stupidity?

        • Draco T Bastard

          Labour’s been an avid seller of state owned assets in the past…

          The operative word here is “in the past”. The buy back of NZ Rail does seem to indicate that they may have realised their mistake that they made 20+ years ago.

  6. greenfly 6

    joe bloggs – ‘where have I ever indicated my gender?’
    Ah! My day’s made!

  7. swimmer 7

    Great post.

  8. Bored 8

    The myths mentioned are all correct, you missed one other common justification given by privatisers:

    “The ownership of State assets is capitalism in action”…BOLLOCKS. Where is the risk factor? Its just a straight way of taking a rentier position over a monopoly. Landlordism and parasitism of the highest order.

    Its much the same as the creation of money by private banks…we dont need it. Credit should be created by the Reserve Bank and if we need put capital into state assets we should be creating our own and keeping the parasitic profit taking “shareholders” out. If they want to be capitalists let them take some risks for the rewards, not just suck up the safe returns provided by our necessities.

  9. Nick C 9

    “If a company feels it has some under-utilised assets, it doesn’t necessarily sell them off. For the company to grow it will borrow against them and invest in a more lucrative way… I may not be the first to think of this though”

    Yep, the Greeks came up with that one.

  10. ianmac 10

    Sam Knowles retiring CEO Kiwibank, said on Nat Radio lunchtime today that there was no need to get a huge amount of money, but that about $100,000 would be enough to progress the expansion plan. He also said that it was vital for the brand to remain in Kiwi hands. Might help.

    • Draco T Bastard 10.1

      One 40th of what’s being given to a private company for no apparent reason.

  11. Irascible 11

    One can certainly keep the brand in NZ hands but the actual asset will, under the English-Key policy of hock off anything that moves, become overseas owned. The Brand Bank of New Zealand remains in NZ but the asset is Australian. The brand All Blacks remains in NZ but the asset belongs to Adidas.

  12. Pascal's bookie 12

    That myth 4 is the one that cracks me up.

    The govt can’t run anything properly and the market can best determine whether or not something is worthwhile etc. The NZX sucks and no private person or groups of persons wants to invest in it or list on it, so the crown has to list some public assets on it so that there will be something good on it.

    Seriously? Aren’t the facts of the argument, as the proponents tell them, more of an argument for nationalising whatever actual industries there are on the nzx and getting them out of the ridiculous ponzi scheme that capital markets have become?

    • clandestino 12.1

      Agreed. The best argument to me for privatisation only applies overseas. And that’s government corruption or fraud thus inefficiency. Fortunately New Zealand doesn’t often fall in that category, only the private sector does!

  13. Kleefer 13

    If privatisation is an inherently bad idea then that implies that state ownership is superior to private ownership, in which case the best course of action is for the government to own everything. Obviously this is a stupid idea. Government-owned “enterprises” are inherently pointless because if they are run on a commercial basis they are needlessly duplicating services that would be provided privately due to market demand. If they are there to perform a “social function” like Kiwibank and don’t actually make any money then they aren’t really enterprises but welfare schemes.

    • SPC 13.1

      Kiwibank competition improves the market – is that really just a social consideration? That benefits not just consumers it also reduces the profits of the foreign owned banks – reducing the BOP invisibles deficit – though reducing company tax does the reverse.

  14. SPC 14

    They can improve the financial lot of the SOE’s by allowing them to issue new capital – this applies in the case of Kiwbank in particular. That might increase the value of the government held original share – but there would have to be cost-benefit on a case by case basis to see whether the return to government in terms of regular income or asset value would actually increase.

    They can gurantee the local ownership of the issued shares by making them shares only Kiws can own and requiring a fixed period (like PIE) before they can be sold to other Kiwis.

    But yeah, we are capital starved now in terms of funding our economy – foreign loans for our mortgages, lack of access to finance for business (limiting funding business to the level of home values keeps our companies small), inadequate base R and D and lack of an efficient R and D tax credit system, lack of venture capital etc – so sure its mistaken to sell public assets in this context.

    It’s also unwise to reduce the value of your assets while increasing borrowing – it only adds to the cost of debt and makes further borrowing more difficult – placing the government in on-going budget finance difficulties whenever there was an economic downturn.

  15. JonL 15

    “Australian capital markets do well as they have a lot of savings: they have compulsory super backed by 12% of salary contributed by their employer.”
    It’s actually 9% (my boss pays 10%). Rudd is planning on increasing it to 12% over the next 3 years – if they get back in……….

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