The best they’ve got?

Written By: - Date published: 2:20 pm, February 13th, 2011 - 17 comments
Categories: privatisation - Tags:

Today’s Herald contains the first unequivocal defence of National’s plan to sell our assets to pay for tax cuts for the rich. It’s disappointing to say the least – confused, piecemeal, and unconvincing. Ironically, it’s written by some guy, Damien Grant,  from some insolvency company – ie. someone who makes money from cleaning up after others’ poor business decisions.

Let’s take a quick look:

“The proposed sale of state assets has caused some hand-wringing by economic illiterates fretting over the risk of foreign ownership.”

The foreign ownership is just one objection. But it’s ironic that Grant starts by dismissing those who are worried about our foreign liabilities as ‘economic illiterates’ considering that overseas debt is one of the excuses for the asset sale agenda and Key and co are at pains to try to convince us that assets won’t go to foreigners. At least Grant is honest enough to admit that privatisation means more foreign ownership of our economy.

“Foreign money brings foreign expertise.”

Ah, yes. The foreign expertise that ran Air NZ into the ground. The foreign expertise that asset-stripped our rail network. The foreign expertise that makes Contact the biggest regulatory headache of the power companies. The foreign expertise that saw Telecom under-invest for 20 years requiring repeated major government interventions to try to lift telecommunications standards.

It’s not that foreign ownership doesn’t bring foreign expertise. It’s that the expertise is in making money for the foreign owners, which is often at odds with the economic interests of New Zealand.

“Today’s youth suffer anxiety attacks if they exceed their monthly text allowance. I suspect their synapses would melt if they had to endure a six-week wait for a landline phone connection, the norm from state-owned Telecom in the 1980s, before Prebble sold it to the Americans”

Has this guy tried to get the Internet wired up to a house? It still takes time to get a tech over to do the work, just like it used to.

“American capital and know-how transformed Telecom from a moribund behemoth into a dynamic enterprise driving the explosion of telecommunications infrastructure that propelled New Zealand into the internet age.”

I have never, ever seen Telecom described as dynamic before. It has been dragged kicking and screaming into each round of upgrades because the private owners don’t like the expense of major capital investment. Look at the government’s ultra-fast broadband project – it has devolved, as critics predicted, into little more than a giant subsidy to Telecom to make upgrades it won’t do itself.

“Try building Trade Me on a telecommunications network made from number 8 wire.”

Too much electrical resistance for one. Is Grant seriously suggesting that if Telecom hadn’t been privatised we wouldn’t have the Internet? The idea that we’re too useless to do it ourselves but instead need the guidance of wise foreigners like Telecom’s $7 million man, Paul Reynolds, was widely held by the Right in the 1980s/90s. I thought they had gained some pride in this country since then. But I guess they still think New Zealand sucks.

“When we as New Zealanders swap some of our assets for cash our net wealth remains unaffected.”

Umm. No it doesn’t. Christ, and he calls us economic illiterates. The value of an asset is the present value of all future returns we will earn from it (plus side benefits like a lower current account deficit, owners who live in New Zealand and so are directly affected by the quality of life here). The value of cash is the interest rate. The Crown borrows at 5.5% and has been getting 7.6% returns on the assets the Nats want to sell. If we sell $6 billion of assets (Patrick Smellie’s estimate of the piece we would get) to offset $6 billion of borrowing, we’re worse off, our net worth has fallen. And it can’t be any other way because the private buyer needs to make a higher rate of return on the asset they’re buying from us than the government can borrow money at.

“New Zealand is facing capacity constraints in our electricity infrastructure, in generation capacity and in the transmission and distribution networks. There is a need for ongoing investment in infrastructure and technology.”

Of course, but who is to say foreign private owners will make those investments? The history is that they won’t. Indeed, it is the legacy of underinvestment by the likes of Telecom that means there is such a large amount of capital investment needed. The cheapest source of funding for that capital is not selling profitable enterprises but government debt or, better, undoing the massive tax cuts for the wealthy which have made the government deficit so large.

“The debate over the benefits of foreign investment has long been settled.”

Yeah and that’s a reason that 80% of Kiwis oppose asset sales. They remember that the last time there were few benefits and massive costs to this country.

17 comments on “The best they’ve got?”

  1. Anthony C 1

    The ownage of this guy in the comments section is hilarious.

  2. Draco T Bastard 2

    “American capital and know-how transformed Telecom from a moribund behemoth into a dynamic enterprise driving the explosion of telecommunications infrastructure that propelled New Zealand into the internet age.”

    I get so pissed off with the people who spread this BS around. The sale of Telecom brought in no “American know-how” and the capital ended up being exported. We were already upgrading the network to digital before the USians bought it using Telecoms profits. Those upgrades alone is what allows telephones to be connected instantly and nothing to do with the sale.

    If we’d kept Telecom we’d be better off to the tune of $10b to $20.

    • Colonial Viper 2.1

      Great how you spread the love on the Granny’s comments page.

    • Monty 2.2

      Maybe you did not (would not) read the positive part of the article which states “The new American owners took their dividends but these were dwarfed by the benefits returned to the wider economy by a transformed Telecom.”

      Business and individuals prior to the sell off needed to wait six months. The industry was protected and competition as not allowed.

      Because Telecom was sold, all NZers have benefited. Bell South, the vodafone was established in the Mobile market, (Duopoly) and not 2degrees have come in to offer real competition. Free of Government agendas and protectionism, service and technology have increased.

      I know you hate it – but NZ has benefited from selling Telecom.

      • Colonial Viper 2.2.1

        I know you hate it – but NZ has benefited from selling Telecom.

        Oh, how the overseers gleefully chant “It’s for your own good, we’re only doing this because we care about you so much” as they whip the slaves into submission and plough the weakened sick ones into the ground.

      • Draco T Bastard 2.2.2

        Go do some actual research rather than spouting your ideological line of faith. The figures are out there and show that NZ has lost between $10b and $20b due to the sale of Telecom and we’re going to lose more because we’re having to put taxes in to upgrade the network – an upgrade that should have been paid for with the rental money that we’ve paid to Telecom.

        Because Telecom was sold, all NZers have benefited.

        Nope, all NZers are far worse off due to the sale of Telecom.

        And, yes, I did read the propaganda. The reality is that we got absolutely nothing from the Americans. No management skills and no knowledge on designing and implementing a telecommunications network.

      • erentz 2.2.3

        [quote]I know you hate it – but NZ has benefited from selling Telecom.[/quote]

        I really am amazed that so many lay-persons have this view. It is clearly not because they hold some expertise in the field of telecommunications, it’s just something they’ve been told by their masters in Government, and the Telecom C-suite, and they’ve swallowed it whole. The common argument seems to be this silly six month wait business. Yes Telecom was a bureaucratic inefficient nightmare in its prior form. As were many PTTs around the world in that age. But selling it off was not required to fix up those inefficiencies. Those fixes were on the cards regardless of owner. The foreign ownership didn’t magically bring in billions of charitable dollars to improve the business for New Zealanders. All the improvements were done by managers, technicians, etc. living here in New Zealand, paid for by the profits of the company, which come from charges to New Zealanders. The only thing foreign ownership did was export some of those profits offshore.

        • Draco T Bastard 2.2.3.1

          Yes Telecom was a bureaucratic inefficient nightmare in its prior form.

          Actually, it wasn’t all that bad. Sure, it did need to be improved but it certainly wasn’t as bad as it’s made out to be. The “wait” that everyone complains about hardly ever happened and when it did it was due to physical constraints most of which were remedied during the 1980s/90s as new tech became available.

          The only thing foreign ownership did was export some of those profits offshore.

          Actually, it did far worse than that. Prior to the sale of Telecom 100% of profits went back into the network (Upgrading and maintenance). Afterwards it was probably about 25% max and the rest shifted off as dividends most of which went overseas. Some of the figures posted showed that in the first few years more dividends were paid out than there were profits which meant that Telecom also went into debt without needing to.

          I’m not exaggerating when I say that we’d have FttH home being rolled out across the country by now if we hadn’t sold Telecom and deregulated the telecommunications field. We’d also have significantly cheaper and better communications and phone bills.

  3. Colonial Viper 3

    Seriously, does the Herald have a cloning lab where they grow these Right Wing sycophants?

    Recommending selling off our country’s strategic energy assets during peaking oil production for what? Freshly printed US dollars straight off the press. Really?

    Yeah Mr Damien Grant, I think we know who the economic illiterate is here.

    • Deadly_NZ 3.1

      And don’t just Bitch in the comments section as they will have the censors out, but they always leave a e-mail addy so you can load up the inbox as well. Keep em too busy to write more Nat party election drivel.

  4. Jum 4

    You missed the bit which accused concerned Kiwis of racism by comparing Shania Twain’s purchase and May Wang’s negative result; one an individual who fell in love with the New Zealand landscape and the other with a questionable financial profile fronting for a company with a misleading English name to cover its Chinese ownership, but intent on permanently owning, producing and exporting with little benefit to New Zealand, with the intent of owning much more of NZ land.

    The guy is a fxxkwit who has no integrity.

  5. Quite frankly Jum is entirely correct. I read Martys post, the origional article, and looked at my 30 years in export businesses plus the MBA.

    The writer of this article can only be described as a economically illiterate fuckwit.

  6. I suspect ‘Grant’ is whowuddathort.

  7. ChrisH 7

    Yes and what’s more, back in the dark days of state ownership in the 1980s nobody could be connected to the Internet! I.e. there’s not just economic illiteracy afoot, but quite a lot of technological illiteracy about falling telecommunications costs as well. Unfortunately the privatisation transformed Telecom from an SOE that just covered its costs in the days of copper wire, into a pure monopolist exploiting a little island in the South Pacific as the actual, underlying cost structure fell and fell and fell in the era of the microchip. If Telecom had been in charge of Silicon Valley, we’d still be on 286’s. And cellphones would still be the size of a brick and cost $1995.00.

    • Draco T Bastard 7.1

      Unfortunately the privatisation transformed Telecom from an SOE that just covered its costs in the days of copper wire,

      ~$272m dollars in profit in 1985 or $645,173,672.68 in today’s money. More than enough to upgrade the network which was what was happening at the time.

      If Telecom had been in charge of Silicon Valley, we’d still be on 286′s. And cellphones would still be the size of a brick and cost $1995.00.

      Yep, once privatisation happened with the accompanying exploitation of a monopoly position that was inevitable we were truly screwed.

  8. randal 8

    its called coupon clipping.
    and its done by the investors who are sold the bonds by the BOND SALESMAN and they will be receiving the interest in perpetuity while we pay the bills.
    they are stealing off the people and in simple terms its called looting.

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