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The new economy: Govt as an economic actor

Written By: - Date published: 11:00 am, December 17th, 2010 - 37 comments
Categories: assets, business, Economy, housing, jobs, public services, sustainability, tax, workers' rights - Tags:

Three government investment decisions in the last couple of weeks have shown the deficiencies in the neoliberal way of doing things. SOE Solid Energy is preparing to wreck our environmental image and increase our carbon costs with lignite-to-liquids. Kiwirail saves itself some money by buying trains in China but costs its owners (us) millions in wages and tax revenue. Then, there’s Steven Joyce going for the cheapest broadband network option while ignoring the cost of re-creating Telecom’s monopoly.

Neoliberalism believes that government, to the extent that it should exist at all, should operate like a a group of businesses, each operating independently without reference to anything other than their own bottom lines. SOEs are the epitome of this model – government departments were turned into businesses and, before being sold, were held at arms length from the elected government. Basically they’re run just like private businesses that happen to be owned by the Crown. The corporate culture of some, Solid Energy in particular, is more akin to a soulless multi-national than a public asset.

All government bodies should have to consider the ramifications for the government, if not the country, as a whole when making investment decisions. They could use the same kind of benefit:cost analysis that NZTA does to assess the value of roads.

Going a step further, I would gather all the government’s commercial operations and financial investments into an umbrella group (call it the Kiwi Future Fund) and set it a mandate of investing in infrastructure, here and abroad, that is crucial to the New Zealand economy. People could also invest in this fund via their Kiwisaver or term deposits at Kiwibank. The aim is to get the commercial side of government all pushing in the same direction: toward an economically sovereign and sustainable New Zealand. Commercial return for the Fund and its components would be one way of delivering value to its owners (us), it would also take account of the implications for New Zealand jobs, tax revenue, and sustainability in making its decisions.

The mad situation we’re in where Kiwirail buys trains from China because they’re cheaper and that means it can pay a bigger dividend to the government even though it costs the government even more in lost tax revenue and where Solid Energy is prepared to wreck our climate account and valuable environmental image to increase the dividend it pays us should not be allowed to continue.

Of course, that’s a radical departure from the SOE model but so what? SOEs were created as a stepping-stone to privatising public assets. If we’re against privatisation, then why persist with the SOE model?

Government investment should be directed at public control of utilities where the private sector fails to operate competitively (eg. rail and electricity – I see Gerry Brownlee’s attempt to reform the sector to create competition has already pushed up prices, as predicted). In markets that tend towards oligarchy, to having a publicly-owned player to keep the others honest (eg. Kiwibank in banking, Kordia/Orcon in ICT). That means keeping the kinds of businesses the government already owns and keeping them strong.

Joyce’s decision to give 70-84% of the ultra-fast broadband contract to Telecom is the exact opposite of what I’m talking about. He’s effectively reinstated the private monopoly of Telecom (which, again, was predicted from the outset). If he had given more of that contract to Kordia then he would have been ensuring better competition (actually, the fibre network is going to be a lot like the power line network – a lot of local monopolies – so would be better all publicly owned).

Housing is clearly a market that works best when the government is one of the large suppliers. When, as in the 1990s and now, government stops building new houses the only ones that get built are targeted at the well to do either plush homes for themselves or cheap townhouses/apartments for renting out to the rest of us. State housing fills a gap. The government should undertake an aggressive building programme of eco-smart homes targeted at families on middle incomes (around $60-$70,000 a year). I don’t have a problem with the government selling to tenants as long as there’s a caveat preventing them using the house as a rental property.

Another market I think the government could usefully intervene in more is the third party employment/recruitment. There are a hell of a lot of Kiwis who are effectively employed as day labourers through labour hire outfits like Allied Work Force and recruitment agencies like Manpower. Typically, the worker is a contractor for the company, which in turn contracts to deliver their labour to another company. The worker has no employment security, no annual leave, no sick leave, nothing. The pay is usually minimum wage or near to it. The company then charges them out at as much as double their pay rate per hour and pockets the difference. It is an awful, immoral industry that treats the most vulnerable workers like disposable tools.

The government already participates in this market in a limited fashion and improves vastly on standard industry practice through Student Job Search. Rather than taking huge profits by contracting workers and delivering their labour to a third party, SJS just acts an intermediary – both employer and worker are better off as a result.

You’ll recall in my previous ‘new economy’ post, I suggested virtually eliminating the benefit system and replacing it with the guaranteed minimum income. That would put a lot of WINZ staff out of work who could be redeployed to a beefed up version of SJS to compete with the labour hire/recruitment firms. This would either operate free to the employers or with a small cost-recovery charge. It wouldn’t contract workers who use it and it would act to ensure their work rights. Employers would be required to pay leave and Kiwisaver but would still find the service much cheaper than the current market.

Finally, the government should use its huge buying power to set standards. This was something begun under the last Labour government and, for no good reason, abandoned by National. Departments should only rent eco-smart offices, only buy fuel efficient cars and machinery, only do business with contractors that have sustainable practices and good employment conditions, and only supply healthy food at schools, hospitals, and workplace cafeterias. Yes, there’s an additional cost to all these things but it’s a cheap and effective way to move the whole market for the better.

37 comments on “The new economy: Govt as an economic actor”

  1. Lanthanide 1

    The US government does a lot of what you talked about at the end. They set standards, particularly in IT and other technology areas, where all departments must be running x system or service within 3 years time, thus creating a market for private industry to supply.

    • Draco T Bastard 1.1

      I would love to see government to mandate use of Open Source and Open Standards software for all it’s departments and subsidiaries. It makes a huge amount of sense economically and socially. Wages for the programmers would go to NZers (reckoning that government would have to put in a software development department) in NZ and we would develop a massive skill base.

      • lprent 1.1.1

        Besides which the code is usually more stable and in particular I find it more efficient than figuring out where mickeysoft has shifted the bloody menu items to this time.

        • Rich

          And the FBI gets to read your data with done of that tedious messing about bribing Microsoft/Oracle/IBM.


          • chris

            or not, geez, at least investigate your conspiracy theories before you spout them


            • Bored

              Now now gents, Bill is actually God, and Larry Ellison the Arch Angel, we must pay our dues , Open Source resides on an inner ring in the Inferno along with a pile of Popes. The flow of mana upward toward heaven must not be interrupted, clean licensing is next to Godliness.

              My point Chris, is that you are right, no conspiracies (probably because the conspirators dont quite get the technology). But there are license spies, and planned exploits to keep us “honest”.

          • Aron Watson

            Micro$oft left back-doors in Windows 93 and 95 after agreements made with American law enforcement. There is a reason why Windows is the most unsafe OS on the market, cause they let it.

            • Lanthanide

              Citation needed. Also there’s no such thing as “Windows 93”.

              Also allowing law enforcement to have a backdoor into the system, has nothing to do with the rest of the system being poorly designed or poorly implemented.

              • Aron Watson

                oops me bad, I meant 3.1

                “system being poorly designed or poorly implemented.”
                Which it is, no arguments here, that’s why I use Linux and FreeBSD

                Citation. No. Only a young teenager when I read that in the news section of some american computer mag. Surprised they published it…and it was Gates that admitted it.

  2. Descendant Of Smith 2

    Work and Income already provides a free service to employers to find staff and to workers to find work. This includes assisting firms when staff are being made redundant.

    The comparison to SJS who have very few staff and then only for a short period of time is slightly odd.

    I’m also not sure whether they should compete against private sector firms – a co-operative approach where the government agencies can support the private sector firms to fill vacancies makes far more sense.


  3. Whose going to implement the ‘new economy’, a Labour Government? No. Downgraded credit rating and capital flight will bankrupt the country overnight. We’ll be a South Pacific Greece, Ireland and Iceland forced to make the working class majority pay for the debt.
    It will need a Workers Government that can repudiate the national debt, expropriate big business, take control of the Reserve Bank, plan production and do trade swaps with other countries who go down the same road. Its called socialism.
    Most of us will take an income cut but it will be worth while because we will own and control the economy and in cooperation with other socialist states build a new world economy based on sustainable production and conservation of nature. Our living standards will rise on the basis of production for need and not profit. The only losers will be the small minority of super rich parasites and their hangers-on who will have to adjust their aspirations.
    That would be a ‘new economy’. It would also mean survival for humanity.

    • Bright Red 3.1

      but this is hardly radical stuff. It’s very sensible, implementable stuff that would make a difference, I reckon. Labour’s searching for detail for its economic agenda – here it is.

    • Bored 3.2

      Ah Dave, the old socialist dream of Heaven on Earth. Its a bit like the capitalist Shining City on the Hill, corrupted at source by the need for coercion, and by rationalist justification gone mad. Both reek of concepts like “progress” and “material betterment”. Both make rational constructs based upon imperfect information and premises. I would buy it if I could see around the inevitable dictatorship, the next Stalin or Kissinger, the drive for individuals to embrace the “orthodox”, the suppression of the spirit.

      You are right about the outcomes we need, and who should be the losers. I question the methodology as a total package. I would hate to foist the next dictatorship upon us in the name of any of todays established credos, left or right.

    • Hi Dave
      I’m sorry but you are forgetting we are past peak oil, we are about to start a decline that ‘mankind’ hasn’t seen on the scale it will be, by the time a ‘new world order’ along your suggestions could be implemented, we will be living like refugees at best. About the only ‘government’ will be small and local.
      I’m not saying this system is any good, it is dying fast and taking most of us with it.
      Collapse is when shit happens, National are the current bunch of arsholes, as any other party would be at this point in time, $300 million a week would/could anyone do any better? maybe Robert Magarbe (?)
      Phil can’t even sell his flat/superannuation, house sales are fast becoming a thing of the past, it will come to a point were the occupier will be the owner.
      I warned Capital Property Investors’ Association of Wellington NZ in a talk I gave on 4th of March 2008 “get out now” http://www.youtube.com/user/oilcrash1#p/u/86/nyMEFiHriAM I wounder how many wish they had listened?
      Even have a couple of friends express sadness they hadn’t listened to me before their last child was born. The others are still in deanile or just say “k sara sara well they are fun to play with”.
      Chances are we will have a firewood economy, long before anything else.
      50 years ago things might have stood a chance, but now the scramble for the air vents is about to start, there are no exits in this horror show )

  4. Draco T Bastard 4

    Natural monopolies such as Telecom and power need to be in state ownership with a mandate to provide the best most up to date service for as little as possible. If Telecom had remained state owned with such a mandate then we would already have FttH across most of the country. We certainly wouldn’t be having to subsidise private profits from our taxes.

    The government should undertake an aggressive building programme of eco-smart homes…

    Passive House is a standard that needs to be developed for NZ and the government could do it through Housing NZ. Housing NZ should also be looking at building more high-rise apartment buildings as well especially in already built up areas as this would promote the use of public transport as it would be far more efficient.

    Another market I think the government could usefully intervene in more is the third party employment/recruitment… The worker has no employment security, no annual leave, no sick leave, nothing. The pay is usually minimum wage or near to it.

    Actually, it’s quite often less than minimum wage once everything is taken into account. In fact I know people who have actually lost money going to work (effectively paying to go to work).

    The government already participates in this market in a limited fashion and improves vastly on standard industry practice through Student Job Search.

    I’ve seen such contracts where people pay to go to work in SJS listings as well. Admittedly, that is probably more due to the lack of protections for contractors in law than anything.

  5. prism 5

    While we are thinking of the tax losses to government in this country because we have gone overseas for cheaper cost and are demanding very short delivery time on railway carriages, we shouldn’t forget the multiplier effect. It ripples out into the community far wider and more effectively than the trickle>down that we sparrows are supposed to receive from the tables of the wealthy. I think for each $1 earned, the net remainder enables another three transactions, each of which pays out a taxation component.

    It would be the Christmas gift that keeps on giving but this NACT outfit likes to think of themselves as hard men – don’t bring that sort of sentimental hope and goodwill to the table thank you very much.

  6. Rich 6

    The SOEs are run for the public benenfit how, exactly? The government (including the previous one) is under a self-denying ordinance not to interfere and to be *more* of a hands off shareholder than a pension fund would be. So they’re basically run for the aggrandisement of senior management.

    What we actually need is for most of the SOEs to be converted into worker/customer owned coops, regulated as appropriate. This would mean that Kiwirail’s profits would be shared between the workers and (individual) customers, and senior management would be elected by the workers and customers. (With something like a 50:50 split, so obviously individual rail customers, being more numerous than workers, would get less dividends and votes each).

    That way, organisations are free of treasury or capitalist control and run cooperatively for the benefit of everyone involved.

  7. Hamish 7

    KR have been given an amount of money from the goverment. They, like a business, must use that capital as effectivly as possible. Which means buying the required wagons from overseas.

    Besides, KR’s workshop’s don’t even make flat deck wagons! One, however, does make coal wagons. Which is something they can do at a good price; because only a handful are needed every year.

    >>>”The mad situation we’re in where Kiwirail buys trains from China because they’re cheaper and that means it can pay a bigger dividend to the government ”

    Absolute dribble, Marty. KR does not even make a profit, let alone pay a divident to its owner!! (Although I did notice a while ago you or another poster here claimed that KR was making a profit. If your a bit of the slow side, I guess you could come up with that assumption. When you engage your brain, you’d quickly work out that you can only get the “profit” if you count goverment grants for Auckland’s new Electric Trains as income. KR does not make enough to cover the amount it spends on the network, which is why the goverment gives it 90mil every year..)

    • Bright Red 7.1

      “Absolute dribble, Marty. KR does not even make a profit, let alone pay a divident to its owner!!”

      Irrelevant whether it runs at loss or profit – the commercal decision to buy the rail wagons in China was to minimise its loss/maximise its profit. Kiwirail is increasing the cost to the government by not sourcing its wagons here.

      “They, like a business, must use that capital as effectivly as possible”

      as effectively as possible from whose perspective? Kiwirail’s or the government that owns it? That’s the whole issue genius.

    • Draco T Bastard 7.2

      Kiwirail Making Big Profits

      Seems that you’re the one speaking dribble.

  8. prism 8

    The mad situation we’re in where Kiwirail buys trains from China because they’re cheaper and that means it can pay a bigger dividend to the government even though it costs the government even more in lost tax revenue

    OK Hamish its true that KR doesn’t make a profit, despite efforts to achieve that. We know that transport is costly to provide for people and freight. Then if reality does prevail mentally, it would make sense to not go for the cheaper overseas option but to get NZs trained to build these wagons either whole or in part with some importing, provide jobs for skilled men and women, get tax, boost the economy getting long-term, useful infrastructure.

    You’re so smart and so TINA. It is thinking that reflects received wisdom outwards, without examining it first to see whether applicable here.

    • prism 8.1

      So Kiwirail is making profits. This is why I come to this site, to get my ideas up to date. Who would have thought they could be making profits – there is always so much smoke confusing the issue and all you hear is the voice of some wizard saying that government can’t run trains efficiently blah blah

  9. randal 9

    neo liberalism is only a theory.
    therefore its effects are subject to objectification and reality testing.
    however by that time the beneficiaries have usually absconded.

  10. tc 10

    This broadband outcome’s a very sad one for NZ….lots of public money to re-entrench our most badly behaved anti-competitive slothful corporate entity…..Telecom.

    Being both a rural and urban user this saddens me (but doesn’t surprise me) as I will not get a decent, reasonable service in my rural location as effectively Joyce’s locking out the innovative new-age technology wireless players in favour of the bigest bastards in the scoool yard…..a company he admires as their MO is his MO….bully/ignore/confuse/deny then finally get snarky.

    much like the brash taskforce….a relentless march back in time because it worked so well back then.

    • Draco T Bastard 10.2

      reasonable service in my rural location as effectively Joyce’s locking out the innovative new-age technology wireless players in favour of the bigest bastards in the scoool yard

      You seem to be under the illusion that telcos actually make the technology that they use and also that the technology that they do use is actually different in some way (which it isn’t as it has to conform to standards so that each telco can talk to other telcos). Also, If you’re talking about a static connection then you don’t want wireless as it’s far slower and less reliable than a wired connection.

  11. Deadly_NZ 11

    Damn so telescum get the lions share of the high speed broadband well I for one Will not be using it I refuse to have anything to do with Telescum. Yet another fail for the democratic process and another gain for the Fat cats overseas.

    • Draco T Bastard 11.1

      I refuse to have anything to do with Telescum.

      Whatever gave you the idea that you have any choice?

      As I said the other day: Me connecting through Orcon makes no difference because I’m still connecting through Telecom’s network. Telecommunications is a natural monopoly and more competition just means higher prices as more resources are diverted to do the same job.

  12. tc 12

    Well exactly prism…..it’s assumed pretty much everything the NACT do is their backers interests.

    Goff’s ‘for the many not the few’ has a profound ring to it, they should base the campaign on that.

  13. prism 13

    Jonkey has just been extensively interviewed on RadioNZ. You all can relax everything is going swimmingly and certainly better than when Labour was in.
    He talks quite quickly giving a conman feel, in an upbeat tone.

    They have been busy working on the structural imbalances I think he said. Our regulations and taxes are better than Oz so that gives us a comparative advantage I think. Work will set you free is the background to attitudes to welfare. There can be no greater role model than a parent who is working. Huh? (There are people slaving over a hot stove making meth – they are working all right. Perhaps all we need is to legalise drugs so we can tax them, or what we can extract, then these people can get the respect they deserve.)

    He isn’t concerned with Patsy Wong as this was a matter for the Speaker. Having some problems with MPs doesn’t match up with Labour which had double figures.

    (And NACT is doing well in the polls still. It could be that there is a different mindset now about what makes a good government. The minds of people who spend all their time listening to their best friends on cellphones or playing fantasy games are likely to be different from past generations.)

  14. Jenny 14

    On top of skyrocketing food bills thanks to 15% GST, higher ACC levies for work and vehicle licensing, etc, comes a near-tripling of the wholesale electricity price.

    Electricity prices set to rise next year

  15. Hamish 15

    “Draco T Bastard 7.2
    17 December 2010 at 2:30 pm
    Kiwirail Making Big Profits

    Seems that you’re the one speaking dribble.”

    Sigh. It’s been explained to you that you can only get that result if
    you include capital grants as operating income (which that report does).
    Take away those capital grants and it runs at a solid loss, which is why
    it gets 90mil of tax payer money every year.

  16. A 16

    It looks to me as though what you are asking for is a massive reorganisation of society in which the state dominates the commanding heights of the economy to a greater extent than it did in the post war period, with the market permitted to pick up the slack but subject to heavy restrictions. That sounds fine to me, and I think the intellectual case for greater governmental control over the economy is probably unbeatable.

    But that is the easy part. There’s about 30% of the population who will find this completely unacceptable. Sadly, they as a group possess most of the wealth and influence in the country, and they will cease caring about democracy if it doesn’t go their way, although they won’t present it as such. Private power is genuine political power and exists alongside and above democratic political control.

    Without some answer better than “people will vote for it” of how your program can be a political success, how are we supposed to find it a plausible political idea?

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