THE TRUTH ABOUT PRIVATISATION: BLOG # 3

Last Sunday’s Sunday Star-Times editorialised against the government’s privatisation plans (‘Asset sales road littered with disasters and fiascos,’ 30 January).

Among other things, it said that government-owned companies “can be efficient as well as profitable. Kiwibank has been a brilliant success …”

The first part of this statement is certainly correct. Not all SOEs are poor performers and not all privately owned businesses perform well. But the unequivocal findings of economic research are that on average and over time, privately owned businesses outperform publicly owned ones (see here for relevant references). What matters for policy is this general result. Government should not bet against the odds with taxpayers’ money.

What about the claim that Kiwibank has been a “brilliant” financial success. I have never seen evidence to support this claim. Two points are relevant:

As I understand it, the original Cameron Partners advice to the government was that Kiwibank would ultimately earn profits but that these would not be sufficient on an NPV basis to warrant the investment, and

Many argue that Kiwibank has been cross-subsidised by the postal business of New Zealand Post.

Does the Sunday Star-Times have evidence on these points to justify the “brilliant success” claim?  I think we ought to be told.

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3 thoughts on “THE TRUTH ABOUT PRIVATISATION: BLOG # 3

  1. “But the unequivocal findings of economic research are that on average and over time, privately owned businesses outperform publicly owned ones (see here for relevant references).”

    An additional reference would be William L. Megginson, “The Financial Economics of Privatisation”, Oxford University Press, 2005:

    “The 87 studies from nontransition economies discussed in this chapter offer at least limited support for the proposition that privatization is associated with improvements in the operating and financial performance of divested firms. Most of these studies offer strong support for this proposition, and only a handful document outright performance declines after privatization. Almost all studies that examine post-privatization changes in output, efficiency, profitability, capital investment spending, and leverage document significant increases in the first four measures and significant declines in leverage.”

  2. Pingback: TVHE » Asset sales

  3. There was also a significant subsidy provided to KiwiBank if I recall in the form of transferring NZ Post’s agency value stream.

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