Let the foals thrive

Prime Minister John Key’s statement on an internet chat session that he has ‘ruled out the complete sale of any state-owned assets if National win a second term’ will be a major disappointment to many who had hoped a second term National led government would be bolder on this issue. That they will possibly look to move minority holdings will be a minor consolation.

Today’s Herald, a paper not exactly known as a bastion of free market reform, has an editorial titled Open the SOE stable and let the foals thrive. In a blog on that editorial David Farrar remonstrates that we may be alone in the developed world in having a bipartisan policy of no asset sales.

I suspect he is correct. In an article I wrote before the last election in 2008 titled ‘Privatisation: New Zealand Swimming Against the Tide’ I wrote:

With the National Party’s decision not to move any state-owned enterprises to the private sector in its first term if elected this year, we appear to have a new political consensus between the major parties in New Zealand: privatisation is bad.

This contrasts with the earlier consensus that privatisation is good. A few years ago the World Bank observed that “Privatisation is now so widespread that it is hard to find countries not using the approach: North Korea, Cuba and perhaps Myanmar make up the shrunken universe of the resistant.

Since then I have blogged that even Cuba is taking steps toward privatisation. We are in dubious company.

The common mantra in New Zealand that privatisation of state assets is somehow ‘right wing’ is simply not true. Indeed, in 2007 a British MP commenting on the significant privatisation achieved by Tony Blair’s Labour party wrote:

Now that Blair has been and gone, you would struggle to find a serious politician in any party who would advocate state ownership of any industry as a 21st-century model. Indeed the idea of the state running our utilities, airlines or railways now seems archaic and even faintly ridiculous.

It is an undisputed fact that over time and on average businesses do better in private rather than public ownership.  

John Key is rightly respected as a pragmatic and trusted leader with the common touch and plenty of common sense and business acumen.  He has the ability to raise public understanding of the economic gains that would ensue from privatising state assets – particularly lower prices and better services for the public. Privatisation should not be seen as ideological – it is a pragmatic course of action that the public should understand. Why not at least try?

Meanwhile privatisation continues at a steady pace in Australia, the most recent being the sale of Queensland Rail by the Queensland Labor government, the second largest Australian privatisation after Telstra.

To see the 2025 Taskforce’s recommendation on the issue click here (scroll down to government assets).

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4 thoughts on “Let the foals thrive

  1. It is an undisputed fact that over time and on average businesses do better in private rather than public ownership.

    I’d really like to see you cite a source for this statement.

    Of course, what you could be meaning here is “Organisations being run for the purposes of generating a profit tend to be better at generating a profit than Organisations being run for the purposes of providing a service.”

    The trouble is that, in the last wave of privatisations, a very small number of people became the beneficiaries of this improved performance, while the vast majority of New Zealand were royally Rogered.

    There’s a good reason why neither of the major parties are openly campaigning on an agenda of Privatisation, despite the pressure from lobby groups such as the Business Round Table. The recent experiences of the voting public have made the idea of privatisation political suicide.

  2. “It is an undisputed fact that over time and on average businesses do better in private rather than public ownership.”
    Urrghh……..well, not in our own Godzone. The outcomes for many companies listed on the NZ exchange in 1987 do not support your generalization. You will know the offenders. More? BNZ twice in their history and Air New Zealand. Later rescued by the taxpayer.

    Roger if you are travelling in Europe I would suggest you do not state your opinion too loudly in Ireland especially, you will be at serious risk of personal harm. There is real fury there for the gross excesses of the Irish banking system – their losses now likely to be shouldered by the Irish taxpayer, if they vote it through next week. As the cliche goes, socialize the losses and privatize the profits.
    There are prospects in 2011 of more banks failing in Europe and the USA, hardly a ringing endorsement for private fiscal probity.
    Why to you assume privatisation is more likely to give better financial outcomes? And for whom. Many public companies are driven by short term goals (shareholder demands, exec bonuses etc) that more often than not conflict with better long term goals. The drive to improved efficiency and less systemic redundency (a main intent with privatization) comes at the price of reduced resiliency, and the risk of total failure, with a black swan event. This is holds true for biological systems (extinction) and for other complex entities financial or otherwise (bankruptcy). Nassim Talib has more to say on these matters in one of his books “The Black Swan”.
    I’ll leave you with that.

  3. Macadder

    There have been around 30 major privatisations since 1987. You suggest just two failures, presumably in the sense that the government bailed them out. Some might add Tranz Rail. Hardly an indictment of privatisation given that:

    (i) the vast majority performed well

    (ii) private firms can and do fail

    (iii) neither Air New Zealand nor Tranz Rail needed to be rescued by the government – there were other alternatives

    (iv) Kiwi Rail looks like being an ongoing burden on tax payers

    (v) Most SOEs have not been meeting their cost of capital.

    For more see this report by Phil Barry: http://www.nzbr.org.nz/site/nzbr/files/publications/publications-2002/changing_balance.pdf

    Roger

  4. Privitisations and PPPs are a great answer for New Zealand. Opps no that’s wrong isn’t it. That’s right I remember now they are almost completely irrelevant to New Zealand future prosperity. I just wonder why you bang on about them so often. You must know really that for New Zealand to prosper we have to sell things- products, services, services attached to products, License IP etc to people in other countries. So why all the fuss about Privatisations etc. Maybe because there is money in it.

    Mentioning UK privitisations was a ‘classic’ . Any sane person wondering around the UK would realise that this is the ‘home’ of failed privatisations. Water , Rail , the list goes on and on. Everyone at the trough and no one doing any work. That sounds like a good answer for New Zealand.

    Corrupted Big 4 accounting firms, Lawyers that have abandoned professionalism for cash. Dodgy banking practices. Oh and the trains are appalling the waster water discharges criminal etc etc etc.

    Read something, read Private Eye, Read the FT , John Kay, anybody. Just stop banging on about Privatistations. They won’t makes us rich. Actually that is wrong isn’t it. They will make some of us rich, not many, a few. But that is what this is all about really. A front for a scam. It is sad really. But don’t worry it will probably work.

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