Veteran anti-market critic Frank Macskasy writes (Letters, Dominion Post, 31 January), “why should Kiwi mum and dad investors buy something that they already own?”

Taxpayers are indeed the true owners of SOEs (and other government assets).  A perfectly viable approach would be for the government to simply give shares in SOEs to them.  This is not necessarily the best approach but it would yield benefits because of the disciplines of private ownership.

A variant would be for the government to give shares to taxpayers but to set up a trust into which shareholders could gift their shares if they valued collective ownership.

Would Mr Macskasy be happy with either of these approaches, I wonder?

But if the government simply sold shares, Kiwi investors wouldn’t just be buying what they already own (or, rather, buying more shares than they currently indirectly own).  Those investors who bought shares would be paying fair value for them to all taxpayers (including themselves).  All that would be happening is that the asset portfolio of taxpayers would be rearranged (so that the government had less investment in risky commercial enterprises and more in, say, roads, hospitals, schools etc.  This is an argument prime minister John Key has been making.  Why would this be a bad thing?


  1. Roger

    “Taxpayers are indeed the true owners of SOEs (and other government assets).”

    I have to disagree. If we think of “ownership” as having residual control rights (as in Grossman, Sanford J. and Oliver D. Hart (1986). ‘The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration’, Journal of Political Economy, 94(4): 691-719.) then taxpayers don’t own government assets since they don’t have the residual controls rights. Those rights lie with the government.

  2. Pingback: TVHE » Asset sales

  3. Hi Roger,

    Very few voters will be swayed by the research. Most will see it as ideology. I agree with the intent of reducing government ownership of commercial entities. I do not agree that the approach taken in the late 80s/90s was (partially with hindsight) the best way to go.

    Large scale sale to foreigners alienated many NZers. The opportunity cost to them of not doing it is never seen. For the majority of people they have no concept of what might have happened had the assets not been sold. They have almost no understanding that governments create very little, but redistribute a lot. The financial and economic literacy is almost non-existant or clouded by the rose tinted glasses of what once was. We are too pure in our approach to “free markets”. I have done business in some of the most vocal countries supportering capitalisim and some that are borderline anarchy. In each case there are significant rules to tilt the table in favour of the locals. There is balance needed!

    I recall the condesending discussions in the mid-90s when the power boards were being privatised. Power NZ (WEPB) gave its customers shares, AEPB did not. The main argument against giving shares was that people might sell them because they had more pressing needs for cash! I might add that some of the people who promoted this view still have their “job” on the Auckland Energy Consumers Trust. The Auckland City Council also took a court case against the AEPB disputing who actually owned the AEPB.

    This is a long way of saying that I suuport preferential ownership rights for New Zealanders. I recall the A&B Air NZ shares. Make a class of shares that can only be owned by the NZ Government, NZ Superfund, New Zealanders and KiwiSaver Funds. Make it the majority of the shares and by majority I mean 75%. Do not allow a foreign entity to own more than 5%. Put in place anti-dummy laws and require a super-majority of government to change the status of the shares.

  4. Thanks for that Neil. Two points:

    1. First you need to make the case that foreign shareholding is bad in the first place. A tall order – see the answers to Q4 and Q5 in this study. In today’s world many NZ corporates need to have a large overseas shareholder base. Why would you shackle SOEs with a 5% limit?

    2. You could do what you say but you need to recognise the downsides. The Air New Zealand A and B shares were a nightmare. The rebuttable presumption is that government-imposed share restrictions will reduce the potential combined value of all classes of the shares. This is because the restrictions limit the range of options for maximising shareholder value. If the imposed restrictions benefit one category of shareholders, this will likely be at the expense of other shareholders and the company as a whole. This inequity and inefficiency will create friction between shareholders and repeated lobbying of government to change the rules. In effect those buying them would be getting them cheap (and expropriating value from other taxpayers). Then if a future government removed the restrictions they would get a windfall gain.

  5. Hi Roger,

    I accept your answers, but my argument is part economic, part political. My suggestions are ways to address the political aspects. There is no perfect solution. The worst outcome would be the status quo and even with some marginal inefficiency effects (unmeasurable) and potential future rent seeking (it is always happening) I would favour a step in the right direction over no change. NZ is a left leaning country, that has its limit.

    Kind regards


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