SOE selldown won’t make us wealthy
“The government is committed to reviewing all of its businesses to establish whether continued Crown ownership is justified. It will transfer into private ownership business that will perform better within the framework of market disciplines.”
Those two brief sentences highlight how far New Zealand's political thinking has slipped.
They are from National's 1991 Budget.
Fast forward 21 years, and the country's political apparatus is bent out of shape over selling down a 49% stake in four state-owned enterprises. The average punter couldn't name the SOEs. That same punter also couldn't tell you whether their power was generated and retailed by a government-owned outfit or a fully privatised one.
That punter is me. I had to look up the SOEs that are for part sale. I then had to check whether my retailer was one of them. Imagine my pleasure to discover that Contact Energy supplies my electricity and gas, and was privatised long ago.
It gave me quite the warm feeling.
But clearly I'm the exception.
The John Key-led government is pushing the limit of political acceptance selling just a bit of a few SOEs. That's after winning a mandate to do so and confronting an opposition that have yet to hit their straps. It's extraordinary.
The government has been forced to make a virtue of retaining government control. But that's a big downside.
The share price will be discounted because government remains in control. The power companies will be a safe investment but not an exciting one. No private investor can gain control to effect the changes needed to enhance the power companies' performance and value.
The government has also had to surrender the argument put in 1991 that privatisation is good for the economy. Today's argument is all about the government's balance sheet. Debt's running up, we must sell some assets.
Adam Smith dealt with this years ago. Good policy is not what makes the government rich. It's what makes the nation wealthy. That was well understood in the 1991 Budget.
The policy question should always be would people be better off with the business owned by the state or privately owned? The answer should be the same irrespective of the state of the government books. The foremost concern should always be the health and wealth of the people, not the government.
So we have a bunch of assets. What's the arrangement that puts them to best use? Choice one is to have them owned by the government and run by a government-appointed board. There's no daily performance check through the sharemarket and no competition for control. The company can't be bought out.
That's the SOE model.
The second model has control up for grabs. Anyone who thinks they can do a better job with the assets can buy the owners out. It's that simple. The competition is intense and the company's performance is daily recorded on the sharemarket. That's the privatised model.
Which model do you think will see the assets put to best use? And remember best use means using the assets to provide what people want at a price they're prepared to pay. It's customers and the customers alone who determine how well a company does.
To ask the question is to answer it. That's why governments no longer ask it. The policy result is too scary for them.
But to make the country wealthier we need to apply our available assets to better use. That won't happen under government control and government regulation.
That was all spelled out 21 years ago in a government Budget. We have slipped a long way. In that slippage is the loss of New Zealand's true potential.