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Why the asset sales matter for Kiwi conservatism

National's mixed ownership model law made it onto the statute books this week.

If this works, it will be the most important thing the government has done.

It is not just that it has won an uphill political battle.

There was not only an election fought on this issue but years of the two left-wing parties, Labour and the Greens, using the “privatisation” as the biggest bogey word since antipodean McCarthy-ites were uttering the “communist” in the Cold War era.

Despite the conventional wisdom that any privatisation is political poison, legislation allowing share floats of up to 49% of Mighty River Power, Meridian Energy, Genesis Energy, Solid Energy and Air New Zealand got through the House. 

The move is important, not only for the prospects of deepening New Zealand's shallow capital markets.

The more important aspect is its significance for the centre-right, for those on what should be called, with more accuracy, the liberal-conservaative (as opposed to the social-democratic) side of politics in New Zealand. 

To grasp this, you have to look back, and not just – as Labour did throughout the debate – to the privatisations of the 1980s and 1990s. You need to go back to the 1950s.

There were no privatisations in the 1950s – indeed, it was an era when the state got more involved in large scale businesses, with ventures such as the Tasman Pulp and Paper mill at Kawerau in 1954 under National, not to mention the developments of New Zealand Steel and the Tiwai Aluminium smelter under Labour.

Even so, the parallels are with the first National government between 1949-57.

That government adopted an explicit policy of encouraging a “property owning democracy”, encouraging New Zealanders to buy their own homes.

Those in state houses were encouraged to buy those houses – and there were, at the time, more than 32,000 of them.

It was a form of privatisation, although at the time that rather ugly word was not used, and it was fought as bitterly by Labour then as Labour and the Greens fought the bill passed this week.

And for similar reasons. National was out to promote as much private ownership as possible, whereas Labour fought hard to keep as many people as tenants of the state as possible.

The philosophy behind National’s drive was to promote home ownership and self-reliance, and the policy was highly successful: it produced the highest rate of home ownership in the world at one point.

Those with a cursory knowledge of history will point out – rightly – that demographic and social pressures also produced this: the post-war baby boom pushed up demand for family homes, and the recent traumas of World War Two and, before that, a long economic depression which started earlier in New Zealand than in most of the world, provided added impetus. 

The country was, arguably, primed for a housing boom – just like most of the rest of the Western world.

New Zealand went further than most countries, though, and there was nothing which required that pressure for housing investment to turn into private housing ownership.

The drive was not just about the philosophy that people are better off owning their own property – although that was certainly a part of the National Party’s thinking.

It was more the notion that people who own property are more likely to support conservative policies.

“Having a stake in the country” was the way it was put at the time.

And now?

Now, demographic pressures favour greater share ownership.

This is the corollary of the much-agonised-over wave of babyboomers we are constantly told is about to engulf us.

The ageing population issue is not just about the country’s retirement villages being filled with former hippies sporting grey ponytails and cluttering up the rest home lounges with their CDs of Carole King’s Tapestry and DVDs of The Big Chill.

It is not just about having more over-65s. It is also about having more over-45s. That is, more people who, having paid off a chunk of their mortgages, are considering expanding their savings base.

Or, if older, they might be looking for some sort of nest egg to pass on to the kids or the grandkids.

On top of that, there is a greater awareness of the savings issue in New Zealand than there has been for at least a generation.

A savings culture – which all political parties rave on about – means greater share ownership.

Philosophically, it fits with National’s principles: from a political tactics point of view, it will broaden New Zealanders “stake in the country”.

Direct share ownership is also, notably, something which tends to make the holders of those shares more conservative.

This is the key difference to the privatisations of the 1980s and early 1990s, and it is a quite deliberate one.

Most of those sales were trade sales. There was, until the end, no parallel with British prime minister Margaret Thatcher's "People's Capitalism". The sales were to plug holes in the state's balance sheet, rather than a mechanism for spreading share ownership. 

They were also, in the main, rushed.

The one exception, Contact Energy, came at the end of National’s term in 1999, and it was overseen by Tony Ryall – then, as now, Minister for State Owned Enterprises.

The Contact float went to individual investors and was so well handled it was barely mentioned on the hustings in the 1999 election.

National’s hope is that the floats authorised by the legislation passed this week will be a similar non-issue by the 2014 election.

At the time, Mr Ryall explicitly linked the approach in Contact Energy to the rise of house ownership in the 1950s. 

He also pointed to what John Howard was doing in Australia with Telstra and the Commonwealth Bank of Australia, and noted that share purchasers were not buying shares to flick them on but were “locking them away in the bottom drawer like a small savings account or next egg”.

The thinking, to promote a share owning democracy as a way of broadening New Zealand’s property owning democracy, is very much in keeping with National's tradition and principles.

There is evidence – largely anecdotal as this point, although you can bet polls are being put together even as you read this – that New Zealanders are cottoning on to this.

The admittedly highly unscientific vox-pop interviews with people in the street after the passage of the bill this week was illuminating.

The number of responses along the lines of “well, I didn’t like the sales, but yes, I’ll buy some shares anyway” was thought-provoking.

It seems to indicate that the political risk National took in adopting this policy – and, especially given this government’s political timidity in a number of other areas, it was a large risk – is going to pay off.

More by Rob Hosking

Comments and questions
12

New Zealanders should look at what happened when Telstra floated in Australia. TheTelstra consumers who got share entitlements lost money on both tranches....
And if you compare the regulation of the energy industry in Australia versus here, how long before prices increases see us move to the levels of regulation in Australia?

This articel is a rather good summary of what Partial Asets Sales is about; but as Annonymous 20 mins ago demonstrated; it is probably beyond the comprehension of many.
The sad thing for NZ's future, is that too many people have been lead, 'dare I say educated', to believe that their economic dependency upon the State, via working for families, DPB, 20 hrs Free Pre school, all encompassing ACC and many more; is the most desirable and secure way to achieve the standard of living they desire.

Absolutely right,

This model has been going on for too long since Labour came into power, and for obvious reasons there is a lot of resistance for reforms after years of beneficial abuse, because people now feel they are entitled. Personally I believe these people should not be allowed to vote as we are the ones paying their wages.
I agree partial asset sales is the medicine this country needs to bring in much needed financial investment. It reflects the lack of money and population this country has to economically grow without it.
Investment means growth and jobs where everyone can benefit,

That said the government must maintain majority stakes, so a sense of balance is maintained. We need only remember what made AirNZ a government owned entity in the first place. You can thank the privatized company Brierley Investments for that, and their criminal mismanagement of our national airline.
Bring in the investment but let's make sure there is a watchdog with a vested interest and oversite in our companies.

A good summary, Rob, cutting through all the lefty fear- mongering.
We must build a capital base from domestic sources. Unfortunately, the naysayers have managed to attach the emotive term "asset sales" to this move which plays right into the hands of Winston Peters et al.
liberte

New Zealand's biggest problem is a huge majority of economically illiterate teachers and journalists who are incapable of analytical and critical thought but deeply ideologically committed to socialism.

Public education will take generations to surmount that barrier without some drastic changes.

Most New Zealanders are illererate of History .... socialism is an important part of New Zealand and the rason we have the highest number of ferraris per head of population .... where to from here ?

A good article, and I agree, not a bad summary Rob. The problem I find in discussing this with left wing or left leaning people I know is that they are not prepared to discuss their objections, and those that do spout propaganda that makes no logical sense to anyone other than like-minded individuals who are also bound in that proganda.

Fortunately, like the reforms of the 80's and 90's, the right steps were taken, and people are hugely better off for them (although many don't realise the situation they'd be in now without them...read Europe, Uk and soon, the USA)

Good article - I think people having a voluntary involvement with their country - i.e. no just by right - i.e. being born here, not a compulsory involvement in paying tax, but choosing to invest in the government initiatives - both current ongoing investments and potential new investments.

Further I think we should explore cooperative ventures where employees have a financial stake as an investor and owner in the place where they work.

This sort of capitalist/social involvement is much better than continually playing the them and us ticket as Labour and the Greens seem to focus on, hoping that there is more of us than them in which to vote them into government.

Why are so many NZ companies and banks owned in Australia? Because the Australians buy shares in good companies, while NZers for some reason are scared to do so. And by shares I DON'T mean finance companies.

The problem with this article is that it neglects to examine the failures of the past privatisations undertaken in NZ, and instead chooses to recycle ideological dogma. Fact One: privatisations do not create a dollar of wealth - they simply transfer ownership and the resulting income stream from government to private investors. Fact Two: private investors seek to generate rents from assets, avoid making investments and will exploit market power ruthlessly without regulatory oversight. Fact Three: Only investment bankers, brokers, and lawyers win from high cost privatization exercises. All of these forces mean the country will be markedly worse off. To illustrate can you imagine how dysfunctional the energy market would be if it was run by companies with the culture and values of Contact Energy? Finally if this is all the National government has to offer in the way of economic policy then lord help us all. People who oppose the privatization of low risk and mature electricity companies are not being irrational - quite the opposite as there is not a single valid economic reason to support the proposed selldown.

It hasn't won an uphill battle, it is a financial con pure and simple.Nothing to do with socialism vs capitalism and all the other dysfunctional economic theoretical perspectives and theories people may have on the matter.

Yet Contact was proven to be sold for half it's value... we really are stupid sheep.