Privatisation reared its ugly head last week when new National Party leader John Key signalled “partial privatisation” of state assets as the party’s policy going into the 2008 Election.
Key says National will sell a 30% stake in Solid Energy to “a mix of mum-and-dad investors and others”. This partial sale would be used “to prove the case” for the partial privatisation of other state-owned enterprises.
However the case against privatisation has already been proven as a disaster. When Labour and National privatised our New Zealanders assets in the 1980s and 1990s they told us that the private sector would be able to run these businesses more efficiently, the services would improve and competition would keep prices down. An added bonus would be that the financial risk of failure would stay with the private investor instead of with taxpayers. It was going to be win, win, win!
The opposite happened. Instead of focusing on provision of services for the public good the focus became profit for private, usually foreign, shareholders. Money that should be invested is siphoned off into the back pockets of these shareholders and we have been left with run down infrastructure and poor quality services. Broadband, rail and electricity are good examples.
Adding further insult the risks have never been borne by the private investors. Taxpayers bailed out the failed privatisation of Air New Zealand and we are also paying well in excess of $200 million for the upgrade to our rail tracks while those who bought our rail network walked away with hundreds of millions in their bulging pockets.
Privatisation was a con of monumental proportion for which we are paying a huge price every time a phone bill or electricity bill arrives. What these privatisations showed was the conflict which exists between the short term extraction of profits and the long-term interests of New Zealanders and their families.
So with privatisation having been such a demonstrable failure what would be changed with “partial privatisation”? Is there something different at work here?
Key acknowledges the case cannot be made for the sale of assets to repay government debt as the return to the taxpayer from the investment we have is greater than the cost of funding the small amount of existing government debt. Key is right and in fact this same argument can be extended to reject Labour’s policy of private toll roads and to re-nationalise our key infrastructure such as electricity, telecommunications and transport.
John Key has suggested three benefits from partial privatisation. He says it will allow external analysts to critique the company, there will be less political stacking of the boards and that “the businesses would be held to account on a relative basis”.
These arguments don’t hold water. They are meaningless political puffery. Shifting accountability towards private shareholders rather than taxpayers would bring no benefit but multiple problems.
These problems are obvious in Air New Zealand which has a private/public mix and came into focus with the partial privatisation of the Auckland electricity company Vector in 2005 when it brought in private shareholders to fund the purchase of the Natural Gas Corporation. As a result Vector shifted from 100% public ownership to 75% public and 25% private.
The conflicting interests came to a head late last year when three directors resigned in a flurry of publicity complaining loudly about the behaviour of the chairperson Michael Stiassny and his close relationship with the majority community shareholder, the Auckland Energy Consumer Trust. At one level it was a clash of personalities but at the heart of the problem is the fundamental conflict between long-term community priorities and the shorter term commercial interests of private investors.
The partial privatisation proposed by Key is a refusal to face the failure of past policies. Just like a druggie who can’t survive from one day to the next without a fix National seems addicted to privatisation.
The policy doesn’t arise from popular concern in the community and the reasons to justify it are contrived and disingenuous. It’s hard to avoid the conclusion that the policy is being promoted because John Key needs to be seen to deliver to the big-business constituency which wants control of our public assets and which is the source of so much party-political funding.
The final insult must be Key’s claim the policy will benefit “mum-and-dad shareholders”. It’s a sweet phrase that hides an unpalatable truth. Kiwi mum-and-dad shareholders will actually lose their shares which are currently held on our collective behalf by the government while wealthy mum-and-dads with spare cash to invest would be the winners.
New Zealand doesn’t need more of this same diet.