If we ever wanted a measure of the failure of the free markets we could use last week’s release of the Capital Markets Development Taskforce report.
The taskforce had its genesis under the previous Labour government following the economic carnage from the collapse of half New Zealand’s finance companies leaving investors hundreds of millions out of pocket. One of the highest profile collapses was of Bridgecorp whose senior executives appeared in court last week for a depositions hearing on charges of issuing false prospectuses. The company collapsed in 2007 owing 14,500 investors a total of $459 million.
One staff member responsible for answering calls from irate shareholders told the court her supervisor emerged from a meeting with company director Rod Petricevich to say “OK, ladies, here’s the line.” The “lines” were variously given as “computer problems” or “banking glitches” to explain why payments to investors were late. When the case comes to court we will hear the full tawdry reality behind the glossy brochures and rich resonant voices reassuring prospective investors their money would be in a rock solid investment.
It’s not surprising investment in property continues to be the preferred place for the middle class to put their money while avoiding investment in the financial sector.
Stock Exchange executive and taskforce member Mark Weldon laments the lack of investment in the sharemarket. He argues we need more kiwi money invested to boost the value of shares. Another commentator bemoaned the fact “we are buying our homes but leaving foreigners to buy our companies.”
Hence the taskforce proposals aimed at restoring public confidence in private investment and arguing for the government to provide more opportunities for such investment.
To improve confidence their report suggests regulations insisting on “plain English” in investment statements and prospectuses; warnings on risky or complex products; improving New Zealanders’ financial literacy; providing clarity and enforcement for the duties of fund managers and supervisors and the creation of a new market regulator to police financial markets.
To provide new investment opportunities for “mum and dad” investors the taskforce predictably wants partial privatisation of our remaining state assets. Prime Minister John Key has ruled this out “in National’s first term of government” but we can be assured this will be on the agenda after the 2011 election.
Translating this it means New Zealanders as a whole giving up our shareholding in State Owned Enterprises so wealthy “mums and dads” in Fendalton and Remuera can get a government guaranteed, unearned financial return. Confidence in the private sector is so low the taskforce wants taxpayer guaranteed returns to bolster the confidence of nervous investors.
Remember these champions of private enterprise are from the same group which has already trashed so many of our privatised SOEs. Think Air New Zealand and New Zealand Rail which have needed repeated government bailouts and Telecom which seems headed in the same direction.
What the taskforce has turned its blind eye towards is the spectacular failure of deregulated capitalism which has been at the heart of our national economy and politics for 26 years. They should concentrate on cleaning up their own messes and leave our public assets alone.
We need to ringfence our public institutions from such reckless privateers which have led to so much economic woe and social breakdown. And yet successive governments stumble on in the same direction clearing away the corpses with taxpayer dollars as they go.
Also aiming to bolster the private sector at the expense of the state was Finance Minister Bill English who last week said a decision would be made mid-year about the use of so-called public-private partnerships for the building of new schools.
Again more opportunities for government guaranteed income streams so loved by the private sector. Think early childhood education, private tertiary education, the retirement industry and upcoming private prisons.
Capping it off in the last few days we’re seen the debacle over the privatisation of retirement savings through the shenanigans at Huljich. The company which topped the list for the best returns in 2008 – 2009 is revealed to have artificially bolstered its returns and misled investors. Auckland Mayor John Banks, an executive director of Huljich, is desperately trying to distance himself from the debacle.
Do we want to let private sector values, which have delivered so much misery these past 26 years in particular, anywhere near our remaining state assets?
Just as dairy farmers have so far successfully defended their industry from the perils of the sharemarket so we must defend our remaining SOEs from the ravages of corporate capitalism.