Hooton on Privatisation

May 28th, 2010 at 11:00 am by David Farrar

in points out that in Government pushed for private sector investment in some SOEs and/or their subsidiaries. Mallard was right to do so then, and it is still right today. Extracts:

The state manages an SOE portfolio with total assets of $47 billion, more than the market capitalisation of the NZX 50.

Nothing about the portfolio is rational, consisting simply of the leftovers from the large trade-sales of the 1980s and 1990s. Alongside overinvestment in sunset industries, like regional rail and post, sit electricity companies and odds and bobs including a mining company, a manufacturer of pest management products, 371,000 hectares of corporate farms and an educational materials publishing house.

And it is ridicolous to say that this must be frozen in stone for all time.

Mr Mallard hoped that some growth could be funded off SOEs’ own balance sheets but he was also keen for them to partner with the private sector to develop new subsidiaries, which would be listed on the NZX. This, he argued, would provide depth to our capital markets and improve the transparency of the SOEs.
Mr Mallard was clear he was not interested in the type of wholesale privatisations that occurred when Labour had last been in power in the 1980s, but stressed that sell-downs or sell-offs of discrete new SOE investments should be allowed.

This is the challenge. Some SOEs are doing well, and want to expand – often into riskier overseas ventures. They should be able to do so, but the capital for such expansion need not come just from the taxpayer.

Foreign ownership is the big political bogey. If the taxpayer retaining an overwhelming majority stake is not enough, it may even be possible to develop an equity product restricted to the proverbial Kiwi mums and dads. It wouldn’t be as valuable as if it could be on-sold to anyone but that would be something the initial subscribers would know in advance.

Such a policy would not in fact be contrary to WTO rules, as claimed by the CTU.

Tags: , , ,

43 Responses to “Hooton on Privatisation”

  1. MikeNZ (3,234 comments) says:

    Not sure I agree David as we are such a small economy, I favour state ownership of some things essential to us all.
    as to control them is a monopoly, it’s not like we are the USa (in reality 50 countries) is it?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. mjwilknz (605 comments) says:

    MikeNZ, what’s essential to us all? I take it you favour state ownership of the production of food. Last time I checked, that was pretty essential to us all. :-) Welcome to Communism!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. CJD (333 comments) says:

    Floating of NZ share in these enterprises is a good thing as it takes the burden of the taxpayer. I was at a meeting last night where Bill English spoke of the assests (in dollar terms) which the government manages on behalf of the taxpayer. Our tax goes into inefficient and redundant enterprise with no return on investment to the taxpayer. Real wealth can be created by encouraging ordinary New Zealanders to participate in the economy via the stock exchange. With a vested interest in return on investment they also lobby for more efficiency in the use of their funds as well as having a mechanism to do so.
    Of course overseas investment is also necessary for real growth, otherwise we are just recirculating the existing wealth in New Zealand. The real challeng is how we access overseas capital without losing control over enterprises to the extent that the overall outcome may benefit overseas investors but negatively influence us here. As much as it pains me our economy is too small to hand it entirey over to the market. However the long-term goal should be sifficient economic resilience to be able to take advantage of a free market system that forsters real competition.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. Murray (8,847 comments) says:

    To hell with Hooton on privitisation, give me Goff on privitisation. He the political in the house with the greatest experience.

    Lets hear from flip floppy Goff.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. CJD (333 comments) says:

    C’mon Murray we all know what Goof will propose-the absolute opposite to what Key goes with…and if Key changes his position, so will Goff (by 180 degrees)…and so on. It is the standard Labour vs National oscillation-good for political gain and bad for New Zealand

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. mjwilknz (605 comments) says:

    Murray and CJD, don’t you feel sorry for Goff that, through her actions as PM, Clark backed him into a corner and has forced him to come out like this?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. krazykiwi (9,186 comments) says:

    The state manages an SOE portfolio with total assets of $47 billion, more than the market capitalisation of the NZX 50.

    The body of the story aside… how does this ratio look in other countries (Greece, USA, Australia etc)? Is it unusual to have the public capital market dwarfed by the state? Is there a correlation between GNI per capita and ratio of public vs private asset values? Any economists out there?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. kaya (1,360 comments) says:

    If it’s making a dollar for the country why privatise it? If it needs more money for expansion then fund it from the taxpayer. If it’s good enough to use taxpayers money to guarantee private banks and finance companies then I’m more than happy if they use taxpayers money to expand Kiwibank. It’s a bank, money for nothing as we’ve been observing for the last few decades!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. CJD (333 comments) says:

    kaya-“If it needs more money for expansion then fund it from the taxpayer”

    ARE YOU NUTS???

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. mjwilknz (605 comments) says:

    Kaya, was state-ownership of the BNZ in the late-80s money-for-nothing? It only cost the Government a $380 million bail-out in 1990! About a 100 bucks for every man, woman and child in NZ? Money for nothing, yeah right!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. Repton (769 comments) says:

    Kaya, was state-ownership of the BNZ in the late-80s money-for-nothing? It only cost the Government a $380 million bail-out in 1990! About a 100 bucks for every man, woman and child in NZ? Money for nothing, yeah right!

    You don’t think the government would bail out BNZ a second time, if it got to that situation?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. Redbaiter (13,197 comments) says:

    ” Matthew Hooton in NBR points out that in Government Trevor Mallard pushed for private sector investment in some SOEs and/or their subsidiaries. Mallard was right to do so then, and it is still right today. ”

    Can’t agree. SOE’s should all be done away with. Sold off preferably. This is why Hooten isn’t the right winger so many mistake him for. He’s at heart, just another Keynesian socialist and its a political approach that in the long run is never going to work.

    The stark message we get from Greece and so much of what is occurring in Europe is that government has to be radically reduced in size. The best place to start is in selling off SOEs and stopping government interfering in and manipulating the private sector. As they do by means of SOEs.

    Its just not a negotiable item. SOEs are a gigantic mistake that give shiney arsed socialist dicky lickers and their partisan acolytes an unwarranted say and stake in financial matters they usually have no understanding of. No SOEs of any kind.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. Jeremy Harris (319 comments) says:

    As usual the debate turns into a political football that has little to do with reality…

    We’re missing the biggest point and that is transport pricing… Road and Rail equates $110 billion of assets, dwarfing anything else on the government books – even hospitals and schools – and is being run in the most socialistic of fashions…

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. James (1,338 comments) says:

    That libertarian extremist Redbaiter is bang on….;-)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. PaulL (5,981 comments) says:

    Repton: why would the NZ govt bail out an Australian bank? They’ve just done very well in taking a couple of billion off Aussie owned banks – I like that model much more.

    The underlying fallacy of many on the left is that they assume that these entities are equally well run under govt ownership and private ownership – they see this purely as an allocation discussion, not a discussion over getting better management. If it were true that ownership made no difference to performance, then it would make sense for the govt to own most of the economy – they can debt finance at interest rates that nobody else in NZ can touch.

    I’m not arguing here that everything should be privatised, monopolies in particular are often best owned by the govt, and there is considerable literature describing the net gain to the population of doing so. But anything in a competitive industry should usually be privately owned, unless there is some clear market failure that dictates otherwise (and no, making profits is not a market failure).

    I personally would never buy shares in something part owned by the govt, or that the govt had substantial regulatory control over. How do you think “Mum and Dad” investors in Australia feel about their investment in Telstra, which the incoming Labour govt has deliberately driven down the share price on. As for investing in something that was run by govt managers, answerable for things other than making money, and subject to political decisions about whether to screw the shareholders or screw taxpayers…..no thank you there either. Even worse if the shareholders are foreigners – screwing them always sounds like a good idea. But don’t take that as a suggestion not to do it – I’m all in favour of other people putting their money into investments that will later on result in me having lower tax whilst they get screwed.

    Finally, on foreign ownership. I seem to recall Air NZ had A and B shares for years, with A shares available to foreigners, and B shares only to locals, so as to deal with international rules on ownership of airlines. The local shares traded at a discount, so people could see exactly what the cost of those rules were.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. Falafulu Fisi (2,179 comments) says:

    For policymakers & experts who are likely to get involved in the part privatization of govt assets, should read (a must) the following publication, since the authors showed empirically of how to monitor certain market parameters which can signal the appropriate time to enter the market. There are other publications on the subject of privatization, but I find this one interesting because of its empirical findings. Here is their conclusion:

    Conclusion:
    ========

    In this article, we calculated and compared some parameters of two subgroup indices of the TEPIX, namely, the metal and chemical products, which are effective in development and privatization of markets using the Level-Crossing analysis.

    The computed parameters included the activity, stage of development, risk, and the waiting times. We argued that indices with higher activity and stage of development, lower risk, and appropriate waiting time intervals are more suitable for development and privatization than other subgroups. It is important to note that introduction of a new stock to markets can slow down the development and decrease the activity of a market, but also change the risk, if the market does not have the ability for absorbing the stock due to the lack of liquid investment.

    Thus, in developing countries, although privatization can have useful advantages, if the indices are not chosen correctly or are not privatized in an appropriate way, this procedure can lead to a decrease in the efficiency of the market. In efficient markets, there exists liquid investment which is the reason to remove the information. If liquid investment does not exist, information remains in the market and does not wash out. Thus, the reason for the inefficiency is the lack of sufficient liquid investment.

    Title : Investigation of privatization by level crossing approach

    It is a subscribed journal, so experts and merchant bankers out there who are often involved in the financial markets IPOs should afford to buy the article themselves.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. Falafulu Fisi (2,179 comments) says:

    Oops, the correct link is below:

    Title : Investigation of privatization by level crossing approach

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. mjwilknz (605 comments) says:

    Repton, the first point is that, at that time, the NZ Government owned the BNZ so it might well have had to bail it out. Not doing so could have cost it more than $380 million. Given we are discussing the NZ Government’s ownership of NZ banks, you’ll have to explain how bailing out Australian banks has anything to do with this.

    Secondly, the Government has guaranteed retail deposits of the (Australian-owned) banks. Given that already gives them some interest in the performance of said (Australian-owned) banks, I don’t think we can rule them out in fully bailing out their NZ businesses, should they get in trouble.

    PaulL, what is the considerable literature outlining the net gain to the public from government ownership of monopolies? I understand the economics literature contains papers showing that the poor management of government owned assets removes what benefit there may be from more efficient prices. Perhaps you can direct me to papers setting out an opposite conclusion.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. Falafulu Fisi (2,179 comments) says:

    Economist Prof. Bernardo Bortolotti, has some good stuff on his website on the topic of privatization (he even wrote a book on privatization). You can find some of his working papers & articles available for free download from there.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. mjwilknz (605 comments) says:

    Thanks, Falafulu Fisi. Which of his papers outline how government ownership of monopolies resulted in a net gain for the public? The abstracts of the ones I looked at appear to refer how both fully and partially privatisated firms were run better following their privatisation.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. RKBee (1,344 comments) says:

    Is Goff coming out … or going in… either way he’s a hypocrite.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. mjwilknz (605 comments) says:

    How about you, RKBee, do you feel sorry for him? We can’t all be unfeeling hard-cases, can we? :-)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. Murray (8,847 comments) says:

    mjwilknz, no I don’t feel sorry for Goff. He palyed his part in that period of our history. It was him holding hands with the worlds worts terrorist, not Clark.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. mjwilknz (605 comments) says:

    Perhaps a fair comment, Murray. There were a pair of terrorists to hold hands with, though, wasn’t there? Lange and Douglas worked as quite the team until Lange got cold feet and chickened out.

    As others have said, the public have the impression that Clark fought for her views from the inside during the ’84 and ’87 Labour Governments. If Goff believed in what they had done then, perhaps he should have fought from the inside more during the Clark years. I suspect that the public might believe that politicians are more able to disagree with their leaders than they actually are. At the end of the day, though, Goff’s trying to play both sides of the fence and Clark didn’t. So, yeah, perhaps we shouldn’t feel too sorry for him.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. Viking2 (11,470 comments) says:

    # kaya (718) Says:
    May 28th, 2010 at 12:06 pm

    If it’s making a dollar for the country why privatise it? If it needs more money for expansion then fund it from the taxpayer. If it’s good enough to use taxpayers money to guarantee private banks and finance companies then I’m more than happy if they use taxpayers money to expand Kiwibank. It’s a bank, money for nothing as we’ve been observing for the last few decades!

    Kaya, today I read that the Tauranga City council is up for an estimated 36 million for leaky homes. would have been way worse for the city had they not allowed Private Certifiers. (Pity for the home owners but that’s not this discussion)
    So around 36000 landowners in the city area are going to fund 36 million dollars over the next few years. And please note that we are talking landowners for they are the rate payers.

    Now history is what it is and we cannot go back and undo what’s been done but had Govt. both local and National not been involved in these issues then those landowners would not have to stump up that 36 mill. It would have been the responsibility of the owners, builders , certifiers etc and do you think that would have made them a lot more cautious if they had to front and carry their own insurance for these events as most other businesses do?
    I part own an engineering workshop. Are we careful and do we have insurance. You bet your life.

    And that’s the best reason in the world for private capital. Responsibility and Consequences.
    Tax payers get all the consequences and none of the responsibility.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  26. RKBee (1,344 comments) says:

    mjwilknz @ 3:04 pm>> How about you, RKBee, do you feel sorry for him?

    No! I don’t feel sorry for any MP that stands for a political party’s philosophy against his/her own personal beliefs… Goff made his bed… now he has to lie in it.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  27. philu (13,393 comments) says:

    hooten…hickey,….

    ..who can tell them apart..?

    phil(whoar.co.nz)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  28. Falafulu Fisi (2,179 comments) says:

    Local economist Dr. Paul Walker has an excellent fisking of economics illiterate, Marty G from the (Sub)Standard on privatization.

    #1) Privatisation: The facts
    #2) Privatisation: The facts

    Marty G and his cohorts at (Sub) Standard should stick to what they’re good at, such as personal attacks on John Key and other NACT MPs. They should keep away or refrain from giving opinions on economic matters, since they do not read the economic literatures. For the authors at the (Sub) Standard to write opinions on Mr Brownlee, Mr English or Mr Key for instance based on the media, is what they should stick to, since an attack on NACT members based on an article that appeared in the herald/stuff/TV1/TV3 is not something peer reviewed.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  29. kaya (1,360 comments) says:

    mjwilknz –

    I understand the privatisation argument , risk reward etc. In the present climate it would appear there is no risk in the banking and finance sector, taxpayers money is readily available to pay any shortfall. I forget the amount but the government has already paid out many millions of taxpayer dollars to investors in the past year.
    Why do we still have a financial sector guaranteed by taxpayers money? Privatise the profit, socialise the risk? Why are we bailing out private enterprise? If we have to bail it out anyway then we might as well take the profit when the going is good!

    I’ll have my tongue surgically removed from my cheek now.

    Viking2 –

    I’m in Auckland and horrified that there is an acceptance of no blame for this fiasco. How is that possible?
    I am one of those who is going to have to help pay for this through my pocket and through no fault of my own. I also feel sorry for those affected and if someone passed the tin around then I would dip into my wallet if I had some spare to afford.

    When it comes to the financial sector it would appear all normal rules of business, risk and reward go out the window which is why I say we might as well own the bank. “Too big to fail” “the need to restore confidence in the sector” etc is bandied around as the reasons for guarantee schemes. Bullshit, let it fail. It obviously wasn’t working.

    I would happily accept the private capital argument if it weren’t for the guarantee scheme. That stupidity removes the risk and therfore the normal prudence that goes with it.
    I fail to see how you can have a free market system then change the rules to socialise it because it wasn’t quite working as well as you hoped, it’s either one thing or the other isn’t it? Call me cynical.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  30. mjwilknz (605 comments) says:

    Kaya, sorry we’re both living in NZ, right? Other than, arguably, bailing out Toll when it bought back the railways and, to some extent, bailing out investors in leaky homes, who has the NZ Government bailed out in recent years? You mention that it’s spent “many millions of tazpayer dollars”. Who did they go to?

    As far as I am aware (and other than the relatively minor examples I mentioned), the NZ Government hasn’t bailed out anyone in recent memory. If it was ever looking to, I take it you wouldn’t support it. And, given there isn’t any “guarantee scheme” in NZ, I take it you do “happily support the private capital argument”.

    As well as having your tongue surgically removed from your cheek, you might want to teach it to speak with a little more sense, too! :-)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  31. PaulL (5,981 comments) says:

    Thanks for those links Falafulu. And for mjwilknz above, the work by antidismal can provide the answer that I didn’t bother to go find. I quote antidismal’s quote:

    Mary M. Shirley and Patrick Walsh write in Public versus Private Ownership: The Current State of the Debate, Working Paper, The World Bank,

    Our review found greater ambiguity about ownership in theory than in the empirical literature. In the debate over the effects of competition, theory suggests that ownership may matter and if so, that private firms will outperform SOEs. The empirical studies squarely favor private ownership in competitive markets. Theory’s ambiguity about ownership in monopoly markets seems better justified, since the empirical literature is also less conclusive about the effects of ownership in such markets. Theories that assume a welfare maximizing government suggest that SOEs can correct market failures. In contrast, public choice theories are skeptical of the benevolent government model. Corporate governance theories suggest that even well intentioned governments may not be able to assure that SOE managers do their bidding. The empirical literature favors those skeptical of SOEs as a tool to address market failures. In studies of industrialized countries, where we might expect more developed political markets to motivate greater government concern with welfare maximization or better information and incentives to overcome corporate governance problems, private firms still have an advantage. The private advantage is more pronounced in developing countries, where market failures are more likely.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  32. mjwilknz (605 comments) says:

    Sorry, PaulL, you were arguing that the literature suggested there was a net gain to the public from state ownership of assets. However, this paper (summarising other literature) suggests “[t]he empirical literature favors those skeptical of SOEs as a tool to address market failures.”

    This looks to me like the literature favours private ownership (at least in developed countries). Where am I going wrong in interpreting this stuff? Are you admitting that the literature doesn’t suggest a net gain from state ownership?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  33. PaulL (5,981 comments) says:

    No mjwilknz. I suggested that, in general, competitive industries should be in private ownership, the literature supports that there would be substantial efficiency gains.

    In general, monopoly industries should be in govt ownership, and I believe the literature supports wellbeing maximisation with public ownership of these (i.e. you could probably show that some monopolies are more efficient in private ownership, but that doesn’t necessarily mean they pass that efficiency own to consumers via lower prices). The quote I dropped in above says that there is ambiguity about ownership in monopoly markets.

    However, I believe that there are very few true monopolies in the world today. Take as an example, the roads (often seen as a natural monopoly). It is possible to create competition through time, rather than competition on an individual asset – so we could privatise the roads by region, and we could make the right to run those roads renewable – so if you run the roads well in a particular region, at the next retender, you could get additional roads. So I’d argue that isn’t necessarily a monopoly. Similarly, the court system. You can argue it’s a monopoly, but you could similarly create competition by privatising the administrative side of courts (not the judges themselves I’d suggest), and awarding contracts by region. Companies that ran a court well could gain additional courts at the next retender.

    However, if we assume there are some true monopolies out there – are you suggesting that it makes sense to privatise them?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  34. mjwilknz (605 comments) says:

    Ok, PaulL, I’m with you. So the literature suggests state ownership’s not preferred if the firm is a monopoly. I think that point is reasonably uncontroversial. Does that make the NZ Government’s ownership of a quite a range of companies seem somewhat illogical? Possibly. As you suggest, I believe the judiciary is a good example of something best run by the government. Police and the armed forces are probably two more.

    Thanks for the perspective. Something more to think about.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  35. Inky_the_Red (759 comments) says:

    By far the largest SOEs are the 4 Power Companies. TransPower is a Natural monopoly which can not be sold off and in my opinion shouldn’t be an SOE and should be managed through the Ministry of Energy.

    The other 3 could only be sold off if the competitive market works and a government wanted to embed the current structure. It clearly isn’t power prices are rising at 3 times the rate of general inflation. Labour are the most at fault here they (unlike National) do not have the ideology that the free market is the only way. Labour also presided over 3 years of the competitive market proving it doesn’t work in electricity for New Zealand.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  36. mjwilknz (605 comments) says:

    Inky, you’re making a whole heap of very arguable assertions there, mate. The key reason that it’s difficult to blame rising costs on market structure are that prices have continued to rise in spite of there being no real change in that structure. There’s a much stronger argument that prices have been rising because costs have been rising. There are plenty of reasons to think costs are rising and none that I know of involve market structure.

    I would venture to suggest that Labour had and still does have an ideology that is deadset against markets. Given your quickness to blame market structure for price rises even when better explanations for those price rises exist, I’d suggest that yourself suffer from that ideology, too. Feel very free demonstrate that I’m wrong by telling me how you’re quite willing to accept market-based reforms should they lead to better outcomes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  37. kaya (1,360 comments) says:

    mjwilknz – The Government has already paid out almost $70 million. Of course when these payouts happened they barely made the media. See this article for some of the details.

    http://www.stuff.co.nz/business/industries/banking-finance/3432491/Crowns-290m-guarantee-windfall

    They claim they are making money from the scheme as they have received more in fees than they have paid out but the second paragraph makes interesting reading.

    “But the retail deposit guarantee may not end up as such a money spinner because it could still potentially cost taxpayers hundreds of millions should more finance firms fail, government accounts show.”

    and later in the article……

    ” However, in its latest accounts the Government has made provisions of $771m should finance firms covered by the guarantee collapse. That is based on estimates of which firms face a more than 50 per cent chance of failure and how much they could lose in a receivership.

    That figure shows a real risk exists of more finance firm failures, despite the retail deposit guarantee that covers many of them. ”

    You tell me there is no guarantee scheme, I give you evidence there is. Maybe I speak with a little more sense than you give me credit for?

    My point however is, why are Government getting involved in guarantee schemes for private companies and individuals? If there are going to be such schemes then we might as well be in there and get the profit while the going is good. Like I said, money for jam? It’s either capitalism or it isn’t.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  38. Paul Walker (50 comments) says:

    mjwilknz (113) Says:
    May 29th, 2010 at 3:07 pm

    “Sorry, PaulL, you were arguing that the literature suggested there was a net gain to the public from state ownership of assets. However, this paper (summarising other literature) suggests “[t]he empirical literature favors those skeptical of SOEs as a tool to address market failures.” ”

    The point here is that if you want the government to “address market failure” (which it is very bad at doing) don’t use SOE’s as the tool to do it, there are better tools around. The justification for the use of SOEs has to be on grounds other than market failure. The effects of ownership are more ambiguous in the case of natural monopolies and these cases are best dealt with on a case by case basis. Hart, Shleifer and Vishny, “The Proper Scope of Government: Theory and an Application to Prisons”, Quarterly Journal of Economics, 112(4): 1127-61, November 1997 discuses where the boundary between the private and government sectors should be.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  39. mjwilknz (605 comments) says:

    Kaya, are you having a laugh? At 11.05 on 29/5, you said, “I forget the amount but the government has already paid out many millions of taxpayer dollars to investors in the past year.” I questioned you on who the Government had paid and you’ve provided evidence that it hasn’t actually paid anyone, yet. What am I missing here?

    You said I was saying there was no guarantee scheme. Looking back over our discussion, I can see how you’d inferred that from what I said. My comments look somewhat illogical given everyone knows about the retail bank deposit guarantee scheme. I was more getting at whether anyone had actually been bailed out by such a scheme rather than whether one actually existed. My humble apologies for not being clear in my comments.

    Given that only one industry in the whole NZ economy is appears have a guarantee scheme (albeit unused) and given our politicians assure us that that one scheme is only temporary (everyone may believe otherwise, of course, but that’s beside the point), can I assume that you do not (generally) support government ownership in New Zealand?

    Thanks for the reference, Paul. I assume PaulL was keen on government ownership of monopolies to attempt to solve the market failure of monopolistic pricing (if you can indeed blame that on markets). Other than attempting to solve market failures, what other rationales for having SOEs are suggested in the economics literature?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  40. kaya (1,360 comments) says:

    mjwilknz – apologies, wrong link. This is the one that siad $70 million has been paid out and to expect more to follow.

    http://tvnz.co.nz/business-news/mascott-first-fold-govt-guarantee-2509773

    Also from Treasury: http://www.treasury.govt.nz/releases/publications/media-speeches/media/30apr10

    The one I linked to above was more to show that the bailouts are probably not over yet. I read it after finding the first one and linked to it mistakenly – though the content was relevant to what I was saying.
    Do I support govt. ownership in NZ? Generally no where monopolies are concerned. The one thing I can’t understand Government giving guarantees to private businesses. Unless they take ownership at the same time like with Air NZ which continues to pay dividends. Catch 22 really.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  41. Davros (4 comments) says:

    This whole debate of Public vs Private is a smokscreen in actual factthe issue is and should be democracy and freedom vs Bureaucracy. The best place for essential infrstructure services and assets is under some form of Public Ownership so as their may be maintained total transparency and accountability of the service. If you dont believe me look at Aucklands marvellous Privatised Bus System to see what an ungodly mess it is and howratepayers are being held to ransome by a combonation of stupid submissive left wing politicians and a large bloated private sector monopoly that is depedent upon ratepayer funded handouts.

    There is a division it is called essential goods and services and optional non essential goods and services. Esentials such as phone lines, railway lines, gas lines should be publicly owned as they are essential to the community wellbeing and also should be held in public ownership as a form of non biased ownership that then enables third party operators to provide services along such infrastructure. Non essential stuff such asactual industries and so on do not need to be in Public ownership.

    An even better form of ownership thats neither public nor private is in co-operative societys where the consumers and/or the producers are also the owners of the business and thus the business operations reflect those values that the consumers/producer owners desire most from that business.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  42. Davros (4 comments) says:

    Kiwibank should be mutualised so that we the account holders have a say on how it is run. Far too often in the past have banks and utillitys been privatised agaisnt the concrns of the account holders and look what happens, we end up getting a reduced service with an increasing cost with no control overthe decision making process. Essentially the customer becomes a slave to a private corporation. So to prevent the same happening again to Kiwibank they should mutualise it into the ownership of account holders and only account holders…None of this floating on the sharemarket nonsense.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  43. Davros (4 comments) says:

    How do you have a competitive market for phone lines and power lines. In the past thirty or so years NewZealand has gone mad with the market. There is such a thing as a natural market for natural goods and services that can be delievered competitively. However such things as the Post Office, the Post Office Bank, Telecom and local power lines are not naturally competitive industrys or products…they are services and this is the problem. We have forgotten the line betwen what is a service and what is a commodity. The free marketers are just as mad as the Socialists…In terms of socialism, the socialists have the extreeme where they want to nationalise everything wheras the free marketers have the notion to want to privatise everything. Ultimately such loony fundamentalists are the cause of ruin in society for things always go from one extreem to the next. I think that privatisation in the 1980s and 1990s was done in such a horrendously bad fashion that the assets that were privatised should be renationalised because rather then work to the idea of divviying up services from commoditys the nutters thatwere let loose on the eocnomy and government after 1984 tried to privatise everything, in essence they saw everything even the community as a saleable competitive commodity and frankly they were wrong. The usual right wing rhetoric will be oh so you want to go back to a situation whereit took two weeks to get a phone line connected…blah blah blah. Actually no youve missed the point.

    The point is natural monopolys and certain services exist in public ownership for several important reasons one being so as to prevent market dominance and abuse by any particular market player. By privatising an asset to a trade buyer you essentially give them the key to market dominance which in turn has a profond affect over other players since it means youve handed market control to one entity.Thus the sale of telecom outright showed this. The lines portion of telecom should have and should be in Public ownership as public ownership is the only reliable third party to administer utillity infrastructure that is expected to be used in an open competitive utillity services market. Even then one has to wonder about certain utillitys being open to so called competition. I mean look at local electricity market. What a load of venusian hyper bollocks that is. The local electricity market achieves only thing….it gives all the power to the Power Generators as opposed to maintaining the democracy of the end users of the system. The previous model of competing generators selling electricity to locally owned lines companies worked because the electricity was sold as a bulk supply contract at a set or floating price per unit to the lines company which could then manage its prices accordngly passing on savings to end users where savings were. In all the time that we had the previous system i cannot remember electricity prices going up every fortnight or every month in quite the same manner as theyare doing now under the new market model. Because generators are supplying the power themselves to consumers, they are free to hyper inflate the cost of electricity to whatever they like they essentially have the mucle to control the market and thus fix prices because they do not need to compete for customers because all of the geneartors and retailers share the same pool of customers. Most retailing is done by Generators meaning they control the market. Whether we like it or not the result has been the fixing of prices at a set level, and the consumersare powerless to stop the rises in cost because thereare no bulk supply contracts setting in stone the cost of electricity for a set period of time. Wheras underthe previous electricity market model such was possible because the lines companies could negotiate tand the generators were willing to negotiate becausethe generators actually had to competet. From the wholesale perspective a lines company with 300,000 consumers under its wing is much more of a bargaining power then say 1 lone consumer. At least with local lines companies selling you the electricity hey there was competition because the competition existed in the wholelsale portion. Under a system where local lines are publicly owned, such savings were passed onto the consumer owners of the local lines company which purchases on their behalf. In a competitive wholesale market therefore, the lines companys would be free to find the best deal as mandated by its consumer owners whilst Generators generate power and sell same in a competitive fashion to the local lines companys. Because there is that competition for supply backed up with the right sort of numbers the Generators couldnt bully the consumers because they had no contact with them. Now with the modern electricity market, the consumer is a slave to acabal of Generators whom do not need to pander to powerfull group purchasing agents known as lines companies. The reason why a lines company had a better time at getting cheaper power all comes down to the numbers. A lines company represents x number of consumers which means they had buying power of those consumers, whears the indvidual has no power a collective of buyers has much greater power then say just one individual buyer. Under lines companys the consumers had the collective power especially when such lines companies were publicly owned. Under the current system, all the power resides in large powerfull generators. If most of these Generators werent publicly owned id start to worry. Even then one has to ask the question why is it that State Owned Generators are buying into overseas power schemes. Obviously such Generators are using the public to finance their empirical visions of conquering the electricity market in overseas lands. Is this correct i am wondering?

    Ultimately privatisation is a disease. It starts at things such as a state owned industrys manufacturing cars and spreads an corrupts society untill its influenece covers anything of a communal good be it power lines or swimming pools or librarys. You get people bred on privatisation whom then go and join community organisations and whom then when elected to high office seek to implement the same bizarre expriement in community organisations that has been tried and failed in the public sector. Ultimately the fundamentalist culture is to blame. Im sure if people were properly regulated then there would be a good balance between public and private sector. The lack of any self control by fiends such as Douglas and the business roundtable etc has meant that the disease of asset striping has attacked not just publicly owned industries but also essential services and thus the heart and soul of the community. And we wonder why we have bred a generation without community consience. Fed entirely on the greatest social drug since alcahol namely the internet….bullied by peers into adopting bizarre social conventions and smoking weed, another great tool for dumbing down the IQ of the average person.

    Recently in the Hutt valley the City Council privatised the local hall so such could be demolised and turned into apartments. Whats in a hall? A hall pitomies those collective values of old. Community groups meet in community halls for social purposes. Such places as halls are at the center of the community. This Hall that was sold was the Pomare Senior Citizens hall built for the Community by the Lions Club. It was sold by the HuttCityCouncil to a foreign developer who has now bulldosed or is intending to bulldose the hall and replace it with highrise apartments. The destruction of this one hall in favour of a profit making venture highlights the wrong that is at the heart of our communitys a wrong perpetuated by the fundamentlist greedy and self interested. Gone is the little hall and all the community ideals it embodied namely bringing people together as a community and in the place of this local meeting house weare to get a block of flats all designed to cramb as many people into squalla as much as possible and thus make a profit. In doing so have we not sacrificed our souls for greed? What is society comming to, or is it the end of society? The Hutt City Council sold the hall to make a profit. Ultimately this means that the community good as in the provision of a communal good service has been sacrficed for the pure self interest of an uncaring developer.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote