Kiwiblog

The full report is here. Some of the recommendations and my comments are:

• simplifying and standardising product disclosure sothat investors have clearer knowledge of what they are investing in (such as through short, prescribed, plain-English documents and an explicit warning on complex
products)

Not controversial.

• broadening the range of high-quality equity offerings for retail investors by encouraging partial listings of:

• central and local government-owned companies
• agricultural businesses
• local subsidiaries of financial services firms

I think that is a great plan. There are not many NZ listings, so investors like me are forced to invest more and mroe money in Australian stocks. Partial listings of some SOEs would be a great boost to the local capital markets, and keep more investment at home. The disciplines of being a listed company would help many SOEs improve their performance.

The early signs are that National may have a policy for the 2011 election of allowing some minority listings – that would be a good thing.

• improving the links between public listed and private markets by facilitating the development of more lightly regulated exchanges that are able to develop rules and be owned or operated by fully regulated exchanges

The rules of the main public exchange are not suitable for smaller companies, so this is good.

• developing a specialist agricultural capital market centre – ranging from the commercialisation of innovation through to public markets that cater to cooperatives’ particular requirements and the development of derivatives markets for our agricultural products

That’s a fascinating idea. It could even become a global leader in agricultural capital markets.

• fundamentally reviewing the Securities Act to allow for the above, in a way that plays to New Zealand’s reputation as an honest and transparent economy, and provides clarity about which investors are able to invest
in which markets and the nature of the regulatory regime around each market

I’m not sure the Act needs rewriting. Often the problem has been lack of enforcement. I recall the case taken by Stephen Franks and Roger Kerr personally against a company director, when the Securities Commission declined to act. They were successful also IIRC.

• eliminating tax and regulatory biases between different types of investment (for example, property versus financial assets) or different governance arrangements (such as direct investment versus PIEs).

At present, many investment decisions are based on the tax advantages for that type of investment. That is not optimal, as decisions should be on the likely return and associated risk with an investment.

At times Phil Twyford reminds me of Chicken Little. He runs about a lot claiming the sky is falling in over the Auckland Super City. Absolutely everything is to do with privatisation. I think he’d call more money for Libraries as privatisation, as Libraries buy books from the private sector!

Anyway Brian Rudman has an interesting column today, which waters down some of the hysteria from Twyford. Rudman is from the left also, but isn’t a politician. Rudman writes:

Also dumped was a proposal to amend the Local Government Act to permit “divestment of council [water and wastewater] supplies to the private sector”. The Cabinet decided instead on a minor change, extending the time limit on any contract a council made with a private water supplier or operator, from the present maximum of 15 years to 35 years.

Mr Hide received another bloodied nose over his proposals on the expansion of Watercare Services into the sole provider of all drinking and wastewater services to the new Auckland Super City.

He wanted to scrap legislative requirements that Watercare pay no dividend and that it “manage its business efficiently with a view to maintaining prices for water and wastewater services at the minimum levels.”

He argued to the Cabinet that “the Auckland Council, as the sole shareholder, will be best placed to direct Watercare, through its constitution and statement of intent, in how water and wastewater services are to be priced to achieve its broader objectives.”

His “sleepy” Cabinet colleagues managed to stay awake long enough to vote both of these proposals down.

Now some of you, like me, might actually have wished Rodney got more of his proposals through.

The point of the post though is to highlight the gay between Twyford’s hysteria and the reality. Rudman continues:

The Government’s attempt to keep the money we pay in our water bills going on water services is commendable.

People more savvy on these matters than me also say the prohibition on dividends and profit-taking will be a dampener on any foreigner contemplating a bid on this $5 billion asset. That’s if it ever gets to that, and only extremists on the edges of the Act Party and water campaigners who enjoy scaring themselves to sleep each night, seem to think this is a possibility.

Scaring themselves to sleep and boring everyone else to sleep I think.

Sure, the Cabinet has endorsed Mr Hides’ proposal that come 2015, the Auckland Council should be allowed “to determine … the governance arrangements and asset ownership for the delivery of water services.” I’m relaxed about this. While I see no reason to even bring the issue up in 2015, if the UMR poll, Labour’s Auckland issues spokesman, Phil Twyford is waving about is accurate, it’s a non-issue. The poll shows 85 per cent of Aucklander oppose privatisation of their water assets.

Mr Hide’s argument is that once the new Auckland council is bedded in, it should be allowed to decide on issues such as the governance of asset holdings in Watercare.

At least Wellington is letting us have a say for once. We should treat that as a breakthrough and a precedent, not a threat.

Phil constantly advocates that Wellington should be running Auckland more.

The SST reported:

THE GOVERNMENT will become one of the biggest players in the commercial property services market following Quotable Value’s (QV) takeover of DTZ.

QV has been in negotiations to buy the New Zealand arm of DTZ, a large publicly listed valuation and property management company based in the UK.

Neither company was responding to calls on the subject last week, but the Sunday Star-Times understands that DTZ’s staff have been told the takeover will proceed and both sides have been putting the finishing touches to the deal.

QV is a state-owned enterprise and its takeover of DTZ will create a property services company with turnover of nearly $70 million, making its easily the biggest property services company operating in the commercial property market.

While in one sense it is good to see an SOE operating commercially and making good commercial deals, it concerns me that they do so with taxpayer money, and an implicit Government guarantee.

Much the same happened when Kordia purchased Orcon. A smart strategic buy for Kordia, and some useful finance for Orcon, but should the NZ Government own an ISP and a commercial property company?

The Government has promised not to see any SOEs during this term. I hope that they have a more flexible policy for the 2011 election, which would allow the Government to exit areas that are commercially competitive.

Reuters reports:

UK Prime Minister Gordon Brown plans to sell off 3 billion pounds (NZ$6.47bn) worth of government assets.

The asset sales will be carried out over the next two years, and include betting company the Tote, the cross-channel rail link between Britain and France, a portfolio of student loans and the government’s stake in uranium-processing firm Urenco.

The bridge and tunnel crossing over the River Thames at Dartford is also up for sale, and local authorities are expected to raise a further 13 billion pounds (NZ$28bn) through asset sales on top of 30 billion pounds (NZ$65bn) already identified in a 2007 report …

What a shame that the British Labour Party will sensibly sell some assets that are better in private hands, and the NZ National Party will not do the same.

The Labour and National consensus to rule out all assets sales, no matter how logical, is the most extreme in the western world.

I do not advocate National breaking its promise not to have asset sales during this term, but they’d better have a more rational policy going into the 2011 election. If Gordon Brown can do it, so can we.

I had a superb time at the P J O’Rourke dinner last night, and associated after match entertainment.

The night got off to a good start, when I ran into the Director of the CIS, as I was looking for my name at the table list. I only registered a couple of days ago and wasnt part of a formal group or table, so was not sure who I would be with. I was hoping it wouldn’t be a bunch of boring auditors so had requested on the form to be with some interesting people. I asked Greg if there were any interesting people at my Table – Table 8. He said “Well you’re with me and P J O Rourke, so is that interesting enough”. I managed to restrain myself from hugging Greg – but how seriously cool is that.

The dinner at Sky City was excellent and great conversation at the table. PJ’s speech and then Q&A session was simply stunning. Not only is he the funniest political speaker I have ever heard – he also delivered such a powerful strong message in favour of limited Government. I will blog some quotes from his speech, once I have a copy. It really was superb.

I could not resist in the Q&A asking him if he supported private mercenary armies, as written about by David Shearer, and O’Rourke said that is just about the only area he doesn’t support a private sector role. So I was amused that Labour’s Mt Albert candidate may be to the right of P J O’Rourke when it comes to the role of the private sector. PJ was amused over dinner to find out that one of the chapter headings of Shearer’s paper was “Give War a Chance” – the tile of one of O’Rourke’s best known books.

As I have said before, I think it is excellent Shearer has been willing to advocate that decisions on private sector involvement should be made on the basis of pragmatism, not ideology. Shearer basically says “If they can provide a better outcome, then don’t be put off by the fact they will make a profit from it”. All centrists and rightists should welcome such an outbreak of common sense in Labour, and support him. Matthew Hooton covers this theme in NBR:

What Mr Shearer advocated was that a controlling legal authority – the UN – retain ultimate responsibility for initiating, funding and regulating peace-keeping, but have flexibility in going about it.

If a company like Blackwater, Pathfinder or Executive Outcomes was better placed than soldiers from national armies to undertake a particular operation, then the UN could contract them.

This is a classic funder/provider split model. Admittedly, Mr Shearer went one step further in proposing it be applied to military operations, but his idea is no different in principle to the New Zealand Ministry of Education funding Kura Kaupapa Maori or other private schools, the Department of Corrections contracting out prison services or rehabilitation programmes, or employers choosing approved alternative insurers within the framework of a national ACC.

In each case, the state would remain responsible, being the initiator, funder and regulator, but its agencies would be able to choose the best provider of the service.

Instead of crying “privatisation”, our leaders should be expected to debate such ideas more intelligently than was evident this week.

Absolutely. Privatisation has been a hysterical catchcry from Labour for too often. We need a sensible rational debate on increased utilisation of the private sector, without the kneejerk backlash. Hooton continues:

His selection will mean Labour will never again be able to cry “privatisation” when contestability of service delivery is suggested, and will open the possibility of a more sensible debate about the current structure of the SOE portfolio. New Zealanders can only gain, both as consumers of public services and investors in state assets.

Indeed National would welcome David Shearer into the Labour Caucus. It will largely nullify the privatisation issue for National. If Shearer is confirmed as the candidate (which is highly likely as Head Office control 3/7 votes) I will not be surprised if some National Party members vote for him tactically – knowing the huge boost it will be to have in the Labour Caucus one of the world’s leading proponents (his articles have been cited in scores of other research in this area) of legitimising private sector involvement in military operations.

Anyway once again big thanks to CIS for organising the P J O’Rourke dinner and to all those who went out on the town afterwards. It did mean I was late filing my NBR column, but 3 am is a very bad time to try and start writing it.

Privatising Protection is the name of the second article written by David Shearer about the use of mercenaries. I’ve uploaded a copy of it – privatising-protection.

This one was written three years after the 1998 “Outsourcing War” article – in 2001.

What is really interesting is that in 2001 he was an Adviser to the New Zealand Minister for Foreign Affairs and Trade. And who was that? Phil Goff of course.

Now I have worked in a Ministerial office. I find it hard to believe you could be an advisor to the Foreign Minister, and submit an article to Chatham House on private military forces without the Minister giving it an okay. The article is summarised by Chatham House as:

When people in the world’s conflict zones need protecting, it is the United Nations which is most frequently charged with ‘doing something’. Often short of soldiers, it should be given another option, to call on professional military companies to provide human security – for a fee.

Pretty clear – advocates the UN hiring private mercenary armies. But as the NZ Herald reports, Phil Goff said just two years later:

Mr Goff conversely referred to mercenary work as “paid murder” in 2003, when introducing legislation banning mercenaries.

So did Goff know of the article before publication? If so, how does he reconcile it with his statement in 2003?

I give full kudos to David Shearer who is not resiling from his views:

He said he was still supportive of using private security forces for peacekeeping as a last resort.

“If you have got a situation where thousands of people are being mutilated and it’s your only option, then your first priority is the protection of women and children.”

I agree with Shearer. But Shearer has also advocated that they may have a useful role in countries with civil wars. He said:

As a result states’ monopoly on dealing with civil violence has persisted unchallenged.

So Labour argue the state has to be a monopoly in corrections and workplace accident insurance, but their likely Mt Albert candidate says there should be no state monopoly in dealing with civil violence or the military.

Now I agree with Shearer, but I can imagine it is going to be very uncomfortable for Labour when he is an MP.  Everytime Goff or King gets up to accuse the Government of having a privatisation agenda, the Nats will laugh and remind them that they have an MP who supports privatising the army. And when you consider Labour’s entire strategy is to basically label everything National does is as privatisation, well Naional can’t wait until Shearer is an MP. Hell, they are probably tempted to endorse him themselves.

I mean look at his free market logic here:

Many factions are increasingly motivated by economic gain through the control of diamonds, gold or minerals. Why not award the concession to a company that will mine and protect the resource, thereby keeping diamonds out of the hands of rebels who will sell them to finance their war?

I love it – profit sharing with the mercenaries. This guy understands free markets and incentives and best of all has no ideological opposition to them. He sure is no Helen Clark.

Of course not being a woman may harm him. The Herald reported:

The Service and Food Workers Union’s northern region secretary, Jill Ovens, said the affiliated unions would not be endorsing any particular Labour candidate.

She said her personal view was that it should be a woman, as Labour no longer had a female electorate MP in Auckland with the departure of Helen Clark.

That is true – they don’t. Cunliffe, Carter, Hawkins, Robertson Goff and Su’a hold the other seats.

I have found it very amusing that Labour have been accusing John Key of following focus group supplied scripting, because they are so good at it themselves. The media have already reported on how they spent one entire month trying to label Key as “slippery”.

Their other tactic is to label every policy or move by National’s as “privatisation”. Their focus groups have shown the public don’t like this word. So whatever National does or say, will be labelled privatisation by Labour.

We saw this yesterday with Helen Clark and Trevor Mallard’s response to what is hardly an earth shattering policy by National (rather tepid in my views).

NZPA reported:

He [Mallard] was suspicious that a National government would look to commercialise or even privatise Radio New Zealand.

Now what was the actual policy:

Continue funding for Radio New Zealand, National Pacific Radio Trust, and Access Radio

So a policy of maintaining funding, is described by Trevor as a policy to privatise. It’s hilarious.

Then we have TVNZ:

Broadcasting Minister Trevor Mallard said without TVNZ having charter obligations there was little point in having it remain as state-owned broadcaster.

“The promise to retain ownership rings hollow. This policy is a Trojan horse privatisation down the track,” Mr Mallard said.

You have to give Trevor kudos for not acually trying to defend the charter as having produced anything worthwhile – he knows it has been a disaster giving TVNZ mixed priorities.

But let us look at his claim there is no point in hvaing TVNZ owned by the state without the charter. Well, apart from the 30 or so years it was happily state owned with no charter.

I am looking forward to future Labour responses to National policies. We will see stuff such as:

• More money for MOTAT = privatising Te Papa
• Greater subsidies for GPs = privatising primary health
• more money for books on homes = privatising education
• tax free charity donations = privatising welfare

Yes no matter what the policy is, Labour will call it privatisation.

Roger Kerr writes in the NZ Herald:

With the National Party’s decision not to move any state-owned enterprises to the private sector in its first term if elected this year, we appear to have a new political consensus between the major parties in New Zealand: privatisation is bad.

I wouldn’t say that “privatisation is bad” is the consensus, more that “privatisation is very unpopular”.

Indeed New Zealand has done even more to stand out from the crowd: it has gone in the opposite direction with the buy-back of Air New Zealand and now the railways and ferries, the establishment of Kiwibank, the renationalisation of ACC, and the Auckland Regional Council’s reversal of the part-privatisation of Ports of Auckland.

Yep, the state grows and grows.

The position across the Tasman is also instructive. All governments at federal and state level are Labor, and none is opposed to privatisation. Currently the New South Wales government is battling with trade unions to privatise its electricity generators. Victoria did so in the mid-1990s, and in the five years to 2007 electricity prices in Melbourne have risen by less than one-third as much as in Sydney.

Labor in Australia is far more moderate than the counterpart in New Zealand. National has been scared off privatisation because they know a rational debate is so difficult to manage from opposition. I certainly hope that if National wins, they will govern in such a way in their first term to gain the trust of the public, so that if they then propose some modest asset sales in a second term, the debate can focus on the merits of the actual asset being in state vs private ownership, rather than an ideological holy war that all privatisation is bad and all nationalisation is good.

The worldwide moves in the past 25 years to shift state enterprises into the private sector have been driven by the evidence of major economic gains in the form of improved efficiency and profitability, lower prices and better services, and more investment and output.

Indeed. While there are some individual examples which didn’t achieve the above, the evidence if you look at the whole OECD is over whelming. And if we really want to close the gap with Australia, it will be hard to do so with the state running such a major segment of our economy.

This does not mean all private businesses are success stories and all state-owned enterprises underperform. Rather, the point is that, on average and over time, the private sector is better than politicians at running commercial businesses, and governments should not bet against the odds with taxpayers’ money.

Also owning an asset can make a Government reluctant to regulate monopoly aspects of it, because they own it. They try to do hidden regulation, where they drop hints to Directors, or appoint the right Directors, instead of having an open and transparent regulatory process.

Out of some 30 privatisations, criticism focuses mainly on just two alleged “failures”, Air New Zealand and Tranz Rail. Even if true, these criticisms would not weaken the general argument that most privatisations have been successful, but arguably the Government did not need to get involved in either case.

The Air NZ bail out only became necessary because the Government refused to allow Singapore Airlines to invest in the company.

The political aversion to privatisation is costing New Zealand potential gains in living standards. A Business Roundtable study (www.nzbr.org.nz) estimated New Zealand could gain about 1 per cent of gross domestic product a year by privatising SOEs (leaving aside local government-owned businesses).

Unless wages and other incomes in New Zealand are to drift further behind those of Australia and other countries, this is an economic reform that will have to come back on the political agenda sooner or later.

1% of GDP might not sound a lot, but over a decade or so it is massive, and long-term is the difference between having living standards of Australia or of Slovakia.

Housing NZ is selling off some state houses. Obviously this indicates that Slippery Maryan is committed to a secret agenda of privatisation.