Know your history

8 Jan

Though polling suggests a majority of Kiwis do not support it, John Key’s National government is now preparing to begin the partial sale of five of our State Owned Enterprises (SOEs). These include: Air New Zealand, Genesis, Meridian, Mighty River Power and Solid Energy. 

This should come as no surprise. The National party campaigned on the partial privatisation of SOEs and has sought greater privatisationin the past. Further, stopping the sale of our SOEs was perhaps the single strongest campaign message of the Labour Party.

Given that the election results have all but set in stone the sale of at least some of these assets, it is important to understand why we are selling them and what the impact of their sale is likely to be.

According to Mr. Key, we are selling them because:

A) we need cash to invest in key infrastructure / services and we shouldn’t borrow this during a recession, and;

B) because it will allow Kiwis, especially ‘mums and dads’, to invest in New Zealand, theoretically stimulating the economy whilst diversifying investment opportunity. 

I am not an economist but I believe there has been enough discussion about SOE sales to determine that the policy is a poor one that will very likely lead to a range of negative outcomes for the average Kiwi and the long-term welfare of the country. In no particular order, my doubts about this path are set out below.

First, I agree that borrowing money is rarely ideal. However, this is how governments operate and for better or for worse, NZ is not at a point where it can simply stop borrowing. Therefore, it is ‘how’ the borrowing is managed that is important, not so much the borrowing itself. This important distinction is often lost in the media, a fact John Key will be thankful for. It is therefore worth reiterating that well managed borrowing can bring significant benefits and remains a viable policy alternative to selling assets. For an example, see Tim Watkin’s article on why borrowing for the Super Fund actually makes sense. 

Two, while we’re on the subject of borrowing, take a look at this. Mr. Key doesn’t want you to realise it but comparatively, the NZ Govt has much less debt than most other OECD countries. It is important to remember that many governments have sought to and have successfully manufactured a distraction in order to enable the introduction of radical change. In the case of this government, the fear of ‘government debt’ wrapped up in a financial crisis has served this purpose exceptionally well. However, if you look at the facts, NZ government debt is not what it is being made out to be.

Three, the sale of SOEs will: initially cost government (at least as much as NZ$100 million); significantly reduce a reliable and important source of state revenue; and make SOEs vulnerable to the ‘invisible hand’ during a time of financial turmoil and uncertainty, a time that John Key continues to remind us is the worst and most volatile since the 1930s. Worse still, as best we can tell, the ‘cost’ of borrowing is probably better than the ‘cost’ incurred through lost dividends and fees – check out Gordon Campbell’s article for more detail.

Four, if John Key thinks it will be the ‘mums and dads’ of NZ rather than foreign entities investing in our SOEs, he is either lying through his teeth, or he is expecting the mums and dads to do a lot more of their own borrowing. If it is the later, then we should all be much more concerned with private household debt as this is significantly higher in NZ than is government debt. If not, then it will be business as usual, a minority of already wealthy New Zealanders combined with a larger group of mostly foreign interests will buy up the SOE shares.

Finally, I’m a stickler for history and we’ve been down this road before with devastating consequences.

Between 1984 and 1999, NZ was the only ‘Western democracy to have formally embraced the full ideology of globalization’*. In other words, our political leaders openly embraced the economic policies of the neo-liberal ideology: simply put, deregulate, privatise and let the ‘invisible hand’ of the market determine our fortunes. The impact of this ideological approach is well documented and is still evident today.

As John Ralston Saul states about NZ in his book, ‘The Collapse of Globalism: And the Reinvention of the World’:

The Globalist neo-liberal experiment hadn’t worked. It had been tried for fifteen years – the length of three world wars – and the results were clear. Most of [our] national industries had been sold off to foreigners, creating a constant drain of money abroad. The standard of living had been stagnant for all fifteen years. The economy was in decline. Young people were emigrating so fast that the national population was dropping. In areas as straightforward as research and development, a new, theoretically free market model had led to a shrinking of R and D. The Emergence of an accelerating rich-poor divide, so common around the world under globalization, took on particularly dramatic proportions in New Zealand, a country long used to being middle class.

Much of this should sound familiar. After three years of National, we have higher unemployment (think ghost jobs), higher numbers leaving for Australia, poor economic growth, and, according to the OECD, the fastest growing disparity between rich and poor in all of the OECD. We’re also about to sell some of our best performing assets – again!

Perhaps the only thing worse than making a mistake, is making the same mistake twice? Or, perhaps it is doing nothing to stop it?

If you don’t believe in the sale of SOEs take action by signing a petition (there are a number of them including this one) or get involved in peaceful protest (there will be a number of protests against asset sales, watch this space).

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3 Responses to “Know your history”

  1. Phill Jones January 12, 2012 at 9:49 am #

    With all of the convincing evidence against the sale of state assets you would think that the opposition (Lab, Greens) could put up a powerful argument. Here’s hoping David Shearer rises to the challenge.
    All the talk before the election of Labour planning to borrow too much was ridiculed by National, yet compared to other OECD nations, we are not too bad with our borrowing. I have never been so interested and yet so frustrated with politics.

Trackbacks/Pingbacks

  1. Charter schools « elevenhoursahead - January 22, 2012

    […] school system. Although a less obvious example of potential privatisation than asset sales (see ‘Know your history’), it is perhaps a more insidious one where the impacts will potentially be felt over a longer […]

  2. Let’s get a referendum! « elevenhoursahead - June 10, 2012

    […] be felt for many, many years to come. This was discussed in an earlier post written on the sale of State Owned Enterprises and the long term implications that has had for NZ […]

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