By Gareth Morgan*
The Government’s partial selldown of a number of state-owned assets is almost done and dusted, with only Genesis yet to go on the block.
New Zealand has nevertheless instigated a referendum on the issue.
That referendum is over whether the public thinks it a good idea to sell up to 49% of our electricity companies and Air NZ.
I will be voting yes, and let me explain why.
What really are the substantive arguments for and against? As an economist, my starting point is that government shouldn’t be in business.
Sure, there are a few exceptions to this general line (which I will explore below), but I don’t think these assets meet the ‘exceptional ‘ test.
Having looked at the substantive arguments, it’s bracing to examine the rhetoric coming from both sides.
I’m sceptical of government-run businesses.
There’s a long and sad history of failures and bail-outs, of management incompetence and self-serving behaviour, and of business strategies that are aimed at political, not economic, objectives. At the extreme, we have the experience of the former Soviet Bloc to look at.
But those with a reasonable memory will recall spectacular failures closer to home too – such as the collapse and tax-funded bailout of (then state-owned) BNZ in 1990.
Owning a business is risky, as this Government has found out with Solid Energy. Private operators can manage that risk better, and if necessary declare bankruptcy, whereas the government has nowhere to go.
Also private businesses firstly have to convince the market that it’s worth investing in them, whereas all a State business needs is a bunch of well-meaning but lightweight politicians to be enthused to invest other people’s money.
That is why over the last thirty years most governments around the world have privatised business assets and avoided nationalising them.
There are situations however where this general rule that government in business is a recipe for disaster doesn’t apply. The most common situation is when the business in question is dominant in its market.
There is only one thing worse than a government monopoly, and that’s a private one.
This is often a business that requires substantial basic infrastructure: our national grid Transpower, Rail carrier KiwiRail (and arguably Telecom in the 90s) are good examples of this. Kiwibank appears to have been set up to crack the cartel-like behaviour from the Big 4 Aussie banks – so again it is a question of market power.
Ideally good quality regulation would ensure freedom of competition so most businesses can be privately owned and run.
But as we know this is not always possible, and in small economies especially there can be a conflict between the low supply costs that you get from having large businesses operating at an optimal scale, and the benefits consumers get from having more (smaller) players competing in the market.
Our national airline operates in a cut throat industry, and there is no evidence of market power being abused in the electricity sector.
Electricity prices have risen, but they needed to. They reflect the cost of new generation – the cost of getting that extra kilowatt. So where is the problem with private ownership?
Labour and the Greens love to point out, the companies with hydro assets can make big profits because of these past investments.
But that is not abuse of market power.
There are players in every industry with more favourable cost structures, and they make more money than their competitors. Again Labour and the Greens argue that such profits are ‘obscene’ when they are going to firms that aren’t owned by the Government. But so long as a good sales process is followed, the Government will have scooped out the anticipated profit in the sale price of the asset. So it is no big deal, regardless of who buys it.
Then there’s the argument about some assets being “strategic”. Well that term is subject to abuse as well. The most strategic assets for a country are in food production and in New Zealand the government doesn’t own those. So again proponents of this argument have to establish their case, otherwise it becomes little more than ideology.
Rather than argue over private ownership the focus should be on whether markets are competitive and we are doing all we can to ensure that owners of business aren’t screwing monopoly profits from consumers. That can be the case irrespective of ownership. It is actually really hard to build a case for State ownership – not impossible, but in most cases where there’s market distortion regulation can save the taxpayer the capital investment that comes with ownership.
Let’s not forget, the government is pursuing the ‘mixed ownership’ model – the state keeps 51% of the assets in question.
So meaningful ownership hasn’t really been given away, the government retains control. Another reason why anyone worried about these companies abusing any market power needn’t lose too much sleep at night.
What about the official reasons for and against the asset sales?
Frankly the debate on both sides has been pretty shallow.
National has argued about paying down debt and investing the money elsewhere. Labour has been bemoaning the loss of dividends from the power companies. Frankly this whole transaction should be economically neutral, because the sale price will reflect the profits we expect in the future (any sales sweeteners aside).
In the end I’d suggest it is a points decision to National: why have our Government money tied up in these assets when it’s the role of the private sector to conduct business? Unless someone has an objection to private business – do we hear that?
The real benefit for NZ Inc from these sales is from getting more money into our equity markets.
For too long we have put all our eggs in the housing basket; there simply hasn’t been enough money sloshing around in the NZ sharemarket for it to be a viable alternative for investors to invest in or for businesses to raise funds from.
The recent sales provide a much needed boost to this poor cousin of the New Zealand financial system.
As I’ve argued before, removing the tax advantages on housing would also be a great step.
So don’t fear for our economic sovereignty or run scared of private ownership. This debate is a storm in a teacup, it is time we put it behind us and moved on to other things.
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Gareth Morgan is a businessman, economist, investment manager, motor cycle adventurer, public commentator and philanthropist. This opinion piece was first published on his blog garethsworld.com and is reprinted here with permission.
148 Comments
Shouldn't we be having this discussion before actually selling the assets? Dont we as citizens have some rights? Selling Telecom was great idea eh? Too cheap. We have a private monopoly (Telecom) and we are being screwed for overpriced phone and broadband services.
HP you have a very short memory. Telecommunications in NZ are the cheapest they have ever been. Remember when a call to Australia would cost $10, and only for 3 minutes? I voted YES because we have a government who said they would sell and they were voted in, so they are pretty much doing as promised. Bit late to whinge now.
To have this dicussion you need to know the ages of the assets, the amount of public debt that was raised at the time of construction, how much of that debt had been paid off, and how much of that original debt was still outstanding, at the time of the SoE sales.
It would be most revealing if the amount of debt currently carried on the books of MRP and MER exceeded the original debt raised to construct.
See, it is the absence of real quality information that keeps the mushrooms in the dark, spinning their wheels
The loans were paid by the taxpayers and consumers.
The sale price per unit, is suppose to include the price of tomorrow's production (that's called depreciation) so that whole sell for the "cost of future production" is a lie.
The only reason for the government sell down is - (1) Lack of competence to manage assets, and (2) Political interference in asset operations by self-interested incompetent political forces. Why incompetent? Because a _competent_ political force would recognise there is not useful gain in messing up such an asset for petty advantage.
So in this I agree with Gareth - our politicians are indeed THAT incompetent.
But I voted NO.
It's fair public infrastructure. A private supplier MUST look at cost recovery and chasing higher value customers. This is not what NZ wants, that is not in the publics interest.
We're already seeing it in Fonterra, were some minor suppliers who have supported the organisation for 50yrs (including previous co-ops) are being told they're just not worth the effort.
Power production is going to go the same way - corps and big users in selected areas will get cheap bulk deals. Everyone else will face raising prices, as the companies suppling to normal people lose their higher volume customers to the bulk shops. The more they lose, the higher the prices will go. The cheap guys won't want to take on the small holders - even with electricity and reticulation split (ie line charges seperate)
* Thus it is in the interest of public good, that the supply of electricity be independent from such pressure to buy the best customers. That means, unfortunately, government control, for the interests of the NZ public. Now we just need to find competent politicians.
Moa Man - Government Debt is currently around the $60 billion mark.........I don't think we have been repaying the borrowing rather just servicing the existing debt by taxes and further borrowing.
We have been living beyond our means for a long time.
I am all for creating a lean, mean machine in Government and do not believe they should have the right to create debt for every person in the country to the tune of $13,000 each and still climbing.
Most income tax that is currently collected goes directly back out in the form of benefits to others like the unemployed, sickness and over 65's etc.
Private enterprise has to keep the wheels churning to keep the Government and all its recipients of handuts happy........NZ has an endemic plague of parasites and we don't need Politicians who dangle carrots and wave fairly dust in the eyes of those who sucking off the system. I hope your reading this Stephen H.....as Winston P is pretty nifty with his fairy dust applications.......aimed at one particular group of people over the rest.
I hope your reading this Stephen H
What on earth are on about ? - I live a perfectly independent existence funded by my own capital. Admittedly lent to the government for the moment due to a lack of nearby productive investment opportunities, and the prospect of bank bail-ins.
I am nonetheless, a strong advocate of Winston Peters' political policies because of my age. It would be foolish to do otherwise as old age like all other phases of life is inevitable and and needs it's supporters.
- Oil will get more expensive (if not in the next year or two then ultimately as it just costs more and more to extract and ship)... Oil/Coal ARE a finite resource.
- People or countries will demand action over climate change so taxes may have to be applied to polluters... This will come back to consumers.
- Elec prices will not be able to keep pace (unless we, the taxpayer, subsidise or have riots as people go cold)
- Elec usage may even drop as things get more efficient.
- Elec usage may even drop as we enter the fail our way into the next bigger phase of the debt bubble collapse and people dont have jobs (no point manufacturing aything if you cannot sell it).
- Lastly; the Govt can't really bring in subsidies for Solar etc. when it owned the current generating assets; then needed some idiots to by them first (conveniently not many moms and pops - voters.. go figure!).
Did you actually read the article? The share price drop indicates that the we (the tax payers) received a higher price than what anyone will now pay for said same shares. If they were sold to cheaply, the share price would be increasing, not decreasing.
...as for why should I pay for them again. Simple. The Govt sold them and will use the cash for other purpsoes. If think they are so cheap..feel free to go buy some, no one is forcing you to invest.
Play the issue, not the ideology card.
Will you be singing the same song in 5years time?
The prices decreases because the _appearance_ value to the holders has dropped. They see better fish, have interest and taxes to pay, or whatever they've planned.
As for buying them...I paid for the asset first time, still recovering from the economic damage done then, unlike outsiders. How can be worthwhile to pay for it twice?
Yes, you paid for them (through your tax relationship with the Government). And now you've been paid for them (through your tax relationship with the Government). Instead of the asset, the Government now has money that it won't need to collect from you in tax.
Perhaps you complain that it's not been worthwhile, that you've not made a profit on the exchange - well there is no guarantee, ever, that you will get back the same or more than what you paid. Not for any kind of asset, let alone one that has been subject to years of the economic mismanagement that is almost always the result of Government ownership.
No you are incorrect.
I have paid for them...by the tax arrangement where the government took the money from my wallet by threat.
Yet the payment hasn't been made to me...it was PAID TO THE GOVERNMENT.
!!! so the government stole the cash in both directions. !!!
When the money comes back into my wallet, And I get to make the choices on it's expenditure (choice being the proof of ownership). Then I would be repaid, until then no. (and arguments to contrary are just apologetics until I get the free choice of my money)
No I'm not.
Very definately not.
For a start let's not fund that road over there. Kids are been and done school (and I was definitely forced to attend earlier, and happy enough to pay my way now). Not interested in the hospitals, as I can't afford them, and would get insurance if I needed it - still got the scars from their last fuck-up.
And well I'm very much keen on the idea of making police redundant.
So how do those ownership choices stack up? they don't cause I don't own them, nor do I get any say in how this payment is forced on me. Thus no, not paid. Unless in similar kind of payment I can give my friend a banana and wander into a local car dealership and drive away with a new car since I've paid (to my friend, a banana).
The government paying the government contractors, on their terms and dictating to me every step of it, is not "payment in kind"
The elec industry --Bradford and National have given us 20 yearsof deregulation of this industry and all we have seen in the last 5 years, is excessive price rises. An 18% increase last year from Genesis. The ideology that Business is best, does not always work for New Zealand. We are a unique country of two Islands, and to have many elec retail companies pushing and pulling against one another to try to get competition. It has not worked. Staff duplication (e.g. elec engineers ) is one example of the induced Inefficiency in this industry.
These skilled Engineers would be much better employed in developing Export Business's.
Gareth also makes the assertion that Govt should not be in Business, and in the main I agree with that assertion.
NZ is a Unique Country and the NZ Elec Industry Assets were not built up by Business, or private investors.
Gareth also asserts that Business can handle the risks much better.
Yere right ---- what about PIKE RIVER MINE ---- total Incompetance of Management and Directors. Business's sometimes gets it wrong too.
Focus on Export Products and Jobs--is the most important thing NZ needs !!!!
What really are the substantive arguments for and against? As an economist, my starting point is that government shouldn’t be in business.
Yeah Right!
Kiwibank's parent, New Zealand Post, has revealed for the first time that it'll pay up to NZ$58 million for KiwiSaver provider and funds manager Gareth Morgan Investments (GMI).
NZ Post's accounts show a carrying value of goodwill assigned to GMI of NZ$44 million., which excludes almost all the potential NZ$14.5 million earnout. Read more
On balance I think the sale of the electricity companies is probably a good thing as it will encourage competition in the energy sector but it is fairly line ball on the economic arguements. All a bit obscured by the proposal to nationalise electricity marketing and force the generators to sell power for lower prices as the taxpayer might have got an extra billion for the assets without that. We will have a better idea about that if National form the next government as the shares will then be priced by the market without that uncertainty.
I dont get the arguement that I owned those power stations prior to sale in any meaningful way. I could never exercise my ownership right to get any private benefit at all, any more than having the state own the telephone system on my behalf gave me any better chance of getting a phone on within three months back in the dark ages.
I dont get the arguement that I owned those power stations prior to sale in any meaningful way. I could never exercise my ownership right to get any private benefit at all, any more than having the state own the telephone system on my behalf gave me any better chance of getting a phone on within three months back in the dark ages.
I hold out little hope of seeing UFB in my residential area: The Chorus address locator response has been and I guess will remain;
- UFB deployment dates for your area are still being developed
Pretty sure most residental areas will get covered by 2019(?). I'd assume that even if not, you have got ADSL? which has some competition in it. and will see prices drop as an aside to UFB. Certainly Im looking at 40%+ savings if the indicated prices for UFB are correct, sadly not until 2015 at the earliest.
regards
I would love to know how Gareth reconciles this with his apparent admiration for the way they do things in North Korea.
There's another economist's explanation of the case here, for those with an interest.
http://economicsnz.blogspot.co.nz/2013/10/the-economics-of-asset-sale-referendum.html#comment-form
Gareth Morgan's argument is particularly lazy, full of "free market" truisms and shibboleths, such as "government shouldn’t be in business" and "At the extreme, we have the experience of the former Soviet Bloc to look at.", which are commen to neoliberal apologists.
These statements only remain uncontested, because the New Zealand public have been weaned on a steady diet of such neoliberal propoganda in our media,, our education system, and in our political discourse over the past 30 years. As C Wright Mills, put it succinctly, “In the absence of contrasting views the very highest form of propaganda warfare can be fought: the propaganda for a definition of reality within which only certain limited viewpoints are possible.”
I challenge the argument on the basis that without government involvement in the economy, the vast majority of utilitiy infrastructure (water, roads, rail, electricity, telecommunications, air transport, and port facilities) wouldn't exists let alone be business opportunities. No one else had the financial capital, the long term investment horizon, legislative powers, or the managerial sophistication to have been able to invest in and manage the tremendously complex process of developing the country's infrastructure. Furthermore private ownership of utility infrastructure in our sparse and widely dispersed populated country makes a poor economic case, which is why the utility markets, especially electricity and telecommunications must be heavily regulated, which even Max Bradford was forced to acknowledged when he lead the drive to liberalize and privatize the electricity network, otherwise rural consumers especially would have been consigned to horrendous electricity charges and abysmal service delivery, because it wouldn't make economic sense to service them. The National Party's electoral support would have evaporated, given it throughly depends on rural votes for its very existence.
He also uses the case of the BNZ being government owned to support his thesis that government owership of business leads to poor management decision making, without acknowledging that the BNZ was only 51% government owned, a model he praises in paragraphs below.
Also I wonder if he would project that electricity prices will fall, given that investment in electricity generation has halted due to flat demand from consumers (perhaps due to the high electricity prices?)
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11162178
Indeed. Wonder how much he was paid to write that. Has all the hall-marks of the "Drum Major" doing a "Drum Roll" with sounds of cannon.
Expected better. A professional effort, with his intellectual capacity, would have comprised the pros and cons, the for's and against's. Set out both sides of the argument. Unfortunately none of that. A one-sided attempt smells of PR
Shame. Shame. Shame.
Anarkist - what a load of bollocks..........sparse rural areas had to pay to get their power on. Most people had to pay for the power poles and installation.......while the power boards put up the lines.........Rural people then had to pay a guarantee for some 15 to 20 years. This was a monthly minimum charge. We used to pay $500 per month and that was back in the late 1970's and didn't finish until 1996. This practice was right across the country. Rural people contributed to the tax-base so most city people have been subsidised to get their poles and lines installled while rural people had to pay.
When you talk about roading your discussion becomes confusing. Are you talking the National roading network or the Local/regional district roading networks? They are funded separately.
Rural roading networks have had a huge amount of private money thrown in.....and everyone got the benefit of the use on these public roads. This contribution by private enterprise has never been recognised.
Its difficult to make a judgement whether electricity charges for rural consumers were fair in the 1970s, given that the costs of electiricity delivery infrastructure to service the needs of a small highly dispersed customer base aren't negligible and that the economies of scale to services the needs of a broad customer base in urban centres are pretty clear. The 1970s and today's electricity sector are a world apart, just on the basis of composition of generation sources. In the 1970s the vast majority of generation was still thermal (oil, gas, and coal), the prices of which was constantly escalating due to the geopolitical issues in the Middle East and turmoil as the world's financial market's adjusted to the collapse of the Bretton Woods system.
When I talk about government, I mean government whether nationa, provincial, or local. It makes little difference.
The idea that the private sector invested in rural roading is news to me. I couldn't find any information on the Web to corraborate your claims, though I'm not dismissing them out of hand. What era are you talking about? The 19th or 20th Centuries?
Steven - and they should block them off if they go through their farm land. Many of the paper roads people think they have right of access to get confused with formed tracks that a farmer has put in for his/her own access. If there is an accident.......who is going to be responsible? The farmer will be if it is his/her private track and you hit an under-runner.......
I have a huge problem with people who think they can willy nilly roam over my property using my farm tracks thinking they are using a paper road. Many of the paper roads displayed on maps have no road formation at all.
Why should farmers be held responsible for people who are trespassing on private property?
notaneconomist - No they shouldn't. A landowner in the country has no right to block off access to a paper road, just as a landowner in a town has no right to block off access through a formed road.
If a farmer puts in a track for their own access, and this confuses the public about the path of a formed or unformed paper road, then the farmer should feel obliged to identify where the private land starts and where the public land starts. Ultimately if you don't identify where your land stops and starts then don't be surprised if some people get confused. It's the same principle for fences along the side of all other roads, fences are not just used to contain animals, but also to identify where private land begins. Land owners know the implications of having a paper road on their property when they purchase it, and if they don't then they must take responsability for not doing their research properly. They cannot act like children in these matters.
Ultimately landowners cannot just take the easy option and try and stop New Zealanders from accessing these areas of public land, regardless of the fact that these areas pass between two areas of private land.
OWY - maybe you should read what I wrote again. Where there is no formed road identifying a paper road.
Counclls DO NOT FENCE OFF THERE PAPER ROADS!!!!! NOR DO THEY PUT GATES UP!!!!!
I dislike human excrement being left on my property. Even worse is those who do this near the creek beds. Why some people cannot bury their S&^t I do not know.
Parking in gateways and leaving gateways open.......how all very convenient for those who think it is their right to go where they want without considering the rights of other people and their property.
The Councils cannot look after or maintain the paper road network it is left to farmers to ensure it is grazed and that fire risk is kept lowered. So if people like yourself want access to paper roads then pay towards the costs of having them fenced and gated off and kept grazed, manage the weed and pest control operations etc and you can add toilets to that list.
Don't bring your pets to run around the farm land and ensure your dogs have the necessary paper work from the vet so that I know if they have been dosed or not.
And I should add that most people who want to demand access through paper roads across farmland have some kind of horticultural bent through the season. Well they can grow their illegal crap in their own back yard.
No need to shout or give yourself an aneurism. As I say below councils "lease" paper roads to the occupying farmers and, as far as I know, that takes the paper roads out of the public domain as far as access is concerned.
These roads were gazetted during the period of colonisation and occupation to ensure that any pattern of settlement and subdivision could be supported by a roading network. Many of the roads were not required in the end. Not only were they not needed but they had never provided access to anywhere for any purpose that needed to be preserved.
From time to time councils and landowners go through the tedious process of lifting road reserve status off a chunk of land allowing the landowner to buy that strip and incorporate it into their own holdings.
OWY:fences are not just used to contain animals, but also to identify where private land begins. You can't live in a rural area. If you did you would know that roadside fences in the majority of cases do not identify where private land begins. In all the areas we have lived in (and there's been a few around the country, the adjoining landholder has been responsible for maintaining the council owned roadside and keeping it pest/weed free. Consequently a lot of boundary fences do not reflect the legal boundary.
If the 'Public' own the land then it should be up to the 'Public' to pay for notification of where said land is, if the 'Public' wish to use it. Fish and Game post notices where fishos can access rivers, DoC post notices where DoC trails etc start, so why shouldn't it be up to the 'Public' to also do so?
Not illegal if they have the agreement of the owner - i.e. the Council
You raised the use of gps, steven What if someone turns up on your land and wants to use the paper road? Even if that person has a hand-held global positioning system (GPS), it may not be accurate enough to determine exactly where the paper road is. You could raise this point and refuse entry. You could also serve the person with a trespass notice. http://nwm.co.nz/news/view/article/46/
Chery picking,
and that off the council should be a rare event and exceptional, especially since the 2008 walking act which was put in place to stop the blocking off.
"The Walking Access Act 2008 was passed to provide the New Zealand public with free, certain and practical walking access to the outdoors."
GPS, yes and you could indeed do that however you cant do a trespass notice on public land.
"However, you must always remember that the public have the right to use the unformed roads."
"Otherwise, the Disputes Tribunal or the District Court might be the appropriate forum.
So for around $35 I can take the farmer to court for blocking me.
regards
Steven- if I find someone walking across my land with a GPS and they believe that they are on a paper road and I know that they are not then they are trespassing.
No person is allowed on my land without my permission. No one is allowed on my property without completing and induction process, OSH training, and any other relevant requirements that I am legally obliged to undertake or that I have implemented as part of policy.
I would also require that you should have 3rd party insurance to cover any damage that you may cause to my property and that of my neighbours and would also request that you have insurances for fire-fighting and other damages that could occur. Helipcopters are very expensive along with ground crews. I would also request that you supply information that you have the ability to pay for damages and provide me with copies of relevant insurance documents which would cover to my specified amount. Any future loss of production that I incurred would also be a liability on you if you caused the damage.
If in the event of a fire caused by someone roaming around trespassing - they would be required to have enough cover not only for my property but that of all neighbours that the fire goes through. If there are forestry plantations which there happen to be in my case, this can become extremely expensive to insure.
Question. The farmer of an adjacent property to our forest block has had his cattle routinely pushing through the fences and roaming our forest. He never rang us up and asked for permission to go and retrieve his stock and indeed we never locked the gate to keep him from doing so. Was/is he trespassing? He seemed to believe he had a "right" to go in and get them (in fact he said if he wasn't allowed to retrieve them then it would be our responsibility to go up there and return them to his land) - and of course we just wanted notification from him that he was going in because of the potential fire issue.
NotE, if you have a paper road, through your property I have the right to access that is the law.
If I was to go there, simple I'd require your name and full address and a letter off you demanding I leave and stating my location via GPS proving Im on your land. Otherwise I'd request the police to attend. I'd then take you to the disputes tribunal for all of $35, how many hours do you think you'll lose?
regards
If its a paper road then its a legal right of way it is not provate property. This is different to a farm track put in by a farmer.
The farmer isnt or should not be responsible for someone on a legal right of way unless something the farmer did or owns injures the person or damages property.
If Im on a GPS on a legal right of way, well ring the police and lets see whos right then, Im all for it.
Though it might be rather funny watching a police car try to drive up the field in their police car.
regards
...tis a pity we do not have the 'right to roam' rules such as those in the UK which allow the public access of right to uncultivated land. Back in NZ we have thousands of hectares locked up in private ownership, a few owners denying the populace at large the right to walk across our own country.
The idea that the private sector invested in rural roading is news to me - and to me too; and I thought I knew lots about local government. There may be some confusion over the amount of formed roads (tracks?) that are in private ownership almost all of which are on farms and in forests. Some of these roads are very well built - the roads in the forest above me are often better than the one I drive on daily. But then almost all of our major forests were established by the government originally.
Some of our earlier local government entities were the Roads Boards in the days when that was the sole purpose for rural local government. They weren't called councils but they morphed into the counties later on.
As for funding yes the State Highway system is funded by the taxpayer through NZTA but the taxpayer also stumps up 50% of the cost of roading outside the cities. I believe the subsidy was even higher pre-80's.
Kumbel - most of the Run type country has only been developed in recent years. The development started with the advent of top dressing. Access to these properties was restricted by a very poor quality roading network that serviced this country. Large truck and trailer units that now access this Run country wouldn't have been able too without the farmer's input into roading.
Blind corners were knocked off and road widening have been undertaken across NZ by farmers to provide reasonable access to their properties. Much of the Run country now has famers living on site rather than in the local township where the used to reside. There are still many areas in NZ where it is necessary for farmers to have a large tractor/dozer to tow trucks up hills especially in wet conditions.
It was common on most of the Stations for the owners to have their own graders and dozers to maintain access throughout the year.
If you look at the roading subsidies pre the 1980's the standard of the roads was for the vehicles of that particular time. There was also a lot of stock-droving undertaken to bring stock to the lower country. It is rare to see stock-droving now. Much of the stock-droving stopped after the 1987 recession as farmers cut back on staff. It became cheaper to upgrade the bad parts of the roads and use the bigger trucks etc.
Thanks - that makes a lot of sense. I was thinking about the ownership of the road corridor etc when I made that comment. So, in a way, rural roading way deep in hill country was an early example of a PPP?
I remember visiting an uncle's farm behind Stratford some 40-cough cough years ago. We came to one of those "warning narrow one-lane bridge" signs and the bridge turned out to be wider than the road itself.
On the subsidies - a lot of that money ended up sealing unused back roads up to councillors' driveways.
I don't know that I would call it a PPP Kumbel. The Councils always had full road owership and pretty much refused to spend money on upgrading. I can remember some of their cost cutting exercises and refusing to even have any maintenance undertaken. They would often refuse to clear slips so you just did the maintenance yourself as well,
The live export lamb trade days would see us tow trucks in and out and we would be up much of the night as the stock would have to leave in time to catch the ship at port. Hooking stuck Trucks up to Tractors and Dozers in the middle of the night to haul them up the hills. Couldn't get trailors out as the road was in terrible condition so the drivers had to leave them 10km down the road and cart the lambs to the trailor and load off the truck and back up the road being hauled up two hills on the way etc. It was pretty dangerous for everyone involved and lots of areas where a vehicle if it went over the bank would have seen the lot end up down a gully. Heaps of times when we had to do the push and pull and sometimes two tractors or a tractor and dozer doing the pull.
I know of many districts where the locals volunteered their labour and equipment to install infrastructure items like water schemes for town supply in rural areas. I think there is a fair bit of misinformation floating around that Councils have rated and supplied the services. Or that Government taxes provided the services. There has been an enormous contribution by private individuals in a voluntary capacity. Government and Councils got to keep ownership of the infrastructure assets that they didn't fully fund.
Your last sentence is another reason why I dislike any type of subsidy. They have proven time and time again to be open to abuse.
Thanks again. I have always said that raising seed capital for infrastructure is the trickiest thing councils do. Rates are fine for operations, maintenance and replacement but hopeless for building brand new stuff. I will now add working bees to my list of sources of seed capital along with begging, borrowing and stealing.
Unfortunately in New Zealand we always have to make a judgement call on whether the public or private sector will be less efficient in any given situation.
Because of our size and remoteness NZ's market is not competitive. The Productivity Commission didn't have to dig too hard to find out how un-competitive the building supplies market is. Eric Crampton (also an economist!) has coined the phrase, "the bought in New Zealand penalty", to describe the general level of inefficiency and anti-competitiveness of our markets.
It's certainly true that competition is likely to be less effective in a small remote market than it can be in a large well-connected one.
But that is not in itself evidence that Government monopoly ownership is better.
Yes, there are always going to be suckers, and there are always going to be cronies who try to fix things to their advantage. That's the case in any system involving people.
Are those who don't want to be suckers, and who don't want to be taken advantage of by cronies, likely to be better off when they have a choice as to who to purchase from, or when they don't?
I guess it depends on the integrity of the vendors of that which is being purchased.
Today we find out that Eric Holder and his DoJ crew have found that nine Japanese car parts makers have colluded to raise prices. As part of the scheme, more than $5 billion in auto parts were sold to U.S. car manufacturers and installed in cars sold in the United States and elsewhere. The companies will pay more than $1.6bn in criminal fines. Seems like a small price to pay for the Japan being allowed to devalue its currency boosting its own car exports? Read more
So is wilful tax avoidance, yet the authorities continue to turn a blind eye.
New Zealand charities not required to give money back to the community are exaggerating the gap between the "haves and the have-nots", critics say.
Under current law, private schools, fee-charging hospitals and food giants reap the rewards of tax relief with no obligation to donate some of their profits.
The Government is $600 million out of pocket each year as the charities sector swallows $400m through income tax exemption and $200m in tax credit refunds, yet Cabinet decided against reviewing charity law last year through "fiscal cost" fears.
Recent calls to urgently review the sector were once again quashed by Community and Voluntary Sector Minister Jo Goodhew yesterday. Read more
SH - looks like you would be better to have a charitable trust then you wouldn't have to support Winston as you get........er.........a little........older.
I'm thinking of calling my charity the Libertarian Charitable Trust.........
I'm sure I could add some religious fervour in there somewhere....
I'm sure it could help lift people out of poverty...........
Maybe even some old-age care.......
Keep it healthy.......a little cereal mix.........
I have often thought that a charitable trust was an excellent entity for restructuring one's affairs.
These electricity utilities are monopolistic money printing machines. Any government actually interested in the welfare of its citizens wouldn’t dream of selling this stuff.
In saying that, the government got a good price. The sale price to earning ratios > 25 are indicative of growth expectation. Electricity prices are already maxed out and after the great 201X (you fill in the X) financial crash which is heading our way these companies will contract big time. At that point it's likely that foreign investors will swoop in and snatch up these assets for next to nothing. So all things considered it's probably not a good idea to sell up our hydro assets, even though the price was okay.
As I recall Gareth Morgan strongly advised people not to buy property back in 2009, thats another topic. Anyway I disagree with Morgans assessment... and so does my cat.
The only reason for selling State assets is to build up a pool of socially useful investments such as the $1.2 billion to be spent on Christchurch schools, and the $0.65 billion to be spent on Christchurch public hospitals at Burwood and Central City.
Common taters with other, actual examples of the capex spends (without additional borrowing, note) made possible by these sales are invited to extend my little local list....
$0.65 billion to be spent on Christchurch public hospitals at Burwood and Central City.
It seems the local state guaranteed, but nonetheless, capitalist surgeons have cut off a choice segment of the market - no doubt confirming a government case for failing the public health sector alternative. Read more
The new Forte clinic replaces the old Oxford Clinic. Same MO. Much the same shareholders.
Ya always hasta apply a suitable discount to articles (like the one you referenced) that are essentially either 'talking their book' or moaning about the Weevils of Competition.
And as the CDHB routinely outsources minor ops to any institution which has spare capacity, adding another 4 operating theatres shurely increases capacity, both public via contracting-out, and private.
And the risks of this overcapacity are being borne by???? Shurely, the shareholders....
" As an economist, my starting point is that government shouldn’t be in business."
I think this is outdated sentiment from the days when government owned businesses were in no way accountable. Modern government SOEs are run very much like a private company, and in most cases have to compete with private companies. How can Kiwibank make a profit if government owned businesses are so inefficient?
Personally I would like the government to own more companies, but only in sectors where there are obvious monopolies, over charging, barriers to competition, and where this is causing every day New Zealander to pay more than they need to. I can't see any reason for the government to own Air New Zealand, but a supermarket chain might be a good idea.
Um, fings are a leetle more complex.
Gubmint enterprises rarely have to figure out, let alone disclose or enforce the constraints which come from knowing, WACC. So it's almost impossible to tell whether they are returning the cost of equity, which is in many cases itself extremely hard to nail down. And without a market, and equity analysts poring over every utterance, there's very little in the way of Discipline apart from the annual round of Audit, the occasional swoop by IRD, or the dreaded PQ.
As a classic example, take a look at ComCom's examinations of airports: Chch being the latest under the All-Seeing Eye.
The Commish has seen fit to say that "[CIAL] is providing services at a quality that reflects consumer demands. However, it is unclear whether information disclosure has had much impact on these. We also consider that information disclosure has not been as effective in promoting pricing efficiency as we would have expected."
Opaque.
Not subject to market discipline.
Top-heavy.
Pay rates exceed those in private sector by quite some margin.
Outputs difficult to measure.
Lender of last resort = Euan Me, at Gubmint borrowing rates.
TBTF.
TBTB.
Not a great argument, I am afraid.
"Modern government SOEs are run very much like a private company, and in most cases have to compete with private companies."
And there lies the problem. In terms of the delivery of basic utilities such as water, electricity, telecommunications, roading, and even fossil fuel delivery, which are prone to monopoly control and market failure I'd argue that they are better managed on the basis of public services with transparent accounting and stringent performance evaluations, rather than on commercial principles which implies the provision of profits to shareholders whether to government, institutional investors, or individuals.
In today's energy constrained world, a government owned company wthout a fidiciary responsibility to maximise profits, would be better position.to manage the country's demand for electricity by incentivising consumers to utilize electricity more efficiently, because they're no longer seeking profits through maximizing demand and therefore high prices.
"Frankly this whole transaction should be economically neutral, because the sale price will reflect the profits we expect in the future (any sales sweeteners aside)."
Would you say that sale price of PostBank, for example, was worth foregoing the billions of dollars a year that ANZ now makes? (I can't actually find the sale price of PostBank on the internet anywhere)
I think that Gareth may need to slow down on his output of articles as the quality may be starting to drop.
This article is all over the place, it is very disappointing. Maybe a motorcyle trip down to the southern lakes is in order to actually see what has been sold off.
Well, I am an absolute no, when it comes to the supply of power and other utilities. Things that are utterly essential to modern life, such as electricity supply, water supply and perhaps even communications infrastrastructure should be owned by the collective (us) as represented by the governement of the day.
I am not so adamant about Air NZ although it can, quite reasonably, be argued that it is a strategic business, especially given our isolation.
I'm sorry Gareth but private owners buying shares in electricity companies is a little like shooting fish in a barrel. People have forgotten that these things are actually utilities NOT businesses as such, and should be being run as utilities. I am even more adamant about water supply and no way should foreigners have any part in the supply of the most essential thing of all, our water.
So Gareth, you may look at it purely as an economist, but sorry, that is not the only consideration to be made.
And it is about time we addressed all the farm land going into the hands of foreign corporations while we are at it. Sadly, it seems that is Key's plan
@ Ms de Meanour. I am tempted almost not to reply to that ridiculous comment. First since when was clothing supply a utility. You can choose all sorts of clothing you might want to wear, you might want designer clothes or off the rack, you might want to buy a mini skirt, or a pair of stubbies seeing as they are coming back into fashion.
You can also choose to make last years clothes last another year longer, you can buy new ones or not, you can go scour your local Sallie shop for ones that have been used before. While wearing clothing may be fairly necessary, buying it at any or all of the time is not!
Sorry, but that was a daft comment I really can't be bothered explaining to someone who thinks that if the power is supplied by the collective we must then be a communist country.
Far out!!
I absolutely did not say that if power is supplied by the collective we must then be a communist country.
What I would say is that if power is supplied by the collective then it is less likely to be supplied in a way that is efficient and responsive to consumer preferences, whereas a market in which there are many different participants, both on the supply and the demand side, will do that very effectively.
Your description of the market for clothing actually illustrates that point perfectly, thank you.
What I would say is that if power is supplied by the collective then it is less likely to be supplied in a way that is efficient and responsive to consumer preferences
Efficiency outside of simple machinery is simply impossible to determine. One persons efficiency is another persons income, It fast becomes impossible to say what is efficient. Efficiency is something the soviets looked for. Market economies are efficient at one thing only- generating experiments- that is all. 1000s of firms produce ideas, products nad services that may or may not be wanted, many will fail, many will make things at a loss , many will break even and some may actually make money. What ever this is it can nvere be called efficient- except in that it generates experimenst and through those experiments we chage our preferences, want new things etc
Hydo power is supplied by the collective- there is no other way- hydor requires politcal capital- the will of the people - unlike hairdressing or coffee shops or sometimes even building cars- eg TheTesla
Cosumer preferences for electricity is an interesting idea. I personally prefer imported European electricity as I find my Bosch appliances prefer it. I also like to get all of my electricity delivered on a Wednesday between 5 and 6.30pm.
Efficiency - the maximum possible benefit for the minimum possible cost - is also what market participants look for. Consumers want to get as much good as they can for the lowest possible price, producers want to get the highest price they can for the lowest-possible cost product. The tension between them is what brings about balance.
Certainly there is no one perfect balance, since different consumers will have different preferences as to what criteria they seek and how much they think it's worth paying for it. So it is indeed impossible to determine the "correct" price and the "correct" quality for any thing, which is why a single centrally controlled supply is unlikely to deliver a satisfactory outcome for consumers.
Yes, market economies generate experiments. Do you really imagine that there is an alternative environment in which the optimal approach can always be worked out theoretically in advance before deployment, so that no experimentation is necessary, and therefore no failure is possible?
Building power stations doesn't require the will of the people. It can be and has been done by private capital. Building inefficient, economically unviable power stations, if that's really what you want, certainly requires a political decision and using the power of the state to coerce people into doing and paying for things that they wouldn't otherwise want to.
Consumer preferences for electricity - Consider a steel factory, a hospital, a household where the occupants are out for most of the day, a committed environmentalist. Are you really saying that they all have the same needs and wants as to how much electricity should be supplied, when, to what level of reliability, how rapidly supply needs to respond to demand, and how it should be produced? Or that you, or anybody, is better placed to judge that - and therefore what kind of supply they should receive, and how much they shoud be willing to pay for it - than they themselves are?
Yes, market economies generate experiments. Do you really imagine that there is an alternative environment in which the optimal approach can always be worked out theoretically in advance before deployment, so that no experimentation is necessary, and therefore no failure is possible?
I made the point about experiments because I consider it the most important and essential thing that actual markets provide for us all. So no I do not imagine an alternative. My point is that the efficiency is not the point.
Woud you mind not inventing things that I did not state, attributing these inventions to me and then shot them down, It is very easy but , noot useful or informative.
For instance you state
Building power stations doesn't require the will of the people.
I was only ever refering to Hydro Dams. Not solar panels or wind turbines or tidal turbines or even geothermal. Just Dams.
Electricity is really very useful because it is always available. Household consumers expect to be available when ever they want. So yes that is a preference. Street lights at night, people not rioting because there is no electricity- that sort of thing.
The current model that we are all under allows me almost no options at all regarding actual elecricity. the electrons that push into each other along a wire. My options are reduced to which colour logo and stationary my bill arrives on.
Yes thanks my point does illustrate the point exactly, clothes come in all sorts of forms, you can make do etc, choose to buy what style etc whereas electricity is electricity and needed even for the lights to see what the clothes you are trying on look like. You have a captive audience, and now we have less choice as to how we can heat ourselves, pretty much a monopoly as it all comes down the same line and does the same thing. Thank you for agreeing with me
Also being privately owned the only aim is to have people using more and with any sort of energy, we now know that is not the way to go
Electricity only comes in one form, but the product here is not electricity, it is the supply of electricity - its level, quantity, reliability, variability - and this is neither provided nor demanded in only one form. Some customers can go without temporarily and are willing to do so in exchange for a lower price. Others can't and aren't. Some customers need a steady, continuous supply, others need much more at some times than others and are able to specify this in advance. Some need to be able to switch from high use to low use and back again at a moment's notice. Some care about how the electricity is produced, others don't.
Captive to the product - certainly, we all need it in one way or another - but we don't need to be captive to one supplier of it. There is no reason why there should not be several competing suppliers offering different tariffs and different products.
Maybe you want electricity to be expensive and difficult to obtain so as to reduce its use for environmental purposes. Then do that through taxation, so that the difference between a competitive market price and the price actually paid by the consumer goes towards the public benefit rather than towards supporting inefficiency and monopoly profit.
I would love there to be 1000s of suppliers, I would like to be one. I have nothing at all against free open competitive markets with a great many participants. Please believe me on this point. My only question is about hydro power in New Zealand. That is all. By the way electricity in New Zealand is very expensive, we do not have a competitive market. We are suporting monoply profit or at least cartel profits.
Yup, a proper economist would acknowledge that in theory a perfect Government - one with complete information about every individual's preferences and capabilities, not subject to short-term political expediency - could deliver the same result as a perfect competitive market.
In reality, however, neither occurs. The choice is therefore between imperfect Governments and imperfect markets. Most economists would agree that the empirical evidence is that market-based economies have delivered higher overall welfare than Government-run economies. That's not evidence that no Government could ever be better than an imperfect market, but it's a reasonable clue.
Electricity is treated as a special case all over the world, it just is. Until there is a major technoloy shift, Hydro electricity means that
1. Electricity is very cheap to produce once you have paid for the dams
2. Collective will is required to actually build the dams- meaning they are a political not indiviual business decision
3. Any idea that a real market exists- you know lots of cusomers, lots of suppliers - that sort of thing - is so far from reality that to suggest it is possbile to create a market in electricity is motivated by 'rent seeking' interests
4. Government has to own, based on existing technology because at leat through government ownership there is the possibility of political pressure to reduce rent seeking by government itself
Hm - Political pressure as a means of reducing rent seeking.
Here are three playlets.
Scene: Private monopoly.
Consumer: Your prices are too high and the quality of your product is too low.
Producer: Tough t*tty.
Scene: Government monopoly.
Consumer (to Government): Prices are too high and quality is too low.
Government (to Producer): Reduce prices and raise quality.
Producer (several months later, further to the efforts of an army of highly paid analysts and consultants ): Impossible - Bla bla technical bla bla statistical bla bla cost of capital bla bla engineering bla bla cost of environmental regulation bla bla business model bla bla calculating methodology bla bla analysis bla bla job losses bla bla safety standards etc
Government (to another army of highly paid bureaucrats and consultants): Is Producer right?
Army (several months later): bla bla on the one hand bla bla taking everything into account bla bla bla bla on the other hand bla bla conflicting objectives bla bla cost benefit analysis bla bla counterfactual bla bla methodology etc
Government: Er ...
Scene: Competitive market
Consumer: Your prices are higher and your quality lower than your competitor's, therefore I'm buying from him instead. Goodbye
Producer: Er ...
Why should it not be possible to create a market in electricity? Are there not lots of consumers? Why can there not be lots of suppliers?
Clearly MdM we have a monopoly. A cosy government supported crony monopoly.
I agree we need a market. If there was indeed a market electircity prices would be about 40% of what they are currently (was that a pun ? !)
Shareholders would be unhappy, but that is the business shareholders are in.
I would like their to be lots of suppliers - solar and wind could allow for a great many supplier- every single home.
The problem with hydro is that it is so cheap it makes everything else seem expensive, the option taken is to make it expensive and let the companies keep the money.
There needs to be another way that says. As part of the commonwealth of NZ we are the benificiaroes of cheap electricity, But we should aknowledge that we have an obligation to help build the energy supply of the future. A future with hydro at night and solar in the day with wind when it blows. Again this will need political will.
Another option is to let the hydro companies simply dominate, make all other options seem too expensive to try, reduce capacity to maintain prices etc, There are many ways in which they can rig the game.
NZ is amazingly well placed to have abundant cheap electricity- a competitive advantage I would have thought. Rather than a rent seeking opportunity.
Well we are long time fans of the affairs up in Singapore.
With these assets/utilities, we'd prefer a clear policy regarding such, then a firm knowledgeable regulator driving the standards that deliver those policy outcomes. Then ownership doesn't matter as much.
Most of these assets are best served by using the bond market - assets and liabilities.
The nzx is not for the faint at heart, and largely ignored by the oz based fifo advisors. It is the wrong place for infrastructure equity, entities that need be setting aside sinking funds.
Selling out is exactly that.
"As an economist, my starting point is that government shouldn’t be in business."
The government should not be using generational taxpayer strategic utility assets that have more than been paid for long ago to rob and steal and profit from it's OWN citizens!
As an economist...........your logic is worped, lacks any reference to humanbeings actual needs into the equation and ofcourse........ is just plain wrong.
P.S. Lay off the cats mate!
As a government when you want to raise cash, other then borrowing, you either increase tax or sell (part of your) assets.
As a private person, or company for that matter, when you want to raise extra cash, again other then borrowing, you either work harder/longer/smarter or sell assets.
An entity can borrow money but if the income stays the same something else will have to be abandoned to pay off the loan and interest. You need to raise tax or work harder to maintain your lifestyle.
Would a private person not want to sell assets because they have already paid of them?
Then why should the government not do the same?
I wonder if raising tax will be popular with the public.
Judging by the reply you won't be buying them so you will not have that issue.
The collective owns them if you like and likewise the collective sells them. This government made it very clear prior to the election what it was going to do in this regard and it was elected on that basis.
Depending on your age you may or may not actually have paid for any of it at all other then for the service received. But it is also possible that you may have paid $3000 over a lifetime towards them as your share of taxes paid to the collective.
But if you, as a private citizen, were to buy shares from the collective in all or some of these you get the dividends (if any) directly into your own bank account for you to spend that money as you see fit. If there is any increase in share price that would also benefit you directly.
And then eventually when you decide you need money you can sell these assets again, keep them and borrow money or work more hours.
In the meantime the proceeds of these sales will one way or the other benefit the collective.
If the government borrows we also need to pay that back through tax, the nett result is a further loss to the taxpayer in the form of the interest payment and there is no benefit to the private citizen who decides to be pragmatic about it and buy some shares.
Or is that your problem: some people who do decide to take the risk and put up their own money and further assist the collective may get some more then those who decide not to take the risk and are happy to let the collective sort it out in other ways. (more tax).
It is a bit rich, selling off state assets to fund an MPs salary increase to fund their property speculations.
And trying to stiff Mum and Dad with the Bill again twice. And further more overcharging for the assets we all already own as taxpayers.
Double dipping is endemic in this un-fair land.
And parliamentarians are classic examples of what is wrong, not what is right.
As usual, most people cannot see the wood for the trees.
A stacked deck, is still a stacked deck, tilted one way.
And this one is of titanic, systemic proportions.
Telecom used to be a wonderfull company under govt ownership. Back in 1986 in only took them 3 months to connect my phone up in central Auckland. That was when they had 4 times as many employees. Ahh the wonders of govt run business.
My recollection of phone charges in the UK is that whilest the line charge were low you paid for every single local call.
http://www.thehollowmen.co.nz/doco/
http://www.youtube.com/watch?v=gZt2HhFXB3M
Oh please Gareth - you are an economist - a numbers man - so it's definatley F*k you Buddy - Right?
I am voting YES .
Govt should not be in running powerstations or supplying electricity any more than it should be supplying or refining petrol or diesel or steel or building houses or or drilling for oil or supplying telephones ( which they did very badly with long waiting lists in the 1960's) or even producing food for that matter .
New Zealand is a laissez faire free-market capitalist economy that is incredibly efficient in distributing what the market requires at a reasonable price . We have all benefitted from this
From an inter-generational point of view we have all got wealthier , have better paid jobs , own and drive cars , are better educated and are healthier as NZ has moved to a free market unregulated environment .
Its also proof that the Trickle Down Effect works , because we have all benefitted as the economy has grown
Some of the naysayers arguments are weak because
1) The Government still owns control
2) We are getting the proceeds of the partial sale
3) Our ancestors did not pay for these assets , they were paid for in the 1950's, 60's and 70's by big users like meat processors , mines , smelters , wool washing plants , dairy co-ops cheese and butter factories , clothing, shoe, textile and garment factories with small contributions from households .
So its a big YES from me
Boatman - all good points, but your point 2 just doesnt seem to be understood by many in the public and frankly by many with the same mentality reflected in here - NZers fully owned those assets and are being paid money for them, and in fact if you take a very short-term view on the markets, over-paid for them. That cash is still the tax payers and will spent on them by their elected Govt in which ever way it sees fit....and....the Govt rightly or wrongly, still has controlling ownership of the asset....chicken littles everyway I'm afraid
The laissez faire model has well and truly had its day, it creates enormous inequities and allows bad workplace practices that kill and maim people. It is being broken down bit by bit, the rise of the grumpy old men's party, the conservatives, is testament to that
Nuff said?
Haha just been watching the news and it seems our Mr Craig, hiding behind the nomenclature of "conserative" is actually a Sarah Palin loving, chem trail believing, anti fluroide nutbar. I wonder how many people who think he is the new messiah, will pick up on this - beware
Some realy great reading here particularly from the cons, ....Hulme, Raegun , Anarkist , Waymad...etc. compliments to MDM on the pro's at least it wasn't an ass lick for Gareth's purely unbiased observations.
As an economist, my starting point is that government shouldn’t be in business."
An economist..?, I would not have thought that, wow ! An economist with an entrepreneurial streak a mile wide....ouch the conflict that must arise at bedtime....almost bipolar.
Anyhoo Kate was spot on with Brian Gaynor's evaluation of the sell down, as he's someone who actally bothers to research the nuts n bolts of things before shooting his mouth off with freemarket drivel.
Perhaps what Gareth meant was Government has no business interfering in opportunities to milk the population through monopolistic occupation.
As an economist, my starting point is that government shouldn’t be in business.
This sentence tells us almost nothing. If schools are a business - and they can be- then accordingly government should not be providing education. In fact all aspects of human life and interactions can be defined as buisnesses one way or another and therefore the government should not be involved.
Look at it another way and is the provision of hydro electricity a buinsess or a utility and what is the difference anyway. You can say they are a business or you can say they are a utility- it is a political choice, the Bible provides no clues,
I don’t think these assets meet the ‘exceptional ‘ test.
Take a look at the Southern Lakes and dams go on a motorcycle tour and then say that they are not exceptional- of course they are exception, massive terraforming, huge changes to the environment, these are exceptional.
But those with a reasonable memory will recall spectacular failures closer to home too – such as the collapse and tax-funded bailout of (then state-owned) BNZ in 1990.
according to Wiki the BNZ situation went like this-
- 1987: Bank floated on sharemarket with a 15% stock offering.
- 1989: Government reduces its share to 51% by selling 34%; with 30% sold to Capital Markets Ltd, and the remainder to the general public
- 1990: Government bail out of $380 million to avoid collapse
So it was a 51% shareownership- model the government owned shares the bank was not sate owned. Mybe Wiki is wrong on this?
There are situations however where this general rule that government in business is a recipe for disaster doesn’t apply. The most common situation is when the business in question is dominant in its market.
There is only one thing worse than a government monopoly, and that’s a private one.
To my mind Hydro electricity generation falls into this camp. That is why it is more straightforward to call it a utility than a business- a business model imposed onto a utility.
Hydro Electricity dominates electricity production because it can produce electricity very cheaply. Once it has been paid for and all other costs - eg water, land use, indegenous rights etc have been ignored.
and there is no evidence of market power being abused in the electricity sector.
We have very expense hydro electricity compared with other countries- OK so we may not be Norway in terms of the storage capacity of our lakes but still our pricing is oddly expensive- might be a signal of market abuse- it has been known to happen- 4 companies do not a market make.
World wide in many so called markets, those with few players, the players have been found to have work together to abuse their position and to work together to raise prices against the interests of consumers.
That's beause te retail market is based on marginal cost pricing, e.g. the price per unit of electricity is set by the most cosly form of production. Hard to parse ouy what's the most expensive, because wind has low operating cost, but high capital cost and its unreliable. Gas supposely has low capital cost and is quick to add capacty though has comparitively high operating cost due to its feedstock.
For too long we have put all our eggs in the housing basket; there simply hasn’t been enough money sloshing around in the NZ sharemarket for it to be a viable alternative for investors to invest in or for businesses to raise funds from.
Like most sharemarkets the NZX is predominantly a secondary market. It raises little in the way of money for new enterprises. it is used to 'cash out' not far more than to 'cash in'.
Selling shares in Hydro Dams does not increase in anyway the amount of money invested in New Zealand, it is simply a way for the government to get out some of the tax money it has put into the economy through spending in a way that pays off its voters- so instead of the government spending money into the economy and taxing it out ( from the people who end up with most of that spending ie the supermarket owner not the pensioner shopper), they redused taxation- leaving too much money in the economy - especially when combined with debt created money- so asset prices rocket up and these assets can be purchased with money that should have been taxed out again
It is like we are discussing electricity with someone who has heard of electricity or even read about it in a book, but has never actually flicked a switch.
electricity - its level, quantity, reliability, variability
Every power company pushes some electrons along a bit, that is what they do. the level, quantity, reliability and your variability are all non negotiable. The system requires supply to meet demand so we need excess capacity in the system. When we flick the switch.........we access the system. We do not get our electricity from one of the companies specifically at all.
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