"Here we go round the mulberry bush,"
"The mulberry bush,"
"The mulberry bush."
"Here we go round the mulberry bush"
"On a cold and frosty morning".

From the children’s nursery rhyme : “Here we go round the Mulberry Bush”.

Several days before the Government’s April 2008 decision to quash the proposed sale of a majority of Auckland International Airport (AIA) shares to the Canadian Pension Plan Investment Board (CPPIB), the media reported that the Government had received papers from Treasury and the Overseas Investment Office in relation to the proposed sale. These papers were shrouded in secrecy, with the Government refusing to release them. When queried by the New Zealand Herald about the contents of the advice that they had received, the Minister of Finance, Michael Cullen noted that the blocking of the release of the papers by the Cabinet was on the grounds of : “maintaining the "effective conduct of public affairs through protecting Ministers, members of Government organisations, officers and employees from improper pressure or harassment"(1). Neither David Parker nor Clayton Cosgrove, the two Ministers who made the decision to block the sale of shares to the CPPIB, were involved in the discussions over the documents and the resulting changes to legislation which allowed the cabinet to block the sale, Cullen asserted.

To briefly recap, in early March 2008 when the bargaining between AIA and the CPPIB for the hearts and votes of Auckland International Airport shareholders was at its most intense, the Government moved in and promptly changed the rules, thereby pouring cold water over the lovers’ amour. Under an Order in Council the Cabinet approved new regulations which allowed the appropriate Ministers to block the sale of any overseas land or assets if the investment ran counter to the need to maintain New Zealand control of strategically important infrastructure or sensitive land. The new regulations gave the Government the power to directly intervene in the sale process by becoming the final arbiter of that process.

The howls of disdain from the business community over the Government’s actions were predictable. Some, like Bruce Sheppard of the New Zealand Shareholder’s Association, positively frothed at the Government, while others adopted a more cultured response of disquiet and disagreement. However, what became of interest was the fact that the Government appeared to act against the advice of two of its chief departments in this field, the Overseas Investment Office and, more importantly, the Treasury.

Treasury : Like The Doorman At A Brothel

Since the mid 1980s Treasury has been the dominant agency in providing economic (and ideological) advice and direction to governments. That Treasury opposed the Government’s direction in this area is of little surprise. For 24 years it has acted in much the same manner as a doorman at a brothel in terms of supplying support for neo-liberal reforms, such as asset sales, deregulation, tariff reform (read elimination) and user pays in areas of social security, education and health care. Treasury’s principal concern has not been so much as to how to protect the public interest, as to how the public interest can be packaged and sold to the highest bidder.

In the aftermath of the Government’s halting of the deal, the Treasury papers became available from its Website ( www.treasury.govt.nz). Treasury’s Report to the Minister of Finance about the proposed Auckland International Airport sale demonstrates that Treasury has lost none of its 1980s’ ideological zeal. While, Cullen noted in his draft Cabinet paper, the disquiet that he and members of the Cabinet (and one assumes Labour MPs) had about the proposed sale(2), Treasury’s document on the issue was supportive of the need to promote and support any sale. The paper is very much an ideological dissertation emphasising the two core themes of the Treasury argument against intervention; these are that intervention or restriction is a threat to the existing economic order and that intervention or restriction would have adverse effects on “the property rights of existing shareholders”.

Protection and promotion of property rights have been the philosophical guiding principle of the capitalist state since its early formations in the 16 th and 17 th Centuries. Despite the intrusion of social liberal and Left philosophies and practices in the late 19 th and 20 th Centuries, property rights remain the principal basis of capitalism. The re-emergence of laissez faire ideals in the mid 1970s re-emphasised this thesis placing it once more at the forefront of economic policy and displacing those Left ideals of social or community concern or justice as guiding economic determinants.

Protecting Property Rights Top Priority

It is this protection of property rights that underlies Treasury’s assertion that intervention by the State in the Auckland International Airport deal would be sending the wrong signal to the overseas financial markets. Treasury’s opinion was that the prospect of Government intervention in the market place would be unsettling for foreign investors, promoting financial and economic “insecurity”. Treasury summed up this opinion with the comment : “Traditionally New Zealand has sent a signal that it welcomes foreign investment. While we screen large foreign investments in sensitive land, we do not have a track record of preventing non-land foreign investments”(3).

The very use of the term “traditionally” is misleading. “Traditionally” would indicate that for a significant part of New Zealand’s history it has welcomed foreign investments, which considering New Zealand’s colonial past and development as well as the fact that it is capitalist country in a capitalist global system would be quite true. However, what Treasury is attempting to suggest is that New Zealand’s economic stance has traditionally endorsed the selling of public assets or infrastructure to overseas financial companies. This is not quite the case. New Zealand, while welcoming foreign investment, also economically and jealously guarded its assets and institutions. No less than Gary Hawke, an early New Right luminary, commented in 1982 on the use of Government corporations or Government patronage to encourage “local concerns to compete with overseas business interests”(4). Hawke goes on to note that the Government’s size and actions in New Zealand’s economy as well as its role in safeguarding assets and infrastructure dramatically increased in the post-World War 2 period under both Labour and National governments. What Treasury really means is not the entire post war period, but another period in New Zealand’s economic development. As a result it concludes the passage by noting that : “The last time a non-land foreign investment was declined by the New Zealand government was in 1984”(5). Therefore, the term “traditionally” is limited to New Zealand’s recent economic past which has only existed since July 1984.

Neo-Liberalism Must Not Be Threatened

However, the passage reveals the second important theme in Treasury’s argument against intervention, which is that the use of State power to block the Airport sale would be an undermining of the neo-liberal practices put in place since the mid 1980s. An important component in the expansion of private property rights and of neo-liberalism has been the promotion of the various free trade agreements. In its Report Treasury states that any intervention by the Government would be in breach of those multilateral and bilateral agreements that New Zealand has signed. The principal purpose of these agreements has been to cement in the “free market” as an economic mechanism. All of these agreements have at their core the right of unfettered commercial transactions between the various trading partners which are free from Government restrictions in economic activity and services. As these activities or services might impose unnecessary costs and have the effect of creating an “uneven playing field” in populist coinage.

This breach of free market ethics is noted by Treasury, which argues that any diversion from the “free” market and “free” trade “normality” in the Auckland International Airport deal would “seriously diminish the attractiveness of New Zealand as a country with whom others choose to enter into free trade agreement negotiations with”(6). To further emphasise the point, an extra note of warning of the possible dire consequences that may follow is added by the Treasury policy writers. They comment ominously that Government intervention might potentially jeopardise impending free trade agreements with China, the Trans-Pacific Strategic Economic Partnership (P4) with Brunei, Chile, Singapore and the United States (see Bill Rosenberg’s article, “ Danger Ahead! Back Door US Deal Threatens All Remaining Foreign Investment Rules”, about this particular agreement, elsewhere in this issue. Ed.) , and the Association of South East Asian Nations-Closer Economic Relations negotiations(7). This comment also acts as a clear signal to any other crusading parties who are seeking to impose restrictions or pursue interventionist policies in this area, to do so at your own peril. The ability of wronged signatories to these agreements to pursue New Zealand through the mechanisms of the World Trade Organisation or other bodies, Treasury threatens, is very real.

The drawn out saga of the sale of Auckland International Airport has far reaching implications for future economic policy and direction. While, the move by Cabinet to strengthen the 2005 Overseas Investment Act and impose new restrictions through regulation signifies another move away from the hard free market policy direction that has been followed by previous Labour and National Party administrations since 1984, it is just that, a move away. A reading of the Treasury report reveals that Cullen has largely acceded to Treasury’s advice. Cullen’s move, therefore, is designed to protect New Zealand’s infrastructure and assets but, is also designed not to upset the economic apple cart.

Nothing Radical About Government’s Actions

Despite the howls of outrage from various AIA shareholders, Bruce Sheppard and the wider business community about the Government’s actions, it is not as radical as one may think or they might claim. Firstly, it is in line with policy pursued by other Western nations who have imposed restrictions on their “strategic” assets and infrastructure. This point is made by Treasury at the beginning of its Report : “Most countries consider it in their national interest to have some foreign ownership restrictions on some classes of assets…Restrictions on land ownership are the most common but media companies, aviation and infrastructure monopolies are also considered sensitive in some countries”(8).

Cullen follows up this statement in his Cabinet brief noting that there are a “large number” of nations that have some “form of foreign ownership restrictions” on some “classes of assets” because they consider it in their strategic national interest to do so(9). Originally, the proposal by the Government was to introduce a Bill into the House that placed the following restrictions on shareholding in Auckland International Airport Limited;

• A 49.9% cap on total shareholding that may be held by Non-New Zealand nationals;
• A 20% cap on the shareholding any single foreign shareholder may own;
• A majority of the Board must be New Zealand citizens, and at least three must be New Zealand residents
• The board Chairperson must be a New Zealand citizen and resident.

Cullen noted in his draft that the effect of the Bill would be to “ensure control remains in New Zealanders’ hands”. Such a Bill would have been similar to that of the Australia Airport Act 1996 which includes the following key points :

• A 49% limit on foreign ownership
• A 5% limit on airline ownership
• A majority of directors of an airport-operator company must be Australian citizens and/or residents.

The key difference between the restrictions imposed by the Australian government and the proposed New Zealand restrictions is that the Australia Federal Government still owns the airport land which the various airport companies lease. In comparison, the New Zealand government sold off its ownership rights in the Airports in the 1990s.

Secondly, while the Government was expressing its disquiet over the Auckland International Airport sale, it was in the final steps of signing a free trade deal with China. Further, the Government continued with its plans to further implement the agreements of the (more far reaching) trade and investment deal known as the Trans-Pacific Strategic Economic Partnership or P4, which it had originally signed in 2005. Presently, the Government is involved in discussions with its P4 partners, including the United States, in relation to opening up financial services and policy. Both of these deals have the effect of dramatically undermining New Zealand’s economic sovereignty.

Government Settled For Treasury-Friendly Strategy

Treasury had opted for either a strengthening of the regulations of the 2005 Overseas Investment Act or alternatively, Treasury opined, the Government could issue a policy statement or strategy statement if it thought that “the Act [was] inadequate”(10). “The key advantage of these options”, the Treasury Report commented, was that they “…would have relatively less impact on our key international relationships and agreements”(11).

One can only speculate about the rationale behind this move, however it would appear that Treasury’s thinking was that if there was to be Government intervention in the Auckland International Airport deal, then at least its effects could be minimised. Obviously, this option would be a lesser evil to what was considered the greater evil of new legislation which could imperil those property rights and the neo-liberal programme that Treasury had pursued and nurtured over the past 24 years. Yet, even in suggesting those options, Treasury raises the spectre of fiscal and economic uncertainty at some future point. Its rationale for this belief is that by having a more selective approach to foreign investment, future governments might by their actions place free trade and commercial investment at risk.

While, the Cullen draft to the Cabinet expressed a far more militant tone than did the final paper. Cullen and the Cabinet finally opted for the more “Treasury friendly” strategy of amending the Overseas Investment Act. While changes to the Act strengthen the ability by Government to question or even halt potential sales of strategic assets, they do not impose comprehensive ability to act as a thorough legislative brake on foreign ownership. There are no changes to the overall economic framework which spawned the AIA deal and will, in all probability, spawn future deals. Like the child running around the mulberry bush, changes to the Overseas Investment Act provide a short term purpose and generate heat, but little else.