Do you get badgered by people knocking on your door, trying to sell you things or getting you to sign up to things? What do you reckon your reaction would be if a nice smiley man in a shiny suit (let’s call him John Key) came knocking on your door and said “I’ll sell you some shares in this house”? To which you would correctly reply: “This house is not yours to sell, either wholly or partly. This is our house which we have paid for, over many years”. You would send him packing and probably report him to the cops. Because a person who takes something that doesn’t belong to him is a thief; and a person who tries to sell you something that is not his to sell is a con man. Even more so if he is trying to sell you back a little bit of your own property which he has stolen from you, just to keep you happy and distracted. That really is adding insult to injury. Well, that’s what’s happening in this country right now. The Government is brazenly stealing public assets, namely five State-Owned Enterprises (SOEs) - all sugar coated as “partial privatisation” or “the mixed ownership model”, because it is only stealing 49% of them - and laughing in our faces by urging us to buy back a little bit of this stolen property in the form of shares. Forget about Nigerian scams; this is the much worse New Zealand scam.

The suitably cheesy acronym for “mixed ownership model” is MOM, so how appropriate that the Government is targeting “mum and dad” investors (or should that be “mom and dad”, seeing as we’re speaking American?). These are the ordinary Kiwis who might have a spare $1,000 (the minimum amount allowed) which they are being urged to spend to buy some shares in Mighty River Power, the first of the three electricity generator SOEs on the auction block. So desperate is the Government to entice “mums and dads” that it is offering them bonus shares in a loyalty scheme, a sort of gigantic version of Fly Buys (perhaps it should called the Fly By Night scheme).

SOEs Already Belong To “Mum & Dad”

And that handout bribe of bonus shares in itself will cost the Government tens of millions of dollars (the experts can’t agree on how much), money that will be deducted from the price that the Government gets from the sale. Interestingly those two old Tory warhorses, the Press and the New Zealand Herald, had diametrically opposed editorials on that subject on the same day (25/7/12), with the Press saying it was a good idea and the Herald saying the opposite. But no matter how much Key and English and co tart it up, the central, glaringly obvious fact is that “mum and dad” already own these five SOEs, and all other public assets, because that’s what public ownership is. It means ownership by the public. It’s not very difficult to work out; you don’t need a Master of Business Administration degree from Harvard. We have paid for them by our taxes, why should we be expected to pay for them again by buying a few shares in them and diluting our ownership to the status of a minority shareholder? What happens if one of these privatised companies goes bust? I bet those urging us to buy shares won’t be emphasising the obvious fact that, in the share market, there are always highs and lows, winners and losers. So, in the event that one of them goes bust, mum and dad will go to the back of the queue as unsecured creditors, just as happened with the shonky finance companies that toppled like dominos. And mum and dad will be left with nothing, exactly as they were by the finance companies. Isn’t that a great bargain!

It’s so simple that even a Treasury official or a Cabinet Minister could understand it – which is why they’re going to such lengths to disguise that fact, to pull the wool over our eyes and fleece the sheep while they’re at it. We will be dazzled by expensive and glossy advertising persuading us that it is all for our own good to be deprived of what is ours and then spend our own money to buy back a little bit of our own stolen property. The purpose of this campaign to sell us 24 carat bullshit will be to persuade us to “look over there while we pick your pocket”.

Privatising Profits, Socialising Costs

How many previously privatised public assets have ended up being controlled, let alone owned, by “mums and dads”? Not one. The original and biggest batch, hocked off or simply given away in the casino capitalism of the 1980s and 90s, became the profitable playthings of transnational corporations (TNCs) and their local collaborators in New Zealand Big Business. Auckland Airport doesn’t belong to “mums and dads” despite its 1998 share float being nominally targeted at them. When some community-owned electricity retailers issued shares to their customers in the 1990s, as part of the so-called “electricity reforms”, those “mums and dads” were targeted by representatives of foreign and local Big Business making them an offer they couldn’t refuse for their paltry parcels of shares. Within a very short period of time those publicly-owned assets had fallen into corporate ownership. These five SOEs – Mighty River Power, Meridian, Genesis, Solid Energy and Air New Zealand – will go the same way.

Key makes the facile claim that restricting private ownership to 49% provides some sort of protection. Hogwash! Ever since 1973 the Overseas Investment Act has defined a foreign-owned or controlled company as one with more than 24.9% foreign shareholding. It doesn’t matter whether that percentage is held by one or many foreign owners; if it totals anything higher than 24.9%, it is recognised as a foreign company. In other words Key is talking about accepting a level of private, inevitably foreign, ownership which is double the legal definition of a foreign company. Even in the unlikely event that these five SOEs do end up in continued New Zealand ownership or, in the unlikeliest event that they do end up being owned by “mum and dads”, that doesn’t make it right. It would still be the privatisation of what is rightfully public; the expropriation of the common wealth for private profit.

What will these new TNC owners do to recoup their outlay? It’s a sure bet that, in the case of the three State-owned power companies to be sold, the new owners will jack up power prices to their captive customers (who can’t “pass it on”). We’ve already seen this with the Council-owned power companies that the previous National government forced to be sold in the 1990s. For example, see the 1999 Roger Award Judges’ Report (which is in Watchdog 93, April 2000, http://www.converge.org.nz/watchdog/93/1trans.htm). It details the lamentable record of that year’s Roger Award winner, Canadian TNC TransAlta, which bought Christchurch’s Council–owned Southpower (among others), stuffed up big time and within a very short period of time had totally disappeared from the country. If you want other examples of previous privatisations which went disastrously wrong and which had to be renationalised, the Railways and Air New Zealand will do just nicely (and now that the taxpayer has bailed out Air New Zealand, this Government wants to flog it off again. It is giving similar broad hints about KiwiRail).

Look no further than Telecom, whose then American owners bled it dry in the 90s, recouping their $4.25 billion purchase price several times over within just a few years. It prioritised profits and dividends to shareholders before reinvestment, leaving NZ lagging behind the rest of the developed world in telecommunications infrastructure. Actually, NZ is also lagging behind the developing world. In recent years I chanced across a couple of Filipino lines technicians who told me how surprised they were to find themselves working on copper wires in a First World country – they were used to fibre optic cables in Manila. So the Government is subsidising Telecom in the rollout of the $1.5 billion ultra-fast broadband (UFB) project, which does involve installing fibre optics. For this reason, Telecom was a finalist in the 2011 Roger Award. The Judges’ Report (http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Roger/Roger2011.pdf) quotes the nominator: “Telecom has made mega profits out of NZ for two decades now and has shamefully reinvested very little of that back into its NZ telecommunications business, preferring to enrich its foreign owners and biggest shareholders with dividends instead. With the money it has made out of this country it could have paid for the UFB scheme several times over out of its own profits, without any taxpayers’ money having to be involved. It is an indictment of Telecom - past and present - that it instead chooses to rely on a Government subsidy to fund such an essential part of any modern country’s telecommunications infrastructure”.

It must also be reiterated that if and when New Zealand signs up to the Trans-Pacific Partnership Agreement (TPPA, which is being negotiated in secret – see Jane Kelsey’s article about it elsewhere in this issue), transnational corporate domination will be embedded into the very core of the economy and politics. We have already had a little foretaste of this in the shape of the threats from the tobacco and booze TNCs to sue NZ under existing trade and investment agreements because they don’t like proposed law changes that threaten their profits. Such legal action by the tobacco TNCs is already a reality in Australia (they’re fighting that Government’s move that cigarettes will only be allowed to be sold in plain packaging, which is what is also proposed here). Things will only get worse under the TPPA if it comes to pass.

Local Robber Barons No Better

Would we be better off if the public assets fall into the hands of NZ Big Business and/or rich individuals? The track record is not encouraging. Remember the Kiwi cowboys who did very nicely out of the first lot of privatisations – they asset stripped them, ran them into the ground, and then sold them when they’d been bled dry. Those original privatisers tended to permanently move overseas, complaining darkly that they couldn’t get any respect in their home country because of the Kiwi “tall poppy syndrome”. In the case of Michael Fay and the wonderfully named David Richwhite, they did so well that they had to charter a 747 jumbo jet to get all their loot out of the country to a rented castle on the Rhine (Fay is back now, as a born again patriot in the Crafar Farms saga, but that’s another story). As in Thatcher’s England and Reagan’s America, New Zealanders were told that the wealth would “trickle down” from the newly engorged super rich. It’s been a long drought thus far.

So what do the global super rich do with their ill gotten gains? For one major answer, I refer you to “The Price Of Offshore Revisited: New Estimates For ‘Missing’ Global Private Wealth, Income, Inequality And Lost Taxes” (James S Henry, Tax Justice Network, July 2012, http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf). The release of this report made global headlines e.g. “Global elite hide trillions” (Press, 24/7/12. That article, originally from the Observer, quotes John Christensen of the Tax Justice Network. “These estimates reveal a staggering failure: inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people”. That sounds familiar). These plutocrats consider themselves to be in, but not of, society – and they certainly don’t want to contribute to it by paying taxes, much preferring to hide their booty in offshore tax havens and good old secret Swiss bank accounts and safe deposit boxes. The Press/Observer article refers to a “tiny class of the mega-rich who have more in common with each other than with those at the bottom of the income scale in their own societies”. That also sounds familiar.

It’s About The Ideology, Stupid

There are no sound economic reasons for selling these five SOEs, and any others that may be also being eyed up for sale. Even Finance Minister Bill English has admitted that the Government’s claim that the sales will bring in $5-7 billion “was not our best guess, it’s just a guess”. As in the past, the reason cited for selling assets is to pay off public debt. But the Government can borrow money at cheaper rates than the private sector, so why is that a worry? It’s the equivalent of selling your house to pay off the mortgage. You’ve cleared your debt, but you’ve no longer got your prime asset. More importantly, you no longer own the roof over your head. You have to downsize to being a tenant – everyone knows who calls the shots in the landlord/tenant relationship. I’ve been both a tenant and a homeowner, and I know which one I prefer. That’s the path Key and co is setting us onto – becoming tenants in our own home. There is an inherent contradiction in the economic justification offered for selling assets – they’re being put on the market because they’re attractive to private owners, TNCs in particular. Why? Because they’re profitable; they’re not distressed assets being offered at a bankruptcy sale. To whom do they deliver those profits at present? The Government: on behalf of their owners, the New Zealand people. So the Government is blithely waving goodbye to that guaranteed income stream of hundreds of millions of dollars per year (well, at least, to 49% of that income stream).

Only a certain amount of weight should be attached to the economic argument for retaining the SOEs. Indeed, by concentrating on that aspect, the whole debate can be diverted down a slippery slope. The emphasis should not be on how profitable they are or aren’t, because that accepts the validity of them having been set up as SOEs in the first place, by the 1984-90 Labour government, as one of the central pillars of Rogernomics (and Labour’s 2011 election policy of opposing the privatisation of these SOEs did not propose any change in their status from profit-oriented State-owned businesses).

Who said this? "I am not sure we were right to use the argument that we should privatise to quit debt. We knew it was a poor argument but we probably felt it was the easiest to use politically". Answer – none other than Sir Roger Douglas, in a book praising the sale of State forests ("Out Of The Woods"; Reg Birchfield and Ian Grant; 1993). So there you have it, from the horse’s mouth, or maybe from the other end. The only explanation for why the Government is adopting this policy is ideological. And it is truly nothing more complicated than that – the wilfully blind zealous belief of both major parties, since the 1980s, that public is bad and private is good.

What is needed instead is a political commitment that State-owned companies supplying an essential service actually be a public service rather than profit-obsessed corporations, which are publicly owned whilst exhibiting all the worst characteristics of privately owned Big Business corporations. That requires a political decision to change the business model of those and other State-Owned Enterprises from profit to service. Now there’s a scary, radical concept – but it was the status quo in NZ until the 1980s and 90s. The country’s electricity system existed to ensure nationwide, coordinated, uninterrupted supply of an essential service, at cost.

These five SOES are certainly not the only public assets being lined up for privatisation, they are only the beginning. The process is underway of partly hocking off ACC’s lucrative work account (but not the rest of the accident compensation cases handled by ACC, such as at home or on the sports field) to the insurance TNCs. Private prisons operated by TNCs are  also a reality; the country’s first private toll road is operating. Private public partnerships (PPPS) are being touted as the model for major sectors such as education infrastructure (but not content); social housing; and health – see Bill Rosenberg’s article elsewhere in this issue on the PPP model suggested for the upgrade and earthquake repair of Christchurch’s public health facilities. Water is a very lucrative little earner that the TNCs want to tap into (pun intended).

Shock Doctrine: Christchurch’s Assets Under Threat

Council-owned assets generally are being targeted, and nowhere more so than in Christchurch. In the finest traditions of shock doctrine (also called disaster capitalism) the political and Big Business cheerleaders of privatisation are demanding that the city’s assets be flogged off to pay for the huge cost of quake recovery. See Marty Braithwaite’s article on the subject elsewhere in this issue. Fortunately they are meeting stiff resistance, not only from the people of Christchurch but from the City Council and influential local business figures. For example, Craig Boyce, the Chair of the Council-owned electricity lines company, Orion, stated that the power would not have been restored so quickly after the September 2010 and February 2011 quake catastrophes, if Orion had not been Council-owned. “Boyce said city ownership of Orion had allowed the company to do some things that private owners probably would not have done, such as earthquake strengthening from the 1990s. ‘This had a huge effect to get the power on quickly’. With regard to debate over city ownership of certain assets, Boyce backs Orion staying city-owned. ‘Utilities providing essential services, particularly where they are seen as a natural monopoly, I think they should stay with the community, that’s just my view. In the end it’s a decision for the Council and the people of Christchurch’” (Press, 12/7/12; “Orion lines up for hike”).

The present situation in Christchurch provides a very clear warning of the perils of privatisation. Some things are just too big and important to be left to “the market”, and disaster recovery must be a core function of the State. New Zealand’s Earthquake Commission (EQC) is unique and the idea is a model for the rest of the world (as is ACC). Every Christchurch quake claimant, me included, has at least one horror story about their dealings with EQC. But there is very clear recognition, among both householders and businesses, that the real villains in the piece are the insurance companies, the majority of which are transnationals. They are playing hardball with the people of Christchurch, holding the country to ransom and slowing the post-quake rebuild of the city to a crawl, indeed, they are stopping it altogether. In the good old days, when wharfies or freezing workers or inter-island ferry cooks and stewards or seamen were deemed to be “holding the country to ransom“, there was major hysteria from the Tory media and lots of big stick wielding by Tory governments (to some degree white collar unions such as those of teachers are now in the frame as industrial bogeymen). But when insurance TNCs hold a whole city and country to ransom, this Tory government simply says “leave it to the market”. By July 2012, Gerry Brownlee went so far as to say that he’d “lost patience” with the insurance companies – but there was no sign that he was going to do anything about them. Imagine if there was no EQC – even with all its faults – and disaster recovery was entirely the responsibility of insurance companies, as it is in plenty of other countries. Ask Australian flood or bushfire victims how they feel about their insurance companies.

Squeeze TNC Tax Dodgers

So, where’s the money going to come from? The Government is wringing its hands about having to borrow hundreds of millions of dollars per week because of the global financial crisis and the huge cost of the Christchurch earthquakes. It presents that as an excuse for asset sales. But if it needs to raise some serious money, all it has to do is squeeze the transnational tax dodgers who are costing this country billions. In 2011 the Big Four Australian-owned banks made a combined NZ profit of $3 billion. These banks always make a big PR fuss about how much they contribute to the NZ community. But these are exactly the same banks which, in December 2009, settled out of court with the Inland Revenue Department (IRD), in the biggest tax avoidance case in NZ’s history, for attempting to dodge payment of an astonishing $2.2 billion of taxes that, between them, they avoided via deliberately complicated structured financial transactions. And that out of court settlement was for 20% less than what IRD was seeking – plus they would have had to pay costs if they’d persisted in going to court and losing (two of them had already lost in court before they all decided to throw in the towel). Their current tax burden is obviously not too onerous if they can still rack up a combined $3 billion profit in one year.

Nor were the banks the only TNCs to operate tax avoidance schemes. IRD is currently prosecuting a number of Australian companies which lowered their tax bills using New Zealand subsidiaries, specifically by using a structure called optional convertible notes (OCNs). These cases are grinding their way through the courts and IRD is winning. In a December 2011 victory for IRD against a company called Alesco, the judge ruled that: “The arrangement was an artificial device designed only to secure a tax advantage in New Zealand and could not otherwise have been obtained” (New Zealand Herald, 12/12/11, “Taxman chalks up a big win against Aussie tax avoiders”). There are some big names among the other Aussie TNCs awaiting their day in court with IRD, such as Mediaworks, Qantas, Telstra and Toll Holdings.

“Telstra Clear, New Zealand's third biggest telco and a subsidiary of one of Australia's biggest corporates, paid no tax last year. It paid none the year before either, nor the year before that. In fact, Chalkie has gone back 15 years and failed to find a tax payment by TelstraClear or its local holding company, Telstra New Zealand Holdings. Aha, we might say. Telstra used optional convertible notes to finance its New Zealand subsidiary – a structure designed to cut tax for trans-Tasman businesses. The IRD takes a dim view of using OCNs like that and sees them as an out-and-out tax dodge. To date the courts agree…” (Press, 20/6/12, “Joyless deal for problem bride”, Chalkie).

Keep Our Assets!

And, while it’s at it, the Government should restore the tax rates on business and the rich to more sensible levels, rather than cutting taxes on them and then shedding crocodile tears about having no money and having to slash public services. And do something sensible, like the Greens suggested, and institute a Christchurch earthquake levy on higher earners, to finance the recovery Stop waging economic war on the poor and make the rich, business and the TNCs pay their fair share. There’s no shortage of money in the country – the crucial factor is who’s got it and who hasn’t. The publication of National Business Review’s annual Rich List shows that there is still no shortage of lavish wealth at the top end of the scale in this country. In the words of the old classic phrase: ”Who’s up who and who’s paying?” Or, who’s not paying, more to the point.  Let’s have some long overdue trickle up. Squeeze the bastards until the pips squeak. And hands off our assets!

PS. The whole process of selling these SOEs has been delayed until 2013 by the Maori Council’s urgent claim to the Waitangi Tribunal that Maori have ownership rights over water. In August 2012 the Tribunal issued a decision that the Maori Council had proven that Maori have proprietary rights in water and asking the Government to halt the issue of shares in Mighty River Power (the first one on the block) until the question of Maori rights to water are settled. It said that to do otherwise would be in breach of the Treaty of Waitangi. Key had already upset Maoridom by stating that the Government is not bound by the rulings of the Waitangi Tribunal but undertook to consider its’ decision. In September the Government announced its response, namely that the Mighty River Power share float will be delayed until March 2013, to enable it to try to work out a deal with Maori. This means that the whole process will now be running at least a year late.

An excellent summary of the whole privatisation issue can be found in Bill Rosenberg’s 2011 Powerpoint titled “If privatisation is the answer, what was the question?”, online   at http://canterbury.cyberplace.co.nz/community/CAFCA/publications/Miscellaneous/Privatisation2Nov11.pdf

CAFCA took the initiative in bringing together the local coalition Keep Our Assets-Christchurch, contactable at convenor@koa.org.nz  www.koa.org.nz