“Throwing The Baby Out With The Bath Water”

Asset Sales And The Decline Of Popular Control And Responsibility

- Quentin Findlay

Prior to 1984 the State played a significant role in the economic and social development of New Zealand through its ownership of various businesses and industries. Historically, there were a number of economic, social and political reasons for public ownership. State ownership had allowed the Government to develop the country’s economic and industrial base changing New Zealand’s colonial society into an advanced capitalist nation. Equally, it had allowed the State to pursue certain social agendas. State ownership had also allowed people to exercise a certain amount of popular control in the affairs of industry and their economy through their elected representatives. 

However, this role for the State came to a halt with the election of the fourth Labour Government in 1984. That Government and its successors were committed to the idea that the State had little or no role to play in economic and social development. Government had turned its back on the State-led and collectivist approaches pursued by its predecessors. The argument of the neo-liberals (which the new Government and its successors largely represented) was that such things were best solved by the individual and the “free” market (which was the economic representation of individualism).  However, while Governments in the 1980s and 90s sold off large sections of its assets, the New Zealand public still retained a residual commitment to State ownership and opposed their sale. By the late 1990s and early 2000s political parties were aware of the public distaste for asset sales, particularly since some of these former assets such as the BNZ, (in the 1990s), New Zealand Rail and Air New Zealand had been mismanaged by their new private owners and required substantial public investment and/or renationalisation to prevent their financial collapse. 

After the Alliance-Labour election victory in 1999, asset sales were taken off the political agenda and they remained off the agenda for the next nine years of Labour-led governments. When the National Party proposed a new round of asset sales in 2008 in the lead up to that year’s general election, the public was largely unreceptive to the idea, forcing National to backtrack on the issue. The then Leader of the Opposition, John Key, commented that it was off the political agenda for the first term of the National government. However, all this effectively meant was that the Government could, and did, revisit the issue in the next election of 2011. In the months leading up to that election the Government openly talked about the partial sale of State assets. Despite the public opposition that the policy generated, even amongst National Party supporters, with the opinion polls regularly showing 70% of those polled opposed to the sale, the Government pressed ahead with the issue. In the aftermath of its successful election campaign the Government then claimed it had a mandate for the sales.   However, National had conceded in the lead up to the election, that it would not be fully privatising the assets - instead it would opt for their partial privatisation. 51% of State companies would remain in Government hands with 49% being sold to private “Mum and Dad” investors. The new governance and economic model this created was termed as the “mixed ownership” model.

The publicity for the sale of the first asset was interesting. The Government’s strategy appeared to be to convince the public that public ownership was unrepresentative. It implied, through the advertisements, that ordinary people had no power over State assets and people would only gain power if they were sold into private hands. Consequently, the public were urged to buy into the sale and receive “a share” in Mighty River Power. This argument was reflected in the advertisement for the sale, which implied that people did not have a share in the asset currently and that the share float would ensure that they were able to participate in the decision making process and receive financial compensation through shares.

“Undesirable, Unprofitable & Undemocratic”

The Government and the neo-liberals argued that State ownership was both undesirable and unprofitable. They also tried to argue that it was undemocratic in that democracy was exercised best through individual ownership and private property rights. State ownership, they insinuated, alienated people from a true personal ownership which was personified by ownership through individual share owning. Yet, contrary to the Government’s publicity campaign, which sought to redefine the ownership issue, the popular opposition to the partial sales continued. It appeared that the public remained unconvinced of the sincerity of the Government argument and remained convinced that they did actually have ownership of the assets in question. 

However, the neo-liberals do have a point in relation to the unresponsiveness of State-owned companies to the public. People have, for example, increasingly felt isolated from their own publicly-owned power companies, which have gouged consumers in much the same way as their privately owned competitors in terms of power pricing and in their treatment of individual customers. In 2007, a solo mother Folole Muliaga died after State-owned electricity supplier, Mercury Energy, cut off her electricity which powered her oxygen machine.  The outcry about the actions of Mercury Energy led to the Labour-led government inserting more stringent social responsibility provisions into the State Owned Enterprises Act. However, what is not mentioned by the neo-liberals is that they are actually responsible for the nature of the publicly owned enterprises.  In the 1980s and 90s, the newly formed SOE’s were simply told to make profit and to compete with their private competitors. The notion of responsible public service, which the former State Departments had prided themselves on, was simply and swiftly thrown out the window. 

In addition, there was also the argument of the “profits” gained as a result of the sales. The Government claimed a number of different amounts that the sales would generate.1 However, it increasingly became apparent the Government was actually uncertain as to how much money it might receive. The expected profits that the Government expected to receive from the sale of shares steadily decreased over the months leading up the float. The Government’s own estimates were downplayed as a result, with Finance Minister Bill English commenting that the sale could provide the government with $4 – 5 billion.2

Douglas Told The Truth 20 Years Ago

Originally the Government attempted to argue that the profits generated from selling shares would allow its debt to be lowered. However, as the architect of the neo-Liberal programme, Roger Douglas, was to observe in 1993 this argument was not particularly valid. “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” ("Out Of The Woods"; Reg Birchfield and Ian Grant; 1993).

The Labour government had run this argument in the 1980s with the original asset sale programme and New Zealand’s private debt and total debt had actually increased. It was particularly nonsensical considering that New Zealand’s public debt was very low in comparison with other Western nations.  Therefore, in a bribe to those concerned about the Government’s lack of social provision, Government Ministers claimed that profits would be used in the areas of job creation, or would contribute to infrastructural rebuilding, and in education and health care. Consequently, the Prime Minister dedicated some of the funds from the partial float toward the building of Auckland transport’s infrastructure and the Christchurch rebuild. However, as its opponents noted, the financing of the build and rebuild are not dependent upon the profits (or lack thereof) from the partial sales. Such money would be available if the shares had not been sold in the first place. Further, the partial sale of shares has actually reduced the Government’s own revenue gathering as the companies in question paid a tidy dividend which has now effectively been halved. 

The policy announcement by the Labour and Green Parties of creating one regulated “market buyer” for electricity had the additional effect of blunting the sale price. The policy, released mere weeks before the float, would create a regulated market for the sale of electricity to the public through one State-owned supplier. The dividend paid to shareholders (including those in public ownership) from the electricity companies presently are determined by the profit of the company. That profit is garnered largely from electricity prices. In order to provide its shareholders with a decent profit it is in the interests of the companies to maximise (increase) their prices. At one fell swoop this ability was largely removed from them. Investors got nervous and when the shares finally went on sale they went for much lower than the Government had previously estimated. Presently, the price for a Mighty River share is lower than the price of the newly (re)released Georgie Pie.

But, it is not only at a national level which the Government is involved in ridding the public of its assets. There has been a move afoot at local level to privatise or partially privatise Council-owned assets. In the aftermath of the Christchurch earthquakes of 2010 and 2011 the Government suggested to the Christchurch City Council that its financial and structural demands could be reduced by the selling of unnecessary assets. Unfortunately, for the Government its suggestion has been rejected by both the Council and its ratepayers. The motivation behind asset sales remains ideological rather than economic. Labour Minister Richard Prebble spelt this out very clearly in a 1990 speech when he said that: “…asset sales should not be for the purpose of repaying debt, but because he was ‘sceptical about the ability of any Government to run its business well’”.

Ideological Opposition To Public Ownership

Put simply, those people and parties supportive of the sales are simply and irretrievably opposed to public ownership. Not even the threat, or indeed the outcome, of a citizens’ initiated referendum which would provide a popular mandate on the issue is a deterrent to the Government. In response to the referendum’s petition presentation in March 2013, Finance Minister Bill English committed the Government to continuing the asset sales programme regardless of the outcome. Here within lies the real problem for the neo-liberals. After 30 years of their policies, they still have not convinced the majority of the public of the justness of their cause. Probably because their cause isn’t just and the weight of evidence is such that the majority of people can see through it

  1. http://www.stuff.co.nz/national/politics/4582922/John-Key-reveals-plan-for-asset-sales. In an election address Key claimed that “… the measures outlined today could potentially slash billions from Government debt. If we could do that with those five entities ... if we can make some savings in terms of what we’re looking at in the Budget and maybe a little on the upside you're talking about somewhere in the order of $7 to $10 billion less borrowing that the Government could undertake".
  2. See my article “Fool Me Once: The Return Of Privatisation”, in Watchdog 129, April 2012, http://www.converge.org.nz/watchdog/29/03.htm


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