Monday, November 21, 2011

Asset sales bad, asset purchases good?

A simple, impertinent question, to ask all those on the left of the political spectrum in New Zealand.  Labour, the Greens, Mana, NZ First (socialism can be nationalist) and the Maori Party.

You are all trying to scaremonger, use barely shrouded xenophobia to frighten the average voter into being opposed to the government selling assets.  The first thing you all emphasise is that "foreigners" will take over, with the implication that foreigners will be out to rip off consumers.  Even in competitive sectors (like electricity, which has five suppliers, or aviation where Air NZ ran 100% private for 12 years, including 4 years under a Labour government).  The implication being the foreigners are devils, unlike the benign, beloved New Zealand government.

The second thing you do is contradict yourself.  Whilst you imply that the assets you want to keep provide cheaper services (and goods if you include Solid Energy) than they would if owned by foreign devils, you then say the government will be losing out on lucrative revenue.   Hold on.  This lucrative revenue comes from the consumers you don't want ripped off.   Are you implying the government could make more money from consumers that it does now from these assets (given you think the government making money from selling goods and services is a good thing), or that taxpayers (the people who effectively carry the liabilities, but don't directly carry the benefits) are getting a lower rate of return than they would have done, had you simply gone out and bought them shares on the stockmarket on their behalf (or better yet, let them invest the money themselves)?

However, your biggest contradiction is in your attitude to the two sides of the government asset ledger.  The government buying assets has considerable costs.   

Labour bought Kiwirail at a price well in excess of its market value, and subsequently Labour and National have spent over NZ$750 million - which is greater than the purchase price itself, in buying more "assets" for the business.  This is money that has come from borrowing, it is money from taxpayers pockets, and is money that is almost certainly never going to be recovered ever from them.  The main beneficiaries of this are the foreign (devils they are not now) businesses who manufacture these assets (don't even start claiming you can make tiny short runs of trains in New Zealand when mass production of cars is grotesquely inefficient on the scale of a country this side), and the small number of New Zealand businesses that benefit from rail freight being effectively subsidised (Fonterra, forestry companies, Solid Energy, freight forwarders, shipping companies).  Why is this good?  Don't use words like "strategic", "environment", "future-proofing", use financial measures, like you use for asset sales.   Why can't you?   Why don't you consider the enormous transaction costs of that purchase, and the Air New Zealand transaction? 

Beyond that obvious example, there is Kiwibank, Air New Zealand and indeed any capital expenditure by the state in any sector.   You don't seem to care when the state increases its pool of "assets" (regardless of whether they raise revenue, most don't), you don't care whether consumers get a good deal from those assets or their owners,  you don't care whether taxpayers make money from them.   

In other words, you don't apply the same standard to asset purchases as you seek to apply to asset sales.

Is that because you are all really full-blown socialists who believe in public ownership of the means of production, distribution and exchange, and like the growth of government ownership of the economy?  (surely you don't all think like that?)  

Or is it because you are conveniently using this rather modest policy (yes National doesn't have many that are easy to argue or communicate), one that in almost every OECD country would be considered relatively benign and inconsequential by the political mainstream (far-left and far-right excluded), to bait the rather deep seated xenophobia and "tall poppy" suspicion of quite a few New Zealanders, who are inately suspicious of foreign business people, and subscribe to the Muldoonist paternalistic feeling that you can't really trust business people to "see you right"?

You want to frighten people into thinking that foreigners will rip them off, will "asset strip" these "great assets" and the country will be "worse off" because people like you don't control them and don't spend the money raised by them.  You like them to believe you are better at spending their money than they are, and that you're a kinder gentler business person than they are.

In other words, aren't you all just playing the Winston Peters card?


Right_Wing_Dad said...

Outstanding. I've been arguing with a colleague at work (a National voter). He is anti asset sales and thinks it's the stupidest thing ever. The argument being why would the government sell any asset returning more that the cost of capital? After I asked him if he thought that, by extension, the Government should own all assets in NZ that return more than the cost of capital, his response was, unequivocally, Yes. Apparently he hasn't heard of Lenin, Stalin, Mao, Castro, Kim Yong Il, et al.

My faith in my fellow NZers is at its lowest ebb. Only Winston getting back to 5% could take it lower.

Kiwiwit said...

Yep, state ownership of the means of production really worked didn't it?

Incidentally, when has a state-owned business EVER returned more than the cost of capital in the long run?

Mark Hubbard said...

Yes, Right Wing Dad, what is doing the most harm to the West is a complete dearth of philosophical understanding: and the worst thing is that National voter probably has about as good a grasp of the limited government his party stands for as some National MP's.

The best way to make him think is ask him does he mind what the government uses that return they're making on all these assets for: over which he has little control. For example, is he happy to see that return used to pay for bureaucrats to police laws and regulations that take away his freedoms. To pay his teenage children an accommodation allowance to allow them to leave home if they don't agree with the rules he sets down for his family?

Right_Wing_Dad said...

To be honest, yes I think he is happy for the government to take away his freedoms so long as the assets they've purchased are returning more than the cost of capital. Apparently that was the only hurdle to be met for buying every single asset in New Zealand.