Ignore the privatisation scaremongerers

I remember the time before what socialists call the “neo-liberal” era which “sold out” the country to “rampant capitalism”. Sure I was at school, at the time when people and businesses had to plan weeks ahead to get the Post Office to install a phone line (no mobile phones then, as the Post Office hadn’t deemed that to be appropriate until 1987, even though Australia had had a limited carphone mobile service from 1981 and the UK had launched mobile telephony in 1985).

It was an era when the 100% state owned Air NZ had to get Cabinet approval to buy new airliners, and was made to buy Rolls Royce engines for its Boeing 747s, because it was thought it might improve trade prospects more generally, even though the airline had the spares and the staff training for General Electric engines (and the Board had recommended such aircraft). Such is the ways of nationalised industries.

It was also an era when phones calls beyond your local calling area (which in Wellington did not include Kapiti) cost tens of cents a minute, so a ten minute call (remember no SMS or email) to Auckland might cost several dollars. Phone calls internationally cost dollars a minute, so twice a year my grandmother would talk to her sister in Scotland, for birthdays, for around 10 minutes. Those calls cost $30-$40, and it wasn’t because of technology, it was because the Post Office used money from phone calls to cross subsidise its unprofitable postal monopoly. Then there was the Post Office Savings Bank, a government bank that at a time of double digit inflation had children’s “savings” accounts paying 2% interest. Effectively a scheme for the state to steal savings from children, but hey it wasn’t privatised nor “foreign-owned” (strange how supposedly “anti-racist” socialists are so agitated about foreigners when they own businesses they use), so it was great - the socialists got kids' money to spend on "the People" (which is of course what they always say).

Wellingtonians 40 plus might remember the Wellington domestic terminal, later the Air NZ domestic terminal, which on a windy wet day would leak, with the lino floor flooded, being drafty with not enough seats for people waiting for flights. Until (foreign and local capitalist owned) Ansett NZ was allowed to fly domestically, all jet flights were boarded through steps in the wintery Wellington windy rain. The Government and Wellington City Council argued over decades about who should pay for a new one. They would also remember Wellington City Transport, which was 100% owned by the City Council and subsidised by ratepayers, so that on Sunday evenings hardly any buses ran at all, all of the routes terminated in the city centre (needed more buses and drivers for that, and the Tramways Union would hold the city to ransom if it didn’t get what it wanted). New buses required the Council to order them, and as a result the fleet would be on its last legs before new vehicles would get ordered. 30 year old diesel buses would be operating (the economic life of a diesel bus is around 15 years) and of course Wellington’s trolley bus infrastructure would be patched up for decades.

None of this is reflected on by Max Rashbrooke in the Spinoff. He wrote a piece last week that followed on from the rather awkward set of comments between David Seymour, Chris Luxon and Nicola Willis which indicated various interest in looking at further privatisation, but unfortunately Rashbrooke didn’t demonstrate a great deal of depth in thinking. Most of it was parroting the claims and slogans of former union economist Bill Rosenberg, and high level papers written overseas by leftwing researchers.  

I couldn't resist, it was so full of nonsense, it deserves a response:

- “Privatised TranzRail had an appalling safety record, its staff dying at work at eight times the national average. And while cutting maintenance to a level Rosenberg labelled “abysmal”” What was the safety record before privatisation, before SOE status, before corporatisation (before there was safety regulation of rail)? Rosenberg, a former CTU economist bases the maintenance level on “what”? Bear in mind that in 1984 Booz Allen reported on how the rail network had been over-maintained in places, but also how 

- “Fay Richwhite and their fellow owners took out at least $370m in profits from a firm for which they had paid just $328m”. Dividends over a 12 year period, but of course taxpayers have never taken a dividend from Kiwirail or NZRC, ever. Socialists need to decide if the state owning trading enterprises is to make money from them for “the People”, or for them to be moneypits for the “Public Good”, but that isn’t clear.  Truth is most are primarily commercial but they might want certain services delivered at taxpayer expense, but this doesn’t require entire operations to be operated Soviet style.

- “Helen Clark’s Labour government was then forced to repurchase the railways, creating KiwiRail as we now know it. The whole episode cost the state around $4bn, according to then business commentator Brian Gaynor”. Nobody was forced to repurchase it, in fact there were three transactions from buying the Auckland track for $81m (Treasury valued it at $20m), buying the network and then buying the whole business. If nothing had happened, it still would exist, it just would have seen a series of lines close that carry little traffic, and the state has poured much more into Kiwirail since.  For what end though?

- “Profits flowing offshore to wealthy interests rather than ordinary New Zealanders” What profits? Kiwirail has never generated a dividend, and besides “ordinary New Zealanders” wouldn’t get it, it would go to the Minister of Finance to wash in with other spending.

- “The maddest examples have come when monopolies – water, rail – have been sold to private firms, even though competition is the only thing that makes markets work” Rail isn’t a monopoly, and in NZ water hasn’t been privatised (and corporatisation was opposed by economists like Rosenberg in the 1990s, see the resistance of the Alliance to the creation of Watercare Services, and demonstrates the utter failure of the socialist model of democratic control of the provision of services.  

- “A private monopoly is the worst of both worlds: no competition-based incentives to improve, and no public-good ethos pushing the organisation to look out for citizens’ interests”. Do tell us about this public-good ethos, the one that saw the Post Office take weeks to install phone lines, that gouged consumers for toll calls, that saw rampant theft of freight on the railways as a monopoly government department (it had a statutory monopoly until 1983 on long haul freight), the Post Office Savings Bank that gave kids 2% interest on savings accounts when inflation was in double digits. Please!

- “in the UK, privatised railways have been such a disaster – massively increasing costs with no corresponding rise in quality”. If you think rail travel in the UK is no different in quality today compared to the era of British Rail you need help. By any measure, frequency, number of routes, reliability, speed and capacity, and indeed patronage (which has grown to record level turning round decades of patronage decline), it is a remarkable transformation. Yes subsidies have spiralled as well, but it’s overly simplistic to think the UK has a private rail system now, as Network Rail effectively renationalised the network over 20 years ago, and most services are franchised (with the franchisees either paying to operate services on routes that are commercially viable, or pay to operate those that are not). Furthermore, rail freight volumes have increased 80% since 1983, hardly a failure if a key goal is to shift more freight off of congested roads. Socialists (mainly the unions that can’t shut down the entire system with a strike anymore) say privatisation didn’t cause the rise in patronage, but if privatisation “harmed” services, wouldn’t people have just abandoned rail in favour of buses and driving? Well of course they didn’t.  The system has been highly flawed, that’s for sure, mainly because it is highly politicised and Train Operating Companies have been poorly incentivised to control costs (because their main client isn’t their customers but the state), but that’s an argument for less state control, not renationalisation.  As usual, it's much more complex than simple slogans

- "Even worse has been the privatisation of British water services, whereby firms have extracted tens of billions of pounds in shareholder dividends, hiked water fees and discharged large amounts of effluent into local waterways." Yet DIA’s own report on the Three Waters reforms noted the performance of English water companies exceeded that of any in New Zealand, and Scottish Water. A huge amount of investment has gone into renewing water infrastructure in England, in fact OfWat requires it, and regulates water user fees. New Zealand HAS the model the UK had before privatisation and it’s an abject failure. NZ has local democratic control of the water and waste water system, and it is falling apart in many centres. It doesn’t generate dividends, it charges people based on the value of their property, not what they use, and effluent gets discharged into waterways regularly.  We have socialist water and it doesn’t work. 

- "Privatised bus companies, the OECD concluded, are cheaper than public ones only because they cut wages." This is simply false. The OECD did not conclude that, the link is to a report on a roundtable discussion involving case studies in four countries, three in Europe, plus the USA (which has few privatised urban bus services). It is not an official report from the OECD. EVEN then it said that private operators can be more innovative than public ones. The idea you can compare the performance of the Yellow Bus Company in Auckland in the 90s (let alone the ARA), or Wellington City Transport in the 1980s to their equivalents today is extraordinary.  When bus services were moved into the contracting model, there were savings of around 15-20% which enabled more routes and frequencies to be offered, but it did stop the Tramways Union from being able to shut down an entire bus network when it didn’t get what it wanted.  

- "Even when three of them were fully state-owned, the “gentailers” that supply our electricity were able to operate rather like a cartel, generating excess profits and freezing out potential competitors." Wait what? So it ISN’T state ownership you oppose, it is running trading enterprises as “enterprises”. So you don’t want the state to make dividends from its businesses?  Well we did the socialist model before, for decades. It saw massive investment in generating capacity (politicians liked power stations then), but let the local distribution network fall apart (politicians don’t like charging people for what they use), a bit like water.  Were they operating as a cartel? Well shouldn’t the Commerce Commission be dealing with that, in which case, maybe this claim of it being a cartel (which is serious), is actually not true? Maybe if they were all fully private, they could be properly subject to scrutiny because politicians wouldn’t be worried about loss of dividends.  In fact there may be a case for structural separation of generation from retail, but that's about ownership.  Not a lot of coherence in the issue here is there?

- US healthcare – not voucher-based, admittedly, but the nearest thing the developed world has to a private health system – is a catastrophe. It’s not the nearest thing the developed world has to a private health system, as there are umpteen other examples. Nobody, literally nobody advocating for more market-oriented healthcare thinks the over-regulated, highly subsidised US model (Medicare and Medicaid are uncapped liabilities to US taxpayers) is a model for anyone to follow, but it doesn’t stop socialists from the Anglosphere blanking out Switzerland, France, Singapore or the Netherlands. Australia’s system is a mixed model, but that doesn’t fit the narrative.

After all of this selective agitprop (yes education vouchers “fail” but let’s not mention Sweden which to this day maintains one of the most open market education systems in the world, but that doesn’t fit either), we get the philosophy:

There is a basic philosophical issue: public services – health, education – are things people deserve as of right, as a basic entitlement of citizenship. They are not the equivalent of buying, say, another item of clothing, and treating them as mere consumer goods risks degrading their deep importance.

Hold on, most of this article focuses on railways, then water, and talks about electricity, then ends with health and education.  Is the claim that the state has to provide everything that is a “basic entitlement of citizenship”? Should the state own all housing? Should the farms be state owned and all food supplied by state shops (after all food is MORE important than health and education, because most can last months or years without health and education, nobody can last more than weeks without food)?  The sneering comment that “treating them as mere consumer goods” says a lot about attitudes, that when the public are allowed to choose it is “degrading”. Really?

If, as is often the case, privatisation means charging for something once paid out of taxes, it is likely to have a harmful effect on poorer households.  Why? Because poorer households use the most electricity, rail freight or water? Of course they don’t, but is the argument here that everything people need should be free at the point of use, but that half the population should pay taxes so the others don’t?  We can see what “free” water has done to demand for it, and the infrastructure. We see it with roads everyday where consumers aren’t exposed directly to the costs of what they use, with the result of queuing. Public health systems are all about queuing after all, socialists seem to think that is fair, as long as the workers get paid well, the workers not in those systems should be grateful “is isn’t ‘Merica”!

You see the problem is, the common people are stupid and ignorant, whereas public servants, producer unions (especially those run by people paid much more than the average wage) and politicians are enlightened, capable and benevolent…

People don’t generally know what healthcare they need; in education, research suggests “competition” between schools is often driven either by parents making calls based on external factors like uniforms, or by prejudiced views about keeping their kids away from certain other children.  

Well just give them what you think they deserve, parents are incompetent clearly. The state should probably feed kids too (already started with that). Parents must make lots of bad calls too, so maybe the state should buy groceries, buy clothes, maybe run activities for the children to keep fit and socialise, maybe ensure they don’t have “prejudiced views”, maybe build a sense of community. Maybe we can call them Brigades, give them uniforms. Maybe they can help identify grownups who express “hateful and harmful” views. You can see where this attitude that parents know least can head, but it is exactly the arrogance of people who think because some parents make poor choices, none should be allowed to. 

I could go on, there is a misconstruing of how Telecom performed in the 1990s (which from a consumer point of view saw prices plummet across almost all services, essentially enabling people to communicate across the country and internationally affordably for the first time). 

The only interesting part of the article is the claim that if only the public could be “involved” in the decision-making of state owned organisations they could be more responsive.  This is quaint but delusional.  Most people have the time to work, look after their families and then spend quality time enjoying themselves. A small, but vocal minority get involved in activism and inevitably those who will shout the most and get involved the most will be those with spare time or motivation, either because of their political ideology or in many cases simply having time because they are retired or not working. The citing of the “successful German model” for electricity companies is laughable given some of the highest electricity prices for consumers in the EU. If that's success I'd stick with the status quo thank you very much.

It ends with this “We could also entrust frontline public servants with more responsibility, putting them in charge of locating efficiencies and potential innovations” Sure, because public servants are well known to be at the frontline of identifying the most efficient ways of doing things, and innovating with technology and service delivery, that’s why they have jobs they rarely can lose, and don’t get paid based on performance. It's naive at best.

I get that socialists hate private enterprise at worst or are highly sceptical of it. What I don’t get are the absolutely contorted contradictions of, on the one hand hating private enterprise making a lot of money from former state enterprises, and then not wanting the state to make money from them (but rather for taxpayers to subsidise them, for no clear aim other than to make sure people don’t pay for what they use).  I absolutely don’t understand how intelligent people who purport to be interested in public policy outcomes parrot agitprop slogans from trade unions.  What is the point of the state owning Kiwirail? Is it to get more freight on rail and off of roads? If so, is that the best way to do it?  None of this is clear.  What is the point of the state owning a power company? To make it cheaper for some consumers? To reduce emissions (which will make it more expensive for someone)?  Nobody knows.

Socialists have successfully scaremongered about privatisation in NZ for decades. This scaremongering stopped water getting reformed in the 1990s outside Auckland, and has stopped serious reform of ACC, and making the electricity market more competitive (by the state not having a stake in generation and retail). It’s largely banal slogans pushed by Marxists with a strong vibe of xenophobia, and it deserves to remain back in the 1990s with the Alliance.

POSTSCRIPT: By the way, I am not in favour of privatising prisons. The state has a core function to protect law and order, and to protect citizens from the initiation of violence by individuals and state.  Politicians and public servants should be held accountable for the success and failure of managing them, and with the monopoly of the legal power to incarcerate people being quite unique, passing that responsibility to a business - regardless of efficiency - dilutes that accountability.  

Three Waters Reform: The left opposed water reform in the 90s, why trust them now?

You might have noticed the childlike cartoons the Government has chosen to communicate to you about one of the most radical infrastructure policy reforms proposed for over twenty years – the Three Waters Reforms. Those cartoons might have put you off, but they shouldn’t. For all of the fluff government is involved in, one of the most important activities it unfortunately is responsible for is the supply of reticulated water and the collection of wastewater and stormwater. Forget Covid19, because if the water systems fail you really ARE in for a public health crisis. Millions of people worldwide don’t have access to clean drinking water and don’t have safe sewage collection and disposal, and it costs lives. This is important, too important to have those who use and pay for it talked down to like primary school children, and too important for you to ignore.  Bear with me, this is complicated...

What’s the problem?

The current system of managing water infrastructure is, in many parts of the country, a failure. Who could miss the regular reports out of Wellington, the capital, which has systematically failed to put enough ratepayers’ money into the water and sewage systems? Stories of drinking water from Hawke’s Bay to Otago being infected or tainted. So the case for reform is overwhelming. The Government’s own papers indicate 40,000 people lived under temporary or permanent “boil water” notices for their reticulated supply in the year 2018-2019. Four people died and over a third of the population in Havelock North became ill because Hastings District Council didn’t effectively manage the town’s water supply. An earlier study indicated 35,000 people get ill annually because of the quality of drinking water.

The Government’s own report estimates there is at least a $120 billion gap in capital spending on water infrastructure. Another stat is it is estimated that 21% of water is lost in reticulation – 1 in 5 litres of water that Councils collect to reticulate to homes and businesses is wasted in the distribution. That is frankly outrageous.  Local authorities are often reminding us all to look after the environment and not to waste water, but their own ineptitude results in enormous waste.  It is notable that there are limited statistics about the state of stormwater infrastructure, because local authorities just don't know. If your home or business has ever flooded due to rainfall, then you might care, because stormwater infrastructure is what helps protect your property.

Why has this happened?

The Government claims the problem is a matter of:

· Lack of economies of scale: 67 local authority entities supply water infrastructure (there are small private operations as well) without the capacity and capability to address issues. Career paths for those in the sector are limited with multiple small entities and small scale capital spending generates insufficient competition in the contracting sector to put price pressure on those costs. It claims water entities need customer bases in the high hundreds of thousands to be viable.  There is definitely merit in this.

· Unaffordability of needed investment: Under the current approach, the money ratepayers would need to be forced to spend to remedy historic underspending is enormous. Government estimates increases of 300-1500% in spending are needed over the next thirty years compared to current levels. This is quite credible, indicating a desperate need for both new capital and for ways to obtain efficiencies to reduce these costs over time.  However, it would be dishonest to pretend that those who use water shouldn't pay for this, albeit over many years. 

· Poor incentives and lack of effective oversight:  This is where the Government lays bear what’s REALLY wrong. It is that the model of “democratic control” of the provision of water services, and the “power of general competence” of local government in overseeing that control is a failure.  It is worth remembering that "democratic control" is a touchstone of leftwing political philosophy.  

To quote from the Government’s own report:

Local authority service providers operate in a political environment, in which investment decisions are made by elected representatives who have a duty to consider broader community interests (for example, other investment priorities and affordability of rates increases) and a constrained financial environment, in which the main funding and financing  mechanisms are via ratepayers and council borrowing. These factors combine to limit the level of three waters investment.

In short, local politicians prefer spending rates money on other stuff and prefer not to raise rates to pay for water infrastructure. It talks of misaligned incentives, which is surely a euphemism for politicians care most about being elected, second most about getting attention for shiny stuff they made ratepayers pay for, third most about other stuff they can get credit for in three years. How many local politicians campaign on fixing the pipes, especially when such work can literally take years to complete, is largely only visible as a disruption and the end result is… continuity of what you had before?

These failures are a legacy of opposition to water reform in the 1990s

Electricity, gas, telecommunications, aviation, ports, road transport, public transport, all were subject to significant reforms in the 1980s or 1990s, but water was largely left alone. With the sole exception of Auckland, with the creation of Watercare Services in 1991, all other water provision was left in the hands of territorial authorities. Water is a legacy of the Muldoon era and beyond, with the exception of some local authorities consolidating and in some cases implementing water metering, not a lot happened.

Some Aucklanders might remember the Water Pressure Group, led by the late, conspiracy theorist, Penny Bright.  One of the cause célèbre of the hard left was opposition to the commercialisation of water in Auckland seen in the creation of Watercare Services, which supplies water and wastewater (not stormwater) services in the city. The New Labour Party, later the Alliance (when it included the Greens) were loudly opposed to what they saw as the bogey of privatisation (which never happened).  As the Alliance was on the ascendancy, after the 1993 General Election, National pursued little in reform of the water sector, and as Labour went back to the left under Helen Clark, the idea of reforming water was parked.  After MMP, there was no majority for any serious reforms in the sector, and from 1999-2008 the Clark Government proceeded, with support from the Alliance and the Greens (who had now left the Alliance) to pass the Local Government Act 2002 to grant local government a "power of general competence".  In short, the left trusted local government to get on with the job. Of course the Key/English Government from 2008 until 2017 did nothing either to reverse it.

The power of general competence and community empowerment have been a failure

The implementation of the power of general competence was to usher in a new era.  Then Local Government Minister Sandra Lee said "It is both a reaffirmation of the place that local government has within our democracy, and of the rights of local people in their communities to exercise controls over their aspirations, their decisions, and the democracy that affects them."   

So communities were "empowered" which of course is code for empowering local politicians. Sandra Lee even made it clear that water privatisation was to be prevented. "We are not going to agree to allow councils to sell what is not a commodity--the access to clean water--but a fundamental human right."  I'm not sure how the people who died in Havelock North had their "fundamental human right" protected, and how asserting that right works if the Council has let the local infrastructure fall into disrepair.  Indeed then Associate Local Government Minister Judith Tizard later claimed credit for having including "cultural wellbeing" in the objectives of local government.  Not much culture if you're sick because the Council supplied water is contaminated.

Backed wholeheartedly by the Greens, the reforms were to usher in a new era of “local democratic accountability” with more powers to deliver what “the community wants”. Indeed, it is the heart of the mantra of the economic left that justice is achieved by more “democratic control” of resources. Well we’ve seen how democratic control of water has been going, and the results are in – it's been a failure.

 What needs to be fixed?

Users, in many cases, don’t pay for what they use. With the cost of water infrastructure for many hidden in rates bill, there are no incentives to manage water use, and those who need water face rationing alongside those who waste the resource. Furthermore, those who benefit from stormwater infrastructure don't necessarily pay rates reflecting the protection of property value they obtain from it (nor do insurance costs reflect that adequately).

Local authorities get paid rates regardless of how much water is used or wasted. So they have poor incentives to stop wasting 21% of the water collected and distributed, to plug leaks so that they can sell the water they collect. 

Local authorities aren't required to spend money on water infrastructure so they may levy water rates, or pay for water from general rates, but they have a "power of general competence" and they are accountable to you every three years at the ballot box.  They spend money how they like, and your power to change that is tiny.

Politicians are no better able to decide how best to spend money on water infrastructure than they are on electricity (which they don’t) or telecommunications (which they don’t) or on farms. Bear in mind local politicians are primarily responsible for housing shortages because they are the controllers of permission to build housing and to allow land to be used for housing. Expect them to make similar quality decisions around provision of essential infrastructure.

Imagine if your local power company spent the money raised from your power bill on a convention centre. The reason that, by and large, electricity and telecommunications infrastructure work is because you pay for its use and the providers spend the money on maintaining and providing the service. It’s capitalism working, because those companies borrow money based on future earnings and invest in the network to continue providing reliable service.

Given that the Ardern Government is the most leftwing government in New Zealand in nearly 40 years, you might think that with reality confronting ideology, they might actually think that this is a failure due to their own philosophy not working empirically. You see if the Douglas/Richardson reforms had NOT progressed, you’d be seeing the same malinvestment in electricity (which was beset with blackouts in the 70s and 80s before reforms), and telecommunications (which famously, before the mobile phone era, saw it take weeks to get a phone line installed).

What is proposed?

It’s curious that the Government has relied somewhat on Scotland as a source of advice for how to implement water, especially when its own report indicated much better performance in England (see above)– which DID famously reform water by privatising the lot in the 1980s. It notes that privatisation of water in England  improved productivity by 2.1% per annum over 24 years (64% all up) after adjusting for quality of service improvements. Achieving a net saving of 64% in cost over such a period has to be tempting.

That is, of course, the right answer.

It isn’t proposing that, because you see, the Ardern Government is in many ways, continuity Alliance,

It is proposing:

· A water regulator to set standards for water quality, with powers to direct water providers to act to meet its directives;

· Consolidating 67 entities into 4;

· The new entities will be owned by local government

· Two boards will govern the new entities. A professional independent board, akin to boards supplying other infrastructure (a semi corporate board) and a regional representative board, which is to be split 50/50 between local government and Iwi.

· The Regional Representative Board will appoint members to the independent selection panel to select the Board, which will then select the board. In effect local authorities and Iwi will indirectly appoint the board.

· Setting of charges must be done transparently, with no changes to how people are charged in “the initial years”. The new entities will have powers to borrow.

· Protections against privatisation, mostly by local government and Iwi having to have a 75% majority in favour of it.

· The entities be statutorily required to uphold “the principles” of Te Tiriti, with the board needing to have competence in Te Tiriti, Tikanga, Matauranga and Te Ao Maori;

· The entities must direct water users funds towards the capacity and capabilities of mana whenua to support delivery of water services

· To throw taxpayers’ money at the entities to lure in local government to agree.

So it is resisting commercialising the delivery of water, preferring to largely aggregate water into entities similar to what governs water in some parts of the country already. They will be, in effect, very large Non-Commercial Council Controlled Organisations with co-governance with Iwi.

What other options were considered?

Well not commercialisation or privatisation.

The report indicates that three other options were considered:

· Local government led reform: This of course would be consistent with the Government’s philosophy, but has no merit because there are few incentives to make it work.

· A National Water Fund, akin to how land transport funding operates. Except there are no fees charged for water use nationally, and it wouldn’t really fix anything other than enable consumers in places which have well managed water systems to subsidise those in areas that don’t.

· Regulatory reform only, in other words introducing a regulator without structural reform. This would not achieve efficiencies and achieve only limited accountability.

So privatisation wasn’t considered, but the Government should be transparent as to why – which is ideology and politics. Why wasn’t commercialisation considered, by creating genuine arms-length council owned water companies, similar to Watercare services? Why not vest those companies in shares held by ratepayers (noting that it is property owners that primarily benefit from stormwater infrastructure, which protects their property from damage) or even just citizens and permanent residents as consumers? After all, the success in England in holding companies to account for quality of service, levels of investment and addressing systemic underinvestment is considerable. Why does the Ardern Government acknowledge that success then steer down another path? It seems like it is purely ideological.

What's good about the proposals?

Large entities will be able to be more professional, achieve significant capacity building and attain economies of scale. There is no doubt that there are far too many local water entities. Having borrowing powers and the ability to levy charges on consumers is also critical, but these powers largely exist now within local government.  Regulatory oversight ought to result in better outcomes than just leaving it to local government and iwi to manage, and more money will ease the pain, but that's transferring a burden from ratepayers and water consumers to general taxpayers, with no sense of the distributional impacts of that.  

What's wrong about the proposals?

The new entities wont be companies, wont be required to make a return on capital or to pay tax, meaning it will be less transparent as to whether they are operating as efficiently as they could be, or maximising the utility of their assets. As a much larger version of the current model, there isn’t so much incentive to treat those who consume water and use wastewater and stormwater services as customers. Having a customer, provider relationship more directly would provide much more input into consumer preferences than by having an advisory board.  What's fundamentally wrong with considering water similar to electricity?

Local government will still own the entities, although this ownership effectively diluted because governance is now shared with iwi, who own none of the infrastructure, nor are accountable to ratepayers.

There are probably too few entities proposed and Watercare Services, which has fewer problems compared to many other water entities, will be required to be decommercialised and merged with Northland water provision, which may mean Aucklanders cross subsidising water infrastructure in Northland. There is no need to dis-establish Watercare Services and no options given as to the number or geography of the proposed entities. Local authorities that are successful ought not to be forced to be subsumed by entities of those that are not, noting that the three waters are NOT an integrated network like energy, telecommunications and roads. There is little need for disjointed networks to be managed together, except to achieve economies of scale and professional capacity for competency.

Governance remains highly political. With local government half responsible for appointing the panel that then selects the board, the incentives are there to offer positions to those they know and trust, in short local authority nepotism. With four entities, headquartered and dominated by Auckland, Hamilton, Wellington and Christchurch, expect the local authorities of those cities to take charge.

The introduction of iwi governance is a vast increase in power for iwi over core infrastructure that has no precedent in other industries, and which assumes that Maori as both consumers or voters is insufficient in protecting and promoting their interests, although it might certainly promote iwi interests. The iwi role will be to share oversight with local government, which already has a growing mandatory iwi co-governance role in any case. Iwi have the same incentives as local government in appointing people to select a board to govern water. The outcomes expected from this are extremely vague such as enabling mana whenua to express kaitiakitanga, but what will this achieve in terms of outcomes such as water quality, quality of investment and accountability? Embedding Te Mana o Te Wai is harmless enough, but this is hardly unique, because Te Mana o Te Wai is universal to humanity. More fundamentally, the Government is effectively proposing a transfer of 50% of the power around the water sector to iwi, with neither the responsibility of ownership, or accountability to consumers or the owners of that infrastructure. It is a significant uplift from current obligations around consultation with Iwi, to hand over an equal share of governance, with no indication of outcomes or what it means for other sectors such as electricity, gas or telecommunications. It is a form of privatisation of governance, to iwi. I

Now there IS a valuable point in “iwi/Māori have roles within the current three waters service delivery system that will need to be acknowledged. They are suppliers and/or recipients of water services (particularly to rural marae, papakāinga, and rural communities).” As suppliers, they should be subject to the same oversight as other suppliers, but as recipients they are little different from anyone else. They receive a mix of good and poor service, but it is unclear why their role as consumers is more special than anyone else. Sure, water is a taonga, but it is to all humanity. It’s ludicrous to claim that it is more special to iwi than it is to any other.

However, this is more fundamentally about the Government’s interest in what is, in effect, creeping constitutional reform, by redefining the Te Tiriti partnership of Crown and Iwi, into one that goes beyond meaningful consultation and engagement, to sharing powers over assets that do not belong to iwi (the three Waters are about infrastructure, not lakes, rivers and streams after all). There IS a role for consulting iwi about the use of property they own or control, but to privatise half of the control over ratepayer owned infrastructure, to iwi deserves to be justified in terms of outcomes, when the reforms themselves are based on addressing serious problems with the status quo. Should this really be used as an opportunity to facilitate more iwi control?

What should happen?

Reforms are badly needed, primarily because many local authorities have proven themselves utterly inept in managing and funding water infrastructure. However, the Government is proposing to consolidate existing water entities, including successful ones, into four entities which largely resemble Council Controlled Organisations and share governance with iwi. Yes, having professional large water utility entities will be a step forward, but continuing to have significant local authority governance, which has proven to fail, and using the reforms to implement iwi co-governance, with no sense as to what improvements to outcomes this could deliver, is missing an opportunity.

Government should be bold, it should transfer the water assets of local government into a handful of specialist water companies, and issue shares in them all to all property owners connected to their networks and float the companies on the share market (and as a sop to fear over foreign takeover, you could even cap foreign ownership at 49%). Let the water companies meter or flat fee property owners for their services, and force councils to drop rates proportionately and NOT increase them by more than inflation. Given their quasi-monopoly status, central government should oversee the water companies in terms of drinking water quality, but by having popular share ownership concerns over water companies gouging consumers can be ameliorated.  If the Government did this, I'd accept the value of an independent regulator, to monitor and report on performance.

 It’s time to take the three waters out of the hands of politicians and put it in the hands of consumers as shareholders, and run it like a business. You have no more reason to trust this Labour Government with water reform than you would Jim Anderton, who opposed competition and privatisation of telecommunications, electricity, aviation etc etc.

We've seen the results of having a utility sector entirely at the behest of democratic accountability to the community under local government. It's been a failure.  The water sector needs reforming, it needs bold moves resembling what happened and succeeded in England in the 1980s. Shame the Government is willfully ignorant and unwilling to even consider that model as an option.

The Government claims significant benefits from their reforms, over thirty years. This may well be credible, but is based on many assumptions around efficiency savings seen in Scotland with consolidation, and that these efficiencies wont be lost in a strange new co-governance model.  However, since the Government didn't even look at the option of following England  - even without privatising the companies - we wont know if it chose the best option, as the options analysis has clearly been politically cauterised, by people whose political ideology has so demonstrably failed in this instance.

Why would anyone trust them to get this right now?  

Local authorities are currently consulting on whether communities support the Three Waters Reforms, and many oppose it, not least because local government never likes losing power and influence.  You should let them know that you oppose the proposals, but not because it takes powers away from local communities (whatever that is), but because it puts power in the hands of people who are NOT primarily interested in delivering efficient, high quality services to consumers.

So tell your territorial authority AND tell your local MP what you think of these reforms.  Be grateful also that electricity and telecommunications aren't being run by your local authority.  Imagine the blackouts.

NZ Government's first full privatisation of the 21st century, unopposed

For all of the hand-wringing and gnashing of teeth of the National-led Government's minority sale of a bunch of companies that have private competitors, you'd think that Labour, the Greens and NZ First would actually be holding the stop sign against the government selling ANY businesses at all.

Given the referendum, the claims that part-privatisation is anti-democratic and other hyperboles about the programme, you'd think if you believe in the state ownership of the means of production, distribution and exchange like any socialist, you would want to stop the shrinkage of the state by all means.  The people (through the state) ought to own more and more enterprises according to any socialist, and the mere fact there is an undercurrent of "should we promise to buy them back" tells you how reactionary Marxist the NZ left has become.  So you might think.

However, I think they don't really give a damn, it's all about publicity and xenophobia.  For what is about to happen is no different, indeed this will be the first full privatisation by a New Zealand Government since the 1990s.

This little piece of news has received no comment from the Opposition at all, presumably because it is a government owned company that is doing the privatisation.  Kordia, which was once BCL, which was once a subsidiary of TVNZ and owns most of the TV and FM radio broadcast transmission sites in the country, is selling the ISP Orcon.

Orcon is in a vigorously competitive market, like Mighty River Power.  It sells services to end users, like the power companies.  

However, as Kordia is selling it, it isn't up to Ministers, so there is little political capital to be gained from opposing it, unless the Opposition wants to abolish the SOE model - which would mean it could never argue it wants to own businesses to make money for taxpayers, but rather go back to the politically directed approach of the age of Muldoon.  Yet I think there isn't even remotely that kind of coherence in the Opposition to partial privatisation. 

Yes you can privatise the roads - says UK thinktank

The Institute of Economic Affairs (IEA) is rapidly becoming one of the highest profile think tanks in the UK, certainly it has been getting increased media exposure, including the regular appearance, on the BBC no less, of the excellent Communications Director Ruth Porter (who has links to New Zealand, having once worked for the Maxim Institute - not a reason to hold against her though).

It describes itself as "the UK's original free-market think-tank, founded in 1955. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems".

It has become one of the foremost advocates for questioning new government interventions, preferring less government spending and regulation, and seeking solutions involving free markets and personal choice over statism.

The latest report commissioned and published by the IEA, has been written by German transport economist and President of the Institute for Free Enterprise, Dr Oliver Knipping, and IEA deputy editorial director and director of its transport unit, Dr Richard Wellings.

It advocates privatising all roads in the UK.  Yes, ALL roads.  

The report is available here, and makes a compelling case that damns the existing system for producing inefficient outcomes (congestion, poor maintenance standards, inadequate supply of capacity in some areas and overbuilding in others) and suggests that the government simply get out of the way, by selling some roads and giving others away perhaps to co-operatives of road users and property owners to decide for themselves how to make money from them.

The authors propose that all roads, motorways, major highways, rural roads and urban streets could be privatised. Just selling the major highways is estimated to generate £150 billion for the government, which could be used to repay public debt, saving several billion a year in interest.  That would still leave local roads to be privatised by transfers to co-operatives of businesses and residential properties.

The new owners could choose to toll, issue access permits or leave the roads free when and where they saw fit, using whatever technologies they decided.

In exchange, the authors suggested abolishing vehicle excise duty (the equivalent of motor vehicle registration), and cutting fuel tax by at least 75% (noting that the UK, unlike NZ and the USA, does not legally dedicate any fuel tax to government spending on roads - but the existing fuel tax takes four times as much tax revenue as is spent on the roads), with the remainder being a sop to environmentalists by reflecting a carbon tax and tax on emissions.  This would reduce the price of fuel in the UK by a whopping 53p/l (though they neglect to note that EU law sets a minimum tax rate for energy that is about 29p/l).

Wouldn't the new road owners rip everyone off?  Well the authors say no. They have several ideas to avoid this.

They argue that the way privatisation is carried out should be done to promote competition between road owners.  For example, major highways could be sold to different companies, so that the M6/M1 and the M40 would have different owners offering different prices for driving between London and Birmingham.  Yes, there will be many cases where competition isn't feasible, but having some competition is more than exists now.  They see breaking up the road network so it doesn't resemble the patchwork of central and local government controlled routes now, would promote competition and innovative approaches to pricing.

By allowing road owners to price flexibly, it would mean prices at off peak times would likely be lower than at peaks, because underutilised assets are better off with customers willing to pay to use them, especially cars as they inflict relatively little damage to road surfaces compared to trucks.   As such, it may be much cheaper to drive outside commuter and holiday peaks than today.

Local roads owned by businesses seeking customers are more likely to discount access or offer it for free, especially if it attracts retail customers.  They may see this as important as offering free parking, so that the incentives are wider than just paying for the roads.

There remains competition  from other modes for certain trips, such as railways, airlines and canals.  In addition, telecommunications technology makes it increasingly attractive to use phones, Skype and other forms of teleconferencing instead of travelling.  Road owners will not be insensitive to these options.

Indeed, the question about being "ripped off" becomes more moot, if road owners are seeking to attract users by having well maintained, well signposted roads, which are priced to avoid congestion by spreading demand, and a planning system that does not prevent new capacity being built except by road owners needing to consider private property rights.  The likelihood is that the motoring experience will improve.

Finally, it's worth noting (though they did not appear to do so in the report), that with government in the UK already recovering four times as much in motoring taxes from road users (fuel tax and vehicle excise duty) than it spends on roads, that motorists are already being ripped off, by the government.

The UK government is today considering how to get more private sector involvement in financing and building roads, this report shows how far it could really go, and is one of the few studies I've seen which actually breaks apart the "consensus" of state owned and operated roads, and shows how it might be different, and better with privatisation.

Buying something from the government is stealing?

Yes, this is Idiot Savant's latest flash of inspiration.

He describes anyone buying shares from the government in SOEs as buying "stolen assets".

Fascinating.

For he does not think of taxes - money taken by force by government - as stolen, regardless of whether or not it is to buy any assets.

Yet he thinks of the government, having bought assets by taxes, selling them, as "stealing".

You see he calls SOEs "public assets", "owned" by everyone.  Yet you are no more able to exercise the rights of ownership over a dam, road, school or hospital owned by the state than you are a privately owned one.   

However, he regards it as "public ownership" because the public, through its elected representatives (MPs), can "exercise control".  Let's just stick with that for now.

Using the electoral system he broadly supports, National got elected on a platform of part-privatisation. It is supported by parties which have either included or consented to that part of its manifesto.

So voters effectively chose a Parliament that has, through its elected representatives, chosen to "exercise control" on behalf of the public.

It's just he doesn't like it, because he voted for the Greens.  Yet he claims to support democracy.

He says "these goods were stolen from us by the government".  Well funnily enough they were, in the form of taxes.  In which case would he support selling them and giving everyone some money in return for the sale?  Of course not.

Instead he suggests "opponents of asset sales should boycott stolen assets".  I couldn't care less if they don't buy shares, and feel free to boycott buying their goods and services.  Don't forget all of the other companies privatised before, such as Air New Zealand (still 22% private), Telecom, Bank of New Zealand, State Insurance, former THC hotels, Intercity Coachlines.

However, you should also boycott EVERYTHING sold by the state.  The shops that now own former post offices and railway stations, the ex. Air NZ planes sold offshore, any closed schools, in fact any land at all that the state once owned.  After all, selling assets is "stealing".  Presumably buying state assets is "gifting".

This amusing view of property rights concludes with a sure fire approach to send New Zealand's sharemarket, property market and currency down to Zimbabwean levels "they should support calls for those assets to be forcibly renationalised at less than the sale price. Asset-thieves should not be allowed to profit from their crime."

That's right, the Soviet Union is back.  Buying shares offered for sale by a democratically elected government is a "crime".  Some belief in elected democracy he has.  No belief in property rights at all.  No interest, care or thought of what that does to both foreigners and New Zealanders seeking to invest their savings.  From big foreign companies to retirees, students or small business people, if they buy shares they are criminals - because they don't embrace his venal Marxist view of the role of the state.  After all, people from many backgrounds and income levels will buy shares, but to him they are all kulaks, the sellouts, the class and nation traitors.

I look forward to the Greens embracing this policy for the next election, for as somewhat socialistic many New Zealanders are, the idea the state can take back property you bought from it by force with a penalty, will frighten the bejesus of most.

He can live in his solipsistic south Pacific USSR if he likes, but all the aspiring successful wealthy people he despises wont be there paying taxes, opening businesses and employing people with him.

Labour's part privatisation would have been ok, but not National's

Meanwhile, the Labour Party can't reconcile its opposition to part privatisation of SOEs with its own attempt to part privatise Air New Zealand to its biggest foreign competitor.  Apparently because it was once renationalised, this is ok.  However, almost all SOEs are the result of previous nationalisations, and by that measure the Nats selling part of Kiwirail to whoever wanted it, would be fine.

It all started with Sue Moroney insinuating that John Key visiting Australia is all about a sales pitch for the partial privatisation of SOEs, as seen by this Twitter from Sue Moroney

Sue Moroney ‏@suemoroney -Really interesting that the trolling Nats won't deny that John Key is over in Aus flogging off our assets.

Sue Moroney ‏@suemoroney - John Key is in Australia flogging our assets off to them. Dumped Oz PM John Howard says its a great idea. #whatAsuprise!

Of course Labour had no problem with that in its last term, when it sought to sell 22.5% of its renationalised Air New Zealand to the airline's biggest competitor - Qantas.   

I said:

libertyscott ‏@libertyscott @suemoroney Yet Dr Cullen positively favoured selling 20% of Air New Zealand to Qantas, what's changed?

She said:

Sue Moroney ‏@suemoroney @libertyscott Labour bought AirNZ back - that's the difference. It was privatised and we got 80% of it back. Nats selling what we own.

Hold on, but when the state buys something doesn't that mean "we own it"??  

So I confronted that and made the point again.  Labour was ok with selling part of a state asset to a foreign company (and indeed competitor).

libertyscott ‏@libertyscott @suemoroney Wrong you got 86.5% back and sought to sell 22.5% to Qantas, its main competitor. Cullen press release here http://www.beehive.govt.nz/release/govt-approves-air-nz-qantas-proposal-proceeding-commerce-commission

She said:

Sue Moroney ‏@suemoroney @libertyscott So you see the difference now?

 I said:

libertyscott ‏@libertyscott @suemoroney You'd support National selling down 22.5% of Air NZ to a foreign competing airline? But not power companies or a coal mining co?

No response.  The contradictions of the Labour Party remain astonishing.  At least the Greens have always had a one way view of state ownership - the more the state owns = good, the less it owns = bad.

Kiwirail's asset revaluation - because Labour concealed the truth with accounting: UPDATED

Regular readers will remember that I’ve been long critical of the bizarre Treasury valuations of the social policy/heritage/commodity sector subsidy project called Kiwirail. So the latest report that this “asset” is to be revalued hardly surprises me. However, I am enormously dismayed at the unprofessional politically driven basis for valuation of this business which was instigated by the previous Labour government. It is one thing to throw taxpayers’ money at buying it back, another to hide what a real dud it is on the government accounts. Let’s bear in mind that neither Labour, nor the church of the Holy gRailway the Greens, have any interest in really showing what it’s worth.

So let’s start with the latest announcement. What does it mean?

The short version is “I told you so… again”. What was reported before has finally happened.

The land assets will remain under the NZRC, which has in fact been the case since 1 April 1982 when it was created. There was always a peppercorn rental of NZ$1 paid for use of the land under the rail corridor, which given that the Crown isn’t paid for the land under the road network, has always seemed an easy compromise in dealing with the thorny issue of valuing strips of land with little alternative use (especially roads, given land without access to roads has greatly diminished value). This should not be controversial, but let’s be honest about what the valuation of that asset should be – the market value of the land if sold. A study commissioned by the MoT valued it, in 2001, at NZ$462 million. This could be indexed to today’s values and priced, but I doubt it would top NZ$1 billion. Bear in mind this was never privatised in the first place, because every time TranzRail closed a rail line (which was rare), the corridor would, ultimately, be able to be sold by the Crown.  So the valuation was done professionally based on assumptions of the value of neighbouring land being applied, in most instances, to a narrow inaccessible corridor.

Yet the Annual Report 2011-2010 indicates land is valued at just over NZ$6 billion. This is quite absurd, so is the asset write down going to address this? Let’s continue.

The transfer of the other assets to a separate SOE is exactly what happened before the last privatisation, when NZ Rail Ltd was set up. The logic of this is clear, as the issues around rail land and its use are complex. Partly because of Treaty of Waitangi claims over Crown land, partly because the confiscation of past land under the Public Works Act means that if the land isn’t to be used for rail purposes, the previous owners or their successors must be offered the land back.

So the new SOE will be responsible for everything, other than the land, just like before. This is already raising the spectre of a new privatisation among those who treasure Kiwirail because they think it will be the saviour in the event oil prices and climate change suddenly decimate the viability of road transport.

Bill English states the total assets are being written down from NZ$13.4 billion to NZ$6.7 billion, this being both the land and the operations business. A simple halving of value, indicating a lot of in depth work was not done into this at all. The Kiwirail press release explains this further by saying that the non-land business will carry a valuation of up to NZ$1.3 billion “reflecting the revenue generated by it” rather than the current NZ$7.8 billion.  That's helpful in analysing this further.

The land component of the valuation seems to retain most of its book value, as it will be worth around NZ$5.4 billion, yet wont be expected to make a return on most of that asset (given the land under the roads isn’t expected to either). A small writedown of around NZ$600 million, but not nearly enough. Has the land under the rail network really shot up in value by a factor of 11 since 2001?  Kiwirail's Annual Report indicates that a professional valuation was done, no doubt in good faith. However, does that really reflect the market value of this land? If a railway line across a field, or behind some warehouses or houses is sold, are there really any other likely buyers beyond the neighbouring property owners? The discrepancy between valuations seems extraordinary, and I doubt whether valuations of railway corridors are done frequently enough in New Zealand to enable it to be equated to other such valuations.  

Setting that to one side, the valuation of NZ$1.3 billion for the operating business still seems wildly excessive. It was bought for NZ$665 million. How has it suddenly become worth double that since 2008? Is it revenue? Well no.

In 2011 it had gross revenue of NZ$667 million. It also got nearly NZ$345 million from taxpayers (yes you’ve spent more than a billion on this one and counting). However, its operating costs were NZ$567 million. Cool NZ$100 million profit before government right? No. Once you remove roughly NZ$60 million in subsidies for operating Auckland and Wellington passenger rail services, you’re down to about NZ$40 million. Not so good then.

Bearing in mind that the NZ$345 million from taxpayers is a capital grant to replace and renew some assets, you’ll also see it’s clear this isn’t a sustainable business able to renew its capital.  Otherwise it would take out debt that would be repaid over the depreciated life of those assets, which of course is not going to happen (but Treasury of course has taken out debt to pay for the nationalisation and all of the capital grants).  Bear in mind also that the market valuation when Toll Rail was nationalised was only NZ$435 million. Has the government really trebled the value of this business even though it has never paid a dividend yet? 

One guess as to why Opposition Finance spokespeople haven't asked that - because they fully supported this destruction of taxpayer wealth.

So the valuation continues to be generous in market terms. Kiwirail, if sold, would not go for the sort of money on its accounts, even if it continued to get hundreds of millions of dollars in subsidies and grants every year.

The use of replacement cost as an asset valuation gives a false impression of the value of an asset if it to be sold, simply because it does not generate sufficient revenue to justify ever replacing the asset on the scale (and in the same way) as it was originally acquired.

My previous post on this was right.

Kiwirail is not an “investment” in its current form, but rather an emotionally laden piece of heritage that mixes some commercial elements, some local public policy elements with a lot of hyperbole and wishful thinking.

Debates about pouring taxpayers money into it need to be based on some market based accounts, accounts that might actually show it can generate a reasonable rate of return based on what it could be sold for – but which wouldn’t ever justify the money poured into it so far.

For that reason, given both National and Labour have thrown over a billion into this taxpayer owned bonfire, and the Greens are just gagging to throw billions more at it, means that having debates based on reasoned balanced analysis are absent when most of those involved prefer conspiracy theories around corruption, hyperbolic evangelism about rail “saving the economy” and economic illiteracy.

Most of my past posts on this subject are summarised in this one, on what it would take to make the railway a viable business.

It includes the following ones:

-  The Greens posted a link to a great presentation on Kiwirail, which actually destroys most of their own self-generated myths about the business.  I link to it here.

-  Where is the rail network viable?

-  Bill English admits the rail network is virtually worthless

Another good read is this from Ross Clark which explains that the "failure" of rail privatisation is because there are some serious questions about the viability of rail at all.

UPDATE:  I know this article has been linked to by a couple of forums.  Please read the articles at the bottom and indeed the presentation I linked to here. You can romanticise as much as you like, and I have a stack of Rails magazines from the 1980s and 1990s, and the NZ Railway Observer as well, so I am a rail enthusiast at a personal, emotional level, but the hard economic facts are that rail is an expensive way to move goods given the high capital costs of the bespoke equipment and infrastructure.  Only when volumes are high, frequent and over long distances do the fuel and personnel advantages start to offset this.  It's about economics.  In the US, rail freight succeeds in spite of serious undercharging of trucks on untolled interstate highways, in NZ Road User Charges contribute to a very different picture.

No Asset Purchases without a referendum

If the parties that lost the last election can demand that the Government seek an additional electoral mandate to implement the policies National stood on in its 2011 manifesto, then surely the same applies in reverse.

Every time the state buys something with taxpayers' money, it should ask permission.

Labour should have held a referendum on buying buy Air New Zealand, buying the Auckland railway network then buying the national rail network then buying TranzRail. 

If the state should gain permission when it sells assets, it should also seek it when it buys them.

Somehow, I doubt the idea will gain traction with Labour and the Greens, because to them when they spend taxpayers money, acquire property for the state - it is "good" for it is for "everyone".

In other words, the state can always accumulate more and more property with your money, but it daren't dispose of any of it.   However, none of that is really a surprise is it?

New Zealanders already own them

Such is the cry of the impotent leftwing cry in New Zealand politics against privatisation of state owned businesses.  It is this position, and the infantile debate about privatisation that passes for political discourse in New Zealand that demonstrates how far removed the country can actually be from the rest of the world.

The only countries in the world that decry privatisation are the likes of Venezuela, Iran and North Korea.  In the rest of the OECD it is mainstream policy and has been for some time.  However, in New Zealand the debate is at a level that I think reflect a combination of the base level of debate through television and talkback radio, and the agendas sold by some in academia and education, pushing what can best be described as the Green/Alliance leftwing legend about the reforms of the 1980s and 1990s.

The latest phrase thrown in is just banal.

"New Zealanders already own them" or "You don't have a right to sell something New Zealanders own".

Of course it is cravenly misleading political rhetoric, like the bald faced lie that opening ACC up to competition is privatisation, because some of its customers will choose a private competitor. Like the complete blanking out of history by Labour politicians who happily consented to Michael Cullen seeking to sell part of the re-nationalised Air New Zealand to its arch rival Qantas - because Qantas was keen to snuff out any chance of the knee-capped airline becoming a bigger competitor, and Cullen was too inept to see through its rhetoric. 

New Zealanders do not own SOEs by any standard definition of what ownership of property means.

If you own a shareholding in a business, whether by shares, or in partnership, or private equity stake, or even as a secured creditor, you have a wide range of rights in relation to the assets and liabilities of that business.

First and foremost is the right of alienation.  You can sell, gift or surrender that stake to whoever is willing to buy or receive it.  You are not forced to own it.  After all, if you were, you'd be forced to bear liabilities as well as receive proceeds from profits.  

Secondly, ownership bears the ability to gain dividends from profits and capital gains from appreciation of the assets. Conversely, it also means you bear liabilities (in the form of your assets being devalued and shareholding able to be surrendered to creditors, or rendered worthless through the market).  Ownership is dynamic.  Like owning a home, or a painting or a car, what you own can make you money, or can lose you money, but ultimately you gain or lose value according to how it is managed, used and ultimately the market for buying it.

New Zealanders do not have either of these rights in relation to SOEs.  There must be a few environmentalists who'd rather not own a coal mining business, but they can't sell out of the state shareholding in Solid Energy.  As New Zealanders individually can't sell out of SOEs, only the state can, it is absurd to claim that the state has "no right" to do so, when in fact the elected government is led by a political party that campaigned on that platform.

The government does have the right to sell any asset it holds, and indeed it has a democratic mandate to engage in its small SOE part privatisation programme.  To reject this is to claim the state should never sell anything again, and to reject the mandate of the electorate.

New Zealanders don't get dividends from SOEs.  The state does.  New Zealanders don't get a dividend cheque to spend on their mortgage, their kids' education or their businesses.  Those on the left will argue that they do get the "fruit" of government spending, but government spending is distinctly unequal among New Zealanders.  It tends to cluster around rent-seeking groups, such as employees in the state sector, businesses that receive subsidies, the state education and health sector, state housing and welfare recipients.  Is that what people want their dividends spent on?   Of course if the state was going to spend that anyway, it is arguable taxes would increase, although again, taxes aren't equal either.  If everyone had equal shares, they would get equal dividends, but the benefits (and costs) of the state are not equally distributed.

So to claim New Zealanders "own" SOEs is a complete fallacy.  They can't sell or give away their ownership, even if they wanted to.  They can't gain the fruits of ownership.  Yet they do bear the costs.  Loss making SOEs may get additional funds from the state.  Kiwirail being the obvious example.  Those who pay the greatest tax bear the greatest loss.

This "public ownership" is effectively meaningless.  It is, legally, Crown ownership.  The government owns SOEs and it is up to the Minister of Finance to exercise the rights of ownership.  The state owning something doesn't mean you own it.  It spends the proceeds on what it wants, and if it loses money, it takes it from your taxes.

Yet have you noticed how opponents to privatisation get awfully wound up about selling businesses, but the state taking your money through taxes and buying them, that;s another story.

In the past decade New Zealand taxpayers have been forced to buy an airline and a railway, but nobody who says there is "no right to sell" argues it about buying.  Apparently the state has every right to borrow or tax to make people buy a business, or invest in an existing one (take Kiwibank).  

What does that mean?  Well if you follow it to the logical conclusion, it means the state can buy up anything it likes, but never sell it.  Ultimately it means nationalising the entire private sector and all private property.

The real debate that should be had is whether it is appropriate for the state to own businesses at all.  It gets diverted because those wanting to debate are wanting to scaremonger.

It's why the Greens, Hone Harawira and others on the left raise their racist bogeyman of "foreigners" when it comes to privatisation.   The very people who cry racist whenever they find an unequal outcome between two groups they subjectively define by ethnicity, raise hackles of what is nothing more than pure nationalist hatred regarding foreign nationals or companies owning businesses in New Zealand.  The implication being that foreigners "rip people off", New Zealanders don't.  That foreigners will "take their money and run", New Zealanders never spend their money on luxuries, foreign travel or invest overseas.  Foreigners "don't understand us", because New Zealand state owned businesses have always been a roaring success and delivered just what everyone wanted.

If you want to know one reason why Air New Zealand did not get fast approval for Singapore Airlines to lift its shareholding from 25% to 49% by the last Labour government, the word "xenophobia" might explain something.

So no kiwis, you don't own SOEs - a collective of politicians exercise ownership rights over them, spend the profits arising from them, and collect from you when things are going bad for them.  You have no more right to say they can't be sold than you have to say the state shouldn't buy a car, a plot of land, or a new locomotive for Kiwirail.

The late Roger Kerr wrote extensively about privatisation, it would be a start if some journalists in New Zealand actually took some time to read some of it, such as the review of the actual performance of privatised state businesses and their history.  It would also be nice if some of them asked the politicians who oppose privatisation whether they also oppose the state buying businesses on behalf of taxpayers.