Urban myths about Kiwirail

Once again the Alliance Party and rail unions' views on Kiwirail are being touted by the Labour Party as truths.

They are not.  Don't believe me? Thought not.  However, you might believe the Institute for the Study of Competition and Regulation based at Victoria University.

I've blogged this before, but it is worth repeating.  The full presentation debunking the myths is in Powerpoint here.

Here's a good summary I wrote before...

1. Rail network shrinked due to privatisation. Wrong. Almost all line closures were under state ownership when rail had a statutory monopoly on long haul freight!  The track network length has barely changed in 20 years.

2. Rail stopped being viable after free market reforms. Wrong, it stopped being consistently financially viable by 1945. It had short pockets of profitability since then. The early 1970s saw it drift from profitability to losses, which weren't recovered until 1983 after debts had been written off and it started being paid by government to run commuter rail services in Auckland and Wellington under contract (and a host of unprofitable freight lines, such as the Otago Central Railway).

3. Track Maintenance was run down after privatisation. Wrong, it was already being run down in public ownership, track was run down more, but sleeper replacement under private ownership increased.

4. Rail is worth a lot as an asset. Wrong. The NZ$12 billion book value of rail that was on the Treasury accounts was a nonsense, equating it to all other SOEs combined (e.g. 3 power companies, Transpower, NZ Post) which all make profits. Most of the value is based on a replacement cost if it was built today, which of course would never be done. I'd argue it is probably worth 4% of that at best.   It's worth noting that this has only been partly fixed as of late.

5. Rail only needed rescuing after privatisation. Wrong. It has been rescued several times before. It has long had serious economic viability issues.   In recent history it was bailed out in 1982 (all debts cancelled, and the operation commercialised), 1990 (had the debt of the North Island Main Trunk line electrification written off as a "Think Big" debt, then NZ$350 million, and another $1 billion wiped off to pay for the restructuring to make it viable).

6. Rail is good to reduce accidents, congestion and environmental problems Wrong. "the optimal level of externalities is not zero – at some point it becomes more expensive to lower them than the welfare created by their further abatement" Rail related deaths are only slightly lower than truck related. No evidence that rail reduces congestion. Sea freight is twice as fuel efficient than rail, but little interest in that mode.  Indeed Greens actively oppose international ships carrying domestic freight along the coast to placate their unionist mates.

Like I said before, the presentation basically says that rail is not as fuel efficient as is quoted, and that only 30% of the current network handles 70% of the freight. It suggests concentrating on the main trunk, and lines to the Bay of Plenty and the West Coast

Point scoring not principle

The paucity of principle in modern politics is unsurprising, so let's just establish the Labour Party's view on state ownership.

1.  The State can buy whatever it likes, even large unprofitable businesses, without an electoral mandate.   Taxpayers are expected to cough up for whatever politicians think they should buy with their money. 

 

2. Successful privatisations have been erased from history.  Opus, the former Ministry of Works, is now a successful multinational consultancy firm taking New Zealand expertise to the world.  Auckland Airport is a shining success as an airport.  Hardly a peep is heard of Contact Energy, bringing private competition to a state owned market.  State Insurance hasn't been state for 20 years.  NZ Steel continues to be a competitive exporter and productive job creator years after it was sold.  

3. It was ok for Labour to try to sell 20% of a state owned asset to its largest foreign competitor.  Dr Cullen was salivating at the chance to sell part of Air New Zealand to Qantas, which would have ended competition on domestic routes, sewn up around 80% of the Trans Tasman market to one operator.  However, that was "ok".  Only the Commerce Commission stopped this cosely set up deal, although few remember how much effort Qantas made to lobby the Labour Government at the time to delay giving the consent to Singapore Airlines buying 49% of the then privately owned Air NZ/Ansett group, which was a key step in kneecapping the group - in Qantas's interest - as it knew the NZ government wouldn't bail out Qantas's biggest domestic competitor (Ansett), and scuppering the Singapore deal bought Qantas years of dominance on the Australian market.

Either you're upfront and believe the state should own businesses and acquire new ones under certain principles, or that it shouldn't and should divest itself of them over time.

The Greens believe the former, Labour and National believes in none of the above and all of the above, depending on who you ask, and what time of day it is.

Why Boris Johnson beat Ken Livingstone

For all of the many reasons to be critical of the Olympics, it being a waste of future taxpayers' money, it being an unjustified corporatist suppression of free speech, the celebration of the world's most centrally planned universal health care system and most recently, the inability to flexibly manage access to tickets, and the lost opportunity to fix London's inadequate transport infrastructure, there are things to be grateful for - besides the great individual achievements by thousands of athletes (which is the true reason to celebrate the Olympics), Boris Johnson is Mayor rather than Ken Livingstone.

Why?

Boris has written "20 jolly good reasons to be cheerful about the Olympics"...

Including:

As I write these words there are semi-naked women playing beach volleyball in the middle of the Horse Guards Parade immortalised by Canaletto. They are glistening like wet otters and the water is plashing off the brims of the spectators’ sou’westers. The whole thing is magnificent and bonkers. 

and

The Olympics are proving to be a boost to tattoo parlours. Plenty of people seem to want their thighs inscribed with “Oylimpics 2012” and other ineradicable mis-spellings. 

Who would ever expect Ken Livingstone to say such things....

London 2012 < that phrase breaks the law (or what's wrong with the Olympics Part Two)

As I wrote previously, the Olympics can be a great cause for celebration of personal achievement my people striving to achieve the very best in their chosen sport or athletic event. As an advocate of capitalism, I’m not a supporter of the anti-capitalist protestors objecting to specific sponsors at the games. 

The patronising and precious attitude of protestors that having sponsors like Coca Cola and McDonalds means people will associate those brands with health living is insulting the intelligence of spectators and those at home watching the games. There wont be ads of Gold Medal winning athletes saying they did it drinking coke or eating McDonalds, but even if there were, then so be it. The do-gooding health bullies who want to restrict free speech because they think they can regulate, tax and berate everyone into eating and drinking as they want should just shut up. The simple response to sponsors whose products you don’t like is to not buy them or organise a boycott. Funnily enough had the Olympics actually come within budget as originally proposed by the government when it bid for the games, then it may be that sponsorship and ticket sales would have meant it broke even. The original budget being £2.4 billion excluding the external costs to related agencies, such as the Police. Now it is £9.3 billion plus those costs at around £2 billion, it’s easy to be cynical about the games from an economic perspective, but also desperate to maximise sponsorship to cover the costs.

You’d think that from my point of view, whatever it takes to get sponsorship is good. Well no. There is nothing wrong with granting the rights to be official sponsors, to use the logos and slogans trademarked for the Olympics. This, of course, is like any other event and any other corporate sponsorship role. Sponsors pay for certain exclusivity related to that which those organising the event have the right to sell. However, it goes a lot further than that here. 

For a start, Lord (Sebastian) Coe, Chairman of the London Organising Committee for the Olympic and Paralympic Games (LOCOG) has said that ticket holders to events wearing items of clothing carrying the brands of competitors to the sponsors could be prohibited from entering the events. He said it was “probably not” ok to wear a Pepsi T-shirt (Coca Cola is the competing sponsor), but “ok” to wear Nike trainers (Adidas is the competing sponsor). There has been some backtracking on that somewhat (only wanting to prohibit large groups engaging in “ambush marketing”), and frankly if all of that had been made clear when tickets were sold, then it would be fine. Yet it’s more insidious than this. 

You shouldn’t need to pass laws to host an event, but the Blair Government passed legislation, which explicitly prohibits unauthorised use of certain words. Typically, protection of sponsorship is about protecting trademarks and logos that you have registered or fraudulently passing yourself off as officially endorsed by an event. Existing laws are quite capable of doing that, but the Blair/Brown and Cameron Governments had been lobbied by the International Olympic Committee and sponsors to do more. So there are now officially banned words and phrases in relation to trade: 

“Using the words Games, Twenty-Twelve, 2012, or Two Thousand and Twelve, in conjunction with one of these words - London, medals, sponsors, summer, gold, silver or bronze - is also banned.” 

You can have a brief laugh at how this demonstrates that the quasi-authoritarian nanny-state approach to British politics, embraced by the Labour Party is now mainstream and uncontroversial among major parties. It is also illegal to take photos of the Olympics rings in public places to be used in publicity. This includes the taxpayer funded quarter million pound rings on Tower Bridge. 

To those who think the British constitutional monarchy system is a great guarantor of freedom, surely this shows it up for the emptiness that it is. The government has restricted free speech around the Olympics. Why? Well to protect the official sponsors, because they can’t possibly have a small local café selling muffins under a sign not using the logo saying “Olympic Muffins”.   Conversely, no airline other than British Airways can advertise "fly to London for the Olympics", which is patently absurd.

This overbearing, corporatist nastiness is exactly the sort of bullying that anti-capitalist protestors rightfully condemn. It’s not free market capitalism to pass laws so that sponsors don’t just register trademarks, but prohibit the use of general phrases and descriptions. So on that I’m with the protestors. 

 

How can any politician in the House of Commons hold his or her head up high and say it’s ok to pass laws restricting public usage of words that are NOT brands. I can’t say “Summer 2012” without it being seen as some insidious attempt to undermine the sponsorship of the Olympics.  To his credit, Mayor Boris Johnson has called overzealous policing of sponsorship as “insanity”, which should hopefully take the sting off the tail of cops who see new laws as a chance to grab some new criminals. Hopefully it means that some local businesses who have contributed in taxes for this grand event wont face prosecution for using words from common usage. He has pointed out the suburb of west London called Olympia and how absurd it should be if businesses around there with that name might be forced to change. Sponsors who use such laws to beat up on smaller businesses who are not using their logos and who are not claiming to be official sponsors should themselves face the opprobrium of the public. It’s not your language, taxpayers are the biggest sponsors of these Olympics. Just because you have convinced a bunch of lilly-livered politicians and gutless bureaucrats to pass laws to restrict free speech, doesn’t mean it is right. For if the Olympics has a spell of petty bullying from bureaucrats, Police and lawyers from sponsors forcing people to not use verboten words, then it deserves to be accompanied by moaning. Britain should no more be beholden to rampant corporatism, than it should be to rampant statism. 

Ironically, there has been one freedom granted - Sunday opening hours, which are currently heavily restricted for shops over a certain size, have been abolished for the period of the Games.   However, Britain doesn't have a Government sufficiently committed to economic growth to allow this to continue, as City AM's Allister Heath bemoans.

What struck me this week....

Obama - slicing tall poppies down, you're not so smart... it's not your business, you didn't build that

This is likely to be as controversial as Hilary Clinton's famous "it takes a village to raise a child" statement, which many conservatives took as denying the primary role of families.  

Obama said this:  look, if you’ve been successful, you didn’t get there on your own.  You didn’t get there on your own.  I’m always struck by people who think, well, it must be because I was just so smart.  There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something—there are a whole bunch of hardworking people out there.

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

So DON'T be proud, you're not an individual, success is always a collective effort.  Don't think you're clever, lots of people are.   You're success is because someone gave you help, you CAN'T be successful through your own hard work and intelligence.  Be grateful for the roads, because you wouldn't succeed without them (the fact others didn't do what you did is blanked out).

Presumably he thinks Olympic Gold Medals belong to lots of people, not the people winning the races.

Not PC wrote about it, and I concur.  I also like his post that includes satire about it.

Pure unadulterated anti-individualist, pro-collectivist drivel.  If Mitt Romney can't capitalise on this to grab the votes of most small business people, of indeed most Americans who strive and believe in recognising individual success when it happens, he doesn't deserve to be President.

Helen Clark gives an award to a tobacco entrepreneur

The warrior against smoking is hoisted by the petard of the profligate mega-bureaucracy she leads, not that she isn't a stranger to hypocrisy.  After all, few things are more hypocritical than a woman who has never created a business in her life getting US$500,000 a year, from global taxpayers, tax free, flying around the world flying first class (not just business class), staying in 5 star hotels, being chauffeured around telling the world that it should do more to address poverty.   Well done Helen, you cold, hypocritical, control freak.

Auckland's Mayor wants more taxes

Len Brown thinks that there is a "funding gap" of NZ$15 billion for Auckland transport.  Truth is that he can't convince users of government provided transport infrastructure or services to pay more to pay for his wishlist of totemic projects, especially the nearly NZ$3 billion Auckland CBD underground railway (given railway users already only pay a third of the cost of operating the existing trains, and not one cent towards the pending electrification and new trains).

He's arguing for a regional fuel tax (ignoring that it's unfair to those who don't use fuel on the roads, and those who wont use his totemic projects), tolls for new roads (all well and good, but there are few of those) and congestion charging (which Labour says is unfair, preferring regional fuel tax, and National rejects).

The real answer is to cut his spending plans to what fits within budget.  State highways are not Auckland Council's responsibility.  Maintain the local road network, pay out the existing public transport subsidy contracts and after that, bid to NZTA for new capital projects.  Understand that when ratepayers will throw you out for raising rates to pay for a railway, that means they don't want to pay for it so you shouldn't do it. 

Portugal's drug decriminalisation has worked

The number of drug addicts has halved since Portugal decriminalised all drugs in 2001.   Gutlessness prevails in mainstream politics in the English speaking world.

New Zealand continues the war on drugs
  

A report that 2573 people have been arrested en masse by the NZ Police for the victimless crime of consuming, selling and producing cannabis should have anyone with a liberal bent outraged.  The sheer scale of this is horrifying.  Of course it wont be the sons and daughters of MPs, lawyers, doctors, journalists, company directors and the like who are targeted, it will be largely lower class, brown skinned people and other reprobates who “deserve it” in the war on drugs.  Because, of course, the war on drugs doesn’t actually mean treating everyone who has drugs the same way – it means letting middle class successful people off the hook for dabbling in them whilst they wag their finger at the people who they don’t think are capable of making the same decision for themselves.

As Lindsay Perigo says, will the Police not stop until all 450,000 people who smoke cannabis are in prison?  

How Greece's government destroyed US$140 million of national wealth with one policy

You ban the government from selling surplus assets at less than 75% of their book value.  Meaning you're ultimately forced to sell them for 22% as the market collapses in the three years of prevaricating over the sale.

Romania's government slides towards authoritarianism

What do you call the EU's reaction to one of its newest Member States governing under emergency powers, politicising the entire public sector including the judiciary, making the state media an arm of the ruling party, overruled the Constitutional Court (so changing the constitution)?  Pathetic.  Why?  Apparently because so many MEPs are aligned to the socialists (successors of Ceausescu's communist party) who are annexing Romania's entire political system to suit themselves, and because the EU can't admit that it made a mistake in admitting Romania when it was subject to serious issues of corruption.  The EU COULD cut funding across many areas, immediately, such as agriculture and regional funding for infrastructure, but it wont.  The Party of European Socialists, including the British Labour Party, are keeping quiet. 

What's wrong with the Olympics? Part one - the economics

You’re going to see more and more hype in the next few weeks, as the world’s most political sporting event is held in London, and a vast wave of positive support will infiltrate the media, politicians and the event itself.

There is one good thing about the Olympics. It provides a showcase for the best in world athletics to compete and demonstrate the results of their hard work and training and be achievers. That is a good thing. The recurrence of this again and again, is a reason to smile. Opportunities to do this are special and remarkable.

Yet there is a lot wrong with it, so much I’m going to dedicate three articles about it.

• The first is on the economic cost
• The second is in the cost to individual freedom (and surrender to an authoritarian corporatist approach to sponsorship to fund the Games by "any means possible")
• And thirdly is a lesser important point, it is how the transport infrastructure in London has not been upgraded to cope, despite seven years of warning.

No business case

From an economic point of view, there was no “business case” for the British government to support the Olympics being held in London. It comes with a direct financial cost to British taxpayers including future taxpayers, a direct economic cost imposed on much of London, a subsidised platform for sponsorship and the self-aggrandisement and glory claimed by politicians.

The Olympics are political, they are a statement to the world by a country seeking to show off. I need not go through the list of recent hosts to demonstrate that. The previous Labour government bid for this event to try to show off, it didn’t do it for the economy.

£11 billion is the total cost of the infrastructure, hosting and the “regeneration” work undertaken related to the London Olympics. £2 billion is expected to be recovered from sponsorship, ticket sales and broadcasting rights, the rest is a transfer from taxpayers to contractors. Nearly £2 billion of the expenditure is in “regeneration”, code for government subsidised property development. The goal being to make Stratford (the main games site) into a desirable place to live and for businesses to locate (it now has three railway, two underground and two light railway lines serving it).  With the exception of Canary Wharf/Docklands, the evidence of government sponsored regeneration actually providing a catalyst to economic growth and jobs in the UK, is scant.

So financially, it will lose money.

What about the economy? Some economists would claim that this money will be returned in bucketloads because of the increased tourism and investment it will bring, except that this doesn’t bear close scrutiny.

I heard a story of someone in UK Treasury who told then Chancellor of the Exchequer Gordon Brown, that the Olympics would not create a net economic contribution to the UK economy. Gordon allegedly said “don’t worry, we wont win”.

London is already one of the most popular cities in the world for tourism. Indeed it bulges at the seams with tourists. There is evidence that the Olympics deter visitors who may otherwise have come. It brings athletes, who by and large, are not particularly high yielding tourists. It brings coaches, trainers, broadcasters and the like. It brings some spectators. However, it also scares off many others.

Moody’s produced a report saying it was unlikely that the Olympics will boost the UK’s economy. It claims the main sector to benefit will be hoteliers, with 90% occupancy estimated, although at this time of year London typically achieves 80% anyway. Given it was Diamond Jubilee year anyway it seems difficult to imagine that the extra numbers, if they turn up, will actually compensate for the for the taxpayer subsidy. In fact there is some anecdotal evidence that the numbers expected are NOT turning up. A quick look at Wotif.com for London in the next two weeks shows ample availability for hotel rooms with considerable discounts.


This is despite rather weak analysis from Lloyd's regarding the multiplier effect of spending, ignoring what people would have invested or spent the money on had they had it in their own pockets - (it isn't relevant that Lloyd's is a bank that was bailed out by the state and is now majority state owned).   Goldman Sachs says:

Goldman expects the Olympics will boost UK economic output in the third quarter of 2013 by around 0.3 - 0.4 ppt quarter-over-quarter (QoQ) (+1.2-1.6%qoq annualized), but this will be largely reversed in the fourth quarter.

Noting that the economic impacts of the Sydney Olympics were negative compared to the forecasts.

Economic impacts of the Sydney Olympics

The effect is more serious than that when you consider that London hardly has any spare capacity in its transport infrastructure to cope with the deluge of people for major events. The result is that thousands of businesses are telling staff to take leave or to work from home during the Olympics. The reason being that significant parts of the public transport and road networks will be close to gridlock. Business trips are being deferred because of anticipated queues at immigration entering Heathrow. With business likely to be deferred over this period, and those undertaking business facing real increases in cost due to overcrowding on roads and public transport, it’s notable none of this was taken into account in the glowing self-justifying “business case” for the Olympics from the previous government.

The so-called “legacy” is also grossly exaggerated. The Olympic stadium is likely to be offered to a football team (yet to be selected) to be used at a price less than the cost it took to build it, effectively destroying some taxpayers’ wealth. The regeneration of the Stratford area will be seen in property values, but this remains a fraction of the total cost to taxpayers.

Unfortunately, what’s insidious is that it is completely politically incorrect for the media to talk about this now – in the run up to the Olympics. Any major newspaper publishing articles about it would be seen as churlish and spoiling something great. No major politician dare say that which millions of people are saying – how can a country with public debt expected to reach 92% of GDP, which is overspending to the tune of 8.3% of GDP, with a PM who talks about a decade of austerity, justify pouring billions of pounds into a two week celebratory event.

Yes most people will watch some of it, and enjoy that. However, they would’ve done so anyway. Yes, there will be a sense of national pride (except from some Scots and Ulster nationalists) about the event, and some London pride as well, but didn’t the Diamond Jubilee provide that too? Wouldn’t there have been pride if the British Olympic team competed and won elsewhere?

So I’m not celebrating. My money has gone into this event (more than the average, given my income). I am betting the net GDP effect, in the long term, will be negative, as it has taken money out of taxpayers’ hands. People who would otherwise have invested or spent it better, and will have deterred almost as many visitors as it will have attracted. It will have imposed significant costs on London businesses unrelated to the games, by almost gridlocking the transport network.

In short, a colossal waste of taxpayers’ money.  It is a massive vanity project, and who really believes it will result in more than a short term boost to participation in athletics? Wishful thinking.

The Olympics should be left to profligate semi-authoritarian developing countries, willing to squander their national wealth on showing off, or by seriously commercially minded bids from cities that can demonstrate they can make money out of it, financially, without taking from taxpayers.

Let’s stop pretending the Olympics is an investment, it’s a legacy from a profligate, image obsessed former Labour Government, that is a commitment now. All that can be hoped for is that it goes off without a hitch, shows London in a positive light and that the property developed can be sold for the best possible price – and a lesson learnt to never ever do this again.