After the Party Was over

Listener:  30 April, 1990

Keywords: Business & Finance; Political Economy and History;

(When I was teaching political studies in the late 1990s, I found students who did not know who Rob Muldoon or David Lange were. Younger readers may need to know Geoffrey Palmer was Prime Minister or Deputy Prime Minister during Labour’s privatisation program; Richard Prebble was Minister of State Owned Enterprises; Ruth Dyson was President of the Labour Party.)

It must have been quite a party. The taller, slumped in the armchair, tried to stand up, but the room was hit by an earthquake, which stopped the moment he slumped back.

‘Let’s go over it once again, Richard, why did we do it?’

The shorter, flat on the couch, tried to open an eye. ‘Do what, Geoff?’

‘Privatise. Privatise everything. As I recall.’ He winced, for the memory of the previous night still hurt. ‘As I recall, our party was against it. We said so in the election manifesto.’ He winced again. ‘We even said we would stop the others from doing it.’

Pri-va-tise,’ the prone figure tested each syllable. Yes, he could still say it. ‘We certainly stopped the other buggers.’

‘Because we did it ourselves. Was that the reason?’

I don’t think so.’ They lapsed into silence.

‘Someone told me, Richard, that privatised firms were more efficient than public ones.’

That wasn’t it. When the economists went through the research they found the evidence mixed. Some shows that private sector firms are more efficient, some that public sector firms are, some that, properly managed, they are about the same. Only an ideologue would conclude that privatisation always leads to improved economic efficiency.

‘I’m not. I’m an administrator. I set up committees.’

There is even strong reason to believe that some of the firms we privatised – monopolies like Telecom and Electricorp – will be less efficient in the private sector. They pack their costs to return themselves a higher profit.’ Richard wanted to give Geoffrey a quick wink, but thought it better to keep his eyes shut. ‘Anyway the whole point of corporatisation was to get the state-owned enterprises as efficient – or as inefficient – as the private sector. We told everybody that.

Geoffrey had a sudden urge to stand on his feet and give his ‘corporatisation speech’. He found he could still stop the earthquake by sitting back in his chair. Silence. ‘Richard, what about the balance sheet argument.’

You mean selling assets to reduce outstanding liabilities. Didn’t Rod Deane say …?

‘He was one of us, wasn’t he?’

You’re right tootin’. He said the real gains. not relate to balance sheet effects accruing from the sale of assets. I don’t know of any economist who supported the balance sheet argument.

‘You did, Richard.’

But I’m a lawyer.

‘So was I, so was I.’ There was another long silence. Geoffrey slumped further in the chair, with the vague idea he was contributing to national welfare by preventing earthquakes. ‘What about monitoring costs. That’s the theory that private business is better at overseeing the businesses.’

As a couple of Reserve Bankers wrote – they are for us too …

‘Have to be, after we gave them the Reserve Bank Act last year …’

‘The bankers said, “The monitoring ability of the New Zealand sharebroking community must be held in some doubt given its record prior to the sharemarket crash.”’ Richard tried to sit up, but the ceiling suddenly descended, cracking his head. Prone, be added, ‘But we got a good price.

‘Did we? I thought those bankers also wrote something about when there were few bidders “it should not be automatically presumed that the highest bid necessarily represents good value for the government.” Some assets seem to have gone for a song.’ The tune of ‘Baubles, Bangles and Beads’ joined the cacophony in the sitter’s head.

We got a good price for Postbank.

‘Probably, but Allan Hawkins, of Equiticorp, wrote about his purchase of New Zealand Steel, “we could see in accounting terms it was a good deal. [It] gave massive tax advantages. There was no way we could assess the steel plant as a manufacturing operation because none of us had any experience at all of the industry.”

We put him in charge of the New Zealand steel industry?

‘We’re in court about it, and about the DFC too.’

Should be a good show.

‘I’m afraid, Richard, that we will be there as defendants or witnesses, not as highly paid performing lawyers, like we were in Parliament.’

Silenced, the prone one opened half an eye. ‘You know, the numbers of baIlsups associated with the various sales is extraordinary.

‘You were always in too great a hurry, Richard. Mrs Thatcher took years, while you took the same number of months.’

Your committees wouldn’t have helped. A lot of people made good money out of the sales. Like the merchant bankers, who earned millions from advice and financing fees.

‘Not to mention the firms who got the assets cheap. Or the sharebrokers who had more shares to trade in a depleted sharemarket.’

Is that why we privatised? As a sort of subsidy to assist the financial sector after the sharemarket debacle? I know that in principle the Government opposed subsidising industry , but the financial sector were good friends, and the success of our economic strategy depended upon their health.’

‘1 don’t know, Richard, I don’t know.’

There appeared to be a pounding on the door. Nurse Dyson tiptoed in. ‘Glass of water, aspirin?’

The prone figure announced, ‘More of the hair of the dog that bit me, thanks.

‘But there is nothing left.’

At the next party I’m selling schools, hospitals, roads, Parliament, the frigates.