Partial Sale of the Century

Driving the state asset share floats is a government that is happy to subsidise business.


Listener: 13 April, 2013


Keywords: Business & Finance;


Why has the Government not made a case for its partial privatisation programme? The failure is a contrast to the privatisations of the late 1980s and early 1990s, although many of arguments advanced then were weak and, with hindsight, wrong.


Instead, the Government has just determinedly gone ahead with its programme, claiming it has an electoral mandate but not explaining why it sought one. Some people think this Government is just as neo-liberal as the Rogernomics and Ruthanasia ones but, limited by MMP, is implementing its policies more secretively. I think not. This is a business-government: one that is happy to support business with subsidies. Neo-liberals are opposed to even subsidising business.


Even so, the Rogernomics privatisation programme had elements of business subsidisation. The sharemarket crash of October 1987 devastated the financial sector and its ancillary businesses. Those who were not bankrupted found a dramatic fall-off in opportunities to earn profits from making deals. The Government’s privatisation programme created new opportunities, while injecting tax payers’ money into the business sector as a part of the sales programme.


Others may judge whether business was privileged by the privatisation programme. (Neo-liberals see privatisation as a necessary part of their aims; hardly anyone asked whether, given New Zealand share prices collapsed more than those anywhere else, there might have been something wrong with the policies that overstimulated them.)


It is easy to see the current bout of privatisation in a parallel light. The global financial crisis – this time not our fault – has severely limited dealing (although bankruptcy specialists are doing very well). Partial privatisation is a gift to dealers and the ancillary businesses that go with them, such as marketing.


The difficulty the Government has faced is that the public largely objects to the privatisation. Even a majority of its own voters may oppose the policy. That may be why it hasn’t gone for a full sale. Additionally, to make the bailout more palatable, it is offering special deals to small investors – in effect, forgoing revenue as a bribe for their support.


I wondered whether the Government might have had some objective similar to that in Margaret Thatcher’s privatisation programme. She disliked public enterprise, but also wanted to create a “share-owning democracy”, funding the subsidies on the cheap shares from the proceeds from the North Seas oil fields. We have no such bounty. No compelling evidence has been provided that the asset sales will make a marked difference to the Government’s cash flows in the long run. The subsidies might well mean it will have to squeeze government spending – less health care, fewer educational services, further benefit cutbacks, less for the arts and environment and so on.


In any case, the Thatcher privatisations failed to create a share-owning democracy. Most purchasers soon sold out (as you might expect if they got their shares cheap). The Government says it will offer incentives to purchasers who hang on to their shares – again at the cost of the taxpayer. If New Zealand becomes a genuine share-owning

democracy, it will be via


To add to the puzzle, the Government is in such a huge rush to sell off its businesses that, as I write, its promised subsidies are extremely vague – presumably this in the hope that everyone will have forgotten by election year.


One argument might be for “deepening the capital market” so the serious investor has more local options. Rather than subsidising small investors, the logical option would be to increase opportunities for KiwiSaver and government sovereign funds, such as ACC and the Government Superannuation Fund. Their options are limited here, so they have to invest offshore.


That objective might have been better attained by a scheme similar to that at Fonterra, where outside shareholders can invest in the company but have no involvement in its management, which remains in the hands of dairy farmers.


Perhaps ownership is far more democratic in the dairy industry than it is in the public sector.