Why bother?

26 August 2011

Privatisation in New Zealand is a political swear-word.

Its very mention is meant to invoke some scary image of marauding foreign merchant bankers, here to rip off hard working New Zealanders.

It is therefore surprising and a bit gutsy for the Key government to go to the election on 26 November with a promise of partial privatisations of five state owned companies.

This has unleashed the usual hysterical fear mongering about ‘it makes no economic sense’ to sell off assets the government is profiting from, and that ‘prices will inevitably rise’ under private ownership. There has even been conspiratorial commentary that treasury is setting the agenda. How 1980s.

The fact is that the government’s assets have substantially grown over the past decade and a half, and, from over $50 billion worth of state-owned enterprises it now owns, the return to government has been a pitiful 2% annually. Not exactly stellar returns from substantial capital.

Having said that, the partial privatisation model itself is a little odd, and there is active argument over whether it really does amount to privatisation in the sense traditionally understood. The proposal being taken to the election is that 49% of about 5 companies will be floated. The government thus keeps control, while increasing the capital base and introducing more private sector disciplines.

For all purposes, assets floated will still be publicly controlled assets. Although you wouldn’t think it based on the shrill soviet-style denunciations about flogging off the family silver!

The great irony of this partial privatisation approach is that it seems to be more driven by ideology than economics. This is because unlike full privatisation, there is little evidence that partial sales really reap many efficiency gains or are a better use of capital, except at the margins. It may be better than the current situation, but is it sufficiently better to justify the changes?

Governments should always be looking to privatise assets if in the public interest, and the sentiment behind these partial sales is to be applauded.

But the nagging question for the Key government should be this: Are the proposed changes really worth the bother?

Luke Malpass is New Zealand Policy Analyst with The Centre for Independent Studies.

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