• To Sell Or Not To Sell

    It is I suppose inevitable, in the run-up to an election, that any comment on an issue of public interest – like the excessive deference paid by the media to the Prime Minister, or the proposed sale of publicly owned assets – should be seen by party hacks exclusively in terms of the inter-party battle.

    But since it is clear that, on the sale of public assets, concerns extend across voters of all persuasions and include many supporters of the government, I hope that a discussion of that issue will not be seen just as party-political posturing. It is too important for that.

    The first point to make on the issue is that – if we adopt the analogy with a private household often (and usually wrongly) favoured by commentators – an individual who proposed to sell off an income-producing asset so that he could spend the proceeds would be regarded as behaving somewhat imprudently. In this respect at least, the analogy holds and a government is surely no different.

    The point need not be laboured, since it is made forcefully by those who are the most enthusiastic supporters of the proposal. No one can blame the fund managers for salivating at the prospect of a new range of investments that are secure, long-term, virtually inflation-proofed, and guaranteeing a good return.

    But the more they hype the advantages of such investments and proclaim their keenness to get at them, the more they beg the question – wouldn’t those investments be equally valuable and attractive in the hands of those who currently own them?

    And, since the current government says that their top priority is improving their own finances, how do they propose to make good the hole in those finances when they no longer receive the income from the assets they have sold?

    The suspicion must be that the loss of income will in due course be made up by further sales of public assets. And, since the new private owners will be keen to attract yet more capital, the proportion of equity in public and therefore New Zealand hands can be expected to diminish in any case.

    It is of course true that the New Zealand capital market would be improved substantially, at least in the short term, if a major new range of investments became available. But we should surely pause to wonder why our capital market is so small and weak. The answer is that most of what were once New Zealand assets of comparable size and stability have long ago passed (via privatisation) into foreign ownership; and the further sale of what remains in public ownership seems certain to add to that longstanding trend.

    The architects of the proposal have struggled to find any convincing way to allay these obvious fears. It is noteworthy that we hear little now of the so-called “Mum and Dad” investors; they are thought to be all too likely to sell off their shareholdings (perhaps once they have collected the bonus shares) to the highest (which usually means foreign) bidder.

    But the government has nevertheless had some success in finding supporters for its proposal – and not just the obvious candidates in the investment industry. Perhaps the most significant of those who have come out in favour of asset sales have been iwi, who have proclaimed their intention of joining forces in order to invest in this new range of assets.

    The Finance Minister, Bill English, attached such importance to obtaining this endorsement that he went especially to Ngaruawahia to make his case. He might have benefited, however, from listening to the detail of what Tukoroirangi Morgan had to say afterwards.

    The spokesperson for the iwi group was clear as to what Maori aims were. He said that Maori would invest for the long term. He said that they would hold their shares in trust for future generations. He said that they would seek a seat on the board so as to make the most of the influence that their shareholding would give them.

    Most people, I guess, would nod in approval of all of these propositions. But the noteworthy point about them is that they constitute the clearest possible statement of the argument against selling the assets in the first place.

    The advantages to Maori spelt out by Tukoroirangi Morgan are precisely the advantages currently enjoyed by all of us but which the asset sales would deny us. So, the question that must be answered by Mr English is – why is something that is clearly so valuable to Maori (an assessment that he seems happy to endorse when it suits his purpose) thought to be of no consequence or value to all New Zealanders?

    Why have Maori been able to look to a leadership that takes the long view and has a proper sense of its obligations to the common interest and future generations? Why do the rest of us have to make do with a leadership that looks at worst to an ideological prejudice against public ownership and at best to a short-term boost to the balance sheet that will quickly be outweighed by the all-too-familiar burden of paying the profits across the foreign exchanges to overseas owners?

    Bryan Gould

    1 September 2011