Thursday, September 08, 2011

“Are we really thinking about selling 49% of our SOEs to pay for 1 year’s worth of tax cuts?”

How often have we seen quick asides on Twitter reveal the implicit assumptions on which certain commentators base their pronouncements. Take this exchange on Twitter yesterday about the partial privatisation of SOEs, which speaks volumes.

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First of all, what’s with the “we” white man? What’s with the “our”?  Since when did you or I or your interlocutor have any actual control or real ownership stake in these government monopolies? (Most of which, by the way, are power companies that should never have been placed in government hands in the first place).

Second, what’s this with the fixation on dividends? “They’re certainly generating a pile of dividends for someone?” Silly me. I thought the primary purpose of power companies (for example) was to generate power—you know, the lifeblood of an industrial economy.  The stuff that keeps the wheels of industry turning. The stuff we’ve got too little of due to lack of real investment..

Power companies, sir, are primarily there to generate power not to fund a dying welfare state.

Or election bribes.

THIS IS NOT JUST an academic argument. In simple terms (which is clearly all Mr Hickey understands now he’s had his lobotomy) the power that power companies make effects every single company in New Zealand--which is to say, it effect the lives, wealth, wellbeing and wages of everyone in the country.  That is a far more tangible thing than talking bollocks about “our” power companies at the Grey Lynn cocktail parties Mr Hickey now attends.  The more cheap power we have (and instead of cheap and abundant power, we’ve been  going headlong in the other direction) the more wealth New Zealand business will be able to generate. And the more capital that is invested and reinvested in power companies, the more cheap and abundant energy we might have.

And to put it bluntly, but not as bluntly as the blunt object Mr Hickey deserves for running with the statist ball, the more capital that foreign owners invest (since there’s blessed little real capital around “our” way to do anything with), the more power there is for New Zealand producers to use to produce things.

That’s a good thing. A very good thing. More foreign owners, more capital, more power. (I keep it simple so Mr Hickey can catch up.)

Now Mr Hickey and his ilk bleat about “foreign ownership” as if Genghis Khan will be coming down from the hills to ravage our cities, and “we,” i.e., “real” New Zealanders, have no power to stop him.  Quite apart from this petty small-town provincialism (which is what this moron’s xenophobia amounts to) this is just more abject bollocks.  The fact is that if left free to make their own decisions (an unfashionable notion, I’ll admit, amongst the people with whom Mr Hickey now sips his lolly water) the “mum and dad” investors in the first public offering of these shares will be able to choose to either keep their shares or sell to a higher bidder. Which means that the decision about foreign ownership is actually in the hands of real New Zealanders. i.e., the New Zealanders who are prepared to put their money where other people’s big mouths are, and to make these SOEs their own.

Moreover, if New Zealand investors in that initial 49% float are bought out by foreign owners, as is likely to happen when or if the shares are allowed to end up in the hands of those who value them the most (as they will if markets are kept free of interference) then those New Zealand investors in receipt of this subsequent windfall are not going to take their money and just bake it into pies, are they. They’re going to reinvest it. They’re going to start new businesses. They’re going to recapitalise existing ones. Which means we, i.e.,  you and I and Bernard Hickey (even though he wouldn’t deserve it) would be better off than we are now from this “second wave” of capital.

We’d all be better off because the country’s businesses would be getting a double bonus of two capital injections: one of which is flushed out by the first, and the first of which helps all our lights stay on. (And as far as dividends go, what do you think NZers would be receiving from their “second wave” of investments? Cookie crumbs?)

So everyone’s better off. Businesses, investors, wage earners. Even the people at Grey Lynn cocktail parties. Everyone, that is, except the moaners.

All very straightforward, really.

Now it might be objected however that any major improvements in power generation would only come about if we could harness the expertise of big overseas players. And we could only harness their full and  undivided interest if they could buy more than the derisory 10% which our sad excuse for a Finance  Minister will allow them to buy. Which is of course an argument not just for the pathetic partial privatisation proposed by this pussy, but for the fully-fledged full-blooded proper privatisation in which all the shares of all the government “assets” (sic) are allowed to find their way into the hands of those who value them the most.

But the Finance Minister is a moron too.

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18 Comments:

Anonymous V said...

Maybe bernardchickey could tell us if his pension fund owns any overseas assets?

9/08/2011 10:21:00 am  
Anonymous ACT Youth said...

Bernard Hickey is fucking dumb. I don't know why ACT invited him (once) to speak at a gathering in New Market recently. His statist views are completely opposed to what ACT stands for.

9/08/2011 11:21:00 am  
Blogger Kiwiwit said...

I would prefer to have our power companies foreign owned and have real competition between them than the current pretend free market that sees more than $1B in dividends going into the Government's coffers, which is in effect an extra $1B tax on power consumers.

9/08/2011 12:07:00 pm  
Blogger PC said...

@ACTYouth: Still, if Person A knows that Person B is a moron (and it's hardly a secret, now is it) then what does that make Person A if they invite Person B to speak at their function?

9/08/2011 12:52:00 pm  
Anonymous V said...

@Kiwiwit

I think there is an issue however with power companies in that, OK lets say they are allcompletely private. How do you prevent them behaving like an oligopoly.
I think it is still the role of government to make sure the rules by which the market operates are effective for electricity consumers.

9/08/2011 01:49:00 pm  
Anonymous Anonymous said...

This comment has been removed by a blog administrator.

9/08/2011 02:46:00 pm  
Blogger PC said...

@Anonymous: Even without a name it's obvious who you are. And you've been told you aren't welcome here.

9/08/2011 03:04:00 pm  
Blogger libertyscott said...

Three government owned power companies, one big privately owned one and people worry about the three government owned ones becoming part privately owned?

Do these people use Vodafone? Do they buy petrol from BP and Mobil? Do they fly Qantas, Singapore Airlines, Pacific Blue or Emirates? Do they use Amazon.com?

I've not seen another Western country where inane xenophobic arguments accompany privatisation so regularly.

9/08/2011 05:26:00 pm  
Anonymous Peter said...

I think the main problem is the govt is too big. Lets face it, if they took everything, they still wouldn't have enough. The main problem, is, The State.
I think with all the talking about Bills of Rights and Constitutions from time to time, there is scant little regard for ring fencing the blasted govt.Put limits on them.
Indecent insatiable govt waste & consumption is bleeding the country white. Consuming seed capital.What happens when they run out of things to sell?

9/09/2011 10:43:00 am  
Anonymous KP said...

Well, we could start be setting a maximum budget for Govt, say 28% or GDP and zero borrowing. Then they can decide how they are going to spend that money.

A better way would be voluntary taxes, where the Govt send everyone an itemised tax bill & we tick which we are willing to support. Then they have to live within that budget.

Even if the PM set out his total budget for his term and was not allowed to deviate from it, at least we could plan ahead.

9/09/2011 11:17:00 am  
Anonymous Maurice Winn said...

Privatizing government businesses such as electricity producers is a bad idea at present because they will sell them too cheaply.

The reason they will sell them too cheaply is because the government restricts the profits which are allowed to be made as they did with Vector which I bought during a privatization after which the government announced that profits would be limited to an absurdly low amount.

Vector owns a good deal of optical fibre and my thinking was that as a shareholder I'd be able to invest in 1000s of kilometres of fibre. But as soon as the government stonkered investment by making profits illegal, that was the end of that.

Then the government decided they wanted fibre. Since capitalists wouldn't invest [sensibly as their capital would be stolen] the government had to invest citizens' money by subsidizing private companies installing fibre.

But of course, being governments, they force the private companies to do welfare fibre by ensuring it goes to Maoris, government places and other places which might not otherwise be commercially viable.

The government totally messed it up.

They will do the same with electricity assets. Potential capitalists such as me, who would like to buy electricity production, will bid low prices to allow for the fact that governments will rob them after they have bought the assets.

Until the government is not going to do such rip-offs, bids will be low and it's better to retain government ownership.

The solution is Tradable Citizenship so that voters recognize the value of their citizenship and vote against politicians who devalue their asset [their citizenship]. http://mqurice.blogspot.com/2010/04/tradable-citizenship.html

On the other hand, Taupo is going to erupt, destroying the Waikato River and much electricity supply, so selling it now and building nuclear reactors north of Auckland might be a good idea.

9/09/2011 02:46:00 pm  
Anonymous Maurice Winn said...

There is competition. <> If electricity supplies via the grid are too expensive due to collusion by electricity production companies or the lines company, people are free to use gas, insulation, photovoltaics, heat pumps, move to a cheaper location, invest in community generation, turn the thermostat down, or up in the case of air conditioners, wear warmer clothing, buy a smaller house, eat raw food instead of cooked, have quick showers, buy efficient light bulbs, buy a diesel generator, or organic waste burning generator, build a fireplace, move from Invercargill to Kerikeri.

I do NOT want some government department wasting more of my money telling electricity suppliers how much they are allowed to charge. All that will do is waste my money on government fees, and reduce electricity supply so that prices go higher.

9/09/2011 02:55:00 pm  
Blogger Andrew B said...

Maurice, the profit restriction is dumb - but that doesn't mean privatisation is. Don't chuck the baby out with the bath water.

Privatisation will get the idle hands of the state out of management of these companies, making them more efficient, able to give a better return and deliver power at lower cost. Not only will they increase their owners' capital, but they'll make other NZ businesses cost effective.

Of course, it would be better if the government said "we're going to stop regulating profits" and then privatised the power companies, but if they aren't ready to do that we should not oppose the privatisation.

9/10/2011 06:07:00 am  
Blogger Sally said...

PC I took the liberty to put some parts of your excellent article onto
http://homepaddock.wordpress.com/2011/09/09/turn-silver-into-gold/#comment-39398

HP's reaction was less than enthusiastic - "Had you stuck to the first half to three quarters of Not PC’s post, I’d have agree with you but he loses his way towards the end."

"The last line is personal abuse and totally uncalled for. Whether or not you support Bill’s policies he’s a very intelligent man."

The problem we have is the closed minds of the National Party hierarchy.

9/10/2011 10:51:00 am  
Anonymous Anti Green said...

Sally, Homepaddock is simply dumb. She is like Adolf from No Minister, a dedicated National worshiper. They don't see policies, they only see name (National).

If Labour is to announce today they want to merge with National (the new party will still be called National), the likes of Home Paddock and Adolf won't object at all. WHY? Because there's no difference between the 2 in their respective policies. National is still National, although their policies had shifted dramatically to the left (Labour territory). Policies don't matter to those idiot National party worshipers such as HP and Adolf. They will follow blindly as cult members.

These are the idiots who lend indirect support to the left, because had they stoodup and criticized their beloved leaders, then Key & English might shift away from taking the National party into the left .

9/11/2011 11:17:00 am  
Anonymous elijah said...

If you look at the sharemarket page of the newspaper you see all the quotations of all the companies.
It says, for instance, that company XYZ's shares are available for $1 (or whatever).
Correct me if I am wrong but doesn't this means they are "for sale", it means you can buy them does it not?

The shares are bought by Mr Smith from Invercargill and that is somehow 'legitimate' in the collectivist world; if Mr Wong from Shanghei (sp?) buys them that is 'suspicious' or 'evil'. How silly Mr Hickey et al are.

A foreign investment fund buys the shares - ummmmm... so what?!??!

Elijah

9/12/2011 03:25:00 pm  
Anonymous Mort said...

for those of you who think onbgoing govt ownership is a good thing, have you looked at the dividends the SOEs are paying? These companies are being loaded up with debt that is currently being serviced by increasng retail returns. The generation we are provided with currently costs less than 3c/KW and yet we are having to pay 20c+. What other industry allows a vertical distribution chain where the producers is allowed to retail in a near monopolistic market. (Contact are the price leaders when it comes to raising prices, but the SOEs are never far behind. The competition seems to be who can raise rates the most and get away with it).
The recent ruse that allowed the SOEs to sell assets was simply a mechanism to allow them to load up on more debt to pay another special dividend to the govt to allow the govt to meet its socialist idiocy outgoings.
Getting the govt off the balance sheet totally will allow the govt to stop protecting the industry's high margins, and stop the impediment to new cost effective production. The Govt's position on the balance sheet is blocking new production which would drive the price of electricity down, and improve the productivity of NZ, which in turn would allow the people to become richer.
Current Green tech will not be able to compete with hydro or thermal. Until Graphene cells are available then I doubt that solar will be able to cut the mustard either. Unlike the quasi-subsidisation of poor inefficient production like wind and tidal; which have been buffered by the ridiculous rates that cheap energy is being sold at, so that despite being horribly inefficient, can still just make a profit for the companies building them.

9/13/2011 09:58:00 am  
Blogger jbs said...

I'm interested in how a small country like NZ increases competition by selling off SOEs. Can you give me an example of where the country has had long term benefits (like the lower power prices you mention) in such things? Can we use Telecom NZ as an example of how we got better telephony / internet prices?

9/13/2011 11:36:00 pm  

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