It is not the Government’s business to be in business.
Fifty years ago, such a statement would not have cut ice anywhere, except perhaps the US where laissez-faire had already become the philosophy in political and public life.
In that era, in most other countries, selling state-run businesses such as airlines, energy companies, postal services and public utilities to the private sector would have seemed politically impossible. Now governments everywhere are privatising, whether they lean right or left. It is the commercial enterprise run by the State that seems out of place today, not the privatised one.
Prime Minister John Key may have opened another fierce nationwide debate when he announced last week that his Government would divest at least 49% of the shares held in State-Owned Enterprises (SOEs), partly to raise capital to finance public expenditure and partly to keep up to its policy of according a larger role for the private sector.
From a theoretical standpoint, the plan to take the State away from the tangles of public administration may sound good but history has proved it otherwise, at least in some core industries throughout the world. The global financial crisis that began in 2008 had all the hallmarks of private sector mismanagement in the US, forcing the Government to provide hundreds of billions of dollars in rescue packages to almost every major company. A similar situation followed in the European Union.
New Zealand has a record of highly capital-intensive companies going to the brink of bankruptcy, constraining the Government to salvage them with taxpayer money. Bank of New Zealand, Air New Zealand and New Zealand Rail are often quoted as standard examples of failed companies that were lifted to financial safety and stability by Government funds.
Although private investors, corporate managers and tycoons have welcomed Mr Key’s proposal, there is need for caution from three angles.
Firstly, it is important to ensure that the companies sold would not result in higher prices for the average New Zealanders; because the private sector is notorious in ignoring the larger good, in favour of its own profitability.
Secondly, although sale of SOE assets would attract widespread interest, especially mum and dad investors, such assets would almost always land in the hands of the wealthy businesses and individuals.
Finally, privatisation invariably sees flight of ownership offshore. If the idea is to restrict SOE ownership to New Zealanders, the Government would have to enforce regulations that would forbid foreigners from staking their claims.
Back in the 1970s, when politicians needed to muster the courage to privatise state-run companies in the face of public opposition, they had a powerful short-term incentive. Revenues from the sales gave a handy boost to the public coffers, providing scope for tax cuts or higher public spending to please the voters and cancel out the unpopularity of privatisation. In the same way, selling off state-run hospitals and unemployment-benefit agencies, although it would generate plenty of flak, would also offer politicians the immediate benefit of extra cash to spend on things voters really want. The hardest question might be how to regulate these services, once privatised, in a way that promotes efficient competition but also ensures that quality is maintained.
Divesting interest in commercial entities may be the most popular move in today’s politics. But the process must be well considered and debated; for failure could be expensive and even terminal to the concerned undertaking.
