The Government’s proposal to sell state assets would improve market liquidity leading to better productivity, an academic has said.
According to Massey University Pro-Vice Chancellor and Head of Business School Professor Lawrence Rose, the announcement by Prime Minister John Key (on January 26 in Auckland) of the Government’s plan for partial sales of the electricity companies and some other State-Owned Enterprises was encouraging.
Mr Key had said in his State of the Nation Address that individuals (mum and dad investors) would have the first choice of investing in state-owned assets when the Plan is put into practice.
“Such a Plan would have benefits for the financial markets, individual investors and the Government,” he said.
He said partial private ownership would make the assets more efficient.
Professor Rose, who has studied the performance of privatised companies in New Zealand and Australia and the effects on the share markets, said that the previous sale of Government assets had significantly increased market share capitalisation and influenced market liquidity.
“This would have major ramifications for the deepening and transparency of our capital markets and especially the NZX, if they are listed on it,” he said.
He said liquid and “complete capital markets” were critical for economic growth and prosperity.
Professor Rose said his research of New Zealand companies from 1990 to 2001 showed that investors in privatised firm portfolios would have received significantly higher returns than those investing in aggregate market portfolio.
“The fact that mum and dad investors would have first priority in buying these state-owned assets bodes well for their ability to provide for their future prosperity, independent of the state.
“Some critics may believe that disposing of earning assets to the private sector can only hurt the government fiscal position. However, this position assumes that the state should have priority over asset ownership and not private individuals, and that tax revenues will fall. Neither position is a given,” he said.
Professor Rose believes that private investors, not the Government, should hold a majority of assets in a well-functioning and democratic economy.
“I would expect assets held in private hands to generally become more efficient as there would be less Government interference and shareholders would be demanding higher returns,” he said.
