EDITORIAL: WHY ASSET SALES WERE WORTHWHILE
11 March 2008
Labour came to power eight years ago promising an end to "asset sales", recognising rightly that the sale of state services to private shareholders had been the most unpopular element of 15 years of economic reform. It was careful, though, to avoid the logical extension of that promise - a buy-back of privatised companies.
Its caution was probably not a concern for the cost alone, but perhaps also on advice that, by and large, asset sales have been good for the economy. Governments have not been very good at explaining the benefits. Proponents have preferred to defend the sales with dollar figures for the receipts and the amount of public debt retired. But the figures, in truth, were not always impressive. Some so-called assets were state liabilities and others, the retooled Telecom the prime example, were sold too cheaply in hindsight. Many assets were a venture into the unknown, based on arbitrary valuations of services that had just begun to operate on business lines as "state-owned enterprises".
The principal benefit of asset sales, as for the creation of SOEs, can be summarised in one word: transparency. Private ownership quickly reveals the pure economic value of an asset. And a strong economy needs to know the economic value of all assets using the resources available to it. The more resources consumed in activities of low value, the weaker the economy will be and the harder it becomes to sustain its jobs, taxation, social services and living standard.
Labour inherited an economy much stronger and more efficient for the corporatisation and privatisation of former state assets, many of which were by then exposed to competition and sharemarket reporting requirements. The Government has kept its word, selling nothing of public concern but not anxious to re-nationalise assets either.
It took a near-collapse of Air New Zealand to cause the Government to take an 80 per cent stake in the airline. And it repurchased the railway, though not the rolling stock, more by accident than design. Auckland public transport planners wanted the lines through the city and were preparing to pay the former owner, Tranz Rail, far too much for them.
More recently, the Government has been negotiating with the current rail operator, a subsidiary of Toll Holdings of Australia, to buy back the trains, not because it particularly wants to run a national railway but because it finds itself unable to recover the costs of maintaining the network from Toll New Zealand. Finance Minister Michael Cullen says that if the state has to subsidise a private operator he would sooner "subsidise ourselves on behalf of the people of New Zealand".
If Toll and the Treasury can agree on a price, the wheel will turn full circle: New Zealand railways will be a state-owned business again, privatisation will be said to have failed, just as it was said to have failed the national airline. But "failure" in the private sector is instructive.
Toll's inability to pay the amount it is charged for track maintenance confirms the lesson of Tranz Rail before it. Tranz Rail did not maintain the network adequately, probably because it could not - a business does not deliberately run down a profitable asset. Air New Zealand is a different case, an asset that when the crunch comes the country will not see fail or, like Auckland Airport now, pass into foreign control.
If the public now wants a railway at any cost, just as it wants a national airline, it can pay for it. But it does so now with its eyes open to the once-hidden costs on the economy. That is not failure, it is a policy working as intended. The economy is stronger and the country richer for it.
(c) 2008 The New Zealand Herald
Source: New Zealand Herald
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