Friday, September 02, 2011

The Power and the Passion

It's Friday night and I don't really want to rip into a long post on SOE sales and Rogernomics, but posts by David Farrar and Chris Trotter are really grinding my gears. Someone is wrong on the internet.

David Farrar's piece on the political cost of partial SOE floats should be a bit easier to lambast, seeing as Paul Walker at Anti-Dismal has shredded his arguments quite nicely. The old man used to discuss aspects of Labour IV's 1980's asset sell-off with me. Parts of his arguments appear in Walker's post.

For example, the whole point of selling down an asset is to get the very best price for its sale. When the Fourth Labour Government started its state sell-offs, the calculus was straight-forward. They would balance the retirement of massive public debt against the strategic utility of that asset.

That's why Petrocorp was one off the first on the block. The high risk, high expense speculation of oil and gas fields might have been potentially lucrative, but it would take the luck of Jed (Beverley Hillbillies) Clampett to make anything of it. The NZ government was not in the position to go huntin' for some crude with its then-dire balance sheet.

Same with the Forestry sale. Sure, those saplings might be worth something in twenty or thirty years' time, but owning future logs was not core infrastructure. I remember the old man coming home after selling the forests. It was one of the rare occasions where my father looked genuinely happy. Y'see, the forestry sale paid off the last chunk of New Zealand's serious public debt.

Trev was aware of the political cost of asset sales. He used to crow that he'd have flogged Air New Zealand off to Singapore Airlines or JAL, but the RSA brigade would crucify them with "Who won the bloody war anyway?" arguments.

Times have changed but the maths hasn't. The partial float of power companies will not get the best price for what it's worth. Believe me, it makes the 80's fire sales look well-priced in comparison. OK, don't believe me. Here's Paul Walker:
[H]aving foreign bidders just means that the price the government gets for its assets is higher than it otherwise would be. A higher price is also paid for a controlling share in a firm, selling a partial share in a firm will lower the price paid. 51% is worth a lot more than 49%!

A partial float is rotten value for the government. OK, so why sell it anyway? The puny sale prices will not go towards paying down structural debt, but is instead earmarked for pork; roads, schools and so on. Stuff that should be already budgeted for in normal government expenditure, but will instead be used to sway marginal constituencies to National's tune.

A far lesser reason to sell up is to prop up the moribund NZX with companies of some scale. This is a rubbish reason. Brian Gaynor highlights this corporate stagnation nicely:
In December 1986, all of the 10 largest companies had private sector origins, and most were named after their creators. Top 10 company founders included Ron Brierley, James Fletcher, James Wattie, Bob Jones and Frank Renouf. Chase and Equiticorp were also dominated by individuals, Colin Reynolds and Allan Hawkins respectively.

Thirteen years later only Carter Holt Harvey and Brierley Investments remained in the top 10, and Brierley's value is down from $5481 million to $1097 million.

Sure, those 80's companies were pre-1987 sharemarket crash. But as Gaynor points out, even former Telecom CEO Teresa Gattung cashed up her shares and stuck it in gold. Such is the confidence with which the NZX is held these days. Sticking a few more former state owned assets on the board is not going to breathe life into that beast.

Electricity companies are core infrastructure. They quite literally power the country. Or at least, 75 percent of it. The other 25 percent off their output goes to the aluminium smelter in the Deep South. We've all seen what happens when you sell one off. Contact Energy is losing customers hand over fist due to bad press and competitive pressure.

Then there's the Enron thing. The California power crisis rorts and swindles of the early 2000's was well described in the documentary Enron: The Smartest Guys in the Room.

Then there's the TVNZ Charter problem. That horrible mish-mash when a company faces conflicting objectives of serving the shareholders as well as the public good. It ends up a PushMe-PullYou bush pig.

Chris Trotter's opinion column blaming Rogernomics for crappy news programs is just hilarious:
TWENTY-FIVE YEARS AGO just under half of the news items on the six o’clock news were devoted to politics. Today, less than a quarter qualify as political coverage...

The answer, of course, is “Rogernomics”.

At the heart of the neoliberal revolution that Roger Douglas and the Fourth Labour Government ushered in was a profound hostility towards, and impatience with, New Zealand’s highly participatory political tradition.
I have blogged previously on some of the reasons why "New Zealand’s highly participatory political tradition" has declined in the intervening decades. Short answer, it wasn't Rogernomics.

Rogernomics did not repeal compulsory unionism. People still had to be riveted to the TV to see how much of a wage increase Federation o'Labour's Jim Knox had got them in the latest award rates round. No-one's glued to the telly these days wondering whether the PM is going to declare a wage and price freeze. That's a good thing.

Rogernomics did split the Post Office into three; Telecom, Postbank and NZ Post. The rapport between constituent and MP widened as MPs no longer had sway over who got their phone connected earlier than six weeks. These days, we're limited to MPs pork-barreling over who gets government paid fibre optic to their home first.

The one thing that Chris Trotter could have used against Rogernomics, he doesn't. The Fourth Labour Government spawned government Public Relations spin. The advent of television saw the Beehive respond with media advisors in the 1980's. Where once MPs just blabbed to reporters directly or through their private secretary, now the press secretary ironed and starched their releases. The hollow age of professional politics was born.

The old man was rather proud that he was the only government minister who hadn't succumbed to getting a press secretary, but it was not a trend that anyone else picked up on. Similar principles led him to always pick male private secretaries, so the risk of cheating on his second wife was greatly diminished. It's a lesson many have yet to learn even now.

And now, here's Peter Garrett way before he nailed his hand to the Oz insulation scheme: