Saturday, 11 May 2013

Mighty River Power - the bigger picture

So Mighty River Power has got away, at a small premium (closing at $2.62 versus the initial $2.50). All well and good. A lot of the news coverage has understandably been about the last minute spoiler from Labour and the Greens, the scale of the share uptake, and the listing price, which are all fair enough topics. Missing, though, even from the Government itself, is any core explanation of why privatisations like MRP are a good idea. Fran O'Sullivan's piece in today's Herald  is a fairly rare example of looking at some of the broader context, although it concentrates heavily on just one aspect, the contribution that listings of SOEs  can make to the development of broader, deeper, local capital markets.

The core case for privatisation has mostly gone unheard, so here it is: in most circumstances, and certainly looking at our government's asset portfolio, government ownership of commercial assets is bad policy. There is no good reason for a government to own businesses that would be created in any event.

Ask yourself: should the government own a chain of video rental shops? A newspaper? Some corner dairies? Shoe shops?  Bookstores? A car manufacturer? A computer maker? Massage parlours? Kiwifruit orchards? The answer is obviously, no: government money is expensive to raise (through taxes or through debt), we can get all those services without its involvement, and there are desperately more needed goods and services that the government ought to be providing with its scarce resources (infrastructure in particular, but also unmet needs in education and health).

There's a variety of other ancillary arguments against state ownership and for privatisation (the capital markets one, the probability that state-owned businesses will be run less well than profit-oriented ones, and various distortions to markets working properly), but the key point is that for many commercial activities, state ownership is both pointless and wasteful.

You can see it for yourself: the government's current portfolio has the same lack of underlying logic as video stores or newspapers would have: a TV station (producing, incidentally, output worse than many privately-owned ones), a radio station (for once, a rare example of where some public service ethos has been maintained), and a bunch of assorted assets (a bank, coal mines, an airline, energy companies) producing things that in most western countries are routinely and competently delivered by private businesses. Daftest of all, the government (in Landcorp) owns a string of dairy farms. Puh-leez!

Remind yourself, next time you see long waiting lists for life-altering operations in the health system, or stew in a traffic jam in Auckland, or wish your kid's school was better resourced: gee, isn't it great that the government is using my taxes to milk some cows.

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