Issues in Privatisation – Costs & Benefits

This is the text of a seminar paper delivered on 6 October. You can Download a PDF or the Slides.

New Zealand has had an appalling experience of privatisations. The sale of New Zealand Rail and Air New Zealand went so wrong that renationalisation was an imperative. Among the others there was the abject failure of Telecom to develop our telecommunications system despite monopoly profits, most of which went overseas with little reinvestment, the handover of our banking system to the Australian banks through the sale of the Trustee Savings Banks, the Bank of New Zealand and Postbank, only marginally remedied to date by the creation of Kiwibank; the scandalous bargain price sale of the Government Printing Office to kick start the empire of New Zealand and Australasia's wealthiest man, Graeme Hart; continuing dysfunction in the partially privatised electricity system which created blackouts, huge price increases, inadequate investment and still fails to provide reasonably priced and secure power; conferral of duopoly status in commercial radio through the sale of Radio New Zealand's commercial stations; the loss of huge potential for further processing in the sale of forestry cutting rights; and Housing Corporation mortgagees feeling defrauded when their mortgages were sold to private financiers.

 

To give just two examples of the effect on New Zealand's liabilities: the Ameritech/Bell Atlantic/Fay, Richwhite, Gibbs,Farmer syndicate bought Telecom for $4.25 billion in July 1990, when the company had shareholder funds of $2.5 billion. Shareholder funds declined over the next several years despite cost-cutting because of large capital payments to its shareholders who walked out of the company from 1997 with a realised capital profit of $7.2billion, in addition to a share of over $4.2 billion in dividends[i]– adding approximately $10 billion to New Zealand's international liabilities. Between1990 and 1998 the company's shareholder funds halved to $1.1 billion by when it was heavily in debt. In the decade from 1995 to 2004, Telecom paid out dividends of $6.7 billion from net earnings declared in New Zealand of $5.4billion, of which approximately $5.0 billion went overseas[ii].


The New Zealand Rail sale in 1993 was organised by Faye Richwhite who then proceeded to benefit from it hugely by taking a substantial shareholding – a conflict of interest fit for a post-Soviet state. The main shareholders of the purchaser, TranzRail, were Faye Richwhite, Berkshire Fund and Wisconsin Central of the US, and Alex van Heeren. They bought a company which had been freed of debt by a $1.6 billion injection by the government. The price was $328 million, of which they paid only $107 million and borrowed the rest.According to Brian Gaynor they "were responsible for stripping out $220.9million of equity in 1993 and $100 million in 1995"[iii].By the time they had sold out, they had made total profits of $370 million,mainly tax free because of the lack of capital gains tax, and darkened by accusations of insider trading[iv]. Under Wisconsin's management the safety record was appalling (by 2000, fatal accidents for employees were eight times the national average) and reinvestment and maintenance were abysmal, leaving the operation in a crippled state. They sold out to Toll of Australia who similarly failed to maintain the system, and who then sold it back to the government in two tranches for a total of over $700million plus ongoing costs to the government of several hundred million dollars to repair the rail network and replace the antiquated rolling stock. It is difficult to estimate the total costs to the country, but the total cost to the government will be almost $4 billion[v], greatly magnified by the neglect of the private owners.


The previous government has been accused of paying too much for the rail company, and they probably did, but that was just one element of the huge financial and opportunity losses to the people of New Zealand as a result of the privatisation that were evident well before the renationalisation. The story starkly illustrates the difficulty and cost in reversing privatisation once committed.


The reason for this seminar is undoubtedly that there is concern that we will soon embark on the next wave of privatisation. In my contribution I will first cover what forms privatisation might take, and what distinguishes privatisation. Privatisation is not simply, or even mostly about better services or efficiency. I'll cover a little of the background and how a bias towards privatisation is embedded in government financial rules and accounting systems. Finally, is a strong lobby advocating for privatisation and I will briefly look at who benefits.


What is privatisation?


Because of the deserved unpopularity of privatisation, undoubtedly if privatisation is allowed to happen, this time round it will take a different form. The most publicly discussed is partial sale of remaining state-owned enterprises (SOEs), and Private-Public Partnerships are already under way for schools and prisons. But in fact it could take a wide range of forms. E.S. Savas, who accurately describes himself as an "internationally known pioneer in and authority on privatization"[vi] served in the Reagan Administration, and advised on privatisation in the US and the UK, defines privatization as "reducing the role of government or increasing the role of the other institutions of society in producing goods and services and in owning property"[vii].


Within this wide definition, there is a great variety of privatisation techniques of which the sale of a state function is just one example. Sue Newberry, Associate Professor in Accounting at University of Sydney and expatriate New Zealander, has studied the embedding of such techniques in the financial rules created by the New Zealand Treasury. She quotes Savas to list the techniques. They include complete divestment by sale,donation or liquidation; delegation (limiting the activities of government) by contract, franchise, grant, voucher, mandate, user charges, PPPs; and passive techniques such as load-shedding, default, withdrawal or deregulation[viii].The terminology changes to escape the negative associations with terms as they become unpopular. We are unlikely to be told that a government is privatising its responsibilities or assets – more likely that it is increasing competition,increasing choice, increasing innovation, devolving responsibilities to the community, producing value for money or strengthening capital markets.


Arguments for and against


Advocates will argue that government agencies have never done everything themselves: they have always purchased goods ranging from stationery to buildings, and services ranging from building leases to banking. What is the difference between privatisation and the purchase of goods and services? I suggest that the critical difference is whether a degree of public control or responsibility has been transferred in the process.


When Telecom was sold, the government lost most of its ability to ensure that New Zealand's telecommunications infrastructure was provided, maintained and developed in the public interest. The government retained the power to regulate, but that has proven highly problematic and relatively impotent. When a school is run in a Public Private Partnership, the PPP contractor gains powers to decide on aspects of the design of the school, who uses school facilities when the school is not using them and how they are charged for, use of the school for commercial activities such asvending machines, a monopoly position in the provision of services and facilities for 25-35 years, and possibly many other aspects.


By contrast, the purchase of pens and paper is unlikely to influence the powers of a government agency or the service it provides to the public; the lease of a building will be negotiated so that it does not interfere with the agency's public responsibilities and services, and is normally for a short enough period that a strongly competitive element is maintained. Banking services in normal times should not confer influence by the bank, but we have seen in the current crisis that this is a possibility in that the crash of a bank could cripple the functioning of government and the bank's interests could conflict with what the government judges to be in the public interest. In addition, the government is a major source of income to the bank.Perhaps private provision of banking services should be revisited.


I suggest that a critical issue is therefore that of control, and our ability to take action in the public interest to address problems and make improvements in our economy, environment and society, often in the face of powerful forces in the market who can take advantage of their position.


State owned assets have multiple functions, the balance of which will differ in each case. They include

  • Preventing excess profits in important services which are a monopoly or are otherwise less than fully competitive;
  • Ensuring essential services are provided equitably and affordably
  • Providing security of services;
  • Social solidarity mechanisms such as ACC (or equivalently perhaps, providing services which are considerably more efficient to provide universally than individually)
  • Providing services in the public interest which the private sector is unlikely to provide;
  • Providing additional income to the government.

The arguments made for privatisations vary.The most frequent is that of efficiency. Advocates such as self-described PPP "pioneer", Castalia [ix],which the government employed to prepare a business case on the merits of school PPPs, appeal to theory to support lower costs. Private owners in a PPP,they say, have an incentive to keep down costs including long term maintenance costs. The Minister of Finance asserts that private prisons will be 10-20percent cheaper than public provision over their lifetimes[x].We were told that the corporatisation and then privatisation of the electricity system would bring cheaper power and better use of resources. There was a similar story for rail.


That story is weakening. Minister of Corrections, Judith Collins, concedes that for prisons "the building costs were likely to be about the same but ... saving money was not the major reason the Government favoured a public-private partnership"[xi].Similarly, Castalia acknowledged that the PPPs would provide only "a small improvement in value for money" over the Ministry of Education's current practice[xii]and as will be seen, even that is in doubt. Some of the lower costs are due to paying staff lower wages and salaries. The Centre for Public Services in theU.K. found that staff in private prisons were paid 25 percent less on average than their state counterparts and had inferior non-pay entitlements[xiii].Castalia says they "assume a PPP contractor [in New Zealand schools] will improve the efficiency of caretaking and cleaning by 20 percent including through contracting out and stronger labour bargaining"[xiv].This in effect becomes a way of forcing down pay for public service staff. It is not an efficiency from an economic viewpoint, as the PPP contractor's gain is the New Zealand worker's loss. It may or may not be passed on to the government in lower charges, and it is likely that a significant proportion of the contractor's profits will go overseas, increasing the cost to the economy.


Little of this detail is acknowledged, but given the weakness of the argument, advocates are now increasingly relying on service improvements. "Factors such as innovative rehabilitation or drug and alcohol programmes that private providers might offer were more important" than lower cost said Judith Collins. Castalia relies on "improved educational outcomes through better property maintenance and certainty of costs under PPP through better risk management" to recommend PPPs proceeding. Even taken at their word,the obvious question is why those benefits (if they indeed exist) cannot be found by the public service either adopting improved practices directly, or contracting experts to advise on them and assist adoption. There is indeed a"public value" issue here – public services should constantly strive to serve the public better – but it is not apparent why privatisation is uniquely placed to resolve that.


In fact these efficiency and service improvement advantages may not exist. Research comparing privatised and public industry produces indecisive and conflicting results as to efficiency. For example, Letza,Smallman and Sun review several such studies and conclude that "It seems that the privatisation of public sector enterprises not only does not necessarily lead to an efficient solution for business success, but it also creates many problems and crises, and it is arguable that advocates of privatisation . . .ignore impressive examples of inefficiency, waste, and corruption in the American experience with defence, construction projects, and health care – all mostly produced privately with public dollars"[xv]. There are numerous studies from the U.K. and elsewhere on the failures of PPPs and similar arrangements either to save money or to improve services. An analysis of PPP roading projects in the U.K. and Spain showed the additional cost of PPP projects over public debt was 30 to 40 percent of the revenues for the roads [xvi]. A study of six Public Finance Initiative schemes in Scotland and England showed returns to investors of from 17 to 23 percent, and suggested "the projects are very poor value for money. The Edinburgh Infirmary, Hairmyres and James Watt College could all have been built for half the cost if the money had been borrowed in the normal way from the government's national loan fund, ... and huge savings could have also been made on the Highland schools, the Perth offices and the Hereford hospital."[xvii] An investigation by The Independent on Sunday found not only "staggering" costs and wastage – such as a school in Belfast which was closed six years after it was built when pupil numbers halved,but payments to the contractor were to be £370,000 a year for the next 18 years– but also a failure of ongoing services to meet their promises. An example was"extortionate charges for routine maintenance – such as £302 for an electric socket to be fitted, £47 for a key, and almost £500 to fit a lock" and arrangements that were "expensive and inflexible"[xviii].


New Zealanders have their own experience of course. The examples of failures of privatised companies to meet reasonable service objectives, let alone act in the public interest – and in some cases even to be financially sustainable – which I gave at the beginning, contrast with the widely acknowledged success of public enterprises such as Kiwibank and New Zealand Post.


A further argument currently being advanced is that partial privatisation of profitable State Owned Enterprises is in the interests of deepening New Zealand's weak capital markets and providing safe investment opportunities, purportedly for the fabled "mum and dad" investor. The likelihood is that the shares will end up in the hands of overseas investors,as they did with local electricity network companies whose shares were initially distributed to those who happened at the time to be customers, and inmost other privatisations. Indeed international trade and investment agreement prevent the government taking action to stop this in many cases. But even putting this to one side, the partial privatisation proposition is highly problematic.


Take the state owned electricity generators and retailers as an example: Meridian, Genesis and Mighty River. Their "principal objective" by law as SOEs is "to operate as a successful business"[xix],which makes them act in many ways like their private sector competitors,Contact Energy and Trust Power. Although the definition includes a responsibility to be "a good employer; and an organisation that exhibits a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so" the commercial imperatives in practice are primary,particularly in a competitive environment. Therein lies a problem for an electricity system that runs with wider needs such as security of supply,environmental impacts, and low cost in balance. Their public ownership could be used to restore some of that balance if their profits were allowed to be compromised. Their public ownership is after all not simply to make money for the government. But as soon as a private shareholding is introduced, there will be an expectation that they will produce dividends that are as good as competing investments. The flexibility in objectives that full public ownership provides will disappear. They will be fixated permanently on the pure profit-maximising objective of running as a successful business, the only public benefit (not insignificant) being that some of the profits return to the public purse. The electricity system will continue to malfunction and the pressure will build for them to be fully privatised. Even using them to deepen financial markets is a once-only short term expediency – and at the same time attribute to their success compared to much of the private sector which has either failed or been sold to overseas interests. But it is a misuse of essential public infrastructure.


Provision of finance is sometimes advanced as an advantage of private provision. The reasoning is usually that the private sector has access to plentiful finance, whereas the government is constrained by its willingness to raise taxes. It should be easy to demolish that, and particularly in these times of financial crisis: the government can borrow at lower cost than private entities (unless they are subsidised by tax advantages either in New Zealand or elsewhere) and can probably obtain finance much more readily at present. In fact, as we will see, Treasury has biased the comparators to ignore that advantage. That does not make it disappear. The tax constraint is a political issue.


The politics of privatisation


It is easy to see from the above why the pioneering advocate of privatisation and PPPs, Savas, described privatisation as "more a political than an economic act"[xx]. Indeed,the history of privatisation in New Zealand is very much a political one.Treasury during the 1980s and 1990s (and who knows what remains of this today)had a much more radical view than simply privatisation: "a greatly reduced role for the government, anticipating its eventual reduction to the administration of regulations and the funding of outputs" according to accountancy academics Newberry and June Pallot, quoting State Services Commission and Treasury documents of the 1980s[xxi].


This led to, as they describe it, the embedding of rules into the public finance system that privilege outsourcing and privatisation. For example, the practice they introduced of government agencies negotiating fully costed "outputs" to be"purchased" by their responsible Minister is a concept designed to make it convenient for those "outputs" to be provided on a commercial basis from outside the public service. Newberry and Pallot point out that the full costing of "outputs" biases comparisons in favour of private providers, because it includes full overheads. In competitive tendering a private provider may well not include full overheads. In economic theory, prices tend towards marginal costs in a competitive environment; in practice prices may in fact be below cost if a bidder uses an uncommercial bid to burn off competitors and establish a position to raise prices on later occasions.


Constant Pressure on government agency funding along with inconsistencies and gaps in financial controls encourage and privilege outsourcing. For example, there are numerous controls on public service staffing levels, but few such controls on their replacement with contractors or consultants – a low-level privatisation trend that was evident during the 1990s. Lengthy approval processes are required for capital injections but not for capital expenditure from within agency budgets or for off balance sheet items like PPPs. Throughout the 1980s and 1990s, PPPs were not regarded as equivalent to debt, despite them committing the government to a stream of payments in the same way as debt. That has changed somewhat, but still privileges PPPs: Treasury's guidelines state:


To the extent that the PPP contract provides for the government to make service payments over the life of the contract (as opposed to users paying directly, as in the case of toll roads),the PPP gives rise to a liability. The liability is equivalent to debt and is likely to be counted as such... The actual parliamentary appropriation, however, is not required until the contract is signed.[xxii]

 

So a PPP sometimes counts as debt, but not for example for a toll road PPP. Extraordinarily, departments can enter into along term, high cost PPP commitment without a parliamentary appropriation.


PPPs and leases are further privileged because they do not attract the capital charge introduced to encourage departments to dispose of assets. The rate of the capital charge is set at a level that makes private provision look more favourable.


There is an additional bias introduced for comparing PPPs with government provision.Despite the lower cost of government finance, departments are instructed to use the bidder's cost of capital to calculate the "public sector comparator" in deciding whether a private sector bid is lower or higher cost. This is used as the"discount rate" in the calculation – and as Treasury states, "small changes in the discount rate can have a significant impact on the total value of the public sector comparator". In other words, this raised cost of capital is a critical decision that makes it more likely a PPP will be accepted. This was the case in the school PPP proposal already quoted: with this bias (and others[xxiii])the PPP proposal was just "a small improvement" over existing Ministry of Education practice according to Castalia (who acknowledged that this use of private cost of capital was "controversial"). It is very likely that the apparent "improvement" would be reversed without the biases, though not enough information has been released to scrutinise the calculations. The use of the wrong finance cost is described by Treasury as "provision for competitive neutrality adjustments to remove any advantages or disadvantages that accrue to a public sector procurer by virtue of its public ownership"[xxiv]. There is however no evidence of"disadvantages" being removed.


In cost benefit analyses, where government agencies are bidding for funding for proposed initiatives, a heavy "dead weight" loss is imposed to reflect "the net cost to society attributable to ... the imposition of a tax or regulation". The application of dead weight losses in these circumstances is essentially apolitical decision. In economic terms it relies on an assumption that markets are functioning perfectly, all firms and individuals have free and equal access to all relevant information, there is little (or easily quantified)uncertainty, there are no undesirable inequalities in society, and much else besides. Despite conceding that "dead weight losses are notoriously difficult to quantify", Treasury recommends a 20 percent mark-up on public expenditure, giving a substantial advantage to private provision over public initiatives[xxv].


If there are benefits from private provision, not only should the case be clearly and objectively made to the public, but the rules need to honestly recognise the valid advantages that government does have in provision, rather than the use of technical sleight of hand.

 

Who benefits?

 

Given the conflicts with the public interest, and the high financial risks involved, it is worth reflecting on who benefits from privatisation. I have covered this in more detail in another paper which also looks at international pressures to privatise through international trade and investment agreements which also make their reversal more costly and difficult[xxvi]. There are well known lobbies such as the Business Round table which advocate for privatisation as a matter of principle – a principle which is hardly surprising given the membership of the organisation. However in the present circumstances it is useful to look at PPPs in particular. Castalia describes a PPP contractor as typically being "a private consortium of financiers, construction companies and facilities management firms". In addition, PPPs have very high transaction costs with contracts which are highly complex documents and costly to draw up.This is to the considerable benefit of lawyers, accountants and other professionals. The full transaction cost estimate for school PPPs in New Zealand has been suppressed from Castalia's documents, but for the first school,the public sector cost alone "will be as high as $6 million", and for Australia they suggest it is a long run cost of $8.7 million per school, $4.7 million of which is public sector costs. These are very significant overheads when the estimated cost of even a large (2,200 pupil) school is only $55 million. It is likely that the transaction costs will add at least 20 percent to the cost of the first PPP school, and more for a smaller school.


The most active lobby for PPPs in New Zealand is the New Zealand Council for Infrastructure Development (NZCID),founded in 2004 by a number of companies. At inauguration it was headed by former National Party leader Jim McLay, by then chairman of Macquarie New Zealand, one of the biggest infrastructure owners in the world with a well established interest in taking over public assets and services. (McLay remained on the group's board, later becoming "Patron" of the organisation until appointed New Zealand Ambassador to the United Nations by the present government.) The group is an advocate for greater spending on infrastructure, the need being so great,says the group that "The private sector must partner with the Government to fill that gap". The Council was formed to promote public-private partnerships[xxvii].While including a small number of local governments among its members, plus TransPower, its majority include banks and other financiers, engineering firms,construction companies, major services corporations (including current operators of privatised services and PPPs), accountancy and law firms which would be expected to benefit from the private sector taking over public services[xxviii].


Internationally there are powerful lobbies with similar memberships that influence not only the governments of the economic superpowers, the US and the European Union, but also international agencies such as the World Trade Organisation. For example the US Coalition of Service Industries and the European Services Forum represent the interests of the huge corporations in the services sector that makes up about 70 percent of the production of these two economies. Both the groups and their individual members have been highly influential in setting the direction of trade and investment agreements with the objective of opening markets to them. In the services sector, opening markets most frequently means company takeover or provision of service contracts, which in the context of government means privatisation in its many forms. The groups played a crucial role in the establishment of the General Agreement on Trade in Services during the Uruguay Round which led to the formation of the WTO. Similar, and usually stronger, provisions are in the free trade agreements New Zealand has signed over the last decade. According to Harry Freeman of American Express, "The US private sector on trade in services is probably the most powerful trade lobby, not only in the United States but also in the world"[xxix].


Conclusion


While it is of course normal for such businesses to lobby in their own interests, we need to be cautious in accepting the advice of an organisation such as NZCID or its international counterparts.We should be equally wary of the expertise offered by their membership and other commercial entities with similar vested interests. They cannot be assumed to be objective judges of the merits of privatisation.


This just underlines what is already in bold and italics: as Savas stated, privatisation is more a political than an economic act. It is also of course a commercial act. But we have seen that little can betaken at face value. Apparently objective comparisons are loaded with political intent. Theoretical advantages have little empirical support (and indeed should lead to questions about the strength of the theory). Objectives change to fit the available factoids, and commercial interest is disguised as expertise.


Amidst all of this, the importance of the public interest, which is not simply about financial considerations, is lost. We have a highly deregulated [corrected] society and economy as a result of the programme of extreme neoliberalism from 1984 to 1999. Substantial parts of the programme remain in place, as we have seen. We have all too few levers remaining to manage our economy, environment and society in the public interest. The most powerful commercial forces have been strengthened and the countervailing power of government weakened or co-opted. Public services, assets and enterprises provide some of the levers we need. We should exercise great caution before taking any further steps toward private power, and indeed should be contemplating the reverse:reequipping the state to govern in the public interest.


[i] "Testing years ahead for Telecom", by Brian Gaynor, New Zealand Herald, 26 May 2001.

[ii] "Telecom: What a winner!", financial report on winner of the 2004Roger Award, Sue Newberry, available at http://canterbury.cyberplace.org.nz/community/CAFCA/publications/Roger/Roger2004.pdf.

[iii] "Investment: Track record costly to public", by Brian Gaynor, New Zealand Herald, 21 October 2000

[iv] "A tough case ... and a long one", by Brian Gaynor, New Zealand Herald, 16 October 2004.

[v] "Government Toll buy a sad indictment", by Brian Gaynor, New Zealand Herald, 10 May 2008.

[vi] http://www.baruch.cuny.edu/spa/facultystaff/facultydirectory/bio_savas.php,accessed 3 October 2010.

[vii] "Privatization and Public-Private Partnerships", Chatham House,NewYork, NY, p.3.

[viii] "Privatisation: 'more a political than an economic act'", by SueNewberry, presentation to "Privatisation by Stealth" conference, 16 March 2008.Available at http://canterbury.cyberplace.org.nz/community/CAFCA/publications/Roger/Privatisation%20-%20Sue%20Newberry.pdf.

[ix] http://www.castalia-advisors.com/about_us.php,accessed 21 September 2010.

[x] "NZ's first PPP prison to be built at Wiri", Bill English, JudithCollins, 14 April 2010, http://www.beehive.govt.nz/release/nz039s+first+ppp+prison+be+built+wiri,accessed 4 October 2010.

[xi] "Private prison to cost $300m to build, $60m a year to operate", byMartin Kay, Dominion Post, 13 July2010, p.A9.

[xii] "School PPPs in New Zealand: Will PPPs Provide Value for Money as a Method of Procuring Schools in New Zealand? Stage One Business Case", CastaliaStrategic Advisors, May 2010, p.24, produced for the New Zealand Government,released to NZEI under the Official Information Act, available at http://www.educationaotearoa.org.nz/all-stories/2010/9/22/see-for-yourself-the-governments-business-case-for-ppps.html,accessed 4 October 2010.

[xiii] "Privatising Justice: The impact of the Private Finance Initiativein the Criminal Justice System", Centre for Public Services , p.26, http://www.european-services-strategy.org.uk/publications/public-bodies/pfi/privatising-justice/privatising-justice.pdf,accessed 4 October 2010.

[xiv] "School PPPs in New Zealand: Will PPPs Provide Value for Money as a Method of Procuring Schools in New Zealand? Working Paper No. 2, Cost BenefitAnalysis", Castalia op. cit., p.25.

[xv] "Reframing privatisation: Deconstructing the myth of efficiency", SteveR. Letza, Clive Smallman and Xiuping Sun, PolicySciences, Vol. 37, pp. 159–183, 2004, p.168.

[xvi] "The cost of using private finance for roads in Spain and the U.K.",Jose Basilio Acerete (University of Zaragoza), Jean Shaoul, Anne Stafford andPam Stapleton (University of Manchester), AustralianJournal of Public Administration, Special Issue: Public-Private Partnerships,Volume 69, pages S48–S60, March 2010.

[xvii] "The great PFI swindle", SundayHerald, Glasgow, 17 May 2008.

[xviii] "IoS Special Investigation: How Government squanders billions:Jonathan Owen and Brian Brady reveal the staggering cost of PFIs ? some £300bn ? in the third andfinal part of our investigation into Whitehall waste", The Independent on Sunday, 24 January 2010, p. 30-31.

[xix] State-Owned Enterprises Act 1986, s.4.

[xx] Quoted by Newberry, op. cit.

[xxi] "Fiscal (ir)responsibility: privileging PPPs in New Zealand", SusanNewberry and June Pallot, Accounting,Auditing & Accountability Journal, Vol. 16 No. 3, 2003, pp. 467-492.

[xxii] "Guidance for Public Private Partnerships (PPPs) in New Zealand",Prepared by the National Infrastructure Unit of the Treasury, October 2009,Version 1.1, p.14.

[xxiii] See "The Proposal for School PPPs", Bill Rosenberg, available fromthe author.

[xxiv] Treasury, ibid. See also"Public Sector Discount Rates for Cost Benefit Analysis", The Treasury, July2008, for further details of loading private sector costs onto publiccomparators.

[xxv] "Cost Benefit Analysis Primer", Treasury, December 2005, P.18, alsoavailable at http://www.treasury.govt.nz/publications/guidance/planning/costbenefitanalysis/primer.

[xxvi] "International pressures to privatise", Bill Rosenberg, presentedto the Privatisation by Stealth conference, 16 March 2008, available at http://canterbury.cyberplace.org.nz/community/CAFCA/publications/index.html#Privatisation

[xxvii] "No need for 'master plan'", by James Weir, Press, 20 July 2004.

[xxviii] See its web site http://www.nzcid.org.nzfor details.

[xxix] Brookings-Wharton Papers on Financial Services 2000 (2000)453-463, available at http://muse.jhu.edu/journals/brookings-wharton_papers_on_financial_services/v2000/2000.1sauve_comment.html, accessed 5 October 2010.

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Comments   

 
#7 Guest 2011-04-28 17:05 Quote
 
 
#6 Guest 2011-03-20 18:24
The main question is: what gives delegated representatives the authority to make such decisions? Especially as they related to sale of public assets. We are presently being asked our opinion on whether SOE's should be privatised when this is a moot question. If you read the State Owned Enterprises Act 1986 www.legislation.govt.nz/act/public/1986/0124/latest/DLM97377.htmlyou'll see that ownership was transferred from public into two ministers names who could then on sell it to the Crown under any legal fiction name. That was the only real difference. In law, such a move would require the specific consent of a super-majority of the shareholders. It's no different in this case. In summary: instead of focusing on the sale from SOE to private we should revisit the lawfulness of the initial transfer from the public. MAXIM OF LAW a right cannot be derived from a wrong ab initio (from the beginning. Perhaps Govt should aim to reduce citizens costs of living.
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+1 #5 Guest 2011-02-11 15:16
Bernard Hickey has pointed out that the govt is borrowing at 5.5% these state assets are returning 7.6% its a dumb idea thats an extra 200 to 300 million a year in income it has to find. along with many other mistakes ie withdrawing research and development funding agricultural r&D .Trickle down economics their lack of any plan for our future other than selling everything oveseas makes Don Braschs mlm company look like the only way we can catch up with australia selling them dodgy pill making them pooer and us ritcher
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+2 #4 Guest 2010-11-11 21:12
NZ Steel - happily ensconced in the private sector? I don't think so!
The amount of times people have been laid off and then brought back as, da da da - constultants at a huge cost - is just bad organisation, but that's not the true cost of bad private company management; it's the fact that business seeks to treat people as less than human beings. No security of employment, no dignity, no sense. This current government's behaviour (including this evening's farce of thinking parliamentary debate by NActMU on the 90day probation for all employees - they say 'new employees' but watch this space) is one of reducing people to desperation through 90 day firing with no reason.
If New Zealanders think this is the Kiwi way then maybe they should be informed that that really is the US freemarket way. Thanks for nothing Mr Key. You may have been born in NZ but you've been brainwashed in the US. Just look at what a great success America is. LOL
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#3 Guest 2010-11-05 23:36
Good indepth analysis.

Last paragraph
have a highly regulated society
have a highly deregulated society
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+1 #2 Guest 2010-11-03 12:51
On the contrary, I think Rosenberg's paper provides a substantial argument that we should very careful of the public interest in relation to any further privatisation proposals. Many of the "happily ensconced" companies you cite were sold at bargain basement prices in the 1980's. It is also definitely in the public interest to for the state to own electricity generating companies as they provide essential infrastructure and we have already lost control of too much of that.
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#1 Guest 2010-11-01 19:33
This looks like an argument against any privatisation which I think is wrong. The results of previous privatisations have been mixed rather than "appalling".

Heaps of former state assets (VTNZ, Works, State Insurance, National Film Unit, Government Print, NZ Steel…) are now happily ensconced in the private sector.

Using your public interest test, why does the state own an ISP Orcon, a clutch of electricity generating companies, a courier company, a property information company..?

You'll note that there's been a state asset creep going on here (electricity companies excepted).

Can the state only buy, not sell?

So I think a case by case evaluation is needed. The 'all privatisations are bad' argument is about as much help as the 'state can't run businesses' one.
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