Opportunities lost

Every time Don Brash steps out to say something, I weep for what could have been in 2005. Then I remember that he'd have been as much constrained as anyone else in office and outcomes wouldn't have been quite as cool as I'd have hoped. But here he is taking on Bernard Hickey's odd claim, critiqued here Saturday, that the difference between the dividend rate paid by SOEs and the government's borrowing rate is sufficient reason not to privatize:

Bernard, I see you're suggesting that it is a “line-ball” call whether it makes sense for the government to sell stakes in some of the SOEs because the government is getting a dividend yield of 7.6% on its investment in the energy companies but can borrow at 5.5%. I’m not sure I understand what you were saying, but if I do understand it, I certainly disagree with you! Leaving aside the fact that of course the government would expect to get a higher return from a risk asset than it pays on a debt instrument, you seem to be assuming that the government would sell the shareholdings for the net asset backing of the shares. Why on earth would it do that?

The risky asset bit is what I'd focused on because I go after low-hanging fruit.

You say that you are not for or against privatisation in principle. I’m unambiguously in favour of it. I can see absolutely no reason for government to own commercial operations except perhaps where there are overwhelming policy arguments – Transpower, as the ultimate natural monopoly, is a good example of a company I would not privatise, and Radio New Zealand is another (important for cultural reasons having nothing to do with economics).

I see John Key’s announcement has a step in the right direction, but a very timid one. Why on earth would government want to own a majority share in three competing power generators? Government doesn’t produce the food we eat, or the clothes we wear, or (most of) the houses we live in. Why should they own three of the five generators? The New Zealand government is now one of the very few which seems to believe that they should continue to own trading operations. The NSW Labor Government has just privatised its power companies, and the Queensland Labour Government has just sold its rail system.

By the way, when the 2025 Taskforce argued for privatizing the SOEs in its latest report, we quite explicitly said that reducing debt should not be the primary driver (as it had been, arguably, with the privatisations of the late eighties) given that current debt levels, though rising strongly, are not yet at a critical level. We argued in favour of privatisation on the grounds that that was important in order to expose some of the largest corporates in the country to the opportunities and disciplines in the private sector. (Note the reference to Nokia above.) We just couldn’t see any reasons whatsoever for retaining them in government ownership.

Hit the whole thread for his back and forth with Hickey. It's towards the end of the comments thread; best just to search on "Brash".

I think Hickey's wrong on this one, but N is high enough for bloggers that the occasional foul tip oughtn't be too damning (Crampton says in fear of the next time he screws something up!)