Friday 25 November 2011

Partial privatisation

Auckland's Professor Tim Hazledine and I argued partial SOE privatisation on Radio New Zealand's Morning Report Wednesday morning, with minor unintentional contributions from a rather vocal Eleanor.

Tim and I are likely around 90% in agreement. We both think partial privatisation a bit of a nonsense; you get little of the potential efficiency benefits of full privatisation but add downside risk. I don't think it will wind up making a ton of difference; Tim puts more weight on the potential downside outcomes. I think we'd both agree that there's more potential downside risk than upside; he'd have the left tail fatter than I would. I think we both agreed that the "foreigners might buy shares" wasn't much of an issue.

Even if we're considering full privatisation, New Zealand's power companies would be reasonably far down on my list. You can make a defensible case that New Zealand's electricity system is one of the world's least screwed up; mucking about with it is risky. The likely equilibrium isn't a private system but rather a regulated cartel industry with more downside risk than upside. Seamus's worries aren't crazy. If I got to choose between DoC selling off half its estate at auction and full privatization of the energy companies, I'd pick the former.


  1. Wow, DoC? I think you just found the third rail of NZ politics! Any particular reason you favour a DoC sell-off over getting the government out of mining, internet (Orcon) and other areas? Surely DoC land is mostly marginal and remote - Personally I would prefer re-zoning of existing land over adding new stock.

  2. DoC owns what, a third of the country? Sure, the land's marginal for farming purposes. But a whole lot of it could surely be turned to higher value use. I'd agree with privatising a lot of the other SOEs. Why the government owns a property valuation company...

  3. There is a lot of emotion that politicians can rest their arguments against privatizing DoC. For example, an image that politicians can place in our minds is that all of our native bushes will be burnt and torn down, to allow for opencast mines and farming. If we privatized DoC, surely the government can place hefty restrictions on what the private market can do with the land. One such restriction would be to prevent the destruction of the forests.

    The private market surely would find it profitable to buy up the land, and impose competitive hut prices. Hut prices at the moment are cheap, $5 for a standard hut pass, $15 for a serviced hut. A consequence of this is that it is very hard to find a spare bunk during peak seasons. A lot of huts are also in poor condition. Privatizing DoC huts would remedy both of these failures.

  4. Not sure how Canadian park service is run, but when you pay a fee to enter the park you don't mind because it's obvious that the money is invested in the parks. Hell they can even afford road overpasses for wildlife.

    On the electricity providers front, there has been little mentioneded that some of these are AGING assets and some will require replacement/refurbishing over time.
    This doesn't seem to stop some who think the dividends will continue on into perpetuity.