Gordon Campbell on the government’s plans to sell state assets
At yesterday’s post-Cabinet press conference Prime Minister John Key said that work ‘had not yet begun’ on deciding which state assets - if any - would be sold during his government’s second term.
Voters would be told what assets would be on the “sale” list, he promised, well in advance of next year’s election. The
immediate trigger for this assurance were comments made to a gathering of business people last week in Christchurch by his deputy Bill English that flagged the government’s intention to assess the sale prospects of a number of state assets, including Kiwibank.
In English’s opinion, such a partial sale “would free up capital, and put product on the market for Kiwi mums and dads.”
Allegedly, Kiwibank “needed to be dealt with”. Keep the majority Crown ownership but raise the rest of the capital from
the market, English indicated, was the way to go.
Despite the government’s wide-eyed assurance that it hadn’t yet started doing any work on this subject, the sale of
state assets has clearly been on its agenda since well before the last election. Even the promise not to sell such assets in the first term implied that all bets would be off during the second term. Moreover, English was secretly taped in 2008 stating National’s intentions to sell Kiwibank “eventually”. A more recent rationale for state asset sales came late
last year when the Capital Markets Development Task Force urged the government to sell off minority stakes in a range of state assets. Among the Task Force’s reported recommendations :
Broadening the range of high-quality equity offerings for retail investors by encouraging partial listings of central
and local government-owned companies, agricultural businesses like Fonterra and local subsidiaries of financial services
firms.
The chairman of that Capital Markets Development Task Force was Rob Cameron, a long time advocate of selling minority
stakes in state assets. So much so that in 2007, United Future MP Gordon Copeland invoked Cameron in a question to then
Finance Minister Michael Cullen about the benefits of selling minority stakes :
When Rob Cameron, the New Zealand Exchange, the employers and manufacturers, and many other financial experts all favour
the sale of a minority stake in State-owned enterprises to Kiwi investors, why does the Minister cling to 100 percent
State ownership as a non-negotiable, and is this not just an extreme form of socialist ideology at the expense of
maximising New Zealand’s economic potential?
The obvious answer to this query came a few moments later in a related exchange between Cullen and New Zealand First MP
Doug Woolerton :
WOOLERTON : Would the Minister agree that those with enough capital to buy State assets are likely to be deep-pocketed
foreign companies, and would he also agree that if State assets are sold to them, we are likely to see a repeat of the
situation in the 1980s and 1990s when privatised assets were sold to the rich and most profits disappeared overseas?
CULLEN : The reality is that whether by way of public float or by way of trade sale, there is a high likelihood that
much of any sale of State assets would end up in foreign hands. We have also seen in that regard in many instances a
lack of commitment to expanding those assets within New Zealand. In some cases, therefore, the Government has had to
step in and buy back those assets or engage in further regulation of the market to serve the interests of the New
Zealand economy. The difference between some of us on this side of the House and others on that side of the House is
that we have learnt from experience, but they insist on repeating their mistakes.
Labour’s ability to oppose the current intention to sell state assets could be more difficult though, than it might seem
at first glance. Yes, it can wheel out Jim Anderton, the Godfather of Kiwibank, to decry the wickedness of tossing this
prize asset into a shark pool dominated by the Aussie banks. Yet on the other hand, it was a Labour government that
chose Cameron to head the task force that came up with the recommendation to sell minority stakes in state assets.
Moreover, it is hardly accidental that the Key government is framing this notion in terms of opportunities for “Mum and
Dad investors”. That happens to be the argument used in the mid 2000s, by then SOEs Minister Trevor Mallard to justify
selling partial states in non-core state assets. On this Agenda programme in 2008 for instance, TVNZ’s Guyon Espiner played a Mallard voice track from
2006 in which Mallard said :
'Something that we could do and something that I'm quite keen on is that as the SOEs develop the new businesses
especially those that are done in partnership with people in the private sector, we could well have floats of the
subsidiaries so that they could be listed on the Stock Exchange, that could help give a bit of depth to our capital
markets and get some transparency around those companies, and I think that would help.'
It was, in fact, a theoretical position by the Clark government, concocted in the absence of any suitable examples to
make it real.
ESPINER : What have you done on this policy, two years ago you were gonna help Kiwi mum and dad investors get on the
share market and invest in these partially floated SOE subsidiaries, what work have you done on it?
MALLARD : There's been quite a lot of discussion and there's been not much progress mainly because none of the non-core
subsidiaries are big enough to be interesting to the Stock Exchange.
In other words, it could well come down next year to an argument between Labour and National about what should and what
shouldn’t be on the core vs non-core list of state assets for sale. Otherwise, when it comes to the partial sales
mechanism and the terminology (“Mum and Dad investors”) and the Task Force chairman who was driving the process, the two
major parties seem to have been in virtual agreement. The current argument between them seems about the degree of
core-ness, and is not one based on the principle of not selling any more state assets, period.
There are so many bizarre ironies in this asset sales issued that one hardly knows where to state. The same Jim Bolger whose government sold the BNZ to
the Aussies ended up as board chairman board at Kiwibank and leading the charge against the hegemony of the Aussie
banks. Things get even stranger when one considers the alleged plight of the New Zealand sharemarket today.
A few months ago, in an article called “Why Kiwis Should Float” Stuff’s Business Day reporter Catherine Harris traced
the plight of Hamilton-based company BioVittoria as it struggled to raise capital on the anaemic local sharemarket.
You’d have thought any company would have struggled, mid-2009, to raise capital. This time though, Andrew McDouall, a
BioVittoria adviser and head of Wellington brokerage McDouall Stuart, blamed it on failings in Kiwi psychology and on the poor state of the New Zealand sharemarket.
In Mr McDouall's opinion, capital markets in New Zealand are "quite sick". Although the government is tightening
regulations to improve confidence in the financial system, he also blames the New Zealand psyche. Our low level of
savings, and a Kiwi distrust of the sharemarket after the 1980s crash, have funnelled available funds away from equities
into houses, finance companies and conservative investments.
So umm… the sharemarket’s failings are self inflicted; they reflect the lack of workable ways of deterring punters from
investing in houses, and are based on the historical experience of investors. All up, that suggests the Kiwi psyche is
actually in pretty good shape, and fairly immune to sharemarket spin. Why would anyone want to toss more state goodies
into that poisoned pond? Yet wouldn’t you know it: Rob Cameron pops up later in the same story to once again urge the
New Zealand government to sell partial stakes in state assets.
I don't think New Zealand's got a choice around doing some of these things ... New Zealand is the odd one out by not
doing this and the choice that governments make not to do that has a bigger impact on our investor choices and our
capital market than probably any capital market in the OECD."
But hold on a moment. If McDouall is right, firms can’t raise capital mainly because Mum and Dad investors got burned in
the 1987 crash and are now investing elsewhere – so isn’t it utterly rational for them to avoid putting themselves at
risk again? It is certainly not a good reason for hocking off more state assets, in order to lure punters back into the
New Zealand sharemarket, and thus rescuing the market from taking responsibility for its past sins.
This is a an especially relevant question now, given that the same Mum and Dad investors who bought in Telecom at its
time of sale, are now reaping the consequences of the firm’s self-inflicted woes, a set of problems that can be traced
directly back to Telecom’s unbridled arrogance during the 1990s. These days, people tend to think Telecom was an
outright trade sale – it wasn’t, as Michael Cullen had to remind Don Brash during this exchange in the House in 2006:
BRASH : I raise a point of order, Madam Speaker. Mr Copeland asked the Minister a question during the course of that
questioning about whether Telecom had been partially sold down to mum and dad investors. There was quite a lot of noise
going on in the House and I am not sure I heard the Minister correctly, but I think he said that, yes, Telecom was sold
in part in a trade sale, and in part to mum and dad investors. My recollection is that Telecom was sold outright in 1990
by the Government, of which Helen Clark was Deputy Prime Minister at the time, to a series of large American corporates
and a small number of—I think, two—New Zealand wealthy investors.
CULLEN : It would be very helpful to have all the facts. The member got as far as his memory took him; however, he
forgot it was a condition of that sale that there was a subsequent on-sale down on the New Zealand sharemarket.
Point being, the government – and Rob Cameron – aim to use the dire state of investment in the New Zealand sharemarket
as a rationale for selling partial stakes in more state assets. In fact, the 1980s programme of asset sales and lack of
regulation at the time serves to explain a lot of the market’s current difficulties in raising investment capital. One
can ask whether Cameron – whose day job has always been to broker such deals – was really the best person to offer
independent advice on this subject. In the 1980s, one of the reasons the asset sales programme fell into disrepute was
that firms like Fay Richwhite were partly brokering the deals for government on one hand, and sometimes – as with NZ
Rail – jumping across to the other side of the table to act as a buyer on the other.
Hold on – what does this 2005 news story on Cameron Partners own website say about the firm’s origins?
[Cameron] left Treasury in August 1984 to join Jarden & Co, a Wellington financial institution, and was part of a group of investment bankers who moved to set up an investment
banking team at Fay Richwhite in Wellington in 1986.
Fay Richwhite supplied much of Cameron & Co's early talent base.
So now, in 2010, the same firm that grew out of Fay Richwhite is advising the Key government on the wisdom of selling
partial stakes in state assets – a business for which it has a lot of the necessary expertise and, one imagines, a long
list of potential clients. Is this looking like the 1980s all over again to you, too? The trouble with the cliché about
those who forget the lessons of history being condemned to repeat it is…even when you do remember the lessons of history, there is no guarantee you won’t be forced to relive them.
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