Why didn’t they see it coming? – In 2008 the question asked by the Queen in relation to the global financial meltdown and credit crunch was one which exposed politicians, economists and assorted experts to the scrutiny and anger of a public ill-served by those who trusted them as the public’s watchdogs.
Nothing’s changed. We have little reason for relying upon the assurances, indeed the strong advocacies of politicians and economists such as Roger Kerr representing the big business organisations of the New Zealand Business Roundtable with regard to what is seen by New Zealanders as the selling of the family silver.
National’s determined proposal to sell a large part of the ownership in some of our biggest state-owned assets, relying upon the charm offensive of the populist John Key to coax the electorate into swallowing a dead rat, suggests that it has learnt nothing from the lessons it should have. We’ve heard all the same assurances before.
As columnist Terry Hall points out in his Dominion Post column of June 13, “large numbers of voters remember the clumsy round of rushed sales in the late 1980s and early 1990s when major companies were sold too cheaply in what many saw as an ideological crusade to get the government out of business. This was highly rewarding to the banks and brokers favoured to handle the sales. A few lucky business people seen as insiders at the time made fortunes, allowing them to reside in luxury as tax exiles overseas.”
So what’s changed? Arguably we are faced with exactly the same scenario. It is all very well for Finance Minister Bill English to lecture New Zealanders on the necessity to buy the state asset shares, or foreigners will. He must know very well that already, reportedly, the big investment bankers and brokers are queueing up from overseas: Morgan Stanley, Rothschilds allegedly teaming up with Cameron Partners, Merrill Lynch with Forsyth Barr, and the locally-based players like UBS, Goldman Sachs – (now why does that name ring a bell…?)- First NZ Capital and Deutsche Bank. And yet English is reported as saying, incredibly enough, that it was “unlikely shares would go overseas in the planned sale of minority stakes in Meridian, Mighty River, Genesis, Solid Energy and in Air New Zealand because the expected strong interest from local investors”.
His argument is that local investors would be interested in sales “expected to raise up to $7 billion, because they had been “burned with other less reliable investments”. While this has been taken to refer to the $8.5 billion loss through the collapse of so many finance companies, the Finance Minister’s statement fails to acknowledge not only mum and dad investor-disillusion with the ’80s and ’90s sales, but the fact that New Zealand households are now considerably poorer.
The relocating of companies; the importing of goods produced in low-wage economies flooding the market and forcing the closure of New Zealand-owned businesses; the constant job losses – as with proposals to lay off skilled staff at Kiwi Rail’s Dunedin engineering works, the Hillside Workshops – are a familiar part of a socially hugely damaging pattern. Tenders are now routinely awarded to overseas firms regarded with justification as unfairly competing. The inexorably mounting toll of dispossessed New Zealanders, as with 45 of the 150 workers at Yarrow’s bakery “one of the nation’s last big independent bread makers” parallels their fate, although according to the Engineering, Print and Manufacturing Union, 100 have apparently been offered new jobs by the receivers.
Given our current depressed economic climate, Bill English’s dressing up the proposed asset sales as a new opportunity for supposed mum and dad investors to at last get a chance to invest in New Zealand assets is not going down well. Those recollecting that for a while the Zealand Business Roundtable’s executive director Roger Kerr was promoting the mantra of “the wisdom of the crowds” – until it was pointed out that this in fact could be counter-productive to Roundtable advocacy – will note that this same wisdom of the crowds recognizes that this National government proposes to sell to some-only New Zealanders, i.e. to those who can afford to invest – by no means the manipulatively-invoked mum and dad investors – considerable assets that our parents already paid for.
There is no doubt whatever that a very large proportion of these will both head offshore and be brought by New Zealand’s wealthiest individuals and companies. And we would be totally naive not to recognise the fact that mum and dad households will, in the future, definitely be paying more for their already costly power, given the undeniable pattern of the past, if Genesis, Meridian, Solid Energy and Mighty River are sold off to private investors whose prime aim is, as always, and as was Telecom’s stated aim – to maximise returns to shareholders.
When in 1990 the government sold its 100% shareholding in Telecom to private sector interests, setting a ceiling of 49.9% on the shareholding of any foreign buyer, this opportunity was immediately snapped up by the American company BellSouth. Very shortly line rentals were doubled, and Telecom has since consistently and vigorously fought against being opened up to the competition it theoretically welcomed, and which was a much-promoted argument for its sale.
So, too, with the cost of air travel if the government sells its shares in Air New Zealand – shares which ordinary mum and dad households were forced by the previous Labour government to pay for, at no advantage to them, to bail out private stakeholders – an example of yet one more of the poor decisions governments habitually make, and impose upon the public.
So why should we trust National this time around? New Zealanders remain unconvinced by the government’s sudden altruism in wanting to make provision for the man in the street to invest in shares, to assist productivity. The push towards productivity belongs in other areas and these don’t include the inexorable closing of large and small businesses all over the country, as has been happening these recent years. Nor does it exist in selling our farmland to supposedly private Chinese investment companies, none existing without at least the tacit approval, if not the actual financial backing, of the Communist Chinese Government.
What the public strongly suspects is that we are basically being presented with a flossied-up, temporary debt reduction policy, which will give the government more ability to push towards other areas of government spending. Along the way, as has been pointed out, tens of millions of dollars will be paid as usual to its advisers, i.e. to the investment bankers and to legal and accounting firms. Nothing changes.
The wisdom of the crowds….The only legitimate government is government by consent and we have seen little of this in the recent term of this National government – any more than we saw from Labour under the previous iron fist of the autocratic Helen Clark. Worryingly, Treasure acting secretary Gabriel Makhlouf is also inexplicably calling for New Zealand “to be more open to foreign cash, and to dump the screening of foreign investment” at a time when New Zealanders have good reason to be concerned about both, and would like a far higher degree of scrutiny of government proposals and directions.
Predictably, the Business Roundtable’s long-standing executive director thinks our overseas investment rules are already too restrictive and that we therefore risk forgoing some of the potential benefits of foreign investment. His simplistic assertion that, for example, our farmland can’t be taken away, whoever owns it, simply ignores the very real social as well as economic consequences for the country, should New Zealanders gradually be priced off their own land.
It can well be argued that we have not benefited as a country from the rigid ideologies of economists from both the Right and the Left. Certainly, at present, the government is facing the consequences of an ill-thought Student Loan Scheme advocated by the Todd Report when very much influenced in its directions by the New Zealand Business Roundtable’s submission at the height of its influence. Characteristically, the Roundtable ignored the warnings that not only would these loans lead to life-long debt for many youngsters ignorant of the realities of compounding interest, in a world where even achieving Ph.D degrees was already not guaranteeing jobs for so many, but that the country would be facing a multi-billion loss down the line.
Certainly, Kerr’s recent letter to the Dominion Post, attempting to combat the valid argument that the government’s plans to sell partial stakes in some SOEs will add to New Zealand’s foreign liabilities, was both simplistic and opaque. Its simplicity lies in the assertion that “…the government has said that it will provide maximum opportunities to New Zealand investors in such cases”. Well we’ve all heard that before, and we are familiar with the results.
Its opaqueness lies in his extraordinary statement that “overseas investors who buy NZ$1 of New Zealand assets must exchange it for a NZ$1 claim on foreign assets. New Zealand’s foreign liability position is unchanged.”
Barely comprehensible, what his claim may suggest to readers is that if you are an overseas investor buying a share in a New Zealand company, at some time in doing so you must provide New Zealanders with a claim on your assets.
Whether this is factual is another matter. What is relevant is how an overseas investor pays for his purchase. If he were to borrow from New Zealand banks for his stake, then yes: he would owe the banks and use their dollars to buy his shares – a rather far-fetched proposition. However, they would still be foreign-owned, in future, and lost to this country as assets.
Equally unlikely would be the case if the overseas investor were to raise funds to acquire his purchase by issuing securities to New Zealand shareholders in his own company/companies. Only in either of these scenarios could it be claimed – and not as a “must”, that he would be providing New Zealanders with a claim on his foreign assets.
What is far more likely is that any overseas investor will simply pay for the shares from his own currency. This being the case, Kerr’s theory can be viewed as a kind of esoteric nit-picking at the level we too often see from economists locked into a kind of ideological paralysis.
The only sense in which this can be true is because of the nature of assets and liabilities. If, for example, an overseas investor acquires $10,000,000 of the assets of a New Zealand company and pays for them in his own currency, then New Zealand ends up with that payment in exchange for the sale. However, Kerr’s argument ignores the fact that in the long run, this and other overseas buyers can end up with a greater share of New Zealand’s assets than New Zealanders themselves.
What is undeniably true is that with this sale of assets to foreign investors, New Zealand’s debt-servicing costs through its invisible payments will rise substantially, not just by way of dividends to overseas buyers, but through interest, insurance payouts, etc. And our invisible payments have already increased substantially in the last round, adding to our foreign debt liability.
It is therefore entirely valid to argue that the sale of our state-owned assets will undoubtedly make us poorer in the long-run. What the wisdom of the crowds recognizes is that short-term gain will become long-term loss to the country, that we are sacrificing our future for this short term gain because a cash-strapped, vote-buying government wants to spend more – instead of reining in its own spending and, for example, getting rid of entirely unnecessary ministries. The point has been made time and again that expecting governments to live within their budget is no different from expecting households to do the same. Our profligate governments continue to overspend.
The whole question of how to rein in the excesses of government – of a ruling oligarchy determined to impose its wishes on the electorate – is one we are increasingly facing.
That there is only one practicable way to control government and to prevent the implementation of those of its decisions that are damaging to the country is increasingly being recognised by the fact that our 100 Days – Claiming Back Democracy movement is now being taken up in Australia, with the recognition that like other New Zealand firsts in the past, its time has come.
More on this later. Meantime check out our website, in particular How It Works and Strategies for the Way Forward to become part of a movement whose time has well and truly come – Claiming Back New Zealand. See http://www.100days.co.nz