Posts Tagged ‘SOEs’

Labour: locking in lose-lose

datePosted on 18:53, March 13th, 2013 by Lew

David Shearer says he won’t rule out buying back shares in state-owned power companies sold by the government. He won’t rule it in, either. Why? Does he need to consult his leader?

There’s so much wrong with this that I scarcely know where to start. This buyback agenda has been set by Winston Peters; it’s now two years since the 2011 election campaign kicked off with a pledge to sell these assets, and it’s like the boffins in Labour haven’t yet had an original idea about it. The problem with old generals is supposed to be that they fight today’s war with the strategies of yesterday’s war, but this is worse — it’s fighting yesterday’s war with the strategies that lost the one before that.

But enough about my thoughts on the referendum. This time the issue is what happens after the SOEs are sold. Chris Trotter has articulated strong political arguments for nationalisation, and I think these serve to demonstrate that nationalisation is not simply untenable for a left-wing political movement.

So while I’m not persuaded the opposition should do it, there’s definitely a right and a wrong way to go about nationalisation. The core principles are similar to those in play with the initial privatisation: that we should have good information about the intentions of the main political decision-makers; and that people should not have property expropriated without due process. This need not be perfect consent — an election result delivering under 50% was sufficient to grant a mandate to privatise half the value of these assets, for example.

Market and electorate signals
Shearer’s “maybe we will, maybe we won’t” is the worst possible position. The markets into which these shares will be floated need signals so as to judge risk, and the electorate needs signals so as to judge the quality and character of the politicians they might vote for in 2014 and beyond.

A clear “we will buy them back” or “we will not buy them back” would do that; it would tell the market and the electorate what to expect and they could act accordingly. Both groups would know we were dealing with politicians of at least some sort of conviction, and more to the point, someone willing to make some big calls, to put something on the line. Today we see before us a Labour leader who has neither the conviction to know what he wants to do, nor any will to do it.

As Chris says, a stance one way or the other would provide Labour with a mandate. If Labour considers nationalisation irresponsible, then as voters we ought to know that; but it is much more crucial to justify an actual nationalisation programme. Given that the current criticism of the government is that they lack a mandate to do something they campaigned for a whole election year on doing, I struggle to see how even the most one-eyed Labour partisan could honestly justify the massive expense of buying back SOE shares unless it was clearly signalled and voted on beforehand.

This need not be unconditional. Graeme Edgeler has suggested a provisional pledge — Labour could say that if, say, two thirds of respondents in the referendum vote to not support the asset sales then an incoming Labour government would seek to nationalise them. David Shearer has many options that are better than “maybe”.

Economics of a sell-off/buyback
If Labour genuinely believes — as it has told us for two years now — that the value of these assets is greater than the cost of borrowing to buy them, it should be easy enough to show that buying them back at fair market value is worthwhile. This will likely have the effect of inflating the price, but it would at least do our international reputation comparatively little harm.

It might be reasonable for Labour to pledge to buy the shares back at cost, but only if the pledge is made credibly and early — certainly no later than the first round of sales. The pledge would be fair warning to investors: if they choose to disregard it, that’s on them.

Because it allows the markets to price in the risk of a Labour-led government coming in and making good on its promise, signalling nationalisation in this way would likely depress the initial sale value of shares. If the threat was sufficiently credible it could, in principle, depress demand for shares to the point that selling them would be uneconomical — thereby preventing the sale, or limiting it to just one or two SOEs. While this would look bad for the government there is also a downside risk that the opposition would be seen to be sabotaging the scheme — but given that Labour seems certain the scheme is unpopular, that should not concern them too much.

Because there is an ideological imperative behind the sale (that is to say, the market already knows the government has to sell in order to retain political credibility) it seems likely the shares will already yield less than what an equivalent float by a less-motivated seller might yield. There are other industry-specific factors which could also depress the price — the fact that hydro generation is not much good in the middle of a historic drought, for example. I have no knowledge of the value of the assets as they stand, but it doesn’t seem totally outrageous that it might not be all that high as it is, and a little more risk might just be enough to turn people away.

Conversely, a nationalisation conducted after the shares have been sold has the opposite effect. An ideological bulk-buyer in a fair market will bid the price up. Even worse is the middle-ground: if there exists sufficient uncertainty before the float the sale price could be depressed; followed by a Labour election win and nationalisation, causing the price to rise. The government would be selling low and buying high.

Venezuela of the South Pacific
The worst of all cases is if Labour does not provide a strong and credible signal of nationalisation ahead of the float, and then proceeds with a “surprise” nationalisation on an at-cost or dictated price — or worse yet, expropriation without compensation, as has been suggested by some of the more wild-eyed idealists. Parliament is sovereign; in principle, an incoming government could do this. But it would be a brutal assault on property rights and repugnant to a modern liberal democracy, especially one so dependent on international trade as we are. It could justifiably lead to New Zealand being treated as a pariah kleptocracy, and since the SOEs are being floated on the ASX and will likely include some institutional investors there, it could also have deep trade, diplomatic and cultural implications. I expect there is also the risk of legal challenge.

The worst aspect of holding the “maybe” position Shearer has taken is that the risk of “Venezuela of the South Pacific” scaremongering exists as long as this scenario is not clearly and credibly ruled out. I don’t seriously believe this sort of expropriation would happen under a modern Labour government, but political narratives needn’t be based on reality.

If Labour commits to nationalisation then scaremongering will commence, but at least the party will be able to control the narrative around it, and articulate arguments in principle for it, as Chris has done. If the SOEs are that popular it shouldn’t be too big a risk. If Labour rules out nationalisation then such scaremongering may still eventuate, but will be weak. If they continue to sit on the fence, they get the scaremongering, but not the opportunity to rebut it. Lose-lose.

That Labour would even consider holding the “maybe” position is astonishing, but it is New Zealand First policy after all. It reflects an awareness that New Zealand First is here to stay, will probably hold the balance of power at the 2014 election, and could make nationalisation a condition of its being part of any Labour-led coalition. The deep problem is that Labour, lacking a political agenda of its own, is letting others define it. Until the party leader is prepared to lead, Labour will keep losing.

L

Hard rain’s a-gonna fall

datePosted on 00:14, February 3rd, 2011 by Lew


The past week has illustrated in clear terms the New Zealand Labour party’s decline as an effective opposition party. In the opening moments of election year 2011, John Key has stepped up to demonstrate the full extent of the National government’s apparent impunity. He has done this in three ways.

First, by fronting Morning Report, Nine to Noon, Campbell Live and other tier-1 hard-news media to outline his intention to partially privatise SOEs. Privatisation, since the Fourth Labour Government, has been a ‘third rail’ issue; one the NZ left is unequivocally opposed to. By going into bat for privatisation personally, and in considerable policy detail, Key confounded criticism which has been (justly) levelled at him throughout the electoral term so far that he often refuses to show up on hard media, while continuing to keep regular spots in soft formats like Breakfast, and on less rigorous media such as Newstalk ZB. He also invested his own (considerable) political capital in the enterprise, making privatisation a matter of his own judgement and credibility.

Second, he sought out and is revelling in the controversy caused by his “Liz Hurley is hot” stunt, undertaken on Radio Sport with convicted back-breaker Tony Veitch. In political terms, the first bit was no meaningful risk; Key has played the ‘frankly, I’m a red-blooded Kiwi bloke’ card several times before, always to good effect, and most notably when he informed a press scrum he’d had a vasectomy. The decision to undertake an interview with the disgraced Veitch was a considerably more risky proposition because of the nature of Veitch’s offending against his partner, combined with the subject matter of their conversation, and the fact that Key’s political appeal to women has been considerably stronger than previous National leaders. This seems clearly calculated to demonstrate what he can get away with; and the gamble has in fact paid off so well that Phil Goff today felt compelled to follow suit, suggesting a slightly sad “me too, me too” narrative.

The third of Key’s big moves was today’s dual announcement that the election would be held on 26 November, 10 months away and following the Rugby World Cup; and that he would not consider a coalition arrangement which included Winston Peters. Coupled with ruling out working with Hone Harawira outside his present constraints in the māori party, this declaration will provide considerable reassurance to National’s traditional base, and will scotch any possibility of wavering conservatives casting a hopeful vote for Winston Peters as an each-way bet. It is a risky proposition, though — Peters remains a redoubtable political force, and it is not beyond possibility that he returns to parliament. However I think Key has read the electorate well; he knows that while a small number of people love Peters, and a small number loathe him, many of those in the middle are vaguely distrustful of him. As Danyl points out, he’s managed to link Peters to Goff in a way which emphasises both leaders’ worst attributes: Peters’ polarising tendency, and the general unease and disdain with which voters view Goff. The decision to call the election so early is also bold. It means relinquishing the incumbent advantage of being able to control the electoral agenda; being able to determine when ‘government as usual’ ceases and ‘campaign season’ begins. This is an intangible but valuable benefit, and it has been traded off against another piece of reassurance: the sense that Key and his government are “playing it straight” with the New Zealand public; that they intend to run an open and forthright campaign and to seek an honest mandate for their second term. The choice of election date isn’t entirely selfless, of course — the All Blacks are odds-on favourites to win the Rugby World Cup, and even if they don’t, the tournament, its pageantry and excitement and revenue boost will bifurcate the campaign. The traditional campaign period will mostly be drowned out by this event, save for the last few frantic weeks.

In most election years, swapping agenda-setting rights for a “playing it straight” feeling would be a poor tradeoff. In most election years, a sexist stunt with a known and publicly reviled wife-beater would be a poor start. In most election years, running a campaign based on privatisation would simply be a non-starter. While the paragraphs above read somewhat like breathless praise of Key’s status as a political playa, that’s not my intent. I think he’s good, but mostly John Key just knows what he can get away with. The reason he can get away with all of these things is because there is no credible opposition to prevent him from doing so. Anyone half-decent can look sharp when playing against amateurs.

It has been Labour’s job to prevent the government from reaching the state of near-impunity they now enjoy, and their failure to do so means there is now a real danger that Key will get the genuine and sweeping mandate he seeks. To a considerable extent they were doomed in the task of preventing this from the outset, because they didn’t think it was possible that he’d ever achieve it. Clark Labour throughout 2008 fundamentally misunderestimated Key, writing him off as a bumbling lightweight, and this was a crucial error. Since well before the election — this example is from July 2008 — I’ve been arguing to anyone who’ll listen that instead of taking easy pot shots at Key based on his weaknesses, any critique should focus on his strengths. Quoting myself, from the above:

Key’s strengths [per the Herald bio], which enabled him to succeed as a currency trader: Decisiveness. Determination. Patience. Ice-cold calm under fire. Willingness to risk it all. Ability to follow through. Remorselessness.
If you want to attack John Key, draw attention to what might happen under a Key government. Given his history, he’s not some motley fool who won’t make sweeping changes – he hasn’t gotten where he is today by being timid. I think he has the wherewithal to roll out a sweeping programme of political and social change the like of which we haven’t seen since Lange, but I think that, unlike Lange, he won’t get cold feet. If you don’t like Key’s politics, I suggest you begin thinking about what might happen if the guy is given the power he seeks.

The delusion that John Key is a hapless fool who’s somehow mysteriously gotten his hands on the reins of power remains very much alive within New Zealand lefties; this was the tired old line I got spun as recently as this afternoon, by one of the internet’s best-known Labourites (with a nice dollop of ‘if you don’t praise Labour, you’re a rightie’ for good measure).

But this tendency to misjudge and underestimate Key is only part of the problem. Denizens of The Standard aside, anyone within the loop who has a modicum of reason has figured out that Key is not the lightweight he was — quite willingly — framed as. But now the narrative is set: it’s That Nice Man John Key, who drinks beer out of the bottle while tending the barbecue with Prince Harry, and thinks Liz Hurley is hot. They don’t have a credible counter-narrative, but they have to say something against the health cuts, education cuts, tax cuts, ACC cuts, pending privatisation and so on — and so they fall back on their usual tired old cliches, which, while superficially looking like what an opposition is supposed to do, lack cohesion and run counter to the established wisdom about Key and his government — wisdom laid down, in the first place, by the Labour party in its 2008 campaign.

The lack of narrative cohesion is so dire that the party claims that privatisation of SOEs is repugnant to the voting public of New Zealand; and almost simultaneously puts out a press release saying that it’s a cynical ploy to “cling to power”. The manifest incompatibility of these two propositions — cynically promoting an unpopular policy to retain power — speaks for itself.

If the inability to construct a viable narrative is symptomatic of a wider lack of ideas and direction within Labour. Election-year spin aside, their policy offering is weak as well. Their big blockbuster kicking-off-election-year policy of a $5000 tax-free zone was big enough to draw plenty of criticism about cost and targeting (including from people like Brian Easton), but timid enough that nobody was made to sit up and take notice for any other reason (sidenote: when Brian Easton, John Shewan, Chris Trotter and I all oppose something, I think you can be pretty sure it’s not a winner).

This is just the most recent example of what we’ve seen throughout the past two years: Labour’s vision, and its execution, simply aren’t up to scratch. I have no internal knowledge of the Labour party, and I don’t know whose fault this is. I guess the leadership blames the strategists, the strategists blame the policy wonks, the policy wonks blame the spin-doctors and the spin-doctors blame the MSM™. All that’s just excuse-making for losers. There are no socially-just power-redistribution schemes in politics, and if there were they would be rorted. There is no fair. The job of being in opposition is to win despite the odds being stacked against you; to do and say things worthy of the news media’s time, worthy of the government’s concern, and worthy of the electorate’s endorsement. If you’re not doing that, you’re not up to the task.

As the title implies, the political weather this election year is not going to be a warm drizzle. John Key wants a mandate; he wants a strong and broad mandate which will permit him to wreak widespread social, economic and political changes upon New Zealand’s landscape, and he is prepared to put a lot on the line to gain it. He is playing for keeps, and my instinct is that an opposition who couldn’t keep pace with ‘smile and wave’ is going to be crushed by the rampant beast which is currently girding for war. What’s more, by all accounts Key is actually, genuinely coming to the New Zealand electorate with a transparent policy offering in good faith, keeping his promise that nothing would be privatised without his first having sought a mandate to do so, which robs Labour of their strongest symbolic weapon: the “by stealth” bit of their catchcry “privatisation by stealth”. Time will tell if this holds, but at present the Key government is doing exactly what it says on the box. Labour can’t claim they haven’t known about this all along. Privatisation has been the bogeyman about which they’ve been warning the New Zealand public for at least a decade, which makes the incoherence of their recent response all the more unforgivable. That National would consider running an election campaign on this cornerstone issue, loathed and feared by so many New Zealanders, is surprising. That they can expect to do so without trying to get their agenda through on the sly is shocking. That they reasonably expect to do all that and win is unthinkable. Let there be no doubt: if Key wins this election on these grounds, it is because Labour, by failing to adequately discharge their role as a competent opposition, have permitted him to do so.

Perhaps it is not too late. Perhaps Key has overplayed his hand; perhaps Goff has a secret weapon. Perhaps a young Turk is fixing to roll Goff and his cadres and make a break for it. I do not think any of these are likely. So it may be that the one good electoral thing to emerge from 2011 is a heavy and humbling loss which would see the Labour party reduced to a meagre husk. An exodus of the lively and creative thinkers of the party to another vehicle; or the enforced retirement of the deadwood responsible for the present state of affairs; or both would clear the way for a thoroughgoing rejuvenation of the movement’s principles and its praxis and its personnel. While it would be cold comfort to the generation of New Zealanders who will bear the brunt of the Key government’s second and third-term policies, it would be a crucial and long overdue lesson in political hubris, never to be forgotten, and infinitely preferable to another narrow loss and the moribund hope that next time it’ll be different.

L

Memo to SOEs:

datePosted on 10:53, March 19th, 2009 by Lew

Out-perform the private sector or join it.

This is the ultimatum I’m reading into Simon Power’s letter to SOE chairs.

I think it’s entirely right for the government to expect the most responsible and diligent business practice from SOEs – but I don’t think it’s reasonable to expect them to outperform the private sector which is unconstrained by the same responsibilities borne by a state-owned business. The private sector is responsible only to the profit motive of its shareholders, without the constraints of the triple bottom line and exemplary standards of conduct, transparency and long-term commitment.* Inasmuch as these constraints represent economic profitability traded off against other types of value, they require a SOE to operate at a disadvantage compared to private concerns when performance is measured purely in terms of the raw numbers.

If the ultimatum is delivered (as I expect it will be) in more certain terms during the 9 April meeting, it will mean two things: first, it should drive substantial changes in culture and efficiency, which is a good thing, and is the stated purpose. Second, if the different constraints under which SOEs operate are not taken into consideration and the performance evaluation is undertaken on strict terms of profit (and given the Prime Minister’s decree that electricity prices won’t rise) then they will be set a task at which they cannot possibly succeed, and their expected failure to outperform the market will prepare the groundwork for them to be sold during a second term.

L

* You might think that these constraints are a load of old bollocks, but that’s a different argument, since the government’s stated position is that they’re just fine.