Memo to SOEs:

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.


* 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.

5 thoughts on “Memo to SOEs:

  1. At the rate the government is veering to the right, I’d be surprised if they waited for a second term just to keep their promises.

  2. I guess this comes down to the question of what SOEs are for, which the last Labour government conspicuously didn’t address.

    It’s reasonable that, in an economic slowdown, one way to bolster the economy would to be for the government to decline SOE dividends, thus enabling them to invest for growth and/or reduce prices.

    What the Nats are doing instead is using them as a stealth tax.

  3. Rich,

    What the Nats are doing instead is using them as a stealth tax.

    I don’t understand what you mean by this.


  4. I don’t understand what you mean by this.

    The SOEs, especially the electricity industry, are in a semi-monopoly position. By demanding large dividend payments, and thus forcing the SOE to charge high prices, the Government substitutes higher electricity prices for traditional taxes such as GST or income tax.

    So they can pretend to cut taxes while grabbing the money back through higher electricity bills.

  5. Rich,

    Thanks, sometimes I’m a bit dense. Usually when I hear the words `SOE’ and `stealth’ in the same sentence it’s in conjunction with phrases like `statist banditry’ and `involuntary shareholder’.


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