Saturday, 7 March 2009

Cullen and SOEs (updated)

From this report on we find out that Michael Cullen is being tipped as the next chairman of a top SOE.
Michael Cullen is being tipped for a six-figure salary as chairman of one of the country's top state-owned enterprises.

Top of the likely list is power generator Mighty River Power, Government sources say.
One of the main reasons private firms out perform SOEs is that SOEs are more politicised than a normal company. A standard firm has the incentive to maximise profits by producing what people want, in the less cost, most efficient manner possible. Politicised firms don't, they have incentives to do what the government wants, regardless of the economic consequences of their actions.

This highlights one of the problems with our SOE set-up. Basically the SOE model is unstable. SOEs have two conflicting pressures on them: 1) to be completely privatised, since the productivity and efficiency gains achieved by an SOE are in danger of being eroded over time. Privatisation is a way of both cementing in the commercial orientation of enterprises and wringing out further gains resulting from the high powered incentive and control mechanisms which can be bought to bear in privately owned and publicly traded companies. 2) to be pulled back into the public sector where social and political objectives can be more readily be meet.

The appointment of someone like Cullen, with no commercial knowledge or experience, at least in recent times - if at all, but a lot of political experience signals that the government is more interested in following political agendas than they are in pursuing commercial objectives. If this is the case then outright privatisation of the SOE must be called for.

Again this government is looking very Muldoonish.

(HT: Whale Oil)

Update: Kiwiblog comments here, The Inquiring Mind comments here, Homepaddock comments here and gives links to a number of other, mostly negative, discussions of the, maybe, Cullen appointment.

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