Nationalisation of Air New Zealand? (updated)

Over at The Standard - the Labour Party's semi-official blog - they are calling for the nationalisation of Air New Zealand. We are told

Here we have a company that's 80% owned by us, the New Zealand public, and yet because it is structured as a private company it’s allowed to act unethically and even undermine our national interests in the pursuit of short-term profit.

First, it isn't a "company that's 80% owned by us, the New Zealand public". Is a zero percent owned by the New Zealand public. The important point here is that without control you don't have ownership. As Oliver Wendell Holmes Jr. put it,

But what are the rights of ownership? They are substantially the same as those incident to possession. Within the limits prescribed by policy, the owner is allowed to exercise his natural powers over the subject-matter uninterfered with, and is more or less protected in excluding other people from such interference. The owner is allowed to exclude all, and is accountable to no one. (The Common Law, p193, (1963 edn.))

Clearly the "public" does not have the rights Holmes refers to. The government has these rights. Following Grossman and Hart ("The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration", 'Journal of Political Economy', 94:691-719) economist's tend to define the owner of an asset as the one who has residual rights of control over the asset; that is whoever can determine what is done with the asset, how it is used, by whom it is used, when they can use it etc - note that ownership is not defined in terms of income rights. Under the current ownership structure of Air New Zealand it isn't the "public" who has the control rights, its the government.

Secondly maximising profit is the ethical thing to do. Doing otherwise amounts to stealing from the shareholders of the company. The profits not made are profits that should have gone to the owners of the firm.

Third, why would we ever want a government to own an airline? None of the reasons for government ownership apply to the case of an airline. As O. Hart, A. Shleifer and R. W. Vishny ("The Proper Scope of Government: Theory and an Application to Prisons", Quarterly Journal of Economics, 112(4):1127-61, November 1997) show the case for government provision of goods or services is generally stronger when non-contractible cost reductions have large deleterious effects on quality, when quality innovations are unimportant and when corruption in government procurement is a severe problem. It has been argued that the case for government production is strong in such services as the conduct of foreign policy, police and armed forces. The case can also be made reasonably persuasively for the case of prisons. But it can not be made for airlines. The case for private sector provision is stronger when quality reducing cost reduction can be controlled through contract or competition, and the airline industry is very competitive, when quality innovations are important, and we want a high quality and innovative airline industry, and when patronage and powerful unions are a severe problem inside the government, which are things we wish to avoid with an airline.

And what exactly are our "national interests" that are being undermined? How do we determine the "national interest", other than whatever will get the most votes for the government? As I noted in a previous message, Why do governments back losers? Two parts of an answer, we should worry when political groups or governments start talking of "national champions" or the "national interest" since the odds are things will end badly.

So 'The Standard' is right in that the ownership structure of Air New Zealand as it stands is wrong but so is their solution. They should be calling for privatisation not nationalisation.

Update: Not PC comments here: "Nationalise it!"