Friday, 28 May 2010

Privatisation: the "facts"

Let us now take a look at a few of Marty G 's "facts" about privatisation.
Fact 1) We - the ‘mums and dads’, the brothers and sisters, even the aunts and uncles - already own Kiwibank and other public assets.
Actually no we don't. The government does. The government has the residual control rights over these assets and thus they own them.
Fact 2) ‘Mums and dads’ don’t end up owning privatised assets.
They may not but why should we worry? The idea of the sale of any asset is to get it in the hand of whoever values the asset most highly. That may or may not be "Mum and Dads".
Fact 3) Privatisation harms markets.
I'm not sure that even make sense. I'm not sure how getting more firms into a market can "harm the market" - whatever that means. The evidence tells us that privatisation increases competition in markets and I can't see how that "harms the market".
Fact 4) Privatisation leads to asset-stripping.
It may or may not. In some cases that is exactly what should happen. In a number of cases, eg NZ Rail, the business as sold wasn't viable and thus needed reorganisation. Privatisation is a good way of doing this.
Fact 5) We also get a bad deal on SOE sales.
How can we tell? If this means we don't get the highest price possible for an asset then why worry? The idea idea for asset sales isn't to sell at the highest price, if it was then the government should make all SOE's into monopolises before selling them as monopolises command a higher price than competitive firms. Even Marty G should be able to see the problem with that!!!!
Fact 6) Kiwibank doesn’t need to be partially sold to get money for expansion. The cheapest source of capital is the government
If this is true for Kiwibank then it is also true for all other firms and thus the government should supply the capital for all firms. To get capital allocated rationally you need the price of capital to be the market price so that it reflects the true opportunity cost of that capital.


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