Saturday, 31 March 2012

How not to argue against partial asset sales

I think there are good economic reasons for arguing against partial sales of SOEs. Full privatisation is a better idea. But what I don't get is why the anti-sale movement never seem to use good arguments. As this example from The Standard show most of their arguments don't stack-up.
Firstly: the Mixed Ownership Model Bill. If we want to stop Asset Sales, as many submissions as possible would be a good start. So click on the link to submit.

Some points you may wish to make in your submission:
  • A majority of New Zealanders oppose the partial privatisation of New Zealand’s best state-owned assets;
  • It makes no fiscal sense to sell assets earning 18% (capital appreciation and dividends) to pay down debt costing 4%;
  • Treasury’s 2012 Budget Policy Statement says that in 2016 the lost dividends from privatisation are $94m greater than the savings in reduced interest payments;
  • It is unfair to sell assets that currently belong to all New Zealanders to a small minority who will be able to afford to buy shares;
  • Partial privatisation is an inevitable prelude to foreign ownership of a large chunk of our energy companies. That will mean high power prices, dividends flowing overseas, and fewer jobs;
  • Individual energy assets, like Manapouri power station, can be sold off under the legislation into full foreign ownership and control;
  • The renewable energy sector is growing rapidly internationally. We own the companies that have the critical mass, the expertise, and the capital to take advantage of that growth and create tens of thousands of good green jobs here in New Zealand. Privatisation will end that opportunity.
  • Selling the assets is a form of intergenerational theft. One generation will sell the assets that past generations have built up and future generations will not have the fruits of that.
  • Power cuts are more common with private energy companies – they are more concerned with profit than continual energy supply.
  • Greenhouse gas emissions are likely to rise – privatised companies are incentivised to try and increase our energy use (and their profits). Which will hardly help us keep our commitments.
  • Water ownership is in dispute – Maori are filing for customary rights to water. Mighty River may not have full rights to the Waikato River.
  • Privatisation will not solve our economic problems.
The first argument isn't a good economic argument against sales, How many New Zealanders really understand the economic issues underlying asset sales? It may be a political argument against sales but that's a different thing. As to the second argument, if some of the returns are capital appreciation, How do we realise these results without a sale of assets? Also we get a lump-sum form the sale which compensates for the loss of dividends. For point 3, again we get a lump sum, which if the asset is sold efficiently, will equal the present value of the dividend stream. Looking at point 4, as I have noted before New Zealanders don't own the assets. Point 5 amounts to xenophobia and to not realising that if ownership goes overseas it is because overseas buyers can utilise the assets more efficiently. Why else would have pay more for them? And why does foreign ownership mean higher prices and fewer job? If prices can be raised and jobs cut then why wouldn't a New Zealand owner do exactly the same thing as a foreign owner? For point 6 see the comments for point 5. As to point 7, Why is this true? Where are these "tens of thousands of good green jobs"? And why would different ownership alter the incentives for companies to create these jobs if there really is an economic justification for such jobs? "Intergenerational theft"?!!! Given a sensible method of sale, the sale price will equal the present value of the future income stream and thus it not clear what future generations will lose. What is the empirical basis for  point 9? How do companies make profits by not selling their product?  Doesn't point 10 contradict point 9? Point 9 seems to say that private power companies will supply less power while point 10 says they will produce more! Both can't be true. What effect will ownership of the power companies have on  point 11? Water ownership will be in dispute no matter who owns the power companies. And as to point 12,, privatisation will not solve all our economic problems, no one policy can, who it could help solve some of our problems by leading to a more efficient use of resources.

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