Wednesday, 20 June 2012

Labour v. National on asset sales

The following is from Kiwiblog:
Based on a release from Tony Ryall, a useful guide as to how National and Labour did asset sales. And recall Phil Goff, Annette King and Trevor Mallard vote for the Labour asset sales.

Labour 1988 – 90National 2012
Announced policy before electionNoYes
Used urgency to pass legislationYesNo
Kept majority in Govt handsNoYes
Sold all or most to foreignersYesNo
Priority for NZ investorsNoYes
10% share capNoYes
Allowed select committee hearingsNoYes
Public floatNoYes

Labour sold a total of 15 assets, so some answers vary by asset sold.
If you look at the "economic" issues in the table; that is, ignore the "political" issues, lines 1,2 and 7, Labour looks better than National on asset sales. Lines 3, 4, 5, 6 and 8 would be indicators of a better sales process than that being put forward by National.

Compare these lines with the argument I have made previously about the downsides to the National proposal.

First, selling only 49% of the shares in the companies is unlikely to make an difference to the way the SOEs are run. In particular the sell off will not make the firms anymore efficient since the government will still be the controlling shareholder.

Second, if the government really does want to maximise the income it gets from the sales selling 49% is not a good idea. 51% is worth a lot more than 49%, that is people will pay a premium for control.

Third, selling to "Mums and Dads" will do nothing for the amount of money raised, since Mums and Dads will need a discount to make them buy shares.

Fourth, selling to "Mums and Dads" will do nothing for the efficiency effect of having private owners, since there will be too many "Mums and Dads" for them to be able to coordinate their effects to effect the firm's behaviour.

Fifth, given that each "Mum or Dad" will own only a very small share of any of the firms, they have little incentive to become informed on the firm's activities since they will only capture a very small amount of any improvement in performance they could bring about. This is another reason why performance is unlikely to change.

Sixth, the discipline of bankruptcy or takeover is not greater since the government is still the controlling shareholder and is unlikely to let either of these options happen.

The Labour method of sale does much to address the issues I raise with regard to the problems with National's scheme.

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