Wednesday, 28 August 2013

Why is it that the expression "third way" always worries me? 3

Let me make a few quick comments in reply to Jason Krupp. First let me apologise for any misrepresentation I may have made, this was unintended.

My point about the meaning of ownership is that even taking into account "democracy and the nature of general elections versus specific referenda" taxpayers do not have the rights defining ownership. The residual controls rights for SOEs are not in the hands of taxpayers, these rights are held by the government or its bureaucracy. I fail to see how your dinner companion can in anyway think they are an owner of any SOE in that they do not have residual control rights over any SOE. Or at least this would be my reply to them.

My point about the government being the single shareholder isn't that having a single shareholder is bad, its about the government being a majority shareholder. I would argue that there is likely to be little difference in the operations of an SOE as long as the government is the majority shareholder. Thus an SOE under 100% government ownership will look much like an SOE with 51% government ownership. Hence my comment on the García and Ansón paper.
Using a panel data analysis of Spanish privatised firms, we study how different factors influence the operating performance of divested companies. The results show that it is not privatisation per se but other factors that matter. After controlling for possible sample selection bias related to government timing of divestments, we find that  the greater the relinquishment of State control and the smaller the percentage of ownership held by managers and/or employees,  the better the firms’ post-privatisation performance. Moreover, privatisations that are accompanied by liberalisation programmes and occur during buoyant economic cycles turn out to be more successful. (Emphasis added).
As to having millions of people acting in the role of shareholder this may or may not be a good thing. It is not clear that we need to "foster a savings culture in New Zealand", there is no saving problem here - see, for example, Le, Scobie and Gibson (2009) and Le, Gibson and Stillman (2012) for more on this.

Even if we want, and don't have currently, a "thriving equity market" its not clear that this should be an aim of a privatisation program. The aim should be efficiency and productivity. Roger Douglas made this point in an article from the New Zealand Herald.
"Privatisation is not really about how much money you get for the asset, that's important, but the more important issues are to get the regulatory environment right so that competition can take place in the industry.

"What you measure your success by is the productivity that flows following the corporatisation / privatisation process."
The New Zealand sharemarket may not be thriving, but is it the government's job to fix this, any more than it is the government's job to fix or support any other sector of the economy? I can't help thinking it is not the job of any government to bolster the sharemarket, that is the job of the those who run the sharemarket.

  • Le, Trinh, Grant Scobie and John Gibson (2009). Are Kiwis saving enough for retirement? Evidence from SOFIE, New Zealand Economic Papers 43(1): 3-19.
  • Le, Trinh, John Gibson and Steven Stillman (2012). Wealth and saving in New Zealand: evidence from the longitudinal survey of family, income and employment, New Zealand Economic Papers 46(2): 93-118.

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