A Solid Look at SOEs

Solid Energy is going down the gurgler, NZ Post is trying to get out of delivering mail, KiwiRail is closing railway lines and ordering all its new stock from offshore, and Mighty River Power is throwing money at exploration work in Chile – $250 million to date and growing – desperate to find a viable geothermal field to exploit Chileans facing power price hikes because of drought conditions.

What do all these entities have in common?  They’re all State Owned Enterprises working against the best interests of New Zealand.

What is it that makes these SOEs fail? They’re chasing big profits. But you can’t blame State Owned Enterprises for doing what they were set up to do, which is act like commercial businesses and make as much profit as possible.

In the business world, big profits require big risks.  Big profits also require a cut throat attitude to anything that is not paying its way, even if that is supposedly a core business. This could be, for example, running a national railway system or delivering mail nationwide, or producing affordable electricity for all New Zealanders.

Big profits mean getting work done as cheaply as possible. If that means putting New Zealand workers on the dole queue and sending work offshore, so be it.  And big profits mean charging as much as you can get away with for the service you provide, no matter what sort of hardship this causes for consumers, or if some people miss out altogether.

When all of these SOEs were first set up they were set up as a government service. There were a few reasons for doing so.

The services provided were considered essential to all the people of New Zealand.

They are not commercially viable. Post, rail and roads are a good example of this.

They are natural monopolies. Leaving these to private enterprise is a good way to ensure that those who receive the service are over-charged and that the service will never reach everybody. Telecommunications and power are good examples.

They require significant infrastructure and having everyone pay a little through taxes means that the cost to each person is less than what it would be otherwise.

Finally, efficiency. A state monopoly prevents the doubling up on bureaucracy and infrastructure.

Since the 1980s and the change from state services to SOEs we’ve had incontrovertible proof of where things have gone wrong.

Telecom, despite having pulled $17 billion in profit over the last twenty years, is now getting a multi billion dollar government subsidy to upgrade the network. This is work that should have been done with that profit, and work that would have been done if Telecom hadn’t been sold.

Instead of a single CEO paid a couple of hundred thousand per year looking after the entire electricity network we have several, each being paid million dollar salaries.

You can’t get anything for less than it costs but you can certainly pay more and the policies put in place since the Rogernomics era has ensured that you are paying more and often getting less for it.

The Alliance feels it is time to recognize State Owned Enterprises for what they are: a generation-long failed experiment from the 1980’s, which have not served New Zealanders well.

The profit driven model is an inappropriate model for essential services we all rely on to go about our daily lives.  This approach will never deliver affordable, reliable and accessible essential services for all New Zealanders.

Affordable, reliable and accessible services are what we are entitled to receive from a government owned, taxpayer guaranteed service.

Then Prime Minister David Lange famously called for a “cup of tea” in 1987 to reconsider the privatisation agenda of his own government.  It has been a long time between tea breaks. We need to take time out from the privatisation model and profit driven agenda to have a serious rethink about the SOE model and the role of the state in providing essential services.

A good starting point would be for New Zealanders to consider what services are essential for the present and future wellbeing of our land and our people, how to bring them under direct government ownership and control as quickly as possible – and how to make sure they stay there.

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