SOEs are they businesses or social agencies?
In his comments on the possible Cullen appointment, Paul Walker wrote:-
One of the main reasons private firms out perform SOEs is that SOEs are more politicised than a normal company. A standard firm has the incentive to maximise profits by producing what people want, in the less cost, most efficient manner possible. Politicised firms don’t, they have incentives to do what the government wants, regardless of the economic consequences of their actions.
This comment is absolutely correct. Despite the current travails private firms have over centuries produced the goods. Those that do not, collapse. Or at least they used to, until governments decided to meddle for the good of us all. This thesis remains to be proved.
Paul commented further:-
This highlights one of the problems with our SOE set-up. Basically the SOE model is unstable. SOEs have two conflicting pressures on them: 1) to be completely privatised, since the productivity and efficiency gains achieved by an SOE are in danger of being eroded over time. Privatisation is a way of both cementing in the commercial orientation of enterprises and wringing out further gains resulting from the high powered incentive and control mechanisms which can be bought to bear in privately owned and publicly traded companies. 2) to be pulled back into the public sector where social and political objectives can be more readily be meet.
Thinking about this dichotomy brings Adam to the conclusion that it is caused not so much by an inherent instability in the model, but perhaps more by the fact that our politicians have not matured sufficiently as to be able to accept that the SOEs in whatever form they exist, either 100% owned, partially owned or even transferred to the private sector should be run on a totally arms lenght commercial basis and not subjected to the capricious nods and winks or even outright direction of the government of the day. The situation is made worse by the practice of appointing cronies, former and has been politicians to the boards.
This problem is compounded by the denigration of business in New Zealand and the consequent distrust of capitalism by so many. Whilst the situation was not satisfactory prior to 1999 the demonisation of capitalism has proceeded at a rapid pace over the last nine years.
As always the case for capitalism has not been helped by the actions of a view, aided and abetted by the practice in NZ of governments of whatever hue passing ill thought out legislation. Further, under Labour the SOEs, for example the power companies were milked for dividends. Yet many members of the public do not appear to recognise that Meridian, Genesis and Mighy River are state owned.
This demonisation of business has exacerbated the property investment propensity in NZ.
It is time that efforts be made to better inform voters and change the debate from being one of anti-privatization, to one where people question why SOEs are not at least partially privatized so as to impose necessary market disciplines on them.
Social objectives should be undertaken by government, not through using SOEs as subsitutes for social agencies. That approach is at best silly and at worst fraudulentas it deludes people into a set of beliefs which sooner or later will be rudely shattered when the inevitable confrontation with reality takes place.
Our leaders should show leadership and step up to the plate. In fact if John Key is to achieve his objectives as enunciated in the WSJ article commented on by a number of people today, it is essential that he initiate debate and lead the effort to change people’s mind set so that business is not seen as evil by so many. else our slide down the economic ladder will continue.
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You should read many of my earlier posts.
You are correct in that many Republicans are not ‘free trade’. Many Dems do not recognize the term
However, in NZ terms in many respects we need to recognise that the Democrats are the centre right, maybe the right.
There is a common misconception that Dems are left and the GOP right, that is true but it does not translate to NZ
Counter intuitively, if you view the matter from a doctrinal perspective, US republicans have done more harm to free agricultural trade in the past than the Democrats. That is because of their respective voting bases. US rural folk tend to be Republicans and tend to want protectionist policies.
In any event, one can but hope that Obama’s policies don’t interfere with agricultural trade from NZ.
Then they are soon to be social as opposed to regulatory agencies. given that they will be used to implement the Obama protectionist agenda
Federal.
When you say state, federal or individual state?
You have not mentioned my favorite SOE, AsureQuality. Asure provides industry funded meat inspection services to meat processing companies. For the life of me I cannot see what “social and political objectives” are being met by this. Meat inspection services in almost all of our significant trading partner countries are provided privately these days. Such services are of course subject to regulation that ensures quality and assurance controls. The US is a notable exception to this. Its meat inspection services are entirely state run. They are also entirely state funded.