Buying Back The Farm

On The Right Track: But Labour's embrace of public ownership owed less to the party's socialist ideology than it did to rescuing privately-owned infrastructural companies that were too important to fail. If Labour really is interested in "buying back the farm" there are many well-tested ways of going about it.

THERE WAS SOMETHING immensely reassuring about Dr Don Brash’s outrage. His angry media release, in which he railed against Trevor Mallard’s “wanton economic thuggery”, vividly illustrated the Right’s abject terror at even the threat of effective state intervention in the economy.

All it had taken was a warning from Mr Mallard and his colleague, Clare Curran, that a future Labour Government would review and, if necessary, revoke legislatively, any contract/s conferring monopoly wholesale powers on the company (or companies) chosen to roll-out ultra-fast broadband across New Zealand.

According to Dr Brash, such statements – even when uttered by Opposition MPs – amount to nothing less than “economic sabotage”,  and immediately render the political party responsible “unfit for the Treasury benches”.

Strategically-speaking, Dr Brash’s outrage was extremely unwise. One should never allow one’s enemies to identify the weak-points in your defensive edifice. But identify them he did: warning that: “The threats about retroactive increases in fines for breaches of requirements are especially insidious.  Mr Mallard may just as well have erected a sign at Wellington airport saying, ‘Invest here at your peril. If we get in, all bets are off.’”

In those two pithy sentences, Dr Brash revealed to Labour exactly how it could prevent the National-led Government’s planned privatisation of state assets. They also show how, if it was of a mind to do so, Labour might set about “buying back the farm”.

A simple statement from the Labour Party that any sale of publicly owned businesses would be overturned legislatively and the purchaser/s compensated with slow-maturing government bonds, would instantly send potential investors running (and quite probably screaming) in the opposite direction.

But, in the nine years it was out of power (1990-1999), the Labour Party refused to issue any such threat, a fact that speaks volumes about its true level of commitment to the maintenance and revitalisation of a mixed, social-democratic economy.

For a brief period during the early 1990s the Alliance and NZ First did that job for them, with both of the insurgent parties promising to take the privatised state assets back into public ownership. The exigencies of coalition government, however, proved incompatible with the Alliance’s and NZ First’s re-nationalisation programmes – to the point where, by 2001, the very mention of the idea was enough to send Jim Anderton into a towering rage.

One of the reasons for abandoning the policy was its enormous cost. If the purchasers of state assets were to be fully compensated for the loss of their property rights the state would have to come up with nearly $20 billion. That international lenders would stump up the cash for such an ideologically passé programme was highly unlikely. Nor was outright confiscation a realistic option. (Not if one wanted to continue sending expensive airliners around the world without having them impounded.)

There are, of course, many more ways to skin a privatised cat than by re-purchasing it at market price or confiscating it outright, but so long as Labour remained uninterested (except when required to rescue the key infrastructural companies Air NZ and Tranzrail from abject market failure) no one was very interested in discovering what these might be.

To facilitate this process of discovery, it is necessary to take a look at how revolutionary regimes have handled the task of moving from an economy dominated by the private sector to one controlled, at least at the level of its “commanding heights”, by the state.

In this respect, the People’s Republic of China offers some interesting models.

The final victory of Mao’s People’s Liberation Army in 1949 did not, as many right-wingers probably assume, lead to the immediate socialisation of the means of production, distribution and exchange. In reality, the transition from capitalism to socialism took the best part of a decade.

The most successful technique for socialising private concerns involved a law requiring private and publicly-listed companies to issue shares to the state. Initially, this public shareholding was quite small – 5 to 10 percent – just enough to ensure that at least one of the company’s board of directors was an appointee of the government.

Not surprisingly, the passage of this law caused huge alarm among private investors, most of whom made haste to sell their shares to whoever was willing to buy them. With the price of publicly-listed companies’ shares plummeting, the opportunity naturally arose for the state to step in and acquire (at a huge discount) an even greater share of the nation’s leading businesses. [Labour Finance Minister, Michael Cullen, could have done the same with Tranzrail when their shares hit rock-bottom in 2003. His refusal to do so cost the taxpayers approximately $400 million!]

With the socialist writing now extremely clear on China’s wall, the remaining large-scale privately-owned Chinese businesses negotiated whatever deals they could with the Communist Government and exited the market. By 1960 the private-sector economy of China had all but ceased to exist.

China’s re-embrace of the market in the 1980s offers ample proof that the process is readily reversible (even if “Capitalism with Chinese Characteristics” is a very different beast from the neo-liberal variety familiar to us in the West).

It should be clear, however, even from this brief description of the socialisation of the Chinese economy, how very right Dr Brash was to be alarmed at what he called the “political caprice and retrospective vandalism” of Mr Mallard. The financial spigot that prevents capitalism from becoming fatally dehydrated is, in practice, pathetically simple to shut off. Investors confronted with the prospect of even modest state interference at the microeconomic level will almost always cash-up and run.

And, of course, such microeconomic intervention is almost always complemented by a series of equally “persuasive” macroeconomic “reforms” – particularly in relation to taxation and the re-organisation of the labour market.

The deliberate undermining of investor confidence, combined with a concerted weakening of managerial prerogatives by the state and its legislatively empowered trade union allies, is all that a genuinely socialist government really needs to do to send the edifice of capitalism crashing to the ground.

Dr Brash gets it.

I wonder if Labour ever will?

This essay is exclusive to the Bowalley Road blogsite.