Monday 5 December 2011

Renationalisation: It's Easy If You Know How

Uttering The Deplorable Word: David Cunliffe has outraged the Right and befuddled the Left by speaking openly of renationalising any assets partially privatised by John Key's Government.

DAVID CUNLIFFE has placed the question of renationalisation back on the political agenda. In doing so he’s provoked an extraordinary flurry of indignant condemnation from Newstalk-ZB’s Mike Hosking, who lost little time in raising the dread spectre of Hugo Chavez’s Venezuela. The Labour Party itself seemed rather non-plussed by the suggestion (like the husband whose wife's just encouraged him to visit a brothel). Throughout the election campaign didn’t Phil Goff insist that once the assets were gone, they were gone for good? If they’re as easily recoverable as Cunliffe seems to be suggesting, what was all the fuss about?

The cost of re-purchasing privatised state assets is, of course, the biggest “fuss” associated with any policy of renationalisation. It was a problem that occupied some of the sharpest minds in the Alliance back in the early 1990s. “Buying back the farm” may have been party policy, but no one was really sure how to pay for it. I well recall receiving a call from an Alliance member in search of a cheap alternative to forking out the billions required to repurchase Telecom. I promised to do some reading on the subject.

By far the cheapest option turned out to be straightforward expropriation. The government simply passes a law declaring the telecommunications system, the railways, the banks, etc, to be an inalienable part of the national patrimony. Such assets to remain the property of the people and be administered, on their behalf, by the state.

The only problem with expropriation is that any aggrieved foreign owners will almost certainly seek redress under international law. The offending country may find its financial assets frozen in foreign banks, and its national property (like airliners on the ground at foreign airports) seized. If you’re a small and vulnerable trading nation, this is not a good thing.

The other way to re-acquire your country’s assets on the cheap is to argue that their owners have reaped an unwarranted harvest of super-profits from the privatised business, and that in assessing the quantum of compensation to be paid to the “owners”, these super-profits must be deducted from the business’s re-purchase price. This was the formula employed by Salvador Allende when computing the level of compensation payable to the (mostly American) owners of Chile’s copper industry. And I strongly suspect, had New Zealand applied a similar formula to Telecom, it could’ve taken the company back into public ownership without paying a single cent.

The downside of this approach is that, once again, you lay your country open to retaliation. At the urging of the dispossessed Anaconda Copper Company, President Richard Nixon and his National Security Adviser, Henry Kissinger, undertook to “make the [Chilean] economy scream”. The rest is history.

Probably the most effective (and safest) way to recover one’s country’s privatised assets is to do so one little bite at a time. Citing the “strategic” nature of the asset, and the vital role it plays in preserving the nation’s security and/or well-being, the Government passes a law requiring an initially small, but annually rising, percentage of the private company’s shareholding to be placed in the hands of the State. At the same time, the Government introduces a raft of perfectly justifiable (but regrettably very expensive) regulations which (again, very regrettably) reduce the company’s profitability quite dramatically.

Not surprisingly, the private company’s share price plummets – whereby the State simply steps in and re-purchases its erstwhile assets for the proverbial song.

Although the situation was not produced by such a policy of renationalisation, there was a point, around the middle of the last decade, where New Zealand’s privatised rail network’s value reached such a low point that the Clark-led Labour Government could have picked it up for about a third of the price the State ultimately paid to bring the railways back under public control. Of course, what happens “naturally” under capitalism, a genuinely socialist government can very easily induce.

David Cunliffe has been severely criticised by both the Right (and elements of the Left) for uttering the deplorable word “renationalisation” in polite neoliberal company. For what remains of the campaigning period, those who've attempted to paint him as the candidate of the more conservative elements within Labour’s caucus will win far fewer converts.

Because the brutal fact of the matter is that if Cunliffe is successful in his bid to become Labour’s leader his statement on the possibility of renationalising partially privatised assets will have a pronounced – possibly decisive – dampening effect on the degree of overseas investor interest. Nobody invests billions in an asset that could be renationalised in a year’s time.

That’s why “renationalisation” is such a dangerous, such a deplorable word. Merely to utter it is to stir to life ideas that have not been seriously debated in this country for close to forty years. The ghost of Norman Kirk must be smiling down on the Member for New Lynn. If he had a vote next Tuesday, I’m pretty confident which way he would cast it.

This posting is exclusive to the Bowalley Road blogsite.


Robert Miles said...

The float can not be more than partial, at a max of $49%. Otherwise Air NZ would inevitably go bankrupt after a few years and then pass entirely into foreign hands or cease to exist. The power companies are utterly strategic despite Key's evasion and deception- full privatisation of power would result in what happened with Enron ownership in California-price rigging, manipulation of the market-blackouts and anarchy.
Cunliffe was only saying a degree of government stake would have to be restored if these scenarios which are actually inevitable if Air NZ or the power companies passed into full private ownership- with greater than 49% private stake.
Events in Chile in 1973 are partly disputed-it being unclear how communist Allende was, particularly in light of the fact the preceeding centerist Edward Frei government was in many respects going down the same track of concession to the hard left and how far the reaction to Allende reflected the end of the Vietnam war and the personal obsessions of Nixon and Kissinger and republican politics in the US. Certainly most American intelligence authorities and officers insist the US actions were due to the obsessive demands of Nixon and Kissinger and did not reflect State, embassy or CIA policy.

Anonymous said...

Ahh. Renationalisation.
If this is such a wonderful idea, I wonder why the last Labour government didn't implement it then? They had nine years to do so.

They could have made a start at buying back the $9.5 billion of assets that Labour sold between 1984 and 1990.

No, Mr Cunliffe. You'll have to do much better than this to convince the country that your party is fiscally-responsible.
None of this "extending WFF to include beneficiaries" stuff, for example.

Chris Trotter said...

And, as I'm sure you know, Robert, General Pinochet never reversed the nationalisation of Chile's copper industry. It remains in public ownership to this day.

Anonymous said...

Having just watched the Q & A interview again, it is difficult to know why there is even still a contest for the leadership. Who is really backing Shearer now? Not only was Cunliffe far more fluent and professional, but with his renationalisation comment, as part of not being a paler shade of blue, he knows exactly what he was doing and signalling.

So why is Shearer even up there, he's obviously inexperienced, and has not exactly stood out in the past term for bringing any major issue to the public sphere. We know that the media like him because of his so-called 'back story', and adventures overseas in his prime. We know that the right wing commentators are putting him up, but that seems to be as some kind of Key-lite popular guy role, which is unconvincing. Others would know better than I, but why is it so important to have had a great OE career, and also not be associated with Helen Clark (though Shearer actually replaced her in Mt Albert)?

Cunliffe may be a bit too smooth, but at least he has been tested in Parliament. I can't see Shearer matching it with Key, and Cunliffe is right that they have to be on their game from day one with Winston around. So, with Parker gone, it should be no contest for Cunliffe. He may only be transitional, and a Robertson/Adern ticket could emerge later. But Shearer would have to improve exponentially to be leader in the current media driven environment, even though it is the media that seem to be promoting him.

Anonymous said...

What if a foreign govnt re-nationalised assets in their country held by NZ superfund for the benefit of NZers, would the silent T applaud this move as a blow on behalf of the working class or would he consider it theft?

Anonymous said...

I totally agree with The Sentinel. It was quite a shock to see Shearer's lack of articulacy on Q & A. How long does it take for a politician to develop tv performance skills?

Loz said...

I think you missed the easiest nationalisation approach Chris.

If the government (as promised) retains control over semi-privatised Assets, all that's needed is for the majority shareholders to instruct the boards that they are to run at cost with no dividends to be paid. Privatised shares would be quickly dropped as uneconomical investments. The unit cost of electricity would have to be dropped if profit margins were eliminated, effectively acting as a stimulus package.

If it decided to allow any profits to be made from the assets it could instruct the boards to use their minimal profits to progressively buy back their own unwanted shares, avoiding to commitment of additional government funds. It would be a win for the nation and a win for consumers at the same time.

David said...

But Loz, having run out of breath telling the country what a devestating effect the reduction in dividends will be on the national economy, it would be hypocritical in the extreme to turn round and instruct the powercos to make no profits and generate no more dividends.

But whatever floats your boat Loz.

Mark Wilson said...

Economic sabotage is an ugly idea. And it is anti democratic - what you are saying is that if you lose the election you can still demand your policies are implemented and if they are not then you will damage the countries finances! Shame on you!
And Cunliffe, having lost a democtraic election and having his party soundly rejected by the vast majority of the voters does not have the right to damage the sale price for those assets.
The Labour Party owes the tax payer 100s of millions of dollars.

Victor said...

The Sentinel

Thanks for calling it as it is.

Shearer is obviously an experienced, well intentioned and personally brave individual. But there's something very 'Chauncey Gardiner' like about his candidature.

There's an inoffensive vagueness in his posture and utterances that allows pundits and populace to read what they will into him.

As to Cunliffe being a "bit smooth", isn't that just another way of describing him as focused, lucid and on top of the issues.

I'm reminded of "Dancing with the Stars", where (in New Zealand at least) the best hoofer always had to be eliminated, midst rancorous online accusations that they're trying too hard or are just too professional!

I'm not sure whether we're dealing with a deliberate right-of-centre plot to impose the less incisive and challenging candidate on Labour or whether its just old-fashioned Kiwi niceness to prefer the less confrontational and focussed of the two.

Perhaps it's a combination of both.

Loz said...

If the government remains the majority shareholder it's entitled to instruct the boards to do whatever it wants. An incoming government is entitled to direct boards it controls to stop generating profits or dividends. This instantly drops the value of shares, making renationalisation cost effective.

What is the supposed benefit in squeezing profits out of the people of New Zealand from assets owned by the public? We don't see it as in the national interest for schools to make profits out of parents. It's not in the national interest for hospitals to make profits from the sick. I don't understand why it is of benefit for profits to be made from such a basic necessity as electricity.

I don’t understand who is supposed to be saying the reduction of dividends would be negative for the economy… it would actually put money back into the community.

Anonymous said...

"Renationalisation" has a certain ring to it, does it not?

Brendan McNeill said...

I think Victor is on to it. In this day of reality television, and celebrity circus, why not hold a 'dancing with the stars' competition between Shearer and Cunliffe?

They could dance to tunes popular in the 1930's, dressed in period suits with partners in equivalent attire.

They could then wrap up the evening with quotations from Michael Savage, and pontificate on the re-instatement of the former "Ministry of Works".

It would make riveting television. We could have a panel audience to act as judges using the now well established and scientifically proven 'worm', and just for good measure we could all txt in our preference.

Mind you, this suggestion could be nothing more than a plot from the centre-right to trivialize the selection process.

Frank said...

thor42 said..." Ahh. Renationalisation.
If this is such a wonderful idea, I wonder why the last Labour government didn't implement it then? They had nine years to do so. "

Possibly because they had other priorities, Thor? Like paying down the massive debt acrued under nine years of National governance in the 1990s?

Likwe setting up a nationwide savings regime for Kiwis so we could begin to be less reliant on overseas capital?

Giving tax breaks to families via WFF?

And of course rebuilding social services that were badly run down during the Bolger/Shipley years.

Just a few reasons of the top of my head.

KjT said...

And selling of shares in strategic assets is not economic sabotage?

KjT said...

Unfortunately, Nationalisation is against the rules.

Indonesia, Honduras, Chile, Iran, Egypt and many other countries have been invaded or have had their Governments changed because they wanted to keep profits for their own people instead of US corporates.

In NZ it is done more subtly. Endless propaganda in US owned media.

You can see with the takeover of oil industry profits by US corporates in Iraq what that piece of corporate sponsored murders was all about.

Gaddafi's big crime, of course, was keeping oil revenues in national hands. The last straw was when he started offering interest free loans to other African countries.