State businesses creep into new pastures – nationalisation by stealth as we say no to asset sales

If you think of the country’s commercial sector as the board of the NZ version of Monopoly, then the state owns Cathedral Sq (4th most expensive location), Fenton St (8th), Cameron Rd (9th), Devon St (14th) and East St (20th).

That’d be Air NZ, Genesis Energy, Meridian Energy, Mighty River Power and NZ Post representing a quarter of the country’s top 20 businesses that are majority NZ state owned.

None of these can be sold at the moment with Kiwis dead set against state asset sales. A recent TV3 poll showed 80% of respondents opposed state asset sales.

But more worrying is the way houses and hotels are being put on these and other streets as the state stealthily expands its hold on what used to be private assets, or moving into new private sector pastures, not forgetting the occasional street purchase.

So while the Government has been focusing on restraining the size of central government, its businesses have been merrily expanding away. [Afterthought - this is not a criticism of the individual businesses. Standing still = slow death]

For sure the former aims to contain costs and the latter could be viewed as sources of income, but BigCake reckons there’s been a scary creep in the size and reach of state businesses. At last count they were worth a total $25 billion (versus Fonterra $14 billion).

And BigCake’s pretty sure this is not a good thing.

He won’t to try to nail every bit of this state expansion (haven’t got the time), but here’s a flavour…

Not so secret have been the returns of KiwiRail and Air New Zealand to the state fold. And now we also have the Government looking at taking a stake in Telecom’s network arm Chorus.

But in the background state-owned enterprises (SOEs)have been building commercial empires, adding houses and hotels if you like. For example:

NZPost
NZ Post has a business arm, ECN, who’s job it is to invest in technology and service businesses to replace or enhance New Zealand Post’s traditional postal and payments services. The NZ Post empire now includes communications, courier, logistics and retail companies. And of course KiwiBank.

Between 2006/07 and 2008/09 NZPosts’s assets more than doubled to $11.3 billion.

Quotable Value (QV)
NZ’s largest valuation and property information company. QV last year bought DTZ’s commercial valuation business in NZ. It businesses also include QV Australia which provides valuation and property consultancy services in New South Wales. Other QV subsidiaries include:
o Darroch (bought 2005)- one of New Zealand’s largest commercial and industrial property service businesses.
o PropertyIQ (joint venture) – a web-based residential property information service.
o Egan National Valuers – market valuations for the commercial and industrial markets.

Along the way it has also bought Hamilton-based Attewell Gerbich Havill Registered Valuers (2006).

Landcorp
Since 2000 the state farmer’s assets have increased more than three fold from about $500 million to $1.7 billion in 2008/09. Over this time, land under its control has slowly increased from 369,000 hectares to 375,000. Now it is famously interested in buying the Crafar farms.

Among Landcorp’s subsidiaries is Landcorp Estates which sells residential sections.

Mighty River Power
Between 2004/05 and 2008/09 Mighty River’s assets increased from $2.6 billion to $4.4 billion. The SOE’s businesses include one of the country’s largest energy retail businesses, Mercury Energy, and a meter reading service.

In 1987 there were 14 SOEs; today there are 17.

Anyway, you get the picture. The above is just a snap shot of what’s been happening among state businesses over the past decade or so.

BigCake’s sure there are more examples of state (and local body) business creep out there, perhaps even larger and more significant ones. Let me know if I’ve missed anything important.

You could take the view that this growth is sh!t hot. These businesses represent (mostly) good assets and sources of government revenue through dividends. And the Government has indicated it wants more of the latter.

Nationalisation is a bit of an exaggeration, but where’s it going to stop?

What the hell is the state doing expanding into courier companies, retail and real estate.

BigCake is a small government kind of guy, but not in an ideological way. He has no problem with some SOEs remaining in state hands – including KiwiBank – but given state business expanionism, a blanket ‘no’ to state asset sales is just dumb.

How about making sale decisions on their merits?

Heaps of former state assets (VTNZ, Works, State Insurance, National Film Unit, Government Print, NZ Steel…) are now happily ensconced in the private sector; but sale opponents focus on the few that were cocked up.

Of the 45 or so asset sales (worth $19 billion), only a couple – Air NZ and Rail – and maybe Telecom, could be regarded as delivering poor results. Bank of NZ did initially, but came right.

Yet it’s these “failures” that asset sale opponents appear to obsess about.

Can the state run all of its businesses better than the private sector? In the long run, I wouldn’t bank on it.