Thursday, June 07, 2007

Small on SOE's

There's an interesting piece in the Dominion-Post this morning by Vernon Small on the role of SOE's. Small points out that, contrary to Gerry Brownlee's assertions, the SOE model was not just a halfway house for privatisation. Instead, it is a way for the public to retain political control over vital infrastructure:

So why do we, the voters, want to retain assets, including non- monopolies? Is it for the dividend stream? It is significant, and it can be spent on other social priorities, or as an offset for taxation revenue. Is it for a sense of national sovereignty, or because we are worried that selling assets overseas would further damage the current account? Maybe. Partly.

Surely the strongest motivation is having these big and important entities within reach through our political representatives, so we can tweak them and lambast them and cajole them – and even sack their boards – if they do not do right by us.

That is the seed that grew into the requirement for SOEs to exhibit a sense of social responsibility.

So it is perverse in the extreme to call for our politicians to remain "hands off" – or even not to politick – when Mercury cuts off the power over a piddling bill or Solid Energy calls in some spooks to spy on its small-p political enemies.

We want them to be subject to our opinion and control.

(Emphasis added)

To that, I'd add that we use the SOE-framework of arm's-length control because we know that direct control by Ministers can be abused, as it was under Muldoon, with projects directed to marginal electorates and prices kept artificially low for political reasons. So, we want to be able to jerk the chain on these busineses, but at the same time we want it to be difficult enough for the government to do so that they exercise the power responsibly.

Generally, I'd say that the SOE model has worked. The businesses are profitable and return large dividends to the government. At the same time, the ones kept in government hands have avoided the poor management and harmful asset stripping behaviour we have seen in e.g. Air New Zealand, TranzRail and Telecom. Unfortunately, rather than political abuse, we have to worry about these businesses behaving too much like the private sector. But fortunately, we have the structure we need to remind them of who they ultimately work for - something we would not be able to do if we'd flicked them off for a song to National's cronies in the 90's.


I'd say that the degree of government control has been fairly poor. I'd expect that SOEs would try and emulate the more ethical private businesses (I realise this is a dubious concept) like Body Shop (as was) or Ben and Jerrys. Some of ours seem to be run like Halliburton or Enron.

My views is that an entity should be an SOE if it's in one or more of the following categories:
- Essential service whose failure would require a public bailout (e.g. Metservice)
- Organisation that provides a public service that isn't commercially viable (e.g. Radio NZ)
- Quasi-judicial or regulatory body (e.g. CAA)
- A natural monopoly or oglopoly (Genesis)

There are alternatives to public ownership in many of these cases. Obviously, public ownership isn't a magic bullet - look at the Auckland water industry which fully takes advantage of its monopoly pricing powers with no real restraint.

Posted by Rich : 6/07/2007 02:48:00 PM

Further to Ricvh's comment I would like to see the "social" dimension taken much further, and Corporate Social Responsibility incorporated into the SOEs' charters. CCMAU exists to oversee the SOEs on behalf of the Crown and they should also be responsible for adopting CSR and ensuring that it is audited like any other performance aspect.

Posted by Anonymous : 6/07/2007 03:03:00 PM

Very sucessful at killing there customers.

Why is it will always expect less of a public entity compared to a private entity?

Posted by Anonymous : 6/07/2007 03:21:00 PM


1, who are you? - even a user name is better than nothing - is this the same anon from previous posts?

2, what are you on about?/your point is...?

Posted by Anonymous : 6/07/2007 04:50:00 PM

There's an interesting piece in the Dominion-Post this morning by Vernon Small . . .

When reading Small's articles and op-eds it's useful to bear in mind that you're basically reading a press statement from Clarks office. That's not to say his work is not worth reading but he's probably the least objective journalist in the gallery.

Posted by Anonymous : 6/08/2007 06:39:00 AM