This is a follow-up to last week’s post about the NZ Labour and Green parties’ joint announcement of their policy proposing to restructure New Zealand’s electricity industry by putting a state agency between the generators and their retail arms to provide a fair price for power.
The reaction has been interesting and enlightening. The National government’s initial political reaction, which most commentators agree was hysterical, offered dire warnings of communism and references to North Korea, Albania and so on. They were clearly caught off guard and reacted by swinging out at dragons.
Over the week or so, as the dust settled, the National party moved back into a slightly more measured counter-attack, setting up their side of a big debate ahead. Sadly (you’d think they would have learned by now), Labour and the Greens seemed to be sitting on their hands during that time, with leaders overseas and no obvious plan on how to build on their first body blow. Where is that killer instinct? They needed to keep building their argument in the face of the big counter-punching going on.
That was all rather predictable on both sides. But what interested me far more was the ferocity of the response to the Labour-Green policy by a large section (though, interestingly, not all) of big business, and in particular the investment community. This reminded me of a saying that became popular after the movie about Deep Throat and Watergate – “Follow the money”. You want to understand a business viewpoint? Then see where the money goes and how it flows.
The most serious critics have been the stock brokers, financial advisors and representatives of shareholders, who gravely warned us that investors would be less likely to buy shares of the power companies being privatised, so the price will come down.
So why will shares of Mighty River Power be worth less? Follow the money! The extra money that shareholders would be getting under the unregulated NZ electricity so-called market can come from one place only – the consumers, most of whom cannot afford shares. No matter how much some argue that we are paying a fair price for electricity now, based on the spot market price where the highest cost supplier sets the wholesale price, it can clearly not be true, because the free market advocates are telling us that shareholders will get a lower dividend or investment outcome without the free market operating.
To me this proves that the privatisation of essential public services is, at least in part, a way of allowing well-off mums and dads to financially gain at the expense of struggling mums and dads. In a fair market, the profits of power companies would be used only to pay their expenses and invest in future work, with nothing extra siphoned off pay private shareholders who are simply acting as stock market speculators looking for the easiest way to make near-guaranteed big profits. But ours is not a fair market; it’s a market geared for making extra, unjustifiable profits because there is no way of providing real competition between the players.
Under the Labour/Green plan, the money players could gamble their money elsewhere and the price consumers pay for their electricity can more truly reflect its actual cost.
But, cry the share market players and investment community, if people see New Zealand is “nationalising” part of the electricity market, investors will put their money elsewhere and our capital markets will start to wither. Hmmm …. as others have noted, the rate of growth of the NZSE 50 index has more than doubled since the Labour policy was announced. I can’t say for certain how closely the two are related, but following the money there suggests it is not particularly rational to fear a fleeing of capital.
So we have moved on to the next right-wing argument – that a lower price for Mighty River shares will mean reduced income to the government from the sale of this and other (state-owned power company) family jewels. It’s being called economic sabotage, or even treason! Again, follow the money. To get the most money from the buyers of Mighty River, we need to have it and other power companies making the most possible profit, and the easiest and best to do that is by charging all consumers way above cost for something they have little ability to avoid.
So in order for us all to benefit from the higher income from the power company sale, we all have to pay more for our power anyway! The money the government (ie, us) receives comes from the extra money we spend on power? Not quite. It’s not a zero-sum roundabout, because as that money revolves, a slice of it is removed regularly to pay dividends to shareholders, many of whom will take the money overseas.
This potential for easy money if current policy prevails explains most easily the ferocity of fire from the big financial guns, and their support from the National government.