The sale of New Zealand Rail to private interests, and Air New Zealand's sale went so completely tits-up that re-nationalisation was imperative.
Telecom was sold into private hands, almost immediately resulting in monopoly profits being extracted, most of which were expropriated overseas, with precious little re-investment to develop the telecommunications system.
We gave the Australian banks our banking system, simply by selling them our Trustee Savings Banks, the Bank of New Zealand and Postbank.
Remember Graeme Hart, Australasia's wealthiest man? Our National Government, bless 'em, kick-started his career by just about gifting him the Government Printing Office, a strategic asset which even the United States has baulked at flogging off.
There is continuing disfunction in the privatised electricity system, creating blackouts, price increases (we all know about these) an appalling
maintenance routine, and lack of re-investment capital . The system still fails to provide secure and reasonably priced power.
We flogged off Radio New Zealand's commercial stations to private interests, thus assuring duopoly status in the industry.
By selling off state-owned forestry cutting rights, New Zealand has given away the enormous potential for further timber processing.
Housing Corporation mortgages were sold to private financiers, leaving mortgagee holders feeling ripped-off.
Two examples: Telecom, New Zealand Railways, and the effect on New Zealand's liabilities.
Telecom was bought by a syndicate of US companies Ameritech, Bell Atlantic and New Zealanders Mssrs. Fay, Richwhite, Gibbs and Farmer in July 1990 for $4.25 billion when Telecom had shareholder funds of $2.5 billion. Shareholder funds declined over the next several years despite cost-cutting (achieved by dumping workers, neglecting maintenance and failing to build infrastructure) because of large capital payments to its shareholders who started bailing out of the company from 1997 with a realised capital of $7.2 billion, in addition to a share of dividends worth $4.2 billion. (1)
Between 1990 and 1998 the company shareholder funds halved to $1.1 billion and it was then heavily in debt.
From 1995 'til 2004, Telecom paid dividends of $6.7 billion from net earnings declared in N Z of $5.4 billion, of which approximately $5.0 billion went overseas.(2)
This Telecom exercise in privatisation added approximately $10 billion to New Zealand's international liabilities.
New Zealand Railways was sold in 1993 in a sale organised by merchant bankers Faye and Richwhite (Yup, them again!) who then, get this, proceeded to benefit from it hugely, by taking a substantial shareholding. A conflict of interest not unlike the behaviour mirrored by the criminals that stripped the post-Soviet Russian economy of enormous wealth.
The main shareholders of the purchaser, Tranzrail, were Faye, Richwhite, Berkshire Fund and Wisconsin Central of the US, and Alex van Heeren.
These people bought a company which had been freed of debt with a public (taxpayer) injection of capital worth $1.6 billion. The price agreed was $328 million, of which they paid only $107 million and borrowed the rest. According to Brian Gaynor they "were responsible for stripping out $220.9 million of equity in 1993 and $100 million in 1995" (3)
By the time they sold out, they had made total profits of $370 million, mainly tax free, because of a lack of a capital gains tax, and insinuations of insider trading.(4) (They paid $20 million to make these insinuations go away).
Wisconsin's safety record was nothing short of disgraceful, shameful. By 2000, fatal accidents to employees were eight times the national average.
Investment and maintenance were appalling, which crippled the whole operation.
They then sold out to an Australian company Toll, who similarly failed to maintain the company, who in their turn sold back to the New Zealand government in two tranches totalling $960 million, which is all very well, but the government now has an enormous deferred maintenance bill (thousands of millions of dollars) to repair the railbeds, signal systems and replace antique, worn-out rolling-stock.
It is difficult to quantify the total costs to the country.
Ruined lives and families, opportunities squandered for the New Zealand people, years of progress, institutional knowledge and intelligence tossed away, not to mention the financial losses. Clearly $1.3 billion was paid to the two owners, even without all dividends being accounted for, most of which will have ended up overseas anyway. The cost to us, (the New Zealand government) the citizens, will be billions of dollars, greatly magnified by the, in this writer's opinion, criminal negligence of the private owners. It illustrates an almost perfect example of selfishness and greed.
(more to come)
(1) "Testing times ahead for Telecom", by Brian Gaynor, New Zealand Herald, 26 May 2001
(2) "Telecom: What a winner!" Financial report on winner of the Roger award, Sue Newberry
(3) "Investment: Track record costly to public", by Brian Gaynor, New Zealand Herald, 21 October 2000
(4) "A tough case...and a long one", by Brian Gaynor, New Zealand Herald, 16 October 2004
Bill Rosenberg, Trade union economist, wrote most of this for a New Zealand Fabian Society discussion paper.
Malcolm Yeates Jollyoldsalt@gmail.com