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# 109573 22-Sep-2012 10:38
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The thread on WOF's changes got me thinking. I made a comment there about insurance...and Ikept thinking about that. 

So...rather than hijack that thread (as I know I sometimes do.....) I'll start a new one. 

Broadly...I used to be a keen supporter of private business and free markets. To put legs under that, I was New Zealand Party supporter back in 1984 5 minutes after Bob Jones launched it.

Free markets. Less regulations. Floating currency. All that.

I generally approved of "Rogernomics" as necessary. I voted for Labour in 1987 so that it might continue in this direction. But then by 1990 I could see - looking ahead - that the numbers didn't add up. It wasn't making sense. All obvious downside...and no obvious upside.

It felt too much like religion - "faith" in the blind hand of the market - and not enough like real policy. The consequences were obvious enough. Lots of uncertainty. More insecurity. Big businesses squeezing out smaller ones. Foreign corporates extending their domination of the remaining sectors of the NZ economy still locally held. Profits head offshore....investment then falls....plants and factories first run down...then shut down as "too expensive" to replace. 

Over and over. 

So I began to back away. We have to live here. Whatever is here has to work for us. We have to MAKE it work. market forces won't be doing that as they are global...but we are only local. 

The numbers didn't add up at all. 

Over the decades that followed I kept seeing markets - here - fail..and hearing the excuses.

Privatisations didn't result in savings. They weren't more "efficient"....they were often stripped of their assets and/or run down. Things always ended up costing more, not less. Prices rose and services declined. Wages trended downward for most people. Working hours got longer.  

Enough was enough for me by the early 2000's. It became clear where it all was heading: a narrow primary production base and related services industries. Careers in entire industries would now have to be pursued overseas...if at all. Skills lost. The potential for innovation ever more narrow...and the minute anyone does succeed, they sell it off to some overseas buyer hwo takes the IP and goes elsewhere...either immediately or within a very few years...and we then import what we used to make. 

Unelected, unaccountable (to me) business people (and the cheats and fraudsters among them) have had their day. 

I can see ACC was well run until the governments pulling the levers required them to became concerned with making money instead of doing what they were supposed to do: no fault compensation for injury and disability with support provided as required.   

I can see Kiwibank is a roaring success, started with public investment being well run. 

I can see Air New Zealand was rescued after Brierley trashed it.

I can see Kiwirail could be the essential, strategic core of a national public transportation system in an approaching era of energy scarcity and lower greehhouse gas emissions.  

Private business people and their allies tend to blind to all these things...and have slowly taught me that people I elect and who are accountable to me - to all of us -  are probably a better bet in the long run than the blind hand of the market....

Private business is good at small things we can do without if we need to. But for core infrastructure and services we all rely on...they have proven more than untrustworthy in my view. 

I wanted to believe otherwise....but experience over 50 years made it clear I would be wrong to persist in that. 

How do you see things? A Marxist? A neo-liberal? A pragmatist? You young and starry-eyed and full of freshly-learned theory of some kind? Or maybe someone who has been around  a while....heard all the promises and theories...and had the time to see how things really turned out.

I'm all in favour of real private investment and entrepreneurs. But I no longer have any time for unaccountable (often foreign-owned), ticket-clipping would-be monopolists and cartel operators with a parliamentary pass and monthly meetings with their pet ministers.  This, in my view, is what the promise of "free enterprise" has degraded into in reality.

It doesn't help that far too many Kiwis won't have a clue what I'm talking about....or why. yet it matters very much as these ideas and events have shaped their world...and largely defined the parameters of any possible destiny open to them. 

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  # 689824 22-Sep-2012 10:55
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I feel that privatisation of core infrastructure adds one unnecessary component. profit.
I feel that Govt run infrastructure isn't great.

I feel that if we can get corporate expertise into running the function professionally at zero profit is best for the community. Top level management can be paid heaps, and be tasked to provide excellence, whether the profit target is 400 million or zero isn't relevant in my view of a business model, the CEO will have targets as normal.

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  # 689851 22-Sep-2012 12:09
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Nice post OP. A lot of thought in there.

Business and government really are like plants in my garden. Some have to be replaced every year, some every couple (though they're meant to actually just keep growing) some stay for a life time, some will be there to see my great great great grand kids unless someone decides just to yank them to create some change just for the sake of change.

If we understand the balance of our own gardens then we can best understand the dynamics of the spaces you're talking about.

Governments fill up with empire builders just as much as private sector businesses. Workers in both loose touch with interest, need or demand for the product/service they're producing/providing.

Many people don't like change, yet they change all the time.

I agree education and understanding is needed. Care and tolerance are also needed.

What you're asking is if people have a long or short term view at life.

Most people only have a very short term view, some are extreme at both ends.

Like you, I suspect, I started out with a short term view and it's become more long term as I've got older. Also very common.

Greed drives many, and in our society today we have worked hard to build tools that drive this greed hard - Radio, TV, to the Internet.

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  # 690355 24-Sep-2012 01:40
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I came to my views by a vastly different route to yours:

I was never convinced by the arguments for free markets, privatization, etc. I kept seeing it from an engineering point of view, and it just didn't add up. It sort of went like this:

1. Privatize everything.
2. Make it more expensive by adding a profit requirement.
3. ?????
4. Everyone Rich!

3 of course was never explained to any degree of scientific certainty. It was to be the Magical Hand of the Market, which would bless us all with wealth and flash houses and long lives........

So I made the mistake of asking the adherents of the ideology how it'd work. After being baffled by the obvious holes in it, being accused regularly of being a communist, or stupid, and usually, in the end, being told I was abusive - I finally concluded, like you, I was talking to a New Religion and it's True Believers...

...Only the Faithful truly understand the Truth....

And don't you dare question it! Heretic!

Debating the issue here only re-enforced that. So I stopped talking to them, all they did was waste my time with banality and ho-hum tip of the nose thinking.

The similarities between major religious beliefs and Right Wing Ideology are truly striking, and in some countries a matter of public record. (e.g. politics in the USA is very much a religion dominated system).

So really, my views haven't much changed since I formed them in my youth. They have broadened, deepened in detail, but are essentially the same. They do not truly fit into any neat Left/Right box, and I have yet to find a generally accepted name for them.

They contain a large amount of socialist ideology - e.g. socialised medicine, education, and welfare. Also in there is a (apparently rather extreme) form of competitive commercialization where all IP laws are deleted. A direct form of democracy, and the radical alteration of the description of the Corporation.

Your message mirrors closely what I have myself seen, again and again. Nothing National is doing now is new - it's the same old crap they always pull. It'll fix nothing, cost us billions, and be left to quietly die when it fails - and it WILL fail.

National, and politicians in general have only ONE skill: convincing you to elect them. Hence Pretty Boy Key and Dirty Bird Banks.

Doubt it? Try this thought experiment: replace those two cretins by highly qualified experts wearing bi-focal glasses with pocket protectors, acne, and over weight. Now, ask yourself: would the general population of NZ vote for them, OR Pretty Boy Key?

I'll not hijack your thread here by discussing my ideas for helping this country. But I will point out that this stupidity from National - dangerous and destructive as it is - is a side show to the real problems.

And I agree with your last line. Sadly... 

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  # 690385 24-Sep-2012 08:44
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"1. Privatize everything.
2. Make it more expensive by adding a profit requirement.
3. ?????
4. Everyone Rich!

the theory of it is around motive.

So whilst the government run organisation has no motive to create efficiencies they will (theoretically) always run at a very high cost.

A privately run business, however, has the profit motive and so will (theoretically) work hard to create efficiencies, improve product quality, etc to increase profits and this can result in a lower overall price for the consumer.

Not only that but in industries where competition can happen, this will also (theoretcially) work to keep costs down as companies compete against each other.

Now of course this may not happen in reality, but it is far too simplistic to think "private business adds profit so must be more expensive"

here is a real world example:

"And all this cost taxpayers a fraction of what it would for NASA to do the job. According to the Wall Street Journal, each shuttle mission cost the agency roughly $1 billion. SpaceX, meanwhile, has a contract with NASA to perform 12 cargo flights (this first one was a test run and doesn't count) to the space station for $1.6 billion -- a savings of $10.4 billion (that's not counting the $400 million or so in seed money that NASA has invested into SpaceX's cargo operations, so we'll make it an even $10 billion)."

now that might be fairly extreme, but it illustrates the point quite well

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  # 690396 24-Sep-2012 09:10
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There are also aspects of choice in the public vs private debate.

Whilst there are, of course, some monopolies in the private sector, the vast majority of private business have to compete with other private businesses, giving them motivation for improving service, quality of product, and reducing price.
If they don?t do that or for whatever reason you don?t like the way a company does something then in the vast majority of cases you can choose not to buy their product thus totally removing you from their.

On the other hand, very few government departments have to compete with anybody and if you don?t like the way they do something then you have no alternative. About the best you can do is vote, which has inconsequential impact to your ultimate experience.

Take, for example, Auckland council. My new rates bill is due to go up 10% every year for the next 4-5 years. This is in a period when the whole reason for making the shift to the super city was justified on saving money, not spending more.

Now imagine if a private business like McDonalds announced that it?s prices were going to go up 10% a year every year for the next 5 years. People might be annoyed, but they can always choose to buy burgers from burger king, burger fuel, or one of hundreds of different burger places. McDonalds knows this and so they simply wouldn?t do it unless they absolutely had no other choice. It would be business suicide.

What are my alternatives with Auckland council? My only choice if I want to avoid these rates is to move to a different region, which is entirely impractical since my job, family, friends etc are all in Auckland. Auckland council know I have no choice and so just stick me with a gigantic rates hike.

BDFL - Memuneh
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  # 690405 24-Sep-2012 09:33
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Not sure many remember but there were times when governments run telephone services. I remember back in the 80s in Brazil where one would get in a queue to get a telephone line and wait 24 to 36 months to get it installed. And that wasn't only there, but in other countries around the world.

In the mid 90s the Brazilian government moved telecommunications to a private model and you could magically get a telephone line installed next day if wanted.

In these cases, I am all about supporting organisations that look at making a profit - if that means I can have things now instead of waiting months.

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  # 690498 24-Sep-2012 11:08
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I can see Kiwibank is a roaring success, started with public investment being well run. 

I will try to give a distillation of my beliefs as going over the journey would take a book. 

Firstly, I quoted the above as one of the tenant of my beliefs is that you can find an example for anything. If you want an example of badly run publicly owned institutions you can find them, if you want well run private institutions they are there. If you want to find examples of the reverse they are there too.

I agree that Kiwibank is a roaring success and that it was started with public money and it is well run. However, I think there was probably a gap in the market for a NZ owned bank. This bank would have been started with private money and run into the ground. Or been a publicly started bank and run into the ground or privately started and run well. I think the causal link is tenuous at best. 

So, what do you base your rating of the system on?

The Right Wing says that if markets are allowed to function without interference then resources will be allocated in the optimal way. In theory this is fine although no market has ever functioned without interference. In a country with market freedom heroin would be legal and so would medical care. Nobody thinks this will work. Take a system like this to the extreme and you get the French Revolution. 

The Left Wing says the government can allocate resources properly if they have control over the all resources. This will work because the government has the interests of the populous as it's central reason for being. This works in theory but we all know the government workers become more interested in means than ends, it doesn't matter what the results are as long as the proper process is followed. If the proper process if followed no individual can take credit or blame. The people in the system are simply replaceable tools. The is a reason the Soviet Union didn't last. 

In a Left Wing system mistakes or problems are difficult to identify because without profit and loss it is hard to identify if things are going well or badly. In a Right Wing system profit or loss replaces outcomes for people as a goal. 

Of course it comes down to a balance of forces which is dynamic and always changing to fit real work circumstances, like Christchurch. 

Currently for me it comes down to this. The Left Wing decided on an outcome, plans for that outcome and tries to design a system to achieve that. The Right Wing sets conditions and hopes for positive outcomes to happen. It's about the outcome.

Both systems will have failures and successes. Both suffer the slings and arrows of outrageous fortune. Both will be administered by humans ranging from imperfect to completely corrupt. 

To me planning for the outcome you want is a better plan. Not perfect by a long way but better. 


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  # 690548 24-Sep-2012 12:01
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There's a trade-off between the government being able to be autonomous enough to "get things done" and accountable enough to make sure that these things are done, if not for the "greater good", then at least in a responsible manner. (So, no huge handouts for gimmicky junkets that benefit half a dozen people). For all the people you add to the system to check things are running well, you add additional layers of beaurocracy, cost and potential for corruption. Is there any real magic solution other than brainwashing people so that they are enforced to employ common sense and honesty? (See: The "jobs for the boys" scenario that's happening in Christchurch).

ACC as it stands is a total mess. Privacy concerns aside, there seems to be a massive disparity in who they will support and who they won't. (Mention rugby, and they throw money at you, suffer a genuine debilitating injury and spend years battling them). The unfairness of their charges in the vehicle licensing system (if I own 2 vehicles, and I can only drive 1 at a time, why am I paying 2 lots of ACC levies?). There's upsides and downsides to the whole thing, but I can't help but feel an _option_ to select a private alternative would give me greater confidence that my money wasn't being pissed away by a bunch of people who insist on putting themselves in the firing line (people playing high-impact sports).

I feel that government should at least have a reasonable stake in essential infrastructure (to avoid the country being held to ransom), but rarely should they be allowed to have total control (e.g. the phone network).

@Jack - Great synopsis!

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Ultimate Geek

  # 690558 24-Sep-2012 12:12
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I have for many years worked in all of government departments, SOEs and private industry in a number of countries and it is the same everywhere. While there are individual exceptions the ranking is always, in general:

Government departments are the least demanding of performance, least efficient, and have the least competent managers and employees. I do make the point though that there are often many employees and managers who have competence but the application of that is throttled by the political environment. They are the least innovative as there is no primary driver to be so (in fact, innovation is generally resisted). There is no business penalty for non performance as the activities are always funded regardless  (and in some institutionalised cases, e.g. teaching, even the measurement of performance is deeply resented by employees and middle management).

Private is always the most demanding of performance, most efficient, and the most competent management and employees. The penalty for non performance is demise of the business. Putting aside some types of research, innovation in way of products, services, and management and control processes is also most found here.

SOE's fall in between with wide excursions, some betetr than others. There is likely to be no business penalty for non perfomance of the business as they are funded businesses.

A couple of examples that are commonly trotted out as being efficient businesses owned or partly owned by the government:

Air NZ; it failed in the early 2000s because it was not efficient during an aviation downturn. There was no cleverness in bailing it out, the government converted it into a funded company (courtesy of the taxpayer). Any private invester could have done the same but probably none were around as silly as the government (although, because of the downturn it would likely have been bought for its routes).

Kiwibank. Now this is a really sad case and came about only to salve the demands of a needed government coalition partner who gained less than 2% of the popular vote. There was plenty of banking competition in NZ, and even a NZ owned bank that wanted to expand. It has never returned a dollar as dividend, and sucked up over 1/2 billion dollars of taxpayer money which otherwise would have gone into health, education, etc. It has also proven to be barrier to the expansion of other NZ owned banks and to the entry of other NZ owned banks into the market. People like Kiwibank for emotional reasons only, and especially if they bank there because they like being subsidised by the rest of us.

That is not to say that there are not businesses which should not be in government ownership for very particular reasons. A local example might be the likes of most aspects of Airways NZ's air traffic management services.

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  # 690581 24-Sep-2012 12:26
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Government departments are the least demanding of performance, least efficient, and have the least competent managers and employees. 

Private is always the most demanding of performance, most efficient, and the most competent management and employees. 

I agree with this in principle but often government is doing things which the private sector either won't do, social welfare, or pretty much structurally can't do well like health. 

I have traveled in third world countries without a social welfare system. I don't like the one we have, I think there are plenty of people who take advantage of the system we have and this makes me very angry. The only think I know is that no system is a lot worse. 

PAYG health doesn't work. I think the US continues to prove this. Private health insurance may have a place but the central tenant of 'choice' in the capitalist system is difficult to apply here. The 'choice' is not to have treatment and possibly die or find some way to pay and take the consequences of this such as debt. 

I think one of the problems with this debate is that often we are not comparing apples with apples because the private sector would not do things the private sector would do or do them worse. 

For example, ACC isn't prefect but the horror stories you hear from them would be the same or worse with a private ensurer because that is the way ACC is currently behaving. It's pretty simple for an insurance company, the less you pay out in claims the more of the premium money you keep, the higher the profit. How do you argue against that?

I think one of the things people also forget is that people make the decisions. How do we ensure we have the right people taking responsibility for the decisions they make?  

Didn't anybody tell you I was a hacker?

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Ultimate Geek

  # 690584 24-Sep-2012 12:38
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stevenz: ACC as it stands is a total mess....

In saying the following keep in mind that the concept of ACC I have a lot of time for.

When ACC's employer's account was opened up to competion in the late 1990s I was recovering a private company. Because of the cheaper premiums and money was tight we went to one of the new private providers, and the first thing that happened is that every one of our employees got a comprehensive information and claims pack (as did the company) on how it all worked and how to make claims. Along the way one of our managers developed a loss of hearing and it was put down by the specialist as being due to his having worked in a noisy environment 30 years beforehand. I really wondered how this was going to go with our provider it being the result of an "accident" so long ago but the manager phoned me to tell me he was "over the moon", his claim was accepted straight away and he was being provided with great support and the best aids available.

As a comparison I kept my own company in the government ACC scheme to see what happened. We had no claims, but unlike the past we suddenly got information packs from ACC too, and even more suprising they started issuing invoices that we could understand. So a big change.

But when the competition was scrapped, by the incoming government during start of the 2000s, ACC immediately reverted to it's sad old non service providing performance. No more information packs or support, invoices which even the accountants had trouble deciphering, claims became argumentative and difficult, etc.

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Ultimate Geek

  # 690591 24-Sep-2012 12:50
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freitasm: Not sure many remember but there were times when governments run telephone services. I remember back in the 80s in Brazil where one would get in a queue to get a telephone line and wait 24 to 36 months to get it installed. And that wasn't only there, but in other countries around the world.

In the mid 90s the Brazilian government moved telecommunications to a private model and you could magically get a telephone line installed next day if wanted.

Was very much the same here too, new connections, fault clearing. Worked a bit faster if one had the right friends!Even so I still hear old ex employees from those days pining for the old days.

Even after it was privatised it took years to get the lassitude out of the system both within Telecom and in the community. For years (and sometime even now) believed they knew how Telecom should be run and that it had a responsibility to do as they said as if it was still a government department.

All came back to mind just a couple of years back, when I did an assignment in the government owned monopoly communications supplier in another country - poor infrastruture and reliability, long waits for new connections and fault clearing, preferential treatment of friends, etc.

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Ultimate Geek

  # 690617 24-Sep-2012 13:41
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I've got a simplistic (possibly too simplistic) outlook about this...

First - I'd like to clear up a small misnomer... It has been said that privatisation adds one component = Profit.

That's not correct. We are seeing now (and over past years) that Government owned businesses are also expected to be profitable. I've (in my recent quest for the best power pricing I can get) have changed to a privately owned company - the power is cheaper than the state owned alternatives.

Anyway - Back to the simple outlook.

I ask the question of any business - If this business fails, will the country be adversely affected? If the answer is yes, then it should be state owned. So - Could the country survive without power? No... Should all power companies be privatised? No...

That being said - I don't have a problem with the 51/49 model of ownership. However, I do believe that it needs to be set in stone at that. To sell our controlling share in an SOE should require a specific and binding referenda.

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  # 690657 24-Sep-2012 15:05
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To add my 2 cents.

Looking at this from an economic perspective, the problem the invisible hand has, IMHO, is with morality and ecology, which are effectively public goods. This means unless there is a specific tax or compliance lever to ensure a company acts with a social or ecological conscience, they won't.

I don't think either is specifically good or bad, just different and for good reasons.

Efficiency is an interesting measure and this to me is often touted as being a reason private business is better than public business. Generally if you measure efficiency as a product of doing stuff (making widgets, selling products/services), private business is always going to be more efficient, purely because the only group they need to worry about is the customer. The customer makes it very clear what the priorities are.

This is contrasted with a public business where everyone is a customer, or your customer is a population, along with the democratic/majority/interest group rules aspect. Trying to satisify everyone is a fools errand (I tend to adhere to the Pareto principle), but this is what soaks up efficiency.


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  # 690692 24-Sep-2012 15:50
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jonherries: To add my 2 cents.

Looking at this from an economic perspective, the problem the invisible hand has, IMHO, is with morality and ecology, which are effectively public goods. This means unless there is a specific tax or compliance lever to ensure a company acts with a social or ecological conscience, they won't.


...por unless customers demand they act with the social or ecological conscience.

Companies are coin operated.  If customers demand they act a certain way, and follow thorugh by avoiding the product when they do not act that way,  then companies will change.

The trouble is, most customers will prefer to take a cheaper priced product, than a more expensive product that has been made in an 'ecologically sound' way.

There is a quote that goes something like:

"In a democracy, the people get the government they deserve"

Well in my opinion the same can be said for the free market. In a free market, the people get the companies they deserve. If they continue to buy products from comanies that product unethically then the company is being given a mandate to have unethical business practices.

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