KEY POINTS:
Economics has a curious phrase, "moral hazard", for the simple truth that people saved from the consequences of their mistakes are more likely to repeat them. The hazard occurs on a national scale when big investment is unable to fail.
That, in my understanding, is why we have
had asset sales. They may not be popular, but they are important national assets and their failure is scary.
John Key's renunciation of further asset sales, at least for National's first term, is understandable; he does not want his election prospects destroyed by a misinformed debate that Labour would relish.
And it might be useful to pause anyway, and try to work out exactly what sort of services should be in the public and private sectors, and why.
I thought it was clear until a few years ago when Air New Zealand nearly fell over and the Government saved it on the advice of a consultant who had been a torch-bearer for Rogernomics. An airline had suddenly become "essential infrastructure", elemental to the nation's tourism and travel. Was it?
If Air New Zealand had collapsed under the weight of that bad investment in Ansett Australia we would not now be without air services. Markets abhor a vacuum.
Any number of airlines would be flying here, though none might be investing in the destination and serving its food and wines. Internally, a range of small airlines - the kind Air NZ has killed - would be serving cities off the main trunk.
We would have lost an international flag carrier and gained some domestic efficiency. Many would say that has been the consequence of the economic opening in general. We have lost exported manufacturing and gained international goods and services at their proper prices.
Now the Government has decided Auckland Airport is too important to be taken over by foreigners. At least I think that is what it decided. The decision last week was directed only at particular foreigners, a Canadian government pension fund.
The scale of sovereign fund investment is another reason to reassess major asset sales against the original purpose, their exposure to the disciplines of shareholders' risk.
But that aside, why protect an airport from foreign control? The Prime Minister fears it could become a mere spoke of an Australian hub. If that happened it could mean better or cheaper international connections.
Instead, the airport's controlling stake will now probably be acquired by a domestic shareholder. If it is Infratil it will be another blow to hope of an airport more convenient to Auckland's northern and western residents at Whenuapai.
The Government decided Mangere was "key strategic infrastructure" suspiciously late in the day, after the airport board had declared its opposition to the bid and while shareholders were voting on it.
The directors and the Prime Minister have denied any prior discussions but business will invoke politics when it suits. Next the Government is going to buy back the railway business. The main beneficiaries will be big bulk industries such as coal that have been complaining at the rates charged by Toll.
Toll's charges are not enough to pay the Government what it needs to cover the maintenance of the tracks. That is the only reason we have to buy the company out.
Toll Holdings is a successful Australian transport operator. When it bought TranzRail it was prepared to buy the tracks as well as the trains but the Government was already lumbered with the Auckland tracks after rescuing the Regional Council from a foolish price agreed with TranzRail.
We will never know if Toll could have made the lines more economic than TranzRail could, but the failure of two companies to cover the costs of track maintenance is a measure of the true worth of our old narrow gauge railway.
We can choose to prop up any business we think important for reasons other than economics. But should it then remain in the private sector?
Air NZ remains on the sharemarket as a business everyone now knows will not be allowed to fail. That is nice for the private shareholders with 20 per cent. They don't face the ultimate sanction in the private sector. Its profit has been privatised but not its risk.
"Partial privatisation", always a tempting compromise for the National Party, is worse than either alternative. It means the private shareholders enjoy a premium for the absence of risk and the public loses the benefit of decisions made by investors who stand to lose if they misjudge the likely return.
If we decide to keep an asset in public ownership for dubious reasons of social service, environmental protection or sheer sentiment, we should keep all of it. And never ignore the possibilities we have foreclosed.
