Evidence for case against state ownerhsip

Solid Energy is expected to announce it will go into administration today.

The company will then set up a two-and-a-half year business plan during which the profitable parts of the company will be separated out and sold as going concerns.

When this process is finished, the remains of the company – one of New Zealand’s oldest state owned enterprises – will be consolidated into a rump body which will probably be closed down. . .

This will be a blow to the employees and other businesses which service and supply the company.

That aside, this result provides good evidence for the case against state ownership of most companies.

Private ownership might not have saved the company but at least it wouldn’t be taxpayers who bore the cost of its failure.

6 Responses to Evidence for case against state ownerhsip

  1. Paranormal says:

    It actually proves the case for private ownership over state ownership. SOE’s operate with the security of the government balance sheet behind them, which can cause them to make poor decisions. I have seen this first hand where SOE’s decided against a prudent course of action because they felt they had the might of the government balance sheet to call on over & above the SOE’s own assets if things went awry.

    Kiwi Bank and EQC are prime examples of entities that would not be able to operate with the level of risk they accept if it wasn’t for the government backing them up.

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  2. Dave Kennedy says:

    This is just evidence of poor management and a Government that encouraged borrowing to suck in dividends to cover the drop in revenue from their tax cuts. If you want proof of the usefulness of state owned industries then you only need to look at Norway’s oil industry. Even if the industry is shut down because of a collapse in the market or environmental concerns, the country has invested enough of the profits elsewhere to have its people supported for some time.

    After the Great depression the strongest and most resilient countries were the social democracies, especially Sweden. The country that cam out of the GFC best was Norway.

    Poor business management is just what it is and can happen in the private or public sector.

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  3. tom hunter says:

    I’m sure I’m wasting my time here but ….

    This is just evidence of poor management …

    Poor business management is just what it is and can happen in the private or public sector.

    Except in the public sector the politicians and activists never give up in throwing good money after bad, and the more government-owned business you have and the more wide-spread they are the worse the whole situation becomes, e.g. NZ in the early 1980’s, which was a shocking environment to work in.

    The only reason this is finally happening to Solid Energy is that there is a National government willing to let it happen. What would Green-Labour do, especially since they’re adamant about not selling the family silver.

    As with TVNZ in 1999, if we’d sold this when things were good we could have had $1 billion – now they’re both effectively worthless as technology and the economy moves forward.

    Idiots.

    …. and a Government that encouraged borrowing to suck in dividends….

    The only evidence you have for this is the Government demand that their multi-billion dollar “investment” should have made a return at least equal to what one could get stuffing it into a savings account.

    There’s no evidence at all that the government was squeezing “extra” out of Solid Energy, and no evidence that the company’s borrowing was specifically to pay for dividends – which would be pretty stupid. They borrowed to invest in Capex – which is what any business sensibly does, you don’t pay out of cashflow for that – and those investments failed to turn the trick.

    Idiots

    … to cover the drop in revenue from their tax cuts.

    This is always a fun economic modelling exercise: prove that the drop in tax revenues comes from the % reduction rather than the recession. In fact, as JFK figured out 30 years before Reagan, cutting tax rates actually boosts tax revenue. Of course Kennedy faced an almost reductio ad absurdum situation in that he wanted more tax revenue to spend, but could not imagine boosting income or corporate tax rates higher than they were (90% on the top bracket), which forced him to take a punt on the alternative argument – which worked. I’d bet DK and company would simply have rammed taxes higher in USA-1961 and then sat back wondering why the money wasn’t rolling in.

    Idiots.

    After the Great depression the strongest and most resilient countries were the social democracies, especially Sweden.

    You need to read up on Sweden some more. The whole social welfare state there got started as a result of the Great Depression, just as it did elsewhere, with similar earlier experiments in old age pensions or unemployment insurance similarly being run at the same time as places like Germany and New Zealand. Sweden had a very rough time during the Slump, not as bad as others but still bad. Everybody got hit badly.

    If you want proof of the usefulness of state owned industries then you only need to look at Norway’s oil industry.

    Like Saudi Arabia, Kuwait and so forth. Norway is not an example of a social democracy done good but simply a frozen oil emirate. And like those woebegone countries the result of relying so heavily on one thing has resulted in a rentier attitude that has stuffed the development of other industries. The high oil fund is an example not of an SOE but government wealth fund, and while that’s good as far as it goes, it’s not the same as ploughing the money into developing Norwegian industries. The thing’s invested in vast numbers of foreign companies and again, while that’s good, it’s not the same as developing local industries in expectation of bad oil times. Speaking of which …

    The country that came out of the GFC best was Norway.

    Because oil was at $US140 per barrel in 2008 and not far below that through 2009. It’s pretty easy to look good when your primary earner is riding a commodity surge. Now – not so much:

    With oil nowhere near levels that once made everything easy in Norway, the government may soon face the tough choice of tapping its $900 billion sovereign wealth fund or paring back spending from its shrinking petroleum income.

    And that’s only going to get worse. The oil riches have actually been counter-productive in crippling Norway moving forward into other economic areas, just like the ME emirates.

    Even if the industry is shut down because of a collapse in the market or environmental concerns, the country has invested enough of the profits elsewhere to have its people supported for some time.

    You’d be amazed how fast even a large fund can be drawn down, especially when you’re trying to use it to provide investments as well as it’s original role of propping up the welfare state.

    And in any case, we’re not sitting on top of a oil gusher. I’d note also that the fund was set up in 1990 to take advantage of this, just before the AGW bandwagon started to roll, which is lucky otherwise they might have been told to keep the oil in the ground, no?

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  4. Will Dwan says:

    Scandinavia is not proof of much Dave. Norway’s oil is easy to extract and they have a relatively small population to spend it on. Buying foreign assets meant they avoided ‘Dutch disease’ so that worked out well for them. Most countries are not so fortunate.

    Sweden became an industrial power, largely by arming combatants for Europe’s wars. They made it through with their infrastructure nearly unscathed, and went on to greater success making money from the post-war rebuild. Even so, they nearly ruined themselves with absurd levels of tax and welfare in the 90’s. They are much more capitalist these days than people realise.

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  5. Chris says:

    The demise of Solid Energy isnt just about low coal prices. It goes back a number of years when they took their eye off the ball and invested in some shonky deals. One of which was trying to make power from coal in Southland where they bought up a lot of land over the lignite coal then sold for a loss.
    The other was biofuels where once again they bought huge tracts of land to grow oilseed rape in areas like the Mackenzie Country where any adviser with a bit of nouce could have told them they would not be able to grow these crops there. Once again when that fell over and they had to sell this land it was at a huge loss. The people the Board had advising them must have been next to useless. Why has the board not been held responsible?

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  6. jabba says:

    watching Gareth Hughes backing coal mining is bringing a tear to my eye

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