The Dim-Post

July 28, 2010

Icetralia Watch

Filed under: economics — danylmc @ 1:48 pm

Continuing the foreign investment in New Zealand discussion, this Fran O’Sullivan article has a lot of useful material and background. Needless to say, Australia’s policy towards foreign investment is totally different from ours but Treasury thinks the best way forward is for us to do the opposite of what works for them, ie keep doing exactly what we’ve been doing only more so:

The Treasury advised National to revoke the “strategically important infrastructure” factor and signal a comprehensive review of the Overseas Investment Act 2005. It wanted to promote and encourage the flow of foreign investment, simplify the investment screening process and reduce the number of investments caught by the act.

It believed that foreign owners of New Zealand assets were likely to have interests closely aligned to New Zealand’s national interests. “As a result we do not think screening of strategic assets is required,” the Treasury advised. “However, if some form of screening is desired it should be added as a separate category, rather than only in relation to assets that are located on sensitive land.”

Worth remembering in the discussion around foreign ownership of our assets is that the most damaging infrastructure sale in our recent history was largely domestic: the Fay Richwhite purchase of the railways, which were then asset stripped and run into the ground causing massive harm to the wider economy. I guess Treasury advisors all have advanced degrees in economics so they know that in a free market such behaviour is logically impossible and thus did not happen – but it, y’know, did happen and logic suggests that ‘some form of screening is desired’ but based more on trying to prevent infrastructure sales to investors that might destroy key pieces of strategic infrastructure for fun and profit, whether that investment be foreign or domestic.

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16 Comments »

  1. [...] Danylmc at Dim Post discusses the same article.  I’m not sure I would interpret history the same way as him – was there really much [...]

    Pingback by TVHE » If we think there is an implicit social dividend from land … — July 28, 2010 @ 2:03 pm

  2. What harm was caused by another entity owning the railways and reducing capital expenditure?

    Comment by factchecker — July 28, 2010 @ 2:30 pm

  3. Isn’t all this talk about “restricting” foreign investment missing the point? I mean, we need capital and don’t have enough ourselves, so we need to import it. And that means foreign ownership and sending profits overseas… but also jobs.

    Of course the *only* solution is to increase domestic savings. Unfortunately National seems stuck in its 1970’s Dancing Cossack mindset. They need to realise that compulsory super doesn’t necessarily = socialism.

    Comment by gazzaj — July 28, 2010 @ 2:32 pm

  4. They need to realise that compulsory super doesn’t necessarily = socialism.

    Anyone else advocating compulsory super yet?

    Comment by Stephen — July 28, 2010 @ 3:00 pm

  5. What harm was caused by another entity owning the railways and reducing capital expenditure?

    Comment by factchecker

    Failure to invest in capital works meant a reduction in both the efficiency and the desirability of rail transport as an option. Properly maintained rail infrastructure is faster and cheaper to run than having a reliance on road or air transport. You can get more to a place faster and cheaper by rail than you can by road or air.

    Why I’m explaining this, I’m not sure – if you can’t grasp that concept, then I don’t have hope for you even making a cup of coffee without burning your house down.

    Anyway, what happened was that Fay Richwhite bought the railways and then failed to upgrade the railways to even deal with natural wear and tear. This meant that extra costs to both public and private organisations and even individuals went up, while the quality, efficiency and reliability of an essential service plummeted. They put prices up but skimmed off the money and took it offshore.

    It’s pretty much like if the government instituted a toll road on the Porirua motorway stretch of SH1 and then didn’t do any work for five years. They’d screw people who needed to get to Wellington, and eventually they’d either pay a premium and someone would bear the costs, or they wouldn’t bother going to Wellington city.

    The problem is very much the same as the one the UK experienced in the 1990s when the Conservative government sold off British Rail. Safety and reliability were compromised in the name of profit, meaning that tens of people died because companies were prepared to put profit over essential maintenance. The legislation that privatised the railways was poorly designed, and led to large scale exploitation until people had to die for safety to become a government priority.

    Thank God NZ never reached that stage under private ownership, but it’s fairly self evident that from the state of some of the lines in NZ, safety is a massive issue. Of course, essential infrastructure – including rail – is something that ultimately the government needs to bear responsibility for. This is why some of the power companies are SOEs, why Telecom come under the cosh frequently, why Kiwibank was set up, why the government is a majority shareholder in Air NZ and why Kiwirail was brought back into public ownership.

    The sooner people get the idea that infrastructure isn’t just something to be exploited for profit – and I mean from the power lines to the banking system to the god damn shitty buses owned by a monopoly provider whose only interest is fucking over as many Kiwis as possible – then the better NZ will become, because then they can stop acting like a bunch of little whiny bitches over things they barely understand.

    Comment by dontsurf — July 28, 2010 @ 3:07 pm

  6. railways, which were then asset stripped and run into the ground

    Regardless of who owned them at any given time, it strikes me our rail network has always been a bit, you know, shit…

    Comment by Phil — July 28, 2010 @ 4:50 pm

  7. The problem with NZ rail was fundamentally it was unable to cope with competition from road transport. Too many lines, too many staff etc. By the time of sale rail despite capital injections and debt write offs was still losing money, despite private and public ownership rail is still losing money, has the same fundamental problems and still has too many lines (but staffing is probably about right).Some parts of rail are probably efficient (Wgtn to Hutt) but in terms of passenger movement bus lines would be cheaper/more effective.

    There is a ‘fat controller’ syndrome that effects people with rail, whether its a romance factor (trains are cool) or control tendency (you can determine time things move and watch your train move in the ordered way that pleases you), but it results in historical amnesia and wilful blindness of the high costs of rail to NZ society.

    The most damaing infrastructure sale in NZ wasn’t the sale of rail to Faye richwaite – it was the buy back which limits the ability for the government to invest in things that do help improve the economy and society, in particular education.

    But then hey most commentators really just want a mercantilist society where trade/business/society is a one way bet – we sell stuff to you and get wealthier, as opposed to a society that acknowledges value in technology, culture, goods and services by having trade between people i.e., I sell some things to you (milk powder) to buy things from y (Ipad), who buy things from x (BMW’s).

    Comment by WH — July 28, 2010 @ 5:15 pm

  8. “Of course the *only* solution is to increase domestic savings.”

    Even if we do manage to increase domestic savings through coercion (and it is open to debate whether the Australian scheme actually increased savings), is it reasonable for those savings to be disproportionately invested in NZ assets? NZers are already very exposed to the (very small, not diversified) NZ economy through their jobs, homeownership etc. I would have thought most savings by NZers should be invested overseas in any case.

    Comment by Matthew — July 28, 2010 @ 6:45 pm

  9. dontsurf – “while the quality, efficiency and reliability of an essential service plummeted”
    Essential, eh? So how does 97% of the country not serviced by rail cope I wonder.

    “The sooner people get the idea that infrastructure isn’t just something to be exploited for profit”
    Yeah, like food production and distribution, infrastructure is far too important to leave to the private sector. Or foreigners.

    Comment by Clunking Fist — July 28, 2010 @ 7:04 pm

  10. ‘some form of screening is desired’ but based more on trying to prevent infrastructure sales to investors that might destroy key pieces of strategic infrastructure for fun and profit, whether that investment be foreign or domestic.
    Abso-f’in-lutely…
    The idea that Fay, Richwhite (hilarious name btw), Watson, Hotchin, Petricivec et al would be totally fine to buy, say, Auckland Airport but god damn those long-term-capital-investing-other-airport-owning Arabs would be an abomination is frankly batshit.

    Comment by garethw — July 28, 2010 @ 7:41 pm


  11. The idea that Fay, Richwhite (hilarious name btw), Watson, Hotchin, Petricivec et al would be totally fine to buy, say, Auckland Airport but god damn those long-term-capital-investing-other-airport-owning Arabs would be an abomination is frankly batshit.

    And god forbid that the Government might interfere in the purchase of strategic assets by NZ businessmen with no intention of constructive investment and only plans of profit taking or asset stripping. A NZIC might be a good idea, but Labour would never consider it, and the right would scream socialism.

    Comment by georgedarroch — July 28, 2010 @ 8:43 pm

  12. Dontsurf, I completely agree that the UK rail privatization has been a cockup from beginning to end, but it’s a bit simplistic to blame Britain’s rail problems entirely on privatization. Trains have been unprofitable and badly managed in Britain since at least 1900, through both public and private ownership.

    Comment by Tom — July 28, 2010 @ 8:43 pm

  13. @Clunking Fist

    97%, eh? And what other imaginary figures can you pull out of your arse? It’s a national rail network. It runs the length of the country and visits all the major centres. If by 97% you mean it doesn’t visit sheep and trees in the wops, then you’re right. If by 97% you actually mean you enjoy making shit up, then I totally agree.

    And food production isn’t infrastructure. People have choice in food purchases. We have regulations that prohibit exploitative, monopolistic, antitrust behaviour, including price gouging, supplier fencing and distribution restrictions.

    I said “The sooner people get the idea that infrastructure isn’t JUST something to be exploited for profit” – which means that infrastructure and profit aren’t mutually exclusive, but with providing essential services comes a weight of responsibility above and beyond flogging oranges on a street corner.

    @Tom

    You’re right, BR wasn’t the greatest in the world – it actually still exists – and neither were the previous rail companies. However, the 1996 privatisation of the network, including selling off of rolling stock, creation of the now-defunct Railtrack and the wide range of subsidies it allowed for is widely seen as the greatest cock-up produced on the rail networks in its history.

    They’re profitable – ask Richard Branson – but it’s no coincidence that the number of deaths on the rails increased exponentially immediately after privatisation.

    Comment by dontsurf — July 29, 2010 @ 3:46 pm

  14. “It’s a national rail network”
    As in, all the nation is helping pay for it, but not getting the use of it.

    Comment by Clunking Fist — July 29, 2010 @ 7:21 pm

  15. …the nation is helping pay for it, but not getting the use of it.

    Yes – perhaps Kiwirail should look at carrying freight as well as passengers? Oh…

    Comment by Psycho Milt — July 29, 2010 @ 7:41 pm

  16. I can’t find the link now, but the amount of freight that goes by rail from memory is somewhere between 5 and 7%. I’ll concede that can make all the difference to road congestion, but it ain’t gonna save us from global warming. (But then, studies out of the UK put co2 emmission on par with cars on a passenger kilometre basis…)
    But hang on, road user charges and petrol excise were so “profitable” past gummints have been able to syphon them off to the consolifdated fund…before recycling them into subsidies and capital injections for rail.

    Comment by Clunking Fist — July 30, 2010 @ 1:46 pm


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