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Keith Rankin: Good Fund?

Good Fund?

Keith Rankin, 7 February 2001

On a number of occasions, I've cited the Alaska Permanent Fund (APF) as a model system of public property rights in action. A highly successful way of managing a publicly owned energy resources and equitably distributing the resulting profits directly to the resources' owners, it represents an experience that can be applied to three kinds of public enterprise in New Zealand: State-Owned Enterprises (SOEs), Local Authority Trading Enterprises (LATEs) and post-settlement Iwi corporations.

The APF dates from 1976, a time when a number of countries or provinces within federations were scrambling to develop their energy resources. At the same time, and in identical circumstances, a near-neighbour to Alaska faced the same challenge. Alberta is Canada's energy province, and, also in 1976, the Alberta Heritage Fund (AHF) was born. The parallel existence of these two funds enables comparative analyses to be made, enabling politicians and analysts from all over the world to learn about what does and what doesn't work in the arena of public enterprise.

A particularly useful paper is Alberta Heritage Fund vs. Alaska Permanent Fund: a Comparative Analysis (www.apfc.org/pdf/finaldoc.pdf) by Allan Warrack and Russell Keddie from the Faculty of Business at the University of Alberta.

While neither of these funds are pension funds, it is worth noting that the AHF and the APF differ in ways similar to those ways pension funds differ. For instance, the superannuation fund started by the 1972-75 Labour government - and cancelled in 1976 - had much in common with the Alberta Heritage Fund. Both could have been labelled, somewhat unkindly, as political "slush funds". Sadly, it seems to me that our Iwi corporate funds also incorporate the weaknesses apparent in the Alberta fund.

Unlike the AHF, the APF represents a popular solution that has worked - despite initial scepticism - as an apolitical, equitable and efficient way of dividing the economic cake, of managing aggregate demand in such a way that unemployment is minimised, and of preserving the 'golden goose'. Residents of Alaska, who have a direct stake in the profits of the fund - half of which are reinvested and half of which are paid as dividends to each resident - firmly voted "no" in a recent referendum which proposed cutting dividends as a means of eliminating future budget deficits.

By way of contrast, all earnings of the Alberta fund (at least until its 1997 restructuring) were paid into government revenues. The fund's investments inevitably reflected the political priorities and sensitivities of the government of the day. Further, there was no inflation proofing. The Alberta fund was proving to be a terminating rather than a permanent or "heritage" fund. Successive governments eroded the capital value of the fund in order to balance the provincial budget. The people didn't really care, because they got no obvious return from their fund.

Warrack and Keddie explain the different natures of the two funds in terms of the "deep" philosophical differences between the people of the United States (esp. frontier USA) and Canada. They describe the Alaskan view as one of "privatisation" and that of Alberta as "nationalisation". Indeed they go further and call the payments of the AHF to the Alberta government as "social dividends" while the payments from the APF to the people of Alaska are called private dividends.

These terms are misleading. Alaska's energy resources remain firmly in public ownership, and the pattern of benefit distribution is so equitable that some might call it 'communistic'. The principles of the APF are those of capitalistic publicisation; not privatisation which means the private appropriation of public assets. The Alaska Permanent Fund is both highly capitalistic and, for conservatives, disconcertingly equalitarian.

The underlying philosophy in New Zealand is much like that which Warrack and Keddie understand to prevail in Canada. Governments in New Zealand - especially those leaning to the left in deference to the British Fabian tradition - favour governmental control of the social wage. This is paternalisation rather than nationalisation. We have faced a strong case of paternalisation in Auckland with the City Council only now giving up its fight to limit the distribution of Vector dividends to the Auckland public.

We might call socialism the left-wing variant of paternalism, whereas communism is more like the left-wing variant of libertarianism. (Hence former Marxists such as Philippe van Parijs are fascinated by the APF.)

Paternalist funds, on the other hand, are anything but equalitarian. Right- leaning paternalist governments use public property income to finance 'tax cuts'. Cutting taxes is normally just a way of paying an inequitable dividend; putting much bigger cash injections into the pockets of high income recipients than into the pockets of people of modest means, despite each being equal principals of the fund.

The most important differences between the Alberta and Alaska funds are: (i) the paternalist Alberta Heritage Fund funded inequitable dividends covertly disguised as low taxes whereas the capitalist Alaska Permanent Fund funded (and continues to fund) overt and equitable dividends to its Alaska- resident owners; and (ii) the fact that, when (and only when) the people benefited directly from their fund and understood the relationship between the capital value of the fund and their incomes, the real value of the fund grew vigorously.

The principles that underpin the Alaska Permanent Fund can be applied regionally, tribally and nationally in New Zealand. In the Auckland region, the former Auckland Regional Services Trust (now Infrastructure Auckland) could have become an Auckland Permanent Fund Corporation; a public holding company that owned and managed assets such as Vector, Metrowater and the Ports of Auckland. (See my Herald article Council should back off and let Vector pay out.) Unfortunately Infrastructure Auckland is set to follow the fate of the Alberta Heritage Fund.

At a national level, the Ministry of State Owned Enterprises could reinvent itself as a public holding company, and pay out dividends Alaska- style directly to the men, women and children of Aotearoa rather than to the government. To offset the loss of its SOE revenue, the government would have to raise taxes. But not by much.

The net effect would be that families on modest incomes would get a return that would easily exceed any extra taxes that they would have to pay if such a people's fund did not exists. That's "people's capitalism" Alaska style. Contrast it with the "people's capitalism" Thatcher-style (real privatisation) that involves buying public assets from ourselves through some kind of share float.

The people of Alaska know what it means to have good fund. In a 1999 referendum, more than 70% of Alaskans voted to retain the integrity of their fund; a fund that belongs to "the people" rather than (as in Alberta) to "the government".

© 2001 Keith Rankin http://pl.net/~keithr/thurs day2 001.html

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