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Picking up the pieces of privatisation

Media release from the Alliance Party

Picking up the pieces of privatisation

Speech notes for general debate For Kevin Campbell, Alliance MP, 17 October 2001

This government has recently had to come to the rescue of Tranzrail and Air New Zealand after privatisation because these companies in key strategic industries failed miserably to provide the essential services they were set up to provide. Tranzrail is dumping many passenger services and Air New Zealand nearly collapsed.

Privatisation was introduced in the 1980s by the now members of the ACT party, supposedly to improve the growth of our economy. However, the statistics on our economic performance ten to fifteen years on don't bear out their promises. Luckily, this government has put a stop to their scheme and is finally turning the economy around.

Proponents of privatisation told us that the invisible hand of the marketplace would lead buyers and sellers to allocate resources efficiently and improve economic growth.

Roger Douglas, as Minister of Finance in 1984 said in his 1985 budget speech that he had 'freed up' our market to achieve the "objectives of increased living standards for everybody, full employment and a just society, which require a healthy and growing economy."

In other words, the privatisation 'gurus' professed to believe that freeing up the market would lead to gains in the living standards of New Zealanders and improve the efficiency of our economy. They based their beliefs on neoliberal or neoclassical economic theory. Even then, the theory was going out of fashion in it's birthplace, the United States, and no other country was mad enough to take it up to the extent that New Zealand did.

Interestingly enough, fewer businesses fail under government ownership than in private ownership. Even more interesting is the fact that there is very little evidence that privately run businesses are much more efficient than publicly owned ones.

Privatisation proponents told us that it would provide greater productivity growth and higher incomes, aggregate incomes in particular. This did not happen.

If we compare our performance over the free market privatisation period to other countries operating under different policies we can see what might have gone wrong.

In the early 1970s our per capita GDP was above the OECD average but dropped almost 15% between 1984 and 1992, from 95% to 80%. While the per capita GDP in the United States dropped, it stayed well above the OECD average and Australia dropped only slightly to just above average. While Australia did free up its markets at the same time as we did, they were much more cautious in their approach. They did not sell off large numbers of assets, nor did they severely reduce labour protection.

Those countries that did not follow the all out free market path performed well while we slipped backwards. The European Union countries improved their position while Japan and Korea improved significantly.

New Zealand's real GNP per capita fell absolutely for five years in a row between 1988 and 1992, which was worse than any other Western country since the 1930s depression. Over the previous six decades, the free market decade shows the poorest GNP growth.

For a policy aiming to improve economic performance privatisation performed exceptionally badly. Economic growth per capita was better under a protected economy. That is not hard to understand when you consider what was lost.

There was a significant loss of investment in the people working in those privatised industries. Not only were there massive job losses affecting tens of thousands of people and their families around the country, but we also lost hundreds of training schemes and apprenticeships. People in these schemes would have gone on to contribute to strengthening those industries in the medium to long term, had we kept them.

The privatisation process in New Zealand meant that we lost at least $19 billion worth of productive capacity from our economy forever. I say at least because some of those businesses were sold off at bargain basement prices.

The whole process of privatisation was grounded in a theory, which depended upon the existence of perfect competition, which simply doesn't exist in the world market and especially doesn't exist for a small country far away from most of our markets. Trade barriers and industry assistance programs abound overseas so the removal of them in New Zealand had a negative impact on our ability to compete.

Special assistance was needed to build the economy and broaden our economic base. Support for new industries, planning for regional development, research and development funding, training and education were all needed but not provided by the free market.

Countries that have been successful in improving their growth rates over others, have used a planned and coordinated approach to economic development. Inevitably this needs to be led by government in touch with business, but not subservient to the market or any ideology.

That is why, this government has put it's hand up to assist strategic industries like rail and the airways. That is why, this government has a Ministry of Economic Development and has Industry New Zealand working in partnership with business, the community, iwi and workers around the country to fix the mess caused by privatisation and get this country working.


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