State-Owned Enterprises: Private profits, public losses

Daphne Lawless

Why does the New Zealand state own for-profit companies, anyway? We’re taught at school that the purpose of state ownership is to enable economic planning and fulfil social welfare functions. But the State-Owned Enterprises of today aren’t doing any such thing. In the last month, we’ve had announcements of at least 1000 jobs at Telecom, while Solid Energy have cancelled the $10 million in funding they provide to West Coast communities (to compensate for the ongoing despoilation of their environment).

Meanwhile, especially since the government abolished its Charter, Television New Zealand certainly has no public service character which distinguishes it from its commercial competitors. And with power prices for working families going through the roof, we certainly don’t get any benefit from state ownership of power generation.

The justification for the state hanging on to these large corporations is to keep them in “Kiwi” hands, and to pay the state a dividend on their investment. New Zealand has had a history of failed privatisation – both Air New Zealand and our national rail network had to be taken into public hands after being run down by their new private owners.

Why, then, are the National government so insistent on the part-privatisation of Mighty River Power, in the teeth of mass opposition? And why are they throwing a fit at the Labour/Green plan to bring in a “single buyer” of wholesale power? To understand this, we have to understand the real motives for the corporatisation and privatisation of state trading assets.

Corporatisation and privatization

We are almost four decades into a slow-motion crisis of capitalism. The old Keynesian-interventionist consensus was based on the government, as collective capitalist, using its economic leverage to expand opportunities for profit for the  capitalist classes. This “picking winners” and “demand management” approach is now strongly associated with the Muldoon government of 1975-84 – which happens to be the era when the strategy ran out of steam. All the government investment and administrative diktats in the world couldn’t make the New Zealand economy profitable in the era of the oil shocks and “stagflation”. What was needed was a new way for government to guarantee private sector profits.

The 1984-90 Labour Government pacified the left and the union movement with “social liberal” reforms on women’s rights, Tiriti o Waitangi issues, homosexual law reform and the anti-nuclear stance. This left them free to take a neoliberal machete to traditional models of welfare and public service. The old Keynesian consensus was dead – in particular, the idea of the State sector as a “sponge” to absorb excess labour from the market was doomed.

Labour politicians like Richard Prebble went around the country screaming about the amount of people employed by the railways and the state forestry service to do not very much. But this was always a social welfare issue, rather than a simple issue of business inefficiency. “Make work” schemes, money-losers though they be, encouraged social cohesion and passing on of skills from one generation of workers to another – they were also a payback to the unions for allowing real wages to be eaten away by inflation.

Efficiency for whom?

The massive shift in mentality in the neoliberal era came with the belief that mass unemployment was not a bad thing. Every worker paid to drink tea and play cards in some railway workshop was a worker who would not accept the low wages and “flexible” working conditions available in the private sector. The unexpressed motivation behind every neoliberal reform was to break working class power, and to drive down wages and conditions.

The long term goal, of course, was privatization – shifting public assets into the market economy so that they could improve the private sector’s profitability. But the country wasn’t ready to swallow full privatisation yet. So the Labour Government claimed that “corporatization” – reorganizing state services to work along exactly the same lines as a private corporation, complete with a profit motive and the need for competition – was an attemt to bring “efficiency” into the public sector, saving taxpayer money. It was sold as an alternative to privatization… instead of, as eventually became clear, a first step towards it. Of course, no capitalist worth their salt would pay good money for an organization that wasn’t already corporately efficient, with a pacified labour force.

Very little has changed in the last 30 years in this score. The goal of “efficiency” in the public sector, leading to privatisation, is only marginally to do with saving scarce resources, or improving services for the public. What it really is about is, firstly, driving down wages and conditions for workers across the economy; and secondly, increasing the opportunities for private capitalists to make a profit in what used to be the public sector.

Private profits, public losses

A very important legacy of the wholesale destruction of the workers’ movement in the 1970s and 1980s – in New Zealand as elsewhere in the developed world – is that public sector unions were left mostly intact. As the crisis of capitalist profitability continues, the boss class get more desperate to drive down labour costs and smash unionisation – and the strong public sector unions have an upward pull on wages and conditions cross the economy. In other countries such as Ireland, the depth of the economic crisis has enabled the capitalist media to demonise the public sector as “greedy” for still having good wages and pensions while the private sector collapses. As if that were the fault of public sector workers, rather than private sector bosses who lost all control during the property boom.

Unlike the private sector, the public sector workforce can’t be disciplined by outsourcing jobs overseas. So the long-term solution is to, firstly, create an “internal market” to bring “discipline” to the workforce; and secondly, move as much of the public sector into the private sector. This combines with the second benefit – creating opportunities for private profit.

The moribund ACT party’s signature success of charter schools has nothing to do with education standards – it has to do with people being able to make money by private provision of education. It has “worked” well in the tertiary sector, with all manner of fly-by-night academies and language schools dragging wages and conditions for instructors downwards. The social status of the traditional universities with their inconvenient function of social critique is undermined, and a new generation of hospitality and IT workers is trained to fill the labour needs of the profit machine.

Even better are the famous “public-private partnerships”, which boil down to governments underwriting investments by private firms to make sure they can’t lose. A recent example of this is the Government offering subsidies to Rio Tinto aluminium not to shut down their smelter, which would make Mighty River Power much less profitable and therefore harder to sell. This has to be seen in the same light as the Government selling our labour laws to Warner Brothers over the Hobbit movies – increasingly, in the modern era, neoliberal governments are intervening like crazy to bail out capitalist profits, and using that as an excuse to slash and burn social spending.

NZ Power: a spanner in the works

And this is why Steven Joyce and the usual crowd of Nat suspects are screaming about the Labour/Green “NZ Power” plan. This plan would set up a single, state-owner purchaser of electric power from generators, which would then sell the power on to retailers, in the same way that Pharmac buys all New Zealand’s prescription drugs. This would prevent wholesale power prices being bidded up by competition among retail providers, and thus keep retail prices down.

The way they’re talking about it, this is North Korea, this is Albania, this is Stalinist gulag territory. In fact, California does exactly the same thing, so it’s not exactly point 8 of the Communist takeover plan. What it does, though, is remove the opportunity for excess profits from the soon-to-be-privatised power companies. And – because the purpose of privatisation is to boost private profits at public expense – this will defeat the whole purpose of the Mighty River sell-off.

Labour is capitalist party, that plays left while in opposition and either accepts or actively carries out neoliberal attacks while in government. That said, the Labour/Green proposal would be a real reform which would slow down the drive towards privatisation and stop price-gouging of working families. Combined with the current mass campaigns against asset sales – including the Labour Party-sponsored mass petition – this a very good start.

Workers should be running the public sector

We have to remember, though, that under capitalism, expanding the state sector isn’t necessarily a good thing in itself. It’s something of a historical accident that the public sector has stronger workers’ rights. We know how badly Work and Income abuse their beneficiary and unemployed “clients” – but the life of a Work and Income frontline staff member, having to bear the brunt of public hatred for an inhumane system, isn’t so great either.

And, even though the old “labour sponge” function of the public sector helped improve workers’ rights across the economy, it was still a tragic waste of the creativity and energy of those workers who didn’t accomplish any socially useful labour.

So, we should demand that our assets not be sold; that our Government stop bailing out corporate profits and start bailing out working families at the real sharp end of the crisis; and we should support reforms which prevent the Government using our tax dollars to prop up private profits.

But we also need to demand also that the entire model of State-Owned Enterprises be abolished. Efficiency is a good goal – no resources or human labour should be wasted – but market efficiency is not what we want. We want social and environmental efficiency – and we want a democratic state sector, where workers are in control and not stifled by management and bureaucracy no different from that in the private sector.