 |
|
|
|
Perspective On State Owned Enterprises Delivered at the Sheraton Hotel, Auckland, in 1986
I want to follow Geoffrey Palmer by looking at four key issues that are central to corporatisation : The economic implications of these policies The fiscal implications And the problem of monopoly ECONOMIC IMPLICATIONS In New Zealand, Governments in the past took over or established state trading enterprises for a variety of reasons. Sometimes, no other organisation was in a position to do so; in other cases, governments had a social purpose in mind. Departmental SOEs, as a result, became responsible for a mixture of administrative and trading functions. That mixture created great confusion. Ministers and managers alike were uncertain how much priority should be placed on business efficiency or how far they should forget about it, in the service of social objectives. The two motives became so mixed together, in single activities and the accounts, that nobody could disentangle them. You didn't in fact, know what was happening any more. Ministers, who are certainly not business experts, ended up making business decisions. Commercial managers, outside the field of their expertise, had to make social decisions. The outcome was reported to Parliament. But nobody knew what it really meant. The responsibility was divided, blurred. And no one's neck was on the block for the results. People just didn't know either what they were doing, or what they were supposed to be doing. The waste and absurdity multiplied. There was no rigorous discipline you could apply. We changed the rules of the ballgame. They would be clear and consistent in future. True accountability would exist. In New Zealand the new rules of the game were announced in my December 1985 economic statement that said: State trading activities should have purely commercial objectives. Where the Government wanted a non-commercial activity to be carried out, then it should be identified and budgeted as a Government expenditure, instead of being buried within SOE activity. SOEs should operate in a competitively neutral environment subject to the same ground rules as any other business. They should be organised in a form designed to facilitate the implementation of those principles. Let me elaborate those four points for you : COMMERCIAL MANDATE If you go back to first principles and look at what it takes for an enterprise to make a positive contribution to the economy, then three key points are important: The enterprise must buy its inputs at a price that reflects their economic value to the country. Among those inputs, I include normal commercial charges on its debt finance. It must operate efficiently so that inputs are used on a least-cost basis. It should pay tax on the same basis as the rest of the enterprises in the economy. And like them, it should be required to earn a commercial return on the risk capital that has been invested in it. If those conditions are fulfilled, then we can be assured that the enterprise will offer benefits to the nation as good as, instead of worse than, other enterprises throughout the economy. A business, which gets its inputs at less than their economic value to the nation, will tend to use them wastefully. It is not under normal pressure to operate efficiently. If it pays no tax, the pressure is further reduced. Even more so, if it pays no dividend either. When the Government takes money away from the taxpayer to invest in an SOE, it is taking money taxpayers would otherwise have held in their own hand to invest commercially. Had they done so, they would certainly have wanted a competitive return, so the State has the same obligation as any other business to provide taxpayers, who have invested in SOEs, with a commercial rate of return. That is, after all, a basic discipline in any business. The State should not be exempt from it; otherwise what you have is a license to invest the taxpayers' money badly. In doing so, you damage them and the nation. NON-COMMERCIAL FUNCTIONS SOEs obviously cannot operate on a business basis unless responsibility for non-commercial functions is removed from them. For example, you cannot fairly trade yourself and at the same time regulate other traders. Where SOEs had responsibility for policy and regulatory advice, which affects the environment for all the businesses competing with them, those responsibilities have been handed over to other Departments. Where functions are inherently unprofitable, the Government has to face up to a decision. Do those activities perform a valuable function in society? Can they be carried out more cheaply by other mechanisms? Are we, faced squarely with the expense, willing to pay the commercial price involved in having that function carried out? If so, it is certainly a price for Government, not one that should be inflicted on the business. It would be out in the open too, not hidden or disguised. Then the community can review its value in relation to its cost. |