NZ Asset Sales Policy Began On Wall Street
By Lewis Verduyn Monday, 16 January 2012, 5:23 pm
Opinion: Clutha River Forum
NZ Asset Sales Policy Began On Wall Street
The Key government’s asset sales agenda is derived from the Washington Consensus – a set of Wall Street-driven policies that were pronounced dead after the global financial meltdown in 2008. The New Zealand government, however, remains loyal to this failed ideology.
Why? The obvious link is Prime Minister John Key – a former investment banker for Merrill Lynch, the world’s largest brokerage failure.
In most other countries, state asset sales have become a last resort on the road to poverty and ruin, but for the Key government, asset sales are “business as usual.” 
So what’s really behind asset sales?
All wealth extraction is facilitated by international and national economic policies, coupled with the private banking system, which together deliver benefits to the financial elite by transferring wealth upward within and between nations.
The state asset sales policy is just one of several reforms under the Washington Consensus, a set of monetary and economic policies designed to allow: the privatization of public resources and utilities, the removal of barriers to foreign investment and ownership, the sale of state assets, trade liberalization, deregulation, the lowering of business taxes, and cuts to public services.
These “free market” reforms are collectively termed neoliberalism. Simply, they provide big business with improved legal access to markets and assets worldwide.
The Key government’s asset sales agenda fits obediently into this ideology – the same ideology that ushered in financial deregulation, record bank bailouts, and the Second Great Depression.
Governments in New Zealand have succumbed to the neoliberal movement since 1987, when the first round of asset sales began, as a Reagan-Thatcher-Douglas experiment.
Under these policies since the 1980s, New Zealanders have experienced almost the greatest increase in income inequality in the OECD.
The deep roots of neoliberalism
Modern liberalism dates back to the end of World War II, when the Bretton Woods agreement formed the IMF and the World Bank, establishing the US dollar as a de facto world reserve currency, and installing policies aimed at stabilizing the world monetary system. Free private capital flows between countries were restricted because it was believed that international financiers had caused the Great Depression.
For the next three decades, Western governments were characterized by liberal, socially democratic policies that sought to safeguard national economies by keeping trade in balance. The world achieved exceptional economic prosperity during this era known as “The Glorious Thirty” years.
But by the 1970s, corporations began to exhaust the spending power of the “consumer society” as total debt increased under the mathematical bias of fractional reserve banking, exacerbated by the Vietnam War.
Policymakers were faced with a choice between more intervention to protect local economies and social justice, or a more liberal business agenda – neo (new) liberalism. Wall Street interests mobilized to advance a host of “business first” policies that became the Washington Consensus, and the euphoria for deregulation ultimately placed Wall Street beyond the reach of democratic public accountability.
Rising poverty and debt for the majority
Multinational corporations proliferated and expanded, outsourcing cheap foreign labour, extracting oil and other mineral wealth, leveraging weaker economies and favourable exchange rates to monopolise global markets, often assisted by IMF and World Bank development loans.
Globalization is defended as a strategy to boost Gross National Product (GDP) and therefore investment in jobs. But in reality, free trade strengthens capital bargaining relative to labour, so that people who derive most of their income from returns on capital (the rich) gain, while people who earn most of their income from labour (the majority) lose.
The outcomes of neoliberal policies have been similar everywhere in the world. Deregulated markets have benefitted the local educated elite who work with the corporations, while the majority of people have experienced a decline in living standards, with a permanent widening of the gap between the rich and poor. 
Neoliberalism has been catastrophic. It has accelerated sovereign debt, collapsed the financial sector, and it has caused the highest ever level of global unemployment, described recently by the International Labour Organization as a worldwide crisis.
Meanwhile, the corporations and the international banking aristocracy have amassed enormous unproductive wealth via their trickle-up incomes.
“Free trade” unlocks foreign assets
The post-World War II version of free trade promoted “fair trade” and often achieved a healthy balance of payments. But the Washington Consensus threw caution to the wind, allowing big business to dominate government policy, making deficits routine.
Free trade agreements, such as the North American Free Trade Agreement (NAFTA), have virtually destroyed US-based manufacturing, leaving Main Street America with a service sector economy.
The Trans Pacific Partnership Agreement (TPPA) signals yet another secretive free trade deal intended to free-up access to foreign assets. The TPPA could render New Zealand government decisions subject to rulings by international tribunals, in the defence of investors from the negotiating countries of Singapore, Chile, Brunei, Australia, Peru, Vietnam and the United States. This is how “free trade” agreements pave the way for the extraction of wealth – by the erosion of economic sovereignty.
The Key government’s privatisation agenda is well advanced, with various private public partnerships (PPPs) already being developed. This neoliberal doctrine includes the privatization of prisons, schools, water resources, and all infrastructure.
Ultimately on offer is $5-20 trillion in Crown mineral wealth, including gold, coal, lignite, phosphate, iron sand, oil, natural gas, and more, all under the fourth lowest royalty and taxation regime in the world – a paltry 1% of the production value.
“Mixed ownership model” is destined to fail
The Key government plans to sell 49% of four state owned energy companies – Mighty River Power, Meridian, Genesis, and Solid Energy, and a further 23% of Air New Zealand. It is claimed that $5–7 billion can be “freed up” to reduce debt.
What really betrays these asset sales as an ideologically-based policy is the maths. Financial analyst Brent Sheather has calculated that the assets are earning a higher income than the cost of borrowing.
Currently, the cost of borrowing is 4% for ten years, so the cost of $6 billion would be $240 million. The forecast dividends of the four SOE energy companies average $449 million over the next five years, 49% of which is $220 million. Add $20 million for selling 23% of Air New Zealand and the lost dividends average $240 million a year.
Now, add the sales related costs estimated at 3% or $180 million, plus the expected improved performance from substantial recent capital investment, and there is no way for New Zealand taxpayers to come out ahead.
As the Green’s co-leader Russel Norman has said:
“We have seen this before. Like our energy SOEs, Telecom had invested significant amounts of capital in building a modern telecommunications network in the years before privatisation. In the years following Telecom’s privatisation, dividend streams for its new private owners doubled, then tripled within six years. History now seems to be repeating itself with our energy SOEs. National has allowed the taxpayer to build up the asset, only to then on-sell it to the benefit of others.” 
The initial public offerings (IPOs) will be snapped up and passed on to larger offshore players, who with only a combined holding of 25% will enjoy foreign-owned status under the Overseas Investment Act (2005), with ample influence at 49% to sway policy. So expect higher power prices.
Over the longer term, asset inflation will provide a mega windfall for shareholders.
In 1999, the NZ Herald reported that: ‘Over the past 12 years 40 state-owned commercial assets have been sold, realising $19.1 billion. As at August 31, 1999 these assets had an estimated value of $35.7 billion, $16.6 billion above their original sale price. … The privatisation programme has been a huge windfall for overseas investors. Just over 79 per cent, or $13.1 billion, of the increase in value has gone to offshore interests.’  
No political party can beat debt under our monetary system
New Zealand’s government debt is presently modest compared to private debt. In the short-term, tax reforms that enable a fairer redistribution of income would slow the deepening tide of all New Zealand debt – if only the Key government would allow this.
But in our post-peak oil world, without cheap oil to fuel high productivity, sovereign debt in New Zealand – as elsewhere, will inevitably force austerity measures consistent with the Washington Consensus. The past failure of these policies will be ignored, because ultimately there is simply no other option under the debt-based system.
Under fractional reserve banking the rate of growth of debt must be higher than the rate of growth of income to avoid collapse. In aggregate, debt grows exponentially until it cannot be repaid.   The world is literally attempting to engage productive overdrive in a hopeless struggle to satisfy unproductive debt servicing.
Almost half of the average earned income is already siphoned off via direct or indirect hidden interest, and in government debt taxes. In sum, almost half of humanity’s productive effort is to serve useless debt, instead of solve the world’s problems.
The pressure to leverage fiscal advantage from assets, of all kinds, comes directly from the ruling power – the international banking elite. No political party can entirely avoid asset extraction under the fractional reserve system. Governments can adjust the debt hand-brake, but the foreign bankers are in the driving seat.
The world is sliding toward zero and eventually negative growth. Sovereign debt can only speed up. New Zealand will join the economic train-wreck down the track.
The only escape route is a public medium of exchange that is debt-free. Every sovereign nation can issue its own currency without debt or interest, but nearly all governments align with the international bankers to extort the “common wealth.”
The Reserve Bank of New Zealand issues less than 2% of the nation’s money debt-free, serving the global central banking cartel, not ordinary Kiwis.
Selling public assets amounts to economic suicide
The European Central Bank (ECB) is clearly demonstrating how economic sovereignty can be wrested from countries through debt peonage.
The world on its present course cannot avoid fuel shortages, debt-deflation, fiscal austerity, increasing poverty, political and environmental conflicts over energy and essential commodities, unprecedented global protests against Wall Street financial injustice, political and legal challenges for full reserve monetary reform, climate and humanitarian disasters, further revolution and war.
We are facing the perfect economic storm, in which sacrificing long-term high performing income would guarantee poverty for the majority. Selling public assets amounts to economic suicide.
Most New Zealanders don’t realize that their country, and their future, is being sold.
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 Mixed Ownership Monitoring Unit. (2011, December 15). Mixed Owner Model For Crown Companies. Crown Ownership Monitoring Unit , 1 The Terrace, Wellington 6011, New Zealand.
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‘The gap between rich and poor in OECD countries has reached its highest level for over 30 years, and governments must act quickly to tackle inequality, according to a new OECD report. “Divided We Stand: Why Inequality Keeps Rising” finds that the average income of the richest 10% is now about nine times that of the poorest 10 % across the OECD.’
 Jan A. Kregal. (2003, April). The Perils of Globalization: Structural, Cyclical and Systemic Causes of Unemployment
‘In the view of US Secretary of the Treasury Morganthau the creation of the Bretton Woods institutions was to keep the control of the international financial system out of the hands of international financiers who were considered to have caused the Great Depression. Keynes agreed that free private international capital flows were incompatible with a stable international financial system and this similarity of views produced a post-war system in which it was presumed that there would be virtually no private international capital flows.’
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‘As a result, people who draw most of their income from returns on capital (the rich) gain, while people who get most of their income from labor (the rest) lose.’
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The Elephant In The Room: Debt Grows Exponentially, While Economies Only Grow In An S-Curve
‘Hudson says that – in every country and throughout history – debt always grows exponentially, while the economy always grows as an S-curve. Moreover, Hudson says that the ancient Sumerians and Babylonians knew that debts had to be periodically forgiven, because the amount of debts will always surpass the size of the real economy. … One thing is for sure. The exponential growth of debt is a structural problem which – unless directly addressed – will swallow all economies which try to ignore it.’
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