Dialogue: Let's treat triumph and disaster just the same

By PETER SHIRTCLIFFE*

It was a pleasure to read Jim Eagles' article on September 20 arguing that the vilification of Air New Zealand's managers is being overdone.

The same could be said about the widespread abuse heaped on the All Blacks when they lose, or on our Olympic athletes when they fail to win a swag of medals.

Success and failure are intrinsic to competition. To do one's best and fail is no disgrace. Nor is there virtue in winning dishonourably.

The confusion between failure and disgrace is widespread. It can be seen in the attitude of the main teacher groups towards the changes to the school qualifications framework. These groups exploited this confusion when they opposed school certificate (and external examinations more generally) on the basis that if 50 per cent of students fail then 50 per cent are failures. In all walks of life, competition provides the spur to excel. To compete successfully requires teamwork and cooperation.

In business, as long as customers can shop elsewhere, competition forces firms to seek ways of offering their customers ever better value for money.

The national lamenting about failure is a good sign if it means New Zealanders aspire to excellence. But it is exposure to competition that inspires excellence.

Government ownership and regulation are commonly the enemy of competition. The animosity of our teacher unions to performance pay and competition from private providers is legendary. To be fair, it is only human nature. Businesses lobbied heavily for import protection in the bad old days. Air New Zealand's problems arise in part from the Australian Government's refusal to allow open skies competition in Australia. The NZ Government's limits on foreign ownership of Air New Zealand have played a part in its current difficulties.

Ownership matters. People take more care when their own money is at risk. The gains from selling Government-owned enterprises and exposing them to competition are becoming increasingly well researched and documented as a result of the global experience with privatisation. A comprehensive survey recently published in the Journal of Economic Literature concluded that divested firms "almost always become more efficient, more profitable, financially healthier, and increase their capital spending".

In similar vein, a recent review of the performance of New Zealand's state-owned enterprises by the New Zealand Institute for the Study of Competition and Regulation found none of the five firms studied achieved the productivity gains of Telecom and Tranz Rail, companies that have been sold. The privatisation of Telecom has been a big success for consumers and investors, as research by Professor Lew Evans and David Boles de Boer has established.

It is a strange pathology that ignores or denigrates success and regards failure as a reason to indulge in national self-flagellation. We seem to have reached a situation in which each prominent business failure is used to question the competence of the entire business community, even if the firm in question is controlled from overseas. In the process, the fact that the vast majority of firms do not fail is ignored.

On Stern Stewart data, the earnings of the median firm in New Zealand just cover the cost of capital. This is a sign of healthy competition. During the three years for which their data have been published, 10 firms out of the top 40 outperformed their cost of capital every time. How often do we see this point highlighted?

Telecom's performance has been outstanding. Yet it is attacked for allegedly making monopoly profits despite manifest competition. No doubt if Telecom fails to create economic value added, it will be attacked for "destroying" wealth.

Contrary to the monopoly interpretation, Hallenstein Glasson comes out as the top-performing company if we use the margin between the achieved rate of return and the cost of capital as the measure of performance. It outperformed Telecom on this measure in all three years. Baycorp and Sanford outperformed it in two successive years. The Warehouse Group was not far behind. Let's hear more applause for our top achievers and less abuse of failure.

If the widespread abuse of failure reflects a desire for excellence it should be directed at the opponents of open competition and private ownership. We need our schools to inculcate an understanding of the virtues of entrepreneurship and competition and the importance of personal integrity in all things and making the most of one's abilities. By the same token, if we want excellence in education we should dismantle the public monopoly and expose providers to competition.

Americans are said to regard the number one hero as the entrepreneur who succeeds and the number two hero as the entrepreneur who fails. Rudyard Kipling enjoined us to treat those "two impostors", triumph and disaster, just the same. We should make this message part of our culture.

* Peter Shirtcliffe is a member of the executive committee of the Australia and New Zealand Business Council.