Dialogue: Economy derailed in a business city

In Wellington last weekend the leader of the Alliance wagged a finger at his party's annual conference when its president, talking of railways, uttered the word nationalisation.

In Auckland three days later, a board of businesslike citizens, sitting in charge of a public chest, committed $30 million to buy Tranz Rail's lease of the local tracks.

This is a tale of two cities.

When Tranz Rail announced last week that its passenger services were for sale, Jim Anderton and Michael Cullen invited its principals to the Beehive for a quiet discussion. Later, Mr Anderton observed that if anybody thought the Government would buy back something the company had obtained for next to nothing, "they must think we're suckers."

Auckland's local government, led by the likes of Philip Warren and Bob Harvey, are doing exactly that - offering Tranz Rail $65 million for the lease of two lines. The company probably cannot believe its good fortune and may be trying its luck nationally.

Auckland's mayors want control of the rail corridors for a $1.8 billion scheme that might relieve the city's road congestion, provided they can change the lifestyle and travel patterns of the place.

Predictably, those whom the mayors have put in charge of a serendipitous fund called Infrastructure Auckland have decided to finance the deal - so long as the country's taxpayers, through Transfund, share the cost.

Transfund, which meets in Wellington, plainly finds the whole proposal out of left field. So do the Minister of Transport, Mark Gosche, and the designated Minister for Auckland, Judith Tizard.

In the end they may go along with it for political reasons but they are clearly struggling to reconcile the proposition with any principles of good government at work in Wellington. It is certainly outside Transfund's normal frame of reference.

The question is not whether the Auckland Mayoral Forum is right or wrong, but whether they, and the people at Infrastructure Auckland, are well-placed to make an investment of this kind.

In the city where national policy is made, just about everyone seems to know what an economy is; in the city where business is done, few have the slightest idea.

Every public official in the capital, and every intelligent parliamentarian, quickly learns that an economic policy - any economic policy - aims to extract the maximum value for the nation as a whole from all the resources within it.

Everywhere else, including Auckland, present economic policy is regarded by friend and foe as something designed to serve the interests of business.

Helen Clark is going to sit down with selected businesspeople in Auckland on Tuesday to continue her quest for the Third Way. The doors will be closed because she knows, I'll wager, that it will probably fall to her to keep market-led investment in the mix.

When business audiences hear emissaries from Wellington talking today's orthodoxy - that national resources are best allocated by decisions of private investors and consumers - they are inclined to purse their lips and nod sagely. The nodding gets particularly vigorous when somebody says we must get government out of business.

Then they put up their hands to say the Government needs to give them visions, directions and incentives of all sorts.

They welcome the privatisation of assets for the business opportunities. They are inclined to forget the real reason - to ensure that investment decisions are made by people who stand to lose if they are wrong.

When the railways were sold, for example, the new operator quickly decided it was not worth putting much more capital into urban commuter services.

You might, as some non-investors do, attribute the decision to a peculiar pathological attitude to passengers at Tranz Rail. Or you might think the company will have weighed the costs and likely patronage and judged it to be a poor investment.

Either way, once you knew the company was putting the passenger business on the market, you might wait to see whether a buyer took a brighter view of the service.

But there is probably no stopping Auckland's public enterprisers now. Thanks to Wellington's reorganisation of Auckland regional government eight years ago, there is money to begin a scheme that enthusiasts have never dared put to a loan poll.

Their names will be forgotten when taxpayers, ratepayers and the Port of Auckland are carrying the operating costs.

The port that handles the largest share of the nation's trade is the cash cow that gave birth to this indulgence. If it is often hard to see how an ill-considered investment can damage the whole economy, it is not hard here.

In Auckland on Tuesday the Prime Minister will need to spell it out that if the Government is going to provide venture capital, export credit guarantees and product development incentives for selected industries, it will have to make the crucial investment decisions.

And when she hears - as she will - the appeal for a corporate tax cut, she should be curt. If our captains of commerce need the Government to show them the way and share the risks, the costs of the assistance should come from them.

Far from lowering top tax rates, they are providing a strong case for raising them. In a city that doesn't know the difference between economics and business, that might wake them up.