John Minto: Political pledges carried high price

As the dust settles over the latest Telecom debacle it's time for an honest evaluation of the privatisation of community assets, which so dominated economic policy from the mid 1980s.

Telecom was the centrepiece of the rush to privatisation. Other high profile sales included Air New Zealand, New Zealand Rail and Postbank.

At the time we were told by the likes of Roger Douglas, Rod Deane and the Business Roundtable that privatisation would lead to more efficient, cheaper, and better services. The taxpayer would no longer face the risks associated with running commercial enterprises. That risk would be for private investors, taxpayers would be insulated from losses.

Neither would we have to front up with the hundreds of millions needed in additional capital to keep these enterprises up to scratch in the new globalised world.

We could look forward to strong economic growth led by the private management of these assets and while there might be pain in the short term, the country would be put on the right track for a bright future. We were leading the world with economic innovation and would leave other countries in our wake.

Any rational examination of the evidence since 1984 would say the policy was a spectacular and tragic failure. Spectacular because on every count the experience has been the reverse of what was promised, and tragic because of the appalling price in human suffering that has been paid by low income families.

In telecommunication services we have dropped well off the international pace. The cost of business access through Telecom is the highest in the OECD; low data users pay 80 per cent above average and medium users, families on home computers, pay 160 per cent more than the OECD average.

Telecom CEO Theresa Gattung was blatantly honest when she told a meeting of business analysts in Sydney two months back that Telecom has "not been straight up" with customers. She said, "Think about pricing. What has every telco in the world done in the past? It's used confusion as its chief marketing tool. And that's fine. You could argue that that's how all of us keep calling prices up and keep them going a lot longer than would have been the case."

When Telecom was sold, the public monopoly so hated by business became a private monopoly accountable only to its shareholders. In round figures the purchase price for Telecom was $4 billion and when the original American buyers sold it, the selling price was $12 billion. This capital gain of $8 billion was on top of another $12 billion they made in profit over the decade they owned the company.

Ameritech and Bell-Atlantic (the American owners) were staggered at their good fortune and at the blind stupidity of our Government. They nearly drowned in the trough.

Our rail network is an appalling mess more than a decade on from its sale. The infrastructure was run down and rail services abandoned by its private owners, who saw it as a cherry-picking opportunity.

When the Government bailed out the company and bought the track back for a nominal $1 we then had to pay more than $200 million for the track to be upgraded so we could allow another private operator, Toll Holdings, to use it for commercial benefit. When Toll leaves we will again pick up the tab.

Air New Zealand was also sold as part of the fire-sale privatisation of our community assets. The freewheeling corporates who bought the airline flew it into the ground. Instead of concentrating on providing high-quality air services for New Zealanders at home and travelling abroad they tried to expand into Australia by buying Ansett. The result was a disaster with hundreds of millions lost from our economy.

Just as with rail, the Government eventually bailed out the airline, this time to the tune of more than $800 million. The risks were met by taxpayers in both cases. It was a simple case of "socialise the losses (taxpayers pay) and privatise the profits (shareholders gain)".

Postbank was sold to the ANZ Bank, one of the big four Australian banks which account for approximately 90 per cent of all our banking. Overall, New Zealand has the highest degree of foreign bank ownership in the world and they reap more than $2 billion in profit from us each year. They are also reluctant taxpayers. Their combined unpaid tax was last year estimated to be as much as $1.63 billion. Again, these banks owe their allegiance not to customers but to their dividend-hungry shareholders.

Ironically Australia specifically prohibits foreign ownership of its banks, and no wonder. Any sane country would run a mile from the New Zealand experience.

So while we wore the losses at Air New Zealand and New Zealand Rail, the so-called "successful" privatisations have stripped billions from our back pockets.

We certainly lead the world in economic policy but in the wrong direction. And it is important to remember that we never voted for privatisation and its associated policies. From 1984 to 1996 we voted for governments which did the reverse of what they promised.

The privatisation of each asset was opposed by a majority of New Zealanders but the Rod Deanes and Business Roundtable types knew better. They pushed ahead with compliant Labour and National Party governments and produced a huge transfer of wealth from those on low incomes to a wealthy elite living off the pig's back.

As Rod Deane leaves the board of Telecom after overseeing the full disaster of its privatisation over the past 16 years and with his pockets well lined he might spare a thought for the 175,000 children who now grow up in families on incomes below the poverty line.

* John Minto is a founder member of the Workers Charter.