Tuesday, June 01, 2004

Slow down Kiwi, slow down...

It's winter-like outside in Auckland. Relatively speaking.

Improbably, women throw ample scarves round necks in plus 15c degree weather. Narrow-lipped kiwi men walk vigorously in pea coats while gusts of warm, moist ocean air push leaves and garbage down footpaths. People shiver and turn indoors to watch bad television.

It's the time of year when all thoughts turn to electricity. And right on time, the state owned enterprise Transpower is warning that we might face yet another power crisis. Over at Fighting Talk, Lyndon Hood rehearses the good old saw about not relying on the free market to provide such goods as electricity and water. For the record, I think he's absolutley right. Between you, me and the cursor, I can't believe that we still have argue this.

Idiot at No Right Turn makes an interesting comparison between the provision of electricity and roads:

Look at the roads. Like the national grid, they're a vital piece of infrastructure on which people (and the economy) depend. Yet they're not run as an SOE. Instead we have centralised funding and planning to ensure that the network goes everywhere we want it to go and carries the traffic we need it to. It's not perfect - just look at Auckland - but the system generally works and is at least certain of its purpose: to build, maintain and upgrade the road net for the benefit of the people of New Zealand.

It's a very good point. It brings us back to the Lange government and the reforms. Economist Brian Easton argues that the reforms involved three distinct but related policy instruments: commercialisation, corporatisation and privatisation. Commercialisation refers to the use of private business as a model for organising both economic and non-economic life. Corporatisation is the process whereby publicly owned agencies are required “to behave as if it were a private corporation” while privatisation refers to the sale of publicly owned assets into private hands.

It's arguable that both commercialisation and corporatisation have had some positive effects. They have also had negative effects. But privatisation? That's another thing entirely. The problem is that back in the period of the reforms, New Zealanders seemed to get all this confused. Justin Malbon has argued that New Zealand's response to the heavy regulation and poor productivity of the Muldoon years was logically flawed:

The logical response to regulatory ‘failure’ is not necessarily to abandon regulation, but to reform it. Second, the reason that many utilities were government owned was because they were natural monopolies, which would take advantage of, rather than be constrained by, market conditions. Third, utilities offer essential public services. It has long been recognised that some services are affected by the public interest so as to require the service provider to offer the services to all, without discrimination, at a reasonable price.

The point is that New Zealand skipped regulatory reform. Intead, in example after example, this country refused the more gradualist approaches followed by countries like Australia and Canada and opted instead for full privatisation. And once utilities like electricity were placed in the magical hands of the free market, this country's strange cabal of policy wonks decided that the role of government as a regulator could also be abandoned.

And that brings us to where we are now. Looks like we'll have to go back a few steps. Back to the future.