We have an extractive economy which depends on commodity
exports. That makes the drought a big deal. It makes Solid
Energy a big deal - made bigger by a public-private muddle.
The drought is big for farmers. It is big for the rest of us
because most exports are of what is extracted from grass
grown with rain, from forests, from the sea, from underground
and from the landscape, exported as pleasure for tourists.
More advanced economies mainly export what they do with what
countries like ours extract. The value they add each hour of
work is higher than ours so their people are better off.
John Key and Co want us to extract more, particularly milk
and petroleum. One of Amy Adams' departures from the Land and
Water Forum consensus is an enthusiasm to dam nice rivers
(with public funds) for water for farms.
But in an extractive economy a commodity price fall cuts our
material standard of living.
When the coal price plunged last year Australia's media
numerously reported coal mines closing and firms in trouble
in Queensland. Solid Energy had lots of company.
But because Solid Energy is a public entity, its trouble is
political. Government politicians blame Don Elder for runaway
ambition. Opposition politicians blame ministers for being
Dr Elder thinks big and wide. He is solid energy, megajoules
of it. His ambition to build a mineral resources
conglomerate, which ministers batted away, made waves behind
the scenes at the time and attested to his restless lateral
thinking and entrepreneurial instincts. He is an
effervescent, stimulating fellow.
Dr Elder was the man to deliver what state-owned enterprises
(SOEs) were told to do when they were corporatised: act
commercially, that is, as private-sector firms do. But,
unlike a private firm, Solid Energy can raise capital only
from the government (that is, taxpayers). When it wanted
capital to spread its risk from reliance on a single
commodity ministers said no. Bill English wanted to strip
taxpayer capital out of Solid Energy, not put more in - just
as he will strip 49% of taxpayer capital out of Mighty River
Power next month (a referendum will likely later tell him he
didn't have a mandate to do that).
Without more capital, Solid Energy could expand only out of
retained earnings (great while the price was high but only
while it was high) or joint ventures or with more debt. Even
without expansion, ministers drove the board to raise the
debt ratio beyond its comfort level so Simon Power could
extract higher dividends. That, ministers thought, would
drive commercial efficiency and add to revenue to help Mr
English's fiscal consolidation.
So, when prudent private-sector firms around the world were
deleveraging during and after the global financial crisis and
now have cash in the bank, Solid Energy had to lift its
leverage and so its, and our, risk.
In short, a public entity, an SOE, was expected to act as if
it was a private entity, a firm, but had to do so under the
thumb of public-sector ministers who made a careful
public-sector (fiscal) decision but a dubious private-sector
The Cabinet is more comfortable when there is a sharp line
between the private and public sectors and it favours the
private. So it cuts core public sector jobs and constrains
SOEs and its half-step to ''mixed-ownership'' will inject
some private-sector oversight. Mr English often says that a
real job is created only when a (private) business hires
someone (at the extreme, that logic says a nurse in a private
hospital is a wealth-creating job and one in a public
hospital is not).
But actually, no private firm is an island - it sells to the
public, the public regulates it through the government, to
which it pays taxes (or should), and it uses public
infrastructure, including roads and schools.
And actually, the public sector does create wealth -
education, for example, adds to wealth, intrinsically for the
educated, and, by building human capital, to all of us. And
as the global financial crisis kings showed, the private
sector can destroy wealth and, as a result, jobs.
In fact, the Cabinet is not as ideological as its rhetoric.
There are no plans for more private prisons: their value is
as a monitor and comparator for the public operator and as an
innovator, not as an automatically better operator. Don't
expect large numbers of ''partnership'' (charter) schools. Mr
Key lavished taxpayer money on private rugby and private Sir
Peter Jackson. And ''mixed-ownership'' is, well, mixed.
The private and public spheres are not distinct. They mesh,
overlap and often blend. Drought-stricken farmers needing
public-sector handouts know that. Private-sector-loving
United States lavished public money on big ''private'' firms
during the global financial crisis.
Solid Energy's past and Mighty River's future suggest a need
to rethink the public-private relationship - not just on the
Cabinet side of politics but on the public-sector-loving
Labour-Greens side. So far, neither side has really done that
Colin James is a leading social and political