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I can’t decide how to vote in this referendum

I don’t know… I just really don’t know.

I was never convinced by the case National made in 2011 for selling 49% stakes in certain state assets. I didn’t really understand what they were trying to achieve. First, they would use the proceeds to pay off public debt. Then, they would use the proceeds to build schools and hospitals. I realise you can do both, but the more you do of one, the less you can of the other. Clearly debt wasn’t that pressing an issue. Then, they would give “mums and dads” a chance to invest in some of New Zealand’s best performing assets. So they obviously thought they were high-value, presumably because they brought good dividends. But they also thought a good way to balance books was to sell them. Which explanation flies?

At the same time, Labour’s opposition tactic baffled me. Something emotional about “owning our future”, whatever that means. Something nationalistic about being “tenants in our own country”, as if I felt ownership because my government owned it. Something about profits going elsewhere, when presumably the sale price reflects anticipated profits. It amazed me how a technical economic topic could become as emotion-driven as marriage equality. As unconvinced as I was about National’s case, I couldn’t see why it’d be a disaster, either.

Here’s what I never got. If you think the government will “win”, as in, get a good price for the shares, then you must also think that these New Zealand “mums and dads” will be paying a premium for them. Conversely, if you think that that it’s a real opportunity for investors, then you must also think that the government will get lacklustre proceeds from the sale. So either the government cheats itself, or it cheats its constituents.

Okay, not quite. Firstly, you might think that neither party will win or lose, and it all won’t be much different. But then, why the hype, the angst, the excitement? Secondly, you might think it is a win-win, like most economic transactions. But stocks don’t work like consumable goods: their value (in general) is in their capacity to make you money. Thirdly, you might take the ideological line, about states being bad conductors of business. But no-one made this argument. They couldn’t, because National was going to retain a controlling stake.

This tension might seem convenient to opponents, but a similar one strings them. If the assets are high-value, as Labour and the Greens campaigned in 2011, then selling them means giving up good dividend streams—but also getting a good price from buyers. If the assets are low-value, as Labour and the Greens think now, then selling them means getting disappointing sale proceeds—but also ridding its books of poor investments. Either way, the price will (presumably) reflect the value of the asset.

So when asset sales became the defining issue of the election, I never got it.

Mandates
After the election, the re-elected National government proceeded to do exactly as it said. And Labour and the Greens continually claimed that National didn’t have a “mandate” to run the sales. Why? Because polls showed that 70% of New Zealanders opposed them.

There is a huge meta-question behind that chain of logic. If the majority of a constituency opposes a policy, is the government obliged to follow them? How do you ascertain that for every single policy? Everyone made this issue the defining question of the election, and one side lost. Why does or doesn’t that constitute a mandate? What does that mean for the concept of representative democracy? When do we abandon it in favour of direct democracy?

Frustratingly, those questions got almost no attention. I don’t intend for this post to be an analysis of constitutional principles (hint: this means you should not comment giving or asking for an analysis of constitutional principles), but to provide some context, briefly: I think we elect governments to do a job, and then let them do their job. There are lots of nuances to this, and I think it’s important to hear opposition, but I don’t think polls should alone be enough to dictate government policy.

So when National proceeded, I wasn’t fussed. I don’t think it’s an affront to democracy, and I can’t see why it’ll be hugely either damaging or beneficial.

Abstain?
I actually abstained in the last citizens’ initiated referendum, because I thought the question was dumb. My threshold for boycotting a vote is very high: along the lines of, there is no correct way to answer the question. Otherwise, in general, I think people should vote in referenda. Tactically, there’s no way to distinguish between a boycott vote and an apathetic one. In principle, even if opposed to citizens’ initiated referenda, I think we should change the system, not try to undermine it.

So I’d like to vote. If someone can suggest to me why I should vote one way or the other, I’m happy to hear it. But please don’t revert to ideological references to the past, emotive nationalist ownership arguments, arguments that contradict the 51% stake thing, or other ridiculousness. And please try to be consistent. If you think a low price makes it a failure, I expect you to think that a high price makes it a success. Otherwise, find an argument that isn’t premised on the amount of proceeds or dividends.

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5 Comments Post a comment
  1. David #

    “presumably the sale price reflects anticipated profits” While this is true, it only reflects the anticipated profits over the period of time that the buyer is willing to wait before getting a return on their investment. This can vary quite a bit, but 10-15 years is reasonably close to the mark.

    Thing is though, I anticipate both the power companies and the New Zealand Government to exist for much longer than the next 10 years. Whatever short term gain we have will ultimately lose out a decade down the line. The short term winning out over the long term has been a running theme that’s starting to get a number of people fairly upset.

    When a government takes action, they should be thinking about the impact over the next 20, 50, or even 100 years. Because in all likelihood civilization will still exist at that point. The problem being that our system of government tends to favour things that will have a result before the next election.

    A lot of our major hydro plants were built 40-60 years ago, the electricity we still get from them is just as good today (if not better) than it was back then. And they were built to last a lot longer than that. The idea that we should now flog them off to get the next 10 years of proceeds right now, and the next 10 years only, is just painfully short sighted.

    26 November 2013
    • Chuan-Zheng #

      I’m confused. (1) Are you telling me that the assets in question aren’t already returning dividends, and won’t for another 10–15 years? Or are you saying that investors discount all gains after (roughly) 15 years at 100%? I thought hydro plants were benefiting from low marginal costs, since the initial capital’s pretty much done, so investors face no such payback period? (2) Given that most people, companies and retirement funds also live longer than ten years, do you think they’re short-sighted too?

      26 November 2013
      • David #

        And I’m confused by your confusion…

        I’m referring to the Price to Earnings ratio which is a fairly basic measure of whether an investment is worth jumping into. If I invest $100 into something, how long would it take before I get that $100 back in dividends? (while still holding onto the stock).

        Looking it up, MRP’s is actually 26 right now, so that (crudely) states that, all earnings per share being the same, the $100 I put in today will take 26 years to come back to me.

        But after that 26 years, it’s all pure profit from an investors point of view, assuming they hold it the whole time. For the seller, they get the cash now, but 27 years from now, they end up being steadily worse off.

        10/20/30 years is actually a pretty significant time for a human being, but it’s not for a country. Properly maintained infrastructure can last for much longer. This is a hyperbolic comparison sure, but there are major roads in Britain that still follow the same route ancient Roman roads took. National level infrastructure has far, far reaching consequences for people that haven’t even been born yet, and I don’t feel that’s really been taken into consideration enough here in favour of a cash injection now that they want to spend in what, 1-2 years?

        The 51% ownership muddies things a bit, but to be honest I see that as someone claiming they want to put in ‘just the tip’. Once it’s on the market it’s a lot easier to sell the rest, see AirNZ for example.

        26 November 2013
        • Chuan-Zheng #

          Every glossary-type I’ve found in a quick search of the internet says that, contrary to your description, a high price-to-earnings ratio normally indicates either that the stock is overvalued, or that investors expect high earnings growth in the future. Is this incorrect?

          26 November 2013
  2. I also found it a dilemma, but voted against selling. under our current electoral rules, our govt. does not truly reflect all NZers (certainly not a ‘majority) as each vote is not of equal value, and participation rates are skewed, not only in voting, but in discourse and political power. Further, past and future generations are not represented, nor the young (under 18’s). .Besides, can we be sure ‘we own’ these intergenerational ‘assets’ (if thats what they are) – to sell them to the markets where votes are dollars? So what I did was follow the old axiom, – if in doubt, kick for touch. However, I stilll retain the pricnciple that, ideally, our governement should not be involved in commercial trading in any substantial way.

    27 November 2013

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