Narrow focus, Brian Easton

Corporatisation and privatisation: New Zealand
Ian Duncan and Alan Bollard,
Oxford University Press, $29.95

 

The preface of this book states ‘the work is based originally on an unpublished study of thirteen state enterprises, commissioned by the New Zealand Treasury from the New Zealand Institute of Economic Research for whom the authors work. In addition they received financial assistance at the editing stage from New Zealand Rail, Electricorp, and New Zealand Post.

There is nothing wrong or insidious about this, but such commissioned work involves an approach different from that normally assumed by the reader. Since this seems to be an increasing source of publication it is useful to examine work from this perspective.

Unfortunately the authors neither set down the original terms of the commission, nor describe the changes made from the commissioned report (which is available under the Official Information Act). The changes, especially in Part 1 ‘The Reforms’ are large – several chapters are rewritten, others are condensed, and others contain entirely new material.

Thus there is a sense in which the Treasury-commissioned report enabled the authors to collect an enormous amount of valuable material which the book makes available to the public. It is at its weakest where the Treasury did not commission work, for the original project encompassed mainly state trading enterprises (i.e. corporatisation) and the material on privatisation is much thinner.

An alternative view is that the Treasury terms of reference set a framework from which the authors never really escape. In the commissioned report the objective is described as ‘…   to identify what institutional factors have shaped the differing outcomes. In particular, by examining the experience of a variety of organisations, we hope that conclusions can be drawn about what elements are important in determining commercial success’. Thus the underlying framework is an empirical study of commercial performance, informed by a theoretical framework. There is nothing wrong with such an objective – and indeed the authors handle it nicely by focusing on the cross-sectional – but it is a limited account of the whole debate.

This is most evident in the quotations and references, which all refer to proponents of corporatisation and privatisation: the Business Roundtable, Treasury officials, the chairman of the State Services Commission who supervised the process, financial consultants who participated in the changes, those who work for the new corporations, and members of the corporate boards (who include some of those previously mentioned). But there is nary a reference to any of the critics of the process. The overseas reader may well obtain the impression that the corporatisation and privatisation occurred with almost national unanimity.

This is because the main debates were about the appropriateness of the commercialisation criteria and other wider issues. The Treasury remit, by focusing on a very narrow issue, also narrowed the focus on the researchers, so the crucial question of whether the exercise was beneficial to the nation is not directly addressed.

There is data which contributes to answering these questions, but it is far from comprehensive. For instance, we cannot assess the fiscal impact of the changes except in some cases in a limited way. This is especially true in the case of privatisation – the study is rather skimpy on the subject anyway. However, unless it is assumed that commercialisation in the form undertaken is the only solution, the study provides no definitive conclusion for the superiority of the Treasury’s programme.

Moreover the casual reader must be careful in interpreting the data. There is plenty of evidence showing that the state corporations did better on commercial objectives than their pre-1984 entities: they would, wouldn’t they? Before 1984 the entities were not asked to pursue remorselessly, so one would be astonished if the conclusion was otherwise. Methodologically the study avoids this simplistic conclusion because its approach is ‘cross-sectional’, that is the differences between the various post-1984 entities (which was the Treasury specification when commissioning). Nor can the study contribute much to the debate whether corporatisation was the best form of reformed structure, even where commercial or pseudo-commercial objectives were appropriate. The suspicion remains that the Treasury chose the organisational form it did, because it facilitated privatisation.

Sadly, because the focus was on commercial objectives of the enterprises, the authors’ comments to the more controversial areas are unhelpful, especially in the few fluttering remarks about Crown Health Enterprises, which appear to adopt unquestioningly the view that commercial objectives will not conflict with health objectives. And is there a wistfulness in the comment that the organisation of the natural science-orientated Crown Research Institutes ‘recognise(es) that public good research has long-term objectives and cannot be ran successfully in a narrow commercial way? That applies to economic research too.

It is not appropriate here to detail a number of grumbles, except perhaps one which is on the back cover. We are told ‘policy makers in New Zealand and Australia … will find (the book) thorough and illuminating’, a statement which is true provided the confined scope for the work is acknowledged to be the practicalities of what to do after the commercialisation decision is made (and not as to whether it should be made). But why not invite policy makers elsewhere to read the book? Do the publishers suffer from a colonial cringe? Or perhaps they are bringing out a Northern Hemisphere edition. They should.

 

Brian Easton is an economics consultant in Wellington.

 

 

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