How About Genuine Capital Market Reform?

I usually roll my eyes when I see mention of the “capitalist class” and “class war” in a blog post.

But this post on The Standard raised interesting questions, even if the tone of the post and the discussion that followed quickly descended into an attack by all and sundry on that evil and shadowy class known as "The Capitalists”.

Can someone explain to me this ‘deepening the stockmarket’ line that the Right uses for privatisation? I consider myself reasonably well informed on these issues but I just can’t see the value to the country of the government selling public assets to a handful of stockmarket participants. Why is ‘deepening’ the stockmarket by giving up our public assets a good thing? And good for whom?

If the stockmarket does need deepening, why can’t the private sector do it for itself? We keep hearing that these rich captains of private sector industry were the wealth and job creators, why can’t they make successful companies themselves without a government handout?

The sad fact is that the largest companies in New Zealand are nearly all public assets, failed privatisations that have received or need bailouts (Air NZ, Telecom), or the beneficiaries of past privatisations, were set up with special legislation (Fonterra), or the foreign banks.

Is ‘deepening the stockmarket’ just another line like ‘mum and dad investors’ or ‘tough on crime’ or ‘balancing our economic opportunities with our environmental responsibilities’ or ‘taking the sharpest edges of the recession’ that sounds good and kind of clever but is actually just a fig leaf to hide what is really going on, in this case an attempt by the capitalist class to grab public wealth.

There are actually two questions here. One is whether we need a deepening of our stockmarket at all.

If the answer is yes, the second question is whether privatisation is the best way to get there.

I think it’s pretty clear (unless you’re rabidly anti-business) that we desperately need a stockmarket with more and better listings. If investors had more options available to them they might be inclined to invest in productive areas of the economy, rather than in real estate investments and finance companies.

But there haven’t been any decent new listings on the NZX for ages, and a lot of the companies listed at the moment don’t inspire confidence, and are mismanaged. Would you put your money in Allied Farmers or GPG? It’s not all bad news (Air New Zealand is a company doing well and with a superb CEO), but it’s a fact that the capital markets in many other countries perform better than our own and actually contribute to growth. It is not capitalism that has failed – just our particular version of it.

However, simply privatising a whole pile of state assets would do nothing to address the question why our markets perform so poorly and why new ventures aren’t listing. Maybe that’s one of the attractions of the proposal being floated. It’s a short-term fix that doesn’t require our business and political leaders to examine how their poor managerial and governance practices have contributed to the state we’re in.

Nor does it require us to consider whether our entire regulatory framework is flawed (although, to be fair, at least the Government is now looking at the issue of securities law reform after years of inaction).

And even if we privatise these infrastructure assets we still won’t be doing anywhere near enough to create new innovative businesses or technologies.

As for “Mum and Dad investors”, why would they invest in something they don't trust? Public confidence in the capital markets is at an all-time low, thanks to a succession of robber-barons treating the public with contempt and living the high-life while their victims suffer in poverty.

So who will really invest in these assets once they're privatised? Probably not the “Mum and Dad investors” we keep being told about.

All this means we'll just keep merrily puffing away on the real-estate crackpipe.