N is for nationalisation

The NZ Initiative continues it series:

Try to envisage a world in which you wake up every morning from your bed, manufactured by Kiwibed, prepare your breakfast of Kiwibread and Kiwicoffee, and put on your clothes – made by Kiwiclothes, no less.

Oh my God, they’ve been leaked a copy of Labour’s manifesto!

This may sound like a nightmare to some, where practically all goods and services are produced by nationalised and monopolised industries, and are shielded from the price-reducing effects of private competition. And yet, this was the reality under Soviet style communism, and not too dissimilar to many major OECD countries up until the early 1980s.

Nationalisation refers to the purchase of privately owned corporations, industries and resources by a government. Often, it occurs with the intention of maintaining wealth-generating assets in public control, preventing labour exploitation and large-scale layoffs, or trying to ensure the fair distribution of income generated by a state’s national resources. Whether this always works in practise is an entirely different question.

In New Zealand, there have been a number of high-profile nationalisations including the purchase of the Bank of New Zealand in 1945 by the Nash government, Tranz Rail in 2001, Air New Zealand in 2003 and the remaining rail network in 2004. Most recently there was the 2008 purchase of the rolling stock and ferries from Toll New Zealand.

Historically and globally, industries that have commonly been subject to nationalisation have been those in the transport, communications, energy, banking, utilities, and natural resources sectors.

Nationalised industries are meant to operate in the public interest. Unfortunately, the consequences of nationalisation have, in practice, often resulted in greater inefficiency, reduced productivity, limited consumer choice, poor service and higher consumer prices. Those who remember the 1980s can probably recall the exorbitant costs of a long-distance call under the state-run model.

Privatisation on the other hand – the opposite of nationalisation – opens a company to private competition, encouraging the offer of better service, more choice and lower prices, all the while realising a decent profit margin. However, not all privatisations are entirely successful on all counts.

A notable case was that of British Rail between 1994 and 1997, which did not reduce ticket prices as predicted, instead creating one of the most expensive train systems in the world. It did, however, result in improved safety, timeliness and increased patronage.

Nationalisation and privatisation will always illicit vigorous public debate on whether one or the other is right or wrong. However, when it comes to where we sleep, what we eat, and what we wear at the very least, we would all much rather have more and better choices at lower, more competitive prices.

To say it with a famous advertising slogan: there are some things that markets can’t do. But, for everything else, there is capitalism.

And we have proposals for KiwiBuild, KiwiPower and no doubt one day KiwiFood!