Economic sabotage

Before the election, we were told by Labour that once 49 per cent shareholdings of state-owned enterprises had been sold there was no getting them back. This, of course, was bollocks. Clearly any future government would be well within their rights to purchase shares from the other shareholders at a mutually-agreeable price. What Goff meant was that once the 49 per cent shareholdings had been sold, and the sky had failed to fall, there would be no public appetite to take on debt to re-acquire them.

Apparently without any sense of irony, David Cunliffe, Goff’s finance spokesman, hasn’t even waited for the ink to dry on Phil Goff’s eulogies before effectively acknowledging that the claim that they could not be re-purchased was bogus. He has now promised that, if he becomes leader of the Labour Party, he will re-acquire the assets.

From an investor’s perspective, this ought not to be a problem. Indeed, Labour promises to the effect that they’ll re-purchase the shares could play into National’s hands by ensuring that there is a steady stream of investors ready to buy now and re-sell the shares at an inflated price to a future Labour government who can’t afford the political risk of backing out of an election promise.

Except that Cunliffe has referred to “re-nationalisation” as a “regulatory risk”. As I pointed out in a comment on Whale’s post on Cunliffe’s announcement, a simple buy-back of shares is not a “regulatory risk”. Cunliffe is attempting to sabotage the share float by raising the prospect of a future Labour government using its regulatory powers to re-acquire the shares for less than their market value. Or, as Chris Trotter has proposed, for a Labour government to use its regulatory powers to undermine the value of the shares, then re-acquire them.

I doubt that any Labour government elected in 2014 or later would actually pursue either path. Many of the shares in the floats of the power companies will be purchased by Kiwisaver providers. Once that has happened, proposals to undermine share values won’t fly with swing voters.

Cunliffe’s promises to re-acquire the assets therefore are entirely cynical. He hopes to fire up the Labour base by demonstrating that he is not just a “paler shade of blue” (and that by implication Shearer is). Secondly, if his leadership bid is successful, he hopes that fears of “regulatory risk” will undermine the sale of shares, thereby embarrassing the government and allowing Labour to label the whole escapade a failure of ideologically-driven free-market policy.

I would expect then that Cunliffe will avoid any details of how he would re-nationalise. Any specifics on how he would ensure that the government was able to re-nationalise cheaply (for instance by following the Chris Trotter prescription) would leave him open to attack. But he will need to avoid any suggestion that a Cunliffe government would simply re-purchase the shares, because that would effectively be a deposit guarantee for investors, ensuring over-subscription and handing National a free win.

So, if he continues to discuss it at all, he will continue referring to “re-nationalisation” rather than “re-purchasing” and talking in foreboding terms about unspecified “regulatory risk” to investors.

The actual damage Cunliffe’s sabotage could do is pretty limited, but it’s disappointing that someone who would be Prime Minister would resort to it.

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