Bringing people into the country is strategic but having electricity isn’t??

So we have been talking about asset sales (or the blocking of) in relation to Auckland airport a fair amount lately. As you may or may not have picked up I don’t really have a problem with the idea as the assets in question were already owned by investors and nothing bad had happened. We are talking about two profit maximizing investors exchanging ownership of an asset; they have the same incentives to make money regardless of whether they live here or overseas. We aren’t talking about privatization where the government is selling something to private investors where the incentives between the two parties could arguably be quite different (profit maximization vs. welfare maximization) although they often coincide. That however is a different issue.

I was a bit astounded to read this morning that aparantly the government is unlikely to block the sale of part of our electricity distribution network but not an airport. Not because I have a problem with the sale (I’m perfectly comfortable with it) , more that I think if you apply the same incorrect logic that blocked the AIAL sale, you should be more worried about electricity lines.

You’ll notice that in my post on AIAL one of my main points was that if the airport was “run down” to save money as greedy profit maximizing Canadians would do (but greedy profit maximizing New Zealanders would not), people could go somewhere else and that acts a constraint. What can people substitute to if the electricity network is run down by greedy profit maximizing investors? Well, you are pretty much screwed.

If you believe the arguments against asset sales (which I don’t), you should probably be much more worried about electricity, especially given that it powers all the computers we do all of our work and communicate with the rest of the world with. Even if no one comes to our country because our airport sucks, having electricity to be able to make things and communicate with the rest of the world is much more important.

I just don’t really understand the inconsistency here? Maybe someone can enlighten me the specific definition used to define a “strategic asset” is? Maybe it’s more than a coincidence that we just signed a free trade deal with China and a state owned Chinese company is bidding on the network is more than a coincidence? Maybe this just doesn’t make sense because I haven’t had my coffee yet today? who knows…..

Agnitio

  • “We are talking about two profit maximizing investors exchanging ownership of an asset; they have the same incentives to make money regardless of whether they live here or overseas. We aren’t talking about privatization where the government is selling something to private investors where the incentives between the two parties could arguably be quite different”

    Thats a good point – I think people are confusing domestic vs foreign with public vs private.

    “Maybe this just doesn’t make sense because I haven’t had my coffee yet today?”

    I haven’t had a coffee yet either, but I’m sure when I have one in about an hour I’ll remain as confused by this as I am now.

  • I think the confusion is due to your belief that the government (a) maximises welfare and (b) has consistent preferences. I’m not sure that their incentive structure induces the first cos they need votes more than they need welfare. I don’t see why they’d have the second when nobody else does. Indeed, a vote maximising strategy aimed at cognitively limited voters is bound to have inconsistencies!

  • dracotb

    1.) The comments were by unnamed lawyers and not the government. They’re saying so because precedent has been set. Unfortunately precedent has just been set for that previous precedent to be overturned. It will be interesting to see just what the government does.

    2.)

    You’ll notice that in my post on AIAL one of my main points was that if the airport was “run down” to save money as greedy profit maximizing Canadians would do (but greedy profit maximizing New Zealanders would not), people could go somewhere else and that acts a constraint.

    Where could they go? I know of no other international airport within the same distance to Auckland as the AIA. As it stands the AIA is a monopoly. Even if Whenuapai was turned into an international airport Auckland would still only have a duopoly and I haven’t seen anything to suggest that that’s any better than a monopoly.

    3.) The faulty logic was the actual sale of government owned monopolies that are most likely to stay monopolies in the first place.

  • Hey Dracotb

    1) I know it was lawyers, sorry if I gave the impression that it was the govt itself! I generally hope that poeple will read the linked articles like you did:)

    2) I don’t see why Whanuapai wouldn’t be an option if AIAL wasn’t run down and/or raised prices given that it was being considered even before all this hoopla around AIAL being sold started. My argument is also more along the lines of
    A) People can flag NZ altogether
    B) Fly into NZ via Sydney to either Wellington or Christchurch
    obviously (more fesible coming from Europe or Asia although I know people who have done it from the US to save money).

    Obviously the feasibility of bypassing Auckland depends on your reasons for coming to New Zealand. For business trips you probably have to be in Auckland, although it depends on the business as a lot of stuff happens in Sydney anyways. Tourists don’t really need to come Auckland.

    On the duoploy vs monopoly thing, duopoly can’t be anyworse than monopoly since the most profit they can achieve from full collusion is the monopoly level. So all it takes is a tiny amount of compeition between the two firms and we are in a better state. Given that Whenuapai would effectively have to take cutomers from AIAL, I think there would definitely be scope for competition between the two Airports.