New Zealand's SOE privatisation strategy could fail if launched now

New Zealand’s State-owned Enterprise privatisation strategy is “caught in a time warp” and could fail if launched in the current unsettled world economy, an international governance expert warns.

Professor John Farrar, co-director of the New Zealand Governance Centre at The University of Auckland’s Business School, says the strategy proposed by the Government is based on ‘Washington Consensus’ thinking, and needs to be updated.

The Commercial Law professor, who is also the Emeritus Professor of Law at Bond University in Australia, says any plans based on a strategy of free markets and a retreat of the State have been undermined by the Global Financial Crisis, which shows the dangers when this kind of approach is applied to the financial sector.

He warns that New Zealand, which has in the past put the ‘Washington Consensus’ into practice more than any other country, should proceed very cautiously with SOE privatisation plans.

“The United States and Britain have suffered greatly as a consequence of the Global Financial Crisis, and the need now is for more regulation of that sector and international co-operation without overdoing it,” Professor Farrar says.

“Old policies have to be revised. And, as regards privatisation, the jury is still out.”

Professor Farrar says whilst the global downturn has shown that systems of state capitalism have thrived better than systems of market capitalism, recovery is likely to take time. This, he warns, is all the more reason to proceed very cautiously.

“In the words of the old Yorkshire adage ‘if in doubt, do nowt’,” Professor Farrar says. “It is simply not the best time to go in for partial privatisation in an unsettled world economy and when prices are down.”