Privatisation Reduces Crown’s Conflicts of Interest – Crown Fibre Illustration

An article in a weekend newspaper asserted that the best argument for privatisation was that it would deepen New Zealand’s capital markets.

Regardless of whether it is the best political argument, it is not the best public interest argument.

The fundamental problem with government ownership of commercial operations is that politicians have neither the skills nor the incentive to run commercial operations successfully.  There can be exceptions, for a period of time, but they are exceptions rather than the norm.

One aspect of the incentive problem arises from the conflict between political ownership and regulatory interests.  A government might be tempted to regulate in favour of its own operation either for revenue purposes or to make its performance look more respectable.

The conflict of interest issue was raised in Monday’s DomPost which carried an article on the apparent inability of Crown Fibre, the state company set up to oversee the government’s $1.5 billion of spending on the $3.5 billion fibre network, to work satisfactorily with the country’s top telecommunication companies.  The article identified the Crown’s conflict of interest problem as a constraint on its options for rectifying matters.

If this were the case, it would not be dissimilar to the problems that have prevailed with many SOEs over the years.