Jim's bank: The real point is the opportunity cost

Random Thought 22 February 2001

The real point about the Kiwibank is its opportunity cost to taxpayers. If $80 million is invested in yet another bank to an overbanked country that $80 million is not available to fix bad roads or build hospitals or schools.

This point escaped Richard Prebble who argued the $80 million should go instead on education or police services. But that is current spending, not capital spending, and turns up in a different place on the government’s books.

National’s Tony Ryall got it right. By investing capital in a bank the cabinet has that much less available for other capital projects.

Would voters make the same priority choice as Jim Anderton and his indulgent Labour bedfellows? Unlikely. Sure, voters hate banks — who doesn’t? They’re large, impersonal, distant and expensive — and indispensable, which makes them even more undesirable.

But the people probably would not put a bank top of their capital spending list.

The next point is that the three groups backing in this decision all have different motivations. And that is not counting a fourth group, the Greens, who are lukewarm at best and really want cuddly little cooperative credit-union-type operations, not a national up-and-at-’em state bank.

New Zealand Post wants a new business to spread its risk and offset the relentless erosion of its core business, the post, by new methods of communication.

Post has in fact done a remarkable job of expanding its range of businesses, safely and profitably. And it has done that even though greedy governments have gouged its profits, leaving it little in the way of retained earnings to expand its business. Surely, it says, it is entitled to a little of those retained earnings to grow the business.

And, unlike previous governments, this one is determined to hang on to state-owned enterprises, which means taking seriously expansion plans, especially if they are relevant to keeping the business viable long-term.

(We will leave aside for the moment the argument over whether the bank will be viable. If Elmar Toime, who is a first-class chief executive, says it will be, maybe it will be.)

So New Zealand Post’s motivation is commercial — though there is sometimes a tinge of sentiment in chairman Ross Armstrong’s expostulation of his belief the old Post Office Savings Bank should not have been separated out from Post in 1986.

The best motivation the Labour party can muster is likewise commercial: the long-term viability of the enterprise which it is determined to keep in public ownership.

But that is a slender thread in a skein of distaste for the bank in top Labour ranks. A far more powerful motivation is coalition relations: “If it keeps Laila [Harré] quiet for a year, it is worth it.”

Then there are Mr Anderton’s motivations. These are not just to make life better for the weak, the frail and the powerless, though that classic Alliance motivation is part.

Mr Anderton is motivated also by populism. We all hate banks and some hate banks a lot, enough even to move to Kiwibank. Why not pander to a bit of populist hate? Most politicians do it from time to time.

Some of opponents’ motivation, too, is populist: stirring up fears savings will be lost or honest workers attacked by gangs and the like. That stuff is good for headlines.

A third motivation for Mr Anderton is the reverse of Labour’s Harré line. He gets a large political feather for his fedora. For Post that is of no consequence and in fact an embarrassment. For Dr Armstrong it means a serious estrangement from a party in which he once held high and much-respected office.

So this venture is not a meeting of minds. It is a convenience.

That is not a sound basis for spending $80 million of taxpayers’ — that is, your — money on a risk business. The different players all have different expectations and therefore different standards of judgment as to success or failure — and different criteria as to whether the plug should be pulled if things don’t turn out as Post is projecting.

But I am getting ahead of myself. What Dr Armstrong and Mr Anderton have done is to take us full circle back to the POSB.

But let us for the moment imagine this bank is a raving success. Then let us imagine National returns to office, including ACT. And imagine ACT demanding (in a reverse of Mr Anderton’s demand) that New Zealand Post be sold.

Full circle?