| The common assumption that the private sector | | | | private sector goal be achieved without sacrificing |
| is a more efficient provider of services than the | | | | the public good? Few have demonstrated that it |
| public sector needs to be challenged. In the words | | | | is possible. |
| of the old song from Porgy and Bess, "it ain't | | | | A recent example: |
| necessarily so." In this article I argue that it | | | | Meridian Energy, a power generator owned by |
| certainly does not need to be so. | | | | the New Zealand Government, recently |
| Let us start with our expectations as a | | | | purchased a wind farm in South Australia, arguing |
| community. Above all we expect our | | | | that it was a good investment, and second, that |
| governments to preserve the public good and to | | | | the investment would maximise the shareholder's |
| act in our long-term best interest. We expect our | | | | return on investment. Meridian also justified its |
| elected to make wise decisions based on high | | | | decision by saying that it would borrow the |
| quality impartial advice. | | | | money offshore so its reserves for investment in |
| We expect our businesses to put shareholders | | | | New Zealand would not be diminished. Borrowing |
| interests ahead of other interests, with the result | | | | would leverage its capital and improve business |
| that the share market's focus on quarterly profits | | | | returns. |
| and share price gains makes it difficult for | | | | Financial journalists challenged the price paid, |
| managers to consider broader public interest | | | | suggesting that the wind farm had been on the |
| concerns. We have been slow to reward adoption | | | | market for a long time and the private sector |
| of "Triple bottom line" evaluation of business | | | | investor had made a great return for holding it for |
| performance when we make our investment | | | | a short period. Standard & Poors said that |
| decisions, despite the recent demise of large | | | | Meridian's increased gearing would not affect its |
| financial corporations that put short term profits | | | | credit rating this time, but the warning was clear; |
| ahead of ethical behavior and the public interest. | | | | Meridian's business risk profile had deteriorated, |
| The damage they did to us is still hurting. | | | | and the implied government guarantee has saved |
| If we cannot trust the private sector to put | | | | the day. |
| community interests as high in their priorities as | | | | What about the public interest? New Zealand |
| we need, we are dependent on the form of | | | | has seen massive shortfalls in energy |
| contracts to ensure that the public good is | | | | infrastructure investment over the last 30 years, |
| preserved. This seems to be beyond the | | | | and privatisation or corporatisation of the sector |
| capability of the public sector negotiators and | | | | has led to huge price increases and dividends to |
| lawyers who draft these contracts, with the | | | | shareholders. Our electricity supply systems are |
| result that the public is helpless in the face of | | | | unreliable and our international competitive position |
| fraud, over-pricing, and low quality delivery of | | | | is in jeopardy. |
| services. "Over-promise, under-deliver and hope | | | | Meridian justifies its risky investment by reference |
| no-one notices" is the way to maximise profits. | | | | to its over-riding goal, maximising shareholder |
| Just check the reports on the billions of taxpayer | | | | value, and effectively gives lower priority to the |
| funds that have been lost on private sector | | | | interests of the New Zealand public who are its |
| contracts in Iraq. | | | | ultimate owners, even though they do not appear |
| We also believe the myth that the public sector is | | | | on the shareholder register. |
| grossly inefficient, and we observe the stupid | | | | In the meantime, the government says nothing |
| behaviour of junior bureaucrats slavishly following | | | | and justifies its silence on the grounds that its |
| silly systems as they tell us "That is what you | | | | appointed board of directors run the company. |
| have to do." They reinforce our prejudices | | | | I conclude that if the government sets goals for |
| regularly. | | | | public sector organisations that do not provide for |
| What is the reason? Are public sector managers | | | | the public interest, the managers have no choice |
| less intelligent than private sector managers? Are | | | | to adopt high risk private sector strategies. |
| they less well trained? Or are they set impossible | | | | This get worse when the politicians pass laws and |
| goals using bad systems by their political masters? | | | | regulations that enshrine inefficiency and entrench |
| My experience in introducing revolutionary change | | | | bad management practices. If they are not |
| to large public sector organisations is a resounding | | | | willing to change the rules of the game they |
| NO to the first two questions. I have watched | | | | cannot expect even the best public sector |
| "dyed in the wool" public servants move on to | | | | managers to operate efficiently. |
| stellar careers in the private sector as they | | | | Too often or debate on this thorny topic works |
| adopted commercially competitive ideas. I have | | | | at only one end of the spectrum, and decisions |
| watched public sector organisations take on | | | | are driven by ideological assumptions, not by |
| private sector competitors and win the business, | | | | evidence. As usual, the right answer to the |
| but only after they have been taught the rules of | | | | management conundrum is somewhere in the |
| the new game they have to play. | | | | middle of the spectrum. While we wait for the |
| So let us look at the impossible goals our public | | | | politicians to find the right answer, the long |
| servants are set by their political masters. In a | | | | suffering taxpayer, the funder of last resort, |
| state-owned enterprise, is "the maximisation of | | | | continues to pay for either the risks or the |
| shareholder value" a worthwhile goal? Can this | | | | inefficiencies, or too often for both. |