Non-Starter: “Popular Capitalism” Refuses To Fire.


Screen Shot 2013-05-09 at 6.01.48 PMWHEN THE FINAL NUMBERS were presented to him yesterday afternoon, Bill English must have felt sick. His leader’s big gamble had failed. The dazzling mirage of “Popular Capitalism”, which National’s pursued since the early months of 2011, was melting back into air before his eyes.

The notion that “Mum and Dad” investors were about to take a major stake in Mighty River Power (MRP) stood exposed for the illusion it always was. If the privatisation of Mighty River Power had been a 100 percent float, the Government would’ve been accused of selling the nation’s birthright for a mess of pottage. Mercifully, the sale of 49 percent was just a mess.

Of course none of this gloom was remotely detectable in the Government’s spin. The announced $2.50 share price was higher than many analysts were anticipating. The target the Government had set itself, of 85 percent local ownership, had been met – just. And all of the other deeply disappointing details of the float could be blamed on the “economic sabotage” of Labour and the Greens.

But away from the cameras, the microphones and the journalists’ scribbling ballpoint pens, the Finance Minister and his fellow shareholder, SOE Minister, Tony Ryall, had no option but to face the facts.

Just one in ten New Zealanders play the sharemarket in anything like a serious way – roughly 450,000 people. Treasury, erring, as always, on the side of caution, predicted that roughly half of them would buy shares in Mighty River Power. In the end only 113,000 of them were willing to open their chequebooks.

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Now this might have been because the Labour-Green energy policy – announced just two days after the float had officially begun – spooked them. It might have been because the risk of Rio Tinto closing the Tiwai Point Smelter, and Meridian Energy’s power stations flooding the domestic energy market with cheap kilowatt hours, was simply too great. Whatever the reason, the investment community’s obvious reluctance to buy MRP’s shares was painfully obvious. Clearly, New Zealanders with money to invest still preferred to keep it in the bank.

Which can only mean that cash is still king. And cash only gets to wear a crown when people are frightened. And the only thing that frightens people with money is the thought of losing it.

The overwhelming impulse of investors when fear and uncertainty are in the saddle is to liquidate and consolidate. If one has debts, one pays them off. If one has property, one sells it. And then, having done all that, one sits and waits.

Now this may make perfect sense if the “one” in question is an individual human-being. But it makes no sense at all if “one” is a bank, or a corporation, or a government. Indeed, if you want to know what happens to a country where everybody liquidates and consolidates, and no one is willing to invest, just consider the fate of Japan since its bubble economy burst in 1991. It has experienced twenty years of economic stagnation and/or recession because its cashed-up citizens simply stopped believing in their country’s future.

Which is probably just as well, from New Zealand’s point of view, because without all that cash this country would have had nothing to borrow.

Bill English knows this better than anyone. Without the cashed-up lenders of the world, New Zealand would have stopped working years ago. Its government and people have lived off the “plastic” for most of the past four decades.

The Finance Minister was hoping against hope that by floating 49 percent of the state-owned energy companies his Government could lay its hands on some serious cash that, for once, it hadn’t had to borrow; and that the risk-averse New Zealand investment community might decide that now was the time to use some of its hoarded cash to purchase a stake in a nice, safe and profitable government-owned utility.

And if “Mum and Dad” could be persuaded to take that $10,000 they’ve got sitting on term deposit, and invest it in “that nice Mr Key’s” exercise in “popular capitalism” – then so much the better.

Alas for our harried Finance Minister, it was not to be. Only 3 percent of the New Zealand population – just 113,000 investors – were willing to buy shares in Mighty River Power.

John Key and Bill English put petrol in the tank, filled the radiator and topped-up the oil, but when they got back in the car and turned the key, New Zealand’s economic engine coughed, spluttered and died. “Popular capitalism” refused to fire.

Christchurch aside, we’re still going nowhere.


  1. “The target the Government had set itself, of 85 percent local ownership, had been met – just.

    They could ALWAYS have met that though (and indeed it is EXACTLY what they needed to convince the masses that the offer was a great success), given that you didn’t sign-up for a particular NUMBER of shares, but only for a particular VALUE (dollar’s worth) of shares. Factually, ~25% of the share float is as yet unassigned, and therefore is still in Government hands (they should imo have lowered the price even further, to achieve a 100% domestic float). How successful they will be in floating the remainder of outstanding shares on the share market is anybodies guess. I’m thinking a lot of Government technocrats will be sweating profusely to see if the international market can absorb the rest of the float (given that all NZers that wanted this stock already have it so domestic demand is a zero, and the international market will be closely looking at the horrific company fundamentals and a ridiculously high NZ dollar which you will need to buy in order to buy the stock).

  2. I forgot to mention that this article is imo near perfect in it’s anlayis. Well done Chris. You absolutely nailed it.

  3. Alas for our harried Finance Minister, it was not to be. Only 3 percent of the New Zealand population – just 113,000 investors – were willing to buy shares in Mighty River Power.

    No doubt a fair proportion of which were bought by the 1% enjoying the tax cuts for higher incomes enabled by the Government putting the whole nation in deeper hock to overseas lenders.

  4. My brother pre-registered but didn’t go through with it because they wouldn’t announce the share price before the deadline and he just “couldn’t be bothered”. Not being an investor I don’t know exactly how important the share price is but I’d have thought relatively important, surely. Why would you buy something if you don’t know how much it costs?

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