Learning from the Hawkesby Affair
Keith Rankin, 1 March 2000
The 1998-2000 Hawkesby Affair is important because it represents an affront to public property rights. The affair reveals a major flaw in the SOE model that the Third Labour Government adopted.
The issues can be understood by using the "principal-agent" language of managerial economics. Consider John Hawkesby and his former employer, TV3. As an employee, he was an agent, answerable to his immediate principal, the chief executive of TV3. Directly or indirectly, the employees of TV3, the directors of TV3, and the directors of CanWest are all agents of CanWest's shareholders. The owners of CanWest are the principal towards whose interest these agents are all supposed to be working. Success for TV3 is represented by its contribution to the dividends received by the mainly Canadian households who collectively own CanWest.
It is essentially the same with TVNZ, except that, for CanWest, read the New Zealand Government. As a commercial enterprise, TVNZ should be acting to pay the largest possible cash dividend to its public owners; to every man, woman and child resident in New Zealand.
Principal-agent failure takes place when parties in the corporate food chain follow agendas of their own, and not the interests of their true principals. When TVNZ hired Mr Hawkesby with an overly generous contract, they were using public funds to serve the expansionist interests of the board and the senior management, rather than the interests of the shareholders.
It is quite unjust that the totally blameless party in this three-cornered dispute (the owners of TVNZ) have been ordered to bear the cost of the fiasco. Both the TVNZ board and Mr Hawkesby played fast and loose with funds that could have been part of a dividend payable to every New Zealander. The commercial profits of TVNZ should be distributed in the same way as the profits of TV3. If we received dividends directly, we would be more diligent in our oversight of TVNZ's management.
If we are to take the SOE model to its logical and sensible conclusion, then the Ministry of State Owned Enterprises becomes a publicly-owned holding company. That agency, acting as a partner of WINZ and Inland Revenue, would pass on a combined SOE dividend as a credit to every New Zealander.
The government would not be allowed to retain SOE dividends in lieu of taxes, as it does at present. As in the private sector, SOE profits would either be retained by the SOEs themselves for future investment, or be distributed as cash dividends. Monopoly profits should be distributed rather than retained by management as bloated salaries.
It is not hard to see that the direct payment of SOE dividends to each New Zealander could reduce inequality. Given the distribution of children in low to middle income households, much less than 10% of the total SOE payout would go to the richest 10% of households.
With SOE profits being treated separately from taxation revenue, some additional tax would be required. Much more than 10% of additional tax revenue would be drawn from the top-earning 10% of households.
We can create a more equitable income distribution simply through a proper recognition of public property rights.
The US State of Alaska has a system of dividend payments called the Alaska Permanent Fund (www.apfc.org). In 1999, the APF has paid a dividend of over $1,770 US to every man, woman and child resident in Alaska. It is a popular and equitable form of "people's capitalism".
Of course there is a worry that genuine people's capitalism will further entrench the commercial values that have diminished TVNZ in the eyes of many. A non-commercial TVNZ is another option. As a non-commercial service provider, TVNZ would then pay a dividend to the public in kind rather than in cash. That is, its services - freely available to all - would be its dividend.
In between, there is a spectrum of a partly commercial, partly non-commercial public enterprise models. If a mixed model is to be followed, the public should receive dividends as a mixture of cash and programming.
The Ministry of State Owned Enterprises could be converted into a Public Enterprise Trust that would own all the fully and partly commercial SOEs on behalf of the shareholding public. That trust would distribute the combined SOE profits, and the proceeds of any liquidations or privatisations that it conducted. A referendum could be mandated before any SOEs were sold.
We can learn from the Hawkesby incident. We are moving into a millennium in which technological unemployment diminishes the share of our nation's economy paid out as wages, and in which public property income will become an increasingly important source of income to all New Zealanders. We should distribute income generated by public assets in an equitable fashion, and not, as we have done since 1986, in the form of income tax cuts.
© 2000 Keith Rankin