Monday, July 11, 2011

Prebble's children

I spent the last week in Otago and Southland, where the redundancies at Dunedin's Hillside Workshops are big news.

For all the complaints people make about Labour govts supposedly not understanding commercial enterprise, there's no doubt that National govts are clueless about the public sector. Here's Stuff getting comment from public sector ignoramus Stephen Joyce:

Everyone was looking to create as many jobs as possible but the Government could not place requirements on KiwiRail that it did not put on any other New Zealand company, Joyce said.

"We need a strong, viable rail company and that involves them making commercial decisions about each thing that they do and I think we've got to allow them to do that."

Well, yes - a shareholder in a private company wants that company to make decisions on a strictly commercial basis. But Kiwirail isn't a private company, it's an SOE. As such, its shareholders are the population of New Zealand and its responsibility is to the nation as a whole. Joyce might get to call the shots, but he's doing so as our representative and should take our interests into account.

The commercial decision to have the Chinese provide rolling stock because it's cheaper comes with various costs that a private company needn't take into account but an SOE ought to - and in fact should be forced to by its shareholder, the govt. When it comes to winding down the Hillside Workshops (which is basically what they're doing), there's a shitload of non-commercial factors an SOE should be made to take into account, like the effect on our welfare bill, on Dunedin's businesses, on the country's engineering skills base and so on. All of those are significant costs Kiwirail would be entitled to impose on the country if it were a private company - but it's not.

Many of our readers also fail to understand the public sector and presumably don't care about this because they think Kiwirail never should have been made an SOE in the first place. So what? Coulda, woulda, shoulda doesn't count. What counts is what actually exists, and what actually exists is an SOE called Kiwirail. If National don't want it to be an SOE they could have done something about it, but that would have taken some bollocks; they didn't have the bollocks, it remains an SOE, so Joyce's job, if he were actually competent to perform it, is to oversee it as an SOE.


WWallace said...

Michael Cullen should be appointed to head up KiwiRail and told to make it work, with no further money from the taxpayers.


This issue has echoes in Britain with its government awarding a contract for new rolling stock to Siemens of Germany, instead of Bombardier in Derby.
The Coalition is blaming the procurement policies of the previous ZANULiarbore government.
But critics note the Germans always buy German and the French always buy French for their trains.
Unlike the others, the British obey the EU rules.
But will buying foreign work out cheaper if you have extra unemployed workers support and no longer have an engineering industry?
That is the dilemma that even free-marketeers is having to ponder.

Psycho Milt said...

Michael Cullen should be appointed to head up KiwiRail and told to make it work, with no further money from the taxpayers.

This would be pretty stupid but would actually make more sense than having the incumbent imbecile Joyce load up the country with additional costs to no purpose.

But will buying foreign work out cheaper if you have extra unemployed workers support and no longer have an engineering industry?

Exactly. For a private company, cheaper is just cheaper. An SOE has a bit more to think about than that.

Adolf Fiinkensein said...

Well that's a great idea, Milt.

Just put all the unemployed onto track fettling gangs where they spend ten years learning the right way to lean on a shovel.

Maybe it has escaped your eagle eye that but for Cullen's chicanery, Kiwirail might still be a private company.

WWallace said...

There are some things that Kiwis are good at (ie competitive globally, such as dairy, wine, software, etc) and some that we are not (eg car assembly). Trade allows us to concentrate on the former and buy the latter from countries that can supply those goods cheaper than we can.

To perpetuate Dunedin railway maintenance workshops, just because they are there, is insufficient justification. If Chinese can do the same job, with freight costs, cheaper than locals can, it is time to question the viability of that business.

Psycho Milt said...

Maybe it has escaped your eagle eye that but for Cullen's chicanery, Kiwirail might still be a private company.

Coulda, woulda, shoulda. How about we deal with what is rather than with who should have done what years ago?

To perpetuate Dunedin railway maintenance workshops, just because they are there, is insufficient justification. If Chinese can do the same job, with freight costs, cheaper than locals can, it is time to question the viability of that business.

Like I said, a lot of our readers don't understand the concept of "public sector." The point is that the workshops do exist, and causing them to cease to exist will impose significant costs on the country. A private sector organisation rightly disregards those costs, but an SOE can't (or at least, shouldn't be allowed to). We're not talking about perpetuating the workshops because they are there, we're talking about factoring in all the relevant costs when making a financial decision. Costs that are irrelevant to a private company, such as welfare payments, loss of engineering expertise etc, are very relevant to an SOE and should have been taken into account by the SOE's owners - in effect, Dumbass Joyce and his pals. Those "cheap" Chinese wagons are only cheap if we pretend Kiwirail is a private company; it isn't.

JC said...

"Like I said, a lot of our readers don't understand the concept of "public sector.""

To the contrary, most of us do, which is why there was a privatisation and SOE model developed by Labour back in the 80s and continued by Nat/Lab in the next 20 years.

That model was developed to avoid doing the very things you *now* want the Govt to do. If you had insisted that PM Clark muck with the model pre 2008 you would have got the Glare, and be told you didn't understand what "public sector" meant.. and Cullen would have chipped in with a smart comment that "We're socialists, not psycho".


Anonymous said...

There's always the quality issue as well. Sometimes cheaper means crappier.

I think rail is sensible - not eveywhere like in the 1800's but it does have its place as a port server.

Mort said...

what is terrible is the loss the employees feel in those industries that are reduced. But as for the economy, if the job can be done easier and cheaper elsewhere, it liberates those workers to move into other productive areas. The problem for NZ is that our Watermelon obstructionist party are minimising options for the uptake of those liberated workers into fields which would be imminently able to soak them up. Otago has massive resources of coal available and the lignite plants or gasification projects which could reap coal seam gas would need thousands of workers to set up the plants and hundreds to continue to staff them.

Dave Mann said...

Surely it makes sense for New Zealanders to build out own rolling stock here in New Zealand, doesn't it?

If KiwiRail (or whatever they are called) shells out umpteen gazillions of hard-earned $US to buy the things readymade and just hooks them up, how is this better for our economy than paying our own industries and our own labour force in $NZ to build the bloody things?

Call me stupid (as no doubt many will do), but I just don't see the sense in constantly rushing to award contracts overseas when doing this will obviously fuck our own manufacturing capability big time. And what will KiwiRail do with the Hillside workshops? Turn them into private spas for sex tourists from Iceland?

I can see the sense in partly comissioning our next Mars mission overseas because we don't quite have all the resources to do it ourselves and we will obviously need interpreters etc when we sign a treaty with the natives there and so on. But can't we even build rolling stock for our railways now?

Anonymous said...

A mind is a terrible thing to waste eh Milt?

Anonymous said...

Maybe it escaped your eagle eye A FINK, but 2, not 1 but 2, private companies did run NZ railways......

...and all they did was asset strip it and run it bankrupt. Both times.

Perhaps you could point out where the $100m that private company Toll Holdings were supposed to invest (to get $200m matching govt funds) actually went in? No, thought not. They soaked the public cash, and invested nothing. Then rorted the public purse again when selling it to Cullen for a ludicrous overvalue (about 4 times what it was really worth).

Milt's point is well made - the people running SOE's need to understand the big picture. Shame is Key will probably put Wayne Mapp on the board next ;(

@ WWallace - how can NZ have any productive jobs when we are 'free trading' with slave made goods from China, India, etc.? Should we all work for 20c an hour?

Mad Marxist.

James said...

The liability that is Kiwirail is the pus forming gift that keeps on giving.Hey want a railset to play with then YOU fucking pay for it out of your own pocket.

We would all be better off if KR was left to rust from this point on....theres a saying about throwing good money after bad....

James said... with these countries is still in our interest while Creating local "jobs" that cost us more than they are worth is not.If other country's can deliver the goods at rock bottom prices then that's a good thing and it would be moronic to reject it and reinvent the wheel here to make unproductive "busywork" time filler jobs.Instead we should take a step back and say "right...we can't do that cheaper and better than them so lets not bother... instead what can we do cheaper and better than them that others will pay us to do?"

Psycho Milt said...

James: your opinions on whether Kiwirail ought to be an SOE count for jack shit. It is one, the govt seems to be without plans to alter that state of affairs, and whether you agree with them on that or not matters to no-one but you.

As to "jobs that cost us more than they're worth," the point of the damn post is that getting these people to do the work would be cheaper than buying from overseas if we take all the costs into account. Kiwirail is actually wasting a large amount of our money as well as wrecking people's lives by trying to pretend it's a private company.

WWallace said...

PsychoMilt, if KiwiRail and other SOEs are part of the welfare system, then they should be in the Department of Social Welfare.

They are not. That is not part of their brief.

Psycho Milt said...

You don't seem to have thought this through. The owners of Kiwirail and the funders of the welfare system are the same people - us.

What Kiwirail's doing is like one branch of a company making itself appear profitable by shifting its costs onto other branches - the individuals shifting the costs can then boast about success, but the company's shareholders have nothing to be chuffed about.

In this case, you're saying that when Kiwirail loads costs onto the welfare system, that's WINZ's problem; when it reduces our engineering skills base, that's the education system's problem; when it depresses Dunedin's economy, that's the DCC's problem; and so on. But so what? Those things are all just different branches of us. It's all costs to us, the owners of Kiwirail. The only people seeing any benefit from it are in China.

Mort said...

it is the culmination of poor choices including the one you that you espouse now which has got us to the point where the country enslaves the next generations to the tune of $1.5B per month paying for these flights of fancy.
Inevitably the rail stock yard would have lacked some component requiring the state subsidisation of another umpteen jobs, and that would have required some bureaucrat somewhere the impetus to build an empire looking after those new umpteen workers. Thus your ideal of spending whatever millions in NZ quickly blows out to 10 times that amount, but has the invidious position of being ongoing outflows, all with the concurrent political pressure of bad press for releasing those people to do more productive work elsewhere, rather than consuming valuable resources producing little more than work for the union reps.

Anonymous said...

Mr Pyschomilt is simply wrong. The problem is he is only seeing part of the "hidden costs" (deliberately or not I'll leave the reader to judge). Refer Bastiat for a good starter. Yes if they are built in China we will (in the wider sense) pay the cost of social welfare, retraining, etc for the workers and loss of future wagon building capability. In return we get the benefit of cheaper wagons.

However if they are built here we no longer have those costs (at least for the short term until production is finished in 2 years). BUT we have to pay the higher cost of the wagons - either by charging more for the freight or a direct subsidy from the taxpayer (or a combo thereof). THESE COSTS will also have implications - if by charges that means every freight user will have to employ less people, pay less tax, reduce capacity, etc or if from taxation the load is simply spread further. WE WILL PAY EITHER WAY, the costs just aren't as apparent if built locally, it's just that Mainfreight, etc or the people using Mainfreight will employ 40 less workers rather than the rail workshop.

The only real question is: Should we favour rail workers over other workers or rail workshops over other businesses? On economic efficiency grounds the answer is clearly no, the resources (labour, capital, land, etc) would be better deployed elsewhere, e.g. building milk tankers. There are other non-economic grounds/reasons for building locally however they must be clearly explicated to show why the other benefits are greater than the costs.

The real question is why the slackarse management, workers & plant (and I know having been an engineering subcontractor for them) don't go to China and say we will buy 300 std wagons off you P.A. (one weeks production run) at rock bttom prices. And then go around NZ or to Australia or Chile or Timbuctoo and say e.g. "You want three special refrigerated S.S. tanker wagons for moving XXXX beer from the brewery, and the Chinese don't even understand the question let alone want to build three custom one-off's to your demanding exact specs! Well, we can solve your problem by customising std chassis units at competive prices" But that would take the vision to create a specialist niche manufacturing industry and the realization that we will never compete globally for mass production of heavy industry and NEVER COULD.

Psycho Milt said...

So, failure to get the wagons for 25% less than the Hillside workshops could make them for would result in job losses around the country? And cause general economic damage that the benefits of spending all those millions of dollars (they're talking about 1000 wagons over time) locally rather than in China just couldn't make up for? Seriously? Well, if you and Mr Bastiat say so...

Anonymous said...

I do say so. Because that extra cost HAS TO BE PAID. That group of rail workers gained at the expense of every other worker and business who would have PRODUCED MORE with that money. Yes the marginal effect on each is tiny (and thus not readily seen) but the total aggregate loss to NZ is very real and significant (unless you weren't in fact arguing about the aggregate value to NZ).

As to your contention about spending locally rather than overseas, yes that is a possible ground for going local but not for the reason you think (I presume on your part here).

In this particular case 90% of the cost would be spent overseas even if made locally. If you knew engineering and local manufacturing, you would of course know that NZ produces no iron or steel except for NZ Steel which produces steel up to a maximum of mid-tensile C350Lo 2.6MM/8G coil sheet which isn't used for wagon production. In fact all the materials (incl. even the bolts, paint, pneumatic couplings, bearings, the grease on the bearings, etc) would be imported from the evil foreigners - mainly China. And of course all the machine tools, tooling and plant would be imported as well. The only local expenditure being the labour (<7% of the total cost), the welding/heating consumables and the amortised/depreciated value of the workshop building.

Even if this were not so, in the general case it would still maximise NZ's total utility to produce what we have a competive advantage in, export the surplus and import from dirty foreigners what they could produce cheaper than us (due to their advantage).

Total NZ economic benefit/utility or efficiency/ maximization arguments can't be used against importing - in fact they favour it here. There are however valid arguments against importing, e.g. financial risk for NZ foreign exchange and borrowing interest rates if you have large national foreign account deficits like we do. But you have to make that argument. Again all you are doing is picking winners - the case is on you to clearly prove why these workshop workers deserve millions of government money spent on them rather than any other workers. And quite frankly I think railway workers have had waayyy too much spent on them historically. How about we used the money for say seeding manufacturing of light aircraft, UAV's, drones, avionics, etc you know high-value small run niche products which we COULD viably produce and export, a shocka I know.

Psycho Milt said...

It's not "picking winners," it's just choosing not to deliberately and pointlessly wreck something that already exists, merely for the sake of ideological purity.

WWallace said...

ideological purity

It was ideological purity that motivated Cullen to buy the stupid train set back! With our money. With no mandate. Or clue.

It's 19th century technology.

There's not a lot of call for traction engine repair technicians these days. It's much the same story for railway workshops: the writing is on the wall.

Psycho Milt said...

You mean, Cullen acted to prevent the collapse of an important piece of national infrastructure? That's one of the things we have govts for - ideological purity didn't have a whole lot to do with it.

WWallace said...

Rail is the best solution in very narrow circumstances. Eg transporting logs from a processing yard to a port; transporting dairy or meat products to a port; transporting coal to a port. (There's a pattern there!)

It is NOT a national infrastructure any longer. There are a few viable branch lines, some tourist trains and some highly-subsidised commuter trains.

When my daughter was trying to get from Auckland to Wellington because Jetstar was too inflexible to handle an ash cloud, she discovered that the train only runs 3x per week!

Cullen did not save anything. He poured our money into an Australian private company, and saddled NZ taxpayers with an albatross that is now used as the justification for pouring more of our money down the same black hole!

I say, no way.

Psycho Milt said...

You're entitled to your opinion on the usefulness or otherwise of railways, but it's not really relevant to the post.