new enterprise

The Government's decision to encourage new business activity from SOEs drew a decidedly knee-jerk reaction from ACT leader Rodney Hide, who labeled the move a tragedy. Predictably tax cuts were Rodney's answer. Business NZ claimed that SOEs would muscle in on businesses areas already occupied by the private sector, citing ACC as an example. I'm not convinced that TVNZ and OnTrack are about to pose much competition to the SME's that Business NZ represents - although Paul Henry would do a roaring trade running a dairy. National's response was more measured, with John Key issuing a warning shot about cronyism, and Katherine Rich suggesting offshore activities may be more effective, which may work for NZ Post and the Energy Companies, but not for OnTrack or TVNZ. She misses the point slightly, with overseas expansion being only good for revenue gathering, rather than providing new services that New Zealanders can not access.

This is a good policy provided that new areas meet the stated objective of having

a demonstrated potential to enhance the competitive competencies of other firms and industries.

Which may not go far enough. For this to work, SOEs need to have profit and dividend objectives clarified - the state shouldn't enter into areas that the private sector can provide at a high quality. SOEs now need the flexibility to utilize their profits from some areas to provide new services that run close to breaking even (i.e. unpalatable for private enterprise). As the TVNZ charter has proved, running dual model businesses are tough. If and when SOEs come up with new areas to provide public or business-to-business services, the SOE's board should be obliged to present a new business model that provides a structure to cope with a different style of operation. The government will in term need to accept no/low dividends.

I can't foresee what these companies will come up with, but if done properly they can provide enormous benefit, not only in direct job creating, but in improving the productivity for the NZ business community.