Local councils and central government are in some financial difficulty. They own and operate many commercial assets with mixed objectives and mixed success. 

What might they be doing differently?  

It is a topical question. In December 2023, BusinessDesk’s headline of an article by Pattrick Smellie read: “A Stampede of Local Government Asset Sale Proposals”.

Wellington City Council is debating selling its 34% shareholding in Wellington Airport. 

Auckland Council has sold 7% of its shares in Auckland Airport and its Mayor has proposed leasing the city’s port. 

Other city and regional councils are already considering such options.  

There are two broad questions: “When is it optimal for a council or central government to own an asset in full or in part?  And if it should own one, should it also operate it, or should that be contracted out? 

Deliberative public discussion of such questions is commonly difficult. It is a threat to those whose approach is primarily ideological. 

Yet only cranks would argue that government should own everything, or nothing. So, reasoned debate should be possible about where the ownership line would best be drawn between these extremes.  

That line can change over time because circumstances change.  The passions and circumstances that drove the original asset decisions might be long past. For example, the case for state-owned media is far less obvious today. The public has local and world news and commentaries at their fingertips. 

For the economist, the issue is about how ownership affects incentives. Politicians have different incentives from private owners. So do government agencies.  

These differences matter. For example, government ownership creates a conflict between its ownership interests and its regulatory responsibilities. It should not play favourites as a regulator, but its ownership interests almost ensure it will. 

Private ownership is also self-interested. Adam Smith eloquently pointed this out nearly 250 years ago. Against this was his critical ‘invisible hand’ insight; customer choice forces self-interested suppliers to provide value for money – if they want repeat business. It is competition that provides choice. 

The sound bite is that ownership matters, but customer choice matters more.  

Government ownership should be reassessed as circumstances change. Councils and governments should be encouraged, not abused, for reviewing what assets they should own and operate.