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The Economics behind the question of whether Auckland Council should sell its Airport shareholding

Should the Council retain its 19% shareholding in Auckland Airport? Reading the arguments that Councillors were giving regards whether or not to sell the Council's shares revealed only one thing: they're clueless on such matters. Those in favor of keeping the shares were saying the same kinds of things - namely that the Council's shareholding "comprises a blue chip investment, providing alternative income to rates, predicted to earn ongoing dividends and capital gains" (Mike Lee). Using this argument, the Council may as well become a hedge fund or investment bank and start playing the stock-market, looking for "blue chip" stocks.


What a silly argument for the Councillors opposing the sale to make. The only one that has economic validity must be couched in terms of increasing social welfare. It must be based on building the case that Auckland Airport has monopoly powers & the Council's share-holding is a way of exerting influence over how the Airport conducts its business, so it acts more in the public interest. However, the Council has not been taking anything remotely resembling this course of action. It has a minority shareholding - its powers are very limited - and it hasn't even been exercising this limited power in any case. Quite the contrary, Councillors have been arguing the opposite - namely that they'd like the Airport to exert greater monopoly powers to stress the good citizens of Auckland out of their minds so the Council can get higher dividends to fund its bureaucracy.


Given the Airport has developed a bad reputation for lousy service & high prices, most of us economists would argue it has been taking full advantage of its monopoly powers. So what is the best course of action in the national interest? Since the Council has proven itself totally incapable or unwilling to exert influence over the Airport's day-to-day management, the shares have simply become a play on the stock-market. As a consequence, they should be fully sold. The Council has no business in this game.


Next, since the Airport has taken advantage of the public via its market dominance, it should be met with the full-force of Central Government anti-competition law - and if that is not up to the job then those laws should be strengthened. The model would be similar, in other words, to Heathrow Airport in the UK, which is a private company subject to financial regulation by both the Competition & Markets Authority and the Civil Aviation Authority.


What takes the cake are the endless financial & economic commentators - in addition to the Councillors - arguing the shares are a good investment (when the Council should not be in the business of playing the markets). Even those commentators trying to make a public interest argument don't get the fact that the Council has almost no power to play that game - it has only a small minority shareholding & no authority to implement competition policy, so can do next-to-nothing to address the Airport's monopoly position.


It's the usual story of the big media outlets in NZ trying to influence public debate by pumping out endless false arguments by journalists & commentators who have never studied economics.

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