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Wall Street 'an embarrassment to good capitalism' says Infratil's Lloyd Morrison

Wall Street 'an embarrassment to good capitalism' says Infratil's Lloyd Morrison

By Gareth Vaughan

Comparing the privatisations of the 1980s with the National-led government's proposal to float minority stakes in four state owned enterprises (SOEs) is like saying Wall Street is the only way capitalism can work, when it's "an embarrassment to good capitalism," says Lloyd Morrison.

Morrison, founder and a director of sharemarket listed infrastructure investor Infratil and executive chairman of Infratil's manager Morrison & Co, told in an interview that he had long believed partial floats of SOEs were a very good idea. Morrison said such floats would be good both for the SOEs and investors.

But he said comparisons with the privatisations of the 1980s were only "tribal politics looking for votes."

"The privatisations that happened in the 1980s were generally well intentioned but in some instances the lack of knowledge and the simplistic adherence to text book philosophy saw a number of short-termists take advantage of under valued assets which gave privatisation a bad name as far as New Zealanders are concerned," said Morrison.

"And I think that New Zealanders lose from that."

"It's a bit like saying that Wall Street is the only way that capitalism can work," Morrison added. "Wall Street is not a good reflection. It's an embarrassment to good capitalism."

"Good capitalism through competition, provides efficiency of asset allocation, of capital allocation, security of jobs and good employment," Morrison added.

"And for consumers the best results in service. The sort of stuff that we see in Wall Street doesn't add any value to the American economy or the world economy, but it doesn't mean to say that we should throw the baby out with the bath water."

A research report from analysts at Goldman Sachs last week noted privatisations between 1998 and 1999 raised more than NZ$19 billion. They said, however, New Zealand was unique among OECD countries in its preference for trade sales with about 60% of assets sold via trade sales compared with the OECD average of just 20%. Just 2% of NZ sales were via public floats, versus 62% across the OECD. And about 60% by value of NZ's public assets sold between 1988 and 1999 went to international rather than domestic buyers.

Morrison, a former director of sharemarket operator NZX, pointed out the SOEs the government was considering selling stakes in - Meridian Energy, Mighty River Power, Genesis Energy and Solid Energy - would remain 51% government owned. He said government sell-downs would provide many people with an opportunity to participate in their ownership, and the management, consumers and directors will all benefit from greater accountability.

"There will be some offshore investors of the type that we like, - those providing passive capital who will consider investing in New Zealand when they haven't, and the government will have a little bit of capital from the sell-down of those assets that it badly needs at the moment for purposes such as Christchurch and better directing our economy."

Health 'stable'

After under going treatment for leukemia in Seattle during 2009, Morrison is very much back involved at Infratil, the company he founded in 1994 which now has a market capitalisation of NZ$1.2 billion.

Infratil's assets include, all or part, of TrustPower, Wellington Airport, NZ Bus, Shell petrol station operator Greenstone Energy in partnership with the New Zealand Superannuation Fund, and Glasgow Prestwick Airport.

Morrison brought former Telecom chief financial officer Marko Bogoievski on board as Infratil's chief operating officer in 2008 and once he became ill, Bogoievski replaced Morrison as CEO.

"Marko's running the ship and everybody's reporting to Marko," Morrison said. "I see myself as the keeper of the culture. I'm also interested in giving back. I think that good organisations form a real part of the community they operate in and that has always been the case with Infratil and Morrison & Co and I wouldn't want that to change. I tend to get involved at that sort of level."

Of Bogoievski Morrison says he appointed him because the scale of Infratil and Morrison & Co was getting to a level where "it needed a better manager than me."

"I've never had a fear of employing people who are smarter or better than me and Marko's certainly an example of that," Morrison said.

As for his health, Morrison said the good news is that he's stable.

"The bad news is that I still get quite a lot of treatment. I get chemotherapy on a six week cycle at the moment - a week's worth of chemo and then six weeks off."

More savings needed as 'borrowing internationally and building homes doesn't work'

Following the tragic Christchurch earthquake of February 22 and in the wake of the Global Financial Crisis (GFC), Morrison said New Zealand was in a vulnerable position should it be hit by another shock, - either another natural disaster or an international financial crisis.

"In terms of dealing with immense tragedies like Christchurch, we have to build retained earnings, or savings, that enable us to do so. So that means a simplistic savings regime that we've had historically, which is borrowing internationally and building homes, doesn't work," said Morrison.

"Because that relies on rising prices which are not sustainable unless living standards are there to support rising prices locally, or international borrowings are there forever, neither of which is the case for New Zealand."

The savings regime where many people had thought it was good enough to solely save through investment in their homes had received "a wake up call" from the tragedy in Christchurch.

"So if we're going to earn, we need to learn how to make businesses internationally successful and competitive and we need as a country to encourage businesses to do that," said Morrison.

"So getting our capital markets supported on a long-term basis, respecting the role that they play, encouraging business success, encouraging international business performances of scale, is something that we need to come to grips with."

New Zealand also needs to "be good in our regulations so regulation is not just a stick, but is a carrot and a stick." We also need to respect regulation, not just having a "free market policy which really is benefiting some and not all."

"It's getting the balances right. It's achievable. New Zealanders aren't good at change but it's possible out of this sort of situation it will happen," said Morrison.

"Perhaps the silver lining that comes out of the Christchurch tragedy is a bit of a wake up call for New Zealand about earning our way because to put Christchurch back on its feet is going to empty the cupboards," he added.

"The government has quite rightly said it's an absolute priority for the country and nobody would question that. The results will be cut backs in other parts of the country that perhaps we wouldn't have previously considered and I think that it's possible that some of those cut backs will actually be good for us in the longer term."

Fundamentals of global financial system unchanged despite credit crunch

Meanwhile, Morrison said the underlying problems in the global financial markets that allowed the global crisis of 2008-2009 to occur have not been addressed. He bemoaned the repealing of the 1933 Glass-Steagall Act in the United States in 1999, which effectively removed the separation that previously existed between Wall Street investment banks and depository banks, and the US allowing derivatives, which have become "proprietary speculative instruments" traded internationally, to remain unregulated.

"The underlying problems of financial markets have not been addressed and it doesn't look as if they're going to be," said Morrison.

"So if one looks at that and says 'where's New Zealand, what's our position at the moment?' It's somewhat fragile. We're dealing with a major issue, we have to deal with it, we support dealing with it, (but) we would find difficulty sustaining another shock and we certainly wouldn't be prepared if the world had another shock. So we need to reflect on that and we need to think about how we're going to address it otherwise we really carry significant risk."

New Zealand had to work out how to become sustainable, with sustainability being about longevity, meaning the country can come through ups and downs.

"In terms of our balance sheet, we need to have a balance sheet that can handle ups and downs, be they from world financial markets or from issues particular to dealing with New Zealand like the earthquake."

"To have a balance sheet that can take ups and downs you have to have a long-term view not 'she'll be right' or 'we're okay as long as nothing goes wrong.' You need to actually have some padding in it and that means that you don't risk too much in any particular way."

'Not good enough to rely on Australia's goodwill'

And given that New Zealand relies on international banking - through four Australian-owned banks holding 92% of the country's banking assets in ANZ, ASB, BNZ and Westpac- we need to make sure our own financial system is as strong and independent as it can be.

"Australia was lucky in the GFC and that's good because as a result of that New Zealand was lucky," said Morrison.

"The Australian banks were resilient as a result of their own economic conditions. We were lucky because those Australian banks were supportive of New Zealand and I think we rely very much on them. In recent years I think (Reserve Bank Governor) Alan Bollard has done a very good job to make sure there's more local accountability for those banks," said Morrison.

"It's not good enough for us to rely on the goodwill of Australia. Those banks do very well here. They earn a very good return on capital and they deserve it to the extent they've been here for a long time and have been very committed to New Zealand, but we can't afford that to change," he added.

"So making sure they're institutionalised as New Zealand operations with capital and priority for New Zealand, is quite critical, and with management and boards who reflect that local position."

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"Assumptions that OPEC has added 1.9m bpd over the last two years are wishful thinking. These new fields have been "largely offset" by attrition in old fields.

"We believe that OPEC spare capacity has already dropped below 2m bpd. The question therefore arises how much spare capacity is left to absorb potential supply disruptions in other countries," he said.

If this picture is broadly correct, spare capacity is already close to the wafer-thin levels that led to wild price moves in mid-2008."

ello...ello......$2.50 a litre, here it comes....


"We also need to respect regulation, not just having a "free market policy which really is benefiting some and not all."

Nice to see a businessman with a more balanced view of economics, not chanting the usual mantra "free markets, deregulation, less government".

"Good Capitalism" would have strong regulations to protect our communities and environment, to encourage real economic activity and wealth creation. This would leave NZ in a better position to withstand the buffering of another Western banking crisis and possible peak oil price rises.


south paw, that mantra is a counter to the natural instinct to "control markets, increase regulation, and give more power to government".


double post



"natural instinct to "control markets, increase regulation, and give more power to government".

It's not a natural instinct, it is based on the observation that markets when unregulated lead to extreme inbalances as witnessed in the past generation of neoliberal/rational economics or any period in economic history where 'free' market theory is put into practice.

"power to government"

The government that is elected by us citizens in a democratic system. 'Pro business, "free" market' types are always trying undermine this. Our democratic system is the only weapon the citizen has to fight back against corporate power.

The situation in the USA shows just how much corporate power dominates - and not surprisingly the result is economic chaos.



Seems to me you can't have "Good Capitalism" under a fractional reserve banking system, or a fiat currency, so maybe that could be a good start. 


fractional reserve banking and fiat currency

My understanding is fractional reserve banking is where a bank lends more than it has in deposits. So it is a matter of regulating what that ratio should be, obviously it spun out of control under the 'free' market cult. Don't think FRB is an evil in itself, it's just a mechanism that can be very efficacious when not abused.

Ditto with fiat currency - my understanding here is that paper money backed by government guarantee ( tax payer, regulations ) replaces gold because our economies grew past the amount of gold available to represent all that wealth creation generations ago.

So again paper/digital money is a useful tool for economic activity, but easily abused as shown by the 'free' market devotees who bulldozed all the regulations on finance, thus laying the foundation for the ongoing economic crisis they got  us into.


Your understanding is partially correct but misses some important points. Firstly, fractional reserve banking didn't spin out of control under the "free market cult" but under the supervision and encouragement of central banks, which contrary to what some people seem to believe are NOT free market institutions.

Also, our economies didn't "grow past the amount of gold available to represent all that wealth creation generations ago." This shows a fundamentally flawed view of money, particularly regarding gold as a medium of exchange. No increase in the money supply is necessary to accommodate economic growth.

Instead, if the money supply is constant prices will reduce as productivity and the size of the economy increase. In other words, if it weren't for government-sponsored inflation of the money supply stuff in general would get cheaper every year rather than more and more expensive. 

The dodgy activities and extreme bonuses of the Wall Street Traders would not be possible without the help of the US Federal Reserve. If it didn't hand out free money to its mates in the big banks and hedge funds these guys would have no chance of making the enormous profits they do. Sorry Mr Morrison but the ills you rightly point to are the result of crony socialism not the free market.


Thanks Kleefer, you filled in a bit I was missing with the prices go down.

The point that dawned on me recently, firstly with regard to housing, is that it can't be capitalism if it is done on debt.

Fractional reserve banking therefore has no place in a capitalist system.


Isn't that the million dollar question - how does a tiny nation like New Zealand de-shackle itself from the global clutches of "bad (crony) capitalism"?

And I wonder, were the privatisations that happened in the 80s "generally well intentioned" - or were they more NZ acting as a lead entrant in the era of "bad (crony) capitalism"?

I'm with scarfie - "good capitalism" is unlikely to emerge whilst the institutions of neo-liberal orthodoxy remain in place.


how does a tiny nation like New Zealand de-shackle itself from the global clutches of "bad (crony) capitalism"?

Not signing on the dotted line with any USA economic agreement is a good start.

Dump the 'Globalisation' dogma. China never bought into it, hasn't done the economy any harm there.


Yes, excellent linked interview with MH.  It is interesting that the anti status quo economic commentators demonstrate a depth in their historical and theoretical knowledge during interview - whereas the neo-liberal commentators rarely if ever draw from historical lessons.

And when they do (such as is the case in Mr Morrison's piece above) it is to deny history (i.e. reality) suggesting such lessons are invalid.


Morrison is correct in his  " Wall embarrassment to good capitalism", a quick look at Charles Ferguson's 2011 OSCAR winning documentary "Inside Job' exposes this.""" this docushould be  This doco

'Inside Job" should be compulsory in every board room.

Governments have become powerless to regulate the markets primarily due to "innovative" market tools, speculation, the 'too big to fail' deal between government and the corporate world, the lack of action by the SEC in US markets clearly shows this.

NZ Government bailing out South Caterbury Finance with taxpayers money was also an embarrassment to good capitalism, it should have been left to fail, failure is as good a regulation as any for the markets, puts investors more on thier toes and more responsible for thier own money and investments. Maybe they would be more likely to invest locally if that were the case.  It should not be the tax payers responsibility to mitigate financial risk taking.

Selling SOEs back to the tax payer is a joke, little more than the magicians trick, we would be buying something thats already ours !!


Lloyd Morrison's company earned 68 million dollars from the 66% of wellington airport it owns, about 20% of its total earnings.
Wellington airport is a monopoly business that is constantly defending (at massive expense) its pricing regimes to the NZ Commerce Commission.
It is described by air New Zealand as the most expensive airport in Australasia to land a 737 aircraft at, can Mr Morrison explain how this is of benefit to the NZ public?
Mr Morrison talks up regulation in this article but makes vasts amounts of money in NZ because the flagship cash cow asset of his company has effectively escaped any real government regulation.
I would be interested in your thoughts Mr Morrison.


He simply took advantage of the lack of regulation, as did the financial institutions, as did the "property investors".  Whether this is a good or bad thing (morrally/ethically, whatever) will be viewed differently by every individual depending on their personal beliefs.

Morrison may believe that the lack of regulation is an issue but his desire to make money obviously ranks higher.


Anonymous critics of Wellington Airport fail to note that the Airport’s prices are completely transparent and fixed via a statutory consultation process. That is clearly not the case for an airline ticket and it is literally possible for every seat on a flight to carry a different price.

Airports and airlines set prices differently and under different constraints. Airports are constrained by regulation and transparency, airlines by competition. The relative constraining power of these two forces is reflected in the prices charged. Flown to Taupo recently or noticed the cost of Auckland-Sydney?

It is disingenuous for AirNZ to claim that Wellington is a relatively expensive place to land a B737. It depends how many people are on the aircraft. If there was only one passenger it would cost about $12 to land even a B737. Other airports charge on the basis of aircraft weight and how long the aircraft is on the ground and how many people are on it. Wellington just charges per-pax. Across all its passengers Wellington's charges average about $11 which is lower than bigger airports such as Auckland or Sydney or similar airports such as Adelaide and Canberra. It is neither the cheapest nor the most expensive airport.

Wellington Airport has been a successful investment for Infratil (NB not as successful as the chap above says, remember Wellington City does own 34% of it), but this has largely been due to very heavy investment in its facilities. Lloyd has an acute understanding of the investment-return trade-off. If people will pay a fair price for a service, Infratil will invest to provide it. If users will not pay Infratil will not invest. Since 1999 (when Infratil acquired its interest) more has been invested in improving and expanding Wellington Airport than has been paid to Infratil as dividends.