In the 1980s and 1990s New Zealand embarked on a process of privatisation which saw many of the public’s assets being sold to private buyers. Amongst the “family silver” sold were two of New Zealand’s banks – the Bank of New Zealand and the Post Office Savings Bank – both of which went to Australian buyers. This process of liberalising – or perhaps we might say, neo-liberalising – the New Zealand financial sector reached “equilibrium” when New Zealand’s major financial institutions were largely owned by foreign interests.
The new owners of New Zealand’s banks quite naturally adopted policies designed to increase profit. Such policies included: monthly account fees; fees for the use of cheques; EPOS and ATM use and for banking at the branch; and fees for banking by telephone or internet. According to Consumer NZ research manager Belinda Allan, these often amounted to “hundreds of dollars a year” for each customer. As David Tripe (Centre For Banking Studies, Massey University) pointed out in 2001, for at least two of these foreign owned banks, “… significant increases in their gross income, … would appear to be largely attributable to increases in their non-interest income”.
The level of fees was, according to David Tripe, only one of the public’s list of complaints against the banks. In 2000, he noted the public were concerned over:
- Bank fees and charges;
- High interest rates faced by borrowers (and low interest rates paid to depositors);
- Branch closures, which have made it more difficult for people to get to their bank, or to have contact with it;
- Branch closures undermining rural (and suburban) communities;
- Difficulties in dealing with call centres;
- The failure of banks to lend to small businesses trying to get started, or to other people in need;
- That the banks are almost all foreign-owned;
- That there was insufficient competition between the banks, meaning that the banks were effectively operating as monopolies, and imposing excessive charges on their customers; and lastly
- That banks provide poor service.
As Milton Freidman has pointed out “the social responsibility of business is to increase its profits”, however it cannot be assumed that this is of benefit to the public in general. Therefore the state has a role to play in ensuring the single-minded pursuit of profit does not undermine the public good.
The New Zealand government might have attempted to respond to these perceived problems with the nations financial services through legislation or regulation – instead it decided to provide competition. The so-called Kiwibank, owned by the public of New Zealand and operating in such a way as to increase public good was established in the early 2000s and proved an instant success. Private sector banks were motivated to provide at least as good a service as the publically-owned bank in order to compete. From the time of its entry into the banking sector, customers reported an increase in satisfaction across the sector as a whole.
No one, or, at any rate few, would argue that social good could be maximised if the entire economy were owned by the state – this is one of the lessons of the fall of communism. Neither, we suggest, will maximum social good necessarily be delivered by market fundamentalism – this is one of the lessons of the on-going Western Financial Crisis. A mixed economy, in which the public sector and the private sector fight it out in the market, can deliver social results which neither could achieve on its own.
There may be a lesson here for UK politicians concerned about the behaviour of privatised utilities companies.