DAVID JAMES. Deconstructing the privatisation scam

It is increasingly evident how pernicious the privatisation myth is. Two recent examples have underlined it: the failings in Australia’s privatised energy grid and the usurious pricing in airport car parks. Both examples demonstrated that it is folly to expect a public benefit to inevitably emerge from private profit seeking.  

The federal government, feigning surprise, is mounting an inquiry into the profit margins of the energy companies. There should be no surprise. Businesses always maximise their profit margins; that is their basic operational discipline. And when they are offered a monopoly, or an oligopolistic position, such profiteering can be undertaken aggressively. It is essentially an invitation to be a parasite.

To understand the scam, let us look at how money is created. In broad outline, there are three kinds of capital: private, profit-making capital; government funding; and non-profit capital, such as the capital formed in cooperatives.

For several decades the lie has been broadcast that the only capital worth having is private capital — what I call the ‘privatisation myth’. Everything else has been depicted as discredited ‘socialism’. The fact that the financial system in the 19th century was in part created by non-profit enterprises (which is why words like ‘mutual’ and ‘provident’ proliferate in the names of older financial institutions) is ignored.

For example, this writer can remember absurd arguments that the New Zealand dairy cooperative Fonterra should be ‘privatised’, because cooperatives do not have sufficient access to the capital markets. Yet Fonterra is, with Nestle, the biggest and most successful dairy company in the world. Meanwhile, the ‘privatised’ Australian dairy industry is a collapsing mess.

There are several fallacies in the pro-private business argument. One is the claim that business is efficient whereas government is not. It is true that government is often not especially efficient, but that does not mean the converse applies. Business is often spectacularly wasteful to the extent that most companies go out of business within a decade if they are subject to genuine competitive forces. That, indeed, is why purchasing public assets is so attractive: competition is either weak or non-existent.

Another fallacy is what might be called the ‘profit circularity’: because profits are the only thing measured, they are thought to be the only things that exist.

The purpose of government funded public infrastructure is not to make profits but to lower the cost of doing business, sometimes called the socialisation of the means of production. Countries that are able to fund public education, roads, energy grids, water and sewerage and communications will outperform those that do not because businesses operating in such an environment will have lower costs.

“The benefits of public investment in social goods usually remain invisible because to know what the monetary effect is it would be necessary to know what would have happened if they were not there.”

The extraordinary advance of China, probably the most sustained economic growth in the history of the world, is an example of how this works, although big gaps remain in the health system. A large part of the United States’ success in the middle part of the 20th century was due to its previous heavy public investment in its infrastructure.

Such a lowering of costs will not, however, be measurable because no profit is recorded. The benefits of public investment in social goods usually remain invisible because to know what the monetary effect is it would be necessary to know what would have happened if they were not there. Yet as the Australian Industry Group is noting with its comments about the impact of soaring power prices on business, when those benefits are absent the effects are severe.

The privatisation fiction is evident when we compare the health sectors of the United States, Britain and Australia. In America, health spending is 17.8 per cent of GDP. In Britain and Australia it is about half that, 9 per cent of GDP. A raft of commentators conclude that America ‘spends’ twice as much on health as most other countries.

Yet the standards of health care in the three countries are roughly comparable. How can this be, if America ‘spends’ twice as much? The reason is that health costs are mostly socialised in Britain, which has a public health system. It is the same in Australia which has a mostly public health system.

But in America, where the health system is largely private, massive profits are generated. There has to be large outlays for health insurance, for instance. That shows up in the GDP statistics as ‘spending’. What is really going on is more profiteering.

It is to be hoped that the privatisation myth, which has dominated over the last 30 years, will increasingly be exposed as the scam it is. There may even be a push to re-nationalise important infrastructure (this writer would include the banks after their disgusting performance in the GFC). When these means of production are socialised the benefits accrue to all, including all businesses, and not just to the privateers and their investors.

David James is the managing editor of businessadvantagepng.com.  This article was first published in Eureka Street on 3 April 2017.  www.eurekastreet.com.au


John Laurence Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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5 Responses to DAVID JAMES. Deconstructing the privatisation scam

  1. Avatar Neil Hauxwell says:

    The privatisation of TAFE is another prime example. The markets worshipers succeeded in “opening up TAFE to competition” and within a few year the scammers were consuming large chunks of governments’ training budgets . Cheerleaders for competition such the Productivity Commission never considered the importance of curricula and effective leaning in vocational education. As a result effective programs were replaced by on-line-tick-a-box shadows ; minimalist creations designed primarily to harvest dollars for shrewd operators. As successive scams were revealed the market regulators entered into a catch-up game on slapping on “accountability patches” The result is that the burden of useless, time wasting electronic and paper administrative tasks has grown exponentially. The responses to scamming, by both the new private training providers and TAFEs trying to stay afloat with expensive facilities and declining incomes, has made many programs uneconomic to run. As usual, it’s the vocational education battlers in the community who have lost the most. Comprehensive programs that got the likes of early school leavers into jobs have now been halted or rendered so expensive that they frighten off the very people they were designed to help- How many long-term unemployed single parents do you think will signup for thousands of dollars worth of VET Fee Help debt?
    The old TAFE system needed improvement but what’s needed now is a frank and fearless inquiry into the TAFE Privatisation Disaster . This is urgent if we are to retain any semblance of being a Clever Country.

  2. Avatar John Candido says:

    I could not agree with you more, Michael Lacey! A broadly similar set of outcomes can be established by what is happening in the light of a multinational company called Uber, and all of the state-based Taxi services that are under siege by neoliberal attitudes to them by state governments across Australia.

    In Victoria, they are going to abolish all perpetual Taxi Licences for a song. My mother is going to lose both her business and 100% of her retirement income. When her savings run out, she will have to apply for a government pension because at 87 years of age she will not be working again.

    Shame on the government! Shame on Opposition parties! Who are both going to forcibly turn my mother from a self-funded retiree to a pensioner, robbing her of all of her dignity in her old age! Economic brutality at its finest.

    It is now been established that tired Taxi Drivers finish their shift and then drive Uber cars. This will inevitably lead to accidents, injuries and possibly, fatalities! How stupid can state governments get?

    It does not matter if they are Liberal or Labor, they are both equally stupid simply because they and academia have allowed themselves to be sold on neoliberalism, economic rationalism, outsourcing, privatisation and the mania of efficiency, the market and KPIs.

    Bring on the legal challenge and public demonstrations against these stupid policies.

  3. Avatar Jim Kable says:

    And I think it says a lot too about the destruction of public/state education – the false promises of competition and choice bruited by the prophets of profiteering. Thanks for this clear clean analysis of those working to their own selfish ends via the common wealth as you point out – figuring out their dark ways of putting into their own hands the very instrumentalities which were built in past times by the people and public servants – and even honest-to-god politicians – working to the benefit of the citizens. Not the current rorters and snouts-in-the-trough lot working to enrich their secret vested-interest cronies – but who should now be ensuring us a society of mutual benefit and equity – not of something only entitling the 1%!

  4. Avatar A Sniveller says:

    Why stop there? What about the systematised and widespread rorting of schemes that allow large companies to routinely underpay junior staff? Meanwhile the government is using leverage over the public service, and the 457 visa scheme (and, no doubt, its replacement) to try to drive down general wage levels in Australia. I agree Michael, a stake needs to be driven through neoliberalism forthwith!

  5. Avatar michael lacey says:

    Lovely well explained article That many economists outside the neoliberal mantra will appreciate! Until we put neoliberal dogma in the dustbin where it belongs nothing will change!

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