John Menadue. Privatisation – a worn-out ideology.

Feb 19, 2015

Voters are making it plain that they are not keen on privatisation. Economic research also tells us that the evidence in favour of privatisation is not conclusive.

Conservatives claim that privately owned businesses are better managed than public ones, but I suggest that the main reason for increased productivity of businesses that are sold is not privatisation but the deregulation of the market, offered at the same time or in anticipation of privatisation.

Essential Report in early February this year asked interviewees about their attitude to privatisation. Their responses to questions were as follows.

  • Selling off public utilities to private companies will help the economy. 25% agreed and 53% disagreed.
  • Selling government assets frees up money to reallocate to other services and infrastructure. 38% agreed and 44% disagreed.
  • Privatisation mainly benefits the corporate sector. 70% agreed and 13% disagreed.
  • Utilities like water and power supply is too important to be sold off. 72% agreed and 13% disagreed.

As I mentioned in my blog on 4 February ‘Recent polling by Reach Tel for Stop the Selloff Campaign  reveals that 67% of people in Victoria and 74% of people in South Australia believe that they were worse off with privatised electricity networks.’

The Swinburne Business School has studied closely the data on the effects of privatisation. It concludes that the evidence is ‘far from conclusive’ one way or another. This study was recently published in the Australian Economic Review.

Overall I suggest that there is little evidence that privatisation has delivered improvements in living standards, but Conservatives and particularly financial advisers and underwriters who benefit from privatisation, keep spruiking about its merits.

If we look at the big ticket privations in Australia, the story is mixed.

Telstra was the largest privatisation but the improvements have come through increased competition and deregulation in the retail sector. If the wholesale arm of Telstra (exchanges, cables, etc.) had not been privatised – structural separation – we would be well on the way to a world class NBN. The privatisation of Telstra’s wholesale arm was an enormous mistake. We are paying dearly for it.

Have we benefitted from the privatisation of the Commonwealth Bank? With the strong market power of the four banks today, there is little to distinguish the public contribution of the Commonwealth Bank.

Has the privatisation of Qantas worked? The main public benefits have occurred because of market deregulation, the end of the two-airline domestic policy and increased international competition by allowing in more foreign operators. To make a political success of privatising British Airways, Maggie Thatcher fattened up BA before the sale by helping to get rid of some of BA’s competitors and by entrenching BA’s position on Atlantic routes and at Heathrow airport.

Are we better off with the privatisation of our airports? Capital city airports are really natural monopolies with very little competition. They are able to exploit their market power by gouging consumers. Sydney Airport has been given a privileged position which will enable it to veto any effective competitor for a second Sydney airport.

We had a clear message on privatisation from voters in both the Victorian and Queensland elections and asset sales will be a key issue in the pending NSW election.

The NSW government is telling us that the only way to build infrastructure is to sell electricity assets. But with interest rates at record low levels it has never been cheaper than today to borrow. We don’t have a debt problem despite the shrill propaganda. Furthermore, Australian governments can borrow much more cheaply than private operators.

The NSW government is warning that a plan by the Australian Energy Regulator to force NSW electricity networks to cut their share of household electricity prices by 30% from July 1 this year could threaten the safety and reliability of the state’s power network. What nonsense! The NSW government is opposed to this cut in prices because if it did so the profitability of the networks would be reduced and the return from the planned 49% privatisation would be significantly downgraded. The NSW government wants to fatten up the electricity utilities by denying price reductions to consumers.

Privatisation is not a magic bullet as we have seen in so many instances. It is looking more and more like an ideological hangover. Voters are clearly not convinced.

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