JOHN MENADUE. The litany of anti social and failed privatisations. ( Edited repost from 21 July 2017)

Jul 13, 2018

Coalition politicians, bankers, accountants and lawyers still persist with their fixation with privatisation despite the fact that it is failing in one area after another and the electorate shows very clearly that it does not want it.   

The latest example is the Telstra mess with  8,000 staff to be retrenched.

The network arm of Telstra should never have been sold by John Howard in three tranches in 1997, 1999 and 2006.  If the network arm had been kept in public hands, we would now be well on the way – or have completed –  a successful  fibre rollout  instead of the mess that Tony Abbott and Malcolm Turnbull have bequeathed to us.  If the network business of Telstra had been retained in public hands, it would have rolled out fibre broadband  as part of its core business.  A new NBN company would not have been necessary.

A major reason for the success of telecommunications in New Zealand is that it split its network and retail arms with the network company called ‘Chorus’ becoming in effect the New Zealand NBN.

Telstra has now announced that along with the shedding of 8,000 staff it will backtrack 21 years and undo the John Howard legacy.  Telstra is going to split its business and establish a new company, Telstra Infraco.  That new company will in effect be the network company that we should have kept in public hands 21  years ago.  To  undo  in part the damage of 21 years ago it is  likely that Telstra Infraco will want to buy NBNCo.  But a future government should be careful about a premature sale of NBNCo.

The privatisation of the network arm of Telstra by John Howard  21 years ago laid the basis for the mess we have now in telecommunications.  What a waste. See my blog ‘The NBN and the wholesale/network arm of Telstra that should never have been sold’.

There is a litany of  similar privatisation and private sector failures.

  • The Hawke and Keating governments sold off the Commonwealth Bank. Are we better off with the privatised CBA leading the race to the bottom in record profits, greedy executive salaries and unethical behaviour? We need to consider again a new ‘peoples bank’ like CBA was before privatisation.
  • Medicare has operating costs one third of those of private health insurance. But the government is using $12 billion of taxpayers’ money each year to prop up the inefficient and confusing mess called PHI. Our health system is being privatized by stealth through an enormous corporate subsidy to PHI. Medicare was established by the Whitlam Government because of the shambles that private health insurance had become in 1974. It is the same again today.
  • Governments facilitated unscrupulous private providers to compete with TAFE with disastrous results. Rod Sims the Chair of the Australian Competition and Consumer Commission recently said that the mess of the VET-fee scheme with vocational training carried out by the private sector would take two years and counting to clean up.
  • He has also warned us that privatising the NDIS services could be a repeat of the VET-fee mess.
  • We sold off natural monopolies like our airports. We should not be surprised that these new private monopolies exploit consumers with excessive charges.
  • Seven hospitals in NSW and SA were privatised, but then reverted to public ownership because of poor services and high costs.
  • The NSW government sold Port Botany and Port Kembla to the same buyer, making competition between the two ports impossible. The result was increased rental charges of up to 400%.
  • The efficient Newcastle container port has been  privatised, with a cap placed on its container business in order to protect Port Botany. That is real crony capitalism.
  • To top it off, the NSW government is selling off the Land Titles Office which underpins the whole property system in NSW. This is surely one of the worst privatisations we have seen in this country.

Another major  privatisation  mess has of course been in electricity generation and distribution. Wholesale prices are now double what they were under Labor’s carbon tax. If that tax had remained we would now be well down the track to a sensible market based energy policy and the federal budget would be $10 b better per annum.

As Tim Colebatch has reported in Inside Story, electricity prices have soared 187% since 2000. He commented ‘the privatisation and deregulation of gas and electricity has failed consumers’

Professor John Quiggin put it this way in this blog ‘The case for renationalising Australia’s electricity grid’
“Most state governments have sold their electricity enterprises wholly or partly. Victoria and South Australia fully privatised their systems by the early 2000s. NSW partially privatised its network business after 2015. Queensland privatised the retail sector but maintained public ownership of the network and some electricity generation. Contrary to the hopes of the market designers, breaking up these integrated systems has delivered no benefits, while incurring huge costs rises. These costs have been on display, in dramatic form, in recent system failures in South AustraliaVictoria and Tasmania. Everyone has blamed everyone else, and no real change has emerged.

The tragedy is that all this could have been avoided if we had seized the opportunity in the 1990s to build a unified national grid, with a single authority running transmission networks and the interconnectors between them. This would still allow competition in generation, but would abandon the idea of market incentives in the provision of network services. Electricity networks are considered to be natural monopolies. Unlike other industries, where it makes sense for lots of businesses to compete and drive costs lower, the cost and importance of supplying electricity means it make sense for one business to control the market. Given this status, this authority should not be a privatised firm or even a corporatized government enterprise. Instead, it should be a statutory authority with a primary mission of delivering energy security at low cost

In light of the clear failures of privatisation  Rod Sims, has warned that ‘privatisation is costing consumers and damaging economic reform’. He added ‘Poorly regulated privatisations are driving up prices and have little to do with economic reform. … This situation is getting worse and as the main concern of governments with privatisation, is maximising proceeds from the sale … a sharp uppercut is needed. … Privatisation is increasing prices. … Very bad reform implementation of privatisation has been a big part of the current backlash against any economic reform.’

Conservatives tell us that selling off public assets enables government to build new infrastructure.  The fact is that as any economist will tell you, the sale of income producing assets like the Land and Titles Office in NSW does not introduce any additional capacity for public investment in non-commercial capital projects.

Whilst conservative and neoliberal ideologues refuse to face the facts, the public clearly understands that privatisation of public utilities that are natural monopolies is foolish.

In the last WA state election 70% of voters did not agree with the proposal to privatise Western Power.  That was a significant factor in the rout of the WA government. After part privatising electricity assets in NSW Mike Baird the Premier lost  17 seats against the ALP that was still tainted with Eddie Obied.

Essential Report in February 2015 reported in its public polling as follows:

Question: Do you agree with the following statements about privatisation of government-owned assets like electricity, water, rail, ports, etc.?

Total Agree Total Disagree
Selling off public utilities to private companies will help the economy 25% 53%
Privatization mainly benefits the corporate sector 70% 13%
Utilities like water and power suppliers are too important to be sold off 72% 13%
Private companies can run public utilities more efficiently than governments 36% 39%
Privatization means more competition which benefits consumers 33% 49%
Private companies deliver better quality services than government-run organizations 33% 46%
Prices always increase more when services are privatized 70% 13%

Incidentally, the last Essential Research Report on June 3, 2013, I can find concerning the privatisation of ABC/SBS revealed that 57% of respondents would oppose privatisation, 15% would support it, with 28% not having a view.

Clearly privatisation is running into serious headwinds. Ideology is winning out over public interest. And voters are showing very clearly that they are not attracted at all to the privatisation of many public utilities.

Ian McAuley in ‘Warning from Colin Barnett: Privatisation is on the nose’  set out the principal reasons for privatisation.  The first is that markets  change.  An example would be the government-owned airline TAA being sold when a competitive market had developed.  Public ownership was not then so important. Second,  there is fiscal opportunism in selling assets to get cash for new political ventures.  We know that one reason for this political opportunism is that we have seen large and effective campaigns against government debt.  But if  public businesses are run efficiently and for good social and economic reasons, increased government debt is affordable and particularly at a time when interest rates are at historic lows.  Third, some times private companies are more efficient than public ones.  But that is not true in every case as Medicare shows.  The efficiency of public sector bodies is also prejudiced when governments deny them resources to do their jobs properly – such as Centrelink and NDIS.  The fourth and main reason for privatisation is cronyism – selling off public assets to political friends and in the process, ensuring maximum price for government by limiting competition for the newly privatised venture.  In the process many special interests – bankers, underwriters, accountants and solicitors – skim off large fees.

Privatisation has become the last refuge of ideologues, conservatives and businesses that want a hand out.  They refuse to accept the clear public opposition to much privatisation

Society should contain markets and not the other way around. Privatisation is too often put ahead of society.


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