JOHN QUIGGIN. Governments are buying up where the market has failed. Is this the end of privatisation?10/07/2017
Australian governments are back in business. Every couple of months, it seems, we hear of a new venture into public ownership of business enterprises, or an expansion of existing enterprises. Most recently, Victoria’s Labor government has announced the purchase of a sawmill in Gippsland to stave off the threat of closure. Last year the South Australian Labor government announced it would build a gas-fired power plant and issue tenders for large-scale battery storage. After denouncing this action as socialism, Malcolm Turnbull reversed course and proposed a major expansion of the publicly-owned Snowy Hydro scheme.
Queensland’s publicly-owned electricity retailer, Ergon, is actively promoting the development of renewable energy through power-purchase agreement, while its generation enterprise, Stanwell, has been ordered to restart Swanbank gas-fired power station to ward off the threat of summer blackouts.
At one time, those on the political right would have denounced such measures as attacks on the free market. Now, more concerned with culture wars than with economic purism, they are getting in for their chop. Faced with an inability to compete with renewable electricity, the coal lobby is demanding that the Turnbull government should fund its own coal-fired power station.
The return to public enterprise is not an entirely new development. Frustration at the failure of our privatised telecommunications industry to deliver a first-world broadband system led the Rudd government to go back to public enterprise, setting up the National Broadband Network. Despite the best efforts of then communications minister Malcolm Turnbull to cripple it, the NBN keeps rolling out. Its ultimate privatisation, promised by Rudd, seems to have been forgotten about. Even a suggestion for a “scoping study” of privatisation, put forward by Infrastructure Australia a year ago, has gone nowhere.
The sudden renewal of interest in publicly owned electricity suppliers reflects a similar pattern of events. The combination of privatisation, disaggregation and market competition represented by the National Electricity Market has been a disastrous failure. This was obvious years ago, but only became undeniable after last year’s system-wide blackouts and near-blackouts. State and federal governments have discovered that, despite having handed control over the system to private operators and independent regulators, they still bear the blame when something goes wrong. Unsurprisingly, they have decided to step in to prevent future failures.
The assumption that we cannot expand public ownership because ‘the markets’ would disapprove is no longer valid.
These moves should not be seen as reflecting a sudden conversion to socialism or even principled support for the mixed economy. At the same time as stepping back into public ownership, the Victorian and South Australian governments are seeking to raise quick cash by privatising their Land Titles Offices, a measure already adopted by the NSW Liberal government.
The only reason such an office can make a profit is that it has a monopoly right to charge members of the public for a service they cannot legally avoid. For all practical purposes, this is a tax. Selling the right to collect a tax is the worst kind of privatisation, resurrecting the “tax farmers” of pre-revolutionary France.
What we are seeing is the inevitable chaos that follows the collapse of a dominant orthodoxy, in this case the economic ideology variously known as economic rationalism, neoliberalism or (more neutrally) market liberalism. The global financial crisis, followed by a decade of austerity in most developed countries, has discredited the central idea of market liberalism: that an economic system driven by the decisions of investors and traders in financial markets will deliver more for everyone than a system in which crucial decisions about infrastructure, energy and human services are made by democratically elected governments.
It is now evident, to turn Jeremy Corbyn’s surprisingly effective election slogan around, that market liberalism works “for the few, not the many”. The wage stagnation evident in Australia is not a local phenomenon; it is happening throughout the developed world. The concentration of income and wealth in the hands of the “1%” is too obvious to be denied.
In these circumstances, the assumption that we cannot expand public ownership because “the markets” would disapprove is no longer valid. Running on a platform including large-scale renationalisation, Corbyn secured 40% of the vote, more than any of his recent predecessors, and an overwhelming majority among young voters. Australian politicians are learning the same lesson, if only by trial and error. Policy proposals that would have been heretical a few years ago are now unexceptional.
Unfortunately, while market liberalism has evidently failed, we do not have a ready-made replacement. Much of the disillusionment with market liberalism has flowed into support for the tribalist right, represented most obviously by Pauline Hanson.
More generally, while governments are now willing to break the taboos against public ownership, they do not have any clear idea about what to do with their newfound freedom. Rather, they are working in crisis mode, stepping in where the failure of the market is evident, while their default responses are still driven by the zombie ideas of market liberalism.
So, for example, at the same time as governments act to clean up the disastrous failure of for-profit vocational education, the ideas behind the Vet Fee-Help fiasco are driving “reforms” in social housing, aged care and, to a large extent, the National Disability Insurance Scheme. More disasters will doubtless emerge, as is already happening in aged care, but it will be a long time before we see the emergence of a coherent alternative.
In the meantime, the best we can do is address proposals for more public ownership, and conversely for privatisation on a case-by-case basis. The fact that governments can do something does not mean that they should. Similarly, the fact that a public enterprise or asset can be sold does not mean that privatisation is a good idea.
In the 20th century, before the era of market liberalism, the mixed economy achieved a rough balance between the public and private sectors. Eventually, we will achieve a balance that is right for the 21st century. In the meantime, we are in for a bumpy ride.
John Quiggin is an Australian laureate fellow in economics at the University of Queensland. He is prominent both as a research economist and as a commentator on Australian economic policy. He is a fellow of the Econometric Society, the Academy of the Social Sciences in Australia and many other learned societies and institutions
This article originally appeared in the Guardian website on 5 July 2017