Privatisation on the wane. John Menadue

Apr 14, 2013

From the days of Maggie Thatcher, Ronald Reagan and John Howard, the assumption has been that the private sector will grow in relation to the public sector because it is more efficient and contributes more to the public good. The political correctness of the political Right assumed that privatisation would carry all before it.

But not any more. The market failures of many key players in the private sector are clear. It is not just Wall Street, but our own local giants, BHP, Rio Tinto and others, who have lost tens of billions of dollars in shareholders’ funds in recent years. There has been clear company overstretch and management failures.

Campbell Newman, the Premier of Qld, has rejected the proposals of Peter Costello to privatise Qld energy and ports. He is clearly hearing the views of all Queenslanders who disliked the privatisation program of the previous Premier, Anna Bligh. As Campbell Newman put it recently ‘Queensland hearts are not in (privatisation) … it is a political reality’.

Only last month, Essential Research reported that the public believed that the following industries would be better run by governments. (In all cases there was a significant “don’t know” response)

  • Electricity – 52% of respondents
  • Water – 69%
  • Trains/buses/ferries – 64%
  • Motorways – 66%
  • Community services like child protection – 75%
  • Hospital and health services – 71%
  • Schools – 68%
  • Prisons – 73%
  • Universities – 81%
  • Ports – 60%

The evidence seems quite clear that the public does not want more privatisation without a very good case being made.

Essential Research also reported recently that the three most trusted institutions in Australia are public institutions – The High Court, ABC and Reserve Bank.

Some public institutions are much more efficient that their private sector counterparts. Because of scale, Medicare has administrative costs about one third of those of BUPA.  If we compare like with like, public hospitals are just as efficient as private hospitals according to the Productivity Commission.

The Hawke and Keating Governments also took us down the privatisation path. But in retrospect, what has the privatisation of the Commonwealth Bank brought us in terms of public benefit. It now sits cosily alongside the other three major banking groups with little variation in the products it offers to the public.

As CEO of Qantas, I was a reluctant supporter of privatisation because I came to the view that the government was not a good shareholder. Paul Keating deliberately set out to starve Qantas of equity in order to force privatisation. Has privatisation of Qantas been a success?

Has the privatisation of Telstra by the Howard Government brought the benefits we were led to expect.

I cannot see that Maggie Thatcher’s privatisation of British Airways has been successful. BA is a very ordinary performer. To make a financial and political success of BA’s sale,the Thatcher Government entrenched the market dominance of BA, helped get rid of competitors like British Midland, gave route advantages to BA particularly on the Atlantic and strengthened its control of gates at Heathrow. Aviation in the UK would have been advantaged much more if the market had been made more competitive.

In the modern economy, we need to get the balance right between the public and private sectors. The community is quite clearly of the view that the balance has swung too far in favour of privatisation and private companies.

Competitive markets are more important than ownership.

John Menadue


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