Privatise for efficiency, or not at all

Aug 4, 2021

Speaking at the 2021 ACCC/AER Regulatory Conference( 0n 30 July 2021 ), Mr Sims discussed the need to either avoid monopolies, or if not then regulate them, to prevent costs to the economy arising from unfettered use of their market power.

Mr Sims put forward two possible solutions to avoid privatisations creating future unfettered private monopolies.

“One potential solution is that all governments agree not to privatise an asset unless there has been a prior public regulatory and competition assessment by a Commonwealth or State regulatory body,” Mr Sims said.

“Another approach would be for a market power test to be introduced to determine whether assets with significant levels of market power should face some form of regulation.”

“These are important issues that deserve more discussion among those interested in the health of the economy,” Mr Sims said.

Many monopolies are subject to regulation, such as gas pipelines, electricity networks, railways and the NBN. In contrast, many ports and airports, which are essential gateways for our economy, are largely unregulated, mostly due to decisions made when they were privatised.

This lack of regulation of monopolies may increase the sale price, but ends up being, via higher prices to justify the higher sale price, a multi-decade tax on Australian consumers and exporters.

“Privatisation can generate important benefits to the economy, such as improved incentives for cost control, investment and innovation to meet the needs of consumers,” Mr Sims said.

“There have been many examples of privatisations that have been done well and that have benefitted Australia. The privatisation of Qantas was done appropriately, for example, and the privatisation of Telstra was accompanied with measures to promote rather than constrain competition.”

“The problem is that, in more recent years, many of Australia’s key economic assets have been privatised without regulation, and often with rules designed to prevent them ever facing competition. This makes us all poorer,” Mr Sims said.

“You regularly hear people calling for microeconomic reform these days. The best way to do that is to expose more of our economy to competition, and by dealing with excessive market power. Through some poorly formulated privatisations, Australia has on a number of occasions been doing the opposite.”

“We should either privatise to improve the efficiency of our economy, which clearly can be done, or not privatise at all,” Mr Sims said.

See also Ross Gittins in SMH 2 August 2021. Why government reforms are not always for the best

I wrote the following in 2015 in Pearls and Irritations about the privatisation of British Airways.

“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.” Senior executives at the time told us at Qantas that privatisation of BA was a ‘heaven sent’ opportunity to reduce competition against BA(John Menadue)

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