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The litany of failed privatisations.

John Menadue.

Reprinted from John Menadue’s splendid blog.

Hazelwood power station 4. Jeremy Buckingham. flickr cc.

Ideologues, the self-interested bankers, and accountants and lawyers persist with their fixation on privatisation, despite the fact that it is failing in one area after another, and that the electorate shows very clearly that it does not want it.

The latest political example was in the WA election, in which the part-privatisation of Western Power was an important factor in the defeat of the Barnett government. Opinion polls showed 70% of West Australians did not agree with the sale of Western Power.

Anna Bligh, the former Labor Premier in Queensland, paid a very heavy price in 2010 for her proposed sale of transport assets.

In NSW, Mike Baird, the former premier, might claim that his 2014 proposal to lease 49% of the state’s electricity transmission and distribution network for 99 years was successful. But was it? In his 2015 election, he had the benefit of being a new fresh-faced premier, with the ALP tainted with corruption and incompetence. He lost 17 seats. Through it all, polling showed strong opposition to the sale of electricity assets, and electricity prices have continued to rise.

The rejection of the Barnett government on Western Power is part of a consistent trend.

Privatisation failures

There is a litany of privatisation failures.

  • The Hawke and Keating governments sold off the Commonwealth Bank. Are we better off? Far from it, 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’
  • The Howard government sold off all of Telstra. If it had at least retained the wholesale business in public hands, we would now have a world class fibre-based NBN.
  • Medicare has operating costs one third of those of private health insurance. But the government is using $11 billion of taxpayers’ money each year to prop up the inefficient and confusing mess called private health insurance (PHI). Our health system is being privatised by stealth through an enormous corporate subsidy to PHI. Medicare was established by the Whitlam Government because of the shambles private health insurance had become in 1974. It is the same again today.
  • Governments facilitated unscrupulous private providers to compete with the TAFE colleges, with disastrous results. Rod Sims, the Chair of the Australian Competition & Consumer Commission, said recently 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 National Disability Insurance Scheme 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 are badly run and 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 hobbled in privatisation, with a cap placed on its container business in order to protect Port Botany.

Renationalising electricity?

The biggest failure of all in privatisation has of course been in electricity generation and distribution. Wholesale prices are now double those 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 billion better per annum than at that time. But more of that later.

As Tim Colebatch reported on 16 March in Inside Story, electricity prices have soared 187% since 2000. He commented that “the privatisation and deregulation of gas and electricity has failed consumers”.

Professor John Quiggin put it this way in this blog in 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 cost 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, in which it makes sense for lots of businesses to compete and drive costs down, the cost and importance of supplying electricity means that it make sense for one business to control the market. Given this status, this authority should not be a privatised firm, or even a corporatised government enterprise. Instead, it should be a statutory authority with a primary mission of delivering energy security at low cost.

In South Australia’s Electricity Problems: Jay Weatherill Should Follow the Coalition’s Example in this blog, Ian McAuley also described the failure of private electricity generation and distribution in South Australia, leadin to Premier Tom Playford nationalising the system in 1946.

In light of the clear failures of privatisation and the terms of those privatisations, 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.”.

Public opinion on privatisation

Rally For People Not Profit. CPSU/CSA. flickr cc.

While conservative and neoliberal ideologues refuse to face the facts, the public clearly understands that privatisation of public utilities which are natural monopolies is unacceptable. Essential Report on 10 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%
Privatisation 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%
Privatisation means increased competition to benefit consumers 33% 49%
Private companies deliver better quality services than government-run organisations 33% 46%
Prices always increase when services are privatised. 70% 13%

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. The business, political, and media elites are just not listening.

 

 

Posted by on Apr 2 2017. Filed under Economic issues, Feature, Politics, Recent articles by SPC members. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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