April 5th 2003

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Articles from this issue:

COVER STORY: Iraq war: will it change everything?

EDITORIAL: Bushfires: urgent action needed

Queensland: Beattie follows Canberra on embryo experimentation

Water rights: an emerging political issue in the Murray Darling Basin

Straws in the Wind: Varieties of folly / With us or against us / Cue for a song / Hatred

NSW Election: Bob Carr's next four years

Trade deal: what will Washington do?

Euthanasia: Victorian Tribunal orders death by starvation

Has privatisation been successful?

Letters: The cost of the Victorian bushfires (letter)

How taxation hits families

School students, demonstrations and the New Civics

ASIA: North Korea's nuclear game

SARS: China the epicentre of world flu outbreaks

BOOKS: On Enlightenment, by David Stove

Books promotion page

Has privatisation been successful?

by News Weekly

News Weekly, April 5, 2003
Privatisation often gives new monopolies, not competition

Over the last two decades the sale of public assets became a corner stone of economic policy throughout the English-speaking world. It was argued that the private sector was better suited than governments to running businesses and this together with the popularity of share floats and the initial revenue windfall seemed to overwhelm objections.

Australia took up the policy with gusto. Since 1990, asset sales have yielded more than $100 billion (with a peak year of 1997-98 when $25 billion was raised).

Mixed bag

Now the Committee for the Economic Development of Australia (CEDA) has undertaken a detailed review of the policy and concluded that the outcome has been, unsurprisingly, a mixed bag. Some of its findings are:

  • While the argument for private sector control is widely accepted, there remains a good deal of public scepticism about the benefits of privatisation. This is particularly so with regard to natural monopolies.

  • Much of the intellectual case for privatisation rested on the belief that market forces and competition would deliver efficiency improvements and wide-ranging savings for consumers. Yet many of the privatised utilities remain monopolies - for instance, energy and transport sectors. Hence the ongoing need for independent regulators.

  • In some areas - such as health - the market can work against public welfare. In such circumstances government involvement in one form or another remains necessary.

  • Privatisation is not a reversible operation, although the scale of sell-offs will necessarily slow as the number of (attractive) assets dries up and a preference develops for a different approach by governments such as contracting.

  • Finally, it is widely held that the use of moneys garnered through asset sales should not be used to prop up government budgets.

Published in December 2002, the study Privatisation: A Review of Australian Experience examines the impact of the policy on consumers, employment, public opinion and federal and state politics.

According to Professor Stephen King from the University of Melbourne:

"Privatisations in Australia fall into two groups. Some asset sales, particularly in the early 1990s, involved government-owned businesses operating in competition with private firms. Most privatisations, however, involve assets that create potential regulatory problems.

"Because of this, privatisation is often accompanied by the creation of new regulations and regulatory institutions."

King looked at three cases of privatisation which had different outcomes.

The first involved the sale of the Commonwealth Bank which was privatised in three tranches in the 1990s. King sees the sale as sensible policy for the bank was operating as a commercial entity in a market environment.

This is undoubtedly correct, for by the time of its sale the CBA had moved miles from its original charter and had long dropped the preferential business and development services it was once known for.

Natural monopolies

The second case, Telstra, became a more complicated privatisation because it continues to have a natural infrastructure monopoly, despite deregulation and competition with privately-owned carriers.

King suggests that one way of overcoming the present problems would be to separate Telstra from its "customer access network" with the latter remaining in public hands (a solution put forward a number of times by News Weekly).

This sharing of infrastructure facilities is not unknown and would mean that all the private carriers would have a responsibility to maintain the network.

The final example offered is the sale of the Victorian electricity system.

After a good deal of restructuring to avoid the problems facing telecommunications, the system was sold off by the Kennett Government in the mid-1990s, raising some $22.5 billion.

While there have been improvements in some areas, natural monopolies prevent true competition which means that prices need to be overseen by a regulator.

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