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Don’t Minchin it

August 20th, 2005

The Australian’s Margin Call column has an amusing comment on the privatisation of Telstra. The policy is rather like Voluntary Student Unionism in that it’s been pushed for so long that no-one in the government can abandon it, even though it no longer has any obvious rationale.

The fact that selling Telstra will make the public worse off in fiscal terms has finally sunk in and I suspect that Nick Minchin and the Finance Department (once the leading agency pushing a sale) would be happy enough to drop the entire idea.

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  1. Terje
    August 20th, 2005 at 15:36 | #1

    Its true that if we had sold it all years ago we would have got a much better price. I hope all those that opposed it for so long see how detrimental their behaviour has been.

  2. Terje
    August 20th, 2005 at 15:43 | #2

    Actually I think an option worth considering would be to give Telstra away. If they divided the stock by the number of Australian citizens and then just used the electoray role to mail everybody their share then that would save all the fuss about what price its worth.

    And it should short circuit the perpetual desire for constituent bribes.

  3. ab
    August 20th, 2005 at 17:19 | #3

    Let’s face it Terje, with compulsory superannuation, that’s effectively what’s going to happen.

  4. jquiggin
    August 20th, 2005 at 17:48 | #4

    Way off the mark, Terje. We’ve had a far better return from our continued holding than from the T1 sale. T2 was a bit better but only because of the dotcom boom. If we had sold off the dotcom bits of Telstra and kept the rest (not hindsight- I proposed this at the time) we would have done much better.

    Total loss to the Australian public from all this is around $10 billion and counting. Search the site and you can find the numbers.

  5. August 20th, 2005 at 19:07 | #5

    If the reason for the government to own shares in Telstra is that they are playing the market, wouldn’t they be better off diversifying their portfolio and forgetting any 50.1% rule?

    And JQ, when you talk about loss, are you talking about government loss, or Australian loss. Australian citizens count as Australian too.

  6. August 20th, 2005 at 23:20 | #6

    John Humphries : Perhaps you would care to quantify how you believe that ‘Australia’, as opposed to the ‘government’, stands to gain from privatisation, or conversely, lose if privatisation does not procede?

    It should be obvious to any numerate person that privatisation is harmful to the interests of everyone, except for a very small minority, no matter which way you look at it.

    What have I missed?

    Terje wrote : If they divided the stock by the number of Australian citizens and then just used the electoral role to mail everybody their share then that would save all the fuss about what price its worth.

    As I wrote elswhere elsewhere in resonse to this same suggestion:

    And what do you think that would achieved by all the bureaucracy, paperwork and expense entailed in giving shares to each and every Australian citizen (although admittedly it would be fairer than what the Government is now trying to bring about)? Would such a scraps of paper make Telstra, as a whole, any more valuable to the public? Do you think that, also, shares for Australia Post be handed out, as well as shares for Medibank private? for the Snowy Mountain Hydro scheme? for all our roads, our schools, our universities, our libraries, our dams and water treatment plants, hospitals and national parks?

    Don’t you think that 20,000,000 Australians have more important things to do with their time than to be stuffing around with yet dozens more of the necessary scraps of paper?

  7. August 20th, 2005 at 23:22 | #7

    Well done JH. I would only add, this sort of discernment should be applied to a great many economic arguments about this or that topic – Australian privatisation, globalisation (as distinct from free trade proper), and so on.

    BTW, use of revenue yielding domains to finance governments is actually the ideal in a small government oriented system, apart from tariffs when interfacing with the outside world. As to whether that approach is viable, that to a large extent depends on the conditions created and maintained by policies that keep the resources out of truly private (that is, individual) hands.

    As to whether that in turn is practical, that in turn depends on finding and implementing a realistic transition that doesn’t (like nominal privatisation and globalisation) throw the babies out with the bath water – no mean feat in itself.

  8. August 21st, 2005 at 19:28 | #8

    James, I didn’t state a position on the benefits or otherwise of the sale. I just pointed out the difference between the government and the nation. Do you disagree with me?

    But since you ask — my preference is for a give-away, with no help to regional areas.

    How do Australians benefit? If Australians keep the shares, then they will recieve the same returns as the government would have — so it’s a net zero. If Australians instead decide to sell the shares to foreigners, then they are indicating that they have a preference for other things (perhaps international shares, perhaps other shares, perhaps property, perhaps a new car… whatever) and so Australia is better off by divesting itself of Telstra shares.

    I also think a privatised Telstra (not burdened with excessive regulation) will end up being more efficient. So it’s win-win.

    And yes, I happen to think the post office, universities, medibank private, hospitals (and some other government businesses) should be privatised. But that is not relevant to the issue at hand… each piece of government legislation should be judged on it’s own merits.

    You are trying to make one privatisation look radical by associating it with privatising everything. I could equally imply that you want to nationalise the local butcher and the 7-ELEVEN… but that would likewise be unhelpful.

    As for the poor Australians burdened with these valuable shares… if the piece of paper is too troublesome, they can throw it away, give it back to the government, give it to friends or sell it for money.

  9. jquiggin
    August 21st, 2005 at 19:50 | #9

    John H, while part of the loss from T1 was a transfer to the buyers (mostly but not all Australians) from initial underpricing, most of it reflects the fact that Telstra is more valuable in public than in private ownership. That is, the value of the stream of earnings discounted at the government bond rate is greater than the market-determined share price.

  10. Terje
    August 21st, 2005 at 19:58 | #10

    The figures as I understand them.

    At T2 the government sold 16.6% of Telstra or 2132million shares. The sale price was $7.80 per share. The revenue raised from the sale was in the order of $16.6 billion or roughly 1 billion per percent of ownership.

    So the market value at that stage for the other 51% was about $51 billion. Since then the government has suffered something in the order of a $20 billion capital loss on the stake that it retained.

    I don’t know how JQ figures that the government has profited from the delay.

  11. August 21st, 2005 at 20:16 | #11

    JQ — the stream of earnings is the same. The govt used to get $1, now a citizen gets it. Net zero. There is no reason to use different discount rates in determining the present value of an estimated future income flow.

    Share prices are determined by more than the current dividends. Furthermore, the asset value of Telstra to the government is irrelevant if it is never to be sold!

    Clarification — are you saying that you think the difference between the share price and an artification guestimate of the value of a public estimate can only be caused by a change in the real value of the asset, and not by a mistake in either the market price or the guestimate?

  12. August 22nd, 2005 at 00:42 | #12

    John Humphreys wrote : I just pointed out the difference between the government and the nation. Do you disagree with me?

    Obviously, government and nation aren’t the same, just as, in a golf club the managing committee is not the same as the entire membership. However, the power of Government, in a properly functionioning democracy should be wielded to serve the people. If that did happen, the intererests of the people and the interests of the people as a whole would not differ greatly. Clearly that is not the case in Australia, but that can, and should, be changed.

    John Humphreys wrote : And yes, I happen to think the post office, universities, medibank private, hospitals (and some other government businesses) should be privatised. But that is not relevant to the issue at hand…

    You are trying to make one privatisation look radical by associating it with privatising everything.

    This is rather reminiscent of John Howard’s response to critics of his partial privatisation of Telstra, when he effectively said that his critics were falsely accusing him of having the more ‘radical’ long term goal of full privatisation.

    Whether it is to be accomplished all at once or in stages, it is relevant, because the selling of every possible publicly owned asset would seem to be the ultimate goal of the Government.

    John Humphreys wrote : I could equally imply that you want to nationalise the local butcher and the 7-ELEVEN… but that would likewise be unhelpful.

    Yes, it would be unhelpful, because I don’t think nationalisation of local butcher shops or 7-11 stores is likely to achieve much good.

    However, I don’t see that governments should necessarily be barred from owning and operating butcher shops or conveniece stores. It need not be national governments. It could be local or state governments. If, as the market fundamentalists allege, that they are inherently inefficient, then they would fold, and not a great deal more would have been lost than what is lost to the community when businesses fold on a regular basis.

    On the other hand, if they were to become commercially successful, and also provide a useful service to the community, is that a bad thing?

    As for the rest of the post about how giving Australians shares in Telstra and, eventually, every other Governement owned asset, the isses are too compex to be able to easily deal with now.

  13. Razor
    August 22nd, 2005 at 13:31 | #13

    If selling Telstra is such a bad idea, why doesn’t the ALP commit to using the Future Fund to buy it back?

  14. Mike
    August 22nd, 2005 at 15:11 | #14

    JQ

    “That is, the value of the stream of earnings discounted at the government bond rate is greater than the market-determined share price.�

    I do hope you are not an active personal investor on that basis. The value of the stream of (almost) any company’s earnings, discounted at the government bond rate will always exceed its market price because the risk to its future earnings is higher than the risk embodied in the government bond rate. My answer is to use the right discount rate. Yours would logically seem to be for the government to own everything.

    But privatising Telstra is not merely a fiscal transaction. It is a further step in taking the government out of the ownership and control of commercial businesses that are providing goods and services to customers for profit in a competitive market place. Those who support this direction of “reform� recognise that it has merit for its own sake. Those who oppose it usually resort to accusations of “ideology� – although I seem to recall that it was originally State ownership of the means of production (etc) that was the ideological position…

    The real value of completing the privatisation of Telstra lies in (a) ending the capacity of the agrarian socialists to use their political power to shift value in their favour; (b) ending the silly debate that confuses ownership with the power to regulate, without ever recalling that Telstra’s anti-competitive, anti-consumer behaviour under 100% government ownership was unfettered, harmful and out of control; (c) freeing the government’s fiscal future from the risk of the continued ownership that has seen billions of dollars of potential proceeds lost in the delay in competing this sale; and (d) signalling the continued move of commercial activity into the private sector as reform that needs to continue to build flexibility and resilience into the economy.

  15. Stephen L
    August 22nd, 2005 at 16:20 | #15

    Terje, the market value of Telstra has fluctuated dramatically (which in itself might be a warning to those who believe in the all knowingness of markets).

    If the government had sold at the peak they might have been better off, although not by as much as you say, because dumping all the stock at one time would have saturated the market and reduced the price of T2. However, at other times, including T1 the value was lower than it is now, and selling was a mistake.

    So the supporters of privatisation cost the government billions by selling stock at the time of t1. The opponents cost the government billions by not allowing full sale at the time of T2. The only people who were wise advocates of government wealth were those who supported sale at the top of the market but not at other times.

    Unfortunately, people with an ability to pick the top of every market are rather thin on the ground. Actually this isn’t unfortuate – its natural, if every one could pick the top of a boom there would be no booms.

    The real question is whether, on average these sorts of sales have made sense. Now I’m way out of my depth on calculating that one, but Prof Q’s numbers seem to make sense to me, besides the small fact that he does seem to be one of those rare birds who can pick the top of at least some markets based on his arguements at the time of T2.

  16. Razor
    August 22nd, 2005 at 17:22 | #16

    Anybody care to answer the question – if selling Telstra is such a bad idea, why won’t the ALP commit to buying it back with the Future Fund?

    And then they could by back CSL, QANTAS and the CBA. And roll-back the GST that was going to be the end of Australian civilisation as we know it (what??? it hasn’t???). And they could commit to reversing all the proposed changes to the industrial relations legislation and increasing the Unfair Dismal Protection for all workers.

    If they won’t do these things then there must be some merit in them? No??

  17. August 22nd, 2005 at 18:06 | #17

    James — I think you’re getting confused. This is not a debate about whether the government should or shouldn’t serve the people. That is a strange side-track. My point was simply that if the government makes a loss, it doesn’t necessarily follow that the nation is worse off. Simple point really.

    You other arguments are irrational. Are you saying that you’re not happy for Telstra to be privatised unless we also privatise the Post Office? Under your line of reasoning, nothing could ever be privatised! Each policy should be judged on its merits… and references to other potential privatisations are as irrelevant as references to other potential nationalisations.

    And to accuse this government of having a radical free-market agenda is a statement vastly out of touch with reality. This is the most socialist government Australia has ever had. Highest taxing. Highest spending. More spending on health. More spending on welfare. These are facts — not opinions.

    Your comments about the costs of failed government businesses are equally absurd. In the face of overwhelming experience to the contrary, you seem to deny the inefficiency of government business. But even stranger, you claim that there is no cost in having more inefficient businesses! That is wrong, by definition.

    I think you’re out on a lonely limb here. JQ may be a social democrat, but I don’t think he subscribes to Green Left Weekly.

    Stephen L — nobody argues that the market is all knowing. Just that it is a good way of passing on knowledge relatively efficiently.

    Razor — one argument might be that any government (including a future ALP government) has finite political capital and they use it on those issues they consider the most important at that time. Hopefully, the re-natinalisation of Telstra is a low priority even for the feral-left of the ALP.

    Of course, the more likely answer is that politics is about opinion polls and not good policy… but lets not let my cynicism get in the way.

  18. Terje
    August 22nd, 2005 at 18:09 | #18

    QUOTE: And what do you think that would achieved by all the bureaucracy, paperwork and expense entailed in giving shares to each and every Australian citizen (although admittedly it would be fairer than what the Government is now trying to bring about)? Would such a scraps of paper make Telstra, as a whole, any more valuable to the public? Do you think that, also, shares for Australia Post be handed out, as well as shares for Medibank private? for the Snowy Mountain Hydro scheme? for all our roads, our schools, our universities, our libraries, our dams and water treatment plants, hospitals and national parks?

    RESPONSE:-

    With the exception of national parks and roads I would be pretty supportive of a demutulaisation of government owned entities through a share give away. And even national parks might be better managed if owned by a private trust.

    Would this make the entities in question more effective. Maybe, maybe not. However it would make the industries in question more effective because consumers could now choose what they actually wanted. If you did not want the services of the local hospital then you would not need to pay for them.

    In my humble view such a demand based allocation of resources is overall a much fairer and more efficient way compared with the current command based approach.

  19. Razor
    August 22nd, 2005 at 21:42 | #19

    Is it safe to assume from the deafening silence that ownership of Telstra by the Government is not better than ownership by private enterprise?

  20. August 23rd, 2005 at 08:17 | #20

    Regarding suggestion that Telstra shares be given away:

    John Humphreys wrote : How do Australians benefit? If Australians keep the shares, then they will recieve the same returns as the government would have—so it’s a net zero.

    Firstly, it cannot be net zero. A huge cost would be incurred in the cost of this exercise, although, perhaps, the money required may be less the the amount that is to be wasted on the sale of the Government’s remaining share, as reported in today’s Adelaide Advertiser, that is $500 million.

    Secondly, how will the Government make up for the shortfall for the revenue which will now be paid back to every shareholder? Either services will have to be cut or extra taxes will have to raised.

    So, instead of money going straight from Telstra to the Government, it will instead be paid to the shareholders. Then those same shareholders will have to pay back the extra necessary extra tax.

    What is the sense of that?

    Even if, as market fundamentalists argue, we can make do with less taxes being raised, couldn’t the same effectivey be achieved by Telstra simply remaining in Government hands and it lowering its charges?

    John Humphreys wrote: As for the poor Australians burdened with these valuable shares… if the piece of paper is too troublesome, they can throw it away,

    Your point only ilustrates how those of us who would prefer to get on with life, rather than devote our time to watching share prices, dealing with stockbrokers, financiers, insurance brokers, fund managers, lawyers etc, etc, stand to lose whether privatisation procedes as the Government now plans to or adopts this proposal.

    As I wote share have no inherent ‘value’ and in no way add to the value of Telstra for the community. They will be, as I said, scraps of paper. Too much of supposed economic activity, these days, involves the shuffling around of scraps of paper, or their electronic equivalents, rather than creating actual wealth.

    Will the injection ‘enterprise’ into telecommunications make it more effective and offset the huge costs of all the paper shuffling? Contrary to claims made by privatisation advocates there seems to be no magic wand that private enterprise has which allows them to run enterprises more efficiently, with the possible exception that thay have shown themselves willing to be more ruthless to their workforces, but it is debatable whether even the outside community has gained from this.

    The past records of privatisation in this country, and elsewhere, show that there is ample evidence to the contrary, that is, that private management is a lot less effeicent, especially if we consider the way the copper network has been so badly neglected and so much of its previous value to the community has been lost as a result of the short-sighted dictates of shareholders to reduce costs in order to raise their profit levels.

    Terje wrote : If you did not want the services of the local hospital then you would not need to pay for them.

    Are you saying that once shares are given out, then all our hospitals will be run on a user pays basis? Having been ‘given’ shares in the hospitals that all taxpayers now own anyway, they will have foregone any right to be treated in hospital unless they are able to pay?

    Your suggestion requires no further comment except that it further illustrates that the case for privatisation has no basis in the real world except for those very few Australians who stand to benefit at everyone else’s expense.

  21. Ian Gould
    August 23rd, 2005 at 10:03 | #21

    Razor, in the case of the GST the benefits probably didn’t outweigh the transitional cost – but changing back to the pre-extisting system would also be very costly.

    Ask most small-business owners what they think of the GST – but don’t ask us around BAS time.

    Given that repealing the GST is impractical, I’d like some changes made to reduce the inefficiencies in the current system. Specifically, the $50,000 limit for registration is ridiculously low. As I understand it, most other developed countries have a minimum turnover requireemnt of A$1,000,000 or more.

  22. August 23rd, 2005 at 10:06 | #22

    Terje, as a practical matter that sort of direct giveaway presents transitional problems. Mainly it’s the lack of a sort of tutelage period in which people can learn to cope with what they might otherwise react to as a windfall – the reason British Empire slaves were freed with a tutelage transition. If you just dump things on people who haven’t learned how to cope, like pools winners not learning, you could well get the sort of counterproductive thing that happened under the well-intentioned US allotment movement that parcelled out reservation land among individual Indians. Whitlam caused analogous harm to Australian aborigines.

  23. August 23rd, 2005 at 10:26 | #23

    Anyone seen the Moir cartoon in today’s Sydney Morning Herald?

  24. Gaby
    August 23rd, 2005 at 11:24 | #24

    Sorry to interrupt the thread but I want to point to this interview on the sale of Telstra that Minchin gave on Adelaide ABC local radio last week, notable for its egregious sophistry. The audio is available here.

    http://www.abc.net.au/adelaide/morning/audio.htm

    It’s about 20 minutes in.

    This is the gist of Minchin’s remarks.

    1. Telstra is better in private hands as government doesn’t do “commercial services” well and on the proviso that it is “properly regulated” as a monopoly.

    2. But Telstra is not a monopoly because of things like wireless and satelitte services.

    3. An “operationally separated” but integrated (i.e., not “structurally separated”) Telstra is in the “national interest”.

    4. “Impossible to now unscramble the egg” of an integrated Telstra. Should have been done when Labor set Telstra up.

    5. On the sale price, the government must take into account the “opportunity cost” of keeping its money in one telco.

    6. The government’s shares are really a “financial asset”. The government is really “a financial investor with all its money in one phone company.”

    7. The government would be better with a “diversified” portfolio. This is what any “suburban financial adviser” would recommend.

    Now I think that to present the issues in this manner is simply deliberately false and misleading. There is no other more charitable interpretation.

    Let the first 4 points go. On point 5, John has shown repeatedly shown that the opportunity cost of sale is less than the benefits of holding the shares.

    Now focus on Minchin’s characterization of the government’s controlling ownership stake as a “financial asset” that needs to be “diversified”. So Murdoch, Gates and the Google guys should sell down their controlling interests too? Ownership or control provides no other benefits or rights than a mere “financial” stake?

    And so the biggest risk from holding is “systematic risk” that needs to be diversified ? Not regulatory risk as argued so forefully by John? Come on. Minchin just assumes that the gorilla can be tamed by regulation, presumably on the basis of his assessment of the effectiveness of the current regulatory regime.

    According to Minchin’s lights “we” would be “clearly” better off with a more diversified portfolio notwithstanding recent painful experience of privatization substantially increasing costs to us consumers.

    Minchin’s interview was a shocking blend of the technical and conventional designed to maximally mislead and deceive. Not spin. But Frankfurtian bullshit.

  25. Razor
    August 23rd, 2005 at 11:43 | #25

    I declare opposition to the sale of Telstra dead. Don’t waste your time. If the sale isn’t going to be reversed then why oppose. This sounds like the ALP and Superannuation Surcharge – oppose the introduction, oppose the reduction, oppose the abolition.

    At leastthey are consistent and in name alone are acting as an Opposition by just opposing.

  26. August 23rd, 2005 at 12:02 | #26

    Gaby, thank you for your summary of that interview. I haven’t got sound working on my PC (1), yet.

    One of the greatest weapons we have are the words which have come out of the mouths of John Howard, Nick Minchin, Helen Coonan, Peter Costello et al, themselves.

    Democrats call for referendum on privatisation

    I nearly forgot to mention. The Democrats have called for a referendum on the sale as, also, quite a few newspaper letter writers have in recent weeks.

    I don’t know if this has been widely reported. My Google alert of this morning seem to indicate that it has not, so far.

    However, a copy their excellent media release can be found on our web site.

    I suggest that anyone who wants to stop the sale of Telstra get right behind the Democrats on this one and send letters of support to both the Democrats
    and to Senator Lyn Allison who can be reached by emailing Senator.Allison at aph.gov.au

    Footnotes

    1. It’s a Linux PC, but I don’t even know what an ‘e-mail virus’ is, so it is well worth the minor inconvenience.

  27. Gaby
    August 23rd, 2005 at 13:02 | #27

    Razor, while the sale may be a fait accompli, my main point was about the brazen hucksterism that Ministers routinely get away with, especially when obediently interviewed by a badly informed or prepared media.

  28. August 23rd, 2005 at 14:06 | #28

    Gabby — you imply that govt ownership of Telstra gives the govt benefits other than the financial return. What are these benefits?

    James — I can’t imagine why giving away shares would cost more than a few million, which is chump change for the federal government. I imagine this would easily be made up by the benefits of a more efficient telco and by allow people to divest if they want.

    You ask how the government can replace the revenue. First (once again) if it revenue you’re after then the government should have a diversified portfolio — not just shares in one telco company. Second, the best way to raise revenue is allow the private sector control business, and then have a tax. This is because the private sector generally gets a higher return on their investments (because their investments are driven out of the profit-motive, not the vote-motive).

    You effectively say that there is no sense allowing the private sector to do business if you’re simply going to tax them later. Once again, the logical extension of your argument is socialism. I’m not saying you’re a socialist, but you’re making the exact same mistakes in your reasoning. It is worthwhile understanding why socialism doesn’t work… or you’re destined to repeat the mistakes of the past.

    Lowering Telstra charges is not “effectively” the same as a tax cut. They are “effectively” opposites. Lower Telstra charges is a subsidy being paid for by somebody else’s tax. Increasing the subsidy would decrease efficiency while a tax cut would increase efficiency.

    If you’re not interested in shares — then sell them. Or donate them to the government. It’s not that hard. Personally, I’m not interested in being forced to finance your habits and your choices. All I’m asking you to do is look after yourself. You are asking (actually insisting) that I look after other people — many of whom are richer than me anyway.

    Shares do have an inherent value. Being a scrap of paper doesn’t make something worthless… just like a $10 bill. The value is in that these things can be exchanged for what we want. And “shuffling” paper, as you put it, certainly is a productive activity that adds wealth. Risk management, communication of information, moving capital to more productive uses, etc.

    As for the past record of privatisation — it has shown overwhelmingly that the private sector is more efficient than the public sector. This is why traditional socialism is discredited. This old debate has been run and won many years ago and I don’t think this is the best place to re-hash the arguments about the desirability of socialist planning.

    Your response to Terje was a non-answer. User pays is a good system.

  29. Razor
    August 24th, 2005 at 13:02 | #29

    John Humphries – I believe we have them in a corner. No rationale except . . .”but, but it’s just bad to sell government assets!” and no commitment to buy the asset back once sold (which is the logical step if the sale is a bad decision cf Kerry Packer, Alan Bond and Channel 9).

  30. jquiggin
    August 24th, 2005 at 13:19 | #30

    Razor, I’m stunned. Since I started this thread, Minchin’s hints about not selling (or some sort of pseudo sale into the Future Fund) have good steadily more explicit. The government itself recognises that sale at the current price would be fiscally disastrous. It’s an odd time for you to declare victory.

    I recognise that the political imperative to implement a long-promised policy will ultimately prevail. But the government’s collective reluctance on this issue speaks volumes.

  31. Andrew Reynolds
    August 24th, 2005 at 15:46 | #31

    PrQ,
    All along the PM has said that it would be sold when the price likely to be gained made it worthwhile – not before. I am not one of our PM’s greatest fans, but he has been clear on this. The reason for the hurry on the authorisation is so that, once the price is right, it can be sold straight away without having to go through the entire debate at that point, taking up to 6 months and having to pay out even more to the Nats to get it done in a hurry. Please give some credit for being clear on that on the way through.
    .
    BTW, what would you consider a fair price? What discount rate would you apply?

  32. Razor
    August 24th, 2005 at 16:02 | #32

    JQ – I don’t have a problem with making sure they get a reasonable price.

    In fact, I had the idea when they first started talking about the Future Fund of just putting TLS straight into it and letting it then be sold off over time rather than in one big hit.

    The fact of the matter right now is that the ALP and readers of this blog have yet to commit to buying back TLS, let alone the other asset sales of recent years. This asset sale in particular would be particularly easy to reverse as virtually all the funds are going to be retained – unlike previous asset sales.

    So, who supports a roll-back, oops, buy-back??

  33. Andrew Reynolds
    August 24th, 2005 at 16:25 | #33

    Razor,
    Only problem with putting it all into the future fund is that this creates a huge stock overhang, depressing the price. What would be needed is a clear schedule for its disposal from the fund – probably not what they intend to give.

  34. Terje
    August 24th, 2005 at 17:30 | #34

    QUOTE: Terje, as a practical matter that sort of direct giveaway presents transitional problems. Mainly it’s the lack of a sort of tutelage period in which people can learn to cope with what they might otherwise react to as a windfall – the reason British Empire slaves were freed with a tutelage transition. If you just dump things on people who haven’t learned how to cope, like pools winners not learning, you could well get the sort of counterproductive thing that happened under the well-intentioned US allotment movement that parcelled out reservation land among individual Indians. Whitlam caused analogous harm to Australian aborigines.

    RESPONSE: So we do Telecommunications this year and hospitals next year. Or some such thing. However you make a good point.

  35. Razor
    August 24th, 2005 at 17:30 | #35

    There is an overhang now – what’s the big difference?

  36. jquiggin
    August 25th, 2005 at 00:49 | #36

    So who supports a buyback?

    I have been arguing for a buyback since at least 2002

  37. Andrew Reynolds
    August 25th, 2005 at 08:44 | #37

    Razor, there was no overhang until the sale became a likely prospect at the last election. If the sale process was quick the overhang would be of short duration. If, OTOH, it takes many years that is how long the overhang will exist for.
    .
    PrQ, as you may remember, I support a buyback, provided it is followed by a breakup and resale. While this may cost the government a lot, I believe the benefits of a properly competitive telecoms market would be worth it.

  38. the commenter informally known as anon
    August 25th, 2005 at 14:41 | #38

    Mike said it best above.

    The govt can make almost any profit it likes out of Telstra – it contains a huge piece of the core infrastructure of Australian communications (landlines or more importantly access rights to the holes in which the landlines run) and the govt can manipulate the rules of access to that infrastructure any way it sees fit.

    So arguments based on past or future discounted cash-flows are virtually meaningless. By the same arguments we should (re)nationalize all industry: think of the profits the govt could generate then!

  39. Mike
    August 25th, 2005 at 18:06 | #39

    JQ asked:
    “So who supports a buyback?

    I have been arguing for a buyback since at least 2002�

    I assume John means the Government buying back the 48.2% of Telstra that it doesn’t own, rather than the more sensible idea of Telstra buying back some of the 51.8% that the Government still owns?

    That might be one of the greatest (= “largest� rather than “best�) acts of nationalisation since the UK Labour Party nationalised the British coal mining industry in 1947. It looks like a courageous policy idea. Quite a challenge.

    But once we have done that we could borrow some more cheap cash and buy some more commercial businesses – and so on until we achieved the commercial dynamism, efficiency and productivity of the old Soviet Union – or today’s North Korea, or Cuba – through a large State-owned enterprise (SoE) sector that enjoys the benefit of a very low cost of capital.

    Thank goodness we have a Canberra bureaucracy that is highly skilled at supervising the ownership of SoEs and that can be relied upon to ensure proper coordination and planning of and within a much enlarged SoE sector… We could call that reform (sic) “central planning� – clearly a good policy.

    Thank goodness we have a political system that is so skilled at managing the ownership of commercial enterprises that the future profits are as certain and riskless as the taxation capacity of the Government is today… Thank goodness we have a Government that can and will provide the capital than is needed to continue the innovation, development and risk taking that is a necessary part of the ownership of commercial enterprises – and will never defer such expenditure to cosmeticise pre-election budgets or curry political favour. Thank goodness the political system will readily accept the outcome of commercial risk taking when risks actually eventuate. No political pillory from the Opposition. No smart alec point scoring by the clerks of the Australian National Audit Office.

    Thank goodness we have a Government that will resist the temptation to use the power of patronage in appointments to this massive SoE sector, and can be relied upon to make such appointments only on commercial merit regardless of political allegiances or personal relationships.

    So, let us start this bold program…tomorrow.

  40. August 25th, 2005 at 18:08 | #40

    John Humphreys wrote : “… the logical extension of your argument is socialism…”

    This debating ploy seems to be in use quite a lot these days. The logical conclusion of opposition to unfettered private ownership of everything, is socialism. And since no reasonable person, these days, could possibly be in favour of socialism, then all privatisation has to be supported without reservation.

  41. craigm
    August 25th, 2005 at 18:25 | #41

    Leaving aside the rather silly CBA/QANTAS comparisons, where will the infrastructure investment needed by this vast sparsely populated country come from?

  42. Andrew Reynolds
    August 25th, 2005 at 19:00 | #42

    craigm,
    Where it always has come from – either taxation, revenue from government enterprises or the capital markets, both domestic and foreign.
    If it comes from taxation it represents a net transfer from the productive earners into government financed schemes. If from government enterprises it represents a monopoly (or other regulatory) profit. If from the markets it represents voluntary contributions in the expectation of future returns.
    We get to choose. That is what this whole debate is about.

  43. jquiggin
    August 25th, 2005 at 21:24 | #43

    Fortunately for Mike and others, we don’t need t hypothetical reasoning to determine the fiscal impacts of privatisation. We have ample recent experience of full privatisations, partial privatisations and rejected privatisations to enable a comparison, and the results are quite clear. In most cases, governments (that is, the Australian public) have been worse off as a result of privatisation.

    You can find numerous papers on my website going back to the 1990s and demonstrating all this. Alternatively, you can stick to a priori reasoning, rhetorical invocations of North Korea and so on.

  44. econwit
    August 25th, 2005 at 21:39 | #44

    “the results are quite clear” Governments by the main are inefficient bureaucracies that have trouble regulating let alone running anything.Those businesses only shone after the shackles of public ownership were removed.

  45. jquiggin
    August 25th, 2005 at 21:50 | #45

    Read the articles, econwit. I include case studies where privatisation was proposed and a sale price estimated, but the sale did not proceed. For example, the Liberals proposed selling Telstra for $20 billion in 1993. You can compare this to the flow of earnings realised under continued public ownership.

  46. the commenter informally known as anon
    August 26th, 2005 at 05:34 | #46

    test

  47. the commenter informally known as anon
    August 26th, 2005 at 05:34 | #47

    You can find numerous papers on my website going back to the 1990s and demonstrating all this. Alternatively, you can stick to a priori reasoning, rhetorical invocations of North Korea and so on.

    That a priori reasoning has some pretty good foundations: all the centrally planned economies that I know of have been singularly unsuccessful. Can you point us to a representative paper jquiggin?

    You can compare this to the flow of earnings realised under continued public ownership.

    As I said above, when the government controls the rules and is a monopoly owner of significant core infrastructure it can generate whatever earnings it likes. It is effectively taxation by another name. So your argument from earnings seems without merit. Unless of course you believe that all industry should be nationalized and hence under the monopoly control of the government so that it can extract arbitrary earnings for the public. In which case Mike’s points about the effectiveness of centrally planned economies are quite valid.

  48. Mike
    August 26th, 2005 at 10:26 | #48

    JQ says:
    “…case studies where privatisation was proposed and a sale price estimated, but the sale did not proceed. For example, the Liberals proposed selling Telstra for $20 billion in 1993. You can compare this to the flow of earnings realised under continued public ownership….�

    True, John (in part) and your work is generally admirably consistent and rigorous except in always assuming (wrongly):

    (a) that the future cash flows of a State-owned enterprise should be valued at the same discount rate as (essentially) risk free borrowings by a well-rated sovereign government; and

    (b) the commercial performance (profitability, capital appreciation) will be no worse under government ownership than under State ownership.

    Of course when the Libs proposed to sell Telstra in 1993, their $20 bn figure was only a notional pre-sale estimate. They actually proposed to sell it at the price the market would then pay. The market would have paid a price based on its dcf valuation of the then expected future cash flows. History now tells us that those expectations would have been conservative and their discount rates would have been higher than JQs.

    In much the same way, the Libs 1996 policy implicitly assumed that 1/3 of Telstra was worth $8bn. The market paid $14bn and then ramped up the value even further (proving clearly that the laws of supply and demand apply to share sales – the more you try to sell at any one time the lower the price you can obtain).

    It clearly is possible for State ownership to be associated with commercial success in an SoE, although I would hold that any such result is usually transient and is best followed by a quick exit before the inevitable downturn. Singapore, through Temasek, is the obvious outlier, and even JQ does not usually suggest we base policy on a single outlier (especially one that is explicable in terms that are simply not replicable in Australia).

    Australia Post has been a unique domestic State-owned success since the late 1980s, but only after several prior generations of commercial weakness and failure. And its long term future remains clouded as its core business matures and its ownership constrains its commercial options for strategic development.

    The track record is simply that almost all businesses, almost everywhere, are less efficient, less profitable and less customer responsive in the long run under State ownership than private ownership. That means lower future expected cash flows under State-ownership. And the present value of those cash flows is also lower because the discount rate, reflecting the uncertainty of those cash flows, is higher (not lower) under State ownership. Yes, there may be periods when these conditions may not apply. But policy should not be based on transient exceptions.

    Finally, and Singapore (uniquely) aside, it is clear that countries with larger State-owned enterprise sectors end up less highly rated financially so that their cost of borrowing rises, further undermining the Quiggin calculations. This is the relevance of the Soviet/North Korea/Cuba citations.

    Yes, there have been mistimed privatisations, ill-structured privatisations and even mis-managed privatisations. But any such flaws in execution pale into insignificance compared with the long term destruction of value and efficiency that almost inevitably accompanies State ownership.

  49. August 26th, 2005 at 13:34 | #49

    James — it was not a “debating ploy” to point out that the logical extention of your argument is socialism. It was factual.

    You effectively said that it makes no sense to allow the private sector to make money if you’re just going to tax them later… so why not cut out the middle man and just have the government run business. You were applying this logic to Telstra… but the logical extention of it would also apply to any other business. That’s socialism.

    I was not arguing that you are socialist and should therefore be ignored. I was saying that your argument was not internally consistent with your conclusions (assuming you’re not a socialist).

    I was not arguing that “opposition to unfettered private ownership of everything” makes you a socialist. That is absurd and I never said anything like it. I also didn’t say that “all privatistion has to be supported without reservation”. In fact, I specifically said that we should consider each policy on its merits. You are the one that tried to link privatising Telstra with privatising roads!

    You are either blatently lying, or are actually unable to understand the very simple points that I am making. Either way, you are doing your side of the debate a disservice.

  50. August 26th, 2005 at 23:12 | #50

    (Further to my previous response to John Humphreys)

    John Humphreys wrote : As for the past record of privatisation, it has shown overwhelmingly that the private sector is more efficient than the public sector.

    Complete rubbish!

    Even, Mike, further below, in arguing for privatisation, concedes, “yes, there have been mistimed privatisations, ill-structured privatisations and even mis-managed privatisations.”

    The privatisation of the Commonwealth Bank has been a disaster for the public interest. The presumably ‘inefficient’ government owned Commonwealth Bank was somehow able to provide many services, which we now pay dearly for, for free, and many other charges (e.g. for bounced cheques) were much much cheaper then. It did all this and was able to cover all of its costs, and was able to keep the other banks honest.

    It’s interesting that the presumably more ‘efficient’ private banks were not able to drive the Commonwealth Bank out of business.

    The privatisation of the Electricity Trust of South Australia has been an unmitigated disaster. A friend who worked there as an electrical apprentice told me of how, soon after privatisation, one of the executives, in classic Montgomery Burns style, told him that from now on, he was to forget about encouraging customers to save on electricity, and to not hand out out any more of the stickers to urge the to switch off power.

    How is that in the public interest?
    When water was privatised in the UK, the board, who were previously public servants voted themselves huge pay rises and then over following years cut maintenance costs. As result, it was estimated, years later, that 20% of the UK’s water was lost due to leakage from its neglected pipes. (Can’t cite the sources, but I heard it on Radio National a few year back.)
    Neglect, similar to what occurred to the UK water utility has happened to much of Telstra’s network, most notably to its copper network, which has been scandalously and wantonly neglected. This has been done in order to save on staff costs, in order to increase the return for shareholders.

    Now, surely, wouldn’t we have been much, much better off as a national community, if we had simply kept shareholders out of it altogether? The money obtained for the past partial privatisations has been largely wasted anyway, on either piecemeal, uncoordinated National Heritage Trust environmental projects, or else on blatant pork barrelling.

    Why couldn’t all those investors have simply taken their funds and invested them somewhere else, where they might have achieved some good for the community?

    There is no evidence that public sector enterprises and utilities are inherently less efficient than the private sector. The assumption that they are presumes that people will only give their best if driven by either greed or else the threatened loss of livelihood should they fail to perform.

    This makes the worst assumptions about human nature. Such assumptions may be true of most of today’s privatisation advocates, but I would dispute that this is true of the wider community.

    jquiggin wrote : “I recognise that the political imperative to implement a long-promised policy will ultimately prevail.”

    This seems rather odd thing to say. If 70% are opposed to privatisation, then, unless we live under a military dictatorship, it can be stopped.

    Some of us haven’t yet thrown in the towel on this one. If you change your mind and decide to do something to stop privatisation this then please visit our website. There you will find suggestions of what can be done in order to stop the sale, and links to other groups and individuals who are trying to do the same.

  51. August 27th, 2005 at 16:03 | #51

    One thing needs to be brought out in looking at “track records show that businesses are less profitable under state than private ownership”. It’s the same fallacy as concluding that British rule in India was more oppressive than in the Princely States. The catch is, it’s not a random sample. Just as the British took over the failing client states, so also a proportion of the motive for state ownership is always to cope with failure when privately run.

    So, while it is certainly true that – other things being equal – private ownership is better in the sense of more efficient than state ownership, it isn’t true in all cases and it isn’t true in some of the cases where failing businesses or ones with faulty externalities were taken over. You need to interpret the statistics more carefully than just by looking at the track records to see how much more efficient privately run businesses are in general.

  52. August 27th, 2005 at 23:57 | #52

    My last response to James was removed, and I would like to know why.

    James, you comment on the “arguing ploy” are wrong. I was not using a ploy — I was stating a fact. And you blatently lie about what I am saying.

    You then argue the non-sequitor that because some privatisations weren’t done perfectly, therefore private industry is not more efficient than public industry. That is patently absurd and you should be embarrased.

    The privatisation of CBA was perfectly successful. The free provision of a service is not the measure of efficiency. Your anicdotes are irrelevant to real argument. The evidence of the success of mostly market economies versus mostly socialised economies is beyond argument.

    Your suggestion that only advocates of privatisation are greedy is both stupid and wrong. You also misunderstand the basic assumption of capitalism… which doesn’t suprise me.

  53. August 28th, 2005 at 13:08 | #53

    John Humphreys, I may have oversimplified your point about socialism, so, perhaps, an apology is in order. (But I would take issue with it being called a ‘blatent lie’)

    Nevertheless, I think it is a diversion away from the issues at hand, to discuss whether or not the implications of one policy here and now necessarily leads us to ‘socialism’ if we follow it to its logical conclusion.

    I think my points about other privatisations were more than anecdotal. but I will have to let other people judge for themselves.

    If you say that “The privatisation of CBA was perfectly successful”, then I may be able to rest my case.

    Successful for whom? Perhaps for stockbrokers and institutional shareholders, and not rural Australia, which has suffered decine as a result of the withdrawal of branches, and the loss of jobs.

    Somehow the publicly owned Commonwealth Bank managed to freely provide services that were vital to ordinary people and still hold its own against competition from the supposedly more ‘efficient’ private banks.

    If you think that the Australian public was better served by those circumstances than they are by the circumstances of today, then I think millions would emphatically disagree.

    If you are to argue that the full privatisation of Telstra will be ‘successful’ as the past privatisation of the CBA was ‘successful’, then I don’t think this will help change the opposition to privatisation, which stands at 70%.

    Yes, I do find the assumptions of neo-liberalism to be offensive, that is, that I am incapable of working hard and well without the promise of riches on the one hand or without the threat of uneployement on the other.

  54. craigm
    August 28th, 2005 at 13:35 | #54

    Andrew

    Is taxation to be used to subsidise private investment? There will be no more government owned enterprise so investment won’t come from its revenue, or its debt.

    That leaves the question of private investment in telecommunications infrastructure in rural and remote areas. Where will it come from and what will be the effect on services and market prices in these areas.

  55. August 28th, 2005 at 13:52 | #55

    Correction

    The sentence, in my last post, which read :

    “If you think that the Australian public was better served by those circumstances than they are by the circumstances of today, then I think millions would emphatically disagree.”

    … should have read :

    “If you think that the Australian public are being better served by the circumstances of today than they were by those circumstances, then I think millions would emphatically disagree.”

    My apologies.

  56. Terje
    August 29th, 2005 at 20:57 | #56

    James,

    For what it is worth I think you had it correct the first time. That is not to say that the second one is not also correct. They are not mutually exclusive.

    Terje.

  57. August 31st, 2005 at 08:53 | #57

    Terje,

    Yes, I appreciate the two statements are not mutually exclusive, but I think most people would have understood my point. Sometimes I will choose to sacrifice complete literal precision of meaning in order to make a sentence easier to read.

    Anyone who does not own Commonwealth Bank shares has undeniably lost out badly as a result of its privatisation. The profitibility of all banks has rocketed and the main contributor has been the hiking of bank charges. They clearly bear little relationship to the costs incurred by the banks in order to provide theses services.

    Market fundamentalist theory would hold, to the contrary, that the competition would have forced all the banks to reduce their charges to some point considerably closer to costs incurred. This has clearly not happened, so, clearly, what is effectively a cartel has been formed.

    Had the Commonwealth Bank remained in public hands and had only been required to meet its operating costs, none of the other private banks would get away with the outrageous charges they now impose on their customers.

  58. Razor
    August 31st, 2005 at 16:49 | #58

    James – I believe your analysis is a bit off the mark. The reason for the increase in non-interest revenue has been due to deregulation of lending which has caused a significnt tightening of interest rate margins, caused by competition in bank lending. (You may recall Costello telling people to change banks if they didn’t drop rates in line with lowerings by the RBA.)

    The banks do closely track fees versus costs and this is clear in any analysis put out by most market commentators. They graph the bloody stuff to show whether costs v fees are narrowing or widening. So your claim about “clearly bear little relationship to the costs incurred” is a load of crap.

    There is no Cartel – look up the definition and at the same time you may want to look at the numbers of both bank and non-bank lenders and deposit tasking institutions. There is heaps of choice. Anybody who is complaining about bank fees are either to lazy to go to the effort required to find the best offerings for the services they want or are not prepared to pay a reasonable rate of fees for serices provided or modify their banking behaviour to reduce the costs.

    And finally, as for CBA share ownership – the vast majority of families have some type of superannuation and the vast majority of superannuation funds will have bank shares including CBA, so to argue that we, the majority, have missed out on investment returns is a load of bollocks.

    I suppose you think that banks are bad because of the BIG profit numbers that they make – wouldn’t have anything to do with the fact that they are BIG companies that have LOTS of shareholders who demand a commercial rate of return on their investments including their superannuation?

    This capitalism thing (that helps the internet operate by the way) is a bastard isn’t it!!!

  59. August 31st, 2005 at 19:50 | #59

    Razor,

    Yes, margins from interest has gone down, but it is well understood that bank profitability has gone through the roof since the Commonwealth Bank was privatised.

    This is clearly the result of excessive, and often close to ruinous, charges, for example, for bounced cheques.

    The banks’ customers, and their workforces have both paid for these profits.

    I expect that it is highly dubious that the trickle of income that the Mum and Dad Investors out there would recoup through their superannuation investements what they pay for in additonal charges. If we take into account the enormous fees that fund managers help themselves to, the advantage would be even more dubious.

    Yes, you might judge as lazy, people who can’t be bothered changing banks. I would say people have better things to do with their time than trying to understand the differences between how different banks charge for their services (or, for that matter, trying to understand different mobile phone billing systems). In fact, it has often been the case, in the past where people, I have known, have taken the effort to have made a switch to another bank to get away from excessive charges, only to find that, in time the bank they have switched to has also started to raise theit charges and introduce the same charges that they though they had escaped from.

    When the Commonwealth bank was publicly owned, people could stick with it in full confidence that the charges were fair, and get on with more important things in life.

    I think banks are bad for a lot reasons, but mostly because they take far to much out of our pockets these day for the services that they provide.

    I would also add, the Commonwealth Bank’s holding in Gunn’s, who are woodchipping Tasmania’s old growth forests shows that it has little social conscience.

  60. August 31st, 2005 at 23:03 | #60

    The banks don’t form a cartel but an oligopoly. With those, as I recall, market forces tend to produce ratchet-like behaviour, in which they more readily raise than lower their prices. This produces somewhat similar results, and of course rent seeking behaviour makes them call for, or resist less strongly, those forms of regulation that tend to accentuate this sort of thing. Conscious cartel behaviour isn’t necessary to explain it, though it looks and behaves much the same from an outside perspective.

  61. Razor
    September 1st, 2005 at 14:12 | #61

    James once again you are wrong when you say – “but it is well understood that bank profitability has gone through the roof since the Commonwealth Bank was privatised.” Bank profitability has not gone through the roof – profit margins remain relatively stable over time. What has increased is the amount of business being done as both the economy has expanded and the range of products and services available from banks has increased. The amount of profit has increased not the profitability and this is a size factor.

    If an individual is in a situation where bank fees such as a dishonoured cheque fee would be ruinous then they probably should be on the fee free banking product offered for low-income earners. As for the actual dishonored cheque fee – i just get who ever bounced the cheque to pay my side. It ain’t that difficult.

    Your argument that the returns to superannuation funds from bank shares being eatenby the “enormous fees” of fund managers is pure rhetoric. The banking sector is more than 20% of the ASX and as such forms a signifcant part of most Australian Share portfolios. Fund Manager fees are based on a competitive market. I am interested to know what you think is a reasonable rate for a Fund Manager to be paid to do what they do at both the corporate and personnel level. Do you think everybody is worth the same wage? I am also confused by your reference to “trickle of income” – are you refering to the dividends paid to the super funds or the income streams in retirement? If the case is the dividends then you are blatantly ignoring the significant increase in the value of banks and how fortunate Australia’s Mums and Dads and there super funds have been because of this. Australia is not too many years off having a TRILLION dollars in superannuation. If it is the retirement income streams you are referring to then if you look at the figures you will see it is growing into a significant torrent in the future.

    “When the Commonwealth bank was publicly owned, people could stick with it in full confidence that the charges were fair, and get on with more important things in life.” Now that is a marvellous statement of faith in the public sector if ever I have seen one. I suspect you are depserately unhappy in this terrible capitalist nation of neocons – perhaps you should move to somewhere that suits your desire for piss-poor economic performance such as Germany or France, maybe even North Korea.

    If you think banks charge too much get on to one of there low/no fee accounts and do your banking in a manner that doesn’t attract fees. And, as I said before there are heaps of options in the market place.

    As for your concern about the ethics of CBA or Gunns, what Gunns do is completely legal. If you have an issue with a legal activity that is your choice and you have lots of ways of exercising that choice. I understand ethical funds have done OK recently.

    I don’t have any burning flame for the banks and I sound like someone from the ABA and the reason for that is that I don’t mind people being critical of things, but not just “because I don’t like them”. Produce a reasoned point of view based on facts and I won’t go after you, but these unsubstantiated criticisms are just asking to be shown up for the old todger that they are.

    P.M.L. – wages are sticky downwards, too. Does that mean that there is an oligopoly in play? Just having a dig. I think that there is plenty of competition in the banking sector to keep prices competitive and this is evidenced by the interest margin squeeze since deregulation. If you want Cartel look at the retail fuel suppliers!! Now that’s a cartel if ever I saw one despite the best efforts of the ACCC.

  62. September 1st, 2005 at 22:42 | #62

    Razor,

    OK, for my part, I have to confess that my assertions about banks don’t meet rigid academic standards. They are based on my recollection of article after article, I have read, of soaring profitability of banks whilst new charges have been introduced or existing charges increased, and they are based on my own personal experience of seeing bank charges becoming a very substantial part of my cost of living expenses.

    What you have written has not convinced am that I am wrong, and I don’t believe that it will convince the impression, popularised a few years ago in the movie “The Bank”, that the majority of Australians have formed.

    Perhaps you might consider providing figures that would prove that this impression was wrong? As an example, share prices and dividends paid out to Commonwealth, ANZ, Westpac and National Bank shareholders in the years since privatisation. (I would do so myself, but I don’t have them on hand.)

    Razor wrote : What has increased is the amount of business being done as both the economy has expanded and the range of products and services available from banks has increased.

    The expansion in the economy has largely been with property speculation, which has created little tangible wealth, but has caused the cost of housing to go completely beyond the reach of ordinary people. No doubt the “expanded .. range of products” includes the loans made to home owners, for the purposes of consumption made on the basis of their inflated home values.

    Regarding superannuation, it is well understood that it is a racket. Huge amounts of money that should have gone into retirement income, has instead gone to line the pockets of Fund Managers and sales reps. Most ripped off are casual short term workers, many of whom have been forced to join a large number of funds and have had a disporportionate amount of their super eaten up by fees. It should be a first order political scandal the way Australian workers have been so poorly looked after by successive governments in this regard.

    If you choose to defend the superannuation ‘industry’, as it is then fine. I think it will help others to decide how much credence to give to ther rest of what you write.

    Razor wrote : If you think banks charge too much get on to one of there low/no fee accounts and do your banking in a manner that doesn’t attract fees. And, as I said before there are heaps of options in the market place.

    Nonsense! I spoke to a former bank worker last year. He told me that the banks made it as difficult as possible for customers to open fee-free accounts. But, by all means, please tell me of any of which you are aware.

    Razor wrote : As for your concern about the ethics of CBA or Gunns, what Gunns do is completely legal. If you have an issue with a legal activity that is your choice and you have lots of ways of exercising that choice. I understand ethical funds have done OK recently.

    So, you think that the legality of the rape of Tasmania’s forests makes it OK?

    You know perfectly well that there is no way that resorting to ethical investments will have any noticible impact on the destruction of our rainforests here, in Brazil, Africa and South East Asia. It will only happen when Governments find the political will to stand up to corporate interests and forget about how the markets might react.

  63. September 1st, 2005 at 23:28 | #63

    Razor wrote: “When the Commonwealth bank was publicly owned, people could stick with it in full confidence that the charges were fair, and get on with more important things in life.� Now that is a marvellous statement of faith in the public sector if ever I have seen one. I suspect you are depserately unhappy in this terrible capitalist nation of neocons – perhaps you should move to somewhere that suits your desire for piss-poor economic performance such as Germany or France, maybe even North Korea.

    Perhaps you should stick to the point I was trying to make about the purpose of having a publicly owned bank without wildly speculating about what my underlying motivations might be. It happens that my views are shared by a very wide cross section of the community. Are you also going to tell them to all go to North Korea?

    If public enterprises are so inherently inefficient, why was it that the Commonwealth did not collapse years ago, with so much competition from all those incomparably more efficient private banks?

    Again, the simple point that you have avoided responding to, is that the Commonwealth bank, under public ownership kept the other banks honest as it had no inherent need to gouge its customers for every possible cent. If the private banks had raised their charges to the extent they have today, then they would have not kept many customers.

  64. the commenter informally known as anon
    September 2nd, 2005 at 07:05 | #64

    It happens that my views are shared by a very wide cross section of the community. Are you also going to tell them to all go to North Korea?

    That wide cross section of the community is largely in the employ of the government, so naturally they advocate an increased role for the state sector. I have never yet met a public servant who advocated a reduction in the size of the public sector (I know, there are some, but they are few and far between).

    And yes, the country would be greatly improved if the majority of the more left-leaning members of that group would leave for North Korea. Let’s start with the Australian Education Union – from their recent comments they’ll feel right at home there and if we get rid of them we’ll at least give those kids whose parents can’t afford private schools a decent shot.

  65. Andrew Reynolds
    September 2nd, 2005 at 11:03 | #65

    James,
    I would suggest you do a bit more of a study of the area of banking regulation in the period from the end of World War II up until the current phase of de-regulation, and in particular in relation to the evolution of the Banking Act 1959 before commenting further on this.
    In practice, all of the banks were so heavily regulated they may as well have been nationalised. There were no incentives to do anything other than follow the 3-6-3 rule of banking (borrow at 3%, lend at 6% and be on the golf course by 3). If any bank were seen to be getting ahead the Reserve would have clamped down. Don’t forget that the Commonwealth Bank was the regulator for a long time and simply acted to keep the industry stable. When the RBA was established almost all of the staff had been Commonwealth Bank personel and it took a long time before that institutional memory was lost.
    The Commonwealth Bank did not keep them honest – it kept them lazy, over capitalised, under incentivised and slow. You were being gouged, not by fees in a transparent way, but through the hidden mechanism of the net interest margin.
    The current fees / interest structure is much more efficient, transparent and equitable.
    BTW, I am not an employee of a bank (although I have been in the past).

  66. craigm
    September 2nd, 2005 at 14:28 | #66

    Anon,

    “That wide cross section of the community is largely in the employ of the government, so naturally they advocate an increased role for the state sector”.

    Figures please.

  67. September 2nd, 2005 at 15:26 | #67

    Razor, you’re confusing the issue. The banks do form an oligopoly, which we can test quite separately, and that in its turn does provide downward stickiness.

    But you can’t run it the other way around and conclude that downward stickiness is evidence of oligopoly.

    As it happens, the downward stickiness of wages comes from other causes, which have been established in their own right just as much as the conditions for oligopoly.

  68. September 2nd, 2005 at 21:07 | #68

    Andrew Reynolds,

    I am not in a position to argue over the degree of regulation of the banking sector since the Second World War and of the merits of the regulation that existed. Of course there can be such a thing as too much regulation, as well as too little, but that is beside the point.

    The point is are we allowed as a national community to run our own banking service, or, for that matter, our own telecommunications service?

    If the Australian community want to, rightly or wrongly – and all the evidence shows that we do – then what right do market fundamentalist ideologues, whether they work for the current Government, for banks, investors, telcos, the IMF, the US government, or whatever, have to dictate to us that we cannot?

    This should be rightly be held as a violation of our sovereignty as a national community.

    There is every reason to hope that if a publicly owned bank, or for that matter, a publicly owned telco, were run in a transparent fashion and fully accountable to our parliament and subject to effective Freedom of Information legislation and proper grievance procedures, then it could be run efficiently and to the benefit of the Australian Commmunity.

    Even if we were to accept Andrew Reynolds argument that banking was paralysed by over-regulation, then at least that should have been first tried, rather than throwing the baby out with the bathwater, which has led to the current situation, which clearly most people, find to be far from satisfactory.

  69. Andrew Reynolds
    September 4th, 2005 at 01:04 | #69

    James,
    I would be fascinated to see ‘all the evidence’. While a properly constructed, scientifically rigorous survey may have been conducted on this point, even that would not be reason to turn back. While it is a more extreme case, all the evidence also says that we as a community support the death penalty. Personally, I disagree.
    A bit of background. Our system of government is that of representative democracy – we appoint representatives to Parliament who then select from amongst their number a government that commands the support of the House. They then legislate. They are not (or should not be) dictated to by people who “…work for the current Government, for banks, investors, telcos, the IMF, the US government, or whatever…”. If you have evidence to the contrary, let us see it. If it is occurring, I agree it would be a violation of our sovereignty.
    Their function is to look at the evidence and act in a way that best suits the community. If the community feels that they have not done so, the community has the right to boot them out at the next election or to convince their representatives to do so earlier. Both of these events have happened in Australian history, although the former is more common than the latter.
    Merely because a particular opinion poll says that the community wants one thing or another is not a valid reason (in isolation) for that to happen.
    .
    On to banking in particular. Banking remains heavily regulated. For anyone who doubts that I suggest a comprehensive read of the Banking Act, the Corporations Act, the ASIC website (as the corporate regulator), the APRA website (prudential regulator) and the ISFB website (the professional association). For a little light entertainment, I suggest a perusal of the Treasury and Finance Departments websites as well. APRA and ASIC also pay regular and irregular visits to all institutions. The Financial Services licenses they are all required to have (some need more than one) also impose heavy burdens. They are also required to have an annual audit from a firm of auditors. If anything the industry remains over-regulated.
    I would also make the point that nowhere on the planet has a publicly owned bank prospered for long in competition with private banks. You either end up in a situation where the public bank captures the regulators and the regulations end up prohibiting other banks from competing with the public bank or the other banks are simply prohibited or the public bank goes broke and needs constant bailouts.
    It has been tried and tried again and, personally, I would not want that experiment to be tried again with my money. You are free to try and find a successful example – but use your own money, please.

  70. September 4th, 2005 at 02:29 | #70

    Andrew Reynolds,

    No polls have been taken recently on the Privatisation of the Commnwealth Bank. I would guess that oppostion to privatisation would be rougtly at the same level as the 70% opposition to the privatisation of Telstra. Certainly no government won office on a promise to privatise the Comnwealth Bank, and as we all know, Keating broke his election promise not to fully prvitaise the Comonwealth Bank. So I would suggest that the evidence for popular oppsition to the sale of the Commonwealth Bank is considerably stronger than the evidence for popular support.

    Whilst I also oppose the death penalty, I don’t believe that community support for the death penalty is reason to allow parliamentarians to flagrantly disregard the views of the community on any other issue which they please, which has clearly happened with privatisation in regard to at least the question of the Commonwealth Bank as well as Telstra.

    If the price to pay for having a more accountable democracy is that we risk having the death penalty back on the books, then that is a risk we must accept. Personally I don’t believe that community support for the death penalty would survive if a truly open and vigorous debate on this question, and even if it were introduced, it would not survive for long in a healthy democracy.

    Your point about representative democracy is nice in theory, but let’s not forget how the last elections were manipulated. John Howard and his ministers hardly mentioned the topic of Telstra. It was never mentioned in any of Howard’s election speeches and he only mentioned it briefly twice during the whole election campaign by my count. Senator Helen Coonan refused to answer a direct question at one point “why should (Telstra) be privatised?”. Part of her response included:

    Well to start with, I think that claim that the election’s a referendum on whether Telstra should be privatised is drawing a very long bow indeed.

    Only Coalition candidates who claimed to be opposed to the sale seemed to have anything to say about privatisation during the course of the campaign.

    I wrote more about the manipulated 2004 election campaign here.

    Clearly with 70% opposed to the sale now which is consistent wtih every poll taken on the issue of which I am aware, the Coalition would have lost badly if this issue had been given more prominince during the election campaign.

    The simple facts that this Government is taking from the public an asset which rightly belongs to them, and which they have paid for, without their consent.

    All this may be acceptable to you, but it is not to me.

  71. Andrew Reynolds
    September 4th, 2005 at 16:59 | #71

    The simple facts are far from that, James. Previous governments made a decision to nationalise and monopolise the telecoms infrastructure in this country. If that then means that the current government cannot, after due parliamentary process, sell it off and in the process reduce national debt, then we get into the ridiculous situation Brazil faces, where the majority of government spending and investment is mandated in the constitution.
    No government went to the polls in this country saying that they were going to deliver a nationalised telecoms infrastructure, so while the intent was clear due to a couple of prior attempts to achieve it, and despite Labor attempts to grandstand on it, to say that the election was manipulated on this basis is the only long bow being drawn here – and that past breaking point.
    .
    No government will oppose ‘the will of the people’ (if opinion polls can give that) without due consideration. ‘The public’ has been wrong before, I maintain is wrong on this if they truly are against it and ‘the people’ will be wrong on other issues into the future.
    Personally, although I disagree with him, I find the economic arguments that our good host puts forward more persuasive that the populist ones you are trying to make. Government by opinion poll is not the way to go, and this seems to be the substance of your argument.

  72. September 5th, 2005 at 01:33 | #72

    Andrew Reynolds wrote : … so while the intent was clear due to a couple of prior attempts to achieve it, … , to say that the election was manipulated on this basis is the only long bow being drawn here…

    The intent was obvious to me, but clearly not to many electors who voted for the coaliton. As I have shown, this was no accident.

    If Government members were so confident of their case for privatisation, why should they have avoided any discussion of the issue during the election campaign? Why did no single Government minister accept any of the challenges put to them to debate the issue? What did they have to fear from a robust debate of the issue?

    Clearly the case for privatisation had no merit and the Government candidates well understood that they stood no chance of being able to convince the public, solidly opposed to privatisation, of their case.

  73. September 5th, 2005 at 19:31 | #73

    “If public enterprises are so inherently inefficient, why was it that the Commonwealth did not collapse years ago”

    Because it had the government backing them up of course, not because they were efficient.

    I have no complaints about my bank service. I may minimal bills, have low interest rates, can live as a traveller doing all my banking over the internet at no charge, and have a variety of different financial products that didn’t used to exist. It made sense to close branches. Good.

    I’m not the sort of person who thinks we should still have a horse and buggy industry just because “mom and pop” used to work making horse shoes.

    Your arguments for socialising banks & telecos etc are universal arguments — so where do you draw the line and why? If the government is so good at running normal commercial businesses, is there any role for private business? If so — why?

    And (once again) if you just want the govenrment to run business for the return on their investment, then why not have a diversified portfolio?

  74. Razor
    September 6th, 2005 at 15:18 | #74

    Ironic isn’t it – they brought in a Yank amidst much hand wringing by the anti-sale brigades. He has succesfully wiped out about $2 Billion in shareholder value and placed the sale in jeopardy.

    I expect to see T-Shirts with Sol on them alongside Che!

    I am suprised the major shareholder hasn’t sacked those Executives responsible for what has happened recently. I completely understand and support the issues raised about regulation, but at the same time there ismore than one way to skin a cat or call a spade a bloody shovel.

  75. Andrew Reynolds
    September 6th, 2005 at 15:51 | #75

    James,
    Unless you could honestly say that, if you asked anyone or everyone voting the question “Do you think that the coalition is likely to try to sell the government’s remaining shareholding in Telstra if returned to government?” and expect to get the answer ‘No’ from those who voted for the coalition, I do not think you have a case.
    Try to make a case based on the rights and wrongs of the sale, not government deceit – you are likely to be on firmer ground.

  76. Katz
    September 6th, 2005 at 16:01 | #76

    Onya Sol!

    I’m a shareholder in Telstra (first tranche) and thoroughly endorse his bull-at-a-gate approach. Sure, shareholder value has taken a hit. But I believe that Sol has to stare down the Hayseed Populists to liberate asset value.

    My reading is that eventually the government will find some way to bail themselves out by using general revenue rather than tying the Hick Bribe to Telstra sale revenue and/or to future commitments extorted from shackling operations of the fully privatised Telstra.

    It’s about time the more than one million shareholders started to put as much heat on Howard as the cockies have done.

    And Sol is our guy.

  77. September 6th, 2005 at 20:04 | #77

    John Humphreys wrote:

    James Sinnamon wrote: ” public enterprises are so inherently inefficient, why was it that the Commonwealth did not collapse years ago”

    Because it had the government backing them up of course, not because they were efficient.

    This is a lame argument. “Government backing” did not save the economic systems in Eastern Europe and the USSR. So, why should “government backing” have guaranteed the continued survival of the Commonwealth Bank if government enterprises are so inherently inefficient, especially when it was forced to compete with all those fantastically efficient private banks?

    Did the Commonwealth Bank ever lose money? Were customers forced to bank there and not bank at the private banks? Did Government regulations discriminate against the private banks? If so, could you explain how and can you explain why you think that this would have been done throughout the 23 years of Liberal Country Party Government, which won office in 1949 largely as a result of the successful campaign against Chiefley’s attempt to nationalise the private banks?

    John Humphreys wrote : Your arguments for socialising banks & telcos etc are universal arguments – so where do you draw the line and why? If the government is so good at running normal commercial businesses, is there any role for private business? If so – why?

    You would draw the line at the point where the public interest is no longer well served. For now, I see no need to cross all of those bridges and predict exactly where that would be. I would suggest that it would be best sorted out through open debate and democratic decision making.

    Andrew Reynolds, we’re going around in circles. Clearly the overwhelming majority of the Australian public do not want Telstra privatised. This has been confirmed by both the Newspoll (70%) and more recently, by the McNair Poll (between 65% an 79% depending on which state the poll was taken in). In rural electorates the figures range somewhere between 82% and 95%.

    Clearly many who voted for Coalition candidates voted for them because either they were opposed outright to privatisation in the case of Alby Schultz, Kay Hull, Barnaby Joyce and Bruce Scott, or else they believed (naively in my view) assurances that Telstra would not be privatised until services were satisfactory as Barry Wakelin of the seat of Grey in South Australia told his electors last year.

    On top of this this, as I have shown, proponents or privatisation, including Ziggy Switkowski, himself, did their utmost ensure that the question of Telstra was not foremost in most electors minds as they cast their ballots and they obviously succeeded.

    Today, they emphatically don’t want Telstra privatised. If that view has not changed after all these years, when will it ever change?

    Andrew Reynolds wrote : Try to make a case based on the rights and wrongs of the sale, not government deceit – you are likely to be on firmer ground.

    I have been doing this. You may care to look at some material on the web site of Citizens Against Selling Telstra (CAST). Some of the material is written by myself. A lot has been written by others. They include: “Caught in no-man’s land” by Kevin Morgan, “Nats selling out the bush on phones, free trade” by Kenneth Davidson, “Privatisation ‘in the national interest’ – Sydney Morning Herald”, “Anderson gives no guarantee on Telstra services”,“PM in ‘ridiculous position’ of having to answer for Telstra over line rental Increases”,“Our Case” CAST’s case against privatisation, CAST’s submission to the Senate Inquiry into the privatisation of Telstra in Oct 2003,“Half Pregnancy” by Stewart Fist,“Telstra: dumb and dumber” by Stewart Fist,“Prime Minister ‘reveals’ : Privatisation won’t fix Telstra”,“Selling Telstra” by Kevin Morgan,“Telstra’s New boss” by Kevin Morgan ,“Darke Peak – answers refused because of ‘commercial confidentiality’”,“Cairns Telstra phone line
    network in disrepair”
    , “Telstra employee tells of neglect and penny pinching”, “Uncoordinated environment projects wasted hundreds of millions from previous Telstra sales “, etc.

  78. Andrew Reynolds
    September 7th, 2005 at 13:20 | #78

    James,
    I note that you have replied to JH’s reasons on why CBA did not collapse, if inadequately (IMHO), but not mine.
    On the points about Telstra. As I have said elsewhere on this blog, I think the original method of privatisation was wrong – it should have been broken up and sold off piecemeal. This would not have maximised revenue to the government, but would (again, IMHO) have been of the greatest benefit to the country. If we ignore the populist arguments the real question is where do we go to from here – what would be best. I maintain that renationalisation, breakup and resale would be the best option. The second best option would be to sell the remainder off at whatever price so that it can then be properly regulated. The worse options include to maintain the status quo or renationalise entirely as the current stifling of innovation would continue, as the government then has an incentive to regulate to maintain the profitability of Telstra to maximise the revenue stream, not innovation and competition.
    The critical thing in all this is to improve innovation and choice as it is this that will help drive the overall wealth of the country. Telstra is just (or should be) another company. It is in a special place as it is the former monopoly, not because it is especially good. Having a look through the CAST material merely re-inforces this view for me.

  79. September 8th, 2005 at 17:51 | #79

    Andrew Reynolds wrote: Having a look through the CAST material merely re-inforces this view for me.

    I didn’t expect that you would be convinced of our case. I intended to demonstrate that you were wrong if you thought that our case against privatisation hinges simply on the fact that a strong majority has consistently opposed privatisation fo ra number of years. In the unlikley event that that situation were to be reversed our stance would not change.

    Andrew Reynolds wrote: The worse options include to maintain the status quo or renationalise entirely as the current stifling of innovation would continue, as the government then has an incentive to regulate to maintain the profitability of Telstra to maximise the revenue stream.

    As we have argued on our web site, we don’t believe that the sole purpose of the Goverenment should be simply to get revenue. We have argued that the requirement for Telstra to operate as business in not appropriate. We believe that it should operate as a public service.

    Appropriate means can be found to fairly recover the costs of providing services. This was demostrated by the example of the Housing Trust of South Australia set up by Hugh Stretton. It never cost taxpayers a cent and yet it made decent affordable housing available to all South Australians for many decades. If it can be done for the HTSA, why not for Telstra?

    If Telstra was run in this fashion and made accountable to the public, subject top proper Freedom of Information legislation and have effective grievance procedures put in place, why should we expect that all innovation would be stifled?

    What you are saying is that workers will only give their best if driven either by the threat of losing their livelihoods on the one hand or by the promise of excesive remuneration on the other. I don’t believe that any evidence exists to support this.

  80. Andrew Reynolds
    September 9th, 2005 at 11:03 | #80

    James,
    I was responding to the points you were making earlier in the thread, where the populist argument was the only one you were making. I am glad to see you have effectively withdrawn that leg of your argument.
    The public service argument is an interesting one, but IMHO ultimately doomed. A blog comment is never going to be long enough (I am not Jack Strocchi) to counter it fully, but an outline should suffice for the moment.
    .
    Public services achieve some things well, but they have never been noted for being both innovative and economical at the same time. Government scientists (both in the universities and out), freed from the tyranny of profit, have produced some remarkable science over the years. For example, whatever our position on nuclear energy, the science that produced it was outstanding – but there can also be little doubt that, under a pure private system it would never have happened. It is too capital intensive and, economically, it just makes no real sense. Concorde is a further example of this. They can also be economic in the (rare) instances of market failure – your housing trust may be a good example. Building houses is not the same as running a telecommunications system, however.
    The thing with telecommunications is that it is vital to the country that the sector be both innovative (to counter the difficulties unique to Australia) and economic (so that the sector is not an economic burden). Telecoms is no longer just a system of making voice calls over copper lines – if it was I may consider your argument valid. Unfortunately, the example of the PMG, Telecom Australia and now Telstra acting in the way it has over the past 50 plus years to stifle innovation, cost a fortune and deliver poor service have made me someone that would need a lot of evidence to convince and I do not believe that you or that website have even begun on that task.
    Your last paragraph adds (less than) nothing to your argument so I will ignore it as just plain silly.

  81. craigm
    September 9th, 2005 at 14:54 | #81

    Any innovation that is relevant to the servicing of the more populated areas can easily be accessed overseas, we are after all in a globalised economy and Telstra is just not big enough to stifle innovation worldwide.

    Innovations unique to Australia will require resources for R & D, and this for areas that are hardly likely to repay the investment.

    Is the Australian taxpayer to be burdened with the bill or should we just forget about the bush (think beyond country NSW)?

  82. Andrew Reynolds
    September 9th, 2005 at 16:59 | #82

    craigm,
    I agree, but why did it take so long to get good (?) broadband here? Why are the majority of us still limited to 1.5Mb connections at high cost? Why is VoIP still not well known? Telstra has been stifling their deployment here for years, while they have been widely available in most other industrialised countries – particularly where there is real choice in telecoms. On charging, too, why were we paying both for connections and local calls?
    Where there is an economic reason for innovation, it will happen. Where there is not it should not.
    As regards the bush. The point has been made elsewhere on this blog that the country people pay a lot less for some things (housing for example) and more for others (groceries). Why should telecoms be different? If you choose to live somewhere then deal with the consequences. I lived in the bush for quite some time (years) and the problems were there with telecoms, of course, but we had good radios and, later, good satellite phones and TV. if that is not good enough then deal with it or move.

  83. September 9th, 2005 at 20:31 | #83

    Andrew Reynolds wrote : I was responding to the points you were making earlier in the thread, where the populist argument was the only one you were making. I am glad to see you have effectively withdrawn that leg of your argument.

    Where did I withdraw my ‘populist’ argument?

    Andrew Reynolds wrote : Your last paragraph adds (less than) nothing to your argument so I will ignore it as just plain silly.

    You are ignoring it because you have no answer. As I wrote earlier the neo-liberal world view assumes the worst about human nature and this view is not supported by the evidence.

    Regarding whether or not rural users should be subsidized is largely a separate question as to whether or not Telstra should be privatised.

    If it is privatised, the cost effectivenes of whatever subsidies the rest of the Australian community agress to give to rural users will be vastly diminished because of the sheer waste of the contrived competetive environment and the necessary regulatory red tape (as Telstra itself put to the Senate hearing today).

    If Telstra is fully privatised it will amount to a huge subsidy to the finance sector which contributes far less to our national wellbeing than what they receive from the Australian community in return.

    We have also wasted billions on having fibre optic cables and digital mobile networks duplicated in the cities. Unless the mobile phone companies go broke, the cost of this stupid duplication must ultimately come out of the pockets of its customers.

    I would preferred, instead, to put just some of the money, instead, towards subisidising rural users.

  84. Andrew Reynolds
    September 10th, 2005 at 00:17 | #84

    James,
    When you said “In the unlikely event that that situation were to be reversed our stance would not change” you withdrew it – regardless of any popular appeal you effectively stated that, even if popular opinion were against you, you would maintain your battle. That is a withdrawal.
    I am not avoiding your last paragraph because I have no answer, but because the entire scope of human experience gives the lie to it. The collapse of every socialist experiment, except for the occasional success on a micro scale, in history proves it – I would suggest you have a read of anything by Hayek, Adam Smith, John Stuart Mill and innumerable other (not neo-) liberals. Even John Maynard Keynes may be a shift towards reality for you. While there are some exceptional individuals that give their all for a cause or a belief, the majority of us need incentives to continue. That is not neo-liberal, conservative or anything else, it is human nature.
    I would agree whole-heartedly on the question of the rural subsidy being a seperate question, so we can leave that issue to the side.
    To move through the rest of your points.
    1. There will be no need for a contrived competitive environment, or regulatory red tape, once the regulatory monopolist position of Telstra is removed. There are plenty of competing technologies out there, using different elements, that Telstra has sat on for years. I will say more in answer to point 3.
    2. The finance sector is the cornerstone of any functioning economic system. It is the function of that sector to mobilise immobile capital and support the payments system. How do you think companies can employ anyone? They borrow money from a bank or raise it on the stock exchange. They then receive payments by credit cards, cheques or direct debit, which they then deposit in their account and use to pay for the capital they are using. Think about what you do anytime to buy anything and the system will make more sense to you than it ever would from a textbook written by some of the socialists you seem to be buried in.
    3. The whole point of competition is to deliver benefits to the customers – if you cannot do it at a lower price than your competitiors you go out of business and the shareholders and other financiers lose their money – fair enough. If this has resulted in the occasional amount, or even a huge amount of duplication it is not wasteful if the competition has driven down prices – everyone benefits from the improved service at lower prices. The fact I can choose between 4 different mobile suppliers and innumerable re-sellers means I can find the deal I want at a price I am prepared to pay. That is a much better system than the one we had when Telecom Australia was the only supplier and and it frequently took months to get a telephone connected.
    4. If you would prefer that some of your money goes towards rural users, go ahead – our society allows you to make that choice, freely and at a low cost, thanks to the efficient financial system. If I want to , I can to. What I should not be doing is forcing everyone to make that choice.
    .
    I have done you the courtesy of replying to you points. Now, please reply to mine as above, and questions as below.
    1. Please give me a single example, just one, of a price competitive, modern efficient government monopolist telephone company. Just one.
    2. Which other industries do you see as being more efficient in government hands? By the sounds of it you are in favour of nationalising the banks, too. Is this the case?
    3. Which books have you been reading? I would like to read them for the same reasons I read Das Kapital, The Communist Manifesto and Mein Kampf as a kid.

  85. September 10th, 2005 at 20:22 | #85

    Andrew Reynolds,

    I don’t see the relevance of most of what you have written to the issue at hand, but I will get around to responding to it.

    But I will just ask you to re-read your own words :

    … the entire scope of human experience gives the lie to it. The collapse of every socialist experiment, except for the occasional success on a micro scale, in history proves it.

    The experience of what was reputed to be ‘socialism’ throughout some of the twentieth century, in only a part of the world could hardly be regarded as ‘the entire scope of human experience’.

  86. Andrew Reynolds
    September 10th, 2005 at 23:16 | #86

    James,
    The old “It has never been tried” excuse has never washed. Where ever it has been tried, and it has happened more often than during the 20th century, it has failed. I will eagerly await your response – but I will not expect it any time soon.

  87. September 11th, 2005 at 10:04 | #87

    Andrew Reynolds,

    Let’s get this back into perspective.

    What you are against – public ownership, government intervention in the economy, and regulation in general to protect workers and others who don’t happen to have the abiity to stand up to large vested interest corporations – happened to be features of virtually all western industrialised economies until the late twentieth century.

    In fact there is evidence that these sort of societies did not do altogether badly even in narrow economic terms. For example the Australian economy grew at an average rate of 5.2% from the years up until 1974 (Geoff Davies, “Economia”, p 18).

    After 1974 western economies had problems due to the OPEC oil embargo, however the 5.2% growth figure has never since been matched in any of the years economic ‘rationalism’ under the Labor Governments or the Howard Government. Even the illusory growth, largely base on property speculation, in recent years, only reached 4% (“Australia’s Welfare Habit” by social welfare ‘reform’ advocate Peter Saunders, p5).

    (I hasten to add that indefinite exponential growth is impossible to achieve in a finite planet and this is becoming all too obvious with undeniable global warming, other serious environmental problems, and the threatened end of cheap oil. Nevertheless, even in the terms of market fundamentalism, the performance of Keynesian market intervention was clearly superior to the ‘small government’ approach.)

    The justification for getting rid of all this rests on the assertion of neo-liberal economic theory that workers won’t give their best unless driven by either the the threat of loss of livelihood or else the promise of excessive economic reward.

    As I said I don’t believe that this view does justice to most of humankind. It is nonsense to argue the failure of ‘socialism’ in the twentieth proves that human beings are incapable of working productively and innovatively for altruistic reasons and not for self interested economic motives alone.

    I will get around to answering your other points, but perhaps not soon, and perhaps not even on this forum. I will endeavour to let you know when I do.

    If you choose to see this as your having ‘won’ the argument, that is your right, but I think most reasonable people will see that you are mostly engaged in an exercise of dragging red herrings across the trail.

  88. craigm
    September 11th, 2005 at 23:49 | #88

    Andrew

    This issues you mention are probably as much to do with half-arsed privatisation as anything else. There is nothing structural about government rentention of the wholesale business which precludes it from accressing new technoogies.

    As for people in the bush (of which I am not one) moving to the city if they don’t want to pay higher prices it seems to me the crux of our differing points of view.

    Your argument that that if those in the bush want access to decent telecommunications they should move. what a grea

  89. craigm
    September 12th, 2005 at 00:03 | #89

    Sorry went to delete and re-write but pressed the wrong key. Can’t bothered starting again. I’m sure you get the picture.

  90. Andrew Reynolds
    September 12th, 2005 at 00:14 | #90

    craigm,
    people should realise that all actions (or inactions) have consequenses. If I choose to move to the bush (which I have done on a couple of occasions) then I know that housing is cheaper, the space I can enjoy is greater, my neighbours are further away and the pay scales are different. I also realise that telecoms are more expensive to supply. Are you saying that the government should be attempting to equalise everything (housing prices, feeling of freedom, space etc.) for all Australians? Seriously, the provision of telecoms costs more as soon as more distance is involved. Either we should be attempting to equalise everything or nothing. Anything else is arbitrary cherry picking without justification. Anyone in the bush can buy a satellite phone and call anyone else on the planet. If they are not prepared to pay for that, fine, but that is their choice and there is no reason why a single mother in Sydney trying to call the doctor should pay for it.
    .
    James,
    the reason for the easy growth up to 1974 was the progressive liberalisation after the idiocy and closed markets of the period up to and including World War II. Any system that could not grow under those circumstances deserves to be condemned – China’s is a good example. The low hanging fruit, though has all been picked. We have no world encompassing war to recover from – the GWOT notwithstanding.
    You accuse me of bringing up red herrings – but I was just responding to the lines of your argument. If you are not happy with my responses, please let me know – but if you consider my argument full of red herrings, the source of those odd coloured fish is rather closer to your home.
    Just as an aside – liberal (again, not neo) economic theory does not rest on the justification of economic gain. The basis of the whole theory is given away by its name – liberal. Freedom to the individual to pursue their own interests as they see fit, provided it does not unjustifiably impinge on the ability of others to live their lives as they see fit. It so happens that this system typically gives the best economic outcome; but this is a by-product, not the major intent. Under this system, people can do what they want with their lives. They just have to wear the consequences of their choices; good and bad. That includes paying the true cost of the provision of telecoms to their place of residence.

  91. September 12th, 2005 at 00:33 | #91

    “Arbitrary cherry picking without justification”… unfortunately for that line of argument, many situations – like Buridan’s logical ass – produce solutions involving spontaneous symmetry breaking, what you called “arbitrary… without justification”. That means, you have a symettrical family of asymmetrical solutions to a symmetrical problem, and it is arbitrary which you pick so long as you do not try to be symmetrical.

    Oh, Buridan’s logical ass – Jacques Buridam who lived long ago while the French still respected sense more than reason, once pointed out the nonsense of such symmetry. He said, if you had a logical donkey, and positioned it precisely between two identical bales of hay with nothing to choose between them, would it starve to death? No, it would make an arbitrary choice.

    Today’s equivalent is who should avoid the side effects of vaccination when an optimal proportion of a population is to be vaccinated. Or who gets a tertiary education when an optimal proportion of the population gets one (actually, that shouldn’t be arbitrary – it should be those with a stake in society, the way army officers should prioritise loyalty over efficiency according to Wellington). But this is for that other thread.

  92. Andrew Reynolds
    September 12th, 2005 at 10:51 | #92

    No, PML – those are arbitrary choices with justification – the need to make a decision between two seemingly identical options, to break the symmetry.
    In this case the options are not identical – or even close. Why should we “even up” the telecoms costs without “evening up” the housing costs or the food costs, or the many and manifold other cost / benefit differences?
    Buridan’s donkey should be left to find its own hay, in the paddock, so that the purely artifical choice does not present itself. Otherwise we may just be chasing our own ass.
    .
    BTW, PML – I take it that you are not saying we should choose our uni students for their loyalty.

  93. craigm
    September 12th, 2005 at 15:12 | #93

    Andrew

    I’m sorry but I don’t buy that argument. If I thought the government should equalise everything I would be a communist, you know the mirror image of the free market extremist. I find the freedom to move argument a non-solution and the point about the single mother calling a doctor a poorly sold dummy.

  94. Andrew Reynolds
    September 12th, 2005 at 15:21 | #94

    Craigm,
    Fair enough on the first, I agree with you – although even communism was not able to eqaulise everything. I disagree with you on the third as that appears to me to be an extension of the first.
    I cannot see why the second is a ‘non-solution’. If I object to paying high rates for telecoms then I either move to get cheaper telecoms or do not consume telecoms services – a fairly simple concept.
    If I object to paying high prices for housing then I either move to where houses are cheaper or become homeless. I cannot simply force the person selling me the house to sell it to me cheaper than they want to because I believe we should all pay less for housing. Why should telecoms services be different?

  95. craigm
    September 13th, 2005 at 22:37 | #95

    Andrew

    You hit the nail on the head, its a service. So because residents of town/community have no access to a basic service some move, small town consumption falls, business cut back on expenditure in community or close altogether, employees out of work. Owners and employees also move. Consumption falls. Town dies a slow death.

    Now this isn’t a problem if you only see markets but if you value community well thats another matter.

    I don’t think it matters anyway you’re very close to getting your desired outcome.

    Who knows, maybe I’m wrong. I hope I am.

  96. Andrew Reynolds
    September 13th, 2005 at 23:01 | #96

    Of course, just as there is a downwards spiral, so there is an upwards spiral – small town doing well, pays for good services, people enjoy lifestyle and cheap housing…

  97. September 14th, 2005 at 06:11 | #97

    James — you have given another non-answer that seems to indicate you don’t understand my point (again).

    You asked why Telstra could survive under the govt. I point out that they survive because the govt supported them. You respond that unless the entire Aust govt collapses, then that is proof that nationalisation works! That is just stupid.

    Without the collapse of the government, it is still possible to continue supporting inefficient industires. The Aust government continues to do that now with the SA auto industry.

    It is not real competition if one of the competitors has govt backing. This is such a simple point I am amazed I have to bring it up. And more amazed that you actually try to not understand it.

    Your argument about where you draw the line is also a non-answer. You say that national industry works better than private industry… so why not nationalise everthying?

    Once you understand why you shouldn’t nationlise other businesses, you will understand why you shouldn’t nationalise Telstra.

  98. September 14th, 2005 at 06:31 | #98

    More James — the neo-liberal world view does not assume the worst about human nature. That is simply untrue as a point of fact. You seem totally unaware of the liberal tradition. Ignorance is not a virtue.

    You claim that a finate planet proves that exponential growth is impossible. This is a perfect example of your argument style. Strawmen and untruths. First, nobody is claiming that growth will increase exponentially. Second, it is knowledge and technology that drive growth — not resources. This is econ growth 101.

    From the basis of ignorance, untruths and strawmen you claim that Keynesian has defeated neo-liberalism. Strange claim that few educated people would agree with. Keynes is dead, in more sense than one.

    As for rural subsidies — kudos to Andrew. All lifestyle choices have benefits and costs. But if (for some reason) you want to subsidise small towns, then do that directly, not through telcos.

  99. Andrew Reynolds
    September 14th, 2005 at 12:48 | #99

    John,
    Perhaps we should also point out that it is the socialists who believe that wealth needs to be redistributed by the government – i.e. by force or its threat – not liberals. It is, therefore, the socialists and others on the left who are assuming the worst about human nature.
    There is no ‘virtue’ in forcibly redistibuting other people’s money, taken using force or its threat, or by use of a force proxy, like a legal or effective monopoly.

  100. September 15th, 2005 at 07:00 | #100

    Andrew Reynolds wrote: the reason for the easy growth up to 1974 was the progressive liberalisation after the idiocy and closed markets of the period up to and including World War II.

    So, apparently was neo-liberalism that had been practised prior to 1974 as well as since the 1980′s! And therefore the higher growth figures of 5.2% of the 60′s were, apparently, the result of neo-liberalism, rather than sensible Government intervention in the economy.

    I don’t have time to argue with this sort of nonsense.

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