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Make Telstra public again

August 18th, 2006

My piece in yesterday’s Fin (over the fold) was about the failure of Telstra (or, more fairly, telecommunications policy) to give us even late-20th century standards of broadband service. Meanwhile Joshua Gans looks at how Telstra talks to regulators when it’s the underdog.

Make Telstra public again

Following Australian telecommunications policy is like watching one of those horror movies where the protagonist insists on going down the staircase into the cellar, even though everyone in the audience can see that disaster awaits. Or perhaps it more like Groundhog Day, where the hero relives the same bad day over and over again. Looking at the current crisis over Telstra, it’s striking that, despite the massive technological changes of the past decade, the same policy issues are being debated and the same mistakes are made.

The most salient example is the protracted sage of Telstra’s proposed privatisation. It was obvious to anyone who cared to look that the idea of partial privatisation, commenced by the Howard government in 1997 (in emulation of previous privatisations on this model undertaken by Labor) was a recipe for conflicts of interest, and for the creation of a regulatory nightmare.

As Treasurer Peter Costello said in early 2000, barely two years after the T1 sale,

If Telstra is going to be caught in a position where it is half privately owned and half government-owned, I don’t think that is going to be a good outcome. Telstra should all be either privately owned, or if people really think that nationalisation and government ownership is necessary they ought to have the courage of their convictions and nationalise it.

More than six years later, Telstra is still half-private and half-public and it seems inevitable that, even if a sale goes ahead, a substantial share of Telstra will remain in public ownership through the future fund. Certainly, there is nothing in the record of regulatory policy to suggest that full privatisation would work well. So Costello’s own logic would suggest that he should be advocating renationalisation.

But the debate over Telstra’s ownership is of secondary importance compared to the more fundamental problem that telecommunications policy has failed to meet the needs of telecommunications consumers or Australia as a nation. We lagged badly in the initial provision and take-up of broadband, and now seem certain to fall even further behind as other countries move to high-speed Internet technologies based on optical fibre all the way to the home.

More than ten years and several communications ministers ago, it was evident that poorly designed telecommunications policy was promoting investment decisions driven by considerations of corporate and regulatory strategy, yielding outcomes that were not in the national interest. The biggest example then was the race between Telstra and Optus to roll out duplicate hybrid-fibre coax cable networks, covering half the country, leaving everyone else to wait a decade or more for decent broadband access.

As I wrote at the time

the future of communications, and most notably the rapidly developing Internet, lies in digital networks based on optical fibre … the more progressive telecommunications companies in the United States are already discarding HFC in favor of building optical fibre ‘up to the curb’’ … The resources being wasted in providing duplicate analog networks could have made Australia a world leader in the development of digital telecommunications networks.’ (Pay TV’s wasted billions, Australian Financial Review, January 8,1996).

A decade later, with Japan and other countries already delivering fibre to the home, allowing high-speed Internet traffic for both uploads and downloads, Telstra finally came up with a proposal to roll fibre out, but only as far as local nodes. But, this was a mere bargaining chip in Telstra’s corporate regulatory strategy, to be withdrawn when the regulator did not give the right outcome.

So, apparently, we are supposed to rely on the second-class option of stretching ADSL technology to its limits, in the hope (contradicted by Telstra’s own statements on the subject) that the copper-wire network will stand up to the strain.

It’s time for the government to face up to its responsibilities for our national infrastructure. Telstra should be brought back into public ownership, and required to construct telecommunications infrastructure to meet national needs.

The first step in this process is that the government should take its role as majority owner seriously, and appoint a board and CEO committed to acting in the national interest. Peripheral assets like the Foxtel stake should be sold off. And the Future Fund could be used to buy out shareholders who would prefer a company more focused on short-term profits.

Australian telecommunications policy has been stuck in the same endless loop for a decade or more. If the horror movie we’ve seen so far is to have a happy ending, we need to turn around and head back upstairs.

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  1. still working it out
    August 18th, 2006 at 22:41 | #1

    A lot of people have the impression that because Australia has so few people in such a large area our telco infrastructure is inevitably going to lag other countries. That is not really true. Surprisingly, Australia is actually one of the most urbanised countries in the world. Australians tend to live in large capital cities. Small and medium sized towns exist in smaller numbers and have less people in Australia than most other countries.

    For this reason a rollout of high speed broadband should be able to reach a larger percentage of the population and more easily than in other countries like the United States where a lot of the population lives in small towns.

  2. econwit
    August 19th, 2006 at 03:17 | #2

    “Telstra should be brought back into public ownership,�

    That Mr Quiggin is communism, something the Long Tan Veterans fought against. You could ask yourself considering the behemoth the Australian political system has evolved itself into over the last 40 years, what ideology really won out in Australia after that war?

    Regardless of my obtuse political concepts above, if what you allude to is true, that fibre optics is the be all and end all to high speed digital communications (although rumour has wireless evolving to a more than competitive medium in the near term), and that fibre optics is a piece of monopoly infrastructure that is ‘required’ by society. It would be akin to the need to construct a regulated toll bridge everybody has to cross— a piece of “monopoly infrastructure�.

    If Telestra is silly enough not to want this piece of “monopoly infrastructure� in its portfolio, then give it to someone who does, by the creation of a new regulated monopoly for that purpose.
    In return for giving one firm a prolonged monopoly status, the government regulates the firm and the monopolist is not allowed to practice monopoly pricing. Instead, regulators impose price controls on the firm that usually are highly correlated with production costs to keep profits at a moderate level.

    This guy goes on about Government Regulation of a Monopoly here: http://spot.colorado.edu/~kaplan/econ2010/section10/section10-main.html

    It could be argued if done properly a regulated monopoly is a better outcome than a self regulated public monopoly or PPP. It allows the parties involved to concentrate on their area of expertise. Governments to regulate, corporates to provide service and make profits, Investors to get a reasonable return on low risk long term debt/equity investments and consumers get a product hopefully at a reasonable price and quality.

    Here’s a government that does it:
    http://publicservice.vermont.gov/divisions/economics.html

  3. jquiggin
    August 19th, 2006 at 06:16 | #3

    “hat Mr Quiggin is communism, something the Long Tan Veterans fought against.”

    Which perhaps explains why the country they fought for had a fully publicly-owned telecommunications system, and why the majority of Australians (on your view) are communists.

    Comments like this make it impossible to take you seriously. You should learn to avoid them.

  4. econwit
    August 19th, 2006 at 09:52 | #4

    I am the intellectual pigmy here and so I have a reputation to up hold, so sorry if I offend, but I will call a spade a spade.

    It is unclear “the country they fought for� South Vietnam had a� fully publicly-owned telecommunications system� at the time; if it did I doubt it would have been functioning well.

    If you are inferring they fought for Australian or US interests, then those countries don’t now have “fully publicly-owned telecommunications systems�. The Australians as you alluded to have stuffed their telecommunications industry; the Americans have a system like this:
    http://publicservice.vermont.gov/divisions/economics.html

    “why the majority of Australians (on your view) are communists�.
    On my view the majority of the elite ruling political class in Australia judged by their actions seem to be communists, the majority of Australians detest communists.

  5. Smiley
    August 19th, 2006 at 12:17 | #5

    I think JQ actually has a very good point. Economy, is after all about doing things in the most economic, sustainable and efficient manner. What is economical about building duplicate utility service and having to maintain both services? Surely if you duplicate a service that has high construction and maintenance costs then those costs will be passed onto the consumer. All this does is create economic “churn” without any real gains to society.

    If you believe that privatisation and deregulation bring competition and lower consumer prices, then explain to me why the price of milk sky-rocketed when the industry was deregulated. Maybe it had something to do with the costs associated with moving the product from state to state to achieve the illusion of “competition�. Maybe you would also like to explain your “competition theory� to all those former One-Tel investors.

    I would also like to know how you would ensure that the relationship between a government regulator and a monopoly was not corrupted. You only have to look at cases such as Enron, with the rampant price fixing that lead to the energy crisis in California in 2000 and ultimately to the demise of the energy trading company, to see that deregulation can have some really nasty side effects.

    Please don’t argue for the privatisation of a monopoly at one moment and then for competition the next. It is a mater of “horses for courses”. If a business is a natural monopoly, then it should probably be kept in government hands, for economic reasons.

    This should no longer be an argument about socialism or corporatism, it should be about what is good for us as a society. Labels like communist or fascist are not going to help. If its your way of communicating, please go preach it to the converted – “closed mindâ€? types.

  6. econwit
    August 19th, 2006 at 16:46 | #6

    “closed mind� types?

    I’m putting forward the concept of a regulated monopoly that is (privatisation and regulation} not “privatisation and deregulation�.

    John is saying we need to construct a new single fibre optic network and the only way to achieve it is by nationalising Telsta. (If nationalising is not communism I stand corrected).

    An alternative to nationalising Telstra to achieve a new single fibre optic network would be to set up a Government Regulated Monopoly to do it. That is when in return for giving one firm a prolonged monopoly status the regulators impose price controls on the firm that usually are highly correlated with production costs to keep profits at a moderate level. n.b. it is highly regulated.

    Say the government licenses “Aussie Optic Fibre LTD� (ASX code AOF) to solely build and run the fibre optic network. This could be done along the lines of the Four Finance and Economics Division Responsibilities used in Vermont and utilise Jay Kaplans “lag in the enforcement of average cost pricing�, this should help to ensure it doesn’t go broke or over charge. (See links on above post)

    It could be argued if done properly, a regulated private monopoly would be a better outcome than a self regulated public monopoly or PPP. It allows the parties involved to concentrate on their area of expertise. Governments to regulate, corporates to provide service at a profit, Investors to get a reasonable return on low risk long term debt/equity investments and consumers get a product hopefully at a reasonable price and quality.

    “Please don’t argue for the privatisation of a monopoly at one moment and then for competition the next�.
    I’m not, my mind is quite closed on the matter; I’m arguing for the regulated privatisation of a monopoly.

  7. Ernestine Gross
    August 19th, 2006 at 17:44 | #7

    econwit, where is the regulator of the private monopoly called AXE?

  8. Ernestine Gross
    August 19th, 2006 at 17:52 | #8

    JQ,

    I understand your usage of the term ‘nationalisation’ to mean ‘public ownership’. Perhaps I am mistaken in my interpretation, for econwit has a very different interpretation, namely: “If nationalising is not communism I stand corrected”

  9. August 19th, 2006 at 19:07 | #9

    To me, nationalising is the process of compulsorily (and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the national level. It is not the continuing condition of managing them after the fact, nor the acquiring of them by other means, nor the acquiring and/or holding and/or managing of them at other levels (e.g. municipalisation), whether compulsorily or not; the Future Fund does not qualify as nationalisation on several counts.

  10. Terje (say TAY-A)
    August 19th, 2006 at 22:48 | #10

    If Australia is to have fibre to the home then it will be new infastructure. Whether this is built by the private sector or the public sector seems to be the crux of the debate raised by JQ.

    Lets assume we need a government owned fibre network to the home. Given that Telstra does not own such infastructure nationalising Telstra does not of itself achieve the objective. Once nationalised you would still need to build the infastructure. So why not leave Telstra out of the equation entirely? The reason is of cource due to conduits. Rolling out any new fibre infastructure would be expensive without access to the conduits.

    So why not just nationalise the conduits if that is what is really wanted. The old Telstra copper could compete with the new government fibre and both could run through the nationalised conduits.

    However if you are going to nationalise conduits I would suggest that ownership should pass to local governments who also own the footpaths and local roads that the conduits transit.

    Personally I think the problem is mostly with the ACCC and its brief, however that is a somewhat separate discussion.

  11. Ernestine Gross
    August 20th, 2006 at 07:59 | #11

    Terje,

    1. Who is going to coordinate the decisions of local governments in your suggested option of nationalised conduits for fibre optic telecommunication network?

    2. Who is going to pay for the time spent by consumers working their way through time series of advertising and promotional material issued by various telecommunication providers that offer of non-standardised services?

  12. Ernestine Gross
    August 20th, 2006 at 08:05 | #12

    PML says:

    “To me, nationalising is the process of compulsorily (and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the national level………….
    “the Future Fund does not qualify as nationalisation on several counts. ”

    Why does the Future Fund not qualify as ‘nationalisation’ in your scheme of things?

  13. Sinclair Davidson
    August 20th, 2006 at 10:41 | #13

    ‘the government should take its role as majority owner seriously’

    This, I think, is the most important component of your argument. The government has been a passive controlling shareholder, and have allowed management to run wild – destroying shareholder value. Rather than waste money in offshore adventures, Telstra could have paid higher dividends (for example).

    What I’m not clear on, is why total ownership is a better solution to the current situation where the government (could) excercise total control, yet have chosen not to. It’s not clear that Telstra would be run any differently under any regime where government has effective control over the orgnisation. In short, government has been a poor controlling shareholder. Restoring Telstra to complete public ownership doesn’t overcome that problem.

  14. Uncle Milton
    August 20th, 2006 at 11:01 | #14

    The Government’s ability to regulate Telstra while there are private shareholders is severely constrained by the corporations law, which stops majority shareholders from oppressing minority shareholders. This is why partial privatisation of a dominant and powerful company like Telstra is the worst of all worlds. The solution is to have it either fully government-owned, in which case it can be directed to to be run in the “national interest”, or to have it fully privately owned but tightly regulated so that it doesn’t abuse its market power.

  15. Ernestine Gross
    August 20th, 2006 at 11:23 | #15

    Sinclair Davidson,

    In which sense was the government a ‘passive controlling shareholder’?

    The public message which came across for many years was, IMHO, very clear: We want to sell the shares we hold on behalf of the public. We want to get a good price and we want to delegate any obligation toward the public to a regulatory body.

    As far as I am concerned, the ‘privatise and regulate’ model is not internally logically consistent (it is not ‘incentive compatible’; or at least none of the major players involved has found an incentive compatible mechanism) and it is wasteful of real resources.

  16. Jill Rush
    August 20th, 2006 at 11:37 | #16

    It is interesting to see that history has taught us little in this argument. We have emotive arguments about “communism” from Econwit which is aimed at those who react in a knee jerk manner.

    However Sir Tom Playford who was as good a conservative as any thought that a single electricity outlet under the control of the government was a more economically rational way of operating. In the light of the effect of privatisation of the electricity market in SA which has done nothing to address infrastrcucture issues and long term reduction in costs it seems that he was right.

    Telecommunications is another industry where if there is government control then ideas such as the national good and long term goals can be factored in – although the political cycle and the increasingly emotive reactions of media don’t help in the good governance of the country.

    As we have gone down the road of privatisation and deregulation then we should perhaps deregulate altogether and see what happens. Those in the country who supported the coalition so thoroughly would then see the effect of their decisions on themselves. That we would all be likely to pay dearly as our telcos were bought up and controlled by overseas interests who may not have our interests at heart would be the end result of the “market forces” argument. That has been the experience of the electricity experiment in SA.

    Nationalisation was something Australia embraced after poor performances in those areas seen as vital to the national good. It was embraced by conservative politicians. Perhaps when we study history this would be a topic which could yield a great deal of valuable information in our current dilemmas.

  17. gordon
    August 20th, 2006 at 11:52 | #17

    Surely the only difference between a regulated monopoly and full Govt. ownership is that in the former case the private sector raises the capital and reaps the dividends, whereas in the latter case the taxpayer provides the capital and reaps the dividends. Of course, there is an intermediate case called “corporatisation”, where the Govt. remains owner but management, capital raising and dividend collection are kept at arm’s length. Since in a monopoly situation the risks are minimal in all three cases, I have never seen the point of corporatisation – except for political purposes.

    So the argument reduces not to a capitalism versus communism alternative, but to a “who gets the loot?” alternative. From the point of view of the professional politician, the regulated monopoly or corporatisation alternatives provide more opportunities for payoffs and kickbacks, so are nowadays seen as preferable. I suspect that that is all that is going on here.

  18. Terje (say tay-a)
    August 20th, 2006 at 12:47 | #18

    EG,

    1. As I envisage it local governments would own the conduits and the use of these would be coordinated in much the same way that the interconnection of local roads is coordinated. No doubt some local governments would outsourse the management of this resourse. If people didn’t get the results that they expect they could elect a different mob. I would expect that a number of defacto standards would emerge pretty quickly similar to the ones that provide wiring standards for telco access in privately owned high rise buildings.

    2. Time expended by consumers in researching telecommunications choices would not be compensated. Just as nobody gets compensated for the time taken deciding who to vote for, the time taken planning how to structure your income for tax purposes or what type of pizza to order on friday nights.

    Regards,
    Terje.

  19. Sinclair Davidson
    August 20th, 2006 at 13:08 | #19

    “In which sense was the government a ‘passive controlling shareholder’?”

    In the sense that the shareprice fell from $7-odd to $3-odd with little turnover in the board of directors and senior management. An active controlling shareholder would have sacked a lot of the directors (and management).
    I agree with your point that the rhetoric on Telstra has been clear, but then what else would they be saying?

  20. Ernestine Gross
    August 20th, 2006 at 13:42 | #20

    Terje,

    1. I do not agree because ‘wishful thinking’ is not a plausible solution.

    2. Comparision are unconvincing. Easiest one to illustrate the problem: Pizzas do not constitute infrastructure; markets work quite well for pizzas (even allowing for limited competition in some localities); search costs are minimal; ‘good’ is non-essential; people can avoid working through advertisments by throwing the lot into the bin and not watch commercial TV. Comparison of the consumer choices of telecommunication services in a pseudo-market of differentiated ‘products’ with the acompanying advertising and sales promotion machinery to elections of governments, is, IMO, silly. But this is a point where you differ and I don’t wish to spend energy trying to convince you otherwise.

  21. Ernestine Gross
    August 20th, 2006 at 14:52 | #21

    “I agree with your point that the rhetoric on Telstra has been clear, but then what else would they be saying?”

    I don’t know. I was not a member in any advisory team at any stage.

    [In which sense was the government was a passive controlling shareholder?] “In the sense that the shareprice fell from $7-odd to $3-odd with little turnover in the board of directors and senior management”

    To the best of my knowledge, the government did not buy Telstra shares at $7.–. Why should the government look after the interests of shareholders who paid $7.– ?

    Equity capital used to be known as risk capital. This includes the risk of share prices falling. At times, majority shareholders go for a take-over when the share price is ‘low’ relative to what they think it is worse. Isn’t this what a return to public ownership would amount to?

  22. Smiley
    August 20th, 2006 at 15:10 | #22

    I’m not sure if anyone else remembers, but there was a 7:30 Report story back in ’99 or 2000, that covered the issues around the deregulation of the electricity industry in SA and Victoria.

    The crux of the story was that the privatised energy generators (i.e. the owners of the power plants) were manipulating the spot price by turning off their generators (on hot summer days), to force up the price. They would then turn them on once the price had reached a certain level. Their claims that the generators had broken down were of course, a load of baloney. This was the exact same method that was sanctioned by Enron in the energy crisis of 2000/2001 in the US.

    If you want to look at the history, refer to this wiki link:

    http://en.wikipedia.org/wiki/California_electricity_crisis

    This sort of manipulation is not new. The US government brought in the PUHCA (Act) in the 1930′s to ensure the competitiveness of the energy generation and distribution industry. Look up “PUHCA FOR DUMMIES” on Google if your interested.

    As Jill Rush said, maybe we should allow total deregulation of all utility businesses to see what false economies that would create.

  23. Sinclair Davidson
    August 20th, 2006 at 15:15 | #23

    ‘To the best of my knowledge, the government did not buy Telstra shares at $7.–.’

    Not sure what you’re saying here. Nobody saying the government bought Telstra shares.

    ‘Why should the government look after the interests of shareholders who paid $7.– ? ‘

    I agree, as a general rule, the government per se shouldn’t look after the interests of shareholders. But the government in the Telstra case was also a shareholder itself. Why did it allow it’s 50 percent ownership stake to decline from $7- to $3- and do nothing, or very little, in the process? Even if the government was unconcerned about the minority shareholders, it was also apparently unconcerned about the value of its own stake.

  24. Ernestine Gross
    August 20th, 2006 at 16:26 | #24

    “Why did it [the government] allow it’s 50 percent ownership stake to decline from $7- to $3- and do nothing”

    The share price is determined in the share market. The share price is not an administered price.

    (The story in some Finance texts that the objective of corporate finance is to maximise shareholders’ wealth (interpreted as share market capitalisation) is an interesting one because it contradicts the notion of ‘competitive behaviour’ in the sense of price taking.)

    “Even if the government was unconcerned about the minority shareholders, it was also apparently unconcerned about the value of its own stake.”

    Good point, as long as the government persists in planning to sell the remaining 50%. Hence my earlier comment re switching from ‘sell’ to ‘buy’.

  25. Smiley
    August 20th, 2006 at 17:15 | #25

    PM Lawrence said that:

    “To me, nationalising is the process of compulsorily (and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the national level.”

    Seems a bit strange. I remember reading somewhere, that when Margaret Thatcher privatised (either the water supply industry in the 90′s or the electricity industry in the 80′s – that’s really testing my memory), those investors who were lucky enough and wealthy enough to invest, on average, receive a dividend of 100% of their investment, after just one year.

    Couldn’t you then say that privatisation is the process of compulsory (and and thus ipso facto unfairly, and presumptively for less than fair value) acquiring resources to be held and managed at the private level.

    Here is a quote from a MotherJones.com article from 2002 about the privatisation of water supply:


    Yet corporate water’s record in fixing those problems — or even maintaining the industrialized world’s systems — has been mixed at best. In 1989 Prime Minister Margaret Thatcher pushed through a program to privatize the United Kingdom’s water supply; costs to consumers soared over the following decade, despite billions in government subsidies to the water companies. In some cities, water bills rose by as much as 141 percent in the ’90s, while thousands of public-sector jobs were lost. Even the conservative Daily Mail declared that “Britain’s top ten water companies have been able to use their position as monopoly suppliers to pull off the greatest act of licensed robbery in our history.”

    Seems to be a case of – privatise the profits while you socialise the costs.

  26. Sinclair Davidson
    August 20th, 2006 at 17:23 | #26

    ‘The share price is determined in the share market. The share price is not an administered price.’

    Are you having me on? When company share prices fall in the market to the extent Telstras did, the management and directors would normally get the boot. The Telstra management were allowed to follow polices that led to share price declines with no adverse impact on their employment. An active controlling shareholder would have done more than the government did.

  27. Smiley
    August 20th, 2006 at 19:11 | #27

    Just a postscript to my last post.

    The arguments as to whether an asset is a “national” or a “local” asset seems to be confusing the issue as to whether it should be in private or public hands (thanks to the “communism” comment). If I go back to my original argument, (and JQ’s) – an asset/utility/infrastructure that is costly to construct and maintain, should not be duplicated for the purposes of competition. Such an idea is just wasteful and uneconomic.

    The argument that could be used for duplicating a service is, capacity constraint. But the questions that should be asked in this situation are:

    Is it more cost effective to build multiple copper/coax networks to overcome capacity constraints or is a single fibre-optic network more economic? And how future proof are each of these technologies? That is, will the capacity of a copper or coax network increase with new technologies or are there known physical limitations? And of coarse, do Australians really care? What percentage of Australian’s want to be able to download movies on demand? What other things might I be able to do with this greater telecommunication capacity? I don’t know.

    And I am still not convinced that the idea of regulating a private utility monopoly is any more reasonable than regulating a government run utility. At least with a government run utility you are not under pressure to make a profit for the shareholder. Except when the government of the day takes out loans against the utility as Peter Beattie did with Energex and Ergon a couple of years ago – but that’s another story that has many facets. The market forces in such a situation are to keep the costs down, because the shareholder is the consumer. A large government run utility also has the ability to keep costs down because of its size (economies of scale). But, that also applies to a private monopoly.

    How about some real arguments, instead of these emotive and baseless arguments? The idea about having Telstra manage the inter-city network and opening up the local telecommunication networks to competition seems fairly novel. Especially if communities in different locations have different telecommunications needs. Maybe not all of us need fibre to the door.

  28. August 20th, 2006 at 20:16 | #28

    The Future Fund isn’t nationalisation in at least the following respects, and possibly more:-

    - It’s held at arm’s length from the national level (I agree that this is a quibble if, as I cynically suspect, that is a mere polite fiction).

    - The resources going into it aren’t compulsorily acquired there, or even with a view to transferring them there, though I quite see that many resources that may be transferred to it in due course may well have been nationalised previously. Even so, there is no nationalisation involved in transferring resources to it or in holding them in that form over time.

    On privatisation, we can say that it is presumptively done for unfairly low prices, or people wouldn’t clear the resources with their associated sovereign risk fast enough (hence all the stagging, although that is in part to diversify the sovereign risk of continuing to hold them). But it isn’t done compulsorily, since it is done voluntarily by the holder that sells off the resources (notwithstanding that there is a strong argument that it was not properly holding them, and that it did not transfer wealth to those who were in fact deprived by the earlier form of holding).

    However, this is far more a case of what is now called privatisation, not what I would have meant by the term (just as “free trade” isn’t). Privatisation, pure and simple, should only involve private participation being opened up for what was preveiously a government preserve – an abolition of the constraints rather than a distress sell off of the resources.

  29. August 20th, 2006 at 20:25 | #29

    In relation to Jill Rush’s position, consider the origins of the Hanson Trust. In the ’20s Lord Hanson’s father owned and ran a small bus company. To consolidate routes etc., a Conservative government nationalised it (along with its competitors nationwide), for much the reasons JR cited. The only difference from Labour nationalisation was, that the compensation was much more realistic.

    However ever after Mr. Hanson was disgusted with both sides of politics, considering that “Labour were nationalisers in principle, and Conservatives were nationalisers in practice”. He set up the Hanso Trust to apply the newly liquid funds to property speculation and similar less sovereign risky activities, even though that was much less productive than an undistorted use of the funds would have been.

  30. Terje (say tay-a)
    August 20th, 2006 at 20:26 | #30

    EG,

    When Optus digs up the street to run a conduit (ie separate to Telstras) as it does in some places at some times it has to deal with the local government. In each part of the country it deals with a different local government. Do you think coordinating access to local government owned coduits would be any more complex than coordinating access to local government owned streets? I would think that it would in fact be simpler most of the time.

    Regards,
    Terje.

  31. Ernestine Gross
    August 20th, 2006 at 21:10 | #31

    No, I am not having you on. While I agree with you on Telstra’s overseas investment, I should think that Telstra did no more than what corporations (not exactly all of them) did do during the hype generated by the word ‘globalisation’. Telstra did other things which corporations did do during the grand ‘restructuring’ management fad period. They fired engineers and hired marketing people. These and other factors may well have an influence on the share price, both, on the way up and on the way down. The government did what other influential shareholders do, they hired a new CEO, who brought his management team along. None of this changes my point that the share price is determined in the market.

    One can ask, what information is consistent with a share price of $7 and what information is consistent with a share price of $3 (I am using these numbers as bench mark indicators for the purpose of a simulation study rather than exact share price data). One hypothesis to start off with is that $7 is a ‘free’ (monopoly) market price and $3 is a ‘regulated (monopoly) market price. There is nothing to stop share traders taking positions on who wins in the political arena. The share price did not fall overnight from $7 to $3.

    Short of a miracle, I can’t see how the goverment can adhere to its privatisation strategy and get a ‘high’ price in the near future (the underlying model is, IMHO, not internally logically consistent). In any case, by fixing its strategy on ‘sell’ and making it public, strategic games are possible which would not be possible if the government would adopt a general objective such as to act in the best interest of the people of the country. This would not rule out switching from ‘sell’ to ‘buy’.

    PS: Apologies for the typos I discover in my posts when it is too late.

  32. still working it out
    August 20th, 2006 at 21:14 | #32

    I think Terje’s idea is very good. Ernestine Gross’s objec

    Essentially the way it works at the moment from ADSL is that if an ISP wants to service an area they put in a pipe and their own ADSL equipment into that area’s local exchange. Telstra own the exchange and the local loop, so thi ISP has to get Telstra to hook the local copper loop straight into the ISP’s ADSL equipment. I believe the ISP pays Telstra a service fee for the connection and an ongoing line rental.

    To me it would be pretty straight forward to replicate that structure with the local council replacing Telstra. Or with the local council owning the local loop, whether it is fibre or copper and the exchange and contracting out management of it on the proviso that it connect any ISP at a set rate within a set SLA. The local council would have a stronger incentive to invest in a high speed network than Telstra. Telstra only gets monopoly rents, which are not much greater for higher speed broadband than normal speed broadband. Local council’s get widespread economic benefits from attracting high wage knowledge workers so they have a stronger incentive to invest in high speed broadband.

    I don’t see a great need for other levels of government to get involved. The ISP’s can talk directly to the local council’s and connect the local networks to the internet via their own already existing infrastructure. Standards seem to have been effectively self created in the rollout of ADSL2. Or you could get it all done via the State or Federal governments, but I think that may end up with a politically designed network.

  33. Ernestine Gross
    August 20th, 2006 at 21:21 | #33

    Terje, you skipped the investment decision problem. If local governments are to own the conduits they will have to finance the construction and they have to agree on it. This is the coordination problem. Have you ever been at a local government council meeting?

  34. still working it out
    August 20th, 2006 at 21:26 | #34

    Robert Cringely has an interesting column on the concept of government ownership and investment in the local loop According to estimates if 40% of user’s in an area hook up to a FTTH (optical fibre right to the home) it can be done for $1000-$1500US per connection. For that $1500 you get a gigabit connection, 50 times faster than the fastest ADSL2. More bandwidth than even I would know what to do with, future proofing anyone for at least 10 years, probably more like 20 to 50.

    Private ISP’s don’t really have an incentive to make that kind of investment. They are unlikely to be able to get 40% of households in an area to sign up, so they will never make a profit, and if they do they will charge monopoly prices negating the whole point. But such a scheme would have incredible economic benefits. It would create enough bandwidth to make pretty much any broadband application viable, with all that implies, at a one off cost of $1500 per dwelling. So there is a good case for government to take some action.

    Its the kind of policy that labour could adopt. It would be idealogically impossible for the government to support, popular, visionary and make economic sense. But this labour wouldn’t do it. Sigh.

  35. Ernestine Gross
    August 20th, 2006 at 21:36 | #35

    still working it out,

    In your opinion, what is the technological know-how in Telstra which has to be duplicated in each Council area to make the idea technologically conceivable? (Number of staff and qualifications would be indicators.)

  36. Ernestine Gross
    August 20th, 2006 at 21:47 | #36

    PML, I understand that the ‘seed money’ (a big one) for the Future Fund consists of tax revenues exeeding government expenditure. Have you changed your mind on taxation?

  37. still working it out
    August 20th, 2006 at 22:51 | #37

    Ernestine Gross,

    I can’t give you a proper answer to this question. I just don’t know. But the reason I still think it is feasible is that management of the exchange could be outsourced to existing telco’s in a fairly straight fortard manner. There could be a standardised contract, or state/federal legislation creating a standardised contract for agreements between the Telco managing a local loop/exchange and the local council that owns it which could avoid the telco’s using their information advantage to con unfair contracts out of local council’s.

    In this situation the decision making process for a local council would be relatively simple. The local council would only have to consider prices and level of service. The local council might only need a couple of staff dedicated to telecommunications itself. Their job would be to escalate and document incidents where the managing telco failed to meet the service level agreement based on complaints from residents. Very little technical knowledge is required to do that. It is primarily a vendor relations capability which council’s already do reasonably competently.

    Initally it could simply involve signing an agreement with Telstra to continue things as is which requires almost nothing of the local council in terms of new abilities. Or it could be an opt-in system, where if local councils that are unhappy with Telstra could take control themselves and arrange for another telco to manage the local loop/exchange. Eventually local council’s could develop their own telco capabilities if they found that more economic, but I imagine they would always get a substantial amount work done by existing telcos or smaller contractors.

  38. Ernestine Gross
    August 20th, 2006 at 23:44 | #38

    still working it out, I suppose not everybody sees beauty in simplicity.

  39. econwit
    August 21st, 2006 at 02:40 | #39

    Terje (say TAY-A) Says:

    “So why not leave Telstra out of the equation entirely? The reason is of cource due to conduits. Rolling out any new fibre infastructure would be expensive without access to the conduits. “

    It might be possible to leave Telstra out of the equation entirely;

    With fibre optics, you have complete immunity to electromagnetic interference (EMI). The implication being it might be possible to piggy-back fibre optic cables anywhere a power cable can go. If you have underground power in the area the fibre optic cable can share the power conduits, or if the area has poles it can be run unobtrusively bungled with the power lines right into the home, unlike the Optus cables that have to be distanced from power lines.

    “If Telstra is silly enough not to want this piece of “monopoly infrastructure� in its portfolio, then give it to someone who does, by the creation of a new regulated monopoly for that purpose.�

    Smiley Says:

    “And I am still not convinced that the idea of regulating a private utility monopoly is any more reasonable than regulating a government run utility. At least with a government run utility you are not under pressure to make a profit for the shareholder�.

    Compare AGL and Sydney water:

    AGL has operated gas distribution systems located within city centres and towns within NSW effectively as a regulated private utility monopoly for many years. Over the last ten years based on my experience it has provided good services at reasonable prices with gas to most customers capped to CPI. It has paid dividends to its shareholders and interest to its lenders. It has maintained and upgraded its infrastructure when required as well used its retained earnings to expand the business by acquiring new cash generating assets and infrastructure.

    Sydney Water supplies water and sewage services to Sydney. It is a government run monopoly utility. Over the last ten years based on my experience its services have deteriorated. All Its additional charges have increased substantially with connection charges for new properties going from $300 to $3000. Water rates have increased significantly above CPI plus the addition of environmental levies and alike have been put on top. Over the period it has had $ 4 billion siphoned out of it to be squandered by the social democratic labour government. Its failure to manage for the long term and the theft of it retained earnings, has left it unable to maintain or upgraded its infrastructure as required, to the point where large capital expenditures are now essential to maintain supply.

    Its a hard choice considering the results of the test HA HA;
    Bob Carrs residue coupled with his associated cronies or Paul Anthony and his executive team?

  40. Terje (say tay-a)
    August 21st, 2006 at 06:09 | #40

    Econowit,

    I think Powertel is close to being the third biggest telco if we leave out mobile services. It was formed by state owned power companies that have a stack of fibre capacity in power conduits throughout many of the major cities. It is not hypothetical.

    Regards,
    Terje

  41. Terje (say tay-a)
    August 21st, 2006 at 06:22 | #41

    EG,

    The conduits don’t need to be built. We were talking about stealing stuff from Telstra shareholders and I merely stated that in order to roll out a fibre network to the home there was no point stealing infastructure other than the conduits. Stealing the copper would only be necessary if it was in the way. So I am not sure what investment question you are refering to.

    As for simplicity. The simplist option would be to remove the regulatory burden that is currently causing Telstra to bork at a fibre roll out. And to remove the access regime that has made all the Telcos build business models dependent on Telstra infastructure.

    Regards,
    Terje.

  42. August 21st, 2006 at 10:23 | #42

    Terje wrote: “We were talking about stealing stuff from Telstra shareholders …”

    The rightful owners and the still majority shareholders are the Australian public who, together with their parents and grandparents, have paid for Telstra many times over through their taxes and many hefty phone bills. It is the value of their investment has been eroded far more by the ill-conceived policies of corporatisation, deregulation and privatisation than even those who bought shares in the T1 and T2 floats.

    The money ostensibly gained for the public purse from the shareholders has been largely wasted in projects designed to suit the political needs of this government in marginal electorates.

    It is time that the needs of the country for modern high bandwitdth telecommunications services took precedence over the sectional needs of private shareholders, most of whom, in any case, according to a poll in August 2002 also opose full privatisation.

    A buyout of shares and making Telstra a public service once again is the only possible way that the mess can be properly fixed.

  43. Terje (say TAY-A)
    August 21st, 2006 at 11:52 | #43

    James,

    If the government sells something then in my view it is owned by those that paid for it. You can spend 10 generations and all your families sweat and tears building something but when you sell it then it is no longer yours. Just because you have an emotional attachment to the thing you sold or just because you wasted the money you received does not mean that the buyer ownes it any less.

    You can complain about the government decision to sell but that is a separate matter. I would note however that we live in a democracy and if the government decides to sell stuff it is a bit rich to then steal it back. Certainly it is within the governments power but it does not change the nature of the activity.

    Of course the word nationalisation means different things to different people. If the intent is to buy back Telstra at the market rate then I am sure that the shareholders might sell willingly. Although as a taxpayer I would object to such a move.

    Regards,
    Terje.

  44. August 21st, 2006 at 13:10 | #44

    Terje,

    I could also accuse of trying to pull emotional heartstrings when you wrote, “We were talking about stealing stuff from Telstra shareholders …�

    This may well be a subjective view, but I would consider the T1 and T2 sales as theft from the Australian public, regardless of whether the share prices were ‘over-valued’ or ‘under-valued’. The value that the public got from the short-term uncoordinated piecemeal public projects funded from the sales effectively amounted to little more than trinkets compared to the value of the asset sold.

    T1 got through because Howard and the proponents of privatisation had cleverly mislead the Australian public into believing that partial privatisation was never intended to be the first step towards full privatisation.

    Had he been honest about his true intentions he would not have gotten away with it.

    The sorry mess that ensued is all history.

    In a democracy we are entitled to decide what is the best way to fix up the mess without giving undue consideration to sectional interests above the public interest.

    I think those that have gained at the expense of the Australian public should be held to account for what they have done so dishonestly, and be made to reimburse us from whatever ill-gotten gains they have made, even though it could not possibly be sufficient to repair the harm done.

    Of course, most of the costs of fixing up the mess will have to be somehow borne by taxpayers, Telstra customers and the ordinary T1 and T2 investors. At the moment I am not in a position to be able to say precisely how this should be done.

  45. Smiley
    August 21st, 2006 at 13:42 | #45

    econwit:

    I agree. If we are going to run organisations as if they were commercial ventures, then we should ensure that the laws are in place to enforce that requirement. That is, governments should not be able to take out loans against utilities that they operate, expecting the utility to pay back the loan (as I eluded to in one of my previous comments).

    But then again, why should this just apply to government owned and regulated business, why not the government itself. Why for example, should the federal government get away with taxing petrol and syphoning the revenue away from transportation? I know there are arguments for this, it is just a rhetorical question… don’t get angry now.

    But I still don’t see why you cannot acknowledge (in the numerous examples I have given), that when certain businesses are privatised, (even where there is a great deal of government regulation) the commercial pressures seem to lead to a reduction in the regulation and the increase in corrupt business practices (ultimately hurting the consumer). Please, make some comments. Or maybe you have no comments to make at all.

    I also find some of your arguments a bit difficult to believe. Take for example your claim that Sydney Water now charges $3000 for new connections. I thought that utilities (like Sydney Water) no longer directly employ people (i.e. the plumbers and backhoe operators) to do the actual connection. I thought that utilities like this charge you a fee to run the analysis of the network in your area, and send out inspectors before the job is completed. You pay for the connection separately through a private contractor. If you go to the Sydney Water web site, you can download a list of their fees and charges:

    http://www.sydneywater.com.au/BuildingDevelopingandPlumbing/DevelopingYourLand/FeesandCharges.cfm

    And are you matching the facts to fix your argument? Is the $300 connection fee to a property next to an existing main, and the $3000 fee for a property that is 0.5 km from the nearest main? I don’t know. I don’t live in Sydney.

    Maybe if you gave links to actual news stories that backup your claims, I would take you a bit more seriously.

  46. Terje (say tay-a)
    August 21st, 2006 at 14:39 | #46

    James,

    When the government sells something that you would prefer they retain then you may regard it as theft. However it is not unless they never owned it to start with or if they made their decision under duress (which would be a pretty funny suggestion given who we are talking about). Lets not forget who runs the army and owns all the guns, cages and instruments of force.

    Even if we you limit your accusation to the executive wing of government it still does not stack up. They did not do anything that was not approved by the legislative wing.

    Now nationalisation may or may not involve duress, coercion or force. However if it does, then their is a much clearer case to claim theft. Democracy or not.

    Regards,
    Terje.

  47. econwit
    August 21st, 2006 at 19:12 | #47

    “Now nationalisation may or may not involve duress, coercion or force. However if it does, then their is a much clearer case to claim theft. Democracy or not.”

    What about taxation under the same circumstances could you label that theft?

    Smiley,

    I agree with your first 2 paragraphs 100%.

    “But I still don’t see why you cannot acknowledge (in the numerous examples I have given), that when certain businesses are privatised, (even where there is a great deal of government regulation) the commercial pressures seem to lead to a reduction in the regulation and the increase in corrupt business practices�

    It is perceivable this happens, but in my view it is due to the government not doing their fundamental job which is regulating properly.

    In relation to the Waterboard it is dependant on what suburb you are in.

    We are involved in a subdivision in Castle Hill. The property has existing water and sewerage connections that can be connected straight into without any upgrade. It is a small infill development. The Waterboard are charging $ 3679 per lot. Being $1362 + $192 water connection fee and $2036 + $89 sewer connection fee. We still supply and install the infrastructure to the lots. When someone builds on a lot they are then hit with another round of plumbing and drainage fees per fixture plus inspection charges.
    This is just one of the charges and they just go on and on, it is mind numbing.

    Castle hill is one of the cheaper suburbs look at some of the others here:

    http://www.sydneywater.com.au/Publications/_download.cfm?DownloadFile=FactSheets/DeveloperChargesPriceList.pdf

    And this price gouging isn’t just confined to Sydney Water. Energy Australia another publicly owned monopoly recently charged us $2000 to turn the power off then on again at a property in Bondi, just for the privilege of upgrading their infrastructure at our expense. AGL charges $150 for a similar ‘stand by’. The total duration of Energy Australias part of the Job was 2 men 1.5 hours. or $666 per hour, OH to be a monopoly!

    You can couple the above bloody-mindedness with the other crap the self seeking political class inflict on us during our commercial activities: 5% stamp duty on purchase, Stamp duty on the mortgage, Stamp duty on insurances, $20,000 per lot contributions, $3000 per lot application fees. Local Government fees. Land and Environment court fees, Power utility fees, Gas utility fees, council rates, Water rates, land taxes, payroll taxes, PAYG taxes, capital gains tax, GST on top of all these charges at sale, purchasers stamp duty on sale and company tax not to mention the other hidden taxes and excises like fuel taxes and the $20 toll to go to work and back.

    I use to be apolitical, but now I am being driven to a libertarian economic philosophy, due to the elite political class from either side and their expansionist tax and grab policies.

    Please remind them capital is mobile and unlike the last 20 years, a large proportion of our capital is not actively supporting the Australian economy by employing people and producing things directly. It has been given to the arbitrage chasing, rent seeking, money shuffleing managers in the secondary equities market to do something productive with.

  48. August 21st, 2006 at 20:16 | #48

    EG, I haven’t changed my mind about taxation. It’s just that it is important to distinguish what is going on, who is being victimised and so on. For instance, nationalising (say) a coal industry involves ripping off the previous owners, and what’s more it is bilateral. But acquiring a coal mine or two on the open market, ultimately paying for that with taxes, isn’t nationalisation and the previous owners don’t get ripped off. That is something quite regardless of the ripping off involved in getting the funds, and those ripped off are yet other parties.

    So acquiring a Future Fund on the open market isn’t nationalisation – even if hands got dirty elsewhere, the particular misbehaviour is different misbehaviour.

  49. Terje (say tay-a)
    August 21st, 2006 at 22:32 | #49

    Econowit,

    I have no problem labeling taxation as theft. In fact I find it amazing that anybody can deny that taxation is theft. But does this further the discussion or just cause it to digress?

    Regards,
    Terje.

  50. SJ
    August 21st, 2006 at 23:15 | #50

    econwit Says:

    And this price gouging isn’t just confined to Sydney Water. Energy Australia another publicly owned monopoly recently charged us $2000 to turn the power off then on again at a property in Bondi, just for the privilege of upgrading their infrastructure at our expense. AGL charges $150 for a similar ‘stand by’. The total duration of Energy Australias part of the Job was 2 men 1.5 hours. or $666 per hour, OH to be a monopoly!

    What was the work that was done? On what do you base your comparison with AGL?

    econwit Says:

    I use to be apolitical, but now I am being driven to a libertarian economic philosophy, due to the elite political class from either side and their expansionist tax and grab policies.

    It sounds to me that you’re a corporate shill, and we should take no notice of your manufactured stories of your employer’s hardship. You poor, poor, put upon property developers.

  51. SJ
    August 21st, 2006 at 23:22 | #51

    Terje Says:

    In fact I find it amazing that anybody can deny that taxation is theft.

    Yeah. Like guys with guns come around to your house, rifle through your wallet, and then, the worst part is, they spend it on things like the roads you drive on, the schools your children attend, etc.

    Oh, wait. I forgot. Supremely selfish people consider it an affront that someone else might get some benefit.

  52. Terje (say tay-a)
    August 21st, 2006 at 23:38 | #52

    SJ,

    I answered a direct question. Are you really keen to take this discussion on a voyage off topic?

    If your main point is that I am “an extremely selfish person” then I would ask how you benchmark selfish and how you rank me relative to that benchmark. Are you a more giving person than me? Do you have any clue or are you just lashing out at a messenger with a message you don’t like.

    Regards,
    Terje.

  53. August 22nd, 2006 at 01:22 | #53

    Terje,

    You avoided my point.

    Yes, perhaps in a narrow technical legalistic sense the, thus far, partial privatisation of Telstra was legitimate.

    However the point remains that John Howard and his backers knew perfectly well all along that privatisation was unlikley to enjoy public support and every opinion poll on this question bears this out.

    The means employed by the Government and its media backers to obtain its supposed mandate to fully privatise Telstra and, for that matter, other things such as “Work Choices”, were clearly dishonest and unconscionable and I believe the broader public will come to realise that.

    When ths happens and when the public come to also realise how badly they have lost out, I wouldn’t count on them buying your argument that renationalisation is any more immoral than the means employed to take this asset out of their hands in the first place, whether or not, it was “approved by the legislative wing”.

  54. Terje (say tay-a)
    August 22nd, 2006 at 01:51 | #54

    James,

    I have no doubt that John Howard will not be PM forever and that there will continue to be democratic majority views on matters that I disagree with. However many people bought Telstra shares with no malice or ill intent. Many of those shares will have changed hands many times over. These people were not part of a conspiracy to steal anything. At best you can claim a major agent principle problem via which democracy failed to serve the interests of the people (although which people seems to never be fully defined). Putting governments in charge of anything creates such problems. It’s one of the major reasons I generally loath government controlling anything that I can control for myself.

    In short you are right. A democratic majority has the power to screw anybody it likes. And if you have the power to screw people with impunity then it is more likely to happen. They can even choose to call acts of theft nicer names like social justice. But I’ll still know what it really is no matter how they dress it up.

    Regards,
    Terje.

  55. Smiley
    August 22nd, 2006 at 02:07 | #55

    Econwit:

    Point taken. But I think there is a wider issue here. Since about 2000 certain areas of the economy have been booming (housing, mining, and the associated industries). While not everyone who has worked in these industries have been remunerated equally, I’m sure it has been good for most. I’m also certain that most Australians would have jumped at an opportunity to sell property and earn $200-$300k per year if they could.

    I work in IT – specialising in computer based mapping (GIS), and towards the end of 2003, I heard numerous stories of people giving up the career that they had been trained in (surveyors, accounting clerks) to become real estate agents.

    If you go back a couple of years, $200-$300k p/a was the amount that most elite foot-baller players were earning. I for one couldn’t do it. I would hate to be encouraging people to go further and further into debt to finance their dream home. It’s not the way my parents bought their house.

    I firmly agree with you on one very important point. I think that those who regard themselves as elites are expert at starting the inflationary spirals (I think that’s a centeral theme here). They demand higher renumeration, and justify it any way they can. “Look the economy is doing so well.”

    I talked about this in previous posts to another thread when I stated that the economy for the last 5 or 6 years has been run in an asymmetric or lopsided fashion. When you do this for too long, areas of the economy that aren’t booming want/need to catch up. As soon as someone yells INFLATION it is too late.

    I also notices the arguments about the share price of Telstra. Wasn’t this partially a symptom of the dotcom boom-bust cycle, not just competition? Smart investors should have been able to see what was going to happen.

    I’m not sure what AGL is doing to keep its costs down. Maybe they have a good training program to ensure an adequate supply of cheap labour. Maybe they are using some of the cheap imported labour that seems to be in the news at the moment. Cheap! I was shocked to hear the average wage of the temporary, imported worker in Australia, and I am “contractingâ€? at the moment.

    I don’t think that you can legislate to keep wages down, though the current federal government is trying. Could the government legislate to ensure that real estate agents and property developers weren’t paid so much in the boom? I don’t think so. But it could have ensured that people weren’t sucked in by the hype, by mandating that inflation was measured equally across all sectors. By running the economy properly no one group benefits from irrational exuberance spurred on by nasty little deceits like:

    “They’re not making any more land.” or
    “House prices never fall, better get in before the prices reach infinity.” or
    “Interest rates will always be higher under Labor” or the catch all
    “It’s different this time.”

    I’ll admit I am a left leaning voter. But I haven’t voted Labor for years (well before the 2001 federal election). Why… Because of preferential voting and because they weren’t yelling INFLATION, when they should have. That’s what you do when you’re in opposition. You point out the conceited little lies. And preferential voting allows you to scare the bejeebers out of them, while still ensuring your vote counts. If only enough people realised this.

    I had saved to buy a home at the end of 2003, but I didn’t. Instead, I bought a little bit of gold around June/July of 2004. Not much just $10k. I did this because I had seen inflation roaring in home prices in the previous 3 years, and it hadn’t show up in CPI. Housing finance costs were no longer measured in the CPI.

    I’ve worked in both public and private organisations and I have seen the laziness, corruption and arrogance in both. As a left-leaning liberal (that’s small L), I don’t believe in big stick approach to such problems… though I’m sure that I can seem like a hard bastard some times. I think that educating people so that they are not sucked in by hype, greed and fear is best.

    Sometimes (as Michael Moore put it in his infamous book “Stupid White Menâ€?), you need to give the ruling elite or those who regard themselves as the ruling elite, a bit of tough love. Of course he was referring to Dubya, but the implication was plain (and this was well before 911 – the event or the movie). It brings a smile to my dial every time I think about this statement. I can just imagine what the elite are thinking when they read stuff like this. Uh-oh… time to scamper.

    Anyhow, this is getting right off track.

    Smiley

  56. August 22nd, 2006 at 10:45 | #56

    Terje wrote: “However many people bought Telstra shares with no malice or ill intent.

    How about Evelyne & Jean-Claude Wagnon? They wrote in a submission to the Estens Inquiry in 2002:

    We were always opposed to the sale of Telstra, from day one but couldn’t do much about it. So we bought shares in the first issue to help keep it in Australian hands as much as possible. We bought some shares in the second issue for the same reasons. We won’t do it again. As a matter of fact, if Telstra is sold despite a majority of people being against it (isn’t it nice to live in a democracy…), we will sell all our shares.

    The Wagnons would have been amongst the majority of Telstra shareholders that a Newspoll in 2002 found to be in opposition to full privatisation.

    Naturally their views, the views of hundreds of other people around the country, who took the time and effort to argue their cases against privatisation to various Parliamentary Inquiries, and the views of the even more overwhelming majority in the broader community were all ignored by this government.

    It seems therfore likely that even most existing Telstra shareholders would not object to a buyback, particularly if it were done by a Government that was determined to get on with the job of providing all members of the community affordable access to a twenty first century telecommunications network.

    As I pointed out above, the majority has been screwed to suit the selfish interests of a tiny minority not only with Telstra, but also in almost innumerable other cases with the Commonwealth Bank and Electricity Trust of South Australia and SunCorp in Queensland, all of which were privatised following the election of Governments who had explicitly promised not to do so.

    Whilst you object to my proposals, implying that they amount to a tyranny of the majority, you somehow seem to find these acts, which I would consider to be just a few of many examples of tyranny by a small minority against the majority that has occurred in this country in recent years, to be more acceptable.

    Fixing up the shambles of telecommunications will incur significant costs on all of us. I expect that those who who “bought Telstra shares with no malice or ill intent” such as the Wagnons would not object to sharing the costs with the rest of the community, when shares are bought back. Any minority which remains intractably opposed will almost certainly be the same people who worked behind the scenes to have gotten various Governments to have acted so dishonestly on their behalf, so I see no reason why any of us need feel any concern for their plight.

    You wrotePutting governments in charge of anything creates such problems.” It seems that you will never be convinced that private corporations are less pure, virtuous and efficient than government, no matter how open, democratic and accountable the latter can be made to be. I think a vast majority of the population (and, I see, Smiley) would beg to differ and I would suggest to you that they are entitled to be able to at least give it a try.

  57. August 22nd, 2006 at 21:56 | #57

    SJ, your reasoning is like someone saying that because the things Robin Hood did were good, his exactions were not actually thefts. It’s a faulty understanding, just as much as the Ptolemaic idea that the solar system was geocentric. And that’s even though the earliest versions of the Copernican system actually gave worse results.

    The thing is, you can point to lesser evil and greater good, and you can point to the immateriality of the exactions, without realising that what is going un is still theft when applied to those who do not consent. Even if the world would be worse off with a simple abandonment of that approach, the faulty understanding prevents any other ways of achieving that desirable greater good.

    And by talking in such a utilitarian way, I do not in any sense mean to endorse utilitarianism, merely to point out the problems even for someone who adopts that perspective. It would be pointless to assert the inherent injustice of an unaccepted taking, when speaking to someone who simply does not recognise that. There is as much an offence there when the taking is immaterial and applied wisely as for any highway robbery; it’s the interference with a person’s essence and identity that’s the trouble.

  58. SJ
    August 22nd, 2006 at 23:40 | #58

    PML, it would help the credibility of those who claim that taxation is “theft” if they did something other than whining about it.

    For example, removing themselves from places where they are taxed without their consent. Terje is quite free to remove himself to, for example, Liberia.

    In such a place, Terje would not have to worry about whether his own personal tax dollars were being accidentally spent on something that someone else might benefit from. Roads, healthcare, education and suchlike. Terje would surely be the best little productuve entity he could be, in such a place.

  59. Ernestine Gross
    August 23rd, 2006 at 00:10 | #59

    Hang on, SJ, before someone departs to a tax haven, wouldn’t it be fair that the person puts back into the pot what he has taken out in the form of education, health, public transport, child endowment,……………?

  60. August 23rd, 2006 at 01:36 | #60

    James,
    And you will never be convinced that free competition between corporate entities, trying to persuade the various free people to make a choice, can ever be a substitute for a good regulation and some innovative legislation.
    A difference between you and Terje on this is that one of you is backed up by evidence, empirical studies and common sense.
    I will let you decide which one of you this is. That is what freedom means, James.

  61. econwit
    August 23rd, 2006 at 01:41 | #61

    Smily

    That was a comprehensive post. I agree with a fair amount of the stuff in it, but like you said it is slightly off topic..

    Your investment timing is good, with gold appreciating. You also avoided the peak of the property market. If you are in the eastern states now might be a good time to sell your gold and take the plunge and buy property. Long term it has served me well.

    SJ says

    “What was the work that was done? On what do you base your comparison with AGL?
    �
    Reality, a concept you might not be familiar with.

    2 men from AGL (Agility) came to our property for 3 hours, turned the gas off “stood by� so work could be carried out to the gas service by our plumber. They charged us $150. 2 men from Energy Australia came to the same property for 1.5 hours, turned the power off “stood by� so work could be carried out to the consumer mains by our electrician. They charged us $2000. (I know reality is hard for you to comprehend, so if you need proof, get JQ to send me your email address I will send you a pdf of the receipts}

    “And this price gouging isn’t just confined to Sydney Water� and energy Australia.

    Today we paid a $4000 fee for the privilege of supplying and constructing Hornsby Shire Council with 90 metres of kerb and foot path on their land. (Receipts can be supplied) Oh to be a self regulating monopoly!

    “You poor, poor, put upon property developers.�

    ALP brown tongues shouldn’t bite the hand that feeds them. Come time to fund an election campaign they might have a cash flow problem.

  62. Terje (say TAY-A)
    August 23rd, 2006 at 09:19 | #62

    James said:-

    It seems therfore likely that even most existing Telstra shareholders would not object to a buyback, particularly if it were done by a Government that was determined to get on with the job of providing all members of the community affordable access to a twenty first century telecommunications network.

    I don’t view a buyback as the same as nationalisation. There are already takeover provisions in which one shareholder can force the buyout of others if the majority concent. That is a basic rule of the game layed down since before the Telstra float.

    Such a move would raise my hackles however in so far as it involves the umpire taking up position to kick the ball.

  63. Terje (say TAY-A)
    August 23rd, 2006 at 09:41 | #63

    SJ,

    You raised several points.

    PML, it would help the credibility of those who claim that taxation is “theft� if they did something other than whining about it.

    I have this image in my mind of man-A whipping man-B. Man-A is saying “my ears hurt, stop your whining and get out of here”.

    In any case I don’t know that whining is an accurate characterisation. I was asked a question and I answered it and then went on to say that I didn’t think we needed to further thrash the issue of tax as theft. However you seem keen to give the topic oxygen.

    I generally spend far more energy outlining the merits of a lower tax system and the injustice of a high tax system rather than whining about my personal circumstances.

    Those that whinge about taxation being too low to satisfy their call for “social justice” could also do something instead of whining. They could go and give their time to a charity for example. However it does not seem to stop a lot of them from whining.

    For example, removing themselves from places where they are taxed without their consent. Terje is quite free to remove himself to, for example, Liberia.

    Yes and those that want more taxation can move to France. This type of argument does assume that the foreign nation in question will accept them. In essence you are suggesting that those that disagree with you about the type of society we should have should not have a voice in formulating that society. They should shut up or p!ss off. You can take that view if you wish and you can whine about me if you enjoy it but it does not move us along very far.

    In such a place, Terje would not have to worry about whether his own personal tax dollars were being accidentally spent on something that someone else might benefit from. Roads, healthcare, education and suchlike. Terje would surely be the best little productuve entity he could be, in such a place.

    Actually the risk of wealth and income appropriation via theft is reasonably high in Liberia as I understand it. Which along with civil war has lead lots of business people to leave the country. It seems like an unlikely candidate. For a better example of the economic freedom adovcated by libertarians you might point to places like Hong Kong.

    However given that I was born in Australia and given that all my personal history, most of my immediate family and all of my friends are here I think I will stay put and help with the struggle towards a more ideal society. If you don’t like the sound effects created by that struggle then you should feel free to leave for France any time you like.

    Regards,
    Terje.

  64. Terje (say TAY-A)
    August 23rd, 2006 at 09:46 | #64

    EG said:-

    Hang on, SJ, before someone departs to a tax haven, wouldn’t it be fair that the person puts back into the pot what he has taken out in the form of education, health, public transport, child endowment,……………?

    EG, I never envisaged you as a proponent of indentured slavery. Although I do understand that if you get your slaves while they are still young and impressionable then it is more likely that you can indoctrinate them with a sence of indebtedness. So child endowment is obviously a good mechanism to use in such a slave breeding program. Personally however I prefer to view child endowment as a type of tax refund and that my parents paid for my childhood out of love.

  65. August 23rd, 2006 at 09:57 | #65

    Terje wrote: “Actually the risk of wealth and income appropriation via theft is reasonably high in Liberia as I understand it. Which along with civil war has lead lots of business people to leave the country. It seems like an unlikely candidate.

    If you were to consider more carefully the words you, yourself, have just written you might come to understand why so many of us agree that “taxation is the price we pay for civilization.”

  66. Ernestine Gross
    August 23rd, 2006 at 10:30 | #66

    Terje,

    You are perfectly right in your assumpton that I am not a proponent of ‘indentured slavery’ or any form of trade in ‘human capital’ (slavery).
    .

  67. August 23rd, 2006 at 11:59 | #67

    James,
    If you want a humorous take (as well as a slight overstatement) on what I believe, try here.
    I read through your references – try one of mine.

  68. Terje (say tay-a)
    August 23rd, 2006 at 20:18 | #68

    James,

    I have never taken the position that taxation should be abolished. My stated position is that taxation is theft and taxation is evil, however below a certain threshold I accept that it is the lesser of evils. Unfortunately we are way above that threshold in the realm where taxation and government is the dominant evil in society. Not the worst evil by its character but the most pervasive of evils. The chance of my critisism of taxation creating some form of low tax policy overshoot is highly improbable.

    I would prefer a level of taxation along the lines of what we had in the early 1900s. We had neither civil war nor widespread crime at that level of taxation.

    Regards,
    Terje.

  69. econwit
    August 24th, 2006 at 00:04 | #69

    “If you were to consider more carefully the words you, yourself, have just written”

    What level of “taxation is the price we (should) pay for civilization.â€?

    Terje 6% of GDP
    Me, 20% of GDP but, any reduction would be appreciated.
    Nationalisation/communisation supporters, 100% of GDP.

  70. SJ
    August 24th, 2006 at 00:18 | #70

    Terje Says:

    I have never taken the position that taxation should be abolished. My stated position is that taxation is theft and taxation is evil, however below a certain threshold I accept that it is the lesser of evils. Unfortunately we are way above that threshold in the realm where taxation and government is the dominant evil in society. Not the worst evil by its character but the most pervasive of evils. The chance of my critisism of taxation creating some form of low tax policy overshoot is highly improbable.

    I would prefer a level of taxation along the lines of what we had in the early 1900s. We had neither civil war nor widespread crime at that level of taxation.

    Terje, I would respectfully suggest that you are either delusional, or completely ignorant of that which you argue.

    The level of taxation hasn’t changed much since the early nineties.

    Tax as % of GDP:

    1985 29.1%
    1990 29.3%
    1995 29.8%
    2000 32.1%
    2003 31.6%

  71. SJ
    August 24th, 2006 at 00:29 | #71

    Fixed link to the tax numbers I cited above.

  72. SJ
    August 24th, 2006 at 00:50 | #72

    econwit Says:

    “What was the work that was done? On what do you base your comparison with AGL?
    �
    Reality, a concept you might not be familiar with.

    2 men from AGL (Agility) came to our property for 3 hours, turned the gas off “stood by� so work could be carried out to the gas service by our plumber. They charged us $150. 2 men from Energy Australia came to the same property for 1.5 hours, turned the power off “stood by� so work could be carried out to the consumer mains by our electrician. They charged us $2000. (I know reality is hard for you to comprehend, so if you need proof, get JQ to send me your email address I will send you a pdf of the receipts}

    I find this very difficult to believe. Did you complain to the Ombudsman? If so, what was the result? If not, why not?

    econwit Says:

    “You poor, poor, put upon property developers.�

    ALP brown tongues shouldn’t bite the hand that feeds them. Come time to fund an election campaign they might have a cash flow problem.

    Yeah, yeah. You’ve been bought and paid for. The rest of us haven’t.

  73. econwit
    August 24th, 2006 at 00:55 | #73

    He said early 1900s not 90s
    Although “we should take no notice of your manufactured stories”

    1900 it was 6% of GDP

    see table 27.19 TAXATION REVENUE AND GDP PER HEAD

    http://www.abs.gov.au/Ausstats/abs@.nsf/94713ad445ff1425ca25682000192af2/a6e24932616f91edca2569de00296982!OpenDocument

  74. econwit
    August 24th, 2006 at 01:02 | #74

    “Yeah, yeah. You’ve been bought and paid for. The rest of us haven’t.”

    No the ALP has been bought and paid for.

    Im taking it to Ewon. http://www.ewon.com.au/

    Energy and Water Ombudsmon, NSW

  75. August 24th, 2006 at 16:18 | #75

    Quite visibly, taxation does not “pay for” civilisation. It pays for many things, only some of which even contribute to civilisation (Iraq’s situation today is a case in point). Also, civilisation is achievable in quite other ways – that part of taxation that contributes to it in no sense justifies crowding out those other things. Many organised states came into being on the back of much less centralised situations, with activities resourced in ways that were not taxes (though they often included force and/or fraud at some level, since that non-taxing only represented convenience).

    All that is quite beside the philosophical point, that exacting contributions without consent is ipso facto theft. It can only ever work as a lesser evil. The practical side of this is that those who, in denial, accept it as good are unable to consider alternatives that either are not evil or are even lesser evils. That includes options that become more realistic as times change. (This is why so many people supported slavery as a good – the power of denial working on what had once been an unpleasant but lesser evil.)

    In particular, people who buy into governmment service provision on the back of taxes will refuse to consider embarking on any transitions away from that, and if anything they will try to thwart that.

    For a long time, central US taxes only fell directly on those who implicitly agreed – importers who paid tariffs but were under no obligation to trade with the USA (other funds came from land sales). But the system involved force in acquiring land, delegated much to the state level, and piggy-backed on pressures that drove people to trade internationally so that they were not truly free. The USA was complicit in a larger world trading order.

    None of this has anything to do with the “credibility” of the arguers. That is merely a way of saying that arguments will only be entertained from those who haven’t removed themselves from the forum, and any others who try not to roll over will be dismissed in an ad hominem way.

  76. Terje (say tay-a)
    August 24th, 2006 at 17:18 | #76

    SJ,

    1900 as in around the time of federation. A move that was meant to reduce domestic trade barriers but has instead escalated them to obscene levels.

    Regards,
    Terje.

    P.S. Please read more carefully before calling people things such as delusional. You have a high propensity for name calling which is not welcome.

  77. SJ
    August 25th, 2006 at 21:28 | #77

    econwit Says:

    Im taking it to Ewon. http://www.ewon.com.au/

    Energy and Water Ombudsmon, NSW

    That’s a good start. Let us know what happens.

    econwit Says:

    He said early 1900s not 90s

    Fair enough, I misread that. It doesn’t make all that much difference, though.

    With taxation at 6% of GDP, obviously we wouldn’t have the same level of services provided by government.

    We’d either have to do without those things, which would bring us back to being the same backward place we were in 1900, or we’d have to pay someone else to provide the same services.

    Looking at the U.S. healthcare situation, I suspect we’d end up paying more and getting less than we’re getting at the moment.

  78. SJ
    August 25th, 2006 at 21:33 | #78

    Of course, the real news tonight is this:

    Telstra will be sold: PM

    The Federal Government will sell almost half of its remaining stake in Telstra later this year, parking the rest of the shares in the Future Fund.

    About $8 billion worth of stock will be sold in a public float this October and November, open to retail and institutional investors in Australia and overseas.

    A year ago, that would have been about one-quarter of the Government’s 51.8 per cent stake.

    But Telstra’s share price has plunged since the Government got the sale laws through parliament, slicing the value of the Government’s stake from $31 billion to about $21 billion.

  79. econwit
    August 26th, 2006 at 01:57 | #79

    “We would have sold the remaining shares in Telstra a lot earlier at a higher price … had it not been for the legislation being blocked in the Senate by the Labor Party and by others.”

    “Mr Howard said the Government had gone to the past four elections promising to sell its Telstra shares.”

    How many billions of dollars did the ALP loose Australian taxpayers over that period?

    Look at how much wealth they can destroy when they are not in power.
    Imagine how much wealth could be destroyed if they were?

  80. Terje (say tay-a)
    August 26th, 2006 at 07:56 | #80

    Econowit,

    You could share the blame out a little. The Greens and Democrats also opposed the sale. And the ALP were at least good enough to pave the way toward privatisation by opening the market to competition. Paul Keating has always publicly supported the full sale of Telstra.

    But what is the point of privatisation if the government is going to maintain owner type control through regulation? They need to get out of the way.

    Regards,
    Terje.

  81. Ernestine Gross
    August 26th, 2006 at 14:13 | #81

    The point is, Terje, that the government is testing the hypothesis, promoted by some interest groups, that managers from the private sector can manage ‘better’ than managers from the public sector, given the same objectives.

  82. Mark U
    August 27th, 2006 at 11:27 | #82

    A rough calculation suggest that T2 shareholders have lost $8 billion, which is effectively a windfall to the Federal Government. If I was a T2 shareholder I would be very, very angry.

    The new sale announcement condemns Telstra to an indefinite future where the largest shareholder remains the Government via the Future Fund and the Government still faces a conflict of interest between its role as owner and regulator.

    This is why the suggestion by John Humphries http://www.libertarian.org.au/blog/readArticle.jsp?articleID=9586114 to simply allocate the remaining shares to the public for free is not as silly as it first sounds. It would be a quick option that would leave the Government free to decide on how to regulate for a sensioble telecomminucations framework for the 21st century. With the Government claiming it is largely debt free it could wear the cost of this approach, especially if it was done instead of the next couple of tax cuts.

    Returning Telstra to full public ownership, as Prof Q argues,will always result in a conflict between the Government’s role as owner and dividend earner and its role as regulator. And how would the government approach the buy back of the T2 shares that Mums and Dads paid $7.80 for?

  83. Terje (say tay-a)
    August 27th, 2006 at 13:08 | #83

    The point is, Terje, that the government is testing the hypothesis, promoted by some interest groups, that managers from the private sector can manage ‘better’ than managers from the public sector, given the same objectives.

    EG,

    Not a hypothesis I have much faith in. Given that managers are drawn from the same labour market I would think that for the same wage either the private sector or the public sector can recruit the same skill set. If such a hypothesis was the sole reason for floating Telstra then there would be no argument for the privatisation at all.

    i.e. I think it is a straw man argument.

    A more reasonably hypothesis is that when managers are employed by the public sector they are often required to meet political objectives that compromise their ability to make good economic decisions on behalf of a public company. Which is a quite separate argument to the one you suggested. Corporatisation with private sector competition would largely solve this problem, but would still leave the government with a conflict of interest in terms of its role as regulator.

    Regards,
    Terje.

  84. Ernestine Gross
    August 27th, 2006 at 15:23 | #84

    Terje, I haven’t received information which would lead me to see a need to revise what I’ve said. I can add that there is a potential conflict of interest problem with private and public corporations. It is known as ‘principal agency problem’. If it is the case that people are self-interested (not necessarily in the most simplistic and myopic fashion as found in introductory econ text books) then managers of other people’s affairs will look after their own interests first. Hence the idea of laws and regulations. Note the growth in the ‘corporate governance’ literature and the economic literature on ‘incentive compatible mechanisms’. Reasons for treating Telstra different from say a fish and chip corner store, which lends itself for ‘private ownership’ as you seem to conceive of it, have been extensively discussed on this blog site.

  85. Ernestine Gross
    August 27th, 2006 at 15:25 | #85

    By how much is (private) foreign debt going to increase as a result of the government selling a parcel of Telstra shares?

  86. August 27th, 2006 at 22:42 | #86

    econwit wrote: (quoting a news item of Friday 25 August) “Mr Howard said the Government had gone to the past four elections promising to sell its Telstra shares.�

    Consider this: The Government, not once during the 2004 election nor any time before or since then argued the case for why Telstra should have been privatised. Up unti l 1998 they maintained that had no intention whatsover to fully priviatise. Since then they told us that the partially privatised Telstra of their making was an ‘absurdity’.

    It’s ideed a strange way for them to have obtained their alleged ‘mandate’.

    At the 2004 election the Telstra sale was not mentioned once in any Liberal party policy documents that I could find. By my count Howard mentioned Telstra three times during the whole election campaign.

    Helen Coonan did not answer a direct question: “Why should Telstra be privatised?”. Instead of arguing the case for privatisation, which we are now told that she and her Government were in the process of obtaining a mandate for from the electorate, she dodged the question.

    Here was her initial response:

    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, because whilst the coalition has said that our policy hasn’t changed, there are obviously some conditions to be fulfilled before you’d be in a position to sell it. So I think it’s jumping the gun a bit, because the conditions are pretty clear.

    Note the words that I emphasized: “I think that claim that the election’s a referendum on whether Telstra should be privatised is drawing a very long bow indeed.”

    Instead she attempted to imply that full privatisation was not a likely prospect until a whole list of seemingly formidable hurdles were first cleared. One of the hurdles, of course, was that a majority in the Senate opposed to full privatisation was needed. That hurdle was cleared against what were probably the intentions of the majority of the electorate for a number of reasons including:

    1. The undemocratic way in preferences from above the line votes were secretly allocated by the major parties.

    2. That at least one Senator, namely Barnaby Joyce, who promised to vote against privatisation, changed his mind.

    Another hurdle was that it woud not be sold until the the taxpayers supposedly got ‘value’ for the sale. That was taken to be at the time to be around $5.25 per share.

    Well, of course since then it is nosedived to the current price of around $3.70, but that supposed hurdle hasn’t stopped them, either.

    Of course many have argued and will argue that all such ruses clearly calculated to deceive the voting public are now considered legitimate, but the simple fact is that John Howard, the Liberals and the Nationals and the likes of Ziggy Zwitkowski knew then and know full well now that the public do not want their Telecommunications company handed across to an unaccountable private corporation which may even end up being foreign owned.

    Once again, the simple plain fact is that if the Liberal Party had been honest in 2004 about Telstra (and “work choices” and “strengthening Medicare” and interest rates, etc, ad infinitim) they would not be in Government today.

    I have written more about this here.

  87. econwit
    August 27th, 2006 at 23:42 | #87

    JS

    “The Government, not once during the 2004 election nor any time before or since then argued the case for why Telstra should have been privatised. Up unti l 1998 they maintained that had no intention whatsover to fully priviatise.”

    You should read this:

    http://www.aph.gov.au/library/pubs/chron/2003-04/04chr03.htm

    Telstra Sale: Background and Chronology

    Here is an interesting bit;

    “Following what was considered a highly successful first tranche float, the Howard Government moved quickly to introduce legislation the Telstra (Transition to Full Private Ownership) Bill 1998 to fully privatise Telstra. However, early attempts to get support for a full sale failed when independent Senators Brian Harradine and Mal Colston did not support the Bill. The Howard Government had to settle for selling off a further 16 per cent, enabling it to privatise almost half of Telstra with the Government maintaining a majority shareholding (50.1 per cent). The second tranche sale was also subject to a funding package to improve telecommunications servicesthe social bonus initiatives.”

    The Telstra (Transition to Full Private Ownership) Bill 1998 was knocked back in 1998. At that time the ALP had the option to support the bill and have the rest of Telstra sold shortly after, they didn’t.

    Australia taxpayers subsequently have lost billions of dollars courtesy of the ALP.

    I reiterate my comment above:

    “Look at how much wealth they can destroy when they are not in power.
    Imagine how much wealth could be destroyed if they were?�

  88. econwit
    August 27th, 2006 at 23:48 | #88

    Imagine is probably a bad choice of word, especially if you live in NSW.

  89. August 28th, 2006 at 00:33 | #89

    Econwit, nothing in your post remotely addresses my point. The public don’t want and never did want privatisation according to all opinion polls I am aware of. John Howard and his ministers were all perfectly aware of this and that is why they went such extraordinary lenghs to avoid any mention of the Telstra sale during the 2004 election as I have shown above. If you can show me where privtisation was discussed in any Liberal or National Party 2004 campaign literature, please tell me.

    If you can show me where Howard ever discussed Telstra, except for very briefly on about three occasions, please let me know.

    Would taxpayers have been truly better off if we had sold then rather than now?

    Given this Government’s propensity to squander money in ways designed to get it re-elected above all else, I very much doubt it, and the political headache of having so many more shareholders having lost value in the shares they bought would have been even greater.

    Whatever price the taxpayer might have got, Telstra’s value to the public would have been almost immeasurably greater if it had been kept in public hands and run as a public service bya Government with the political will to use it to deliver to all Australians affordable access to a 21st century telecommunications network.

    Andrew, I did check the link. Nothing remarkable IMHO, except that I was also appalled by the massacre at Wacol, for which Clinton must be held to account. Whilst I acknowledge that you read my links, I would appreciate it much more if you were to demonstrate comprehension of my arguments.

  90. econwit
    August 28th, 2006 at 10:40 | #90

    JS
    I hear what you are saying, but I cannot agree with you regarding the Coalitions’ intentions.
    I give you prima facie evidence of the coalition’s policy as presented to parliament in 1999 (above) and again below in 2003 (prior to the 2004 election):

    What about this bill introduced in June 2003. It is a pretty clear indication of the coalition’s intentions in 2004.

    From; Telstra Sale: Background and Chronology {link above}
    “On 25 June 2003 the Government released its response to the RTI. Having resolved much of its internal arguments over a further Telstra sale (particularly with some National Party backbenchers), the Government introduced legislationTelstra (Transition to Full Private Ownership) Bill 2003for the full privatisation of Telstra the next day.�

    � Would taxpayers have been truly better off if we had sold then rather than now?�

    This can be cleary quantified in dollar terms. If sold in 1999 a lot if sold in 2004 not as much as 1999 but still a lot.

    “Given this Government’s propensity to squander money�
    If they put the proceeds towards future superannuation liabilities, it could be argued as being fiscally responsible.

    “Telstra’s value to the public would have been almost immeasurably greater if it had been kept in public hands and run as a public service bya Government�

    On this point we will have to agree to disagree. My philosophy is the government couldn’t run a chook raffle. Therefore they should be given the least amount possible to mess up. This Telstra debacle is a prime example of government incompetence (Both sides).

  91. Terje (say tay-a)
    August 29th, 2006 at 08:47 | #91

    EG,

    Just out of interest can you state which individual or institution advocates the hypothesis that given the same set of objectives managers in the private sector will perform at a higher level than managers in the public sector?

    Also can you clarify how the privatisation of Telstra will test such a theory given that management objectives seem unlikely to remain constant?

    Regards,
    Terje.

  92. Ernestine Gross
    August 29th, 2006 at 14:02 | #92

    Terje, I could make it easy for myself by quoting from the preceding post. But I don’t think this would be helpful. I need a bit of time to give a more considerate reply, which I feel is suitable for a public forum like a blog site.

  93. Terje (say TAY-A)
    August 29th, 2006 at 14:10 | #93

    I would prefer the helpful version so I’ll be patient.

  94. August 29th, 2006 at 18:26 | #94

    My guess, Terje, is that you will have to be.

  95. August 30th, 2006 at 13:27 | #95

    Media Release : Don’t buy what you already own!

    Spokesperson for Citizens Against Selling Telstra, James Sinnamon, today called upon the Australian public not to buy shares in a company which they already rightfully own.

    “Together with their parents and grandparents the Australian public, has already paid for Telstra many times over in taxes and hefty phone bills. In return, Australians should have had affordable access to 21st century telecommunications years ago, like Canada.”

    “Instead Australia’s telecommunications network is a patchwork of brand-names piggy-backed on the original deteriorating electronic infrastructure and harassing us at dinner for our custom.”

    Sinnamon observed that Australians have been forced to sit back and watch the value of their investment destroyed firstly by corporatisation and then by partial privatisation.

  96. stephen bartos
    August 30th, 2006 at 15:03 | #96

    on the Terje EG debate – look forward to the more thoughtful post at some time; incidentally, “principal-agent” (not agency). but Terje, you need to specify in your challenge to EG not just “same set of objectives” but also “same set of incentives”. There is evidence that there is a very different set of behaviours exhibited by managers whose firms are subject to the threat of takeover (ie those with listed shares) vs. managers whose firms are not. Not all of these incentives incidentally are benign – there is a concern among a number of US writers recently that the threat of takeover is leading to too much short-termism. but it certainly introduces a different set of incentives.

    However, I suspect this won’t be settled by a simple post from EG, because it is actually quite hard to do public vs. private comparisons. If a publicly owned organisation had all of a) similar objectives to a comparable private firm b) real competition c) normal commercial gearing ratio and privately sourced loans and d) open to the threat of takeover then it would be easier to do a reliable comparison – but then you’d have to ask why on earth it was publicly owned anyway. the normally advanced reasons for a body to be in the public sector in the first place are that there is a public good/market failure element or a natural monopolyinvolved.

  97. Ernestine Gross
    August 31st, 2006 at 00:20 | #97

    Terje, Stephen Bartos,

    I had planned to reply over the weekend. I changed my plans to reduce the risk of having to spend more time on disentangling.

    I’ll start with Stephen Bartos (SB) comment “Terje, you need to specify in your challenge to EG not just “same set of objectives� but also “same set of incentives�. I don’t believe this is helpful advice, SB, because two separable questions are compounded.

    a) Objectives versus incentives. It is useful to distinguish between the objectives of an organisation and ‘incentives’. Consider four alternative institutional environments which define the objectives of a telco (written in minimalist form to bring out the point I am trying to make).
    a. Maximise: {preferences for telephone services of all voters in Australia} subject to technological constraints and subject to financial survival.
    b. Maximise: {profits from the sale of telephone services in Australia} subject to technological constraints
    c. Maximise: {profits from the sale of telephone services in Australia}subject to technological constraints and regulatory constraints such that the objective in a. of a) is fulfilled.
    d. Maximise: {profits from the sale of telephone services in Australia} subject to technological constraints and regulatory constraints specifically directed toward actual or assumed deviations of a natural monopoly from the theoretical outcome of a ‘competitive private ownership economy with complete commodity markets’ (application of theory of contestable markets).

    b) I say a principal-agent problem, defined as self-interested managers (and workers) making decisions (exerting ‘effort’) which are not consistent with the objectives of the telcom exists potentially irrespective of the institutional environment (ie applies to a., b., c., d. of a)). I say ‘potentially’ because the principal-agent problem rests on the assumption that individuals are motivated by money (non-satiated in money) they get no satisfaction from working – a bit like ‘robots’, programmed to act in a particular way.

    c) SB says: “There is evidence that there is a very different set of behaviours exhibited by managers whose firms are subject to the threat of takeover (ie those with listed shares) vs. managers whose firms are not. Not all of these incentives incidentally are benign – there is a concern among a number of US writers recently that the threat of takeover is leading to too much short-termism. But it certainly introduces a different set of incentives.� These comments belong to the literature, known to me in Finance, as ‘market for corporate control’. It includes stuff like bonus schemes, performance schemes (eg options), which people thought would address a ‘principal-agent’ problem, conceptualised as conflict of interest between the owners of ‘the firm’ (shareholders) and directors or senior managers. I am happy to hear that the empirical research has caught up with theoretical considerations. The main theoretical consideration I have in mind is that ‘performance schemes’ are counterproductive if the performance scheme is manipulable and an actual incentive compatibility problem exists. The literature which deals with the general problem is known as ‘mechanism design’. It is very difficult to design non-manipulable incentive schemes even if one assumes that the person who designs the scheme is not self-interested (and happens to be a game theorist or a pure mathematician who takes the time to study the actual problem). As for take-overs in the ‘market for corporate control’, I would appreciate if SB could point to a paper which proves that the solution to threats of take-overs and actual take-overs result in a first-best profit maximising outcome (as distinct from a theoretical reduction in the deviation from the first-best outcome). There is plenty of empirical evidence (going back decades) which shows that the anticipated profit improvements did not materialise – on average. So, to summarise, there are two problems.
    a. If the assumption of everybody is self-interested is ‘true’ (self-interested as indicated in my earlier post to Terje), then incentive-compatibility problems are endemic for all but owner-managed firms without employees.
    b. If incentive schemes are introduced which are manipulable, then they magnify the problem in a. of c). If they don’t magnify the problem then manipulable incentive schemes are ‘redundant’.

    d) Returning to section a): Privatisation of a telco without introducing an incentive compatibility (conflict of interest) between the government and the voters would involve a change from objective a. of a) to c. of a).

    e) I put forward the hypothesis that the government is testing the hypothesis, promoted by some interest groups, that managers from the private sector can manage ‘better’ than managers from the public sector, given the same objectives.

    f) Terje’s comment, “Not a hypothesis I have much faith in. Given that managers are drawn from the same labour market I would think that or the same wage either the private sector or the public sector can recruit the same skill set. If such a hypothesis was the sole reason for floating Telstra then there would be no argument for the privatisation at all.� Terje disregards incentive compatibility problems within organisations. Assuming Terje would not ‘go for’ the fashionable ‘performance management’ stuff, he would at least avoid problem b. of c) above. To this extent I sympathise with his comments.

    g) Terje asked me to state individuals or institutions which advocate the hypothesis. The answer is: This is the only hypothesis I could deduce from the rhetoric on privatisation, taking as given that the government is acting in the interest of its voters.

    h) Terje asked “Can you clarify how the privatisation of Telstra will test such a theory, given that management objectives seem unlikely to remain constant. Answer: If managers are self-interested, an incentive compatibility problem persists and if there are ‘manipulable incentive (performance) schemes, then the outcome will be worse. Changing incentives per se does not necessarily correspond to an improvement in anything. My hypothesis does not depend on specific assumptions about changes in incentives structures, hence I avoid the compounding of the two problems I’ve stated above. I was not an adviser to the government. I don’t know what predictions were made by the advisers and what assumptions.

    Further, I refer to JQ’s writings on micro-economic reform, referenced on his website.

  98. Terje (say tay-a)
    August 31st, 2006 at 17:52 | #98

    EG,

    You seem to be saying that you inferred the hypothesis and that you can’t point to anybody of note that ever advocated such a hypothesis. This is what led me to postulate that you were merely erecting a straw man argument. You have not offered anything to dispell that view.

    On point (h) above I don’t think you have answered my question. Ignore issues of agency and incentive for one moment. Clearly the objectives of private owners and government owners will differ. The former generally seeks to maximise profit whilst the later has a broader set of objectives and a different set of priorities (eg votes).

    Now whilst the objective of managers is not the same as that of the owners, surely you would accept that the later influences the former through multiple means (eagerness to please, incentives, job security etc). So the objectives of managers will not be constant and your hypothesis does not get tested.

    As to Steves point regarding incentives I took it to mean that if a private firm recruits managers with a salary offer of $50k pa and the government owned firm recruits managers with a salary offer of $650k pa then the public sector is likely to have better managers. In short if you pay peanuts you get monkeys. As such he is indicating that a comparison of the quality of private sector managers and public sector managers should include individuals from a comparative level of pay. And then you need to look at the objectives that each are attempting to achieve. In other words just because a government owned firm makes no profit does not mean the managers are hopeless managers.

    Regards,
    Terje.

  99. Ernestine Gross
    August 31st, 2006 at 18:43 | #99

    Terje,

    You missed the point that there is an a priori distinction between ‘objectives’ (constitution) of an organisation and the objectives of people working within the organisation. An incentive compatibility problem is said to exist when the objectives of individuals working in an organisation deviates from the objectives of the organisation.

    I trust, you are not familiar with the literature or with empirical examples reported in the press.

    The only critical assumption I am making is that the government at least believed it acts in the interest of its constituency when deciding to privatise Telstra. (I don’t know the advice the government has received). This is so because the distinction between c. and d. of a) in my post is not crucial for my hypothesis.

    Are you saying the government knowingly did not act in the interest of its constituency when deciding to privatise Telstra?

  100. September 21st, 2006 at 13:16 | #100

    Has anyone seen the SBS Dateline Story of 20 September on Trujillo’s steawardship of Graviton and of US West?

    Trujillo would not be interviewed, but Burgess was. The transcripts are here.

    Not to be missed!

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