The secret case for privatisation
Ross Gittins had a piece in the SMH yesterday offering an intriguing line of defence for the privatisation proposals of the Iemma government, in the face of attacks from me and Nicholas Gruen. As Gittins concedes Iemma’s arguments, based on the idea that the sale will protect the states AAA rating and allow for new investment in infrastructure, don’t stand up to scrutiny.
He starts off promisingly enough
You don’t have to be very bright to pick holes in the arguments Morris Iemma and Michael Costa have been using to sell their plan to privatise electricity.
But it seems you have to be wiser than some of our brightest economists to comprehend the deeper issues involved … Various economists, including Professor John Quiggin of Queensland University and Dr Nicholas Gruen of Lateral Economics, lost no time in blowing these arguments out of the water. But it doesn’t seem to have occurred to my learned friends that they’ve been busy demolishing a straw man. They may be economic geniuses, but they have more to learn about the politics of economics.
The line implied here and spelt out later on is that, while the ostensible case for privatisation is nonsense, there are deeper reasons which Iemma can’t acknowledge, but which provide a compelling case. It sounds promising. Unfortunately, Gittins makes rather a rhetorical mess of things.
First, the criticism that we responded to the actual version of an argument being presented, rather than every possible variant of that argument is silly in general – this is policy debate, not the Journal of Economic Literature – but it’s particularly silly in the context of a 700 word opinion piece. There is no room to do anything more than respond to the ostensible case put forward by the other side.
Second, Gittins spends most of the article responding to our critiques with marginally more sophisticated versions of the same arguments. These have duly been demolished in their turn by Nicholas, and by Joshua Gans. I don’t have anything much to add in substantive terms.
My objection, as I said, is to the structure of the argument. Gittins has already foreclosed the option of a direct reply by his rhetorical concession that Nicholas and I are “some of our brightest economists” and “economic geniuses”. In saying this, he’s implicitly conceding that we will have anticipated any technical response he’s likely to make, and to make an adequate counter, as we have done. If Gittins really thought he could knock down our arguments on debt levels and ratings agencies, he should have stuck to the high ground of a direct response, as we did when we responded to the shoddy case put forward by Iemma and Costa.
The real interest in Gittins’ piece doesn’t come until the final few paras when he says
But while I’m talking home truths, here’s the big one. No one wants to say it but the strongest reason for privatising electricity is so the electricity unions can’t use political pressure to get at their employers.”
Of course everyone knows this, but there are obvious reasons why no-one wants to be the first to say it. Privatisation is usually motivated, at least in part, by the hope of cutting pay and conditions for workers. Critics like me (and I expect Nicholas) don’t want to say this in response to privatisation undertaken by a Labor government because we will be drowned in indignant denials. Therefore, what we do is demolish the ostensible arguments and wait for someone on the other side to obligingly spill the beans as Ross has just done.
Second, the whole idea of an ostensible and a secret case for policy puts me in mind of the Straussian distinction between exoteric (or public) and esoteric (or secret) teaching. The obvious problem with this story is that of peeling an onion. Having been admitted to the esoteric secret teaching you realise that the story presented to the outer world (the “punters” in Gittins’ story) is a sham, designed to secure assent without understanding. But how do you know that the story you are now getting is the real secret and not another layer of deception? In my limited experience of these matters, the inner caucus that supposedly controls things is in fact controlled by a still smaller group and, while I’ve never got inside such a group, I imagine that the process only terminates with a minimal majority group of two in a controlling triumvirate.
In the present case, the esoteric story that has been sold to Ross is that, in their zeal to defend the public good, Iemma and his allies need to shake of the grip of the electricity unions by selling a bogus story to the innocent public. But, isn’t at least as possible that the financial sector players who stand to gain hundreds of millions (or more) from a privatisation have something to say about the matter, and that their representations have at least as much influence as the public good. Could it be that, in some inner circle from which not only Nicholas and I, but also Ross and other advocates of privatisation have been excluded, it’s been observed that privatisations tend to produce both lavish corporate donations and lucrative post-political careers for all those involved?
Unfortunately, there’s no easy way to test this kind of argument against reality. That’s why its better, at least in public forums like newspaper columns, to stick to open debate. If Iemma wants to put up anti-union arguments for privatisation, or, for that matter, to explain that we should support the deal because of the benefits that will flow to Labor mates, I’ll be happy to respond. Until then, let’s stick to the arguments that are actually only the table.