Home > Economics - General > Economists statement on Queensland asset sales

Economists statement on Queensland asset sales

November 24th, 2009

I’m one of a group of more than 20 academic and business economists who have put together a statement criticising the Queensland government’s case for asset sales and arguing that we need a proper public debate. The group includes some of Australia’s leading economists, including Joshua Gans, Stephen King, Warwick McKibbin and Adrian Pagan, as well as ten professors of economics from UQ, and more from other Queensland universities. But maybe the most surprising, and heartening, signature is that of Henry Ergas who has been one of my sparring partners on many occasions, most recently a debate on whether government should be the ultimate risk manager, held by the UQ Alumni Association (Henry won, by popular vote). Although Henry has been a strong supporter of privatisation in many instances where I have opposed it, we agree that these issues should be decided on the basis of costs and benefits, and not by spurious claims that privatisation provides governments with money they can invest in schools and hospitals.

Update I just did an interview on Madonna King’s ABC Radio program, and have promised to debate the issue with Andrew Fraser. I will also probably do a TV interview.

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Press Release: Queensland Government Case For Asset Sales ‘Economically Unsound’; Informed Public Debate Needed

A group of prominent Australian academic and business economists has issued a statement describing the case presented by the Queensland government in support of its proposed asset sales as ‘economically unsound’ and ‘based on spurious claims’ The statement concludes that ‘The people of Queensland deserve a robust and well-informed public debate over the costs and benefits of privatisation. So far they have not received it.’

The group encompasses a broad range of views on the merits of privatisation  —some might favour it in particular cases whilst others would be less likely to. However, all are agreed that such important decisions should be made on the basis of well-informed discussion. Important issues include whether the private or public sector would be the most efficient managers, which would be the best bearers of the business risk and the best ways for the enterprise to meet social as well as financial objectives.

The group includes twelve professors of economics from four leading Queensland universities and nationally prominent academic and business economists including current and former members of the Board of the Reserve Bank of Australia.

Statement by academic and business economists on the Queensland government’s case for asset sales

Decisions on the sale or retention of public assets have important implications for competition and public policy, as well as for the fiscal position of governments. These decisions cannot  be resolved on the basis of general ideological arguments for or against public ownership, and require informed public debate in each case. The normal lines of economic debate include whether a given business is more efficiently operated in the private or public sector, the appropriate allocation of risk and the extent to which the enterprise is required to pursue social as well as financial objectives.

The signatories of this statement have a range of views on the appropriate balance between the public and private sectors and on the merits of privatisation in particular cases. However, we share the view that these questions should be resolved on the basis of well-informed discussion of the economic and social costs and benefits of privatisation, and not on the basis of spurious claims that asset sales represent a costless source of income to governments.

The arguments put forward by the Queensland government in its booklet ‘Facts and Myths on Asset Sales’ do nothing to promote a well-informed debate. Two central claims are particularly, and sadly, noteworthy. In relation to five public assets proposed for sale, the ”Facts and Myths”  booklet states

 Keeping these businesses would cost the Government $12 billion over the next five years. That’s $12 billion spent on new coal trains and new wharves that can’t be spent on roads, schools or hospitals.

This claim is economically unsound. Forgoing income generating investments, and borrowing an equal amount to fund investments that return no additional revenue, leaves the government with no flow of income to service the associated debt. The necessary income must be raised by increasing taxes or cutting expenditure.

Selling public assets will improve the public sector’s fiscal position only if the price realised for the assets exceeds the value of the income stream that the asset would otherwise generate for the public sector. In this respect, the ‘Facts and Myths’ booklet states

The total return from all five businesses in 2008-09 was approximately $320 million
 When the sale process is completed, it is anticipated the Government will save $1.8 billion every year in interest payments.

This is an invalid, apples-and-oranges comparison. The $320 million figure consists solely of dividend payouts, excluding retained earnings, tax-equivalent payments and the interest paid by the government business enterprises to service their debts.

The $1.8 billion represent the interests that would be saved, at a rate of about 6 per cent, if the state realised $15 billion from the asset sale and avoided $12 billion in new investment.  Most of this interest would be serviced out of the revenues of the GBEs, and can therefore not be compared with dividends derived from earnings after the payment of interest and tax.

The people of Queensland deserve a robust and well-informed public debate over the costs and benefits of privatisation. So far they have not received it.

Signatories

Harry Campbell, Professor of Economics, University of Queensland

Tim Coelli, Adjunct Professor of Economics, University of Queensland

Henry Ergas, Economic Consultant, Canberra

John Foster, Professor of Economics, and former Head of School, University of Queensland

Paul Frijters, Professor of Economics, QUT

Joshua Gans, Professor of Economics, Melbourne Business School

Ross Guest.Professor of Economics, Griffith University,

Nicholas Gruen, CEO, Lateral Economics

Christopher Joye, Managing Director, Rismark International

Stephen King., Dean, Faculty of Business and Economics, Monash University, former Commissioner ACCC

Andrew McLennan, Australian Professorial Fellow in Economics, University of Queensland

Flavio Menezes, Professor and Head of School of Economics, University of Queensland

Christopher O’Donnell, Professor and Deputy Head of School of Economics, University of Queensland

Andrew Leigh, Professor of Economics, ANU

Adrian Pagan, Professor of Economics, QUT, former member RBA Board

Rohan Pitchford, Australian Professorial Fellow in Economics, University of Queensland

John Quiggin, Federation Fellow in Economics, University of Queensland

John Rolfe,  Professor of Economics, Central Queensland University

Prasada Rao, Australian Professorial Fellow in Economics, University of Queensland

Rabee Tourky, Professor of Economics, University of Queensland

Warwick McKibbin,  Professor of Economics, ANU, current member RBA Board

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  1. stockingrate
    November 24th, 2009 at 07:08 | #1

    There is unease in the community about this sell-off. I suspect it is partly because people look to the government as a back-stop, they don’t want a financially engineered, over-leveraged, “sophisticated” virtual state government with few assets. The myths and facts booklet is tawdry and shonky, well suited to a Gold Coast spruiker, I wonder though if the advice would pass the legal standards required of a registered household financial planner?

  2. Rationalist
    November 24th, 2009 at 07:41 | #2

    Well… if Ergas and McKibbin say so then it has to be good!

  3. November 24th, 2009 at 11:14 | #3

    That would be the same Madonna King who let Andrew Fraser off the hook on asset sales prior the last election.

    http://candobetter.org/node/1159#MyApproaches

    Murdoch owns the debate, yet again. Nice.

  4. November 24th, 2009 at 12:21 | #4

    Congratulations, Professor Quiggin!

    And congratulations for getting Madonna King to commit herself to put to Andrew Fraser that he debate with you the case for privatisation. That she committed to making available sufficient time to debate this issue and not give it a token 10 of 15 minutes is to her credit.

    It was also a good idea on your part to ask for a written response also.

    So, if Andrew Fraser agrees, then we should finally see his case for privatisation tested against the evidence.

    Of course, whilst it is much better that the debate be held late than never, it should have been held at least 9 months ago after Anna Bligh called the early elections.

    Indeed, even before the elections were announced on 17 February, I sent an open letter to Anna Bligh, which I CC’d to Andrew Fraser, in which I requested that she inform the Queensland public of any plans to sell off assets during the course of the elections.

    That letter was ignored as were subsequent e-mails sent during the election campaign.

    If she had answered my e-mail honestly the debate we will finally get (albeit before the relatively limited audience of Madonna King’s Breakfast show, and not on prime time TV, where it should be held) will be possible

    I also repeatedly tried to force Andrew Fraser to debate privatisation during the election campaign, but with no luck.

    The closest I came was at the ‘meet the candidates’ night put on by the Inner West Business Association before an audience of about 40 people, However the structure of the meeting made it possible for Andrew Fraser to avoid a real debate. I put my case against privatisation, amongst other issues in my 10 speech at the start of the meeting. Andrew Fraser then put his wholely predictable response in defence of his past privatisations of the Cairns, Mackay and Brisbane airports, but of course making no mention of his plans for the $15 billion fire sale. His justification was that it was preferable that money be spent on new hospitals than on airports.

    I got no opportunity to respond.

    Madonna King once and once only once put my question about privatisation on my behalf as the Independent Candidate for Mount Coot-tha, which Fraser then fobbed off effortlessly. Madonna King made no effort to follow up his response with any of the evidence I had provided her with about why there was very good reason to fear that privatisation was an issue at stake during those elections.

    In a subsequent e-mail to Andrew Fraser, which I CC’d to Madonna King, Anna Bligh and Lawrence Springborg I wrote[1]:

    The letter I have received from you is not the categorical assurance against privatisation that I was seeking from you.

    So, can you please make clear to me whether you are ideologically opposed to privatisation or just merely not ideologically in favour of privatisation?

    Either way this doesn’t provide the categorical assurance I was seeking.

    I therefore repeat my challenge to you, and to other candidates, who appear to favour privatisation during the next term of Parliament, including, it would seem, the opposition leader Lawrence Springborg, that you publicly debate the issue of privatisation with a candidate opposed to privatisation, such as myself.

    In the earlier e-mail of 12 March[2] to Andrew Fraser CC’d to Madonna King, Spencer Howson, and Lawrence Springborg amongst others, which had evidently spurred Madonna King to put my question to Andrew Fraser, I listed the public assets that had alredy been flogged off undemocratically without the consent of the Queensland public. I then put to them:

    I therefore ask that you give, to the Queensland public, a categorical assurance that you will not privatise any more assets during the coming Parliamentary term.

    If you are not prepared to give such an assurance, then privatisation is an issue at stake in these elections and should be openly discussed.

    Accordingly, I would ask that, as a candidate opposed to privatisation, that you justify your stance before the Queensland public in a debate with me.

    My request for a debate was ignored and the issue of privatisation was never again revisited by any ABC journalist, as far as I am aware, having evidently been deemed by them as not ‘newsworthy’[3]. Fraser and Bligh got back into power, largely thanks to the ABC, by concealing the fire sale plans that they could not have failed to realise were overwhelmingly opposed by the Queensland public.

    At least now there will be a proper debate. We must prevail upon the ABC to make the full mp3 file and make a transcript available. If they do not create the transcript then I will do so myslef.

    Last week, I did actually complain to the ABC about what I consider its shabby treatmet of Bob Walker. Bob Walker was briefly interviewed (not by Madonna King, this time but by another, whose first name was Jane). That was followed by an Interview with Andrew Fraser in which he called Walker a hired gun and dismissed his views as being on the extreme fringe.

    This drove me to post the following message to the Morning Show:

    Could I ask that the ABC make it a policy to ask politicians debate their critics and inform its listeners of the response to this request.

    Andrew Fraser has been able to avoid a real debate on privatisation, since at least when I challenged him to debate privatisation during the state elections.

    Don’t you think it is about time that the ABC tried to change that?

    Also, I never heard the presenter (Jane …?) point out to Andrew Fraser that at least 84% of the Queensland public are opposed to privatisation and that if he had been honest about this during the election campaign he would not be Treasurer today.

    The subsequent 10:00AM news bulletin reported uncritically Fraser’s dismissal of Bob Walker without any mentions of what Bob Walker had said. This drove me to mkae the following complaint:

    Further to my previous message to the Morning program I was appalled to hear Andrew Fraser’s remarks dismissing Bob Walker’s critique of his case for privatisation broadcast uncritically on the 10PM news.

    In that news bulletin, Andrew Fraser claimed that Bob Walker was a ‘hired gun’ for privatisation and that his views represented an extreme small corner of public opinion.

    In fact, at least 84% of the Queensland have consistently opposed privatisation.

    The news bulletin also failed to report anything that Bob Walker had said including his point that the Qld Government has engaged many of its own hired guns to put the case for privatisation.

    I consider it gross negligence on the part of the ABC news team to not have pointed this out to its listeners, as well as a breach of its charter.

    What does the ABC intend to do to rectify the blatant pro-privatisation bias, completely out of step with public opinion that has existed at least since the time that the ABC reporters deemed privatisation ‘unnewsworthy’ during the course of the Queensland state elections, when I demonstrated abundantly that it was an issue at stake in those elections?

    Please consider this as a complaint.

    I cannot say whether or not my complaint caused Maddona King to move to put in train a proper debate on privatisation. However, let’s hope from now on the ABC will finally, after all these months, begin to do the job that we as taxpayers pay it to do and properly hold to account the Queensland Government for its outrageous and despotic conduct since at least February this year.

    I have also contacted both the ABC and Andrew Fraser to ask Andrew Fraser to correct a misleading statement he made on the “Party Games” session on Madonna King’s Morning show last Friday 20 May. That misleading statement was that no-one had ever put any alternative to privatisation to him. In fact I had on 31 July, and if he had not avoided the debate I sougth with him I would have put some of those alternatives to him back in February and March. The proposals are:

    1. set up a state-owned bank in the same way that the US state of North Dakota does to raise all the necessary loans;
    2. if not (1) then at least seek the commercial loans. We will end up paying the cost anyway whether as taxpayers or custmors of privately owned businesses. In the latter case, we will end up paying more.
    3. Adopt The University of Newcastle’s CoFFEE proposal, costed, at most, at $9billion per annum to provide every Australian a stimulating, socially useful and adequately paid job insteasd of relying on the astronomically costly and environmentally destructive juggernaut of residential development and infrastructure construction;
    4. Take a clear and unambiguous stance against population growth. In her form letters, in response to community complaints against privatisation, Anna Bligh has claimed that the fire sale is necessary to pay for the additional infrastructure to cope with population growth. (So, why didn’t these people inform us back on 8 December 2005, when they placed a full page advertisement in the Courier Mail, and, I suspect, other major dailies calling for people to move here, that we would have to pay the cost of them doing so, by selling off the family silver? Why did both Bligh and Fraser support Kevin’s reckless plans to increase Australia’s population by 60% by 2050?)

    In spite of my repeated correspondences with Andrew Fraser’s electorate office, I have received no response, not even to tell me why my propoasals are wrong.

    From last Friday I contacted Andrew Fraser’s office in order to ask him if he would correct that misleading statement and provide me with an interview to put my alternatives to him at the forthcoming Community Cabinet to be held at Ipswich on Monday 20 November.

    I also phoned his office today. I have been assured that someone from Treasury will contact me today.

    James Sinnamon

    Brisbane Independent
    for Truth, Democracy,
    the Environment and
    Economic Justice
    Federal Elections, 2010

    Footnotes

    1. Please excuse the lack of a direct link. I have been burnt too many times in the past when posts containing URLs have vanished without trace. The link (omitting http colon slash slash) is candobetter.org/node/1159#appendix6

    2. See “E-mail of Thu 12 Mar 09 to Premier Anna Bligh and Andrew Fraser” at candobetter.org/node/1159#appendix3

    3. See “ABC dismisses complaint claiming privatisation not ‘newsworthy’ in 2009 Queensland elections” of 10 Jun 09 at candobetter.org/node/1316

  5. November 24th, 2009 at 13:42 | #5

    Thanks, Megan.

    Whilst I almost entirely agree with about the ABC, I think we have to give the Devil himself credit where it is due and, on this occasion, credit is due to Madonna King.

    If the debate proceeds and it is conducted properly, I don’t see any way that Andrew Fraser can hope to emerge from it with a shred of credibility left intact, and that would be a great step forward for democracy in Queensland, in my opinion.

    Let’s do what we can to make sure that this is the start of a new trend in journalism in South East Queensland and does not turn into another flash in the pan.

  6. Alice
    November 24th, 2009 at 15:43 | #6

    Seriously – all twenty of you that signed this letter are ABSOLUTELY WONDERFUL.

    Its about time.

    People are pretty ticked off about the inane privatisations in general I think.

  7. Alice
    November 24th, 2009 at 15:47 | #7

    Even Andrew (Leigh) is on the list! Thats fantastic!

  8. Alice
    November 24th, 2009 at 15:50 | #8

    I didnt mean “even”. I just know Andrew and he is really quite brilliant – its just great to see such a bunch of highly “influentials” in the economics area taking a stand.

  9. Alice
    November 24th, 2009 at 16:29 | #9

    @daggett
    dagget
    you state
    “Anna Bligh has claimed that the fire sale is necessary to pay for the additional infrastructure to cope with population growth. (So, why didn’t these people inform us back on 8 December 2005, when they placed a full page advertisement in the Courier Mail, and, I suspect, other major dailies calling for people to move here, that we would have to pay the cost of them doing so, by selling off the family silver?”

    Anna bligh may well want to consider why the population is growing in sunny QLD. part of the reason must surely be the immigrants from NSW who can no longer afford to live here. After the NSW govt has privatised most of the family silver as well and imposed user pays charges which are even biting at underfunded local government levels, combined with insufficient land releases for housing and insufficient inexpensive infrastructure, a failure to addrees extreme concentration in grocery retailers.

    Its no bloody wonder they are moving to QLD. To escape the NSW state government and its dreams of a privately run government.

  10. paul walter
    November 24th, 2009 at 18:21 | #10

    Down in Adelaide, we are watching a situation involving genuine public anger at the state government and its local governemt lackeys, at the carving up that true gem of our Western suburbs, the St Clair parks complex.
    For consolation, residents get the insult of a contaminated old industrial site, for a replacement park.
    All part of the bigger carve up of the former Cheltenham racecourse carve up.
    What has this to do with Queensland, you might ask.
    I suggest that as a result of the same system, you get the same woodenheaded response from neolibs with control of the levers, whatever state you live in.
    I could move further to explore the mentalities at play in Canberra involving extraordinary farces like refugees and carbon emmisions, but sufficient to say that, for the moment JQ and supporters understand that outsiders understand their frustration in having to deal with peope like Andrew Fraser.l

  11. Alice
    November 24th, 2009 at 18:54 | #11

    @paul walter
    Frustration isnt the word for it Paul! Anna Bligh and Andrew Fraser could have simply sent an invoice to the incompetent NSW State govt hell bent on the same privatisation catatonia disease…if they were so worried about the population increase. They need to ask themselves why?? Where to next for the population to escape? Atherton tablelands?

  12. nanks
    November 24th, 2009 at 18:55 | #12

    Good on you and the others JohnQ

  13. paul walter
    November 24th, 2009 at 19:27 | #13

    Alice, caught a look at this guy Fraser on tel a while back and recoiled in horror.
    Where do political parties find these anaemic, expressionless bland zombies that look like refugees from a uni tute session. Am recalling Dicken’s “Hard Times” and that grey figure, Bitzer, devoid of humanity.
    The current Chief Minister for NT is another one who comes to mind. They are just factional functionaries, whose tasks includes the quarantining of potential real leaders, like Bligh and Clare Martin ( think also of the containment of federal Labor’s brightest, also ).

  14. Alice
    November 24th, 2009 at 19:59 | #14

    Like some dark lean tall scrooge wearing a long black coat and a top hat with a pallid sharp face in the mists and gloom of Dickensian England Paul? Like Roozendaal? Ive got the picture. They are refugees from a tute session (a single tute session)…and not your best refugees by any stretch of the imagination…

  15. November 24th, 2009 at 21:46 | #15

    Heard Prof Quiggin on ABC’s Coast FM with Trevor Jackson late today, good interview.

    Maybe there is some healthy internal competition at Radio Rupert between the presenters?

    Although, it sounded like you lost him after “hello Trevor and thanks for having me on”, his angle seemed to be: “but isn’t it too late?”

    He seemed to miss the “this is all bullsh1t” message about Blighty and Fraser’s asset sales spin.

    Sorry to disagree, Daggett, but my view is we should never forgive or forget any of Murdoch’s multitude of wrongs. To ‘give credit’ for this is ‘battered wife syndrome’ (ie: “Yay! Today one of rupe’s operatives did something less egregious than usual! Salvation is at hand!”), in my view.

    ps I haven’t received my “lies & spin” brochure yet. Does anyone know where they have/haven’t been distributed? Show of hands?

  16. paul walter
    November 24th, 2009 at 23:02 | #16

    Dagget:
    ” The issue of privatisation was never again revisited by any
    ABC journalist..deemed by them (to be)…not newsworthy. Fraser and Bligh got back into power, largely thanks to the ABC, by concealing the firesale plans that they (probably)…realise were overwhelmingly opposed by the public”.
    WTF; NOT newsworthy??
    Yes, they romped back in on the specific impression that they would not follow the opposition’s gung ho road to privatisation. We saw that even as far away as South Australia. Speaking of SA, we all remember here Liberal premier John Olson’s attempts to conceal the privatisation issue here back in the nineties and the price he paid at the next election for his outrageous dishonesty.
    And we recall the despicable conduct of the Iemma/ Costa NSW government over electricity and transport privatisations, let alone the lies of earlier politicians like Kennett as to what privatisation might entail.
    Why the gutlessness, tho?
    Because a network of ideologically driven “reform” (for subsequent misappropriation) has been imposed over the last generation thru trade agreements and the like, by globalising capital largely emanating from the US, that consciously sets up the apparatus that robs locales of a say in their own futures, both thru laws that damage the effectiveness of organisations like the ABC, CSIRO and AQIS and propaganda and diversions from Murdoch style mass media and press.
    We become refugees in our own country, like the nungas?

  17. Graeme Bird
    November 25th, 2009 at 14:27 | #17

    Good on you John. And good show for giving Henry some credit here. A good man having a bad day. I know you aren’t publishing this. But I’m not any sort of avowed enemy of yours anymore. I’ve learnt that an observant lefty, who puts his cards on the table, isn’t the real enemy of human freedom. The worst of them are these narrow-minded alleged rightists in the economics game, that I can simply not reason with.

    Given such a polite (and favorable!) comment, I’m going to lift the ban. You are still on automoderation, and the ban will be reimposed in the event of any use of coarse language or personal attacks. But if you feel like discussing policy issues constructively, you are welcome

  18. Graeme Bird
    November 25th, 2009 at 14:34 | #18

    “Seriously – all twenty of you that signed this letter are ABSOLUTELY WONDERFUL.
    Its about time.”

    I agree. And I agree even though I would want just about everything private sooner or later. But we just have to call a halt to it. Because there is not anything worse than cronyism and rigged markets. So if this privatisation isn’t going to be done right it ought not be done at all. And only a total halt to this process will give us the breathing space to sort out what is right and what is wrong about privatisation. We need a debate about strategic goods also. And what goods ought to be owned by Australian citizens alone. I’m talking a new class of shares.

    We have neoclassicals in our midst. Neoclassicals. Apparently pro-Capitalist. And they seem to think that our strategic assets, nationalised by a foreign government …. they seem to think that this nationalisation is privatisation. Orwell was right he was just two decades early as to his timing. I’m fully behind Professor Quiggin on this one. And probably on a lot more stuff than Professor Quiggin would want to be known in public.

  19. November 25th, 2009 at 16:11 | #19

    I think I can only be disappointed by your response given that I raised the exact issues now some years (2008) ago prior to the last election and you were MIA? We have been sold off in Cairns with the Airport specifically linked to essential Hospital where you and mates went all cowardly prior to the election?

    Thanks :)

    I note Geoffrey Blainey at least had the guts this week to call for a FNQ state to remove us from such bullshit!

  20. Alice
    November 25th, 2009 at 19:51 | #20

    @Kitchenslut
    Kitchenslut – I recall you raising the airport in Cairns issue before and I also recall thinking what a mad idea of government that was… at the time… given its obvious tourist attractions….but its part of a much bigger cancer nationwide isnt it?.. and is happening in a number of states by order of a number of treasury depts who have fallen into the trap of “always a budget surplus no matter what” (try understanding NSW State Labors flog offs and expensive messy income losing debacles) but its not fair to blame the man and his colleagues who actually signed this letter?. Lets get the blame game right.

  21. Alice
    November 25th, 2009 at 19:58 | #21

    @Graeme Bird
    Elegant comment Mr Bird and equally elegant pardon JQ.

  22. Graeme Bird
    November 25th, 2009 at 20:07 | #22

    “Given such a polite (and favorable!) comment, I’m going to lift the ban…”

    Professor Quiggin. I am but a poor refugee washed up on your shore. When I got my degree, my crowd seemed to have won. Which is why I didn’t take up economics since I thought the controversies were over. But in the last few years I’ve found that the neo-classical orthodoxy has cut loose from the authentic genius of Buchanan, Friedman and Stigler and become this most hateful orthodoxy that denies all science, the need even to take science seriously, all history, all deviations from the norm, and the entirety of the rest of the humanities.

    I come before you as meat loaf says ………… ” Like a sinner before the gates of heaven”. I come back crawling.

    Of course there are a couple of flash point issues where I would likely have to bite my knuckles. It might be better if I just displayed my displeasure in these cases by saying “bites his knuckles”…..

    But we have got to get this public/private and this infrastructure situation sorted. And there is no room for your neoclassical orthodoxy in this wider discussion. We have to be a bit creative here. Be ready to stick our necks out and be proved wrong and back down once in awhile. Does anyone remember creativity?

    It should never have been about people who did not BUILD the old stuff …………. SELLING the old stuff …. to BIGSHOTS and get the big dollars on the basis that they give the bigshots a captured market. It should always have been about getting the new stuff built so the prices came down organically and naturally. Its not about SELLING STUFF. Its about BUILDING STUFF.

    A generally good comment, but I request in future – NOTHING IN ALL CAPS, PLEASE

    Somehow this “esoteric” knowledge has been lost.

    Thanks once again for giving Henry some love. A good economist having a bad day.

  23. November 25th, 2009 at 22:30 | #23

    Thank you Alice. However i don’t think the rationality of selling the Cairns Airport was specifically the key issue. I can justify the sale conditional on circumstances.

    However the critical issue is a macro rather than micro if i can put it that way which is key to the multi-partisan signed letter. The agreement is on State accounting and the fallacy of any gain in net position from transferring between assets particularly where an income earning asset is swapped for a social asset. The situation in Cairns was that the community was told that an essential hospital upgrade could only happen if the airport was sold. A local community social asset is dependant on the sale of a state commercial asset which anyone should understand is objectionable?

    This is the exact issue that is the focus of the letter and the Walker report and yet was completely ignored at the time. It may even have formed the basis of the current policy? To the extent knowledgeable people were aware and ignored it they deserve criticism?

    P.S. The airport sale went to fund a ‘fast tracked’ expansion of Cairns Base Hospital. 18 months later work has just commenced on a new car park. After that the old car park can be demolished and then work can start on a new hospital wing. My guess is it will be about 5 years before any new ‘fast tracked’ hospital capacity will be on-stream? The much needed new hospital is again deferred. Meanwhile Cairns Base remains in an environmentally unfriendly position which will be dysfunctional during any category 5 cyclone tidal event. No wonder we are cynical up here!

  24. TerjeP (say tay-a)
    November 25th, 2009 at 22:48 | #24

    My God. Graeme Bird doesn’t even get to add comment at the ALS and now John Quiggin lets him in. What a fascinating world. However wait until we get onto a global warming discussion and it will become ultra fascinating (assuming the door stays open). No offense intended Graeme, it’s nice to see you here.

    My 2 cents. The fiscal case being made for privatisation in Queensland makes no sense. That is not the same as saying there is no case for privatisation. Certainly forestry shouldn’t be run by the government sector. If it can’t be sold for a reasonable commercial price then it shouldn’t be sold. Instead it should be incorporated and the shares give out as gifts to the resident citizens of Queensland.

  25. November 26th, 2009 at 02:15 | #25

    Megan. I don’t intend to forget. All the facts about the ABC’s appalling treatment of both me and the wider Queensland public remain on my web site, and I won’t even consider forgiving them until they show signs of contrition.

    That said, if Madonna King is true to her word and holds the debate, that will be a considerable improvement upon her lightweight[1] treatment of privatisation and the Queensland Government up until now.

    We have to acknowledge occasions when public figures (very occasionaly) do the right thing, to better contrast with when they (nearly always) do not.

    The fact of the matter is the behaviour of the Bligh and Fraser is outrageous and indefensible. Any journalist, who cannot make mincemeat out of them is simply not willing or able to do his/her job.

    Footnotes

    1. She occasionally has put the boot into Fraser and Bligh over privatisation (or, rather, “the way” they are going abut it, rather than privatisation per so), but these are always flash in the pan and never, yet, as far as I can tell, sustained until such time as she interviews them. On one occasion, after Fraser had (rightly) said that Telstra should heed the community about its plans to erenct yet another mobile phone tower near the Rainworth primary school,Madonna King, said “Well, what about privatisation?”

  26. Alice
    November 26th, 2009 at 05:51 | #26

    @Kitchenslut
    Kitchenslut you say “A local community social asset is dependant on the sale of a state commercial asset which anyone should understand is objectionable?”

    Objectionable it is and its the same c**p we get fed here in NSW. “We need to privatise A, B or C to get the money to do essential maintenance on D and E”.

    Here is an interesting story. In 1960 unemploynment was considered a disaster at 2% under the Menzies Government. In ten years we had constructed the snowy mountains scheme, Warragamba Dam and numerous other irrigation projects….and you have been waiting five years for a hospital upgrade and so far the QLD state govt has managed a car park.

    Other facts about 1960. Corporate tax was 8 shillings in the pound, the wealthy paid higher income taxes and the public sector (Federal, local and state) accounted for 26% of all employment (public and private).

    Since that time we have have given the private sector numerous concessions, taxes have been lowered, regulation has been removed, sales taxes are gone, income taxes on the wealthy have been substantially lowered. Part of the problem here is that all those concessions have not improved employment have not generated sufficient private investment and State governments have lost revenue to the Commonwealth which insists on channelling a lot of it to the future fund and not back into infrastructure at State level because of a modern loyalties to the financial services sector and the promise of higher returns in the future.

    In the future our infrastructure will be rendered squalid by just such thoughts as these. In a Sydney Morning Herald article in 1960 (17th Nov) Menzies is on record as saying “there is no difference between public and private investment.”

  27. Alice
    November 26th, 2009 at 06:16 | #27

    @Graeme Bird
    Mr Bird, there is nothing whatsoever wrong with your ideas of “bigshot creativity” as long as the benefits of “bigshot creativity” do not end up sitting idle in off shore tax havens and as long as we can give the “bigshots” a reaon to actually produce here and that is not just about the level of corporate taxes, as the case of cars illustrates.

    That may well mean public investment is also required to provide the means for the vast majority to remain substantially employed, raise their incomes and given them a reason to demand – which then gives the “bigshots” a reason to create, build and sell. It wasnt for no reason that we had motor vehicle manufacturers establish in this country. The majority didnt have cars, wanted them and imported models were prohibitively expensive pre 1920 but the majority also needed the secure income post war, to ensure they are able purchase the locally produced model and the government was also an essential party to the mix with both road construction and secure employment to offer. The depression had already taken 50,000 cars off the road. Im sure many other appliance manufacturers in the 1950s also reaped benefits from having the private/public investment mix right.

    I am in agreement with Menzies “there is no difference between public and private investment”. We do need to get the mix of public private investment right and at the moment its very much off track.

  28. Alice
    November 26th, 2009 at 08:39 | #28

    As we speak about why State Govt assets are being divested in what appears to be an ill thought out approach and for reasons that do not make sense, we cannot also ignore the operation of corruption and inducements.

    If we thought NSW labor was on the improve with the sacking of Tripodi and Rees promises to get rid of developer donations, then dont get too excited. Tripodi and Obeid (two great fans of privatisation) appear to be trying to organise a comeback. When it comes to donations from developers, there is also more than one way to skin a cat without any donation appearing on the books anywhere.

    Along with Roozendaal and Arbib (also great fans of privatisations) – the newpaper notes that the two latter appear to have made rather extraordinary profits in two years buying Maroubra apartments off the plan from a developer known to be a labor party donator. They claim to have just been lucky “as some of the said apartments sold at the same or less than they (Arbib and Roozendaal) paid.”

    Yes, those would likely have been the studios or one bedroom units around the back of the block with no views.

    If that group (Obeid, Tripodi and Della Bosca) attempt a takeover from Rees, NSW Labor is finished at the next election.

    Sylvia Hale has called on ICAC to investigate. So they should.

  29. November 26th, 2009 at 09:41 | #29

    I am going to try to convince people here privatisation is good, or at least can be done far better. What you’ll probably disagree with me on is the extent of what public goods strictly are. I am also going to show you why it should be done properly and openly for future generations.

    I am of the view “assets” (meaning publicly owned assets which are not true public goods) should be mutualised or corporatised and then gifted to residents of the body politic/jurisdiction they belong to in the form of shares etc.

    Surely if say Telstra was split up between the retail and wholesale arms in Government hands and then each citizen got a package of shares or could sell these off on paper for cash pre market, this would be much preferable to selling off bits and pieces in the vertically integrated and regulatory mess we have now.

    I think we all should have a piece of the ABC and if the friends of the ABC want to buy my share, I would be willing to consider offers.

    Australia Post is actually in a hell of a situation. If you are familiar with the relevant Act and regulation, the way it has been semi-privatised by franchising would make any privatisation and subsequent (and I think, necessary) competition reforms very problematic. Franchisees are entrenched as monopolists on the rules of letter sending. Any privatisation of Australia Post may require some kind of cash settlement with Post Office franchisees.

  30. James Farrell
    November 26th, 2009 at 09:57 | #30

    ‘I am going to try to convince people here privatisation is good…’

    When will you do that? Where?

  31. November 26th, 2009 at 10:03 | #31

    Well I guess strictly I only proposed a better way of doing it. If I’m to show that it’s good, I’m presupposing that GBEs shouldn’t be in Government hands – along with a better method of privatising, then it is a good idea in general.

  32. Graeme Bird
    November 26th, 2009 at 10:31 | #32

    Mutualisation is theft. You cannot “gift” what you yourself don’t own. If the taxpayer built something it is pretty appalling in his eyes to see it given away to friends of government. Why not just set the stage to get the new stuff built? In this frenzy to sell off the old stuff it seems to have been totally forgotten that we wanted was to get new stuff built. If we don’t call a halt to it now there will simply be no reassessment as to our method of privatisation.

    Most of all privatisation, with the motive of getting a good price up front, is inherently destructive. For by striving for all that loot, one cannot help but ruin the prospect for a competitive market, after the sale has been made and the loot has been spent. This follows directly from the idea that crony-town will buy into the assets at a high price, only if they don’t face being wiped out by competition down the track.

    With privatisation we seem to have retrogressed to a pre- Adam Smith sort of economics. Where we are granting royal charters. If we want to make a competitive market, lets do that instead. Then the publicly owned stuff will reduce in importance as time goes by.

    And what is this attraction with selling shares in things? Is the idea simply to have our gear re-nationalised by foreign, if not communist, sovereign wealth funds? If that is the solution we may as well have our own beloved politicians owning these things.

    Consider this Frankenstein notion of privatisation taken back in time. Instead of little guys staking claims in the Klondike, the whole thing would be auctioned and bought by some consortium run by Carnegie, Rockerfeller and Morgan. Twenty years earlier the English Channel would have been auctioned to bigshoteria, then subsequently, what with them being in hock, they would have sold a controlling interest in the Channel to Otto Von Bismark. And the end of England would be at hand then rather than now.

    This is madness and its got to be stopped. There is this astonishing hubris on the part of consultants that they can craft a competitive industry by creating Frankenstein corporations themselves. Only neoclassical consultants could have created the tangled mess that is Telstra. Now telstra has to be eternally arm-twisted into letting her competitors sub-let her network under reasonable arrangements.

    Big business ought not be derived out of the dreams of consultants, but from small business success. Big business must come out of small business success no exceptions. But neoclassical economists craft these Frankenstein corporations out of the spare parts of creatures they did not build, and they wonder why they won’t compete. “Go Franky go” they say. But Franky just sits there, bleeding into his bandages, and pouring gold over himself, because competition isn’t part of his makeup.

  33. BirdLab
    November 26th, 2009 at 10:42 | #33

    “Given such a polite (and favorable!) comment, I’m going to lift the ban…”

    This can’t possibly last.

  34. Pedro
    November 26th, 2009 at 10:48 | #34

    A debate with Andrew Fraser? LOL. To make it fair you will need one lip tied behind your back.

  35. November 26th, 2009 at 11:01 | #35

    Alice,

    Strictly I don’t think you are referring to “privatisation”. What you are complaining about appears to be crony capitalism, and I think it should be opposed. Privatisation is mixed in with a whole host of other issues.

    I truly hope we never get anything like the Kelo decision here in Australia.

  36. Alice
    November 26th, 2009 at 11:11 | #36

    @Mark Hill
    Yes well maybe you have a point Mark, but too often privatisations have been paraded as an economically justifiable solution when in reality its crony capitalism driving decisions…and where does that stop except for a clean out of ideologies and persons who have obviously become so enraptured with their new found roles of public sector entrepreneurs to want to give up the peronal pecuniary benefits they reap in their roles, and make the best decisions for the State, not their own pockets?

  37. Alice
    November 26th, 2009 at 11:21 | #37

    @Mark Hill

    I was quite civil to you in my post above. I hadnt read your earlier post. You are fortunate.

    After Sol Trujillo, I doubt there is a mum and dad investor in Australia who would believe you again on that. If it wasnt for compulsory super I doubt you would get the Mums and Dads wanting shares in the ABC.

    This attitude of “lets just privatise the harbour bridge, the Opera House, the ABC and every public asset we have just gets my hackles right up Mark and its obviously getting a lot of people’s hackles up out there. We dont need a government if that happens and what we will get instead will be much worse.

    A disorganised expensive pigsty run by private vultures.

  38. Alice
    November 26th, 2009 at 11:31 | #38

    @Mark Hill
    The public post offices we once had were far more efficient Mark and now its a mess and you want more public cash to be thrown at franchisees to fix the mess of “reform”? The logic is insane isnt it? How long until people like Mark actually get it that your sort of “reforms” made the system worse? As did the “reforms” to Telstra. Dont offer to reform my kitchen will you? You would sell my dinner set to private contractors to deliver them back to me every night for a charge when I want to eat dinner. Oh, but I get to buy shares in the company that bought my dinner set so its all OK.

  39. November 26th, 2009 at 11:33 | #39

    Alice,

    I am sure that the threat of structural separation damaged Mum and Dad investors more than Sol Trujillo (who had to deal with the GFC before making the outlook of the firm better). Just look at the volume when the panic selling set in.

    You’re missing the point. I don’t expect everything to be a for profit business. That’s why an option I put forward would be to remutualise some assets, and would make shares in the ABC transferable, so a non-for profit group (e.g friends of the ABC) could buy everyone else out.

    Privatising publicly owned infrastructure does not lead to an absence of Government. Privatisation on its own cannot remove the welfare/transfer payments systems nor does it get rid of defence, law and order or justice responsibilities of the Government.

    It is obvious where our preference lie – I base mine on a utilitarian rule on the role of Government in the economy. How would you characterise your preference?

  40. November 26th, 2009 at 11:39 | #40

    Alice,

    Why are you apportioning blame at me?

    I never gave Telstra or Australian Post franchisees such largesse. In fact, I point out that privatisation should be my preferred way to do things as it avoids such a mess.

    How would you reform taxi licence plates Alice?

    Remember you not only need to make a salable plan to all stakeholders, but you need to be wary of legal challenges via “just compensation” arguments.

    As for Australia Post, I am probably too young to really remember how things worked. I do remember how Telecomm operated before competition and the profit motive – not well.

  41. Alice
    November 26th, 2009 at 11:41 | #41

    @Mark Hill
    You probably are too young to remember how a lot of things that once were public services worked Mark. That is an enormous part of the problem.

  42. Alice
    November 26th, 2009 at 11:47 | #42

    @Mark Hill
    you also say “I do remember how Telecomm operated before competition and the profit motive – not well.”
    Who amongst us here thinks Telstra operates one iota better than Telecom Australia? I dont. Telstra is a nightmare to deal with, even worse than Telecom. If you can ever get on to them, they deny problems, they send 6 people out instead of one and not in any hurry and they charge like wounded bulls and they are completely inflexible with services. What is so different Mark? Nothing, except that Sol Trujillo carried out of this country buckets of cash and splashed a few drops of it at a few shareholders, that could have been used to maintain or build new infrastructure for the whole country.

  43. Pedro
    November 26th, 2009 at 11:49 | #43

    I’n not too young Alice and I remember the six week minimum wait for a new phone line at our home in the 70s, very common in our area.

  44. November 26th, 2009 at 11:52 | #44

    Alice,

    You don’t need to be Methuselah to be able to read reports on efficiency and KPIs, let alone Hilmer’s report and so on. The evidence on the push to privatise has been generally very good, reported in refereed journals and republished in introductory texts.

    The letter that Ergas, Quiggin et. al., have signed more or less states that Bligh & Co. don’t really understand these reasons and want to fund fiscal irresponsibility.

    (Here we can see that the letter signers, yourself and I are all being economically rational).

    With respect, I’ll go by the weight of the evidence over someone’s memory.

  45. Graeme Bird
    November 26th, 2009 at 12:12 | #45

    The weight of evidence tells us that privatisation has been an outrageous failure. When contrasted to what could have been if we had simply reformed the market to enable new trans-spatial properties to be built from the sole trader level up. The correct comparison is not between the status quo ante and the sell/splurge/spend scuttling that we got. The correct comparison was sell or build? Do we sell old stuff. Or do we sort it out that individuals can go about building new stuff.

    From this more correct point of view privatisation has been an appalling and anger-provoking failure. Since the new stuff hasn’t been built, and still cannot be built, independent of political schmoozing (ie cronyism.)

    The road to the building of private infrastructure is via congestion charging and peak usage profiteering by government. Congestion charging gives us the basis for a rules-based environment for the construction of these trans-spatial properties. Peak usage profiteering by government will bring forth the private building. Nowhere is there the need to sell stuff off.

  46. November 26th, 2009 at 12:14 | #46

    Pedro,
    You remember 6 week minimum? In WA it was a lot more than that. Then you had to pay the (ruinous) STD charges (and completely obscene) IDD charges if you wanted to call anyone outside Perth. Even the local charges were high.
    Try living anywhere out in the bush and it was a lot worse.

  47. Graeme Bird
    November 26th, 2009 at 12:20 | #47

    All irrelevant to this discussion Andrew. We could have gotten the new stuff built without selling off the old stuff. And Telstra would have either shaped up or faded away. As it is we aren’t seeing the investment in underground cables that we ought to have seen. And thats fatal. Since a coronal flare can be expected to destroy our satellites and short out our electricity at any time.

  48. November 26th, 2009 at 12:36 | #48

    Alice,

    I think you’re being flippant about Sol running away with cash, being ridden out of town whilst our infrastructure suffers.

    The NSW Government cannot afford to build new infrastructure and was relying on a not entirely above board privatisation to fund new power generation.

    Australia has an AC power grid – no Government has seriously tried to convert to DC (which would be very helpful for geothermal power).

    A fish ladder in Northern NSW had to be funded out of recreational fishing licenses, not out of consolidated revenue (whereas no State Government is building anymore dams for irrigation or clean and sustainable power).

    Did Telstra build a couple of mobile phone networks and some wireless networks?

  49. Graeme Bird
    November 26th, 2009 at 13:02 | #49

    “I think you’re being flippant about Sol running away with cash ……..”

    I disagree. I rather think that it is you Mark, who is showing flippancy, towards Sol running away with mountains of cash. I think it is more than obvious that you have this matter back to front.

    Infrastructure does not “suffer”. What you are saying is that our infrastructure is not being improved upon or built up. Or otherwise that this is not happening to a satisfying degree. And why would it be? If your crowd is going to continue emphasizing flogging off old infrastructure, as opposed to building and improving new infrastructure properties, well then….. Well then we can expect no end to this “suffering infrastructure”- your terminology not my own.

    Zen Mark. Zen thought control Mark. Perhaps the lotus position for half an hour could help. You are just going to have to make that mental shift to where you can conceive that the problem isn’t to do with flogging the old stuff. The problem is to do with building the new stuff.

    This is the mental shift that the neoclassical economists have to make. After at least two years of trying, there appears to be no evidence whatsoever, which could give us hope that this mental shift can be made. For example Mark and myself have been over this matter many times before. No indication has ever been gained that he even so much as comprehends what I am saying.

  50. Graeme Bird
    November 26th, 2009 at 13:38 | #50

    “Who amongst us here thinks Telstra operates one iota better than Telecom Australia? I don’t ……”

    Here you got too far I think. Its pretty clear that we needed change. But we needed better change then what we wound up with and we didn’t need to sell stuff to get that better change.

    Economists brought up on “opportunity cost” doctrine, have the bad mental habit of thinking in terms of two alternatives. In this case they are fixated on the choice “sell or don’t sell”. But there is never only two choices. And not recognising the multi-choice nature of all decisions, locks us into unproductive arguments.

    Historically we missed the point with this privatisation. Instead of making it easier for private individuals to build new stuff, all we did was flog the old stuff off. And here two decades later, we are locked in the same mental trap.

    Once you let these guys frame the argument into the “two choices” dichotomy, that the poorer economists are comfortable with, thats an argument that you are going to lose. You don’t want to fall into this trap of theirs Alice. This is one argument we cannot afford to lose. Australian Telecom was really hopeless. It was ‘smashing phone-handle bad.’ Thats how bad it was.

  51. Alice
    November 26th, 2009 at 15:49 | #51

    @Mark Hill
    Nonsense Mark “our government cannot afford to do anything line is wearing mighty thin.”

    Did we or did we not build the snowy mountains scheme and all sorts of projects in the past – did we or did we not build the water system, kerbing and guttering, and railways and roads…

  52. Alice
    November 26th, 2009 at 15:53 | #52

    @Mark Hill
    Mark Hill. I put a lot more faith in the twenty names on that list than on you or Andy above and so would most…. Im sorry to have to say this to both of you but there is a point where sense and not senseless actions are required. We have reached that point.

  53. November 26th, 2009 at 17:56 | #53

    Alice,

    The letter is not about the rights or wrongs of privatisation per se, but the circumstances and rationale it is done under.

    There are many people on that list of signatories that can be described broadly as pro or anti privatisation.

    You’ve missed the point, unless you’re telling me you are going to without fail accept whatever John writes here or in his work against a contrary view. If so, then there is little point in carrying the discussion further.

    This was my point before: Trujillo did not gut Telstra as you implied and since it was corporatised it has built two mobile phone networks and a a wifi network. The last mobile and the wifi were done during partial privatisation. Before you were also lamenting about how much in the past Governments did with respect to infrastructure.

    They don’t, even if they could. Worse still, they have run out of money. This is the precise reason why the NSW electricity sector was finally looked at by the ALP for privatisation.

    Again, the relevant point is that it is a poor way of doing things and the Government does not really understand why it should or should not do this. Unlike the signatories to the letter, the Governments of NSW and QLD have not been making economically rational choices. They have no fiscal discipline and have decided to privatise for spurious reasons in poorly conceived ways.

    Yes the Government can build dams etc. Unfortunately, while at the same time as electing not to, they also make it very difficult for anyone else to do so. The Government can build kerbing, but they can also run farms and any other business you like. Why would they want to do this though?

    Deciding what should and shouldn’t be in Government hands can be a utilitarian choice, based on the definition of what public goods are and then cost-benefits tests for trickier questions. This is being economically rational, as are the signatories of the letter, to whom you refer to.

  54. Alice
    November 26th, 2009 at 18:24 | #54

    @Mark Hill
    you say “unless you’re telling me you are going to without fail accept whatever John writes here or in his work against a contrary view,If so, then there is little point in carrying the discussion further.”

    We are in one thread and on this I am in complete agreement with what JQ says here on the QLD privatisations and in complete agreement with the letter and the other twenty signatories to the letter.

    What part of that is confusing to you Mark Hill? Im just sorry no one has raised the same sort of letter to the NSW State Government and someone else in this thread has the same concerns with the South Australian State Government. Enough.

    You are right and I am in total agreement with you.

    There is no point to any further discussion on the matter with you.

  55. Alice
    November 26th, 2009 at 19:47 | #55

    Good news on the update JQ. I dont know when you updated but its good news anyway.

  56. Alice
    November 26th, 2009 at 19:59 | #56

    @Graeme Bird
    You say Telecom Australia was phone smashing handle bad. I know they had delays but seriously only two years ago I had ann experience with Telstra that was akin to a form of mental torture when I needed my computer to work and their lines did not. I dont know how many times I was asked to switch on the computer, go through a reconnection, resent the modem (each time taking half an hour). Finally it was elevated to Telstra linesman. Announced repaired. Still not working. Start again “resent modem” etc. In all I had six different visits from 6 different people, with the second last announcing after merely unscrewing the cover plate of the main line “oh I know what the problem is but Im not allowed to touch that. I have to elevate it.”. It had mould in the connection and had rusted. A three minute job by the 6th chap. Would have been a three minute job by the first….No, Telstra is no better than Telecom. I dont see any difference and I was around when Telecom was and in fact I think Telecom were marginally better (but yes – still bad). Its still phone smashing bad.

  57. Graeme Bird
    November 26th, 2009 at 20:35 | #57

    You’ve got a good line of argument, but you are taking it too far. We don’t want to get in this socialism versus cronyism argument. Telstra is better than Telecom. But its still not good enough. And the point is its not good enough.

    Why lose the argument with this sort of stubbornness? If we never intended to sell Telstra, but rather worked on reform that would allow the private guys to build and invest, then Telstra would be there and powerfully effective, or it would be shriveling each year.

    Cronyism is just fundamentally offensive. Its repulsive and anger-provoking. But its going to win by at least a head, if not two body lengths against socialism, according to metrics that the economists will come up with. Its only a functioning free enterprise market that will be satisfying to everyone. I’m saying that keeping the assets will help us get to a free enterprise market better. Since if the investment isn’t there we know we need more reform. The public assets are there as a signal to tell us if our reforms have gone far enough.

    Supposing we had the commonwealth bank under charter. And we used it to release new cash. And it had some goal that the private banks would not have. Like trying to get us out of debt. Trying to wean public organisations off debt. Giving cheap loans if they swore off debt. Or some other worthy goal like that. This would be a way of keeping the private guys honest. And if it wasn’t effective the Commonwealth bank would just slowly shrink. This is the argument I’m going to make. You try and tell these people socialism is effective thats an argument that you will lose. Alice things have gone too far and this is an argument that we cannot lose. The consultants want to flog all our strategic assets to Peking. Don’t lose this argument through stubbornness.

  58. November 26th, 2009 at 21:11 | #58

    Alice,

    I don’t think you are in complete agreement with the letter. You are not viewing privatisations in a rational manner (in general, as the evidence shows from the Hilmer reforms [although a broader agenda of general microeconomic reform]). This is what the letter asks Bligh to do but also to have a fully informed and open mind on the matter.

    The letter is economic rationalism par excellence. It basically looks at the different returns on investment and says this is how we should rank our choices.

    As for Telstra, if it were privatised the way I said it should have been, we would have all have been much better off.

    You’re saying that Telstra and Telecomm are just as bad without considering the benefits of properly executed privatisation or how to do it better. We ignore these at our own detriment.

  59. SJ
    November 26th, 2009 at 22:31 | #59

    Mark Hill Says:

    Australia has an AC power grid – no Government has seriously tried to convert to DC

    Australia now certainly has an AC power grid, except for the bits that aren’t, like the DC interconections between NSW and Qld, Vic and SA, and Vic and Tas. I’m not sure the rest of it is true, but it relates to a debate that took place more than a century ago, and was decided on purely economic grounds, so I’m pretty sure that:

    a) it’s not relevant, and
    b) you don’t know what you’re talking about.

    Alice, in case you didn’t already know, the guy’s just a typical libertarian. Check the link in his signature. He might be a better class of troll than we’re used to around here, but still…

  60. Alice
    November 26th, 2009 at 22:33 | #60

    @Mark Hill
    You presume to read my mind Mark? I am in complete and total agreement with the letter. You appear to have some perception problems. I dont agree that a better privatisation makes excessive privatisation any better. The problem is the mix of public and private investment Mark. I do not want to end up in Somaustralia with a government that has lost contol and a private sector run by gangs and thugs. Thats where we will end up if people like you -in denial to any of the history of poor privatisations, assets thats shouldnt be privatised and excessive privatisation disasters…like so many other denials from the right the general answer is “oh well that privatisation wasnt done right” or “we should have privatised it some better way” Its never ‘maybe we shouldnt have privatised after all”.

    Ive said it before and Ill say it again. Menzies had more sense than the lot of the liberals rolled together these days. Running the party would be like herding cats, the way it is now.

    One day Mark Hill, when you are more mature, you will learn that the key is balance not extremity. That is some a way off yet.

  61. Alice
    November 26th, 2009 at 22:35 | #61

    @SJ
    SJ – he is not any better. I left the DFNTT sign in another thread as a warning.

  62. Alice
    November 26th, 2009 at 22:36 | #62

    oops slipped – they will never be able to work it out SJ!

  63. SJ
    November 26th, 2009 at 22:40 | #63

    That’s almost certainly correct, Alice. Cheers. :)

  64. November 26th, 2009 at 22:55 | #64

    SJ – tell me how State interconnections are relevant for making geothermal more viable.

  65. SJ
    November 26th, 2009 at 22:58 | #65

    Mark Hill Says:

    SJ – tell me how State interconnections are relevant for making geothermal more viable.

    Well, see, they aren’t, and I never claimed that they were, so we’re back to this “you don’t know what you’re talking about” thing.

  66. November 26th, 2009 at 23:10 | #66

    Can you explain to me then why in the context of state owned power generation and distribution networks, why investing in DC lines for geothermal power is a patently bad idea then?

    How do you deal with the transmission losses with AC given geothermal is often remote. Geothermal has to be considered for renewables given its capacity to power base load requirements.

    If I don’t know what I’m talking about and you do, this can be explained very quickly.

  67. SJ
    November 26th, 2009 at 23:32 | #67

    …this can be explained very quickly.

    Yes, it can.

    Losses from an AC line are not much different losses from a DC line. Cost of construction is about the same. So if the existing system is AC, and you want to build a new line, you build it AC.

    Losses from an underground cable are different. The losses from an AC underground cable are much higher than for a DC underground cable, and the difference gets bigger as the length of the cable increases. Cost of construction for the AC or DC cables are about the same, but, if you’re going to use DC, you have to build AC to DC converters at each end of the cable. The converter stations can cost are hugely expensive, much more than the cost of the cable itself. It’s hard to justify the use of DC. You’d only do it if it was either impossible to build an overhead line, eg the Vic-Tas undersea link, or if you were linking countries that used different AC frequencies, i.e. 50 Hz vs 60 Hz.

    Now go away.

  68. TerjeP (say tay-a)
    November 27th, 2009 at 04:30 | #68

    Mark – converting our grid to DC would be an absolute white elephant pie in the sky project. And it would not make any difference to geothermal prospects. I have no clue why you are beating this drum but you are wrong.

  69. Alice
    November 27th, 2009 at 05:06 | #69

    Thank goodness you are here SJ. My comment to Mark Hill (sounds a bit like Uncle Mil?) got moderated and usually when that happens it doesnt come out for days. Shame about that. Even Terje is backing us up on this one.

  70. November 27th, 2009 at 09:43 | #70

    SJ,

    I won’t go away, you and Terje have probably corrected me on something. I find this useful. I had been told something different by other environmental scientists (admittedly not engineers). I was previously informed the voltage loss was significant.

    Given the information in the following article and DC still seems useful to make alternative energy more viable.

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

    Perhaps there is a lot wrong with this article. If there is, strike out ‘DC etc…’ and add the Government investing earmarked carbon tax money in the context of Government owned electricity companies for more geothermal and wind (lower cost renewables).

    What I propose is still miles ahead of the ETS which is a poor policy in itself but is being implemented on top of other bad energy/environmental/economic policies.

  71. Alice
    November 27th, 2009 at 11:38 | #72

    pass

  72. TerjeP (say tay-a)
    November 27th, 2009 at 12:08 | #73

    Mark – several points.

    Firstly voltage loss isn’t the same as power loss. The power lost in a transmission line is the current squared times the line resistance. The voltage drop is the current times the line resistance. If you want to minimise voltage drop and/or power loss then you want to minimise current. You also want to minimise resistance in the wire itself but there isn’t a whole lot you can do about that beyond choosing a low resistance material with the right strength and cost (gold wires would have low resistance but would fail on both strength and cost considerations).

    The power delivered out the end of a transmission line is the output voltage (ie input voltage less voltage loss) times the output current. So to deliver a given quantity of power you can have high voltage and low current or vise versa. Given that we want to minimise power loss in the transmission line we tend to go with very high voltages (eg 330kV or higher) and proportionally lower currents. As such when I suck ten amps out of my power point at home the extra current flowing through the corresponding transmission line is going to be less than 10 milliamps.

    All of the above is true irrespective of whether we choose AC or DC. However AC has the massive advantage in this rhelm because of a device called a transformer. A transformer is an electromagnetic device that works with AC systems but not DC systems. It can boost voltage and drop current (or vise versa) with very low losses. It is a simple relatively inexpensive device. It can be used to compensate for voltage loss by boosting voltage (and reducing current).

    There are ways to do similar things within a DC system but transformers are so cheap and reliable that it is rarely worth the trouble. Even more so when it comes to the distribution side of things.

    The one downside of AC transmission is that the associated oscillating magnetic field that AC current creates tends to cause more electricity to flow on the outside surface of a wire rather than in the core. This is called the skin effect. It is readily dealt with by having multiple thinner wires that are spacially separated. And on large transmission lines a conductor is often made up of a cluster of wires separated by about 10-20 centimetres.

    There are times when DC makes sense. The link between Tasmania and Victoria is a HVDC connection. And if a geothermal plant was built on a remote volcanic island and wanted to transmit power to the mainland it might also use a HVDC system. However this would require government intervention to change out the existing grid. It would just require a DC to AC converter at the junction point. Just as we do at each end of the Bass straight link.

    There is one other reason besides the cost of power to reduce transmission line losses. That is heat. Hot wires melt. And melted wires break. And broken wires are not very good for transmitting power.

  73. TerjeP (say tay-a)
    November 27th, 2009 at 12:13 | #74

    p.s. If you really want to get into the detail you would need an appreciation of the difference between real power and reactive power. However take it one step at a time.

  74. November 27th, 2009 at 12:20 | #75

    Terje,

    What would be the best system for a getting power from Cooper Basin geothermal energy project to the national grid or the nearest large city?

    This seems worth doing:

    http://en.wikipedia.org/wiki/HVDC#Tripole:_current-modulating_control

    That wouldn’t require changing the grid would it?

    I still think ideas like that, funded from earmarked taxes from a simple carbon tax are many times more worthy than the subsidies to protected industries under the ETS or current economically and ecologically wasteful subsidies we already have.

    It’s not intervention I necessarily want. I want the least damaging intervention (if it is justified) with public monies well spent.

  75. TerjeP (say tay-a)
    November 27th, 2009 at 12:41 | #76

    Mark – build some more interconnectors between NSW and Victoria so that the Victorians can make more use of our fine black coal. ;-)

    Whether you build an AC system or a DC system to the Cooper Basin is quite separate to whether it is subsidised or not. The subsidy should not alter the design considerations one way or the other. It will only effect whether or not it gets built and when.

  76. November 27th, 2009 at 12:58 | #77

    I agree with that.

    The fact is I was saying that mitigation can be done better, and the revenue can be better spent than being put in consolidated revenue, in as far as it could reduce the rate of tax required if Government power corporations were to fund a switch to renewables though the tax.

    I was also saying that this would be money better spent than on poorly installed pink batts etc.

    Geothermal is one important part of renewable base load. HVDC seems the best way to get the most geothermal from remote areas (a good idea as you want to get as much base load as possible) and Tripole seems to integrate the old and the new with little investment or disruption.

    I was wrong about plain old DC – and in effect was talking about the benefits of HVDC.

  77. TerjeP (say tay-a)
    November 27th, 2009 at 14:09 | #78

    Mark – Pink Batts (even if poorly installed) is actually a quite good use of subsidies. On the McKinsey cost curve for carbon abatement it is a much better use of funds than renewable energy, including geothermal. Improved residential heating / cooling efficiency is in the no regret arena (ie there is a social pay off even if AGW doesn’t exist). Axing solar subsidies and switching to insulation subsidies instead is something this government has got right.

  78. November 27th, 2009 at 16:59 | #79

    I’d be interested to know how poorly installed batts do anything. The Govenrment also has no credible way of measuring the success of this. A State power corporation would. Power companies, public and private also charge market rates whereas the batts are a subsidy which isn’t mean tested.

    Geothermal is the lowest cost renewable and has base load capacity. I have figures to justify this (not mine, not publicly available). Does this alter the cost differentials then?

    How do batts deal with adaptation as opposed to switching our power sources?

    Would making the grid tripole have any benefits other than integration with any DC generator sources?

    PS Did you have a look at the Claverton study or the Holistic Management view of carbon sequestration?

  79. Alice
    November 27th, 2009 at 18:19 | #80

    @Mark Hill
    Terje and Mark – you are in danger of derailing thread.

  80. paul walter
    November 27th, 2009 at 18:29 | #81

    Perhaps the problem is with the batts- they fly away , or cr-p in the wrong place if they are “poorly installed”.
    If they are pink batts, the others reject them on gender discrimination grounds.
    Perhaps they should use fruit batts? baseball batts?
    Reiterate Alice above, this is becoming as boring as Battsh-t

  81. Alice
    November 27th, 2009 at 20:15 | #82

    @paul walter
    LOL Paul exactly – we were on the QLD privatisations but now we are debating the relative merits ?mating ?habitats? of bats and why exactly do they have to be pink anyway? ZZZZzzzz. I suspect the thread derail is deliberate. We often get bats in here doing that.

  82. November 27th, 2009 at 20:28 | #83

    Alice,

    The thread naturally digressed from when SJ told me that I didn’t know what I was talking about. He was half right (I was mentioning the benefits of HVDC whilst only referring to DC). The lack of investment in power generally and especially renewables which we are asked to adapt to is in part caused by a lack of public sector fiscal discipline. There are plenty of things Governments have decided to spend scarce tax revenue on which are far less utilitarian than such infrastructure.

    It was “derailed” when I noted the lack of infrastructure investment was a choice of successive Governments (who also have made private construction of infrastructure difficult), not because of the private sector as you inferred. Actually I don’t see how this derailed at all given the basis of the discussion was infrastructure and the benefits of an open discussion of rational policy.

    The type of discussion Terje and I are having is what Bligh should have facilitated in Queensland. We are talking in terms of economic rationalism, relative rates of return etc. This is what Bligh refused to do and made some fast and loose justification for privatisation.

    Perhaps Quiggin, Ergas etc should have been more broad in their criticism of Bligh, noting a lack of investment but Governments in general having record levels of revenue. Fiscal discipline is still a core issue here.

  83. SJ
    November 27th, 2009 at 20:53 | #84

    In a way, Alice, Mark Hill is right. After all, this is a thread about clueless, deluded con-artists. ;)

  84. November 27th, 2009 at 22:25 | #85

    SJ,

    Please tell me why if the Government is to encourage renewables, why investing in HVDC that has very low transmission losses is a bad idea since we would need to rely on remote geothermal for base load. Please also tell me if a tripole power grid would result in a negative rate on investment – the conversion rates can be impressive and integration is a lot cheaper than DC conversion [which you and Terje correctly pointed out doesn't really have a benefit]. Please also tell me why linking the WA AC grid to the East Coast AC grid by HVDC is “clueless”.

    I’m not an engineer so if I make a mistake, it is because I’m a non-specialist. The idea is to have more efficiency and enable renewables to be viable. This is more important than sticking to one concept. If you told me HVAC, FACTS or WAMS was better and would get those results, and you assured me you knew what you were talking about, I’d believe you then try to be more informed.

    Please explain why I’m also a con artist. I’m advocating the Government always have a rational and fully costed policy.

    My suggestion is that we better spend the revenue on infrastructure the Government wishes us to adapt, rather than say, the electricity subsidies for alumina smelters and so on.

  85. November 27th, 2009 at 22:44 | #86

    SJ,

    Perhaps you should read this:

    http://www.ece.cmu.edu/~electriconf/2004/Barthold_The%20Future%20of%20Transmission%20Technology.pdf

    HVDC tripole just seems the way to go.

  86. Graeme Bird
    November 29th, 2009 at 14:23 | #87

    I haven’t seen any indication at all that the pro-privatisation side of this argument has comprehended that the issue is not about selling, its about establishing a functioning industry. The ‘aha moment’ that would lead them to make this realisation, and change their thinking, is simply not forthcoming.

    Until this coterie are replaced by a new generation of technocrats, or alternatively until they see the wrongness of their thinking, there is simply no choice for the rest of us, to “just say no.” Just halt all asset sales until we have the people with the mindset to get these things right.

    We see they are unrepentant about the Telstra disaster. The disaster of having a market so fundamentally unsound, and incompatible with free enterprise, that Telstra has to be arm-twisted to lease out its transmission capacity. This is gross incompetence. And no lessons have been learned. No lessons have been learned by the Russian fiasco either. Wherein a few black market operators took over most of Russian industry by the very methods that the neoclassicals advocate and approve of.

    Most of all I want to convey that these people do not represent the pro-Capitalist point of view. They represent pigheadedness, cronyism and flat learning curves alone. They are not the leaders on my side of the moat. They cannot be reached through reason. They just have to be stopped point blank on this issue.

  87. Graeme Bird
    November 29th, 2009 at 20:43 | #88

    Consider just as an intellectual exercise, the foolishness of privatising New Zealand rail, when and how it was done.

    1. There are no clear rules for private-eminent-domain in NewZealand. How does a potential competitor realistically produce a new rail?

    2. There is no advanced way to know for sure that you can take over the government land, and if so, what price can you do it at.

    3. The above goes for the hypothetical prospect of setting up competition, not only as competing rail, but also as competing road and sea transport.

    4. New Zealand is a long skinny country. Not exactly suitable for multiple competing rail.

    5. It appears to me that a minimum requirement prior to privatising the rail would have been for the Wellington bigshots, to travel around the country and to get local governments to agree on a motherload of coastal areas, to being approved for the potential-but-not-the-necessity, for the investment of wharf facilities. So that any wharf developer would face a sellers market for the required land.

    As everyone knows, nothing beats sea transport for cost-effectiveness when it comes to slow heavy cargo. And without sea transport, the privatised rail, therefore lacks an inherently effective competitor.

    6. (a)Since setting up a competitor for the national rail carrier would take many years of investment before revenues, let along profits, would be reached….

    and (b). Since all that time the investors would have to be paying income taxes for their employees.

    then:

    7. It stands to reason that prior to flippantly selling off the rail we would need a 50 year tax exemption for the investments that made full spectrum competition with that rail doable.

    8. A patriotic and nationalistic consequence of 7, is that we must have the legal framework for a new type of company, wherein the shares can be only owned by citizens of that country, if the infrastructural goods are clearly “strategic”.

    That the end result of these reforms might be that the goods are competitive and not strategic, down the track, is neither here nor there.

    While an honest argument that the goods are strategic yet exists, there is a need for a category of shares, that are only valid, in the citizen of that countries, hands. The reclassification of those shares as non-strategic, can wait for another day, if a country wishes to stay free and sovereign.

    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    So you see, the privatisation of New Zealand rail, and pretty much every asset sale you can think of, was at best, way premature. Not in terms of the decade wherein the sale was made. But rather in terms of getting the reform together, to make it the case, that the sales would be made, in the context of a functioning industry.

    Now I personally, want it, that in the end, all things that can be private be private.

    Fans of the Professor might wish for a great deal of this stuff to stay public. Surely we can agree across ideological lines on this one matter. That the reform comes first. The asset sales come later. If at all.

    What happened to the socialist idea of the government fading away? Strategically I say lets keep the government assets, and reform things so that they will fade away in the relative sense, by us creating such a fair and dynamic environment, that the private stuff overwhelms the public stuff.

    In any case let us remember Nancy Reagan who was a good girl and one half of a formidable duo.

    just….. say …… no.

  88. December 3rd, 2009 at 15:47 | #89

    E-petition: Call for immediate resignation of the Queensland government and new elections

    Queensland citizens draws to the attention of the House the Queensland public, the rightful owners of $15 billion worth of assets which are to be sold, were denied any say over this because of the failure of the Queensland government to reveal those plans during the course of the elections. We consider the stated intention of the government to proceed with the sale in the face of opinion polls, which show at least 80% public opposition, to be amongst the most serious breaches of public trust imaginable.

    Your petitioners, therefore, request the House to call upon the Queensland government to resign immediately to give the Queensland public a chance to elect a new Government which can gain its trust. Your petitioners also warn any private investors considering buying the assets, not to do so and call upon a future State government which does enjoy the trust and confidence of the Queensland people not to honour any such contracts for the sale of assets.

  89. Alice
    December 3rd, 2009 at 16:35 | #90

    @SJ
    Id agree with that SJ (missed your comment…as usual it was short but very sweet).

  90. Alice
    December 4th, 2009 at 10:28 | #91

    It appears that Bligh has now become the QLD State’s most unpopular premier ever in a recent poll. We dont have to wonder why.The electorate is growing tired of the neo liberal clap trap arguments and the accompanying state asset stripping….its the issue of asset sales that has made her so unpopular. She emerged the most unpopular Qld premier in the past two decades. Labor’s primary support is 34% and Libs 43%.

    Just how we gow about cleaning out the rhetoric and policies of the now unpopular mad right at state and federal levels in this country is beyond me…

    I suggest the current electorate should get the award for the longest suffering group of people in Australia’s history – perhaps with the exception only of the convicts and aboriginals.

  91. December 5th, 2009 at 07:22 | #92

    Queensland today is absolute confirmation that our electoral system serves corporations and not ordinary citizens.

    The most recent elections were effectively rigged by the Governent, the corporate media and the ABC to ensure that candidates, with any will to serve ordinary people, stood no chance of gaining control of the state Parliament.

    One of the purposes of my petition is to eventually establish the right of ordinary citizens to remove Governments they bellieve are no longer governing in their interests. Whilst the Queensland Government is under no constitutional obligation to abide by the wishes expressed in that petition, I believe a large number of signatures, in the order of hundreds of thousands, would be a good start to achieving that and to fixing what is now rotten in the state of Queensland.

    So, please consider signing the petition, Alice and others if you are an Australian citizen and a resident of Queensland.

    James Sinnamon

    Anti-privatisation independent candidate
    Queensland state elections, March 2009

    Brisbane Independent for Truth, Democracy,
    the Environment and Economic Justice
    Australian Federal Elections, 2010
    http://candobetter.org/james
    Ph 0412 319669

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