Some unsolicited advice for Anna Bligh
Over the fold, my column from yesterday’s Fin
Privatisation undid Labor
It was more or less inevitable that the Australian Labor Party would lose office in the 2011 NSW election. The government was old and tired, plagued by scandals and full of hacks and careerists.
But if defeat was inevitable, the magnitude of the disaster was not. As almost all commentators agreed, the catastrophe suffered by Labor was due primarily to the fiasco surrounding proposals to privatise the electricity industry.
Apologists for the privatisation push argue that the problem was not the policy itself but the fact that it was derailed by union and party opposition. Anyone tempted to give this view any credence need only look north of the Queensland border. The program of asset sales announced by the Bligh government in the wake of the 2008 election has been pushed through with hardly any effective opposition from within the party.
The most effective opposition has come from the Electrical Trades Union, whose secretary, Pete Simpson, is currently facing expulsion for supporting the official policy of the party, on which (as with Iemma in 2007) it ran in the last election. Despite some mutterings there has been no move to replace either Bligh or Andrew Fraser
But the absence of internal opposition has made no difference to the political disaster created by the asset sales program. Before confusion the January floods and the theatrical entry of Lord Mayor Campbell Newman as extra-parliamentary leader of the LNP, the Bligh government was headed for a crushing defeat. Polls consistently found around 80 per cent of Queenslanders opposed to the asset sales. This opposition translated into plummeting support for the government and for Anna Bligh’s premiership.
Unlike the case in NSW, the asset sales were the government’s only real political problem. The difficulties plaguing the health system, difficulties encountered by just about every state government in Australia, had been pushed to the back pages. Bligh herself remained well-liked at a personal level, as was evident in the bounce she received following her effective handling of the floods and cyclones in early 2011.
But, until the distraction provided by the floods, none of that gave the government any boost in the polls. Now that boost has been offset by the entry of Campbell Newman, also seen as having done a good job in the floods. It follows that the question of asset sales and infrastructure financing will come to the fore once again.
Most of the asset sales proposed by the Bligh government have already taken place. There is, however, still an opportunity to turn things around, in a way point up Newman’s own weaknesses.
In economic terms, by far the worst of the asset sale proposals was that for Queensland Motorways, the operator of publicly owned toll roads. Both economic analysis and hard experience have shown that dividing a road network into free public roads and privately owned toll roads is a recipe for inefficiency and poor risk allocation.
In the event, Queensland Motorways was transferred to the state-owned Queensland Investment Corporation (also the lead buyer for the rail company QR). Thus, as the government correctly points out, the asset remains in public ownership and the state receives the associated flow of income. More importantly, public ownership could provide the basis for a shift from ad hoc tolling to an economically sensible system of road pricing, based on congestion costs.
There is, however, both a problem and an opportunity here. In parallel with the state government, the Brisbane City Council under Campbell Newman has embarked on a massive program of toll road construction, including both public-private partnerships (Airport Link and Clem7) and the council-owned Go-Between Bridge.
Every stage of this program has been financially disastrous. RiverCity Motorway, the operator of Clem 7, is in receivership, and BrisConnections, builder of Airport Link, barely avoided being wound up a couple of years ago. The BCC is losing tens of millions per year on the nearly empty Go-Between Bridge, which has actually managed to worsen traffic congestion.
A coherent road transport strategy for the Bligh government would start with the acquisition of these severely distressed assets.
Of course, that would require the government to break free of the market liberal ideology that has given us the repeated failures of mindless privatisation. What is needed an economically coherent approach in which market price mechanisms and the capacity of the state to manage large infrastructure networks are combined to yield a socially optimal outcome.
Incidentally, it might save the government from an electoral catastrophe like that in NSW.
John Quiggin is an ARC Federation Fellow in Economics and Political Science at the University of Queensland.