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NSW Privatisation

March 11th, 2015
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  1. Ikonoclast
    March 11th, 2015 at 07:40 | #1

    Privatisation is like the many-headed Hydra of Lerna. “Cut off one head, two more shall take its place. It has poisonous breath and blood so virulent that even its tracks are deadly.”

    There has to be a reason that privatistion is as poisonous as a hydra, persistant as a running weed. It snakes and twines everywhere through our political culture where business pays its bribes and politicians tell their glozing lies. Somewhere, some people are making a great deal of money out of privatisations while the public gets bitten.

    The love our politicians have for privatisation, even in the face of its manifest unpopularity, suggests that re-election is less of an attraction than a private payday after a privatisation.

    Cui bono? Follow the money.

  2. Bruce Bradbury
    March 11th, 2015 at 08:34 | #2

    One argument in favour of privatisation is that it will lower the financing cost of other public investment because the investment will be financed from the sale rather than from borrowing. If it were financed from borrowing this would raise the State debt, decrease credit rating and hence raise borrowing costs for the State.

    Such an argument implies that credit markets ignore (or at least discount) the value of marketable assets held by the State in calculating credit risk. Is there any evidence for or against this?

  3. Newtownian
    March 11th, 2015 at 08:49 | #3

    One loss the SMH article didn’t discuss and I couldn’t see in your report either John at least explicitly is the effective loss of control by the public over changes in energy systems and the compensation issues likely to arise as a result in the future. With this ugly TransPacific partnership grinding on the issue is of even more a concern with prospects of progressive governments being sued by overseas vultures for finally trying to doing the right thing if they ever do.

    The demands from private corporations (often part owned by the pension and superannuation funds – which raises another can of worms for degrowth – how do you fund retirement) for compensation when we try to move to a more sustainable society during either
    a. an active move to renewables; or
    b. an active move to degrowth (or at least a steady state economy) more generally where energy use is not growing and maybe even declining.

    Musing about this I wonder if the Greens have really thought about the compensation implications of moving to a sustainable society when they say they still support capitalism? Or whether the fossil divestment people (who I support) appreciate the scale of the forces which will appear in opposition once they really start threatening the profits of the energy companies?

    We have of course seen this before in the field of water resources. And its still not redressed. Governments following the growth line and subsidizing private enterprise gave away in effect the natural environment’s water which in the long term has been coming back to bite us. The result is massive payouts to those who ‘owned’ these cheaply assigned water rights in effect rewarding bad and sneaky behavious.

    This selling off will in effect subsidize these unspeakables to continue to cripple the planet in pursuit of a quit buck.

  4. rog
    March 11th, 2015 at 09:25 | #4

    Privatisation (99 year lease) of the Port of Newcastle has been contentious; a portion of the proceeds was to go towards the removal of the heavy rail and replacement with a light rail link. To date the heavy rail has been terminated without any clear plan for a light rail. At present a bus link has replaced the city section resulting in a ~40% abandonment of that public transport service.

    To make matters worse, leaked govt documents indicate that the proposed route was not the recommended route and that this new route was to favour developers.

    All this plus the resignation of numerous LNP public figures over bribery allegations by developers make for an interesting State election, to say the least.

  5. Ikonoclast
    March 11th, 2015 at 09:44 | #5

    Naomi Klein is correct when she says capitalism is incompatible with saving the planet from climate change, despoliation and resource depletion. Unfortunately, Klein does no significant analysis of her proposition and her book remains largely journalistic, anecdotal and even idiosyncratic in parts.

    The central idea that Newtonian refers to above, the loss of control by the public of environmental policy and sustainability policy due to privatisation, is a serious and even fatal impediment to action. Klein does indeed makes this point. However, Klein does not develop out how ownership would need to change to truly give the public power in these decisions.

    Capitalism must be abolished before sustainability issues can be properly addressed. Sure, we can try in the interim but all the evidence shows we are just going backwards. Capitalism is systemically attuned to (supposed) endless growth and endless destruction of the environment. What are the chances of capitalism being abolished under US hegemony (for all the world but China and Russia)? The chances are effectively zero. What are the chances that the crony capitalists of Russia and China will show any more susceptibility to change or revolution? The chances are effectively zero.

    The only thing that will end this system is its natural and entirely predictable collapse. Only when the system is manifestly failing in the regional hegemons (US, EU, Russia, China) will change become possible. Possible does not necessarily mean probable and change does not necessarily mean change for the good.

    We enter a crucial period (now to 2100) where anything is possible including the collapse of civilization and even the extinction of humans or Homo stultus – Man the Foolish.

  6. Philly Slim
    March 11th, 2015 at 10:48 | #6

    Gee John, bet the unions love that report. The thin veneer of pseudo academic rigour to fuel their anti-privatisation propaganda. Where do I start? This is just assumption and opinions all rolled into a rant that happens to have footnotes.

    I’ll make 3 points to correct some factual inaccuracies in your report.

    1. The sale is not taking place at a time of regulatory uncertainty, the election is. The AER provides their final revenue determination in April 2015. This provides a 5 year regulatory period and so investors will be able to bid with certainty.

    2. On page 9 you yourself note that “in the absence of large efficiency gains obtainable only through privatisation, the sale of [assets] will worsen the long term fiscal position of government” . You seem to ignore the fact that in the recently completed (Nov 2014) benchmarking by the AER that the NSW networks, in particular the distributors, were found to be amongst the most inefficient in the industry. There are substantial gains to be made here.

    3. Prices. The relevant comparison is network prices. The only people that bring up retail prices in this debate are (1) people with no understanding of the Australian electricity industry or (2) people trying to lie to influence debate due to their inherent bias.

    Also, you seem to be confusing ‘asset recycling’ which does indeed provide funding with ‘PPP’s’ which everyone acknowledges is a means of financing, not funding. Therefore your quotes attributable to John Pierce are irrelevant.

  7. Ravenclaw
    March 11th, 2015 at 11:06 | #7

    Hello John,

    Many thanks for your report. It is very interesting. I was wondering if you are able to elaborate bit more on the below claim from your report:

    “The impact on public sector financial net worth is straightforward. On the optimistic assumption that the asset sales program yields a return equal to the value of the assets in continued public ownership, it will be financially neutral. The effect of the infrastructure program, therefore will be to reduce public sector net financial worth by the full $20 billion of expenditure. Assuming an interest rate of 5 per cent, the resulting addition to the deficit will be $1 billion a year. On an accrual basis, and assuming a depreciation rate of 5 per
    cent, this is equivalent to an annual flow of up to $2 billion. This outflow must be financed either by additional tax revenue or by (so far unannounced) cuts in other areas of public expenditure.”

    Many thanks

  8. Steve
    March 11th, 2015 at 11:48 | #8

    @Bruce Bradbury
    Bruce – take a look at the methodology used by the Credit Rating Agencies to come up with the State’s Triple A credit rating. They don’t pay much (any) attention to the assets of the State. They focus on how much debt the State has relative to its revenues. It’s pretty simple – if the government wants the State to stay AAA rated, there is no room to borrow more money unless they generate positive returns immediately. Some projects do that (eg some toll roads) but most don’t (hospitals, trains etc). So if we think these other projects are worthwhile to the broader economy we either wait until we’ve saved the money (or reduced the debt, the Foley approach) or sell assets and use the money to pay for new ones (the Baird approach). Or we ask the Feds for more money, but Joe doesn’t seem very open to that idea.

  9. Philly Slim
    March 11th, 2015 at 12:00 | #9

    @Bruce Bradbury
    I’m not sure I fully follow where you are coming from with that question (that is, what do you mean by marketable securities, the State owned corporations are not really liquid) but yes, credit rating agencies take into account all the assets and risks on the State’s balance sheet.

    For example, Victoria’s cost of debt is cheaper than NSW despite both being AAA. The difference is that the Victorian balance sheet is considered less risky given it has sold its risky assets (electricity) years ago.

    Separately, if you are just interested about selling v borrowing then yes, both credit rating agencies have said borrowing to spend $20b would pressure the State’s credit rating. This would increase the cost of all the State’s debt.

  10. Bruce Bradbury
    March 11th, 2015 at 12:30 | #10

    @Philly Slim Sorry, I guess “marketable” is not the correct term – “commercial” would be better. What I mean is that state assets such as electricity distribution networks have a revenue (profit) stream attached to them which could be used to secure borrowings for other purposes. (Either tied directly, or via the impact on the overall State credit rating)

    You are saying that these assets are not taken account of when determining credit ratings but that they are when determining cost of borrowing. Interesting.

    Assuming this is the case, then ‘recycling’ of assets will have two offsetting effects on the cost of borrowing. Reducing the total State borrowing will reduce the risk and hence borrowing cost, while having fewer State assets backing the borrowing will increase costs. I think JQ would argue that since the State controls the key risks, the latter effect should dominate if the markets were perfect. You are saying the opposite (at least with respect to the actual operation of the credit markets).

  11. Donald Oats
    March 11th, 2015 at 12:35 | #11

    All I know is my private health insurance increases, year on year, at well above CPI. Way above. My private electricity bill likewise (at least in the past, haven’t seen most recent one yet). The national treasure broadsheet claims power bills in states which have privatised have increased less than states which haven’t privatised. Didn’t bother reading beyond the headline, for I know how their articles go.

  12. Ikonoclast
    March 11th, 2015 at 12:40 | #12

    What we need is a National Development Bank wholly owned and run by the Federal Government. The states can then choose whether to borrow privately or from the National Development Bank. The National Development Bank could fund both national and state projects deemed necessary for national development. Some of the most vibrant economies in the world have national development banks (e.g. China and Brazil). Some stagnating but presviously vibrant economies like Japan also have national development banks. The lesson we can draw from this is that National Development Banks can assist economic progress provided other factors align favourably. But they are not cure-alls for other economic problems.

    Australia with its unique advantages (huge solar and wind potential; and not yet exceeding environmental footprint) and unique problems e.g. (low population spread over a large continent) is particularly in need of strategic coordination of national economic development.

    Nobel Prize economist J. Stiglitz opines, “…Brazil has actually shown how a single country can create a very effective development bank (…) that actually promotes real development without all the conditionality and all the trappings around the old institutions.” – Wikipedia.

  13. John Quiggin
    March 11th, 2015 at 13:28 | #13

    @Philly Slim

    Your point 1 is valid, and I’ll correct it when I get a chance. Final para is silly – the argument is just as valid whatever the supposed bucket of money being used.

    On the remaining point, the regulated distribution price is based on the regulator’s estimate of efficient costs. So, if there is a problem here it is with the system of regulation introduced with the NEM.

    And that brings us to the elephant in the room. Regardless of the choice between privatisation and corporatisation, the NEM has been a colossal failure – the massive increase in prices throughout the NEM is far more significant than cherrypicked interstate comparisons. Yet virtually all the advocates of privatisation are cheerleaders for the NEM.

  14. John Quiggin
    March 11th, 2015 at 13:34 | #14

    In general, selling income generating assets to pay down debt will produce a reduction in average income (because the return on equity is so much higher than the interest rate) and an improvement in credit ratings, because ratings agencies (are supposed to) advise bondholders and care only about debt. It’s not a good trade-off which is why most governments and nearly all corporates no longer have AAA ratings.

    If a government can get a AAA rating by running a primary surplus in the general government sector, that’s a different matter, but everyone understands the difficulties there. Selling profitable assets to chase a AAA rating is fiscal mismanagement.

  15. Oliver Townshend
    March 11th, 2015 at 13:48 | #15

    I don’t mind the same of power poles if the new assets we will get will have a greater benefit, but with very shallow reporting on Westconnex it’s hard to reach that conclusion.

  16. Jim Rose
    March 11th, 2015 at 13:49 | #16

    Further evidence governments are not very good at owning commercial assets.

    Parties on both sides of use them as political playthings, either in their operation or in their sale.

  17. David Irving (no relation)
    March 11th, 2015 at 14:51 | #17

    @Jim Rose
    Actually, it’s further evidence that natural monopolies (telecomms, water, power, etc) are better in public hands (where they will be part of the common wealth) than in private hands (where they will be run to extract maximum rents).

  18. Hermit
    March 11th, 2015 at 14:59 | #18

    Re NEM failure could it be we’re all better off for ‘gold plating’ but don’t appreciate it? The mood elsewhere is to make systems more resilient eg after US Hurricane Sandy. That’s not just electricity but also gas, water, wireless and fixed phone. Notice that despite putting ourselves in harms way we are increasingly surviving extreme events. Maybe the fact the power stays on more than before is helping a lot.

  19. Collin Street
    March 11th, 2015 at 15:11 | #19

    @David Irving (no relation): “commercial assets” is question-begging, an attempt — possibly not by Jim Rose himself — to obfuscate that point.

    [whether an asset is “commercial” or not depends on what you do with it

  20. John Quiggin
    March 11th, 2015 at 15:21 | #20

    @Jim Rose

    You love making this point, but it’s wrong. The nation-building governments that gave us these assets did a great job. It’s only since the “reformers” got in that things have been screwed up.

  21. John Quiggin
    March 11th, 2015 at 15:22 | #21

    @Hermit

    Agree the gold-plating stuff is bogus. I was on the board that regulated the Qld industry for a while, and people were crying out for goldplating when the power went off after big storms. But the pricing structure as a whole is a mess.

    More on this soon, I hope.

  22. jungney
    March 11th, 2015 at 15:29 | #22

    I saw a vox pop with some old coot who, when asked why he opposed privatization of poles and wires, said “Because the people of Australia should own something”. An old fashioned notion put in simple words.

  23. peter egan
    March 11th, 2015 at 16:13 | #23

    Very disappointing that that it is not a paper filled with tables, graphs and calculations to illustrate points made.

    See S&P credit rating paper on NSW Treasury website. In the commentary it says NSW has $31 bn in cash and near cash assets. It has already raised the money for its infrastructure spend – there is no need to sell assets.

  24. Ikonoclast
    March 11th, 2015 at 19:31 | #24

    John Quiggin :
    @Jim Rose
    You love making this point, but it’s wrong. The nation-building governments that gave us these assets did a great job. It’s only since the “reformers” got in that things have been screwed up.

    Thanks for making this point so strongly, John. It saved me from having to make a three-screen tirade reply for which saving everyone may be thankful.

  25. Ikonoclast
    March 11th, 2015 at 20:04 | #25

    @John Quiggin

    Gold-plating is an interesting debate. Complex networks are… well complex and varied. One might even say “There’s gold-plating and there’s lead-plating.” By this I mean there are clearly parts of the national network which are gold-plated (which sometimes might be a good thing) but there are also clearly parts of the network which are a bit wobbly. Let’s call the latter lead-plated. I get the impression that the gold-plating is in major transmission lines and in major sub-stations possibly involving excessive capacity and excessive redundancy. Further down the line, in terms of literal poles and wires, the system in some suburbs seems to be lead-plated rather than gold-plated.

    I could give anecdotes about frequent power outages in my sub-suburb just outside Brisbane city limits in Moreton Shire but anecdotal evidence doesn’t cut it of course. Does anyone know if there is a publicly accessible database which shows historical outages data by suburb? Something tells me they (power suppliers) stay very coy about this data. Then there’s the old saying, “If you want very reliable power and quick power restorations make sure you buy a house on the same part of the grid as a major hospital.”

  26. March 11th, 2015 at 20:10 | #26

    I presume the fans of privatisation sell their houses and then lease them back.

  27. Ikonoclast
    March 11th, 2015 at 20:34 | #27

    @John Brookes

    LOL. Assuming you totally own your house and going by values in most suburbs one could probably sell one’s house and lease it back for 1/1,000th of the selling price for each week of occupation. Thus one could live there for 1,000 weeks (nearly 20 years) before the lease expired. But then one might well get a near risk-free return of 3% p.a. on the capital if it was all kept stashed at the bank. So 3/100 = 30/1000 ths. The interest pays for 30 weeks in the first 52 weeks. The second year capital is diminished and so on. I leave it to the accountants to say how long you could live there. Probably long enough actually for a “life lease”. And you would save money on maintenance etc.

    How many of us would have the self-discipline to not touch all that juicy capital? Interesting thought though. If you knew you only had 10 good years left (for whatever reason) and no worthy heirs then it might be a go-er.

  28. Jim Rose
    March 11th, 2015 at 21:18 | #28

    How much did the New South Wales Taxpayer get as a return on their commercial assets portfolio – their state owned enterprises?

    The New Zealand it was a return of $20 million on a $30 billion asset portfolio last year. What was the return in New South Wales?

  29. Matt
    March 11th, 2015 at 22:15 | #29

    Probably a dumb question but is there any real (non-political) reason for 49%?

  30. rog
    March 12th, 2015 at 04:55 | #30

    @Jim Rose

    Newcastle Ports were returning, after tax, $22.8M.

    I assume that the published lease price was to be paid over the lease term.

    If that is the case you would have to ask what was gained by the lease, the sum being $1.75B over 98 years (do the math).

    http://www.theherald.com.au/story/2790243/rise-in-port-charges-to-raise-20-million/

  31. James Wimberley
    March 12th, 2015 at 06:58 | #31

    @John Quiggin
    Factual question. In the USA, many urban and suburban electric distribution lines are still on poles – I photographed some in Dorchester Heights, a medium-posh part of South Boston. In Germany they are mostly buried. Germans get what they pay for: a very reliable grid with little amenity damage in towns. Americans get what they don’t pay for: an unreliable but cheap supply, and eyesore poles that crash in ice storms. Australians pay German retail prices. What do they get for it?

  32. Oliver Townshend
    March 12th, 2015 at 08:55 | #32

    @Jim Rose
    According to the NSW Budget FY14, Commercial PTE’s (which includes the electricity generators): “The book value of the Government’s equity investment in the commercial PTE sector is
    approximately $24 billion and these businesses manage over $67 billion in assets.”
    and provide a dividend of roughly a billion a year ($1.6 Billion in FY14, but projected to fall after that – I don’t think this includes projections for sales).

  33. Ikonoclast
    March 12th, 2015 at 09:08 | #33

    @James Wimberley

    Good points. I support your statement but I must take the long road to get there. Germany is developed and quite densely populated (pop. density = 226 persons / sq. k.). USA is developed, populous and large with 32.62 persons / sq. k. Australia is developed and large with a low population density of 3.09 persons / sq.k.

    On the other hand, urbanisation is a factor which must be considered. Australia is about 90% urbanized, USA is 83% urbanized and Germany 73.9% urbanized.

    On the other other hand, Australia’s urban population is largely in about just 6 very large cities. Germany proportionately does not have many large cities of over a million people but has many more regional cities in the low hundreds of thousands. The USA presents an even more complex picture with some huge cities, many large cities and many regional cities with populations in the hundreds of thousands. At the same time, large states like Alaska, Wyoming, Montana, Nth Dakota and Sth Dakota are very thinly populated.

    Given these differences in demography, the electrical infrastructure that is affordable might differ widely across these copuntries. Germany we might expect to be uniformly good. USA I won’t go into here as the story would be very complex. For Australia, on a cost basis we should be able to have all our major cities and their suburbs supplied with underground power. Regional towns and hamlets will be another issue and should likely remain with above ground power. Compared to Germany, Australia will have higher inter-state, inter-connector costs more like the USA but without the USA’s overall population and wealth to cater to such wide continent demands.

    In summary, yes, the fact that we still have poles and wires in our major cities, even if this is just in the suburbs, is unacceptable considering what we pay for power. Given the vulnerability of all our major cities to major storms, the long term solution ought to be underground power.

    If we had started gold-plating (by under-grounding) local power rather than gold-plating interconnectors this might have been worthwhile.

  34. John Quiggin
    March 12th, 2015 at 10:43 | #34

    @Jim Rose

    This is the wrong question. What’s relevant is how much the people of NSW had to contribute in taxes to build up these assets. The answer, in most cases is zero: the big statutory corporations covered both operating and capital expenses. The idea that major infrastructure assets should be imputed a cost of capital incorporating a substantial equity premium is the starting point for the failure of reform, now evident to all.

  35. John Quiggin
    March 12th, 2015 at 10:43 | #35

    I’m hoping to do some work on the undergrounding issue, when I get some free time (ha!)

  36. Ernestine Gross
    March 12th, 2015 at 12:45 | #36

    ‘Asset recycling” and the electricity industry.

    When I asked an electrical engineer what the term ‘asset recycling’ is supposed to mean, I was given examples such as a power point cover that is no longer needed in location A can be reused in location B. Power poles, which are no longer needed because the wires have been put under ground in location K can be used in location Z if they are in good condition. These types of asset recycling do involve a bit of cost (transportation, labour). Wires can be either reused or sold to recycling enterprises for raw material. If sold at a positive price to a recycling enterprice (outside the electricity industry) then there is sales revenue to the electricity industry. Even if sold a zero price it may still be profitable because disposal costs are avoided.

    The electrical engineer talks sense.

    Philly Slim (and others), what do you mean by ‘asset recycling’. In your answer you can assume that I understand the language of Economics, Finance and Accounting. (For example, economists and finance people use the term ‘financing’ when accountants talk about ‘funding’.)

    Now,

  37. Jim Rose
    March 12th, 2015 at 22:56 | #37

    @John Quiggin you do want to give Telecom its monopoly back.

  38. Megan
    March 12th, 2015 at 23:12 | #38

    @Jim Rose

    Years ago I was passing through Warwick and stopped in to hear Barnaby Joyce trying to explain to the – very unconvinced – locals why he had to sell them out over the sale of Telstra.

    His argument boiled down to: “If I don’t do it, someone else will. And they might not get you concessions, like I might be able to.”

    There were a lot of people there who had made the “lifestyle choice” of living in a place where Telstra had never operated at a profit and never would. But they were pretty sure they didn’t want to lose their phone service.

    Telstra should only have a monopoly when it is re-nationalized (IIRC it was returning billions of dollars profit to the nation prior to being sold off).

  39. rog
    March 13th, 2015 at 06:26 | #39

    @Megan The underlying concept of the NBN, that everybody had equal access to a quality service, has been trashed by the LNP.

  40. J-D
    March 13th, 2015 at 07:13 | #40

    @Ikonoclast

    In slightly more detail:

    Australia has five urban areas with a population of over a million each; between them they account for roughly half of Australia’s population;

    Germany has seven urban areas with a population of over a million each; between them they account for roughly a quarter of Germany’s population;

    the USA has forty-three urban areas with a population of over a million each; between them they account for somewhat less than a half of the USA’s population.

  41. Nevil Kingston-Brown
    March 13th, 2015 at 09:02 | #41

    Nice interview on AM this morning JQ.

  42. Ikonoclast
    March 13th, 2015 at 09:40 | #42

    @Jim Rose

    In Australia, privatising infrastructure has not correlated well with giving consumers good services and low prices. Indeed, we can see that privatising infrastructures and government businesses has given us poor service and high prices. This is true with electricity and internet services for example.

    The “State of the Internet Report” from cloud service provider Akamai ranks Australia 44th for average connection speed and getting worse.

    What Sharon Beder says of electricity privatisation is also true of privatisation in communications.

    “Electricity privatisation and deregulation in Australia have been encouraged, facilitated and implemented by governments and state agencies. The costs of the ‘reforms’ have been borne by the electricity sector workforce, which has been decimated, and by the rural and residential consumers, who have borne the brunt of the resultant electricity prices rises. An essential public service has been transferred to private control in two states, and other states have electricity prices determined by an electricity market that is subject to price manipulation by profit-oriented electricity suppliers. Regulatory structures set up to ensure the smooth running of the market have failed to prevent this price manipulation or ensure reliability of supply. The winners have been those corporations able to buy up the former state-owned industries and impose higher prices on consumers. Electricity privatisation has thus entailed an interventionist state, instituting new forms of governance and working aggressively to secure freedoms for capital. Contrary to the pronouncements of neo-liberals themselves, neo-liberalism has not heralded a ‘withering away of the state’. Rather it has resulted in what Andrew Gamble termed ‘the free economy and the strong state’ (Gamble, 1994). Neo-liberalism does not deliver the benefits promised by its adherents precisely because of its class nature.”

  43. Ivor
    March 13th, 2015 at 10:20 | #43

    @Megan

    What is the source of:

    it was returning billions of dollars profit to the nation prior to being sold off

  44. Megan
    March 13th, 2015 at 10:36 | #44

    @Ivor

    I’d have to dig something up (“IIRC” = If I Remember Correctly), but I’m sure it made a lot of money that went back to the nation.

  45. Megan
    March 13th, 2015 at 10:46 | #45

    There is a paper from the parliamentary library which refers to the 1996 Telstra annual report and says that, after tax etc…, Telstra returned $1,368,000,000 to the commonwealth.

  46. John Quiggin
    March 13th, 2015 at 13:15 | #46

    @Jim Rose

    A great instance of the Gish Gallop.

  47. John Quiggin
    March 13th, 2015 at 13:16 | #47
  48. Ivor
    March 13th, 2015 at 14:30 | #48

    @Megan

    Excellent, thanks

    I found this info:

    Revenue$15 238 million

    Profit (after tax, abnormals and minorities) $2304.7m

    Total dividend to the Commonwealth $1368m

    I then did an Internet search on Telstra profits.

    Amazing.

  49. Jim Rose
    March 13th, 2015 at 15:28 | #49

    @John Quiggin I learnt a new word today.

    Which parts of the privatisation and deregulation of the telco industry do you want to undo?

  50. paul walter
    March 14th, 2015 at 01:31 | #50

    Marvellous post and the comments thread has been loaded with constructive stuff.. love it, it is the sort of stuff Gary Sauer Thompson used to do so well also.

  51. paul walter
    March 14th, 2015 at 01:33 | #51

    Jim, are you gloating that it might not be easy to role back? It would sad if anyone felt pleased about an imposed monstrosity with no hope for correction, a bit like the East West Link Napthine tomfoolery in Melbourne

  52. John Quiggin
    March 14th, 2015 at 11:10 | #52

    @Jim Rose

    As Paul says, it’s a god-awful mess. The partial renationalisation of telecommunications involved in the creation of the NBN was far more expensive than if we had never privatised Telstra. What we should have is a single publicly owned common carrier, with competition among providers of Internet and telephony services paying a regulated access rate. How we get there from here, I haven’t had time to consider.

    However, if you come back to electricity, I have a more concrete proposal for a unified publicly owned National Grid, which is what we should have had in the first place. It’s in the paper I did a year or so ago.

  53. paul walter
    March 14th, 2015 at 12:05 | #53

    Thanks John Quiggin.

    I was always suspicious of the outlook and objectives of those who peddled privatisation as a panacea.. was it about good economics, or was there politics involved, to do with the eventual knee-capping of effective government and the breaking of the trade unions prior to the acheivement of the sort of subjective and decidedly anti rational political objectives we can associate with people like Tony Abbott, the US Tea Party fantasists and Britain’s Cameron.

  54. Ikonoclast
    March 14th, 2015 at 12:53 | #54

    @paul walter

    It’s about the fully intended, well planned and well implemented transition away from democracy and a mixed economy to oligarchy and corporate capitalism. We are now a long way along that road. The US is no longer a democracy (if it ever was).

    “The US is dominated by a rich and powerful elite. So concludes a recent study by Princeton University Prof Martin Gilens and Northwestern University Prof Benjamin I Page. This is not news, you say. Perhaps, but the two professors have conducted exhaustive research to try to present data-driven support for this conclusion. Here’s how they explain it:

    ‘Multivariate analysis indicates that economic elites and organised groups representing business interests have substantial independent impacts on US government policy, while average citizens and mass-based interest groups have little or no independent influence.’

    In English: the wealthy few move policy, while the average American has little power.

    The two professors came to this conclusion after reviewing answers to 1,779 survey questions asked between 1981 and 2002 on public policy issues. They broke the responses down by income level, and then determined how often certain income levels and organised interest groups saw their policy preferences enacted.” – BBC News.

    Australia, having a better (more democratic) constitution and better social institutions (IMO), is not as far down the road as the US but our politics, like all national politics around the globe (except perhaps in China), is being distorted by the great political economy force-field emanating from the US.

    The age of Democracy is over. The age of Corporate Oligarcy has commenced.

  55. Tony Lynch
    March 14th, 2015 at 13:01 | #55

    And if you want a good look at what that means, then look at Bengal and the English East India Company.

  56. Jim Rose
    March 14th, 2015 at 14:19 | #56

    @John Quiggin Richard Epstein talked about how progressives pretend they can tell the difference between a good monopoly and a bad monopoly.

  57. Ikonoclast
    March 14th, 2015 at 14:51 | #57

    @Tony Lynch

    Yes, I mentioned the East India Company in a previous debate on this blog. I have also referred previously to the Jack Abramoff scandal of Saipan (Mariana Islands) as indicative of what happens when capitalist oligarch-gangsters have most of the power and the ordinary people have little or no power. Such historical events are really morality tales. They show us exactly what happens when wealth rules.

  58. Ikonoclast
    March 14th, 2015 at 15:26 | #58

    @Jim Rose

    Progressives are not pretending. They actually can tell the difference. All private monopolies are bad. On the other hand, it is possible for some public monopolies to be good if they meet 3 basic criteria;

    (1) Natural monopoly;
    (2) Reasonably well run; and
    (3) Earnings belong to all the people equitably (i.e. go into consolidated revenue.)

  59. paul walter
    March 14th, 2015 at 16:01 | #59

    The penny just doesn’t drop with him, does it, Ikon?

    How Jim Rose so covers his eyes with his hands, that he might not see.

  60. Jim Rose
    March 15th, 2015 at 20:09 | #60

    @Ikonoclast Natural monopoly is a very narrow set of industries where ownership is a superior method of extracting information about the true costs of the supplier and his potential innovation for the purposes of price capping. Nothing more.

    As Harold Demsetz said in “Why Regulate Utilities?,” (1968), at 61:

    …in utility industries, regulation has often been sought because of the inconvenience of competition.

  61. Ernestine Gross
    March 18th, 2015 at 15:15 | #61

    So, an investment bank reached a conclusion (on the negative impact of privatisation on future State budgets) which the Premier of NSW didn’t like – according to the smh article referenced below. Then there was a phone call and another report.

    http://www.smh.com.au/nsw/nsw-state-election-2015/nsw-election-2015-premier-mike-bairds-office-sought-to-influence-critical-electricity-privatisation-report-20150318-1m1ni9.html

    JQ, you are having an impact – investment bankers seem to be aware they are not the only ones who can do the sums, using mainstream financial economic analysis.

    I am reposting this on another thread because this one is a little aged.

  62. March 19th, 2015 at 20:49 | #62

    So Richard Holden from UNSW weighs in to say that NSW must sell its power lines here . The fact is that he has been privileged all his life and has worked in Chicago University for a long time, so that he has lost touch with reality. I support Prof. Quiggin because I was unfortunately not as privileged as Richard. When I studied in the US, I had to live in a predominantly black and hispanic area in the suburbs of Washington DC. With every storm (even without it) the power to the capital of the most advance country on earth would be knocked out. The power crew would rush to connect the power to the rich and wealthy areas but left our area to sweat or freeze for days before we got our power back. In the meantime guess what happened to all our stuff in the fridge. I am not going to live like that in Australia.

    The funny thing is that Richard Holden bases his verdict on a theory by Oliver Hart which only holds if we live in a pure world bereft of corruption, bribes, with strong checks and balances and full transparency. The liberals that I see are nothing like that. So my verdict: even if the sales of power grid is a good idea, we cannot still trust liberals with it.

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