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The last gasp of a failed model

June 8th, 2017

I have a piece in the Guardian headlined ‘Asset recycling may look new and exciting. But it’s the last gasp of a failed model‘ which pretty much sums up the piece. Also, in the Monday Message Board, commenter stockingrate points (via Yves Smith) to a much more comprehensive analysis by Josh Bivens and Hunter Blair of the Economic Policy Institute. To get a feel for the way this is playing in the US debate so far, this article in the Washington Post, where I’m quoted very briefly, is a good starting point.

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  1. Newtownian
    June 8th, 2017 at 07:40 | #1

    I wish you would tell the NSW goverment.

    We have just seen the selling off of the Registrar generals department and its huge revenue stream. Exactly the opposite of what they tell us to do with superannuation. Funny that…..to fund apparently a useless foot stadium in Western Sydney.

    And now they want to sell off the public transport system parts which are profitable bit by bit – the buses – now possible because of the Opal card another private boondoggle. The Northern Beaches MPs all liberals dont want a bar of it so it is being used as a form of class warfare – the profitable and fully utilized inner west buses are the guinea pig to sell off probably to Macquarie Bank or the Hills bus company (not sure if there is a relationship to Hillsong the church for wanna get rich qickers but it would be consistent).

    The end of course is predictable and nicely presented in Don Watson’s American journeys of a dismembered society. And the rationale will be the economic one through the likes of IPART. The neoliberals are not done yet.

    ps I trust you’ve looked at Michael Hudson’s recent take on housing in the US and the hedge fund buyup and rent system. Very interesting. How it relates to Oz still seems murky. Though this is clearly a model for the future.

  2. Ikonoclast
    June 8th, 2017 at 09:04 | #2

    “Australia may not have found its light bulb, but it has provided the world with a lot of experience on what doesn’t work.” – Prof. J.Q.

    This statement resonates with me. The 80s, 90s, and 00s have been a litany of neoliberal or “economic rationalist” failures. These have led us into a near dead-end with very negative economic and social consequences for ordinary people and our national development. This is as was predicted by Micheal Pusey, Prof. J.Q. and other perceptive academics and thinkers.

    We have a string of failures which now need to be corrected at great additional public cost. These include our failed broadband (NBN), failed education model, failed electricity privatistaiton, failed infrastructure projects, failed rail projects, failed health insurance model and failing superannuation model. I am sure others could add more to this list. In almost every case, ordinary workers have faced stagnant wages and rising living costs from all these failures. I call them “failures” because they have failed to deliver for ordinary people. Projects are not successes if they make the 1% relatively richer and the 99% relatively worse off.

    All of this stinks. Something in Australia stinks and it is the dead fish of neoliberalism. It’s time to bury its rotting frame deep… perhaps in a coal mine which we then seal up.

  3. may
    June 8th, 2017 at 12:11 | #3

    the next “we want”coming up from the grid owners—-

    wait for it——

    a charge to actually use the grid.. that will teach you for thinking you can put power in for nothing.

    (in the fin)

  4. June 9th, 2017 at 01:31 | #4

    Big tunnels may be one of the few cases where PPPs are justified, It’s a highly technical and risky business, as you can’t know the geology of the mountain in full detail before you start digging the hole. There is a marked difference between skilled and unskilled contractors.

    Sad anecdote. The Franco-Spanish high-speed rail tunnel under the Pyrenees was contracted to a build-and-operate PPA. The lead contractor was the excellent French company Eiffage (the ancestry includes Gustave). They built the tunnel and access lines on time. At the Spanish end, the line stopped in a field near Figueres. It took the state Spanish rail companies about five years more to finish the connection to Barcelona, including two much shorter urban tunnels under Barcelona and Girona. The PPA vehicle went bankrupt.

    SNCF has been forced to use build-and-operate PPAs for the latest extensions to the TGV network (Tours-Bordeaux, Le Mans-Rennes, Montpellier-Nimes.) The main reason seems to be the bad optics of the scale of SNCF debt, and by extension that of the French government as whole. The construction isn’t any faster, and the operating costs will be higher. I’ll check if the inestimable Cour des Comptes (motto: we hang royal finance ministers) has weighed in.

  5. June 9th, 2017 at 21:45 | #5

    @James Wimberley
    The Cour des Comptes issued a harsh report on the French high-speed rail programme in 2014, saying it is being pursued for political reasons going against economic logic, but nothing I could find on the new PPPs. It has issued a critical report on overuse of the PPP model in prison construction : https://www.ccomptes.fr/Publications/Publications/Les-partenariats-publics-prives-penitentiaires

    The institution, whose origins go back to the ferocious Philippe le Bel, is a model for public auditors elsewhere. Has Australia got one with teeth? The UK chief auditor answers to Parliament, not the Crown.

  6. Gregory J. T. Mckenzie
    June 10th, 2017 at 10:29 | #6

    Privatisation does not work because only the money cost and benefits are compensated for in the sales. The social costs are never accounted for and, as a result, the taxpayers lose an asset without adequate compensation. The British gegeral election showed that voters are starting to realise that they have been shortchanged by their governments. This is certainly true in New South Wales.

  7. rog
    June 10th, 2017 at 12:17 | #7

    In this video Jim Chanos seems to be arguing against privatisation.

    https://www.periscope.tv/w/1OwxWAMANoRGQ#

  8. Peter T
    June 10th, 2017 at 14:09 | #8

    @James Wimberley

    One problem with direct government provision is that governments do not go bankrupt. There’s a long history of major projects being started by private companies, failing to make an adequate return on debts and going under, only to be then taken into the public sector and run quite nicely as essential kit and modest earners. A government sector that could write off debt would look better, but that would undermine the whole basis of money….

  9. June 10th, 2017 at 23:33 | #9

    @Peter T
    Your case is that bankruptcy provides a salutory moral lesson to capitalists? The losses are spread round creditors, so the main effect (compared I supposed to the ancient régime of perpetual debt bondage) is to raise the hurdle rate of return. The non-bankruptcy of advanced countries has been generally a good thing, in spite of Argentina and Greece. Incidentally, most British government debt was incurred to destroy assets in wars, not create them.

  10. Blissex
    June 11th, 2017 at 08:51 | #10

    @Ikonoclast
    «Projects are not successes if they make the 1% relatively richer and the 99% relatively worse off.»

    Are dairy farms run for the benefit of the farmers or of the cattle?
    Or ask any pensioner with a share-account based pension: should companies be run to maximize dividends or wages?

  11. Blissex
    June 11th, 2017 at 08:56 | #11

    @James Wimberley
    «The main reason seems to be the bad optics of the scale of SNCF debt, and by extension that of the French government as whole.»

    That is the second reason why PFI/PPP exists: to put debt off the government balance sheet, so that the “bond vigilantes” don’t start worrying. The first reason of course is to use that as an excuse to give a larger cut of public projects to the finance sector.

    it is all part of what UK sociologist Colin Crouch has called “privatised keynesianism”, is which instead of the government borrowing and spending, the private sector borrows and spends, and the borrowing is in effect government guaranteed.

  12. Peter T
    June 11th, 2017 at 21:06 | #12

    @James Wimberley

    Not at all. My case is that, since the largest projects usually involve considerable optimism and major unknown risks, cost over-runs are pretty much inevitable. If the project is debt-financed, some part of the projected gain is illusory. Governments can’t write it off, so have to pay it anyway. Whether the private write-offs are borne by those who can afford it or those who can’t is a matter for examination case by case.

    BTW, The largest debt in UK government history (the French wars to 1815) went to financing the industrial revolution and British mercantile supremacy. Britons might regard it as money well spent.

  13. June 12th, 2017 at 03:51 | #13

    @Peter T
    Mercantile supremacy, fair enough. Though the massive manpower demands of the Royal Navy severely crimped the scope of civilian merchantmen, whose crews were constantly being impressed (kidnapped).

    But what’s the argument about the industrial revolution? This involved coal-mining, steam engines, automated spinning and weaving of textiles, and ironmaking. The Seven Years War and the Revolutionary and Napoleonic Wars were fought with largely 17th-century technology; the standard infantry musket was standardised in 1722, but the basic design was much older. IIRC the Royal Navy had better gunpowder and smoother cannonballs than the French, but its main advantage was the training of its seamen and sea officers. I don’t see how the Industrial Revolution comes into it, and there was negligible direct government support of the technology.

    The strategic advantage of the British was in government: stably ruled by landowning plutocrats firmly committed to honouring public debts, due to themselves, and serviced by taxation on themselves. Mr Darcy had his money in land, Mr Bingley in consols, but both viewed these assets as near-perfect substitutes.

  14. Peter T
    June 12th, 2017 at 19:34 | #14

    @James Wimberley

    Refer you to John Brewer, NAM Rodgers, Roger Knight, most recently Parthasarathi (on textiles). The Navy impressed seamen – it also trained them on a large scale, and secured trade against competition. It was also the largest buyer of food in Britain, bought cloth in massive amounts, invested heavily in advanced machinery (see eg Brunel’s block-making plant – the first automated interchangeable parts), was a major buyer of heavy machinery (eg Carron Works) and instruments (clocks, telescopes, sextants) and funded efforts to improve food preservation. The government tinkered constantly with tariffs in an effort to encourage domestic manufacture, particularly in higher value-added sectors (pushing, for instance, against Dutch advantages in commercial shipping, Swedish and Indian iron and steel, Indian cotton weaving and block-printing).

    Mr Darcy’s cousins in Whitehall (Anson, St Vincent, Dundas) were keenly aware of the technical issues, and supported by a network of administrators, businessmen and tinkering clergy. And they disposed of a substantial fraction of British GDP.

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