Home > Economic policy > Renationalisation needs to break with corporatisation

Renationalisation needs to break with corporatisation

January 29th, 2018

My latest Guardian article is headlined https://www.theguardian.com/commentisfree/2018/jan/29/privatisation-is-deeply-unpopular-with-voters-heres-how-to-end-it. The core of the argument is that, to make a success of renationalisation, we need to do more than buy back privatised enterprises, and run them as publicly owned corporations. We need a different model. A starting point would be the statutory authority model used in Australia with great success, before the Hawke-Keating government adopted the corporatised model as a step towards privatisation.

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  1. Smith
    January 29th, 2018 at 21:08 | #1

    Section 51 (xxxi) of the constitution says that acquisition of property by the Commonwealth has to be on “just terms”. Any renationalisation of CBA, Telstra, Qantas etc which takes away shareholders’ voting rights and says to them not to expect much in dividends because profit-making will be subordinated to the public interest will be thrown out by the High Court in a nano-second. Section 51 (xxxi) is what the High Court used to throw out Chifley’s bank nationalisations in Bank of New South Wales v the Commonwealth. And we all know from the recent citizenship cases how closely the HC sticks to a black letter reading of the words of the Constitution and precedent.

    The promises made by Jeremy Corbyn are not very relevant. He does not have the Australian constitution or the Australian High Court to deal with.

    On the other hand, there is nothing to stop governments from creating enterprises de novo, like the NBN.

  2. hc
    January 30th, 2018 at 09:53 | #2

    The evidence that public boards will deliver efficiency seems scant. The evidence you cite is that:

    “Australia Post was run, not by boards and CEOs but by public commissions, including representatives of customers, workers and the community at large, and charged with meeting “the social, industrial and commercial needs of the Australian people for postal services”. Over the 15 years of operation as a statutory authority, the real cost of postal services was reduced by more than 30%, a reduction that compares favourably with the period since corporatisation”.

    Were there not problems of overstaffing in AP when it was run as a Commission? Even in corporatized form management seemed overly accommodating to unions. The rise in costs recently is due to regulatory issues – uniform pricing of letters in an era where mail demands have fallen and leakage of the parcel business to private operators.

    I think regulatory issues not the form of ownership have determined AP’s recent performance.

  3. Ikonoclast
    January 30th, 2018 at 10:46 | #3

    I agree with the title and article. This will come as no surprise to those who know me here.

    The worrying aspect of governments in the neoliberal age is that they are NOT responsive to democratic demands in the domain of economics and defense, to name two important areas. We can think of the last Iraq war which a majority of Australians opposed. We can think of privatizations which Australians have now opposed for some time. For a long while, we kept getting privatization even when the people did not want it.

    What is happening in the neoliberal era? Big money (from corporations, billionaires etc.) buys party policy by donation, whether this is admitted or not. J.Q. notes “Since no major party would advocate renationalisation…”. The major parties essentially adopt a bi-partisan stance on these issues. No matter who we voted for, for a long while, we still got privatisation or we at least got no rollbacks. The LNP ratchet up privatization and then the ALP just leave it at the new setting.

    The heart of the problem in our so-called democracy is that money buys governments by donations. Big donors often donate to the two majors. The bigger share (maybe 55% or 60%) goes to the party who best does their bidding. The others get enough money to get a “taste” so that want more.

    Only if we remove the corruption of government by big money do we stand a good chance of rolling back neoliberal policies. But how do we get parties to legislate against corporate, company and union donations? All donations should have to be made by individuals and individuals should be limited to no more than $100 of political donations per annum. Such donations should never tax deductible (if they are now). Furthermore, parties and candidates should get no money for votes gathered either.

    We have to break the nexus between money and control of the parliament.

  4. Svante
    January 30th, 2018 at 12:25 | #4

    @Ikonoclast
    “We can think of the last Iraq war which a majority of Australians opposed.” – and the “Opposition” as usual did not.

    “We have to break the nexus…” – sure do, but how?

  5. Ikonoclast
    January 30th, 2018 at 13:04 | #5

    @Svante

    Stop voting for the LNP-ALP neoliberal duopoly. Destroy them both at the ballot box. People need to realize and use the power of the vote much more than they currently do. Although, educating them to see real social-democratic alternatives is very difficult given the weight of propaganda, advertising and group-think for the neoliberal position.

  6. Loco Jack
    January 30th, 2018 at 13:13 | #6

    @hc

    “The evidence that public boards will deliver efficiency seems scant”

    The evidence that private entities deliver efficiency is equally scant. I have a book in my collection somewhere called “Changing Trains” which studied (amongst other things) the relative efficiency of private and public enterprise. The conclusion drawn was that efficiency has a great deal more to do with the age of an organisation than its size or ownership.

    At present in the area of infrastructure as far as I can see there is no information available as to what projects should cost, as there is no competition. It would be interesting to see what happened if a statutory body were able to compete with the private sector for government projects.

    We have nothing to blame but the shared ideology of the Laboral parties.

  7. Kien
    January 30th, 2018 at 13:39 | #7

    In principle, the form of ownership is less important to outcome-performance than market structure. However, when things go wrong for reasons outside the government’s control, the government gets blamed anyway. So it seemed to me that corporatisation and privatisation (with an independent regulator) is a way to shield politicians from the political consequences of random events that they cannot control. Governments can employ their “political capital” for other purposes.

    Interestingly, China has successfully defied calls to privatise its economy. But despite China’s impressive record, most economists (incl the IMF) continue to call on China to privatise its economy.

  8. Tim Macknay
    January 30th, 2018 at 14:10 | #8

    @Svante

    and the “Opposition” as usual did not.

    In my recollection, the ALP Opposition of the day did oppose the Iraq war, although once the invasion was afait accompli it did not press for an immediate and unconditional withdrawal of troops.

  9. derrida derider
    January 30th, 2018 at 15:02 | #9

    @Smith
    Yes, Smith, though State governments are not bound by Section 51. One end run around it is to get the states to do the renationalisation and THEN transfer their powers to the Commonwealth.

    Or else just pay out the premium to satisfy the “just terms” bit, as they do when resuming land. After all that is no different to private sector firms paying control premium in a hostile takeover.

  10. derrida derider
    January 30th, 2018 at 15:09 | #10

    @Svante
    In fact the highlight of Crean’s otherwise miserable tenure as opposition leader was the courageous speech he gave farewelling servicemen bound for Iraq, telling them that like their forebears at Gallipoli they were brave to go but should never have been sent.

  11. Ernestine Gross
    January 30th, 2018 at 15:14 | #11

    JQ, I fully concur with your article.

    hc, I don’t agree with your ‘overstaffing’ argument. It belongs to the micro-economic approach of looking only at ‘consumers’ or only at ‘producers’. But ‘consumers’ are people who are also ‘workers’, ‘investors’ (superannuation), ‘producers’ (everything produced for in-house consumption such as cooking, gardening, ….), consumers of marketable and non-marketable things (the climate is a clear cut example of the latter; no noise disturbance is another one). A general equilibrium (not the belief variety) perspective, or if you like, a system-wide perspective, questions the notion of overstaffing.

    Firstly, overstaffing relative to what? The corporate model has one standard, namely accounting profits. To state the obvious, there is no upper bound to real numbers. There is never enough. Outcome: Those at the top of a corporation reward themselves with bigger and bigger slices of ‘free cashflow’, achieved by staff reductions, while wages stagnate or decline, unpaid overtime increases, …. Latest example: the railway.

    Second, while the profit numbers in corporation 1 increase as per my first point, the spending power of the now no longer presumed access staff declines and the profit numbers of other corporations decline.

    Third, …, fourth, …. budget deficits in many households and in aggregate.

  12. Smith
    January 30th, 2018 at 16:05 | #12

    @derrida derider

    Beats me how one state (say NSW) could compulsorily acquire all of (say) CBA assets, including outside NSW. There’s a fatal section 92 problem right there. You’d need all states acting in concert, acquiring all the assets within their borders. Sounds like a logistical challenge, assuming you could get the states to agree. (And even there you might run into section 92 problems). Of course the CBA has assets outside Australia too. Good luck to the states in getting those.

    As for buying at market prices, the CBA and Telstra alone would cost $200 billion. Add in everything else you want to renationalise, and soon you are talking about real money.

  13. rog
    January 30th, 2018 at 16:20 | #13

    @Smith They way Telstra is going you could pick it up for the price of a cheap meal at the easy greasy. In the past they have had to borrow to pay the dividend, just how crazy is that?

  14. rog
    January 30th, 2018 at 16:23 | #14

    @Smith Well they can’t, banks are national and are subject to national law.

  15. Svante
    January 30th, 2018 at 19:44 | #15

    @derrida derider

    Well there you go, my recollection was that “me too” ‘Bomber’ still led that loyal Opposition. Never mind, if that was all there was to the “courageous” Opposition then as usual so much for their “opposition”. On bowing and scraping to foreign interests in war, just today we’ve seen the same “opposition” continues.

  16. Geoff Edwards
    January 30th, 2018 at 21:02 | #16

    My contribution to this debate is that the power of ownership is very different from the sovereign power of regulation. Economists and others who advocate privatisation tend to conflate all government statutory activity as “regulation”. But ownership, which allows the government to manage the business to reflect public policy objectives is far more direct than third-party regulation which in effect is an attempt to hobble the ownership power of the new private operator.

    The two forms of control have quite different legal origins. Ownership is possession of property, regulation is the exercise of the sovereign monopoly over coercion. Ownership conveys the right to manage, regulation doesn’t.

    The lead weight that reliance upon regulation as a substitute for ownership lays upon the economy is visible in the need for an entire machinery (e.g. the Queensland Competition Authority) to determine the prices that some of the privatised trading enterprises can charge. The worst of both worlds.

  17. January 31st, 2018 at 04:39 | #17

    Hoe does the renationalised business take its decisions? It must be a mistake to think that tradeoffs will go away simply by making the governance reflect multiple stakeholders. The VW board has always had representatives of unions and the Land government of Saxony. That didn’t prevent Dieselgate, an atrocious and long-lasting ripoff of customers and innocent bystanders.

    Universities may largely escape this, as they have long experience in balancing their two missions of teaching (plus public information) and research, and a strong and longstanding claim to institutional autonomy. But take a post office. It costs much more to deliver the mail to rural than urban residents. Is Rowland Hill’s single tariff sacrosanct? This strikes me as a normal political question. You need some structured way for the elected government to apply its priorities within the public sector. One good example is the Bank of England. IIRC the Chancellor of the Exchequer sets the Bank’s inflation target, by a formal notification, not a secret and deniable phone call. The Bank must in turn write a letter of explanation if it misses the target by more that 1% up or down.

  18. John Quiggin
    January 31st, 2018 at 06:27 | #18

    @James Wimberley

    It’s true that representing stakeholders isn’t a complete solution. But the stakeholders hurt by Dieselgate weren’t represented. If VW had members of the environment on the board, and a CEO responsive to their concerns, their engineers might not have been so eager to rort the emissions test.

    Dieselgate was a failure of the central idea behind corporatisation – let the company maximize profits, and rely on external regulation (in this case, emissions testing) to fix any problems.

  19. Disenfranchised
    January 31st, 2018 at 06:32 | #19

    We could start by not flogging off the NBN. We live in the age of the tyranny of the shareholder. We are all shareholders whether we like or not through our superannuation. I think it would take a major crisis such as a war, for any government to have the political capital to re-nationalize industries, even essential services.

  20. Ikonoclast
    January 31st, 2018 at 06:38 | #20

    @Geoff Edwards

    Brilliant, accurate and succinct analysis. Thanks, Geoff. 🙂

  21. Ikonoclast
    January 31st, 2018 at 06:46 | #21

    With respect to Dieselgate, I have never bought a VW. My past reasons were that I thought they were overpriced, ugly and not nearly as well engineered as claimed. These reasons are now irrelevant. Now, I would never buy a VW solely because of Dieselgate. When a company does something this bad, consumers should never buy their product again. Consumers could destroy a company if they wished, if only they would act in complete concert.

  22. Ikonoclast
    January 31st, 2018 at 06:50 | #22

    In addition to my above comment , I should have mentioned this latest news item;

    “VW condemned for testing diesel fumes on humans and monkeys.” – Guardian.

    Really, is there no bottom to the pit of perfidy at VW?

    Anyone who buys a VW now… I mean how could they?

  23. Smith
    January 31st, 2018 at 07:49 | #23

    @Ikonoclast

    This is hardly a surprise. Let’s face it, the Germans do have form in this area.

  24. Smith
    January 31st, 2018 at 07:54 | #24

    @John Quiggin

    VW could have had the entire worldwide membership of Greenpeace on the board and it wouldn’t have made a jot of difference. It’s a question of question of culture. If the culture of an organisation is one where the engineers rule then you will get what VW did.

  25. Ikonoclast
    January 31st, 2018 at 08:41 | #25

    @Smith

    Many peoples and nations have bad form when it comes to using hellish weapons… and all weapons of war and genocide are hellish. Here in Australia, British settlers (mostly) exterminated Tasmanian aboriginals for example. That’s the same thing. I’m Anglo-Saxon and maybe a little Celtic & Spanish, so my forebears have form too, all over the globe in their day.

    When engineers and/or managers rule, as opposed to sticking to their area of competence, there are bad outcomes for ordinary people. The entire populace must rule via social democracy or better still democratic socialism. Even then prevention of bad outcomes is not guaranteed but the chances of good outcomes for all are considerably increased.

  26. Smith
    January 31st, 2018 at 08:55 | #26

    @Ikonoclast

    Even so, you’d think that it would occur to modern-day Germans not to use poison gas to experiment on people. Especially at Volkswagen, 80% of whose wartime workforce were slave labourers from concentration camps. Whoever is responsible is either mad or bad or both.

  27. rog
    January 31st, 2018 at 09:08 | #27

    While VW were found guilty of deliberate fraud many others were found to be noncompliant.

    Small diesels are now being replaced by electric motors.

    https://www.theguardian.com/environment/2015/sep/30/wide-range-of-cars-emit-more-pollution-in-real-driving-conditions-tests-show

  28. January 31st, 2018 at 10:07 | #28

    @John Quiggin
    The clumsy wording “members of the environment” just underlines the problem. Who do you get to represent the environment and consumers? Even if you (the government) appoint capable and well-informed individuals to earmarked slots, they don’t represent organised and coherent interests and ideologies like capital and labour. I fear your VW thought experiment is wishful thinking.

  29. Tim Macknay
    January 31st, 2018 at 11:37 | #29

    @Smith
    Apparently the “testing on humans” bit of the latest VW scandal involved volunteers inhaling nitrous oxide. Which leads me to wonder if this was an actual experiment or an out-of-hours party game.

  30. John Quiggin
    January 31st, 2018 at 11:42 | #30

    @James Wimberley

    Typing too fast, I meant to write “members of the environment movement”, which is not that difficult to operationalize. As I wrote in the article, I’m not proposing a new and hypothetical idea, but an updated version of an old one, which worked pretty well.

    To be sure, both organized labor and (as Smith notes) organizational culture will have a big influence however the organization is structured. But it seems obvious to me that Telstra and Australia Post are different from their statutory authority predecessors (mostly for the worse) and that Telstra is a lot worse than Australia Post. Most obviously, if we still had Telecom Australia, we would have fibre to the node by now, and a lot more cheaply that we are getting a half-baked substitute.

  31. Tim Macknay
    January 31st, 2018 at 11:44 | #31

    @Smith
    Actually, my mistake. It wasn’t nitrous oxide, it was nitrogen dioxide. Definitely not a party drug.

  32. Smith
    January 31st, 2018 at 13:59 | #32

    @John Quiggin

    AP operates under completely different conditions from when it was a government department. Email has decimated its letters business but for political reasons it still has to deliver 5 days per week and still has to charge the same for a stamp regardless of distance posted. It’s not apples and apples.

  33. Ikonoclast
    January 31st, 2018 at 14:29 | #33

    @John Quiggin

    Absolutely correct, J.Q. I remember a member of Howard’s government saying, “We have made the omelette (of privatisation) and you can’t unscramble it.” One could almost hear the nasty sneer and the implied message, “… and you can never undo it.”

    That sort of message from the pro-neoliberals is, and should be considered, highly insulting and objectionable to the great majority of ordinary people. This bad stuff of neoliberalism CAN be undone. We can go, not back, but forward to a new system incorporating all the previous lessons of public ownership (it had its faults too) and all the lessons of the very definite series of failures of privatisation in the arenas of natural monopolies, public services and social goods and services. This long, failed detour into monetarism, neoliberalism, anti-science denialism, militarism and a general “endarkenment” has cost us very dearly. It’s time now to fix the egregious mess the neoliberal wreckers have foisted on us.

  34. xavier
    January 31st, 2018 at 20:46 | #34

    @hc

  35. January 31st, 2018 at 21:24 | #35

    @Smith
    Re VW and diesel exhausts. Addendum: if you are going to throw conscience to the winds and conduct grossly unethical experiments on human subjects, at least design them so you get usable results. Using just 25 human subjects, as reported, is more reminiscent of Mengele’s scientifically worthless sadism than the carefully run trials of poison gas on Chinese POWs by the Imperial Japanese Army’s notorious Unit 731. The Americans gave the perpetrators a pass on war crimes trials to get their hands on the results.

  36. Geoff Edwards
    January 31st, 2018 at 21:30 | #36

    Prof JQ, the saga of the sale of Telecom/Telstra is as good a demonstration that ownership does matter as can be imagined. Had Telstra remained in full government ownership, its engineers would have built fibre to the premises incrementally, starting in the areas where the copper was most rotten, with a minimum of fuss, portrayed as not much more than a maintenance activity. It would have been uncontroversial, paid by consumers on their quarterly bills. What a circus to watch the Rudd government, lacking the ownership power, trying to force a company’s board to cooperate with the sovereign government; and having to pay billions to buy their cooperation, for a copper network in terminal decline and probably worth one dollar. (Of course the Murdoch press, flaying the government at every turn, didn’t help, but they wouldn’t even have had an opportunity to be involved had Telstra been a statutory authority and simply upgraded the system as a routine operational activity).

  37. Ikonoclast
    February 1st, 2018 at 08:59 | #37

    @Geoff Edwards

    Agreed. Privatization = Infrastructure Decay.

  38. may
    February 1st, 2018 at 12:25 | #38
  39. Ernestine Gross
    February 2nd, 2018 at 22:46 | #39

    @James Wimberley

    You seem to be compounding two distinct issues.

    The first issue is fraud. VW was found to have committed fraud (a program which masks the actual emissions of their diesel vehicles, produced during a particular period of time; as mentioned by others on this thread, research found that the actual emissions outside laboratory conditions exceed the allowed limits on many cars, not only German cars).

    The second issue concerns tests of health effect of diesel emissions, using monkeys and some human subjects, the latter said to be volunteers. The second issue is not a VW issue per se. The experiment was carried out by a lobby organisation, EUGT, which purports to be concerned with environmental and health effects of the transport industry. This ‘European Reseach Group for environmental and health in the Transport industry’ hired scientists to carry out the tests. So there is a research institution involved too. The EUGT was founded by BMW, Daimler, VW and Bosch.

    The chief of VW’s specific problem, Steg, was not an engineer (contrary to Smith’s mental model). He used to be speaker of the Federal Government of the BRD. The Sueddeutsche Zeitung reports Steg has acquired the nickname ‘foreign minister of VW’. He is gone now from VW to presumably to less comfortable housing, after the legal matters have been resolved.

    The chief of ‘environmental protection’ of the EUGT, Udo Hartman, has been dismissed.

    JQ used VW as an example for his argument in favour of work force representation on the management board of corporations. His argument does not depend on VW; it is simply the law in Germany for all corporations (‘GmbH’). Recent research has found these corporations do adhere to the minimum wage laws and other labour laws while there are problems in the unincorporated business sector.

    There is a history to VW’s Tennessee plant in the USA regarding VW’s attempt to introduce the German model of workforce representation. But this story is too long to write about here.

    I have severe reservations about the proposal that the German legal corporate framework can be extended to include environmental aspects. It seems to me, the incentives to continue to promote diesel engines are due to the vastly different unit prices of petrol and diesel within some EU countries and the longer life expectancy of diesel engines (ie technology as understood by engineers).

    A December 2017 list of petrol and diesel prices in various EU countries can be found on the website https:// www . drive-alive.co.u./fuel_prices_europe.html. (The obviously additional spaces in the address have to be removed.)

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