My piece in Thursday’s Fin (over the fold) was about Telstra. As I result I got a call from the Age and was quoted in this report.
Comments appreciated
The recent conference of the Queensland National Party has raised the bar for the privatisation of Telstra, demanding that as much as $5 billion of the proceeds be allocated directly to rural users. The Nats have been roundly criticised, but it will be a blessing for Australian taxpayers if their demands lead to the abandonment of the whole idea.
In financial terms, the privatisation of Telstra has been a disaster for the Australian public so far. The first-stage sale of one-third of Telstra in 1998 yielded an average of around $3.40 per share or $14 billion. Most, but not all of this money was used to repay government debt. The resulting interest savings, compounded over time, amount to around $2 per share or $8 billion.
But over the same period, the government has foregone dividends with a compounded and grossed-up value of $3 per share (this assumes proceeds are allocated to debt reduction). And that’s not all. Much of Telstra’s profit has been reinvested, contributing to growing earnings, and reflected in a capital gain of around $2 per share. So the public is worse off by around $3 per share or $12 billion.
The second stage, T2 looks better, but only because Telstra’s share price was inflated by the dotcom boom in 2000. A far better return could have been obtained for the Australian public if Telstra had sold off its dotcom assets while the bubble lasted, a fact that was pointed out at the time [‘Foot in each camp untenable for Telstra’, AFR, 30 March 2000]. Instead, billions of dollars were dissipated in the pursuit of the global dreams of recently-departed Telstra CEO Ziggy Switkowski,.
The fiscal impact of T3, if it goes ahead, will be even worse than that of T1. The undervaluation of Telstra, relative to its value in continued public ownership, will be about the same. But at least $2 billion of the proceeds, and perhaps as much as $5 billion, will be used to buy off the National Party. The best that can be hoped for is that as much as possible of this sum will be handed out as lump-sum cash payments, rather than being spent in pork-barreling and white-elephant infrastructure proposals.
If the fiscal argument for privatisation has fared badly, the general policy rationale has done even worse. The government has had nearly a decade to work out a coherent set of arrangements for Telstra’s structure, regulation and community service obligations after privatisation. Yet if anything the process has gone backwards.
Telstra dominates more of its home markets, more thoroughly, than any other telecommunications company in the capitalist world: it’s the leader in local, long-distance, mobile, and ISP markets, and has a share in the dominant pay-TV firm. The obvious solution is structural separation, either divesting the Internet and pay-TV arms or a more radical separation into network and retail arms.
These options have been put in the too-hard basket, thanks to vigorous resistance from Telstra and concern that this would depress the share price. Yet Telstra’s competitors have made it clear that, without structural separation, they can only survive on the basis of regulated access to Telstra’s network.
Instead, Telstra might become even more of a monster, picking up TV stations like Channel 9, or even newspapers, as part of the impending restructuring of media ownership. Incoming CEO Solomon Trujillo has said that Telstra ‘probably’, doesn’t need to pursue such options, but there is nothing in the regulatory framework to stop him changing his mind if the occasion arises.
Coming back to regulation, we were confidently assured when the Telstra-Optus duopoly ended in 1997 that retail price caps and access pricing were interim measures, to be phased out as soon as full competition was underway. The promised era looks no closer now than it did then,. Even outgoing Communications minister Daryl Williams described competitive outcomes as ‘disappointing’ in a speech in 2004.
Even when conceding all these points, defenders of government telecommunications policy claim that, after all, consumers are better off than they were in 1997. It’s true that prices have fallen, on average, but only at the same technologically-driven rate as they had fallen for most of the previous century. And thanks to rebalancing, lots of consumers missed out on most of the benefits.
Telecommunications policy in Australia has been a mess for fifteen years or more. If full privatisation goes ahead, the failures of the past will be locked into place for the foreseeable future.
John Quiggin 
Your analysis of the economics of selling Telstra is alll very well, but it misses the point. The sale is amply justified by the fact that the proceeds could be used to fund the largesse the Liberals will promise in the next election campaign.
John, I gain the impression you have changed your mind a bit on Telstra. I thought that you opposed a half-private, half-public Telstra and argued that reversion to public ownership was unlikely. Therefore I thought you agreed with privatising the lot. I think keeping it in partly in public hands gives the Feds more power to regulate and manage Telstra — something supporters of complete privatisation obviously see as an defect. Bribing the Nats to gain the right to flog off the rest of Telstra will involve more than transfers so from an efficiency operspective I agree with your new view — leave it as is.
Thanks for a good summary of the sad consequences of deregulation and partial privatisation of Telstra. The facts and figures will be very helpful.
What should be obvious, but is often overlooked, is that they are selling assets that belong to you me and 20,000,000 other Austraiians without their consent.
If the words of Communications Minister Helen Coonan, prior to the last election are to be believed, her Government has no mandate to sell those, especially given that all opinion polls and survey results indicate overwhelming public opposition to the sale. She was asked by MIck O’Regan on ABC Radio Radio National’s “Media Report” program on 30 September: “Why Should Telstra be privatised?” Her response was :
The Full transcript is at : http://tinyurl.com/8crkf
Note that she didn’t answer the question. As far as I am aware neither Prime Minister nor any Minister has ever put the case for full privatisation. The best we can get out of John Howard these days is the familiar and worn argument that it’s “absurd” to have a company partially publicly owned and partially privately owned.
And, as we all know, back in 1996 when the PM himself brought about this situation which he now says is “absurd”, he didn’t have to justify privatisation then either, because he assurred us he had every intention of maintaining majority public ownership.
Some vistiors to this site may find of interest the web-site opposed to privatisation, which I have been helping to maintain. It is at :
http://www.citizensagainstsellingtelstra.com
Any feedback is welcome.
Also, can I commend an article by Kenneth Davidson in The Age at :
http://tinyurl.com/dyurb
Yes, its a mess for which we have all paid and will continue to pay. The coalition’s telecoms policy has been dumb from the POV of the national interest, but as it turned out its not necessarily dumb from the POV of the government’s political interests.
To be fair to them, though, a lot of the trouble dates back to the rejection of structural seperation by the Keating government, and the half-pregnant part privatisation was never their preferred position. And telco policy is genuinely hard – that rapid tech change means that what is an optimal industry structure to aim at in one decade is likely to be grossly inefficient in the next. They’re not the only government to comprehensively stuff it.
“the half-pregnant part privatisation was never their preferred position”
Maybe not, but they argued vigorously for it from 96 to 98. I copped a heap of flak for saying the opposite.
In my view, if you advocate a position in this way, you own it, even if everyone knows you were lying.
PrQ,
I agree with Alan Walker that you have missed the point here, but not as to why.
Telstra has behaved like a whale in a fish pond since it was formed and the ‘half-pregnant’ privatisation did nothing to improve it – just gave it more excuses to ignore its customer base, while still being able to destroy or buy any potential challengers before they became a real challenge.
IMHO the original privatisation was misconceived – it should have been broken up and sold piecemeal, with all resulting entities sold within a year or two. This would not have returned the most to the government, its true, but would have given us a vibrant, competitive telecoms sector, for all Australian’s benefit. This could not have been done due to the pig-headed opposition in the Senate to the very idea of privatisation, leaving us with the current idiocy. The regulators could then have focussed on the outcomes for the economy, not the dividend for Telstra shareholders (including the government).
The problem now is, however, where to from here? If we leave Telstra with its current capital structure as it is they will continue to behave in the way they are. There is nothing to stop them. The government cannot effectively inhibit them without destroying value for current shareholders (many of us through our superannuation funds) or reducing the value of future dividends. It would also make any future privatisation less lucrative.
To me they either have to re-nationalise and then privatise – doing it correctly now they can get it through the Senate – or fully privatise and then regulating it properly. If broken up properly, regulation would not be needed. The first is (again, IMHO) the correct course, but it would be a very brave government that would do that. I could also see the Nats objecting strongly. To me, at least, a $2B bribe to bunch of agrarian socialists to get out of the way is money well spent. Only problem is, of course, as with most bribes, the receivers get used to it.
Better, of course, would be for the Labor Party to start thinking, support the privatisation and work on a proper regulatory framework to succeed the current blind ‘support Telstra’ approach. The Greens would fail at the ‘start thinking’ hurdle.
In summary, therefore:
Good: bribe the Nats to privatise, keeping the price as low as possible and the actual funds tied up until some worthwhile projects can be found – probably never.
Better: ALP to cooperate on the privatisation, saving the $2B and getting the right regulatory outcome.
Best: renationalise, break up and sell off – again, with a better regulatory framework.
Andrew I agree with you up to a point. The implications of renationalisation would be sever. It would take loads of confidence out of the markets. And it would be expensive.
At this point in the game full privatisation is the logical way forward.
Personally I think the USO is a waste of space. As a child I remember the Telecom D9 catapilla that dug up several miles across our farm so that our one house could have an under ground phone line. And it was all for free. It was great to have a hobby farm subsidised in this way. And the money saved let my dad hire a D9 catapilla to dig out stumps.
If you want a phone in remote Australia then buy a Globalstar handset. Cheap as chips. http://www.globalstar.com.au/
Terje wrote: “It would take loads of confidence out of the markets.”
Haven’t we long ago passed the point in time when, for our part, our society should stop placing so much confidence in the markets? In the years since we commenced the experiment with neo-liberalism around 1983, most of the real economic activity that existed in Australia has either been destroyed or else exported or to countries like India or China.
Instead, most economic ‘activity’ these days is based on shuffling paper by the financial sector, property speculation, and the mining and export of scarce non-renewable natural resources. This is clearly not sustainable in the long term.
On a global scale our trust in markets is leading to the destruction of our fishing stocks, water reserves, agricultural land and rainforests, the threat of runaway global warming, and most worrying of all, the waste of fossil energy, for largely frivolous purposes at a rate of 100,000 times the rate it was accumulated by biological and geological processes over periods of tens of millions of years (see http://www.eclipsenow.org and Andrew McNamara’s speech to the Qld Parliament in February for further information.)
It’s time that Governments stopped hiding behind this excuse and do what we pay our taxes for, that is to use the power that they wield on our behalf to attempt to solve all the dire economic, social and ecological problems which confront our society.
A good place to start would be telecommunications policy. They should give to Sol Trujillo, and to the Telstra board who hired him, their reduncancy notices and use their majority control of Telstra to direct it to begin to fix up the mess in which deregulation, the National Competition policy and partial privatisation has left our telecommunications infrastructure.
Terje wrote: “And it would be expensive.”
Then perhaps this Government should be called to account for having effectively created this further liabilty on behalf of Australian taxpayers, in the first place. As expensive an option as renationalisation may be, it may prove to be cheaper in the long run as an alternative of allowing the current state of affairs to continue.
If their decision cannot be easily reversed, then that is all the more reason as to why the consequences of privatisation should have been thought through properly and why the owners of the Telstra, that is the Australian public, should be properly consulted about it. As I have argued above and at http://tinyurl.com/cgcuc (“Coalition Victory – a mandate to privatise?”) this has not occurred.
Terje wrote: “If you want a phone in remote Australia then buy a Globalstar handset.”
I have sent your suggestion off to some rural telecommunications users who have been grappling for years with the problems caused by the shutdown of the analogue network worth $5 billion. I somehow doubt that this is the solution that has eluded them, and so many other rural users, for all of these years, but I will let you know if it is. You may care to read one of their many letters about this.
“The second stage, T2 looks better, but only because Telstra’s share price was inflated by the dotcom boom in 2000. A far better return could have been obtained for the Australian public if Telstra had sold off its dotcom assets while the bubble lasted, a fact that was pointed out at the time [‘Foot in each camp untenable for Telstra’, AFR, 30 March 2000]. Instead, billions of dollars were dissipated in the pursuit of the global dreams of recently-departed Telstra CEO Ziggy Switkowski”
Well that’s essentially the fly in the ointment of your argument John. At any stage of its existence, public or private, Telstra can become another Ansett, Kodak or Enron, for all sorts of reasons. As you accuse, the public sector privatisation process has been totally mismanaged. Ipso facto, what gives we public shareholders any confidence that the continued public management of Telstra would be otherwise? I don’t mourn the loss of Ansett now for 2 reasons- I didn’t hold their shares and I have a choice of 3 airlines now with another on the drawing board.
The social egalitarian provision of remote area services and payments like telecommunications is no different to banking services, roads, or Centrelink payments. If we want the city-slickers to cross-subsidise their country cousins here, it makes sense to do it out of consolidated revenue, rather than the govt owning the Commonwealth Bank and Commonwealth Delis.
Observa, Telstra privatisation was a bad deal even taking into account the inevitability of periodic mismanagement.
Telecommunications carriers need to be free to time charge for all calls as well for obvious efficiency reasons, but don’t let sound economics get in the way of a ‘free’ lunch or our copper foil hats. The mobile phone market is the logical example here of how to charge efficiently and as a result landlines are dwindling.
observa,
normally, I would agree with you – regulation is not a good thing. The problem is that Telstra remains an effective monopoly. Either it needs to be broken up, or new competitors fostered. I think that VoIP gives some real hope, mainly when delivered over a wireless network (iBurst for example) but this is not realistic in the remote areas. Regulation will have to remain while there is effective monopoly power.
John,
You are appear to be assuming that Telstra’s economic performance would have been the same under continuing 100% government ownership.
It may be that some of the capital appreciation and dividend payments are attributable to the partial privatisation – the market price provides a means of assessing the performance of management, share options and shareholdings give senior management a greater incentive and so. It’s possible that even with current majority government ownership the market price also incorporates a control premium as investors speculate on the possibiltiy of a future bid for the company.
Certainly some of the deals Telstra has made in recent years – such as takeovers of Kaz and The Trading Post, the Commander spin-off and the Reach joint venture – would have been impossible or much more difficult under full government ownership. Of course, its also reasonable to question whether some of those deals (such as Reach) have added or destroyed shareholder value.
I agree that the previou share sales – especially T1 – were under-priced and spent far too much on advisers and underwriting.
I think the Australian takepayers would have been far better served if the initial stage of the privatisation has involved the auction of a cornerstone shareholding of 5 or 10% to a single investor with a smaller IPO offering.
I also think that it would be a mistake to fully privatise Telstra as it currently exists under the current regulatory regime: in most countries where a former monopoly telecom provider has been privatised, competitors have fairly rapidly captured 25% or more of the market and retail prices for telecom services fell significantly. Last time I checked (which admittedly was probably a year or more back – Telstra still had somethign like 90% of the fixed line residential market and prices were static.
I don’t pretend to know whether structural separation or more effective regulation is the better way to promote competition in this market but I have a certain bias in favor of structural separation. I see a good deal of logic in splitting Telstra into three or four companies – a media/investment company holding the Sensis and FoxTel assets, a fixed-line retailing company; a mobile company and an infrastructure/wholesaling operation.
That’d eliminate the capacity to cross-subsidize different businesses and remove the incentive to obstruct third party access to the infrastructure.
In such a scenario, there MIGHT be a rationale to retain the infrastructure company under public ownership.
I actually don’t think it would be necessary for the government to first buy-back Telstra to achieve a structural break-up. Telstra could simply hive off its principal divisions in a series of IPOs.
I wonder what the impact of the Aust/US Free Trade Agreement on future Telstra ownership will be? Last year I speculated that it would pave the way for majority News Corp. ownership – and this still seems possible to me.
Even without considering the FTA implications, does anybody know how much of the dividend stream now flows overseas? Surely this should also be considered in evaluating the extent of the privatisation disaster.
And finally, a way out – certainly Telstra will have to be broken up, but the best way of doing this is to break it up by State. Queensland Telstra, NSW Telstra, Victorian Telstra, etc. Each State-based unit would then have the option of adopting different transmission protocols, and some (maybe Qld is the most likely) might decide to revert to analogue.
We can then set up a market in messages analogous to the proposed water market, so that State telstras can define “message-sheds” based on the volume of hard-wired and mobile messages transmitted between exchanges. This will pave the way for a voucher-privatisation scheme (on the Russian model) based on individual exchanges (which would play a role analagous to dams full of water). After a while, making a phone call between Coolangatta and Tweed Heads would take weeks of negotiation to organise. Such a situation would pave the way for the creation of whole new networks, both hard-wired and mobile, created in desperation by local governments.
These new networks could then be privatised…
The issue with the bush and Telstra is about subsidizing telecommunications in remote areas where it costs more to telecommunications. Most of these costs are capital or infrastructure costs not running costs.
Setting up a “fund” to subsidise telecommunications and to provide universal access seems to be an approach that almost inevitably leads to a waste of money. Look at what happened to the money that Tasmania received from T2.
Another approach to the problem is to bring some competition to the investment side of the equation rather than subsidising the consumption side. This could bring about more efficient and economic solutions to the problem.
Leave the current universal charges for connecting to the network in place and let this be such that it is much more than the true cost of connecting in cities. That is, as it is at the moment, there is money available for spending on future capital infrastructure from existing consumption. However, instead of giving this money to Telstra let us give it the consumers in the “expensive areas” be it new suburbs, bush towns, etc. The only thing is that people can ONLY spend it on telecommunications infrastructure that will benefit them.
What this does is force the builders of telecommunications infrastructure to compete for the money. This in effect brings some competition to the construction of infrastructure NOT from sales (because the price is fixed) but from the suppliers of capital.
The people who control the money – namely those who are in the bush and other disadvantaged areas will now give the money to those best able to meet their needs.
What is wrong with this idea and why won’t it work – beyond the obvious ones that Telstra, the banks and other regulated industries and every bureaucrat in the country would oppose it as it gives power to the people.
Telstra’s main job is to provide adequate services to the public. Any fool–with the possible exception of the free market zealots advocating full privatisation–will tell you that selling off the first part of the company (and commercialisation under the National Competition Policy before it) were disastrous for the public, and rural communities in particular.
If the remainder of the company is sold off, rural communities will suffer as a result because it simply isn’t “profitable” for Telstra to invest in the bush. Only a government-owned enterprise, accountable to the public, can satisfactorily look after these communities. The costs of re-nationalisation would, I think, be worth it in the public’s mind because they understand they will be getting adequate services in return.
Similarly, there’s no reason why if it is sold off the government can’t start a new, government-owned telco to compete with a privately-owned Telstra. This would have the added benefit of maintaining a competitive structure, with people free to choose between public and private operators. Again, I think any costs would be worth it.
MB, it’s equally possible – and arguably cheaper – to ensure adequate services in rural areas by having the government pay private companies to deliver those services. I can’t speak first-hand as to the results but I believe this is the approach taken in the US.
Of course this presupposes several private service providers capable of competing on more or less equal terms. That isn’t the situation in Australia currently and is unlikely to be the situation if Telstra is privatised without significant structural or regulatory reform.
MB,
I remember Telecom Australia. It was not a paragon of excellent service. It did not adequately service the rural community. It typically took months to get a new service put into a new area – and the farmers were often told to wait years. It charged like a wounded bull for a service that could barely be called that. For example, mobile telephones were introduced years later here than elsewhere.
If you seriously try to maintain that ‘it was better in the old days’ then you are the worst type of conservative –
a stupid, or at leastan ignorant one.The partial privatisation has left us with a sub-optimal result, but it is better than what went before. Full privatisation would then allow proper regulation (see my comment above) with an even better outcome.
Well, Andrew Reynolds, it’s certainly better for those who wanted timed local calls. The mobile network has delivered that in spades. Telecom ran its own R&D operation, and employed a lot of people. The dividends stayed in Australia. If you think things are better now, remember “better” always needs to be expanded into “better for whom?” and if possible into “Better for whom by how much?”
John,
I’d be interested in your comments on Beazley’s role in telecommunications when he was in Govt. It was pretty ignominius it seems to me, with his partiality to keeping Telstra ‘strong’ and that magnificent roll out of two cables to half of Australia’s houses and none to the other half.
As you’d expect, I’m unimpressed by Beazley’s performance, but the telecommunications policy stuffup was a team effort. In particular, the great cable race occurred on Michael Lee’s watch and with his encouragement. He and I had a set-to about it in the Fin as I recall.
Andrew Reynolds,
Telecom was by no means perfect, but if you think privatisation will produce a result superior to when it was publicly-owned, you’re dreaming. Telstra has been gutted by continuous lay-offs of its staff, which has had nothing to do with achieving greater “efficiency” and everything tp do with moving its staff on to AWA’s and taking on sub-contractors.
Telecom had an international reputation for engineering excellence and have effectively wrecked their own technical capabilities. Naturally, this isn’t something Telstra likes to advertise, but anyone familiar with the company will tell you that maintenance has gone out the window. A private monopoly, however well regulated, would be the worst outcome for the public.
Ian Gould,
It’s certainly an interesting idea, but I admit I’m not all that familiar with the quality of American phone services. Perhaps if anyone else here has any first hand knowledge of the situation in America it would help.
But you’re absolutely right that this system can only work with a certain degree of competition, and not the monopoly that would result if Telstra were sold off in its present form. But there has always been a tendency towards monopoly ownership in public utilities, which explains why they have always tended to be government monopolies (if monopoly will be the inevitable outcome, better a public one than a private one).
Alternatively, questions can be raised about how profitable a privately-owned Telstra would be if subject to high levels of government regulation. Again, this comes back to the reason why public utilities have tended, at least up until capitalism’s current neo-liberal phase, to be government monopolies. They simply weren’t profitable to the private sector in a heavy regulatory context.
MB,
I suggect you have a look at my previous comments on private monopolies – I would agree that it is better not to have them. Particularly in telecoms, they are not needed and are counter-productive. It would have been a much better result if Telecom Australia had been broken up into at least three divisions and maybe four divisions by function before privatisation. It did not happen and that is a pity, but we need to deal with the situation as it is. Do we keep it in this ‘half-pregnant’ half way house or do we move on?
Public utilities, at least in the socialist phase of government, tended to be nationalised (very few were established under government ownership) because governments (both sides of politics believed that they could run them better than anyone else. The fact that they then became bloated monopolistic bureaucracies and de-facto unemployment reducers rather than real employers tends to have been forgotten. At least as a private firm they lose the last characteristic.
Telecom Australia may have had its own R&D operation employing a lot of people, but I am not aware of anything it produced. In addition, the dividends only stayed in Australia long enough to be paid out as government debt repayments.
As for building up a reputation for engineering excellence it could only have been in comparison to our near neighbour to the north (no, not Queensland – I am in WA).
As you say, JQ, the share price is depressed at the moment, portending a poor return for the government come the T3 float.
The share price is a reflection of a struggle between hope and fear. The ruling hope is the advent of the monopoly situation you outline. The fear is that Telstra will be bound down by regulation to promote some notion of general interest — the avoidance of monopoly, and regulation to promote special interest — the much-lamented, underserviced bush.
It seems that fear is winning at the minute. Investors have decided that the Government is unwilling to face the general wrath of the electorate in allowing the growth of a giant, or the special wrath of the cockies who want their broadband in the cabs of their tractors.
Of course, markets are often wrong. But is there any indication that it is wrong in this case? i.e., is it at all likely that Howard or his immediate successors will unleash the latent power of Telstra?
If the answer is “no”, then millions of shareholders in Telstra have bought a pup.
QUOTE JAMES: Haven’t we long ago passed the point in time when, for our part, our society should stop placing so much confidence in the markets?
RESPONSE: We place too little faith in markets and freedom. We are killing our society with tax and regulation. We have more tax and more regulation than we did in 1983. Privatisation and tariff removal is the only pro-market thing that we have really done. Tariffs on domestic interhousehold trade has increased. Mostly we have moved towards a more controlled and regulated economy. There was no ACCC in 1983.
QUOTE JAMES: As expensive an option as renationalisation may be, it may prove to be cheaper in the long run as an alternative of allowing the current state of affairs to continue.
RESPONSE: I see few benefits in renationalising. What does it achieve that a few selective tenders and a couple of subsidies couldn’t do? The competition landscape is wide open once WiMax hits the scene in the next 12 months. WiMax will make the installed copper base mostly irrelevant in competition terms for low population density areas.
QUOTE JAMES: I have sent your suggestion off to some rural telecommunications users who have been grappling for years with the problems caused by the shutdown of the analogue network worth $5 billion.
RESPONSE: The shutdown of the analogue network was determined by the former ALP government. It was a component of their mobile phone competition policy. It had nothing to do with the Liberal governments privatisation of Telstra. Although the Liberals have done their own technology mandating such as insisting that Telstra provide ISDN everywhere at great expense just before ADSL hit the scene.
I grew up in the country. I remember what international and long distance calls used to cost. And it wasn’t pretty.
>We are killing our society with tax and regulation. We have more tax and more regulation than we did in 1983.
Yet somehow, we’re richer, live longer and are better educated.
If we’re killing ourselves, it seems to be an extremely drawn-out and rather pleasant process.
you know, it never hurts to check one’s ideology against reality. If they disagree, it’sprobably the ideology that’s at fault.
“If we’re killing ourselves, it seems to be an extremely drawn-out and rather pleasant process.”
Spot on Ian. As a cautious libertarian I see the enormous benefits that intelligent government intervention can produce. The question is one of measuring costs. Clearly there comes a time when a ransom should be paid to certain special interests. I happen to think that in the case of the privatisation of Telstra “the Bush” can be bought off with less than Howard will eventually sign off on.
As a person who despises Howard (why should I deny it?), I would be very pleased if the millions of Telstra shareholders recognised that Howard is mining their investment for his political purposes.
Moreover, Howard’s politicking on this issue is undermining the float value of T3. Again, Howard is mining the public purse for his own political purposes. Taxpayers should take note of this. If the price of Telstra shares doesn’t rise sufficiently, in the interests of government financial probity, Howard should delay the T3 float. He won’t do that, of course.
On a more general point, neo-liberals tend to be very puritanical persons who are obsessed with the notion that happiness is impossible unless it is approached by the narrow path. And, in any case, happiness itself is either illusory or subversive to the major purpose of human existence, which is to deplete and monetise as much of nature as possible as quickly as possible.
In other words, neo-liberals have purged the ideas of Thomas Jefferson from the pantheon of liberalism. That’s both pathetic and scary.
Come on now. Jefferson was himself a politician and a hypocrite (but I repeat myself). His ideas were not hos own, and his role in the world of ideas was that of a populariser and practitioner.
That said, there is much to be said for keeping the ideas themselves around. It’s just that if you go to Jefferson, of all people, as a source you will have conceded the point at issue. He was himself someone who edited and selected, so you will not get the real thing.
By way of example, compare and contrast “the pursuit of happiness”, which itself was taken in Reader’s Digest form from Helvetius, with the more careful position which Locke enunciated.
Katz,
Looks like another straw man has popped his head up. Could you let us know which particular neo-liberal wants to “…deplete and monetise as much of nature as possible as quickly as possible…”?
What then, in that context, is a neo-liberal?
Two questions there, so an answer to both would be good.
AR, is Friedrich von Hayek sufficiently neoliberal for you?
“I have arrived at the conviction that the neglect by economists to discuss seriously what is really the crucial problem of our time is due to a certain timidity about soiling their hands by going from purely scientific questions into value questions. This is a belief deliberately maintained by the other side because if they admitted that the issue is not a scientific question, they would have to admit that their science is antiquated and that, in academic circles, it occupies the position of astrology and not one that has any justification for serious consideration in scientific discussion. It seems to me that socialists today can preserve their position in academic economics merely by the pretense that the differences are entirely moral questions about which science cannot decide.” von Hayek, 1979.
To answer your first question, as you can see, von Hayek attempts to curtail any moral dimension of economic and, by extension, social and political and ecological questions. Once that dimension is curtailed, all that remains is “scientific”, that is knowable and alienable and thus commodified.
To answer your second question, a neoliberal has difficulty distinguishing between price and value.
Now, I should mention that I have some sympathy for von Hayek’s position. But I can’t help feeling a little queasy about the notion that he doesn’t know when to stop applying this totalised vision on the world.
Ask yourself the question: “How do you apply von Hayek’s system to determine the limits of the applicability of von Hayek’s system?”
For example, under von Hayek’s model might a person sell himself into slavery? Is slavery therefore a “scientific” solution to an economic problem? And if it isn’t a “scientific” solution, what kind of solution is it?
Katz,
I think you are drawing a long bow (past breaking point) when you say Hayek wants to “…deplete…as much of nature as possible…” given this evidence.
As to the neo-liberal being a person who has difficulty in differentiating between price and value, how can a ‘value’ be calculated except in money terms? I may price something beyond what another does, but there will always be a price. You yourself admit to this.
For the specific example of slavery I would contend it is never ‘scientific’ as it is a negative sum game – if I pay fair value for your future work and you choose to work for me then you are not a slave, but an employee. If I pay less than the fair value and force you to work then some value has been destroyed for you and you are not going to work to full efficiency, destroying value for me too.
This seems to have got a little bit away from Telstra, unless Ziggy was keeping his staff loyal in a very unusual way.
But Andrew, it’s up to the seller and the buyer to decide independently whether a transaction is a negative sum game or not. Slavery is more than future work. It is the right of the owner to control of the body of the slave: his work, his scope of movement, his status under law, his (usually her) offspring. Slavery is much more than work.
Slave-owning economies, as you so rightly imply, were less efficient economically than free labour economies. But this didn’t prevent slave-owners in the South of the United States from sacrificing almost a million of their own free citizens and killing more than a million citizens of the Northern states in an effort to hang on to their “peculiar institution”. In setting that high price, they were exercising consumer sovereignty. They placed a very high price, and a high value, on slavery as an institution.
If the slave example is a little remote for you, consider this one: who owns your vote? If it is yours, why shouldn’t you be allowed to sell it for the next election, for the next five elections, for the rest of your life? You can’t of course, because you don’t own it. Neither is it owned by the State. It is owned by society. And society allows you to use it, but not to own it. So your vote has no price. But your vote does have a value. Ergo, price and value aren’t identical.
As to the question of the depletion of nature. The comment I made about neoliberals simply puts them in more or less the correct position on the following continuum: some moral and ideological positions assert that there are, or should be, a wide range of “social assets”. “Primitive communism”, exemplified by Australian Aboriginal attitudes to the world, stands close to one end of that continuum. Anarchism and syndicalism also assert a wide range of social assets. Generally, although not always, many of these social assets are sacrosanct, never to be used or depleted. The further you travel along this continuum, the wider the range of commodification. Neoliberalism stands close to the opposite end.
The cockies of the Bush are asserting a value for an unprivatised Telstra that exceeds in some way its price. And Howard isn’t about to tell them that price and value are the same thing. Thus, as I suggested in one of my earlier posts, the rest of us will pay for Howard’s pusillaminity.
Katz,
Sounds like you and I should have a beer at the pub – would be a fascinating discussion.
On slavery – you were asking from a ‘scientific’ viewpoint, not a matter of free choice. ‘Scientifically’ slavery should not exist – as per my earlier reply. If people want to fight and die for a non-scientific issue, that is their decision – witness the suicide bombings in London. A human tradgedy and a dreadful waste of resources.
On voting – many would argue that our vote is bought at every election, in promises that are appropriately discounted for (un)realism. In effect, the secret ballot is a market distortion that means that you cannot be trusted to vote the way you could be paid to, so reducing the value of the vote. It has to be bought in promises, not cold hard cash.
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On the depletion of nature – you are confusing depletion with use. All humans use nature. The (Marx’s ugly head rears here in your terminology) ‘primitive communism’ of the Aboriginal Australians did not stop them wiping out the last of the megafauna in Australia, or systematically burning the bush to create the open plains in which they could hunt. Try also telling them that other tribes had the same rights to the dreaming places of their ancestors as they do and you will find out how far social assets extended.
Yes, they socialised assets amongst the family group – but even most ‘neoliberals’ do this. It is called being human.
Anarchism and syndicalism, in asserting a wide range of social good, were wrong. Once the socialism extends past a close, probably related and mutually dependant group it breaks down. If all of us were as good, wise and knowing as (Christians assert) Christ was then it may work. Otherwise, it will not. ‘Neoliberalism’ in that sense, is the simple recognition that humans interact best when there are prices to be paid.
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On your last point. Before continuing, I would say that Howard is not a ‘neoliberal’, he is an old school conservative, with some economic liberalising tendencies.
I would assert that, while at first sight unscientific, a naked bribe of this sort may be logical and more efficient that leaving Telstra the way it is – provided that it frees the regulator to actually do what they should be doing – regulating for in the interests of Australia, not trying to maintain a share price in preparation for an eventual float. You could also argue that this is the price being paid for the NSW and Queensland farmers’ votes.
Got nothing against drinking AR.
I’d be a bit dubious about terming decisions that turn out to have positive outcomes as “scientific” decisions. Smacks a bit of teleological thinking.
On the question of “nature”, I mean it in the Lockean sense. Locke is, after all, one of the major progenitors of liberal, and by extension, neoliberal thought.
Locke wrote against Hobbes, another great but widely unacknowledged progenitor of liberal thought. Hobbes’s great insight was that nature was finite. If it were infinite then there would be no cause for struggle and conflict. But because nature was finite then struggle and conflict would be inevitable and never-ending. Hobbes therefore proposed a “Leviathan” to regulate human affairs, a power beyond the reach of the rest of humanity who would repress them for their own good.
This idea horrified Locke. He counter-proposed a world where nature was boundless. (This wasn’t such a stupid idea in an era of European intrusion in the Americas, Africa and Asia.) Given that nature was boundless, then there was no necessary conflict between humans over access to nature.
Thus, by “depletion” I don’t necessarily mean “despoliation” I merely mean ownership and commodification. According to Locke, this commodification could go on ad infinitum.
Now we return to von Hayek. He is very much heir to optimistic Lockeanism rather than pessimistic Hobbesianism.
Nevertheless, one classical definition of economics goes like this: “Economics may in principle be, and increasingly is, applied to any problem that involves choice under scarcity or determining economic value.”
Does that sound more Hobbesian or more Lockean to you?
Terje wrote: The shutdown of the analogue network was determined by the former ALP government. … It had nothing to do with the Liberal government’s privatisation of Telstra.
Of course, you are correct in that the Keating Labor Government and its then Telecommunications Minister Kim Beazley are primarily responsible for this fiasco. I didn’t follow this issue closely at the time, but it has been said that the then Opposition had it within their power to save the analogue network, but chose not to. If this is true, then they must be made to accept their share of responsibility.
The past record of the Labor Party should not be glossed over, however, they should be given every encouragement in their current opposition to privatisation. (If you would like further information, could I commend these two articles, reprinted from Dissent magazine.) Let’s hope that this time, they remain both strong and consistent in their opposition, and don’t end up being so ‘opposed’ to privatisation that they allow it to stand when they win government again, as they were going to with the GST.
My points were not confined to the issue of privatisation alone. I believe that the corporate business model under which Telstra was required to operate should be abolished and it should be made to operate as a public service again, perhaps in a fashion simiar to the Housing Trust of South Australia, which never cost taxpayers a cent.
Whether the promised WiMax technology you refer to will be the end of the effective natural monopoly of telecommunications remains to be seen, however at the moment telecommunications remains a natural monopoly.
In any case, why should the community, through their democratic parliamentary institutions, be constrained by laws from providing tis own telecommunications services? After, all that is the essentially the unstated rationale behind the case for privatisation. This strikes me as very unnatural, as well as undemocratic, given that a very large majority of the Australian public support government ownership of Telstra.
Why is it necessary for this responsibility to be handed across to a private corporation, which is at best a small minority within that community, and, at worst, a body from completely outside that community (as was the case in the infamous privatisation of water in Bolivia around 2003)? In either case, experience has shown that such corporations nearly always put their own short term interests ahead of the broader long term interests of the community as a whole. The corporate business model has largely decided Telstra’s behaviour since it was changed from a public service into a corporation arround 1977, memory serves me correctly (can someone confirm this?)
This, rather than the fact that it was government owned, would be the main cause of many stories of dissatisfaction from the years prior to partial privatisation. Another factor of course, is the development of technology, so your example of costs of overseas calls back then is largely irrelevant.
Of course featherbedding, was also a factor, but it should have been possible to fix this without resorting to deregulation, privatasition and the chill wind of competition. I would suggest that openness, transparency, greater accountability, effective grievance procedures, and better Freedom of Information laws would have been practical means to help achieve this end.
The case that it was, instead, necessary to destroy the jobs, working conditions, training oppportunities and career paths of many of Telstra’s workforce has not been established in my opinion.
One argument which has been used against government provision of services, is that it “crowds out” the private sector. Because Optus and Vodaphone felt “crowded out” by Telstra’s analogue mobile phone network, the Labor government made that idiotic decison to shut down the analogue network which had cost taxpayers (or at least was valued at) $5 billion.
As a consequence, we have, today, the ludicrous situation where many rural users (even a few urban users, according to a front page article in last Saturday’s Courier Mail) don’t have access to even the level of mobile services that existed prior to 2000, whilst urban communities have up to 6 (I have been told – I can name 4) mobile networks all covering the same geographical regions. Many residents are in fact fighting against the excessive encroachment of disfiguring mobile towers on their neighbourhoods.
Terje, who do you think utimately pays the cost of all this duplication? Do you know of any evidence that would show that the claimed efficiencies of competition could possibly be more than the extra cost of building six mobile networks instead of one?
If the objective of telecommunications policy is to mould the sector to fit the neo-liberal economists’ model of how the world should be, it makes a small amount of sense, however if it is to provide all Australians with the maximum possible benefits from advances in technology, it makes no sense whatsoever.
This discussion seems to have drifted from the issue of Telstra. For the record Andrew Reynolds, I am not in favour of keeping Telstra in its present state. Personally I thought the proposal put forward by Lindsay Tanner when he was Labor’s Communications spokesperson of breaking it up into its core maintenance component, which would remain government-owned, and its non-core businesses, which would be sold off.
As for the question of competition, I am not opposed. In fact, it can benefit the industry. But this being a pluralist society, I think the public should have a choice, not just between private competitors, but also between public and private ownership. You seem to be beginning from the premise that private enterprise is inherently more efficient than public, disregarding the fact that they operate along different lines.
A private enterprise is run solely for profit, in the interests of its shareholders. Public enterprises are run–or rather should be run–in the interests of the public. Economic activity isn’t detached from social activity, and there are other values at stake besides economic efficiency.
Having said all that, public enterprises should be run as efficiently and openly as possible, and they can be run this way in the context of public ownership, including in competition with the private sector. You seem to disregard this possibility altogther, instead plumping for privatisation like a good free-market zealot, even if a private monopoly is the result. I thought “free enterprise” was about competition?
Katz,
In the short term nature is bounded, as are we, by what we can get access to and the technology that can be employed. In the long term the proper use of the price mechanism channels development (both of nature and technology) into more efficient uses, reducing the ‘boundedness’. A perfect example would be the expansion of humanity – a century ago any attempt to put 5 billion people on the planet would have resulted in unbounded misery and death. Now (although distribution systems do not properly match it) we can support that number and more with dietary sufficiency. So, economically, short term Hobbeans, long term Lockean. I do not think even Locke meant that it would all be available right now.
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On ‘depletion’ – you and I obviously have a different dictionary. To me, depletion means “The use or consumption of a resource, especially a natural resource, faster than it is replenished” (www.dictionary.com).
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I tend to be an optimist because I believe things are getting better and I believe the evidence backs me up. Fortunately the days of being tied to a copper cable for access to the electronic world are nearly over. That is progress.
John, Alan Clark entered the debate on your fine AFR article by suggesting that the proceeds from the sale of the rest of Telstra could be used as justification to fund more Liberal largesse. But surely we should all be pointing out that the sale of the rest of Telstra will NOT enhance Australia’s economic or fiscal capacity to ‘afford’ big new infrastructure projects. If the Government wants to spend more on regional infrastructure and the economy has surplus productive capcciity, it can do so without selling Telstra. Given Australia’s low level of public debt, additional infrastructure can be readily financed out of government borrowings over the medium term. This would have broadly the same macroeconomic effect (on interest rates, inflation the external account deficit etc.) and the same effect on government net worth (and credit ratings of Australian governments) as using the proceeds of asset sales for that purpose.
The sale of Telstra should be assessed purely in terms of its benefits to consumers and the community – not what it can supposedly do to repair our infrastructure (regional or urbvan). Isn’t that right John? And shouldn’t Labor be pointing this out?
MB,
I agree they can be run efficiently – but this rarely happens. The reason is that the discipline imposed by having to pay a true cost for the capital employed rather than being subject to the whims of a minister with political, rather than commercial, outcomes in mind will normally end up corrupting the process. Ministers change regularly so short termism and opportunism are the order of the day. Capital markets have a much longer view.
The other objection is that government ‘companies’ normally end up being monopolies – either by regulation favouring the government entity or through access to cheaper government funding driving anti-competitive behavior. When they get privatised, as I said above, they typically get privatised as monopolies as this gets the highest price, ignoring the costs to the economy. This is a good example of more short termism from government.
You may want to re-read some of my comments above re how it should have been privatised. I think it should have been broken up into at least 3 and possibly 4 bits – Wholesale, Retail, Infrastructure and maybe maintenance seperated from infrastructure. Each would then have a strong incentive to deal with competitors to the others. That said, that cannot be done now without re-nationalisation (again, see above).
AR, Does the evidence that supports your optimism include the second law of thermodynamics? I’ll go right by the usual “in the long run” joke and get to the real long run truth.
The second law of thermodynamics insists that chaos cannot be avoided. Nature has its own timetable independent of human wishes, human will or human intellect. Nature is thus inherently bounded.
In the medium term, perhaps, humans will seem to do pretty well for themselves, advancing technology, turning all that copper wire into arthritis bracelets for the growing army of relatively viable geriatrics whose lives have been made possible by advances in modern medicine, and the like.
But in the long term we cannot escape nature, either as individuals or as a species.
In any case, to return to our original point of departure in regard to the way neoliberals understand and value “happiness”, can von Hayek’s thesis about the potential human intellect be both optimistic and scientific at the same time?
I say no, thus disputing either the completeness or the coherence of his thesis.
Katz,
The second law is, it is true, an ultimate bound on our abilities. I expect that will truly affect us in somewhere over 4 to 5 billion years, when our current sun will cease to be useful to us. Provided we have managed to get off this planet by then, we can probably go on for another 6 to 7 billion years after that. I think the debate on Telstra will be long settled by then.
I would disagree with you about optimism being unscientific – without the hope that things will get better as a result as a result of science, what would the value of science be? I would contend it would be zero as the time spent doing science could be better spend digging up the food for tomorrow. As, to me at least, things are getting better science clearly has a value and therefore optimism is also scientific.
I think I got the logic right – I have other things on my mind at the moment.
Faith = Science?
Why do you bring up faith?
Fred, you are right of course. Sale of financial assets like Telstra has no effect on the desirability or otherwise of particular infrastructure investments (except for second-order effects arising from changes in wealth distribution and so on).
Telecoms was never a natural monopoly. They had to nationalise all the competing operators to force a monopoly on us. Telstra is a result of that government initiative.
Terje wrote : Telecoms was never a natural monopoly.
Terje, I suggest you read the Wikipedia definition of a natural monopoly:
More specifically, this means that once someone has built a telecommunications network covering a single geographic area it is stupid and wasteful to build a second telecommunications network to cover the same geographic area. (Although Telstra and Optus did precisely this when they both rolled out fibre optic cable to cover the same geographic areas in the cities in the 1990’s).
I would add that it is almost as stupid to have two mobile phone networks covering the same geographic area. Having five, as we now do in Australian cities, is insane.
Terje wrote : They had to nationalise all the competing operators to force a monopoly on us. Telstra is a result of that government initiative.
Garbage!
Read this history of telecommunications Our telecomunications service was government owned from well before Australia federated. If the 19th century there were many competing private telegraph operators, who were nationalised, by the British colonial office, then no reference has been made to them in this article.
“Telecoms was never a natural monopoly.” Are you sure that you know what the term “natural monopoly” means? It refers to situations where, if there were one supplier, that supplier could make a profit, but if there were more than one, none of them could make a profit.
“They had to nationalise all the competing operators to force a monopoly on us” Huh? The telegraph network in Oz was publicly funded right from the start. In a sense, I guess, it was “nationalised” in 1901, because section 51 (v) of the constitution handed that authority over from the states to the federal govt, but, um…
Can an economist answer my previous question?
Part of the money collected by Telstra from its connect charges is now marked for bush infrastructure. That is, Telstra because of its monopoly and because of regulations already collects money to be used for future infrastructure for the bush. This amount is over and above the amount needed for a fair return on capital and for running the system.
Instead of giving it directly to Telstra let it be given to the people in the bush. Perhaps to the shires, perhaps directly to individuals. The trick is that the money can ONLY be spent on telecommunications infrastructure in the bush. Thus the bush can now decide from competing telcos who will build their infrastructure. The money (which remember can only be spent on bush infrastructure) is transferrable and can be sold and the telcos have to buy it. It is like a reward and it has to be used within a certain amount of time otherwise it “disappears”. Telstra may be the only buyer and so they may get it for zero cost but at least the other telcos will have the chance to make a bid.
Why won’t this work? If it does work it solves the ongoing problem, it brings competition to the provision of infrastructure and it can be used for any infrastructure where there are regulated prices.