The Australian’s Margin Call column has an amusing comment on the privatisation of Telstra. The policy is rather like Voluntary Student Unionism in that it’s been pushed for so long that no-one in the government can abandon it, even though it no longer has any obvious rationale.
The fact that selling Telstra will make the public worse off in fiscal terms has finally sunk in and I suspect that Nick Minchin and the Finance Department (once the leading agency pushing a sale) would be happy enough to drop the entire idea.
John Quiggin 
One thing needs to be brought out in looking at “track records show that businesses are less profitable under state than private ownership”. It’s the same fallacy as concluding that British rule in India was more oppressive than in the Princely States. The catch is, it’s not a random sample. Just as the British took over the failing client states, so also a proportion of the motive for state ownership is always to cope with failure when privately run.
So, while it is certainly true that – other things being equal – private ownership is better in the sense of more efficient than state ownership, it isn’t true in all cases and it isn’t true in some of the cases where failing businesses or ones with faulty externalities were taken over. You need to interpret the statistics more carefully than just by looking at the track records to see how much more efficient privately run businesses are in general.
My last response to James was removed, and I would like to know why.
James, you comment on the “arguing ploy” are wrong. I was not using a ploy — I was stating a fact. And you blatently lie about what I am saying.
You then argue the non-sequitor that because some privatisations weren’t done perfectly, therefore private industry is not more efficient than public industry. That is patently absurd and you should be embarrased.
The privatisation of CBA was perfectly successful. The free provision of a service is not the measure of efficiency. Your anicdotes are irrelevant to real argument. The evidence of the success of mostly market economies versus mostly socialised economies is beyond argument.
Your suggestion that only advocates of privatisation are greedy is both stupid and wrong. You also misunderstand the basic assumption of capitalism… which doesn’t suprise me.
John Humphreys, I may have oversimplified your point about socialism, so, perhaps, an apology is in order. (But I would take issue with it being called a ‘blatent lie’)
Nevertheless, I think it is a diversion away from the issues at hand, to discuss whether or not the implications of one policy here and now necessarily leads us to ‘socialism’ if we follow it to its logical conclusion.
I think my points about other privatisations were more than anecdotal. but I will have to let other people judge for themselves.
If you say that “The privatisation of CBA was perfectly successful”, then I may be able to rest my case.
Successful for whom? Perhaps for stockbrokers and institutional shareholders, and not rural Australia, which has suffered decine as a result of the withdrawal of branches, and the loss of jobs.
Somehow the publicly owned Commonwealth Bank managed to freely provide services that were vital to ordinary people and still hold its own against competition from the supposedly more ‘efficient’ private banks.
If you think that the Australian public was better served by those circumstances than they are by the circumstances of today, then I think millions would emphatically disagree.
If you are to argue that the full privatisation of Telstra will be ‘successful’ as the past privatisation of the CBA was ‘successful’, then I don’t think this will help change the opposition to privatisation, which stands at 70%.
Yes, I do find the assumptions of neo-liberalism to be offensive, that is, that I am incapable of working hard and well without the promise of riches on the one hand or without the threat of uneployement on the other.
Andrew
Is taxation to be used to subsidise private investment? There will be no more government owned enterprise so investment won’t come from its revenue, or its debt.
That leaves the question of private investment in telecommunications infrastructure in rural and remote areas. Where will it come from and what will be the effect on services and market prices in these areas.
Correction
The sentence, in my last post, which read :
“If you think that the Australian public was better served by those circumstances than they are by the circumstances of today, then I think millions would emphatically disagree.”
… should have read :
“If you think that the Australian public are being better served by the circumstances of today than they were by those circumstances, then I think millions would emphatically disagree.”
My apologies.
James,
For what it is worth I think you had it correct the first time. That is not to say that the second one is not also correct. They are not mutually exclusive.
Terje.
Terje,
Yes, I appreciate the two statements are not mutually exclusive, but I think most people would have understood my point. Sometimes I will choose to sacrifice complete literal precision of meaning in order to make a sentence easier to read.
Anyone who does not own Commonwealth Bank shares has undeniably lost out badly as a result of its privatisation. The profitibility of all banks has rocketed and the main contributor has been the hiking of bank charges. They clearly bear little relationship to the costs incurred by the banks in order to provide theses services.
Market fundamentalist theory would hold, to the contrary, that the competition would have forced all the banks to reduce their charges to some point considerably closer to costs incurred. This has clearly not happened, so, clearly, what is effectively a cartel has been formed.
Had the Commonwealth Bank remained in public hands and had only been required to meet its operating costs, none of the other private banks would get away with the outrageous charges they now impose on their customers.
James – I believe your analysis is a bit off the mark. The reason for the increase in non-interest revenue has been due to deregulation of lending which has caused a significnt tightening of interest rate margins, caused by competition in bank lending. (You may recall Costello telling people to change banks if they didn’t drop rates in line with lowerings by the RBA.)
The banks do closely track fees versus costs and this is clear in any analysis put out by most market commentators. They graph the bloody stuff to show whether costs v fees are narrowing or widening. So your claim about “clearly bear little relationship to the costs incurred” is a load of crap.
There is no Cartel – look up the definition and at the same time you may want to look at the numbers of both bank and non-bank lenders and deposit tasking institutions. There is heaps of choice. Anybody who is complaining about bank fees are either to lazy to go to the effort required to find the best offerings for the services they want or are not prepared to pay a reasonable rate of fees for serices provided or modify their banking behaviour to reduce the costs.
And finally, as for CBA share ownership – the vast majority of families have some type of superannuation and the vast majority of superannuation funds will have bank shares including CBA, so to argue that we, the majority, have missed out on investment returns is a load of bollocks.
I suppose you think that banks are bad because of the BIG profit numbers that they make – wouldn’t have anything to do with the fact that they are BIG companies that have LOTS of shareholders who demand a commercial rate of return on their investments including their superannuation?
This capitalism thing (that helps the internet operate by the way) is a bastard isn’t it!!!
Razor,
Yes, margins from interest has gone down, but it is well understood that bank profitability has gone through the roof since the Commonwealth Bank was privatised.
This is clearly the result of excessive, and often close to ruinous, charges, for example, for bounced cheques.
The banks’ customers, and their workforces have both paid for these profits.
I expect that it is highly dubious that the trickle of income that the Mum and Dad Investors out there would recoup through their superannuation investements what they pay for in additonal charges. If we take into account the enormous fees that fund managers help themselves to, the advantage would be even more dubious.
Yes, you might judge as lazy, people who can’t be bothered changing banks. I would say people have better things to do with their time than trying to understand the differences between how different banks charge for their services (or, for that matter, trying to understand different mobile phone billing systems). In fact, it has often been the case, in the past where people, I have known, have taken the effort to have made a switch to another bank to get away from excessive charges, only to find that, in time the bank they have switched to has also started to raise theit charges and introduce the same charges that they though they had escaped from.
When the Commonwealth bank was publicly owned, people could stick with it in full confidence that the charges were fair, and get on with more important things in life.
I think banks are bad for a lot reasons, but mostly because they take far to much out of our pockets these day for the services that they provide.
I would also add, the Commonwealth Bank’s holding in Gunn’s, who are woodchipping Tasmania’s old growth forests shows that it has little social conscience.
The banks don’t form a cartel but an oligopoly. With those, as I recall, market forces tend to produce ratchet-like behaviour, in which they more readily raise than lower their prices. This produces somewhat similar results, and of course rent seeking behaviour makes them call for, or resist less strongly, those forms of regulation that tend to accentuate this sort of thing. Conscious cartel behaviour isn’t necessary to explain it, though it looks and behaves much the same from an outside perspective.
James once again you are wrong when you say – “but it is well understood that bank profitability has gone through the roof since the Commonwealth Bank was privatised.” Bank profitability has not gone through the roof – profit margins remain relatively stable over time. What has increased is the amount of business being done as both the economy has expanded and the range of products and services available from banks has increased. The amount of profit has increased not the profitability and this is a size factor.
If an individual is in a situation where bank fees such as a dishonoured cheque fee would be ruinous then they probably should be on the fee free banking product offered for low-income earners. As for the actual dishonored cheque fee – i just get who ever bounced the cheque to pay my side. It ain’t that difficult.
Your argument that the returns to superannuation funds from bank shares being eatenby the “enormous fees” of fund managers is pure rhetoric. The banking sector is more than 20% of the ASX and as such forms a signifcant part of most Australian Share portfolios. Fund Manager fees are based on a competitive market. I am interested to know what you think is a reasonable rate for a Fund Manager to be paid to do what they do at both the corporate and personnel level. Do you think everybody is worth the same wage? I am also confused by your reference to “trickle of income” – are you refering to the dividends paid to the super funds or the income streams in retirement? If the case is the dividends then you are blatantly ignoring the significant increase in the value of banks and how fortunate Australia’s Mums and Dads and there super funds have been because of this. Australia is not too many years off having a TRILLION dollars in superannuation. If it is the retirement income streams you are referring to then if you look at the figures you will see it is growing into a significant torrent in the future.
“When the Commonwealth bank was publicly owned, people could stick with it in full confidence that the charges were fair, and get on with more important things in life.” Now that is a marvellous statement of faith in the public sector if ever I have seen one. I suspect you are depserately unhappy in this terrible capitalist nation of neocons – perhaps you should move to somewhere that suits your desire for piss-poor economic performance such as Germany or France, maybe even North Korea.
If you think banks charge too much get on to one of there low/no fee accounts and do your banking in a manner that doesn’t attract fees. And, as I said before there are heaps of options in the market place.
As for your concern about the ethics of CBA or Gunns, what Gunns do is completely legal. If you have an issue with a legal activity that is your choice and you have lots of ways of exercising that choice. I understand ethical funds have done OK recently.
I don’t have any burning flame for the banks and I sound like someone from the ABA and the reason for that is that I don’t mind people being critical of things, but not just “because I don’t like them”. Produce a reasoned point of view based on facts and I won’t go after you, but these unsubstantiated criticisms are just asking to be shown up for the old todger that they are.
P.M.L. – wages are sticky downwards, too. Does that mean that there is an oligopoly in play? Just having a dig. I think that there is plenty of competition in the banking sector to keep prices competitive and this is evidenced by the interest margin squeeze since deregulation. If you want Cartel look at the retail fuel suppliers!! Now that’s a cartel if ever I saw one despite the best efforts of the ACCC.
Razor,
OK, for my part, I have to confess that my assertions about banks don’t meet rigid academic standards. They are based on my recollection of article after article, I have read, of soaring profitability of banks whilst new charges have been introduced or existing charges increased, and they are based on my own personal experience of seeing bank charges becoming a very substantial part of my cost of living expenses.
What you have written has not convinced am that I am wrong, and I don’t believe that it will convince the impression, popularised a few years ago in the movie “The Bank”, that the majority of Australians have formed.
Perhaps you might consider providing figures that would prove that this impression was wrong? As an example, share prices and dividends paid out to Commonwealth, ANZ, Westpac and National Bank shareholders in the years since privatisation. (I would do so myself, but I don’t have them on hand.)
Razor wrote : What has increased is the amount of business being done as both the economy has expanded and the range of products and services available from banks has increased.
The expansion in the economy has largely been with property speculation, which has created little tangible wealth, but has caused the cost of housing to go completely beyond the reach of ordinary people. No doubt the “expanded .. range of products” includes the loans made to home owners, for the purposes of consumption made on the basis of their inflated home values.
Regarding superannuation, it is well understood that it is a racket. Huge amounts of money that should have gone into retirement income, has instead gone to line the pockets of Fund Managers and sales reps. Most ripped off are casual short term workers, many of whom have been forced to join a large number of funds and have had a disporportionate amount of their super eaten up by fees. It should be a first order political scandal the way Australian workers have been so poorly looked after by successive governments in this regard.
If you choose to defend the superannuation ‘industry’, as it is then fine. I think it will help others to decide how much credence to give to ther rest of what you write.
Razor wrote : If you think banks charge too much get on to one of there low/no fee accounts and do your banking in a manner that doesn’t attract fees. And, as I said before there are heaps of options in the market place.
Nonsense! I spoke to a former bank worker last year. He told me that the banks made it as difficult as possible for customers to open fee-free accounts. But, by all means, please tell me of any of which you are aware.
Razor wrote : As for your concern about the ethics of CBA or Gunns, what Gunns do is completely legal. If you have an issue with a legal activity that is your choice and you have lots of ways of exercising that choice. I understand ethical funds have done OK recently.
So, you think that the legality of the rape of Tasmania’s forests makes it OK?
You know perfectly well that there is no way that resorting to ethical investments will have any noticible impact on the destruction of our rainforests here, in Brazil, Africa and South East Asia. It will only happen when Governments find the political will to stand up to corporate interests and forget about how the markets might react.
Razor wrote: “When the Commonwealth bank was publicly owned, people could stick with it in full confidence that the charges were fair, and get on with more important things in life.� Now that is a marvellous statement of faith in the public sector if ever I have seen one. I suspect you are depserately unhappy in this terrible capitalist nation of neocons – perhaps you should move to somewhere that suits your desire for piss-poor economic performance such as Germany or France, maybe even North Korea.
Perhaps you should stick to the point I was trying to make about the purpose of having a publicly owned bank without wildly speculating about what my underlying motivations might be. It happens that my views are shared by a very wide cross section of the community. Are you also going to tell them to all go to North Korea?
If public enterprises are so inherently inefficient, why was it that the Commonwealth did not collapse years ago, with so much competition from all those incomparably more efficient private banks?
Again, the simple point that you have avoided responding to, is that the Commonwealth bank, under public ownership kept the other banks honest as it had no inherent need to gouge its customers for every possible cent. If the private banks had raised their charges to the extent they have today, then they would have not kept many customers.
That wide cross section of the community is largely in the employ of the government, so naturally they advocate an increased role for the state sector. I have never yet met a public servant who advocated a reduction in the size of the public sector (I know, there are some, but they are few and far between).
And yes, the country would be greatly improved if the majority of the more left-leaning members of that group would leave for North Korea. Let’s start with the Australian Education Union – from their recent comments they’ll feel right at home there and if we get rid of them we’ll at least give those kids whose parents can’t afford private schools a decent shot.
James,
I would suggest you do a bit more of a study of the area of banking regulation in the period from the end of World War II up until the current phase of de-regulation, and in particular in relation to the evolution of the Banking Act 1959 before commenting further on this.
In practice, all of the banks were so heavily regulated they may as well have been nationalised. There were no incentives to do anything other than follow the 3-6-3 rule of banking (borrow at 3%, lend at 6% and be on the golf course by 3). If any bank were seen to be getting ahead the Reserve would have clamped down. Don’t forget that the Commonwealth Bank was the regulator for a long time and simply acted to keep the industry stable. When the RBA was established almost all of the staff had been Commonwealth Bank personel and it took a long time before that institutional memory was lost.
The Commonwealth Bank did not keep them honest – it kept them lazy, over capitalised, under incentivised and slow. You were being gouged, not by fees in a transparent way, but through the hidden mechanism of the net interest margin.
The current fees / interest structure is much more efficient, transparent and equitable.
BTW, I am not an employee of a bank (although I have been in the past).
Anon,
“That wide cross section of the community is largely in the employ of the government, so naturally they advocate an increased role for the state sector”.
Figures please.
Razor, you’re confusing the issue. The banks do form an oligopoly, which we can test quite separately, and that in its turn does provide downward stickiness.
But you can’t run it the other way around and conclude that downward stickiness is evidence of oligopoly.
As it happens, the downward stickiness of wages comes from other causes, which have been established in their own right just as much as the conditions for oligopoly.
Andrew Reynolds,
I am not in a position to argue over the degree of regulation of the banking sector since the Second World War and of the merits of the regulation that existed. Of course there can be such a thing as too much regulation, as well as too little, but that is beside the point.
The point is are we allowed as a national community to run our own banking service, or, for that matter, our own telecommunications service?
If the Australian community want to, rightly or wrongly – and all the evidence shows that we do – then what right do market fundamentalist ideologues, whether they work for the current Government, for banks, investors, telcos, the IMF, the US government, or whatever, have to dictate to us that we cannot?
This should be rightly be held as a violation of our sovereignty as a national community.
There is every reason to hope that if a publicly owned bank, or for that matter, a publicly owned telco, were run in a transparent fashion and fully accountable to our parliament and subject to effective Freedom of Information legislation and proper grievance procedures, then it could be run efficiently and to the benefit of the Australian Commmunity.
Even if we were to accept Andrew Reynolds argument that banking was paralysed by over-regulation, then at least that should have been first tried, rather than throwing the baby out with the bathwater, which has led to the current situation, which clearly most people, find to be far from satisfactory.
James,
I would be fascinated to see ‘all the evidence’. While a properly constructed, scientifically rigorous survey may have been conducted on this point, even that would not be reason to turn back. While it is a more extreme case, all the evidence also says that we as a community support the death penalty. Personally, I disagree.
A bit of background. Our system of government is that of representative democracy – we appoint representatives to Parliament who then select from amongst their number a government that commands the support of the House. They then legislate. They are not (or should not be) dictated to by people who “…work for the current Government, for banks, investors, telcos, the IMF, the US government, or whatever…”. If you have evidence to the contrary, let us see it. If it is occurring, I agree it would be a violation of our sovereignty.
Their function is to look at the evidence and act in a way that best suits the community. If the community feels that they have not done so, the community has the right to boot them out at the next election or to convince their representatives to do so earlier. Both of these events have happened in Australian history, although the former is more common than the latter.
Merely because a particular opinion poll says that the community wants one thing or another is not a valid reason (in isolation) for that to happen.
.
On to banking in particular. Banking remains heavily regulated. For anyone who doubts that I suggest a comprehensive read of the Banking Act, the Corporations Act, the ASIC website (as the corporate regulator), the APRA website (prudential regulator) and the ISFB website (the professional association). For a little light entertainment, I suggest a perusal of the Treasury and Finance Departments websites as well. APRA and ASIC also pay regular and irregular visits to all institutions. The Financial Services licenses they are all required to have (some need more than one) also impose heavy burdens. They are also required to have an annual audit from a firm of auditors. If anything the industry remains over-regulated.
I would also make the point that nowhere on the planet has a publicly owned bank prospered for long in competition with private banks. You either end up in a situation where the public bank captures the regulators and the regulations end up prohibiting other banks from competing with the public bank or the other banks are simply prohibited or the public bank goes broke and needs constant bailouts.
It has been tried and tried again and, personally, I would not want that experiment to be tried again with my money. You are free to try and find a successful example – but use your own money, please.
Andrew Reynolds,
No polls have been taken recently on the Privatisation of the Commnwealth Bank. I would guess that oppostion to privatisation would be rougtly at the same level as the 70% opposition to the privatisation of Telstra. Certainly no government won office on a promise to privatise the Comnwealth Bank, and as we all know, Keating broke his election promise not to fully prvitaise the Comonwealth Bank. So I would suggest that the evidence for popular oppsition to the sale of the Commonwealth Bank is considerably stronger than the evidence for popular support.
Whilst I also oppose the death penalty, I don’t believe that community support for the death penalty is reason to allow parliamentarians to flagrantly disregard the views of the community on any other issue which they please, which has clearly happened with privatisation in regard to at least the question of the Commonwealth Bank as well as Telstra.
If the price to pay for having a more accountable democracy is that we risk having the death penalty back on the books, then that is a risk we must accept. Personally I don’t believe that community support for the death penalty would survive if a truly open and vigorous debate on this question, and even if it were introduced, it would not survive for long in a healthy democracy.
Your point about representative democracy is nice in theory, but let’s not forget how the last elections were manipulated. John Howard and his ministers hardly mentioned the topic of Telstra. It was never mentioned in any of Howard’s election speeches and he only mentioned it briefly twice during the whole election campaign by my count. Senator Helen Coonan refused to answer a direct question at one point “why should (Telstra) be privatised?”. Part of her response included:
Only Coalition candidates who claimed to be opposed to the sale seemed to have anything to say about privatisation during the course of the campaign.
I wrote more about the manipulated 2004 election campaign here.
Clearly with 70% opposed to the sale now which is consistent wtih every poll taken on the issue of which I am aware, the Coalition would have lost badly if this issue had been given more prominince during the election campaign.
The simple facts that this Government is taking from the public an asset which rightly belongs to them, and which they have paid for, without their consent.
All this may be acceptable to you, but it is not to me.
The simple facts are far from that, James. Previous governments made a decision to nationalise and monopolise the telecoms infrastructure in this country. If that then means that the current government cannot, after due parliamentary process, sell it off and in the process reduce national debt, then we get into the ridiculous situation Brazil faces, where the majority of government spending and investment is mandated in the constitution.
No government went to the polls in this country saying that they were going to deliver a nationalised telecoms infrastructure, so while the intent was clear due to a couple of prior attempts to achieve it, and despite Labor attempts to grandstand on it, to say that the election was manipulated on this basis is the only long bow being drawn here – and that past breaking point.
.
No government will oppose ‘the will of the people’ (if opinion polls can give that) without due consideration. ‘The public’ has been wrong before, I maintain is wrong on this if they truly are against it and ‘the people’ will be wrong on other issues into the future.
Personally, although I disagree with him, I find the economic arguments that our good host puts forward more persuasive that the populist ones you are trying to make. Government by opinion poll is not the way to go, and this seems to be the substance of your argument.
Andrew Reynolds wrote : … so while the intent was clear due to a couple of prior attempts to achieve it, … , to say that the election was manipulated on this basis is the only long bow being drawn here…
The intent was obvious to me, but clearly not to many electors who voted for the coaliton. As I have shown, this was no accident.
If Government members were so confident of their case for privatisation, why should they have avoided any discussion of the issue during the election campaign? Why did no single Government minister accept any of the challenges put to them to debate the issue? What did they have to fear from a robust debate of the issue?
Clearly the case for privatisation had no merit and the Government candidates well understood that they stood no chance of being able to convince the public, solidly opposed to privatisation, of their case.
“If public enterprises are so inherently inefficient, why was it that the Commonwealth did not collapse years ago”
Because it had the government backing them up of course, not because they were efficient.
I have no complaints about my bank service. I may minimal bills, have low interest rates, can live as a traveller doing all my banking over the internet at no charge, and have a variety of different financial products that didn’t used to exist. It made sense to close branches. Good.
I’m not the sort of person who thinks we should still have a horse and buggy industry just because “mom and pop” used to work making horse shoes.
Your arguments for socialising banks & telecos etc are universal arguments — so where do you draw the line and why? If the government is so good at running normal commercial businesses, is there any role for private business? If so — why?
And (once again) if you just want the govenrment to run business for the return on their investment, then why not have a diversified portfolio?
Ironic isn’t it – they brought in a Yank amidst much hand wringing by the anti-sale brigades. He has succesfully wiped out about $2 Billion in shareholder value and placed the sale in jeopardy.
I expect to see T-Shirts with Sol on them alongside Che!
I am suprised the major shareholder hasn’t sacked those Executives responsible for what has happened recently. I completely understand and support the issues raised about regulation, but at the same time there ismore than one way to skin a cat or call a spade a bloody shovel.
James,
Unless you could honestly say that, if you asked anyone or everyone voting the question “Do you think that the coalition is likely to try to sell the government’s remaining shareholding in Telstra if returned to government?” and expect to get the answer ‘No’ from those who voted for the coalition, I do not think you have a case.
Try to make a case based on the rights and wrongs of the sale, not government deceit – you are likely to be on firmer ground.
Onya Sol!
I’m a shareholder in Telstra (first tranche) and thoroughly endorse his bull-at-a-gate approach. Sure, shareholder value has taken a hit. But I believe that Sol has to stare down the Hayseed Populists to liberate asset value.
My reading is that eventually the government will find some way to bail themselves out by using general revenue rather than tying the Hick Bribe to Telstra sale revenue and/or to future commitments extorted from shackling operations of the fully privatised Telstra.
It’s about time the more than one million shareholders started to put as much heat on Howard as the cockies have done.
And Sol is our guy.
John Humphreys wrote:
James Sinnamon wrote: ” public enterprises are so inherently inefficient, why was it that the Commonwealth did not collapse years ago”
Because it had the government backing them up of course, not because they were efficient.
This is a lame argument. “Government backing” did not save the economic systems in Eastern Europe and the USSR. So, why should “government backing” have guaranteed the continued survival of the Commonwealth Bank if government enterprises are so inherently inefficient, especially when it was forced to compete with all those fantastically efficient private banks?
Did the Commonwealth Bank ever lose money? Were customers forced to bank there and not bank at the private banks? Did Government regulations discriminate against the private banks? If so, could you explain how and can you explain why you think that this would have been done throughout the 23 years of Liberal Country Party Government, which won office in 1949 largely as a result of the successful campaign against Chiefley’s attempt to nationalise the private banks?
John Humphreys wrote : Your arguments for socialising banks & telcos etc are universal arguments – so where do you draw the line and why? If the government is so good at running normal commercial businesses, is there any role for private business? If so – why?
You would draw the line at the point where the public interest is no longer well served. For now, I see no need to cross all of those bridges and predict exactly where that would be. I would suggest that it would be best sorted out through open debate and democratic decision making.
Andrew Reynolds, we’re going around in circles. Clearly the overwhelming majority of the Australian public do not want Telstra privatised. This has been confirmed by both the Newspoll (70%) and more recently, by the McNair Poll (between 65% an 79% depending on which state the poll was taken in). In rural electorates the figures range somewhere between 82% and 95%.
Clearly many who voted for Coalition candidates voted for them because either they were opposed outright to privatisation in the case of Alby Schultz, Kay Hull, Barnaby Joyce and Bruce Scott, or else they believed (naively in my view) assurances that Telstra would not be privatised until services were satisfactory as Barry Wakelin of the seat of Grey in South Australia told his electors last year.
On top of this this, as I have shown, proponents or privatisation, including Ziggy Switkowski, himself, did their utmost ensure that the question of Telstra was not foremost in most electors minds as they cast their ballots and they obviously succeeded.
Today, they emphatically don’t want Telstra privatised. If that view has not changed after all these years, when will it ever change?
Andrew Reynolds wrote : Try to make a case based on the rights and wrongs of the sale, not government deceit – you are likely to be on firmer ground.
I have been doing this. You may care to look at some material on the web site of Citizens Against Selling Telstra (CAST). Some of the material is written by myself. A lot has been written by others. They include: “Caught in no-man’s land” by Kevin Morgan, “Nats selling out the bush on phones, free trade” by Kenneth Davidson, “Privatisation ‘in the national interest’ – Sydney Morning Herald”, “Anderson gives no guarantee on Telstra services”,“PM in ‘ridiculous position’ of having to answer for Telstra over line rental Increases”,“Our Case” CAST’s case against privatisation, CAST’s submission to the Senate Inquiry into the privatisation of Telstra in Oct 2003,“Half Pregnancy” by Stewart Fist,“Telstra: dumb and dumber” by Stewart Fist,“Prime Minister ‘reveals’ : Privatisation won’t fix Telstra”,“Selling Telstra” by Kevin Morgan,“Telstra’s New boss” by Kevin Morgan ,“Darke Peak – answers refused because of ‘commercial confidentiality'”,“Cairns Telstra phone line
network in disrepair”, “Telstra employee tells of neglect and penny pinching”, “Uncoordinated environment projects wasted hundreds of millions from previous Telstra sales “, etc.
James,
I note that you have replied to JH’s reasons on why CBA did not collapse, if inadequately (IMHO), but not mine.
On the points about Telstra. As I have said elsewhere on this blog, I think the original method of privatisation was wrong – it should have been broken up and sold off piecemeal. This would not have maximised revenue to the government, but would (again, IMHO) have been of the greatest benefit to the country. If we ignore the populist arguments the real question is where do we go to from here – what would be best. I maintain that renationalisation, breakup and resale would be the best option. The second best option would be to sell the remainder off at whatever price so that it can then be properly regulated. The worse options include to maintain the status quo or renationalise entirely as the current stifling of innovation would continue, as the government then has an incentive to regulate to maintain the profitability of Telstra to maximise the revenue stream, not innovation and competition.
The critical thing in all this is to improve innovation and choice as it is this that will help drive the overall wealth of the country. Telstra is just (or should be) another company. It is in a special place as it is the former monopoly, not because it is especially good. Having a look through the CAST material merely re-inforces this view for me.
Andrew Reynolds wrote: Having a look through the CAST material merely re-inforces this view for me.
I didn’t expect that you would be convinced of our case. I intended to demonstrate that you were wrong if you thought that our case against privatisation hinges simply on the fact that a strong majority has consistently opposed privatisation fo ra number of years. In the unlikley event that that situation were to be reversed our stance would not change.
Andrew Reynolds wrote: The worse options include to maintain the status quo or renationalise entirely as the current stifling of innovation would continue, as the government then has an incentive to regulate to maintain the profitability of Telstra to maximise the revenue stream.
As we have argued on our web site, we don’t believe that the sole purpose of the Goverenment should be simply to get revenue. We have argued that the requirement for Telstra to operate as business in not appropriate. We believe that it should operate as a public service.
Appropriate means can be found to fairly recover the costs of providing services. This was demostrated by the example of the Housing Trust of South Australia set up by Hugh Stretton. It never cost taxpayers a cent and yet it made decent affordable housing available to all South Australians for many decades. If it can be done for the HTSA, why not for Telstra?
If Telstra was run in this fashion and made accountable to the public, subject top proper Freedom of Information legislation and have effective grievance procedures put in place, why should we expect that all innovation would be stifled?
What you are saying is that workers will only give their best if driven either by the threat of losing their livelihoods on the one hand or by the promise of excesive remuneration on the other. I don’t believe that any evidence exists to support this.
James,
I was responding to the points you were making earlier in the thread, where the populist argument was the only one you were making. I am glad to see you have effectively withdrawn that leg of your argument.
The public service argument is an interesting one, but IMHO ultimately doomed. A blog comment is never going to be long enough (I am not Jack Strocchi) to counter it fully, but an outline should suffice for the moment.
.
Public services achieve some things well, but they have never been noted for being both innovative and economical at the same time. Government scientists (both in the universities and out), freed from the tyranny of profit, have produced some remarkable science over the years. For example, whatever our position on nuclear energy, the science that produced it was outstanding – but there can also be little doubt that, under a pure private system it would never have happened. It is too capital intensive and, economically, it just makes no real sense. Concorde is a further example of this. They can also be economic in the (rare) instances of market failure – your housing trust may be a good example. Building houses is not the same as running a telecommunications system, however.
The thing with telecommunications is that it is vital to the country that the sector be both innovative (to counter the difficulties unique to Australia) and economic (so that the sector is not an economic burden). Telecoms is no longer just a system of making voice calls over copper lines – if it was I may consider your argument valid. Unfortunately, the example of the PMG, Telecom Australia and now Telstra acting in the way it has over the past 50 plus years to stifle innovation, cost a fortune and deliver poor service have made me someone that would need a lot of evidence to convince and I do not believe that you or that website have even begun on that task.
Your last paragraph adds (less than) nothing to your argument so I will ignore it as just plain silly.
Any innovation that is relevant to the servicing of the more populated areas can easily be accessed overseas, we are after all in a globalised economy and Telstra is just not big enough to stifle innovation worldwide.
Innovations unique to Australia will require resources for R & D, and this for areas that are hardly likely to repay the investment.
Is the Australian taxpayer to be burdened with the bill or should we just forget about the bush (think beyond country NSW)?
craigm,
I agree, but why did it take so long to get good (?) broadband here? Why are the majority of us still limited to 1.5Mb connections at high cost? Why is VoIP still not well known? Telstra has been stifling their deployment here for years, while they have been widely available in most other industrialised countries – particularly where there is real choice in telecoms. On charging, too, why were we paying both for connections and local calls?
Where there is an economic reason for innovation, it will happen. Where there is not it should not.
As regards the bush. The point has been made elsewhere on this blog that the country people pay a lot less for some things (housing for example) and more for others (groceries). Why should telecoms be different? If you choose to live somewhere then deal with the consequences. I lived in the bush for quite some time (years) and the problems were there with telecoms, of course, but we had good radios and, later, good satellite phones and TV. if that is not good enough then deal with it or move.
Andrew Reynolds wrote : I was responding to the points you were making earlier in the thread, where the populist argument was the only one you were making. I am glad to see you have effectively withdrawn that leg of your argument.
Where did I withdraw my ‘populist’ argument?
Andrew Reynolds wrote : Your last paragraph adds (less than) nothing to your argument so I will ignore it as just plain silly.
You are ignoring it because you have no answer. As I wrote earlier the neo-liberal world view assumes the worst about human nature and this view is not supported by the evidence.
Regarding whether or not rural users should be subsidized is largely a separate question as to whether or not Telstra should be privatised.
If it is privatised, the cost effectivenes of whatever subsidies the rest of the Australian community agress to give to rural users will be vastly diminished because of the sheer waste of the contrived competetive environment and the necessary regulatory red tape (as Telstra itself put to the Senate hearing today).
If Telstra is fully privatised it will amount to a huge subsidy to the finance sector which contributes far less to our national wellbeing than what they receive from the Australian community in return.
We have also wasted billions on having fibre optic cables and digital mobile networks duplicated in the cities. Unless the mobile phone companies go broke, the cost of this stupid duplication must ultimately come out of the pockets of its customers.
I would preferred, instead, to put just some of the money, instead, towards subisidising rural users.
James,
When you said “In the unlikely event that that situation were to be reversed our stance would not change” you withdrew it – regardless of any popular appeal you effectively stated that, even if popular opinion were against you, you would maintain your battle. That is a withdrawal.
I am not avoiding your last paragraph because I have no answer, but because the entire scope of human experience gives the lie to it. The collapse of every socialist experiment, except for the occasional success on a micro scale, in history proves it – I would suggest you have a read of anything by Hayek, Adam Smith, John Stuart Mill and innumerable other (not neo-) liberals. Even John Maynard Keynes may be a shift towards reality for you. While there are some exceptional individuals that give their all for a cause or a belief, the majority of us need incentives to continue. That is not neo-liberal, conservative or anything else, it is human nature.
I would agree whole-heartedly on the question of the rural subsidy being a seperate question, so we can leave that issue to the side.
To move through the rest of your points.
1. There will be no need for a contrived competitive environment, or regulatory red tape, once the regulatory monopolist position of Telstra is removed. There are plenty of competing technologies out there, using different elements, that Telstra has sat on for years. I will say more in answer to point 3.
2. The finance sector is the cornerstone of any functioning economic system. It is the function of that sector to mobilise immobile capital and support the payments system. How do you think companies can employ anyone? They borrow money from a bank or raise it on the stock exchange. They then receive payments by credit cards, cheques or direct debit, which they then deposit in their account and use to pay for the capital they are using. Think about what you do anytime to buy anything and the system will make more sense to you than it ever would from a textbook written by some of the socialists you seem to be buried in.
3. The whole point of competition is to deliver benefits to the customers – if you cannot do it at a lower price than your competitiors you go out of business and the shareholders and other financiers lose their money – fair enough. If this has resulted in the occasional amount, or even a huge amount of duplication it is not wasteful if the competition has driven down prices – everyone benefits from the improved service at lower prices. The fact I can choose between 4 different mobile suppliers and innumerable re-sellers means I can find the deal I want at a price I am prepared to pay. That is a much better system than the one we had when Telecom Australia was the only supplier and and it frequently took months to get a telephone connected.
4. If you would prefer that some of your money goes towards rural users, go ahead – our society allows you to make that choice, freely and at a low cost, thanks to the efficient financial system. If I want to , I can to. What I should not be doing is forcing everyone to make that choice.
.
I have done you the courtesy of replying to you points. Now, please reply to mine as above, and questions as below.
1. Please give me a single example, just one, of a price competitive, modern efficient government monopolist telephone company. Just one.
2. Which other industries do you see as being more efficient in government hands? By the sounds of it you are in favour of nationalising the banks, too. Is this the case?
3. Which books have you been reading? I would like to read them for the same reasons I read Das Kapital, The Communist Manifesto and Mein Kampf as a kid.
Andrew Reynolds,
I don’t see the relevance of most of what you have written to the issue at hand, but I will get around to responding to it.
But I will just ask you to re-read your own words :
The experience of what was reputed to be ‘socialism’ throughout some of the twentieth century, in only a part of the world could hardly be regarded as ‘the entire scope of human experience’.
James,
The old “It has never been tried” excuse has never washed. Where ever it has been tried, and it has happened more often than during the 20th century, it has failed. I will eagerly await your response – but I will not expect it any time soon.
Andrew Reynolds,
Let’s get this back into perspective.
What you are against – public ownership, government intervention in the economy, and regulation in general to protect workers and others who don’t happen to have the abiity to stand up to large vested interest corporations – happened to be features of virtually all western industrialised economies until the late twentieth century.
In fact there is evidence that these sort of societies did not do altogether badly even in narrow economic terms. For example the Australian economy grew at an average rate of 5.2% from the years up until 1974 (Geoff Davies, “Economia”, p 18).
After 1974 western economies had problems due to the OPEC oil embargo, however the 5.2% growth figure has never since been matched in any of the years economic ‘rationalism’ under the Labor Governments or the Howard Government. Even the illusory growth, largely base on property speculation, in recent years, only reached 4% (“Australia’s Welfare Habit” by social welfare ‘reform’ advocate Peter Saunders, p5).
(I hasten to add that indefinite exponential growth is impossible to achieve in a finite planet and this is becoming all too obvious with undeniable global warming, other serious environmental problems, and the threatened end of cheap oil. Nevertheless, even in the terms of market fundamentalism, the performance of Keynesian market intervention was clearly superior to the ‘small government’ approach.)
The justification for getting rid of all this rests on the assertion of neo-liberal economic theory that workers won’t give their best unless driven by either the the threat of loss of livelihood or else the promise of excessive economic reward.
As I said I don’t believe that this view does justice to most of humankind. It is nonsense to argue the failure of ‘socialism’ in the twentieth proves that human beings are incapable of working productively and innovatively for altruistic reasons and not for self interested economic motives alone.
I will get around to answering your other points, but perhaps not soon, and perhaps not even on this forum. I will endeavour to let you know when I do.
If you choose to see this as your having ‘won’ the argument, that is your right, but I think most reasonable people will see that you are mostly engaged in an exercise of dragging red herrings across the trail.
Andrew
This issues you mention are probably as much to do with half-arsed privatisation as anything else. There is nothing structural about government rentention of the wholesale business which precludes it from accressing new technoogies.
As for people in the bush (of which I am not one) moving to the city if they don’t want to pay higher prices it seems to me the crux of our differing points of view.
Your argument that that if those in the bush want access to decent telecommunications they should move. what a grea
Sorry went to delete and re-write but pressed the wrong key. Can’t bothered starting again. I’m sure you get the picture.
craigm,
people should realise that all actions (or inactions) have consequenses. If I choose to move to the bush (which I have done on a couple of occasions) then I know that housing is cheaper, the space I can enjoy is greater, my neighbours are further away and the pay scales are different. I also realise that telecoms are more expensive to supply. Are you saying that the government should be attempting to equalise everything (housing prices, feeling of freedom, space etc.) for all Australians? Seriously, the provision of telecoms costs more as soon as more distance is involved. Either we should be attempting to equalise everything or nothing. Anything else is arbitrary cherry picking without justification. Anyone in the bush can buy a satellite phone and call anyone else on the planet. If they are not prepared to pay for that, fine, but that is their choice and there is no reason why a single mother in Sydney trying to call the doctor should pay for it.
.
James,
the reason for the easy growth up to 1974 was the progressive liberalisation after the idiocy and closed markets of the period up to and including World War II. Any system that could not grow under those circumstances deserves to be condemned – China’s is a good example. The low hanging fruit, though has all been picked. We have no world encompassing war to recover from – the GWOT notwithstanding.
You accuse me of bringing up red herrings – but I was just responding to the lines of your argument. If you are not happy with my responses, please let me know – but if you consider my argument full of red herrings, the source of those odd coloured fish is rather closer to your home.
Just as an aside – liberal (again, not neo) economic theory does not rest on the justification of economic gain. The basis of the whole theory is given away by its name – liberal. Freedom to the individual to pursue their own interests as they see fit, provided it does not unjustifiably impinge on the ability of others to live their lives as they see fit. It so happens that this system typically gives the best economic outcome; but this is a by-product, not the major intent. Under this system, people can do what they want with their lives. They just have to wear the consequences of their choices; good and bad. That includes paying the true cost of the provision of telecoms to their place of residence.
“Arbitrary cherry picking without justification”… unfortunately for that line of argument, many situations – like Buridan’s logical ass – produce solutions involving spontaneous symmetry breaking, what you called “arbitrary… without justification”. That means, you have a symettrical family of asymmetrical solutions to a symmetrical problem, and it is arbitrary which you pick so long as you do not try to be symmetrical.
Oh, Buridan’s logical ass – Jacques Buridam who lived long ago while the French still respected sense more than reason, once pointed out the nonsense of such symmetry. He said, if you had a logical donkey, and positioned it precisely between two identical bales of hay with nothing to choose between them, would it starve to death? No, it would make an arbitrary choice.
Today’s equivalent is who should avoid the side effects of vaccination when an optimal proportion of a population is to be vaccinated. Or who gets a tertiary education when an optimal proportion of the population gets one (actually, that shouldn’t be arbitrary – it should be those with a stake in society, the way army officers should prioritise loyalty over efficiency according to Wellington). But this is for that other thread.
No, PML – those are arbitrary choices with justification – the need to make a decision between two seemingly identical options, to break the symmetry.
In this case the options are not identical – or even close. Why should we “even up” the telecoms costs without “evening up” the housing costs or the food costs, or the many and manifold other cost / benefit differences?
Buridan’s donkey should be left to find its own hay, in the paddock, so that the purely artifical choice does not present itself. Otherwise we may just be chasing our own ass.
.
BTW, PML – I take it that you are not saying we should choose our uni students for their loyalty.
Andrew
I’m sorry but I don’t buy that argument. If I thought the government should equalise everything I would be a communist, you know the mirror image of the free market extremist. I find the freedom to move argument a non-solution and the point about the single mother calling a doctor a poorly sold dummy.
Craigm,
Fair enough on the first, I agree with you – although even communism was not able to eqaulise everything. I disagree with you on the third as that appears to me to be an extension of the first.
I cannot see why the second is a ‘non-solution’. If I object to paying high rates for telecoms then I either move to get cheaper telecoms or do not consume telecoms services – a fairly simple concept.
If I object to paying high prices for housing then I either move to where houses are cheaper or become homeless. I cannot simply force the person selling me the house to sell it to me cheaper than they want to because I believe we should all pay less for housing. Why should telecoms services be different?
Andrew
You hit the nail on the head, its a service. So because residents of town/community have no access to a basic service some move, small town consumption falls, business cut back on expenditure in community or close altogether, employees out of work. Owners and employees also move. Consumption falls. Town dies a slow death.
Now this isn’t a problem if you only see markets but if you value community well thats another matter.
I don’t think it matters anyway you’re very close to getting your desired outcome.
Who knows, maybe I’m wrong. I hope I am.
Of course, just as there is a downwards spiral, so there is an upwards spiral – small town doing well, pays for good services, people enjoy lifestyle and cheap housing…
James — you have given another non-answer that seems to indicate you don’t understand my point (again).
You asked why Telstra could survive under the govt. I point out that they survive because the govt supported them. You respond that unless the entire Aust govt collapses, then that is proof that nationalisation works! That is just stupid.
Without the collapse of the government, it is still possible to continue supporting inefficient industires. The Aust government continues to do that now with the SA auto industry.
It is not real competition if one of the competitors has govt backing. This is such a simple point I am amazed I have to bring it up. And more amazed that you actually try to not understand it.
Your argument about where you draw the line is also a non-answer. You say that national industry works better than private industry… so why not nationalise everthying?
Once you understand why you shouldn’t nationlise other businesses, you will understand why you shouldn’t nationalise Telstra.
More James — the neo-liberal world view does not assume the worst about human nature. That is simply untrue as a point of fact. You seem totally unaware of the liberal tradition. Ignorance is not a virtue.
You claim that a finate planet proves that exponential growth is impossible. This is a perfect example of your argument style. Strawmen and untruths. First, nobody is claiming that growth will increase exponentially. Second, it is knowledge and technology that drive growth — not resources. This is econ growth 101.
From the basis of ignorance, untruths and strawmen you claim that Keynesian has defeated neo-liberalism. Strange claim that few educated people would agree with. Keynes is dead, in more sense than one.
As for rural subsidies — kudos to Andrew. All lifestyle choices have benefits and costs. But if (for some reason) you want to subsidise small towns, then do that directly, not through telcos.
John,
Perhaps we should also point out that it is the socialists who believe that wealth needs to be redistributed by the government – i.e. by force or its threat – not liberals. It is, therefore, the socialists and others on the left who are assuming the worst about human nature.
There is no ‘virtue’ in forcibly redistibuting other people’s money, taken using force or its threat, or by use of a force proxy, like a legal or effective monopoly.
Andrew Reynolds wrote: the reason for the easy growth up to 1974 was the progressive liberalisation after the idiocy and closed markets of the period up to and including World War II.
So, apparently was neo-liberalism that had been practised prior to 1974 as well as since the 1980’s! And therefore the higher growth figures of 5.2% of the 60’s were, apparently, the result of neo-liberalism, rather than sensible Government intervention in the economy.
I don’t have time to argue with this sort of nonsense.