As with the Lib-Nat merger in Queensland, I was just working on my analysis of the Snowy Hydro privatisation when the news came through that the deal is off. A few observations:
First, this episode confirms that privatisation is political poison in Australia, as is shown both by opinion poll evidence (links to come on this) and by election results in NSW, Tasmania and elsewhere. The more experience people have with privatisation, the less they like it. When you have the National Party celebrating a victory for people power, the point is pretty obvious.
Second, while the promoters of privatisation have criticised opponents as emotive, the case in favor of privatisation was made up in equal parts of emotive appeals to ideology and economic illiteracy. Ideologically, privatisation was assumed by its advocates to be a Good Thing, with no attempt to identify, let alone quantify, any concrete benefits in the case of Snowy Hydro. Economically, this was (I hope) the last outing of the idea that selling income-generating assets “frees up” or “unlocks” cash that can then be spent on schools, hospitals and so on. If the asset is sold for an amount equal to the risk-adjusted present value of expected future earnings, there is no change in the government’s fiscal position. In practice, higher risk premiums in the public sector and the absurd restrictions on ownership that are usually part of deals like this means that the government ends up worse off, not better off.
Coming to the arguments against, the “iconic” argument is indeed emotive, but not necessarily the worse for that. If it’s paying its way, why shouldn’t we keep ownership of an asset like the Snowy in the hands of the public sector that created it?
In any case, there were substantive arguments against privatisation that weren’t effectively answered. We’re in the middle of trying to sort out what to do with the water in the Snowy-Murray system, and not making a really good job of it. The last thing we need is to have a private company (probably with foreign owners who can appeal to the protection of the US-Australia FTA) with large, but still poorly-specified, entitlements to use the water or receive compensation for changes in use.
Finally, there are some big losers from the cancellation of this deal, namely the banks and financial institutions that would have had a cut of it. To that group can be added the politicians involved, whose prospects of highly-paid post-political jobs in those same banks have just taken a nosedive.
John Quiggin 
This is going to knock around the NSW govt, after what seems like an eternity of pandering to the green vote there is little cash to spend on important infrastructure and the sale of the Snowy Hydro would have been a nice little earner just in time.
Last weeks promises include;
– $15.7 million to fund NSW’s two new marine parks at Batemans Bay and Port Stephens
– $12 million native vegetation assistance package to help farmers adjust to new land-clearing laws.
– $105 million Riverbank fund that will be used to buy back water and restore flows to several inland wetland areas incl 6.5 billion litres of environmental water for the Lachlan wetlands.
– $80 million urban sustainability program to encourage the use of stormwater and other environmental projects.
– $76 million over five years for the NSW Environmental Trust.
The marine parks has left local fishermen reeling as with the restrictions on fishing grounds they would be unable to compete with imported fish product.
“the sale of the Snowy Hydro would have been a nice little earner just in time.”
Well, no. As I pointed out, the sale would not have changed the government’s fiscal position in any way.
I believe revenue from the sale of state assets isn’t in any case taken into account for the NSW budget.
I could be wrong.
There were a couple of interesting indications of public opinion,which must have worried Howard an Co.
Last week in Sydney,Alan Jones took a critical position and got 20,000 calls opposing the sale…to 200 odd for sale.,in one day!
In Victoria several talk back callers were also swamped by opposition calls.
Bracks has said he will plug the gap in his budget by cutting into the surplus,but that the schools renovation program will still go ahead.
He recently announced cuts to the top end of the Land Tax scale,so I don’t know why he can’t cut that out.
His conservative Treasurer ,Brumby will be spooked.
Brumby would be a soul mate to any conservative tresurer .!
Oddly,the Labor tresurers failed to see the dangers of a Federal switch.
Howard showed more acumen than did Bracks or Iemma…their “Labor” Governments are so far removed from their supporters that they never picked up what was evident from a cursory observation of the talk-back program.
It’s the sort of issue One Nation would once have ridden on…and if Pauline hadn’t been so witless and surrounded by looneys,they might be still in business……these days in France they call it”economic patriotism”!!
Busting up non-natural monopolies and selling the bits off makes sense (eg most of Telstra). I’ve never understood the rationale behind selling natural monopolies. What was the situation with the Snowy? What was actually being sold?
“[T]he case in favor of privatisation was made up in equal parts of emotive appeals to ideology and economic illiteracy”.
Interesting use of the past tense, John. If your implication is correct – privatisation is now Australian history (presumably apart from some stray mop-up jobs, like T3) – I’m looking forward to the writs and warrants now starting flying.
Billions of taxpayer dollars have been squandered since 1990 through privatisations. The politicians who did this have to be held accountable, through civil and criminal processes.
The NSW Govt has stated that Snowy Hydro needs to expand and funds would have to come from Treasury, funds also needed for hospitals etc. Whichever way you cut and dice it, the sale would have benefited infrastructure programs.
snap. I’d just done an article on the proposed privatisation – no chance of getting that published now: damn those dastardly governments, changing their minds just because it is bleedingly obvious that they have to. I’d been pointing out the regulatory problems associated with a scheme where primacy of electricity or water is still an unresolved dispute. There’s also an interesting question in relation to the governments’ claimed ownership of the scheme based on electricity ‘entitlements’ – did NSW really have a 58% shareholding (yes, of course they did in terms of the 1997 and 2002 legislative changes, but were those actually constitutional?) I’d also been suggesting that this was very likely to be an underpriced privatisation, because of the capacity of a private owner to gain future rents by holding governments to ransom over water rights negotiations, and by exploiting the ‘icon’ status of the scheme. Suggestion to Morris Iemma: the Opera House would be an easier proposition to sell, at least ownership of that by NSW would be uncontested.
John, whilst you say that there would be no change to the govts fiscal position whether they sell or not which is not what the govts have been saying.
This is another case where utilities that should have been privatised were skewed by politics. When Carr tried to offload the coal fired power stations (knowing that coal would be on the political nose in years to come) the unions jacked up and closed the deal down.
The anti privatisation camp is more inclined to emotional ideology than the pro camp. Nobody would suggest that vehicles or fuel by nationalised, road transport continues to dominate the transportation sector.
I agree, John. Some woeful privatisation decisions have been made by federal and state government, both Labor and Liberal. When I worked in Defence it was all the rage to sell then rent back properties. The foolishness of this is incredible.
The privatisation of public transport in Victoria has been an utter disaster. Commuters, tax payers and road users are all paying the cost of this Kennett era folly.
Ideally, I would like to see an amendment to the Consitution requiring federal and state governments to hold a referendum to approve the sale of major public assets.
No way that’s going to happen. The Liberal party experience in NSW in 1999 (their platform included a promise to privatise electricity, and give everyone either $1000 cash or $1100 in shares) showed that people don’t want it. The pols on both sides realised that the only way it can happen is by stealth. So there’s just no way they’ll propose a referendum which will in effect prevent privatisation altogether
Who does pay for public transport Steve if not the user or the taxpayer?
Well thought out non-sequitur, there, rog. Nice going.
When Carr tried to offload the coal fired power stations (knowing that coal would be on the political nose in years to come) the unions jacked up and closed the deal down.
Not really true rog. The unions were laggards. Every opinion poll was overwhelmingly against it, and every ALP branch in the state passed resolutions against it, while in the meantime at least one key union prevaricated to the last minute, before it caught the tidal wave of opposition.
It suits pro-privatisers to portray the historic blocking of the power sale as a function of self-interested unions, but, with some exceptions, in fact they were followers not leaders on that occasion. The deep and wide unpopularity of the sale was fully apparent in the ensuing election when Chikarovski offerred to pay voters $1000 if the sale went ahead, and was buried in an masdive avalanche.
“Skewered by politics”? Yes, if you mean skewered by the democracy. Damnable thing that, democracy.
“ohn, whilst you say that there would be no change to the govts fiscal position whether they sell or not which is not what the govts have been saying.”
Err, right. If the government and other commenters had got it right, there wouldn’t have been any need for me to state the correct position.
I dont think so CS, my memory was of a battle between the ALP and Labour Council, Unions won, Chikarovski was an outside player and was never a strong performer and never had the support of the voter.
http://sunday.ninemsn.com.au/sunday/cover_stories/article_153.asp?s=1
John, I hope you arent challenging the consensus view?
The Australian editorial writers must have been frothing at the mouth after the decision by John Howard to not proceed with the sale of the Federal Government’s stake in the Snowy Hydro. Here’s a particularly choice quote from today’s editorial entitled “Cynical Snowy stunt” :
Indeed! What responsible Government would pay any heed to the wishes of the current owners of Snowy Hydro, and whose parents and grandparents paid for it with their taxes?
Just as when they uncritically supported the Indonesian Suharto dictatorship, The Australian’s editorial writers have shown where they stand in regard to the concept of “government of the people, by the people and for the people”.
Other gems include :
If John Howard has indeed sabotaged PPP’s that would indeed be a major step forward for this country, but, somehow, this news seems just too good to be true.
Brian re Bracks:
Local industry’s media campaign against the eeeevils of land tax makes it politically too difficult.
“John, I hope you arent challenging the consensus view?”
Indeed not, I’m stating it. While there are plenty of controversies among economists, there’s none concerning the point I’ve made here.
Of course, if you’re talking about the views of politicians or media commentators, that’s a different matter. Pick your group and you can find a consensus in favor of all manner of propositions, from global warming denialism to the belief that tax cuts raise revenue to the idea that the Iraq war was a really good idea.
Its fascinating watching the press response to this. While Murdoch’s Australian is frothing at Howard, the Fairfax Sydney Morning Herald is ropeable that the sale off. Check out Alan Ramsays article in particular. This is amazing, normally it goes squarely the other way.
Has Dear Leader done his dash with the Murdoch family?
Whatever the genuine merits of the sale or not, Howard has shown yet again that he is all about politics – there is nothing else. However, I dont think this is going to save him. There is just too much going wrong.
Pre Dawn Leftist? “Too much going wrong”? For John Howard? He has the midas touch. Try as I might, I can’t think of anything which seems to damage him electorally.
JQ: Selling of Snowy Hydro may not alter the “fiscal position” of the NSW govt, nor may it alter yours. But if I was the owner, & I sold it, it sure would alter MY fiscal position.
i think the politics of this are pretty bad for howard. one, it makes howard look weak, even craven (see e.g., the australian editorial cited above), and weakens him in the sense of making him look unable to pacify popular discontent (contra, at least so far, workchoices), which is likely to make the big end of town a little uneasy. by backflipping, howard has also needlessly gives labor ammunition for the inevitable fight about t3.
but on the other hand, there is no other hand for howard, as there’s no upside that i can see. instead of getting the credit for making the correct decision, i think in public perception he (and not, say, morris iemma) will bear responsibility for this whole crazy idea, on the theory that since he was able to kibosh the whole thing by withdrawing his support, it’s his fault it went so far in the first place. certainly this perception will be unfair, altho the partisan in me says it probably couldn’t happen to a more deserving person.
Steve, have you seen the Governments polling over the past 6 months? Howard still leads Beazley as preferred PM, but thats actually pretty meaningless for most of us – the Coalition is starting to struggle in primary vote and is well behind on 2 party-preferred – thats where elections are decided. Even Newspoll is starting to admit it. They’re experiencing the death of a thousand cuts after the DFAT scandals, the AWB scandal, the Jake Kovco “missing corpse” scandal, rising petrol prices and interest rates, and of course, the biggie – IR changes.
Add to this, Howards supposed strength on national security is now falling apart following the boilovers in the Solomons and East Timor, the Governments economic credentials are tarnishing as the stockmarket falters and inflation and interest rates rise (how long before unemployment does too?) and the lack of any budget bounce whatsoever and I think this is why we saw the big backdown on the Snowy, and I suspect why the nuclear power “debate” has gone strangely quiet after the Beazley counter attack. I smell panic on the backbench…
Ah well, there are all sorts of consensus opinions out there, its just a matter of picking the right one.
So John was Iemmaa wrong to even think about selling the Snowy? He and Egan and Della Bosca et al must have been receiving some seriously bad advice from the economists in Treasury. Assuming that what they said was true they will now have to raise capital to fund the activities of Snowy hydro Ltd.
Actually it is the grass roots of the National Party and rural conservatives like Bill Heffernan who are the most likely repositry of national spirit and traditional notions of public interest. They were the ones who did yeoman service in chasing fashionable political thinking off centre stage of public life.
First by knocking over the New Left’s cultural constructivists. And now by deeating the New Right’s financial regressives.
Populist nationalists, whether in the form of cultural conservatives or financial progressives, are becoming more popular. This is all part of the Decline of the Cultural Wets and Economic Dries.
Partisans of all stripes owe a profound debt of gratitude to Pr Q for his comprehensive and incisive economic rationalist defence of the case for state ownership of public utilities. Natural monopolies generating high externalities should be publicly owned unless there are strong reasons to the contrary ie union thuggery or bureaucratic ineptness.
There is no evidence of this with the Snowy River Authority. It seems to have been run well enough by engineers who are certainly more trustworthy than financial manipulators and political apparatchiks.
Here, here! Emotional feeling is just as important as rational faculty in developing the human person, Descartes Error to the contrary. The choice is not emotion or non-emotion, it is betyween good or bad emotion.
Many of my immigrant fathers friends and mates walked straight off the boat onto the Snowy. (Dad worked at the Commonwealth Aircraft Factory). That was how the term “New Australian” came to be current – because the immigrants were involved in nation building. Thus were citizens made, not born. This is the good emotion that financiers and apparatchiks do not understand.
Economic policy has become the plaything of financiers and lawyers. These are the last people I would trust with public money. A national interest-based economic policy should be made by interested nationalists. This means everybody, not just political insiders.
“Ah well, there are all sorts of consensus opinions out there, its just a matter of picking the right one.’
I love rightwing postmodernism. Even better are the repeated statements on Jennifer Marohasy’s site that science is just another religion.
Of course, rog, it’s really tolerant of you to say that every belief is as good as every other belief, but, having said that don’t you think you should stop criticising mine?
John,
You are right to challenge the weak arguments for privatisations. I agree that “freeing up cash” is a pretty hollow line of argument and I can understand why the public would reject any privatisation argument pitched purely in those terms. I also agree with a lot of your criticism of private public partnerships.
However a proper debate about privatisation can not be had in isolation from the broader discussion about the appropriate role of government. Many advocates of privatisation were traditionally those that believed in a separation of state and commerce, in the same way that people argue for a separation of state and religion. I still believe that separation is appropriate although it is predominately for political and governance reasons and only based on economic arguments in a secondary way.
I would be interested to know whether you think re-nationalising the Commonwealth Bank, Qantas and all those power stations in Victoria would be a good use of public funds? Personally I don’t. I think that on the whole these privatisations had lots of merit.
Perhaps you believe that airplane services, credit mediation or electricity generation represent services that the government should be providing. I don’t. Although I can accept that the argument surrounding the Snowy Hydro scheme is more complex. As you indicate it is not just about electricity but also about water.
In so far as the liberal right (as opposed to the conservative right) has pursed an agenda of smaller government, it has continuously lost ground in that battle. Whitlam presided over a smaller government sector than Howard does. Privatisation was arguably part of the process for achieving smaller government. However in so far as privatisation has “freed up cash” it has done nothing to reduce the influence that government spending has on the nature of economic output.
These days we have big fat governments that do nothing which is worse than moderately fat governments that did something and a far cry from small government that mostly stay out of the way.
Regards,
Terje.
In much the same way that many people tradionally believed that the earth was flat.
Ferchrissake.
There’s a tiny minority of libertarian/anarchist nutcases who advocate such a separation.
There’s a larger number of people who advocate the so-called Washington consensus, because it will result in their own personal enrichment.
I dont think so CS, my memory was of a battle between the ALP and Labour Council, Unions won
Sorry rog, but you’re memory is poor. The ALP was united against it, with the exception of two votes: R Carr and M Egan, who carried the cabinet by intimidatory tactics until the ministers were free to walk away, which they then did to a man and a woman. It was a treasury/big end of town fit-up, and the unions ended up falling in line with the party. Even Egan’s own ALP branch voted it down something like 77 votes to 1 (Egan’s vote). Chikarovski is relevant because she then tried to buy a popular vote for the sale, which only showed the party was in line with popular opinion, and she thus copped the landslide that set the Carr era up.
rog actually said something sensible here:
John Pierce, NSW Treasury Secretary, ex Chief Economist of the Electricity Commission of NSW, has been feeding this bullshit into the ears of Carr, Egan and Costa for ten years now.
Leaving aside your degenerate inclination to regard people as nutcases, just because you disagree with them, you do have the makings of a point.
It is no doubt true that the number of people who believe in a complete and pure separation of the state and commerce are confined to a tiny proportion of the population. However amoungst advocates of privatisation it is hardly a tiny minority that take the view that governments should in general (ie as a rule of thumb) stick to making laws and leave the management of businesses and the provision of services to the private sector.
Most advocates of privatisation do draw the line at some point short of a complete libertarian/anarchist position. Few advocates of privatisation want every local road in the country privately operated. However just because they see exceptions to the rule does not mean they don’t in general hold true to the principle of separation.
Out of interest would you like to see public funds spent on renationalising Qantas, the Commonwealth Bank or the power stations of Victoria?
Regards,
Terje.
Comment deleted for offensive language
Can I remind everyone not to call other commenters “stupid”. Show, don’t tell.
To date nobody has given a good reason why the State Govt would want to privatise a (supposedly) income producing asset, unless the income received was a poor return for the value asset.
PrQ,
Is “stupid” or “nutcases” more offensive?
Just asking.
I am one of those nutcases, so obviously a supporter of privatisation. But I didn’t see any particular reason to sell the Snowy Hydro scheme.
Victoria, with all respect to (perhaps non-resident? recent resident?) steve munn, pretty much owes its ongoing existence to Kennett. I know PrQ seems to agree with you that this is not the case, but you two are in a bit of a minority there – no-one else can work out how ‘business cycles’ would have cured soaring debt, plunging credit ratings and ever-increasing government spending all combined with decreasing competence.
Our privatised public transport is pretty good, I think – I still use it often, and frankly, I would have thought it was a lot better now than 10 years ago! If not for Kennett, we’d probably be selling the carriages for scrap iron.
None of which is to disparage Bracks – he hasn’t done too much either way, which suits me fine (apart from subsidising the Age, which doesn’t!).
Sure, Murdoch’s mouthpieces can slag Howard’s betrayal of privatisation. But so what? Who are right libertarians going to vote for next time?
There are some long term advantages for federal Liberals to privatise the Snowy. In addition to promoting the above-mentioned ideological predeliction, sloughing off the politics of power generation versus water use in the increasingly crisis-ridden Murray basin has to be good strategic politics.
Trouble is that the Murray runs through several Liberal seats. Moreover, Heffernan has played the Icon Card. This spelt trouble for Howard. So what if he offended a few privatisation zealots by pulling the plug on privatisation? Since when has the Rodent refused to crawl over his grandmother’s corpse for the marginal vote?
Moreover, Howard has shafted Iemma. NSW finances are decidedly dodgy. And Iemma made himself vulnerable to a Rodent attack by making promises he couldn’t deliver without Howard’s co-operation. Big mistake.
Victoria, a minor and reluctant participant in the scheme, has copped some of the backwash. But Bracks can make political capital by blaming Howard, a luxury denied to Iemma.
The most important structural point to emerge from all of this is how NSW has found itself in such a financial mess. Did NSW get short-changed on the GST deal or are there some more powerful reasons?
Thanks, cs,
Your example of Carr being forced to abandoned the privatisation of New South Wales’ coal fired power generation confirms that Labor is not a completely lost cause.
If the unions, and Labor Party members, had similarly to stood up to Carr, Costa and Iemma since then, many other equally appalling acts of misgovernment may well have been prevented and the political landscape in NSW could have been entirely different today.
James,
I would have thought that shutting the whole coal fired industry down and replacing it with gas or, better, renewables, would have more suited the environmentalist in you.
Andrew,
The issue of ownership is separate from the issue of what is the most appropriate form of technology. In the long term, it won’t be possible to run coal, gas, oil or nuclear powered stations. The prospect that renewables will provide energy on the same scale as is now provided by non-renewables is very remote, because the means for the generation of energy from renewable sources can’t be manufactured without the concentrated forms of energy only available in fossil fuels.
In the meantime, we need to make best use of what we have. Given that would require a considerable amount of fossil fuel generated energy to build new gas stations to replace the current coal-fired power stations, and given that natural gas is also a finite resource, we may as well keep going with what we have whilst striving to drastically reduce our per capita levels of energy consumption.
Clearly this can be far better achieved if the power generators are run by bodies which are owned by, and are directly accountable to, the public they serve rather than to unelected corporations, who are only accountable to shareholders, often from overseas, who are overwhelmingly only interested in the bottom line and not in the interests of the community and the environment.
I missed “nutcases”, AR.
Checking back, it appears to be a general attack on a particular policy position, rather than directed at another commenter. Still the general point applies – show don’t tell.
I’m frequently happy with the current Melburnian public transport too. Maybe that means Jeff should’ve put his hat in the ring for NSW Opposition/Premier, not Victorian? 🙂
They say he isn’t stupid.
from PTUA’s web-site
Click to access PublicInterest.pdf
The privatisation of Melbourne’s trams and trains has been an expensive failure. By June 2006, the privatised system will have cost $1.2 billion more in public subsidies than continued operation by the former Public Transport Corporation; by 2010 this difference will blow out to $2.1 billion. This is not counting the above-inflation fare rises at the end of 2003. Services have not improved, despite claims to the contrary; nor are the claims of a capacity crisis on the rail system correct. Private bus services consume large subsidies to provide poor services which carry low patronage levels.
Private operators are blaming the system’s problems on insufficient subsidies, and are lobbying for increases. But the reverse is the case: train, tram and bus operators will receive $1.2 billion this year in subsidies and fares – more per head than first-class overseas public operators such as Vancouver’s Translink.
Privatisation has not served the public interest. The State government is preparing a ‘transport and livability statement’, which will reiterate proposals for public transport improvements and extensions from previous documents, such as Melbourne 2030 (released in October 2002). Regardless of the merits of these proposals, they cannot be delivered affordably or effectively under the current institutional arrangements.
I was, of course, not being serious. But you reminded me of something I’m curious about. My recollection (and we’re going back to when I was really young), is that before the trams and trains were privatised, the buses were run by largely private operators; or at least the bus that I occasionally took to the library was a Moreland bus, and there were also BBC (Bell St. Bus Co.) buses in the area, and the only “the Met” buses that were around were much closer to the city.
So perhaps you can enlighten me: Were the buses basically private before the rest of the privatisation? How did they change as a consequence of the privatisation of the system?
Egan said that the sale of the power stations woud have retired all of NSW debt (which would have saved some $500M p.a. in %) plus put some $3,000M extra into infrastructure.
You have to wonder at the ideology that knocked that deal back.
http://www.parliament.nsw.gov.au/prod/parlment/hansart.nsf/V3Key/LC19970527008
Some busses were private as far back as I can remember, but I don’t think it was particularly based on how far they were from the city. The route I used to catch home was public and my suburb as then considered a fair way out (these days it’s almost inner city as the sprawl reaches ever-further).
I have no idea how it was decided which routes would be which – the only difference I noticed was that the public busses had seats that were comfortable if intact, but vulnerable to vandalism, while the private busses (at least the ones I occassionally used) had seats that were vandalism proof but hard as stone.
“You have to wonder at the ideology that knocked that deal back.”
… and you would also have to wonder why mortgagees would not all leap at the chance to pay off their mortgages by selling their houses.
Have you been paying any attention whatsoever to the whole debate over PPP’s, rog?
rog wrote: “The NSW Govt has stated that Snowy Hydro needs to expand and funds would have to come from Treasury, funds also needed for hospitals etc. Whichever way you cut and dice it, the sale would have benefited infrastructure programs.”
That makes perfect sense : selling infrastructure in order to pay for … infrastructure!
What is wrong with simply borrowing money in order to achieve these things?
Just recently in another thread SJ directly called me an idiot by name.
SJ then went on to call Ernestine an idiot.
SJ has a pattern of mounting personal attacks. I think it must be some type of deep seated character flaw. It is probably impulsive and he may need to see one of those people that provide behaviour modification therapy.
Regards,
Terje.