My piece in yesterday’s Fin (over the fold) was about the failure of Telstra (or, more fairly, telecommunications policy) to give us even late-20th century standards of broadband service. Meanwhile Joshua Gans looks at how Telstra talks to regulators when it’s the underdog.
Make Telstra public again
Following Australian telecommunications policy is like watching one of those horror movies where the protagonist insists on going down the staircase into the cellar, even though everyone in the audience can see that disaster awaits. Or perhaps it more like Groundhog Day, where the hero relives the same bad day over and over again. Looking at the current crisis over Telstra, it’s striking that, despite the massive technological changes of the past decade, the same policy issues are being debated and the same mistakes are made.
The most salient example is the protracted sage of Telstra’s proposed privatisation. It was obvious to anyone who cared to look that the idea of partial privatisation, commenced by the Howard government in 1997 (in emulation of previous privatisations on this model undertaken by Labor) was a recipe for conflicts of interest, and for the creation of a regulatory nightmare.
As Treasurer Peter Costello said in early 2000, barely two years after the T1 sale,
If Telstra is going to be caught in a position where it is half privately owned and half government-owned, I don’t think that is going to be a good outcome. Telstra should all be either privately owned, or if people really think that nationalisation and government ownership is necessary they ought to have the courage of their convictions and nationalise it.
More than six years later, Telstra is still half-private and half-public and it seems inevitable that, even if a sale goes ahead, a substantial share of Telstra will remain in public ownership through the future fund. Certainly, there is nothing in the record of regulatory policy to suggest that full privatisation would work well. So Costello’s own logic would suggest that he should be advocating renationalisation.
But the debate over Telstra’s ownership is of secondary importance compared to the more fundamental problem that telecommunications policy has failed to meet the needs of telecommunications consumers or Australia as a nation. We lagged badly in the initial provision and take-up of broadband, and now seem certain to fall even further behind as other countries move to high-speed Internet technologies based on optical fibre all the way to the home.
More than ten years and several communications ministers ago, it was evident that poorly designed telecommunications policy was promoting investment decisions driven by considerations of corporate and regulatory strategy, yielding outcomes that were not in the national interest. The biggest example then was the race between Telstra and Optus to roll out duplicate hybrid-fibre coax cable networks, covering half the country, leaving everyone else to wait a decade or more for decent broadband access.
As I wrote at the time
the future of communications, and most notably the rapidly developing Internet, lies in digital networks based on optical fibre … the more progressive telecommunications companies in the United States are already discarding HFC in favor of building optical fibre ‘up to the curb’’ … The resources being wasted in providing duplicate analog networks could have made Australia a world leader in the development of digital telecommunications networks.’ (Pay TV’s wasted billions, Australian Financial Review, January 8,1996).
A decade later, with Japan and other countries already delivering fibre to the home, allowing high-speed Internet traffic for both uploads and downloads, Telstra finally came up with a proposal to roll fibre out, but only as far as local nodes. But, this was a mere bargaining chip in Telstra’s corporate regulatory strategy, to be withdrawn when the regulator did not give the right outcome.
So, apparently, we are supposed to rely on the second-class option of stretching ADSL technology to its limits, in the hope (contradicted by Telstra’s own statements on the subject) that the copper-wire network will stand up to the strain.
It’s time for the government to face up to its responsibilities for our national infrastructure. Telstra should be brought back into public ownership, and required to construct telecommunications infrastructure to meet national needs.
The first step in this process is that the government should take its role as majority owner seriously, and appoint a board and CEO committed to acting in the national interest. Peripheral assets like the Foxtel stake should be sold off. And the Future Fund could be used to buy out shareholders who would prefer a company more focused on short-term profits.
Australian telecommunications policy has been stuck in the same endless loop for a decade or more. If the horror movie we’ve seen so far is to have a happy ending, we need to turn around and head back upstairs.
John Quiggin 
Terje Says:
Yeah. Like guys with guns come around to your house, rifle through your wallet, and then, the worst part is, they spend it on things like the roads you drive on, the schools your children attend, etc.
Oh, wait. I forgot. Supremely selfish people consider it an affront that someone else might get some benefit.
SJ,
I answered a direct question. Are you really keen to take this discussion on a voyage off topic?
If your main point is that I am “an extremely selfish person” then I would ask how you benchmark selfish and how you rank me relative to that benchmark. Are you a more giving person than me? Do you have any clue or are you just lashing out at a messenger with a message you don’t like.
Regards,
Terje.
Terje,
You avoided my point.
Yes, perhaps in a narrow technical legalistic sense the, thus far, partial privatisation of Telstra was legitimate.
However the point remains that John Howard and his backers knew perfectly well all along that privatisation was unlikley to enjoy public support and every opinion poll on this question bears this out.
The means employed by the Government and its media backers to obtain its supposed mandate to fully privatise Telstra and, for that matter, other things such as “Work Choices”, were clearly dishonest and unconscionable and I believe the broader public will come to realise that.
When ths happens and when the public come to also realise how badly they have lost out, I wouldn’t count on them buying your argument that renationalisation is any more immoral than the means employed to take this asset out of their hands in the first place, whether or not, it was “approved by the legislative wing”.
James,
I have no doubt that John Howard will not be PM forever and that there will continue to be democratic majority views on matters that I disagree with. However many people bought Telstra shares with no malice or ill intent. Many of those shares will have changed hands many times over. These people were not part of a conspiracy to steal anything. At best you can claim a major agent principle problem via which democracy failed to serve the interests of the people (although which people seems to never be fully defined). Putting governments in charge of anything creates such problems. It’s one of the major reasons I generally loath government controlling anything that I can control for myself.
In short you are right. A democratic majority has the power to screw anybody it likes. And if you have the power to screw people with impunity then it is more likely to happen. They can even choose to call acts of theft nicer names like social justice. But I’ll still know what it really is no matter how they dress it up.
Regards,
Terje.
Econwit:
Point taken. But I think there is a wider issue here. Since about 2000 certain areas of the economy have been booming (housing, mining, and the associated industries). While not everyone who has worked in these industries have been remunerated equally, I’m sure it has been good for most. I’m also certain that most Australians would have jumped at an opportunity to sell property and earn $200-$300k per year if they could.
I work in IT – specialising in computer based mapping (GIS), and towards the end of 2003, I heard numerous stories of people giving up the career that they had been trained in (surveyors, accounting clerks) to become real estate agents.
If you go back a couple of years, $200-$300k p/a was the amount that most elite foot-baller players were earning. I for one couldn’t do it. I would hate to be encouraging people to go further and further into debt to finance their dream home. It’s not the way my parents bought their house.
I firmly agree with you on one very important point. I think that those who regard themselves as elites are expert at starting the inflationary spirals (I think that’s a centeral theme here). They demand higher renumeration, and justify it any way they can. “Look the economy is doing so well.”
I talked about this in previous posts to another thread when I stated that the economy for the last 5 or 6 years has been run in an asymmetric or lopsided fashion. When you do this for too long, areas of the economy that aren’t booming want/need to catch up. As soon as someone yells INFLATION it is too late.
I also notices the arguments about the share price of Telstra. Wasn’t this partially a symptom of the dotcom boom-bust cycle, not just competition? Smart investors should have been able to see what was going to happen.
I’m not sure what AGL is doing to keep its costs down. Maybe they have a good training program to ensure an adequate supply of cheap labour. Maybe they are using some of the cheap imported labour that seems to be in the news at the moment. Cheap! I was shocked to hear the average wage of the temporary, imported worker in Australia, and I am “contractingâ€? at the moment.
I don’t think that you can legislate to keep wages down, though the current federal government is trying. Could the government legislate to ensure that real estate agents and property developers weren’t paid so much in the boom? I don’t think so. But it could have ensured that people weren’t sucked in by the hype, by mandating that inflation was measured equally across all sectors. By running the economy properly no one group benefits from irrational exuberance spurred on by nasty little deceits like:
“They’re not making any more land.” or
“House prices never fall, better get in before the prices reach infinity.” or
“Interest rates will always be higher under Labor” or the catch all
“It’s different this time.”
I’ll admit I am a left leaning voter. But I haven’t voted Labor for years (well before the 2001 federal election). Why… Because of preferential voting and because they weren’t yelling INFLATION, when they should have. That’s what you do when you’re in opposition. You point out the conceited little lies. And preferential voting allows you to scare the bejeebers out of them, while still ensuring your vote counts. If only enough people realised this.
I had saved to buy a home at the end of 2003, but I didn’t. Instead, I bought a little bit of gold around June/July of 2004. Not much just $10k. I did this because I had seen inflation roaring in home prices in the previous 3 years, and it hadn’t show up in CPI. Housing finance costs were no longer measured in the CPI.
I’ve worked in both public and private organisations and I have seen the laziness, corruption and arrogance in both. As a left-leaning liberal (that’s small L), I don’t believe in big stick approach to such problems… though I’m sure that I can seem like a hard bastard some times. I think that educating people so that they are not sucked in by hype, greed and fear is best.
Sometimes (as Michael Moore put it in his infamous book “Stupid White Menâ€?), you need to give the ruling elite or those who regard themselves as the ruling elite, a bit of tough love. Of course he was referring to Dubya, but the implication was plain (and this was well before 911 – the event or the movie). It brings a smile to my dial every time I think about this statement. I can just imagine what the elite are thinking when they read stuff like this. Uh-oh… time to scamper.
Anyhow, this is getting right off track.
Smiley
Terje wrote: “However many people bought Telstra shares with no malice or ill intent.”
How about Evelyne & Jean-Claude Wagnon? They wrote in a submission to the Estens Inquiry in 2002:
The Wagnons would have been amongst the majority of Telstra shareholders that a Newspoll in 2002 found to be in opposition to full privatisation.
Naturally their views, the views of hundreds of other people around the country, who took the time and effort to argue their cases against privatisation to various Parliamentary Inquiries, and the views of the even more overwhelming majority in the broader community were all ignored by this government.
It seems therfore likely that even most existing Telstra shareholders would not object to a buyback, particularly if it were done by a Government that was determined to get on with the job of providing all members of the community affordable access to a twenty first century telecommunications network.
As I pointed out above, the majority has been screwed to suit the selfish interests of a tiny minority not only with Telstra, but also in almost innumerable other cases with the Commonwealth Bank and Electricity Trust of South Australia and SunCorp in Queensland, all of which were privatised following the election of Governments who had explicitly promised not to do so.
Whilst you object to my proposals, implying that they amount to a tyranny of the majority, you somehow seem to find these acts, which I would consider to be just a few of many examples of tyranny by a small minority against the majority that has occurred in this country in recent years, to be more acceptable.
Fixing up the shambles of telecommunications will incur significant costs on all of us. I expect that those who who “bought Telstra shares with no malice or ill intent” such as the Wagnons would not object to sharing the costs with the rest of the community, when shares are bought back. Any minority which remains intractably opposed will almost certainly be the same people who worked behind the scenes to have gotten various Governments to have acted so dishonestly on their behalf, so I see no reason why any of us need feel any concern for their plight.
You wrote “Putting governments in charge of anything creates such problems.” It seems that you will never be convinced that private corporations are less pure, virtuous and efficient than government, no matter how open, democratic and accountable the latter can be made to be. I think a vast majority of the population (and, I see, Smiley) would beg to differ and I would suggest to you that they are entitled to be able to at least give it a try.
SJ, your reasoning is like someone saying that because the things Robin Hood did were good, his exactions were not actually thefts. It’s a faulty understanding, just as much as the Ptolemaic idea that the solar system was geocentric. And that’s even though the earliest versions of the Copernican system actually gave worse results.
The thing is, you can point to lesser evil and greater good, and you can point to the immateriality of the exactions, without realising that what is going un is still theft when applied to those who do not consent. Even if the world would be worse off with a simple abandonment of that approach, the faulty understanding prevents any other ways of achieving that desirable greater good.
And by talking in such a utilitarian way, I do not in any sense mean to endorse utilitarianism, merely to point out the problems even for someone who adopts that perspective. It would be pointless to assert the inherent injustice of an unaccepted taking, when speaking to someone who simply does not recognise that. There is as much an offence there when the taking is immaterial and applied wisely as for any highway robbery; it’s the interference with a person’s essence and identity that’s the trouble.
PML, it would help the credibility of those who claim that taxation is “theft” if they did something other than whining about it.
For example, removing themselves from places where they are taxed without their consent. Terje is quite free to remove himself to, for example, Liberia.
In such a place, Terje would not have to worry about whether his own personal tax dollars were being accidentally spent on something that someone else might benefit from. Roads, healthcare, education and suchlike. Terje would surely be the best little productuve entity he could be, in such a place.
Hang on, SJ, before someone departs to a tax haven, wouldn’t it be fair that the person puts back into the pot what he has taken out in the form of education, health, public transport, child endowment,……………?
James,
And you will never be convinced that free competition between corporate entities, trying to persuade the various free people to make a choice, can ever be a substitute for a good regulation and some innovative legislation.
A difference between you and Terje on this is that one of you is backed up by evidence, empirical studies and common sense.
I will let you decide which one of you this is. That is what freedom means, James.
Smily
That was a comprehensive post. I agree with a fair amount of the stuff in it, but like you said it is slightly off topic..
Your investment timing is good, with gold appreciating. You also avoided the peak of the property market. If you are in the eastern states now might be a good time to sell your gold and take the plunge and buy property. Long term it has served me well.
SJ says
“What was the work that was done? On what do you base your comparison with AGL?
�
Reality, a concept you might not be familiar with.
2 men from AGL (Agility) came to our property for 3 hours, turned the gas off “stood by� so work could be carried out to the gas service by our plumber. They charged us $150. 2 men from Energy Australia came to the same property for 1.5 hours, turned the power off “stood by� so work could be carried out to the consumer mains by our electrician. They charged us $2000. (I know reality is hard for you to comprehend, so if you need proof, get JQ to send me your email address I will send you a pdf of the receipts}
“And this price gouging isn’t just confined to Sydney Water� and energy Australia.
Today we paid a $4000 fee for the privilege of supplying and constructing Hornsby Shire Council with 90 metres of kerb and foot path on their land. (Receipts can be supplied) Oh to be a self regulating monopoly!
“You poor, poor, put upon property developers.�
ALP brown tongues shouldn’t bite the hand that feeds them. Come time to fund an election campaign they might have a cash flow problem.
James said:-
I don’t view a buyback as the same as nationalisation. There are already takeover provisions in which one shareholder can force the buyout of others if the majority concent. That is a basic rule of the game layed down since before the Telstra float.
Such a move would raise my hackles however in so far as it involves the umpire taking up position to kick the ball.
SJ,
You raised several points.
I have this image in my mind of man-A whipping man-B. Man-A is saying “my ears hurt, stop your whining and get out of here”.
In any case I don’t know that whining is an accurate characterisation. I was asked a question and I answered it and then went on to say that I didn’t think we needed to further thrash the issue of tax as theft. However you seem keen to give the topic oxygen.
I generally spend far more energy outlining the merits of a lower tax system and the injustice of a high tax system rather than whining about my personal circumstances.
Those that whinge about taxation being too low to satisfy their call for “social justice” could also do something instead of whining. They could go and give their time to a charity for example. However it does not seem to stop a lot of them from whining.
Yes and those that want more taxation can move to France. This type of argument does assume that the foreign nation in question will accept them. In essence you are suggesting that those that disagree with you about the type of society we should have should not have a voice in formulating that society. They should shut up or p!ss off. You can take that view if you wish and you can whine about me if you enjoy it but it does not move us along very far.
Actually the risk of wealth and income appropriation via theft is reasonably high in Liberia as I understand it. Which along with civil war has lead lots of business people to leave the country. It seems like an unlikely candidate. For a better example of the economic freedom adovcated by libertarians you might point to places like Hong Kong.
However given that I was born in Australia and given that all my personal history, most of my immediate family and all of my friends are here I think I will stay put and help with the struggle towards a more ideal society. If you don’t like the sound effects created by that struggle then you should feel free to leave for France any time you like.
Regards,
Terje.
EG said:-
EG, I never envisaged you as a proponent of indentured slavery. Although I do understand that if you get your slaves while they are still young and impressionable then it is more likely that you can indoctrinate them with a sence of indebtedness. So child endowment is obviously a good mechanism to use in such a slave breeding program. Personally however I prefer to view child endowment as a type of tax refund and that my parents paid for my childhood out of love.
Terje wrote: “Actually the risk of wealth and income appropriation via theft is reasonably high in Liberia as I understand it. Which along with civil war has lead lots of business people to leave the country. It seems like an unlikely candidate.”
If you were to consider more carefully the words you, yourself, have just written you might come to understand why so many of us agree that “taxation is the price we pay for civilization.”
Terje,
You are perfectly right in your assumpton that I am not a proponent of ‘indentured slavery’ or any form of trade in ‘human capital’ (slavery).
.
James,
If you want a humorous take (as well as a slight overstatement) on what I believe, try here.
I read through your references – try one of mine.
James,
I have never taken the position that taxation should be abolished. My stated position is that taxation is theft and taxation is evil, however below a certain threshold I accept that it is the lesser of evils. Unfortunately we are way above that threshold in the realm where taxation and government is the dominant evil in society. Not the worst evil by its character but the most pervasive of evils. The chance of my critisism of taxation creating some form of low tax policy overshoot is highly improbable.
I would prefer a level of taxation along the lines of what we had in the early 1900s. We had neither civil war nor widespread crime at that level of taxation.
Regards,
Terje.
“If you were to consider more carefully the words you, yourself, have just written”
What level of “taxation is the price we (should) pay for civilization.â€?
Terje 6% of GDP
Me, 20% of GDP but, any reduction would be appreciated.
Nationalisation/communisation supporters, 100% of GDP.
Terje Says:
Terje, I would respectfully suggest that you are either delusional, or completely ignorant of that which you argue.
The level of taxation hasn’t changed much since the early nineties.
Tax as % of GDP:
1985 29.1%
1990 29.3%
1995 29.8%
2000 32.1%
2003 31.6%
Fixed link to the tax numbers I cited above.
econwit Says:
I find this very difficult to believe. Did you complain to the Ombudsman? If so, what was the result? If not, why not?
econwit Says:
Yeah, yeah. You’ve been bought and paid for. The rest of us haven’t.
He said early 1900s not 90s
Although “we should take no notice of your manufactured stories”
1900 it was 6% of GDP
see table 27.19 TAXATION REVENUE AND GDP PER HEAD
http://www.abs.gov.au/Ausstats/abs@.nsf/94713ad445ff1425ca25682000192af2/a6e24932616f91edca2569de00296982!OpenDocument
“Yeah, yeah. You’ve been bought and paid for. The rest of us haven’t.”
No the ALP has been bought and paid for.
Im taking it to Ewon. http://www.ewon.com.au/
Energy and Water Ombudsmon, NSW
Quite visibly, taxation does not “pay for” civilisation. It pays for many things, only some of which even contribute to civilisation (Iraq’s situation today is a case in point). Also, civilisation is achievable in quite other ways – that part of taxation that contributes to it in no sense justifies crowding out those other things. Many organised states came into being on the back of much less centralised situations, with activities resourced in ways that were not taxes (though they often included force and/or fraud at some level, since that non-taxing only represented convenience).
All that is quite beside the philosophical point, that exacting contributions without consent is ipso facto theft. It can only ever work as a lesser evil. The practical side of this is that those who, in denial, accept it as good are unable to consider alternatives that either are not evil or are even lesser evils. That includes options that become more realistic as times change. (This is why so many people supported slavery as a good – the power of denial working on what had once been an unpleasant but lesser evil.)
In particular, people who buy into governmment service provision on the back of taxes will refuse to consider embarking on any transitions away from that, and if anything they will try to thwart that.
For a long time, central US taxes only fell directly on those who implicitly agreed – importers who paid tariffs but were under no obligation to trade with the USA (other funds came from land sales). But the system involved force in acquiring land, delegated much to the state level, and piggy-backed on pressures that drove people to trade internationally so that they were not truly free. The USA was complicit in a larger world trading order.
None of this has anything to do with the “credibility” of the arguers. That is merely a way of saying that arguments will only be entertained from those who haven’t removed themselves from the forum, and any others who try not to roll over will be dismissed in an ad hominem way.
SJ,
1900 as in around the time of federation. A move that was meant to reduce domestic trade barriers but has instead escalated them to obscene levels.
Regards,
Terje.
P.S. Please read more carefully before calling people things such as delusional. You have a high propensity for name calling which is not welcome.
econwit Says:
That’s a good start. Let us know what happens.
econwit Says:
Fair enough, I misread that. It doesn’t make all that much difference, though.
With taxation at 6% of GDP, obviously we wouldn’t have the same level of services provided by government.
We’d either have to do without those things, which would bring us back to being the same backward place we were in 1900, or we’d have to pay someone else to provide the same services.
Looking at the U.S. healthcare situation, I suspect we’d end up paying more and getting less than we’re getting at the moment.
Of course, the real news tonight is this:
“We would have sold the remaining shares in Telstra a lot earlier at a higher price … had it not been for the legislation being blocked in the Senate by the Labor Party and by others.”
“Mr Howard said the Government had gone to the past four elections promising to sell its Telstra shares.”
How many billions of dollars did the ALP loose Australian taxpayers over that period?
Look at how much wealth they can destroy when they are not in power.
Imagine how much wealth could be destroyed if they were?
Econowit,
You could share the blame out a little. The Greens and Democrats also opposed the sale. And the ALP were at least good enough to pave the way toward privatisation by opening the market to competition. Paul Keating has always publicly supported the full sale of Telstra.
But what is the point of privatisation if the government is going to maintain owner type control through regulation? They need to get out of the way.
Regards,
Terje.
The point is, Terje, that the government is testing the hypothesis, promoted by some interest groups, that managers from the private sector can manage ‘better’ than managers from the public sector, given the same objectives.
A rough calculation suggest that T2 shareholders have lost $8 billion, which is effectively a windfall to the Federal Government. If I was a T2 shareholder I would be very, very angry.
The new sale announcement condemns Telstra to an indefinite future where the largest shareholder remains the Government via the Future Fund and the Government still faces a conflict of interest between its role as owner and regulator.
This is why the suggestion by John Humphries http://www.libertarian.org.au/blog/readArticle.jsp?articleID=9586114 to simply allocate the remaining shares to the public for free is not as silly as it first sounds. It would be a quick option that would leave the Government free to decide on how to regulate for a sensioble telecomminucations framework for the 21st century. With the Government claiming it is largely debt free it could wear the cost of this approach, especially if it was done instead of the next couple of tax cuts.
Returning Telstra to full public ownership, as Prof Q argues,will always result in a conflict between the Government’s role as owner and dividend earner and its role as regulator. And how would the government approach the buy back of the T2 shares that Mums and Dads paid $7.80 for?
EG,
Not a hypothesis I have much faith in. Given that managers are drawn from the same labour market I would think that for the same wage either the private sector or the public sector can recruit the same skill set. If such a hypothesis was the sole reason for floating Telstra then there would be no argument for the privatisation at all.
i.e. I think it is a straw man argument.
A more reasonably hypothesis is that when managers are employed by the public sector they are often required to meet political objectives that compromise their ability to make good economic decisions on behalf of a public company. Which is a quite separate argument to the one you suggested. Corporatisation with private sector competition would largely solve this problem, but would still leave the government with a conflict of interest in terms of its role as regulator.
Regards,
Terje.
Terje, I haven’t received information which would lead me to see a need to revise what I’ve said. I can add that there is a potential conflict of interest problem with private and public corporations. It is known as ‘principal agency problem’. If it is the case that people are self-interested (not necessarily in the most simplistic and myopic fashion as found in introductory econ text books) then managers of other people’s affairs will look after their own interests first. Hence the idea of laws and regulations. Note the growth in the ‘corporate governance’ literature and the economic literature on ‘incentive compatible mechanisms’. Reasons for treating Telstra different from say a fish and chip corner store, which lends itself for ‘private ownership’ as you seem to conceive of it, have been extensively discussed on this blog site.
By how much is (private) foreign debt going to increase as a result of the government selling a parcel of Telstra shares?
econwit wrote: (quoting a news item of Friday 25 August) “Mr Howard said the Government had gone to the past four elections promising to sell its Telstra shares.�
Consider this: The Government, not once during the 2004 election nor any time before or since then argued the case for why Telstra should have been privatised. Up unti l 1998 they maintained that had no intention whatsover to fully priviatise. Since then they told us that the partially privatised Telstra of their making was an ‘absurdity’.
It’s ideed a strange way for them to have obtained their alleged ‘mandate’.
At the 2004 election the Telstra sale was not mentioned once in any Liberal party policy documents that I could find. By my count Howard mentioned Telstra three times during the whole election campaign.
Helen Coonan did not answer a direct question: “Why should Telstra be privatised?”. Instead of arguing the case for privatisation, which we are now told that she and her Government were in the process of obtaining a mandate for from the electorate, she dodged the question.
Here was her initial response:
Note the words that I emphasized: “I think that claim that the election’s a referendum on whether Telstra should be privatised is drawing a very long bow indeed.”
Instead she attempted to imply that full privatisation was not a likely prospect until a whole list of seemingly formidable hurdles were first cleared. One of the hurdles, of course, was that a majority in the Senate opposed to full privatisation was needed. That hurdle was cleared against what were probably the intentions of the majority of the electorate for a number of reasons including:
1. The undemocratic way in preferences from above the line votes were secretly allocated by the major parties.
2. That at least one Senator, namely Barnaby Joyce, who promised to vote against privatisation, changed his mind.
Another hurdle was that it woud not be sold until the the taxpayers supposedly got ‘value’ for the sale. That was taken to be at the time to be around $5.25 per share.
Well, of course since then it is nosedived to the current price of around $3.70, but that supposed hurdle hasn’t stopped them, either.
Of course many have argued and will argue that all such ruses clearly calculated to deceive the voting public are now considered legitimate, but the simple fact is that John Howard, the Liberals and the Nationals and the likes of Ziggy Zwitkowski knew then and know full well now that the public do not want their Telecommunications company handed across to an unaccountable private corporation which may even end up being foreign owned.
Once again, the simple plain fact is that if the Liberal Party had been honest in 2004 about Telstra (and “work choices” and “strengthening Medicare” and interest rates, etc, ad infinitim) they would not be in Government today.
I have written more about this here.
JS
“The Government, not once during the 2004 election nor any time before or since then argued the case for why Telstra should have been privatised. Up unti l 1998 they maintained that had no intention whatsover to fully priviatise.”
You should read this:
http://www.aph.gov.au/library/pubs/chron/2003-04/04chr03.htm
Telstra Sale: Background and Chronology
Here is an interesting bit;
“Following what was considered a highly successful first tranche float, the Howard Government moved quickly to introduce legislation the Telstra (Transition to Full Private Ownership) Bill 1998 to fully privatise Telstra. However, early attempts to get support for a full sale failed when independent Senators Brian Harradine and Mal Colston did not support the Bill. The Howard Government had to settle for selling off a further 16 per cent, enabling it to privatise almost half of Telstra with the Government maintaining a majority shareholding (50.1 per cent). The second tranche sale was also subject to a funding package to improve telecommunications servicesthe social bonus initiatives.”
The Telstra (Transition to Full Private Ownership) Bill 1998 was knocked back in 1998. At that time the ALP had the option to support the bill and have the rest of Telstra sold shortly after, they didn’t.
Australia taxpayers subsequently have lost billions of dollars courtesy of the ALP.
I reiterate my comment above:
“Look at how much wealth they can destroy when they are not in power.
Imagine how much wealth could be destroyed if they were?�
Imagine is probably a bad choice of word, especially if you live in NSW.
Econwit, nothing in your post remotely addresses my point. The public don’t want and never did want privatisation according to all opinion polls I am aware of. John Howard and his ministers were all perfectly aware of this and that is why they went such extraordinary lenghs to avoid any mention of the Telstra sale during the 2004 election as I have shown above. If you can show me where privtisation was discussed in any Liberal or National Party 2004 campaign literature, please tell me.
If you can show me where Howard ever discussed Telstra, except for very briefly on about three occasions, please let me know.
Would taxpayers have been truly better off if we had sold then rather than now?
Given this Government’s propensity to squander money in ways designed to get it re-elected above all else, I very much doubt it, and the political headache of having so many more shareholders having lost value in the shares they bought would have been even greater.
Whatever price the taxpayer might have got, Telstra’s value to the public would have been almost immeasurably greater if it had been kept in public hands and run as a public service bya Government with the political will to use it to deliver to all Australians affordable access to a 21st century telecommunications network.
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Andrew, I did check the link. Nothing remarkable IMHO, except that I was also appalled by the massacre at Wacol, for which Clinton must be held to account. Whilst I acknowledge that you read my links, I would appreciate it much more if you were to demonstrate comprehension of my arguments.
JS
I hear what you are saying, but I cannot agree with you regarding the Coalitions’ intentions.
I give you prima facie evidence of the coalition’s policy as presented to parliament in 1999 (above) and again below in 2003 (prior to the 2004 election):
What about this bill introduced in June 2003. It is a pretty clear indication of the coalition’s intentions in 2004.
From; Telstra Sale: Background and Chronology {link above}
“On 25 June 2003 the Government released its response to the RTI. Having resolved much of its internal arguments over a further Telstra sale (particularly with some National Party backbenchers), the Government introduced legislationTelstra (Transition to Full Private Ownership) Bill 2003for the full privatisation of Telstra the next day.�
� Would taxpayers have been truly better off if we had sold then rather than now?�
This can be cleary quantified in dollar terms. If sold in 1999 a lot if sold in 2004 not as much as 1999 but still a lot.
“Given this Government’s propensity to squander money�
If they put the proceeds towards future superannuation liabilities, it could be argued as being fiscally responsible.
“Telstra’s value to the public would have been almost immeasurably greater if it had been kept in public hands and run as a public service bya Government�
On this point we will have to agree to disagree. My philosophy is the government couldn’t run a chook raffle. Therefore they should be given the least amount possible to mess up. This Telstra debacle is a prime example of government incompetence (Both sides).
EG,
Just out of interest can you state which individual or institution advocates the hypothesis that given the same set of objectives managers in the private sector will perform at a higher level than managers in the public sector?
Also can you clarify how the privatisation of Telstra will test such a theory given that management objectives seem unlikely to remain constant?
Regards,
Terje.
Terje, I could make it easy for myself by quoting from the preceding post. But I don’t think this would be helpful. I need a bit of time to give a more considerate reply, which I feel is suitable for a public forum like a blog site.
I would prefer the helpful version so I’ll be patient.
My guess, Terje, is that you will have to be.
Media Release : Don’t buy what you already own!
Spokesperson for Citizens Against Selling Telstra, James Sinnamon, today called upon the Australian public not to buy shares in a company which they already rightfully own.
“Together with their parents and grandparents the Australian public, has already paid for Telstra many times over in taxes and hefty phone bills. In return, Australians should have had affordable access to 21st century telecommunications years ago, like Canada.”
“Instead Australia’s telecommunications network is a patchwork of brand-names piggy-backed on the original deteriorating electronic infrastructure and harassing us at dinner for our custom.”
Sinnamon observed that Australians have been forced to sit back and watch the value of their investment destroyed firstly by corporatisation and then by partial privatisation. …
on the Terje EG debate – look forward to the more thoughtful post at some time; incidentally, “principal-agent” (not agency). but Terje, you need to specify in your challenge to EG not just “same set of objectives” but also “same set of incentives”. There is evidence that there is a very different set of behaviours exhibited by managers whose firms are subject to the threat of takeover (ie those with listed shares) vs. managers whose firms are not. Not all of these incentives incidentally are benign – there is a concern among a number of US writers recently that the threat of takeover is leading to too much short-termism. but it certainly introduces a different set of incentives.
However, I suspect this won’t be settled by a simple post from EG, because it is actually quite hard to do public vs. private comparisons. If a publicly owned organisation had all of a) similar objectives to a comparable private firm b) real competition c) normal commercial gearing ratio and privately sourced loans and d) open to the threat of takeover then it would be easier to do a reliable comparison – but then you’d have to ask why on earth it was publicly owned anyway. the normally advanced reasons for a body to be in the public sector in the first place are that there is a public good/market failure element or a natural monopolyinvolved.
Terje, Stephen Bartos,
I had planned to reply over the weekend. I changed my plans to reduce the risk of having to spend more time on disentangling.
I’ll start with Stephen Bartos (SB) comment “Terje, you need to specify in your challenge to EG not just “same set of objectives� but also “same set of incentives�. I don’t believe this is helpful advice, SB, because two separable questions are compounded.
a) Objectives versus incentives. It is useful to distinguish between the objectives of an organisation and ‘incentives’. Consider four alternative institutional environments which define the objectives of a telco (written in minimalist form to bring out the point I am trying to make).
a. Maximise: {preferences for telephone services of all voters in Australia} subject to technological constraints and subject to financial survival.
b. Maximise: {profits from the sale of telephone services in Australia} subject to technological constraints
c. Maximise: {profits from the sale of telephone services in Australia}subject to technological constraints and regulatory constraints such that the objective in a. of a) is fulfilled.
d. Maximise: {profits from the sale of telephone services in Australia} subject to technological constraints and regulatory constraints specifically directed toward actual or assumed deviations of a natural monopoly from the theoretical outcome of a ‘competitive private ownership economy with complete commodity markets’ (application of theory of contestable markets).
b) I say a principal-agent problem, defined as self-interested managers (and workers) making decisions (exerting ‘effort’) which are not consistent with the objectives of the telcom exists potentially irrespective of the institutional environment (ie applies to a., b., c., d. of a)). I say ‘potentially’ because the principal-agent problem rests on the assumption that individuals are motivated by money (non-satiated in money) they get no satisfaction from working – a bit like ‘robots’, programmed to act in a particular way.
c) SB says: “There is evidence that there is a very different set of behaviours exhibited by managers whose firms are subject to the threat of takeover (ie those with listed shares) vs. managers whose firms are not. Not all of these incentives incidentally are benign – there is a concern among a number of US writers recently that the threat of takeover is leading to too much short-termism. But it certainly introduces a different set of incentives.� These comments belong to the literature, known to me in Finance, as ‘market for corporate control’. It includes stuff like bonus schemes, performance schemes (eg options), which people thought would address a ‘principal-agent’ problem, conceptualised as conflict of interest between the owners of ‘the firm’ (shareholders) and directors or senior managers. I am happy to hear that the empirical research has caught up with theoretical considerations. The main theoretical consideration I have in mind is that ‘performance schemes’ are counterproductive if the performance scheme is manipulable and an actual incentive compatibility problem exists. The literature which deals with the general problem is known as ‘mechanism design’. It is very difficult to design non-manipulable incentive schemes even if one assumes that the person who designs the scheme is not self-interested (and happens to be a game theorist or a pure mathematician who takes the time to study the actual problem). As for take-overs in the ‘market for corporate control’, I would appreciate if SB could point to a paper which proves that the solution to threats of take-overs and actual take-overs result in a first-best profit maximising outcome (as distinct from a theoretical reduction in the deviation from the first-best outcome). There is plenty of empirical evidence (going back decades) which shows that the anticipated profit improvements did not materialise – on average. So, to summarise, there are two problems.
a. If the assumption of everybody is self-interested is ‘true’ (self-interested as indicated in my earlier post to Terje), then incentive-compatibility problems are endemic for all but owner-managed firms without employees.
b. If incentive schemes are introduced which are manipulable, then they magnify the problem in a. of c). If they don’t magnify the problem then manipulable incentive schemes are ‘redundant’.
d) Returning to section a): Privatisation of a telco without introducing an incentive compatibility (conflict of interest) between the government and the voters would involve a change from objective a. of a) to c. of a).
e) I put forward the hypothesis that the government is testing the hypothesis, promoted by some interest groups, that managers from the private sector can manage ‘better’ than managers from the public sector, given the same objectives.
f) Terje’s comment, “Not a hypothesis I have much faith in. Given that managers are drawn from the same labour market I would think that or the same wage either the private sector or the public sector can recruit the same skill set. If such a hypothesis was the sole reason for floating Telstra then there would be no argument for the privatisation at all.� Terje disregards incentive compatibility problems within organisations. Assuming Terje would not ‘go for’ the fashionable ‘performance management’ stuff, he would at least avoid problem b. of c) above. To this extent I sympathise with his comments.
g) Terje asked me to state individuals or institutions which advocate the hypothesis. The answer is: This is the only hypothesis I could deduce from the rhetoric on privatisation, taking as given that the government is acting in the interest of its voters.
h) Terje asked “Can you clarify how the privatisation of Telstra will test such a theory, given that management objectives seem unlikely to remain constant. Answer: If managers are self-interested, an incentive compatibility problem persists and if there are ‘manipulable incentive (performance) schemes, then the outcome will be worse. Changing incentives per se does not necessarily correspond to an improvement in anything. My hypothesis does not depend on specific assumptions about changes in incentives structures, hence I avoid the compounding of the two problems I’ve stated above. I was not an adviser to the government. I don’t know what predictions were made by the advisers and what assumptions.
Further, I refer to JQ’s writings on micro-economic reform, referenced on his website.
EG,
You seem to be saying that you inferred the hypothesis and that you can’t point to anybody of note that ever advocated such a hypothesis. This is what led me to postulate that you were merely erecting a straw man argument. You have not offered anything to dispell that view.
On point (h) above I don’t think you have answered my question. Ignore issues of agency and incentive for one moment. Clearly the objectives of private owners and government owners will differ. The former generally seeks to maximise profit whilst the later has a broader set of objectives and a different set of priorities (eg votes).
Now whilst the objective of managers is not the same as that of the owners, surely you would accept that the later influences the former through multiple means (eagerness to please, incentives, job security etc). So the objectives of managers will not be constant and your hypothesis does not get tested.
As to Steves point regarding incentives I took it to mean that if a private firm recruits managers with a salary offer of $50k pa and the government owned firm recruits managers with a salary offer of $650k pa then the public sector is likely to have better managers. In short if you pay peanuts you get monkeys. As such he is indicating that a comparison of the quality of private sector managers and public sector managers should include individuals from a comparative level of pay. And then you need to look at the objectives that each are attempting to achieve. In other words just because a government owned firm makes no profit does not mean the managers are hopeless managers.
Regards,
Terje.
Terje,
You missed the point that there is an a priori distinction between ‘objectives’ (constitution) of an organisation and the objectives of people working within the organisation. An incentive compatibility problem is said to exist when the objectives of individuals working in an organisation deviates from the objectives of the organisation.
I trust, you are not familiar with the literature or with empirical examples reported in the press.
The only critical assumption I am making is that the government at least believed it acts in the interest of its constituency when deciding to privatise Telstra. (I don’t know the advice the government has received). This is so because the distinction between c. and d. of a) in my post is not crucial for my hypothesis.
Are you saying the government knowingly did not act in the interest of its constituency when deciding to privatise Telstra?
Has anyone seen the SBS Dateline Story of 20 September on Trujillo’s steawardship of Graviton and of US West?
Trujillo would not be interviewed, but Burgess was. The transcripts are here.
Not to be missed!