Collapsing case for privatisation

The Bligh government’s case for asset sales rests in part on a supposed fiscal emergency arising from the global financial crisis and in part from the general ideological claim that putting infrastructure assets into the hands of the private sector will promote economic efficiency. Both parts of the case have taken a knock in the last couple of days. A study by Access Economics confirms the findings of the union-commissioned study by Bob Walker and Betty Con Walker (derided by the government and state Treasury at the time) that the budget position is much stronger than has been admitted so far.

On the second point, Liberal Lord Mayor of Brisbane Campbell Newman has conceded that the days of private toll roads are probably over. As I’ve been saying for years (getting on for decades now) these projects always involve a social loss. In the 1990s, it was almost always the public that took the loss while private operators made out like bandits. In the easy money environment of the 2000s, private investors made silly investments, and often lost the lot. Now that everyone has wised up, there will be no more deals like this.

By far the best solution would be for the state government to buy back all the toll roads, and replace ad hoc tolls with a coherent system of congestion pricing. The Bligh government instead, plans to sell off its own toll roads. As for congestion pricing, Anna Bligh has made her view pretty clear “not while this government is in office”. In reply to which I can only quote Men in Black – “Your offer is acceptable”.

H/Ts Darren Godwell, Tom Miller, Nancy Wallace

137 thoughts on “Collapsing case for privatisation

  1. Alice :It would seem far more logical to simply curtail further development of the CBD and to encourage the growth of satellite CBD developments, industrial / commercial and mixed strip zonings for shops at locations in locations in our great expanse of suburbs away from the CBD, for the simple reason that more would not have to travel so far to get to work. Traffic down, congestion down and no need for user pays pricing impositions like congestion taxes (although for the Sydney CBD – I am not against this ). It may also promote small business eg rather than only those who can afford the rent at a Lowy owned site. I now have a job 5 minutes (sheer bliss) from my home and my emmission contributions are obviously less than before and my road use less.

    Back on topic.

    You mention concentration of workplaces in the city. This raises an interesting question, namely to what extent does a congestion tax encourage decision makers, who tend to have subsidised car parking facilities in the city and tax subsidised if not totally corporation paid for congestion tax, to build further work place concentration (and wind-tunnels). This is an empirical question, one of many, including that raised by Jack horner 1 p3.

  2. @Jim Rose

    Quite right, the adjective ‘informed’ is open to alternative interpretations; apologies. I concur with you that votes have equal value and this is a good thing. So by ‘informed’ I mean both, published expert opinion, honest public discussions, and private information. The latter refers to personal circumstances such as location of residency in relation to location of work and available public transport, to name a few. There are public consultation processes but there are also complaints about these processes. I would not venture to offer an opinion on what ought to be.

  3. “Government owned enterprises face far greater problems from the separation of ownership and control than do private corporations. one example is the turnover of CEOs of government owned businesses is half that of private businesses.”

    Large business face the same sorts of problems whether in government or the private sector. Both are run by bureaucracies. Both face leadership problems. CEOs are not really answerable to shareholders to a great extent. Politicians are similarly incompetent when compare to board chairman. Government tends to own monopolies, or at least it did when it owned, and monopolies are not under pressure by competitors. At least with government ownership there is more chance that wider concerns are taken account of in the entities performance. If you were an economist you would know that profit is hardly the metric of efficient performance. Monopolies often have choice over the level of profit they enjoy. Government entities often didn’t choose to make a profit. The privatisation of airports is a great example of a disaster. Airports, which are monopolies in private hands are now choosing to clawi profit left right and centre. True there is a jobs for the boys system for ex-MPs of dubious merit amongst state owned enterprises but this is similiar to the old boys network in the private sector where members of the club of dubious merit get their noses in the public sector trough. To big to fail is often just a failure to understand that some issues are too big to ignore and if an issue is to big to ignore it is actually a benefit if the issue is housed in a single entity. Also, too big to fail, the privatised entities typically remain too big to fail but the difference is that when they are bailed out, by taxpayers, those who benefit are people in the private sector. Look at the recent financial crisis.
    Incentives are a problem regardless of whether it is government or the private sector.

    It is all very easy to read for the hymn sheet and repeat the mantra of “Government bad, Private sector good” but rather than reading from the ideological text, even if it is a fine piece of literature, sometimes a little thinking and analysis comes in handy.

    You would seem to fit in well with some of the clowns employed by the Australian Federal Government in its premier advisory body “The Productivity Commission”. Their choir does many a tune from the hymn book. Though again maybe the government is doing everyone a favour by employing them. Otherwise, they might be ought mugging little old ladies or even worse, be in the financial sector losing thousands their life savings and their houses with the consequence that thousands of families end up on the street. The problem in the private and public sector is that organisations are run by people and as we frequently see on this blog, some of them are nuts.

  4. I really like the way libertarians rapidly disown their own whenever someone is silly enough to give a libertarian the chance of actually running things. Roger Douglas disowned. Greenspan disowned. The solution to avoid this is never to let them run things, which they are universally appalling at. Better to let them give advice from the sidelines. They certainly are great at that, and at rewriting history. If you put libertarians in charge disaster is bound to follow. The greatest most recent examples – Greenspan and Iceland. New Zealand is simply an old example floating off shore as a good warning to Australia. Looks like they still haven’t learnt anything.

  5. @Freelander

    “Large business face the same sorts of problems whether in government or the private sector. Both are run by bureaucracies.”

    The bureaucracy aspect is one. There is another one, namely that the decision problem of a corporate enterprise when markets are incomplete is analytically equivalent to a public choice problem. This result is by Professor Frank Milne, an Australian economist, now in Canada, previously at the ANU.

  6. Yes. The real problem is not so much ownership as organisation. With a large organisation there are large problems to solve. Organisations can be large because of scale economies being greater than the problems entailed by a large bureaucracy. The really important issues are how to make large organisations perform well. If a large organisation is lucky enough to be being run by good management, the most efficient structure can be quite different to the structure that might be best with less competent management. Problem is that the way people tend to get jobs in bureaucracies where performance is not clear cut and is a matter of opinion is more explained by sociology and social psychology, than the market efficiently allocating the best resources, in terms of value in terms of price, to the job. There is no market for labour the way there is a market for gold, even for low level jobs in the labour market.

  7. For some people – including politicians – spending is addictive. As with any addiction, the addict will seek to rationalise his or her destructive behaviour. Such rationalisations will change with circumstances and are not to be taken seriously. Any attempt at reasoned argument is futile.

    The real purpose of selling off private monopolies in Queensland is to find more cash to feed the Bligh Government’s habit. Unfortunately, in this case it is the people of Queensland who will suffer for the addiction.

  8. @Freelander

    Returning to ‘large’ infrastructure, characterised as a network of physical assets that are potetially used by all members of a society. I am not convinced that ownership does not matter in this case.

    There is a related problem, namely what belongs to the infrastructure. I have in mind the aviation industry. Clearly there is a network of physical assets involved, namely airports (one needs at least 2). But, except for the special case of Herriet jump jets which can take of and land vertically, there are flight path. These flight path involve the physical environment (air space), which is a non-marketable (not tradeable because it is not divisible) but essential commodity for humans ‘consumption’.

  9. @Ernestine Gross

    I tend to agree. Ownership would be better in public hands. But I imagine that would fall out from proper analysis, scientific research and developed theory on appropriate orgnisational structure and the incentives they embody, fit for particular purposes. In the case of infrastructure, I imagine that for a variety of reasons, public ownership would be part of the equation to eliminate some of the perverse incentives the chance to appropriate the gains and use the market power one has with an infrastructure service to enrich one’s self. The opportunity to enrich oneself from a publicly owned enterprise is smaller, doing so more difficult, and easier to detect. What’s more enriching yourself from a publicly owned enterprise is more clearly illegal.

  10. @Freelander

    “But I imagine that would fall out from proper analysis, scientific research and developed theory on appropriate orgnisational structure and the incentives they embody, fit for particular purposes.”. Yes, this is what people who were brought up in an environment where ‘spin’ was not in just about everybody’s vocabulary would imagine. In the case of Syndey airport, the EIS glossed over, via the by now well known spin methods of communication experts, that the science based analysis examined only the area up to Drommoyne, ie about 20 km of residential area were left out. This spin stuff is a public nuisance.

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