Stutchbury replies

Michael Stutchbury has offered a rejoinder to my post responding to his article in the Australia. I’ve put it up as a guest post. I remind commenters to stick closely to the comments policy, and avoid any kind of personal attack. Feel free, however, to agree or disagree with the substance of the post. – JQ

Michael Stutchbury writes

Let’s remember one thing. The 20-plus economists who signed John Quiggin’s statement do not all oppose the Queensland Rail privatisation.

They may have a gripe with the Bligh Government’s stated reasons for the privatisation, to make room on the public balance sheet. Some think the freight business is being sold off too cheaply and will be a net cost to the budget. Others think Labor is artificially propping up the sale by crystalling future monopoly rents. Quiggin appears to back both positions.

The first of the economists I rang on this admitted he had not been sure what he had signed. The second strongly disagreed with the Quiggin position. The third readily agreed it was a mistake to have signed the statement because of the way it was used.

But gathering together a bunch of eminent economists behind a position that inevitably would be seen as being against the sale is a clever way to fan the opposition, stretching as it does from the opportunistic stance of the LNP, to the rail unions’ desire to maintain public ownership featherbedding, to the Queensland traditions of rural socialism practised on both the right and the left. Talk about spin!

Let’s say QR has been run less than efficiently – does anyone seriously doubt this? And let’s suppose that a private operator would clean out some of the inbred inefficiencies (as implicit in Quiggin’s suggestion that the AWU has sold the other unions down the river)? If so, then the asset will be worth more in private hands. That’s just another way of saying that governments have enough to do without operating coal freight.

Some might still be able to suggest that the state budget would suffer if the public ownership has been acting like a monopolist, for instance tolerating union featherbedding and by reducing capacity in a way that caused the first China boom bottlenecks. And it might be possible to argue that privatisation may simply transfer the monopoly rents to the private owner, which might also be able extract some of the monopoly cream now taken by labour.

But of course the budget also is affected by the taxable income of the taxpaying entities in its jurisdiction. It doesn’t help the budget bottom line for the government to be running a rail freight monopoly that crimps its biggest industry by restricting the ability of coal companies facing a world price to get their coal to their customers.

It’s true that regulating for competition in a quasi-natural monopoly such as the rail network is tricky. It might have been better to allow the coal companies to buy a structurally separated network because they would have a stronger incentive to clean out the inefficiencies. No doubt the competition economists will argue about that.

But the regulatory regime to cover QRN is still likely to promote more competition than the former public monopoly model. The latest positions of both the main above-rail competitor and the coal company customers support this.

It may be technically true that the interest savings from being downgraded from a AAA credit rating to AA+ are not large. But the issue is bigger than this simplified comparison at the top of the commodity price cycle.

Australia is a capital-importing economy trying to run a high growth and high risk development path based on Chinese demand for our natural resources. Government can help minimise the risk by maintaining fiscal discipline and maintaining a strong credit rating – as evidenced in the global financial crisis.

Quiggin’s exercise reinforces Ken Henry’s complaint that by, arguing over the details, economists too often frustrate the political capacity to deliver better policy. Quiggin appears to understand this all too well.

26 thoughts on “Stutchbury replies

  1. John, I guess Jack’s attitude is ‘Joh may be an SOB. But he is our SOB’. It seems that for some of the ‘free markets are evil’ brigade any crook is preferable.

    Or is it a case of ‘no enemies on the corporatist, protectionist right’?

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