Some unsolicited advice for Anna Bligh

Over the fold, my column from yesterday’s Fin

Privatisation undid Labor

It was more or less inevitable that the Australian Labor Party would lose office in the 2011 NSW election. The government was old and tired, plagued by scandals and full of hacks and careerists.

But if defeat was inevitable, the magnitude of the disaster was not. As almost all commentators agreed, the catastrophe suffered by Labor was due primarily to the fiasco surrounding proposals to privatise the electricity industry.

Apologists for the privatisation push argue that the problem was not the policy itself but the fact that it was derailed by union and party opposition. Anyone tempted to give this view any credence need only look north of the Queensland border. The program of asset sales announced by the Bligh government in the wake of the 2008 election has been pushed through with hardly any effective opposition from within the party.

The most effective opposition has come from the Electrical Trades Union, whose secretary, Pete Simpson, is currently facing expulsion for supporting the official policy of the party, on which (as with Iemma in 2007) it ran in the last election. Despite some mutterings there has been no move to replace either Bligh or Andrew Fraser

But the absence of internal opposition has made no difference to the political disaster created by the asset sales program. Before confusion the January floods and the theatrical entry of Lord Mayor Campbell Newman as extra-parliamentary leader of the LNP, the Bligh government was headed for a crushing defeat. Polls consistently found around 80 per cent of Queenslanders opposed to the asset sales. This opposition translated into plummeting support for the government and for Anna Bligh’s premiership.

Unlike the case in NSW, the asset sales were the government’s only real political problem. The difficulties plaguing the health system, difficulties encountered by just about every state government in Australia, had been pushed to the back pages. Bligh herself remained well-liked at a personal level, as was evident in the bounce she received following her effective handling of the floods and cyclones in early 2011.

But, until the distraction provided by the floods, none of that gave the government any boost in the polls. Now that boost has been offset by the entry of Campbell Newman, also seen as having done a good job in the floods. It follows that the question of asset sales and infrastructure financing will come to the fore once again.

Most of the asset sales proposed by the Bligh government have already taken place. There is, however, still an opportunity to turn things around, in a way point up Newman’s own weaknesses.

In economic terms, by far the worst of the asset sale proposals was that for Queensland Motorways, the operator of publicly owned toll roads. Both economic analysis and hard experience have shown that dividing a road network into free public roads and privately owned toll roads is a recipe for inefficiency and poor risk allocation.

In the event, Queensland Motorways was transferred to the state-owned Queensland Investment Corporation (also the lead buyer for the rail company QR). Thus, as the government correctly points out, the asset remains in public ownership and the state receives the associated flow of income. More importantly, public ownership could provide the basis for a shift from ad hoc tolling to an economically sensible system of road pricing, based on congestion costs.

There is, however, both a problem and an opportunity here. In parallel with the state government, the Brisbane City Council under Campbell Newman has embarked on a massive program of toll road construction, including both public-private partnerships (Airport Link and Clem7) and the council-owned Go-Between Bridge.

Every stage of this program has been financially disastrous. RiverCity Motorway, the operator of Clem 7, is in receivership, and BrisConnections, builder of Airport Link, barely avoided being wound up a couple of years ago. The BCC is losing tens of millions per year on the nearly empty Go-Between Bridge, which has actually managed to worsen traffic congestion.

A coherent road transport strategy for the Bligh government would start with the acquisition of these severely distressed assets.

Of course, that would require the government to break free of the market liberal ideology that has given us the repeated failures of mindless privatisation. What is needed an economically coherent approach in which market price mechanisms and the capacity of the state to manage large infrastructure networks are combined to yield a socially optimal outcome.

Incidentally, it might save the government from an electoral catastrophe like that in NSW.

John Quiggin is an ARC Federation Fellow in Economics and Political Science at the University of Queensland.

25 thoughts on “Some unsolicited advice for Anna Bligh

  1. What I cannot understand is this. Why do governments persist with these privatisations? They are politically unpopular (the bulk of the electorate being opposed) and they are demonstrably wrong-headed in economic terms. JQ and the bulk of respected Australian economists have proved this over and over in theory. The real outcomes have proven it over and over in fact.

    Any theories as to why a process that is so fraught with economic and political failure is pursued with such dogged determination?

  2. @Ikonoclast
    Because prominent people benefit from the privatisation process. I think there’s evidence that Paul Keating’s firm was going to benefit from the NSW privatisation of electricity; you can hear his howls about anyone who stood in the path of him getting money. And every privatisation offers a huge amount of political patronage to politicians.

    If politicians do something that is obviously unpopular and likely to be politically damaging, it’s a fair bet that there’s money in it for them.

  3. One of the greatest failures has been Telstra which has sacrificed customer service for surety of dividend. Their last accounts show that they had to borrow to maintain dividend flow which must be a plan for failure. Their well established record of suboptimal delivery service forced the government to virtually recreate Telstra through the NBN. In this instance privatisation has cost the taxpayer and the shareholder dearly.

  4. @Scott

    Yep, you got it in one. Privatisation enriches the few at the cost of the many while also reducing the total wealth of the country. Privatisation is a combination of wealth redistribution and wealth destruction. It is the triumph of corporate power over democracy and narrow sectional self-interest over the public good.

  5. Perhaps the way our current major parties and major politicians work is rational. A good, honest government (if such existed) would last maybe two or three terms and then get thrown out to live in modest retirement. A dishonest government can sometimes last longer and can also enrich its key leaders for life through “entree” into the capitalist club after leaving political life.

    The way our system currently works, it is rational and beneficial in terms of self interest for politicians to lie to and defraud the public. There is no chance of “being caught” unless they are excessively clumsy and stupid like Gordon Nutall. Most of their schemes are not technically illegal. After all, why would they legislate to make their own shonky strategems illegal? Obviously, they are not going to do that.

  6. Private benefit may be part of the story. But it’s not the whole. The glories of privatisation and partnerships were being sold enthusiastically by senior public servants in the mid 90s, despite evidence that they really didn’t work all that well. Ideological commitment rode over any examination of the real costs and benefits. I saw it as tied in with a repudiation of “socialism”, a strong distaste for unions and for worker-level technical expertise , a commitment to managerial prerogative and a faith that the market would be somehow better than government management in all situations. Part of the zeitgeist.

  7. Privatisation is a great idea because there is plenty of private benefit for those involved in the process. No wonder the self interested are so interested in pushing it as a policy. Of course, overall, there is rarely net private benefit, in other words, public benefit, but those who lose, the public, typically have little if any say over the process. The money train rolls on.

    As for the parliamentary incumbents, and the Qld Labor party, they probably consider that the party has served its purpose, and is now disposable. They are probably now ready to move on to the next phase of their lives, in the private sector.

    Not unlike NSW, the Qld Labor party is probably about to be discarded like a used tissue.

  8. I’d give Peter T a salute- the modern labor careerists are often ancestors of the DLP and loath unions . Think back over the years and conside the contempt with which people like Richo, Keating and Costa have, in unobserved and candid moments, have expressed their real opinions on working Australians and unions. Go right back to who arranged that frightful physical hiding for left MP Peter Baldwin, for daring to raise the problems local residents faced re congestd Sydney airport.
    Anyone remotely resembling a genuine laborite has not see the inside of a labor office as part of the structure, for ages. The new generation of Labor are zombies like Andrew McCleay, hand picked for NOT being “labor” and being anti union- gets in the way of deals with developers

  9. Its not just Labor that loathes unions – and not just unions. In my observation managers without expertise loathe experts – whether engineers, scientists or mechanics. It seems to be rooted in inability to control.

  10. Whether private, public, or PPP, what explains the persistence with (privately and socially) unprofitable road projects such as the ones you described in Brisbane? I curse the Go-Between Bridge every day, and Blind Freddy questioned its sense as soon as it was proposed. Now it is hard to see an engineering solution to the mess created. And what does Clem 7 offer that the Gateway Motorway doesn’t? The Inner City Bypass has been a boon, now spoiled by the GBB at one end, but in general there is something clearly wrong at the planning level. Is there a political economy explanation?

  11. I wouldn’t deny that the benefits to cronies matter, but I think that most privatisation is just a way of dressing up the government’s accounts. You can book the asset sales as revenue while you don’t have to bring to book the loss of future dividends.

    Certainly in Bligh’s case that was the transparent motivation – to keep the AAA rating by taking advantage of the fact that the ratings agencies use the same highly imperfect accounting method.

  12. dd, marvellous comment. Just the sort of idiot eyes wide shut approach that induced the 2007 meltdown.

  13. Is it that the public opposition to privatisation is an example writ large of the individuals kinked demand curve? Or are people simply aware that if some corporation wants to buy a public asset, which is more or less guaranteed to have to be used by the public, then someone is looking to milk the public – again????
    And that politicians are spineless when it comes to raising taxes but happy to outsource that to the new owners.

  14. @Peter T

    Slightly off topic but… maybe not as it applies to some modern policy-less politicians.

    Management, to a very great extent, is now about not being an expert. Most of the latest management theory is simply the latest fashionable twaddle. No wonder they don’t like experts.

    Also, fashionable amongst managers is the satisfying idea that you don’t need to know anything about the business or activity you are ‘managing’ to ‘manage’. This is also twaddle, and about as silly as claiming that you don’t need to know anything about the subject that you ‘teach’ as long as you know how to ‘teach’ (something that some teachers I have met seem to believe!).

    Part of the infectious stupidity that has plagued the upper echelons of public and commercial life for the last forty years is this “don’t need to know your subject” stupidity. Belief that you don’t need to know anything about what you are managing is a great recipe for disaster.

  15. Nowhere in government / politician speak has “opposition to privatisation” come up as a reason for the NSW Labor party results and as a reason for Blighs unpopularity. Both NSW Labor and QLD Labor and Federal Labor and NSW Coalition and QLD Coalition and Federal Coalition

    are ignoring the bleeding obvious.

  16. @Alice

    Next you’ll be suggesting that 9/11, some other terrorist acts, and a measure of anti-Americanism has at least some, however remote, connection to American foreign policy!

  17. @Freelander
    Ha ha Freelander…but it never ceases to amaze me how divorced our elected leaders become from the people who vote them in, once in power.
    Do they have to physically pass through some decontamination chamber once sworn in to forget everything the voters ever said we wanted? Is Monsanto behind it? Check the morning teas.

    Do politicians get genetically altered once they sit behind a desk and start reading this commissions report or that commissions report ????(eg productivity commission makes them wonder if they should be hiring out their desk for a profit??).

    So they change a lot once in power. We know that. We dont like it but they do. So why? Are they being honest with the electorate?

  18. Did I not say that the cxreepy new CEO of telstra was caughta few weeks ago saying “so the government needs workers to roll out the NBN”. “We will give them people…for a price”

    Now it appears the government has abandoned the tender process because every compnay in town who responded is charging too much.
    Welcome to competition land Mr Swan. These bastards have you over a barrell unless you can build it yourself (oh sorry – I forgot we have long since privatised our public nation building skills and simply MUST keep budget in surplus and use much more expensive private racketeers to build the NBN).

    It must be an awful feeling when you have nowhere else to turn.

  19. Alice – losing the skills does mean that the government is beholden to those who can provide the skills. They come so expensively because the managers in charge increase costs enormously as they decide to pay management at a higher rate than experts. Freelander is right those managers then need to keep the experts under control which means a lot of bad decisions are made. Prof Q is also correct that the incremental decision making means overall bad planning.

    The public servants love privatisation because they distance themselves from mistakes, keep their job while others do the work – all that is required of them is to manage.

  20. @Jill Rush
    Managerialism Jill – the infestion that has become resistant to antibiotics in many once public institutions – universities case in point.

    I now have to collect my own audiovisual equipment from the AV department two floors down from where I teach (first time ver in 18 years) AND deliver it back TO THE AV YOUNG FIT GUYS!!!

    They are on staff and Im one of the growing legions of casual academics and those bastards think I have to now do their dirty work.

    Well I just dont comply Jill…but politely… I turn up at the AV office and say – sorry – “Im too old – I really dont know how it all plugs together. Can you help?? – Im not a googlegen – I do need you to show me – so you will have to come to my class and set up.”

    They are happy to. They dont have much else to do.

    Then after class – I simply go down to their office and say “sorry – I have far too many notes to carry to manage the AV trolley as well – you will have to collect it if you want it back – the equipment is in room ….”

    How did AV dept end up with the power to treat academics and academic teachers like this? (because they have full time jobs and we dont?). Its more than that. Its a managerial admin divide and its time we cleaned them and their cost saving initiatives out.

    I really object.

  21. As far as Universities go, I find it shocking that around the world, or at least the English speaking world and the world influenced by English speaker, Professors have surrendered their control to managerial bureaucrats. In the good old days the universities were under the control of the Professors, and the administration was, however inefficiently, there to carry out their decisions. Now, with managerialism and universities being run by quazi-CEOs, the administrators are in control and have even managed to ‘hand-ball’ much of their work (or is the word ‘devolve’) on to the departmental shoulders of academics, who have become relatively powerless. Academic freedom is now but a distant memory in the world of performance agreements and measurement of academic outputs. And many of these outputs, in Australia post-Dawkins, and to a great extent elsewhere are just so much, hopefully never to be read again, garbage for which trees have been murdered in vain.

    Thankfully, there are exceptions, of which the author of this blog is a notable inclusion. But the numbers of Professorial entrepreneurs nowadays, many of whom ought not to have a position in a university, let alone a chair, is staggering.

    For amusement, follow the following link for an ‘expert’, not yet with chair, in Quantum Economics…

    Or a more intelligent take on that subject…

    If some real experts went through the various departments in many disciplines throughout Australia and tested the incumbents on whether they had the knowledge that ought to be requisite for their jobs, the uncovered ignorance might result in a massive product recall of the degrees of all their past students. A class action might then, rightfully, ensue and the government might collapse under the debt.

    As the decisions became increasingly under the control of administrators, chairs have been awarded at many of these universities to worse and worse candidates. And when one or two dubious ‘academics’ have created a beach-head in a department, they are only too willing to take on administrative tasks and help others like themselves to land on the now friendly shores. Indeed, once ensconced they are positively hostile to those who appear as possibly knowing their subject, let alone knowing it well.

    The motto of the modern university ought to be: “One born every minute”. The callow student with the low marks required for many post-Dawkins universities is so easy to teach, if they knew that the entertaining fellow teaching them didn’t know their stuff and was just making it up, they wouldn’t be where they were to learn in the first place.

    I remember a case, twenty years ago, where first year economics students were being taught by someone, allowed to use the title ‘Associate Professor’, someone who was too lazy to even open the first year book to find out what the mysterious ‘public good’ thing was, that “Qantas is a public good.” “And when they privatize it, it will be a private good.”

    If only the reverse was possible. Turning private into public goods by the process of nationalisation, how the problems of the world could be solved. It would be much better than the miracle of the loaves and fishes!

  22. @Freelander
    Priceless – love this from your link – the particles that are found in the new science of quantum eceonomics.

    ?Currençon. The currençon is the fundamental particle that mediates the force of monetism. All money can be quantized into currençons. A currençon can carry a credit charge or a debit charge.
    ?Politon. The politon is the fundamental particle that mediates the force of politics. Politons come in two flavours: Left-wing and Right-wing.
    ?Bozon. When a bozon accelerates, it emits morons and can create a field of ignorance.

    There has definitely been a quantum shift in universities in the past two decades due to the rapid elevation and acceleration of bozons.

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