The magic pudding, yet again

I’ve just done an interview with Channel 10, about cost blowouts on the infrastructure projects supposedly funded by Mike Baird’s asset sales program. I made the point that such blowouts are more likely when projects are funded from special pots of money rather that avoid normal processes of budget assessment.

More tiresomely, I repeated a point that I have been making for 20 years, and that (as far as I know) every economist in Australia agrees with. Selling income generating assets does not provide any additional capacity to invest in non-income earning assets such as (untolled) roads, schools and hospitals Exactly this point was made by the Secretary of the NSW Treasury in relation to PPPs back in the 1990s (I’ll dig out a link).

Despite this nonsense idea being refuted over and over again, it continues to be believed by politicians of both parties and to get a free ride from our economically illiterate press, most notably (since it ought to do better) the Financial Review.

I’ve given up hoping that this will change. Fortunately, privatisation is so politically toxic that justice is usually served in the end.

30 thoughts on “The magic pudding, yet again

  1. @Collin Street

    the pricing mechanism lets you capture benefits fairly well.

    That is a capitalist view. It means that someone on unemployment benefits pays the same as a millionaire for the same service.

    This is obnoxious.

  2. @Ned Lukies Ned Lukies:

    It is not possible to give a clinical answer to your question. First, what we’re seeing now is the toll road tail wagging the transport planning dog. The prospect of tolling new roads is creating pressure on governments around Australia to facilitate new roads. The cash flow the toll roads generate squeezes other forms of infrastructure out of contention for public or private investment. Strategic transport planning and growth management are left by the wayside.

    Second (saying the same thing in a different way), the sale of operating assets reduces the capacity of governments to make prudent policy decisions in the public interest at the system-wide level. The national electricity mess and the rebuilding of a monopoly telecommunications network after privatising Telstra are classic examples, but toll roads also offer a good example. With heavyweight corporations exercising the leverage that large businesses do, government loses its capacity to pursue the dispassionate public interest.

    Third, cost to government is not just what appears as outgoings in the budget ledger. It is difficult to disentangle central budget-funded government from its satellites including QSuper. The “government” sold Queensland Motorways for a very generous sum, but, with the net effect that motorists feed the shareholders of the tolling company and the banks, rather than paying tolls or taxes to their government to be used for public purposes.

    Fourth, governments can create value out of air. They do it all the time with town planning decisions. In that case, only a small proportion of the windfall is captured by the public (e.g through municipal rates).

    Tracing all of the flows is a challenge Budget inputs and outputs are not the appropriate metric on which to base these decisions: transport is a land use planning question.

  3. With respect to infrastructure projects, we can use these as an illustration of how incompetent the Rudd, Gillard, Abbott and Turnbull governments have been. They have all been incompetent and totally unable to achieve or implement any program or policy that actually worked.

    The Howard government by contrast was competent, however it was competence at implementing a morally bad and economically damaging program. Competence at bad stuff is perhaps even worse than incompetence at anything, good or bad.

    It’s been a long time since we had competent and good government. Australia languishes well short of where it could have been because of this poor government. The poor government is not about personaities, it is about the changes that neoliberalism and mangerialism enforced on the whole system. These changes weakened the institutions need for good government and good governance. Until we deal with this root cause we are in for more bad government.

    How do we overthrow neoliberalism and mangerialism? That will entail overthrowing (capitalist) corporatism which is the generating structure for neoliberalism and mangerialism as implemented ideologies. That still begs the question. How do we overthrow corporatism? Democracy is our only peaceful chance, but how exactly? A first step might be to avoid voting for parties which take corporate donations and advance the corporate agenda. This would certainly rule out voting for LNP or ALP. Would it rule out the Greens? I’m not sure. Do they take corporate donations?

  4. Correction above. “These changes weakened the institutions needed for good government and good governance.”

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