I’m not a fan of the convention that newspaper and magazine editors choose the headline for articles, but I liked this one in The Conversation. The heading is neat and the sub-heading gives you the tl;dr version.
The promise by the Andrews government to reintroduce public enterprise to Victoria’s electricity industry, through a revived State Electricity Commission, is something of a shock.
The process of electricity privatisation in Australia began with Labor in Victoria, when the government of Joan Kirner sold 51% of the Loy Yang B power station in 1992. Her Liberal successor, Jeff Kennett, then sold the remainder of Loy Lang B, as well as the rest of the state’s publicly owned generation, transmission and distribution assets.
Labor has been office for all but four years since Kennett’s defeat in 1999. Until now it has made no attempt to reverse his policies. Rather, it has undertaken some rather dubious privatisations of its own, notably the Andrews government’s 2018 sale of the Land Titles and Registry office.
Premier Daniel Andrews’ statement that “it was wrong, it was a mistake, to sell our energy companies” therefore marks a clear shift.
Labor leaders change tack
The change is part of a broader shift in Labor’s position throughout Australia.
Arguably this shift began in Queensland after the trouncing of Anna Bligh’s Labor government in 2012, winning just seven of 89 seats. The Bligh government had sold a range of public assets (though retaining distribution and transmission networks, and coal-fired power generators). The remnants of the Labor party concluded privatisation was electoral and economic poison.
Labor was returned to power in 2015 after the LNP government of Campbell Newman, having sought to push privatisation further, was ousted after one term. Under Annastacia Palaszczuk the Queensland government is now investing in new renewable generation through the publicly owned CleanCo – including 18 wind turbines as part of the MacIntyre Wind Precinct, the largest wind farm project in the southern hemisphere.
NSW Labor went through similar contortions over privatisation, with a series of premiers and treasurers trying and failing to find a way of selling the electricity industry.
The disastrous defeat of the Keneally Labor government in 2011 was driven by this failure, along with the string of scandals that seem to be the rule rather than the exception in NSW politics.
Now, with the prospect of Labor returning to power next March, Opposition leader Chris Minns has given a guarantee there will be no more privatisations.
At the national level, the biggest single commitment of the Albanese government is the $20 billion Rewiring the Nation initiative, to build the transmission network needed for clean energy. The first two projects to be financed – the Marinus Link between Tasmania and Victoria, and the Kerang link, between Victoria and NSW – are publicly owned.
Taxpayers worse off
What explains this shift?
First, public opinion is now opposed to privatisation.
There was significant public support for privatisation in the 1980s, but this went into decline after major privatisations began in the early 1990s. Contrary to the hopes of supporters, experience with privatisation only made voters more hostile. This has finally permeated through to political commentary. The failings of formerly public enterprises like Qantas are now regularly traced back to the process of privatisation.
More importantly, politicians now understand that the economics of selling income-generating assets don’t stack up.
The premise for privatisation was that it was better for taxpayers to sell state-owned assets and reduce public debt.
But, particularly when interest rates on public debt are below the rate of inflation, government-owned enterprises generate returns well above the cost of the capital invested in them.
Those states that kept ownership of their electricity networks, such as Queensland and Tasmania, have received a steady flow of dividends, and the value of their assets have appreciated. The proceeds of privatisation in other states have long dissipated.
According to the ideology of privatisation, the low cost of borrowing for public enterprises is an illusion, because the public is on the hook for the cost of a bailout in the event of any business failure. But such bailouts have been very rare in Australia, and taking their costs into account does not change the calculation significantly.
The risk premium demanded by investors in private equity has always been large, and is now growing, making the gap between the private and public cost of capital even larger. There has been a corresponding drop in private investment globally, and (outside mining) in Australia. The case for public investment has never been stronger. Labor politicians seem finally to have realised this.
8 thoughts on “Labor’s love lost:the tide is turning on private ownership of electricity grids”
And I agree with you its a great heading with the Shakespearean twist
The main problem with privatisation is lack of competition and monopoly power. The argument that government has access to a lower cost of borrowing is an argument for privatising any industry that has substantial capital inputs. An argument against extensive public ownership is that governments become hostage to union power and can fall back on the taxpayer to accommodate excessive wage demands and other sources of losses.
Victoria will get about 1/3 of its electricity from renewables owned by the government. That might work. Competition between the public and private sector here could drive decent outcomes. Again the core issue is healthy competition not the financial argument that capital can be more cheaply access by government.
Good afternoon John,
I have here in front of me the Ben and Betty Walker book: “Privatisation, Sell off or Sell Out? (200)
They certainly had a strong opinion!
Harry. I agree with “The argument that government has access to a lower cost of borrowing is an argument for privatising any industry that has substantial capital inputs. An argument against extensive public ownership is that governments become hostage to union power ” The more capital-intensive the industry, the more important is the first argument, and the less important the second. So, we should expect public ownership to be optimal in capital-intensive monopoly infrastructure
Anon: Yes, a strong opinion which I shared. Bob and I interacted a lot in those days.
Harry, JQ & Denmark. Plus concensus – obvious in Denmark, sorely lacking and verging on “chicken little” hysteria by industry groups in Australia, as shown Guardian article…
– “the Australian Chamber of Commerce and Industry, which says it will create more strikes and unemployment”
– “the Australian Industry Group, which says it threatens decades of national prosperity and will turn workplaces into conflict zones”
– “and the Business Council of Australia, which says it risks tipping the economy over the edge while workers wait longer for pay increases.”
Harry: “An argument against extensive public ownership is that governments become hostage to union power ”
JQ: “The more capital-intensive the industry, the more important is the first argument, and the less important the second. So, we should expect public ownership to be optimal in capital-intensive monopoly infrastructure”.
“In recent years fewer days have been lost to industrial disputes in Denmark than in Australia. Taking into account the relative sizes of their workforces, Australia lost about 10 times as many days to industrial action as Denmark in 2021.
“This is despite unions being much stronger in Denmark – 65% of Danish workers are union members compared to only 14% of Australian workers – and industrial disputes in Australia falling to historically low levels.
“And Denmark does not have out-of-control wages growth. In the past year average Denmark wages climbed 2.5% compared to a similarly-calculated 3% in Australia. In August, Denmark’s unemployment rate was 2.7%. Australia’s was 3.5%
“Multi-employer bargaining won’t solve all of Australia’s workplace relations problems, but it’s unlikely to make many of them worse.”
“Employers say Labor’s new industrial relations bill threatens the economy. Denmark tells a different story
“Defining the problem of low wage growth in Australia and Denmark: From the actors’ perspectives
. ..”We argue that the greater degree of consensus in Denmark compared with Australia reflects differences in national institutional systems and knowledge regimes, which have influenced the ways actors in these countries perceive low wage growth.”
Søren Kaj Andersen
Chris F Wright
Russell D Lansbury
The focus in industrial policy is that we should have no general presumption of an activist policy. We don’t want government running the economy – its non-economics-based, vote-buying orientation is obvious everywhere. The focus should be on strengthening competition. The exceptions are service-based infrastructure that is shielded both from local and international competition. Even there services, such as Australia Post, can be selectively privatised and have been. Ther parcels business is exposed to competition and this has forced AP to up its game. Amazon’s two-day delivery policy has exerted the right competitive pressure. Of course it is not sensible to privatize businesses that are natural monopolies or close to being such.
“We” doing a lot of work here, Harry