Among many other challenges in dealing with the failure of urban policy in Australia, the Minns (NSW state) government is faced with the task of renegotiating, or repudiating, the disastrous set of contracts for toll roads in New South Wales made by its predecessors (Labor and Liberal) with the Transurban group. As a review by Allan Fels and David Cousins has found, the government is at risk of being held hostage by toll operators. According to Fels and Cousins, immediate legislation is needed “as a backup to negotiations and to give the government power if necessary to determine final outcomes”.
This is by no means an isolated case. The failure of the National Electricity Market, premised on the idea of competition between private companies, has led state and federal governments to re-enter the business of electricity generation, storage and transmission. The disastrous experiment with private prisons in NSW is being unwound. Plans for the eventual privatisation of the NBN, established in response to the failure of the privatised Telstra to deliver national broadband, have been abandoned.
In the United Kingdom, where the Thatcher government of the 1980s led the way in privatisation, the complex and difficult process of renationalisation has been going on even longer. Rail privatisation was partially reversed with the renationalisation of Railtrack under the Blair Labour government, further limited under the Tories, and is now likely to be completely reversed.
The UK’s new Starmer government is also grappling with the impending failure of Thames Water, privatised under Thatcher and stripped bare by its private owners. Australian readers won’t be surprised to learn that the “millionaires factory”, Macquarie Group, was a leading player here.
The end of the UK’s private finance initiative (PFI), the model for Australian public-private partnerships, is already producing huge problems. But it is now clear to everyone that dealing with these problems is better than persisting with the hopeless failure of PFI.
Even Thatcher’s greatest political success, the sale of council homes, looks a lot less appealing in light of the current housing crisis in the UK, paralleling that in Australia. It seems clear that governments will need to re-enter the business of building and operating social housing in big way.
In fact, the failures of privatisation are numerous and obvious, while unambiguous successes are hard to find. Claimed examples, such as the pharmaceutical enterprise CSL, turn out, on closer examination, to have used public money to build private empires.
Why, then, was privatisation such a popular policy, at least among those who dominated the policy debate from the 1980s until recently?
The simplest explanation is that politicians saw privatisation and private infrastructure as a way to get access to a big bucket of money, which could be spent on popular projects without the need to raise taxes. This was a fallacy, refuted many times over, but resurrected just as often in zombie form. Either the government hands over the right to collect revenue to private operators, as in the case of toll roads, or the public forgoes the earnings of government business enterprises, as with asset sales.
Even now this lesson has not been fully absorbed. On the one hand, the Victorian Labor government has begun the process of reversing Jeff Kennett’s privatisation of the State Electricity Commission of Victoria. On the other, having sold its land titles office, Labor is now poised to sell the Births, Deaths and Marriages Registry where it has already increased charges for the provision of legally required information.
Economists who advocated privatisation mostly avoided this silly error. Indeed, the NSW Treasury repeatedly warned against treating private provision of infrastructure as a “magic pudding”. But, under the influence of neoliberal ideology, they committed a subtler error. Rather than examining the fiscal outcomes of privatisation, they assumed public investments should be subject to a large risk premium to make them comparable to private alternatives. This premium was not needed to cover the actual loss from failed public investments, which has historically been low. Rather, it reflected the mysterious “equity premium” demanded by private investors in financial markets. At least until the GFC, neoliberal economists relied on the “efficient markets” hypothesis to conclude that the price observed in financial markets must be the right one. In a world where meme stocks and crypto scams are now a central part of the financial system, such a hypothesis is no longer credible.
Finally, of course, there were huge profits to be made in the financial sector from the sale process and from exploiting weaknesses in the regulation of privatised companies. The list of former politicians who have sold public assets and ended up with lucrative post-politics careers is, incidentally, rather long.
The era of privatisation is nearly over, at least in Australia and the UK. But cleaning up the mess left behind will take years, or even decades.
John Quiggin 
The state and federal governments have been forced to re-enter the business of electricity generation, storage and transmission and they are making a mess of it. Look what happened when CS Energy’s Callide C4 steam turbine was destroyed by ignorance (they turned off the critical 220vdc supply) and problems will continue until training,examination and advancement of critical personnel is controlled by a central authority. God help us if nuclear power stations are required.
I think our problem with economics goes very deep indeed. Far deeper than J.Q’s. article addresses or implies. Of course, one theme per relatively short article is all that is feasible. The article says undoing the damage will take years. I would go further, very explicitly. It will take decades in my view and may prove impossible for reasons outside the confines of my relatively short reply. Of course, decades are reckoned in years so J.Q’s article is again technically not wrong in saying it will take years.
Two ways our problem in economics goes far deeper are these.
The majority of people, politicians and business people, but perhaps not the majority of academic economists, assume that money, finance and market operations measure value. They do not measure value other than measuring value in money which is essentially a tautological or circular logic process with no connection to what we normally call as real values outside money.
The two conspicuously real values outside money are real, objective, scientific values and human ethical values made operationally and performatively real by social practice. Money and unfettered market operations have no real connection with either, I would argue. The connection is rather ideological and prescriptive, certainly not descriptive.
Real, objective, scientific values are quite simply the “scientific dimensions”, as they are called, of the SI, the International System of Units. “The SI comprises a coherent system of units of measurement starting with seven base units, which are the second (symbol s, the unit of time), metre (m, length), kilogram (kg, mass), ampere (A, electric current), kelvin (K, thermodynamic temperature), mole (mol, amount of substance), and candela (cd, luminous intensity).” – Wikipedia.
Human ethical values are made operationally and performatively real by social practice: that is by real human actions which institute, implement and apply cultural and institutional laws, rules, customs, mores and practices.
Money, or the numeraire, which has no real dimension, only its own nominal self-referential dimension which relates and equates only to itself within the system of finance identities, has no real connection to objective reality except one which is first prescriptive and then performative when humans follow the prescriptions.
Money and its operations become an ethic, belief and prescriptive system in their own right. The valuing-by-money ethic becomes a prescriptive law of the system: one which people are inculcated into and begin to believe implicitly in. We have been trained, for generations now, to believe in money and free markets, and their efficacy and necessity. We have been trained for generations now (and it is deeply engrained in all our institutions) to believe that money values stuff and that it is a value in itself and which supplants and should supplant all other values. That is the (continuing) tendency of this system.
The money / finance free market system and its ethic cannot interact successfully with material, environmental, biological and natural system reality (meaning it serves in highest contemporary form to destroy all these things) and it cannot interact successfully with all other human ethics (meaning again it serves to destroy and supplant them). It cannot supplant real systems of course.
In summary, our problem is far deeper than the bowdlerized and propagandised economic beliefs of the mass of the public, politicians and business people can possibly comprehend while they in the money belief system and ethical system. Whether most economists even comprehend this yet remains an open question to me. Perhaps quite a few academic economists, even most, comprehend this but won’t talk, theorise or engage very openly about it. Why? That is a very interesting question.
Dr Saul Griffiths recommends taking to the AEMO with a baseball bat; it’s no longer fit for purpose.
I’d be interested in considered commentary on the ‘electrify everything’ campaign, with the successful passing of the Inflation Reduction Act. There seems to be little analysis of its carbon reduction/productivity/inflation claims, it’s probably too early as yet and the politics is very messy. However, with the uptick in the US economy and the pleasing employment data could this be an indicator?
30 July 2024. LvO cited JQ at MacroBusiness in “Privatisation “the most significant policy error of the last 30 years””:
Privatisation “the most significant policy error of the last 30 years” – MacroBusiness