Privatisation strawman

Richard Denniss has an op-ed in the AFR today that fills space but has little substance:

Many may have bemoaned the dominance of “economic rationalists”, but I’m beginning to miss them. Sure, they often used simplistic and narrow assumptions to justify a wide range of bad ideas but, compared to the economic irrationalists dominating today’s policy debates, at least they were willing to have a fight with vested interests.

The economic rationalists of the 80s and 90s raged against a few main targets, primarily monopolies (therefore the need for competition policy), public sector service provision (therefore the need for privatisation) and high taxes (therefore the need for tax cuts).

So what’s the problem?

There is a simple reason that governments like to ignore economic rationalists when it comes to selling off government services; monopolies attract much higher prices than competitive firms. Politicians can deliver a “magic pudding” of lower taxes and lower levels of debt simply by transferring government monopolies into private monopolies.

… it’s harder to explain why the economic rationalists have gone so quiet. Maybe they don’t believe in markets any more. Maybe they don’t care about consumers any more. Or maybe, like Adam Smith, they have all just gone to work for the monopolists.

The point that he is making is that public monopoly is preferable to private monopoly – but he provides no evidence to support his case. What is all the more remarkable is that he expects “economic rationalists” (now there is a blast from the past) to argue in favour of government ownership.

Finally he makes a factual error – Adam Smith didn’t go work for the monopolist per se, he became a tax collector. To be fair the government is the ultimate monopolist, but I suspect that wan’t the snarky point Denniss was trying to make.

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36 Responses to Privatisation strawman

  1. So FauxFacts investors paid real money for this rubbish?

    There is a simple reason that governments like to ignore economic rationalists when it comes to selling off government services

    Because the Trade Unions win too many seats in the Senate?

  2. Entropy

    Because politicians never thought up a new government program or largess for voters they didn’t like.

  3. Dave Wane

    As you suggest Sinclair: where is there any evidence of a taxpayer-funded, state-owned monopoly doing anything well? Obviously, on the contrary, they do whatever they do very poorly. As others have noted: the only argument for state-owned, taxpayer-funded monopolies is to prop up parasitic unions and those who seek the protection racket that unions provide. Like almost all ALP members and members of parliament?

  4. Riverina Matt

    This is what the AFR (a supposed “business” paper) choose to publish? Shouldn’t this be in GreenLeft Weekly?

  5. Peter from SA

    I’ve always believed that privatisation is no panacea. Anyone who believes that is a fruitloop.* The reason is that virtually all privatisations, especially at the state govt level in Australia, are done with a high degree of regulatory control.

    The newly corporatised or privatised entity is completely at the whims of the regulatory body. Mostly, they seem to win in their arguments for X or Y return on capital. The consumer always loses because they don’t have a real seat at the table.

    This is not really privatistation. It is another form of statism. returns depend entirely on the regulatory body.

    *but it is probably better than state control, for various reasons including industrial relations.

  6. Rabz

    compared to the economic irrationalists dominating today’s policy debates

    That would be the morons pushing renewable energy and big government leviathans such as the NBN and the NDIS.

    The only kernel of truth in Denniss’s entire stream of unconsciousness.

  7. Andrew

    Richard Denniss has an op-ed in the AFR today that fills space but has little substance:

  8. .

    The most laughable argument is that state owned assets somehow earn cashflow & accrually positive incomes or actually make us all personally more wealthy by the fraction we are of the populace of the asset size.

  9. taxpayer-funded, state-owned monopoly doing anything well

    Locally we seem to do pretty well with our GBE’s. Hydro & TT Line both manage their tasks well. The government seems to take a bit of liberty loading them up with debt that is generated elsewhere in the system though.

  10. I am the Walrus, Koo Koo K'choo

    Richard Denniss has an op-ed in the AFR today that fills space but has little substance

    Quelle surprise.

  11. H B Bear

    So FauxFacts investors paid real money for this rubbish?

    I doubt it. Australia’s leading anti-business business pamphlet is barely able to keep the lights on.

  12. Andrew

    Who spells Denis with two i’s and s’s?

  13. Percy

    the economic irrationalists dominating today’s policy debates

    Socialists. Just say it, you’ll all be unemployed soon anyway.

  14. Craig Mc

    Meanwhile

    Well, isn’t that just cosy? One more reason to vote LDP at the next election.

  15. Gavin R Putland

    The advantage of public monopoly over private monopoly is that the former can be voted out of office. The latter cannot, because that would be a violation of its most holy property rights. To privatize a monopoly is to entrench it.

    “To be fair the government is the ultimate monopolist…” Indeed, what is government but a system of monopolies, backed by the monopoly on lawful violence?

    To monopolize is to govern. To privatize a monopoly is not to make government smaller, but to privatize government, so that it is no longer answerable to the customers/voters, but only answerable to the shareholders.

    In a competitive market, sellers are answerable to their customers because the customers can shop somewhere else. Privatization is a necessary condition for competition. But it is not a sufficient condition. Where competition, for whatever reason, is not possible, the monopolist can only be made answerable to its customers through the political process, and the case for privatization evaporates.

  16. Percy

    Privatization is a necessary condition for competition. But it is not a sufficient condition

    Nice channelling of Friedman there Gav.

  17. JC

    The advantage of public monopoly over private monopoly is that the former can be voted out of office.

    Present one example where a government has ever been voted out of office because of consumer threats by a government owned monopoly. I can’t think of any, can you.

    Government monopolies simply become captured capital by the taxeaters and we know where that leads. bad service art exorbitant prices. Furthermore you have the government acting as the consumer regulator and the provider at the same time. We also know where that leads.

    No, the least worst option is a private monopoly with the government watching over it.

  18. entropy

    So what you are saying Gavin is that Microsoft would do better if it was government owned?
    ( yes, I have heard of Linux and own a mac, but MS is effectively a monopoly on OS and office software.).

  19. entropy

    The classic Australian example is the massive improvement in telephony when telecom was privatised.

  20. Mater

    The classic Australian example is the massive improvement in telephony when telecom was privatised.

    Another is Electricity Distribution costs in Victoria since privatisation (1995). Note the affect of government intervention.

    Although the cost of all network-related services increased by $15 over the 1995 – 2013 period, the cost of ‘standard’ network-related services actually declined by $122 in real dollar terms over the period, a reduction of 24.7%. This reduction was almost fully offset, however, by the introduction of two initiatives by the Victorian government: (a) the mandated roll-out of smart meters, which included the cost of purchasing and installing the meters, and the communications and IT infrastructure required for their operation, and (b) Premium Feed-In Tariff, which provides incentives to households whose small-scale solar PV systems feed electricity back into the grid. The costs of both of those programs were recovered through charges that affected the network portion of consumers’ bills. These programs have added $137 in costs to the annual bill of the average residential customer by 2013.

  21. Tel

    The classic Australian example is the massive improvement in telephony when telecom was privatised.

    The improvement didn’t happen until people started switching to Optus, and even then we only got real effort from Telstra once there were multiple carriers to choose from.

  22. The other myth floating around about privatization is that it improves efficiency.
    It doesn’t.

  23. outsider

    One irony is he is on the wrong side of history, looking over the sweep of the past 40 years. Government monopolies are totally dependent on private competitive firms and individuals. It’s always safe to turn the channel when that shiny dome comes into view above the beady eyes.

  24. Mater

    The other myth floating around about privatization is that it improves efficiency.
    It doesn’t.

    And Grace Collier goes some way to explaining why that might be. Hint: Enduring (and ridiculous) EBAs.

    http://www.theaustralian.com.au/opinion/columnists/privatisation-no-panacea-for-nsw-power-network-ills/story-fnkdypbm-1227033652048

  25. Tel

    Present one example where a government has ever been voted out of office because of consumer threats by a government owned monopoly. I can’t think of any, can you.

    The ALP in NSW took a lot of stick over high electricity prices, which people (wrongly) attributed to the privatisation of electricity retail. This was made worse because Iemma got into a very public battle with his own party and was (rightly) perceived as completely out of touch with well… everyone. Probably didn’t help that the state was almost broke at the time, but at least they didn’t run themselves deep into debt so small silver lining I suppose.

  26. Pedro

    It must be true that govt and private monopolies can be equally bad depending on the circumstances that surround them. In each case the shareholders and management (mainly management, which includes the unions) will capture the monopoly rents and will also try to disguise the extent to which the rip-off is being managed. The advantage with the private monopoly is that the threat of govt intervention and disruptive competition is a stronger control on their behaviour. With the govt monopoly there might be periodic price reductions and freezes to deal with the politics of the day, but the rents will still be captured one way or the other and the govt is better able to head of disruptive competition and less able to manage rent capture by the unions.

  27. Pedro

    The Beattie govt provides some good examples of what happens when you have voter concerns around public monopolies. Basically, a lot of thrashing around and overtime the problem gets worse.

  28. Tel

    No, the least worst option is a private monopoly with the government watching over it.

    Then you end up in a situation like Australian Water Holdings in NSW, where the State offers locked in contracts. Even though in theory the State could shop around, in practice there’s a whole Grange of ways to make sure those contracts go to the appropriate people. It’s still capture but perhaps a different kind of capture.

    Similar but not exactly the same with the desal plants.

  29. Rabz

    Iemma got into a very public battle with his own party and was (rightly) perceived as completely out of touch with well… everyone.

    Ah yes, good ol’ Morrie Enema – one of the most monumental dullards to have cursed public life in this country’s history.

    Watching him fall on his sword over his failed electrickery plans was pure comedy gold. O’Barrell, despite being nearly as big a cretin as Enema, nonetheless played him like a fiddle.

  30. Gavin R Putland

    So what you are saying Gavin is that Microsoft would do better if it was government owned?

    The best thing Microsoft can do is to disappear. And it would have a better chance of disappearing if it were government-owned, because the government might work out that it would gain more in tax revenue from a de-microserfed economy than it would lose in Microsoft dividends.

  31. .

    Microsoft isn’t a monopoly.

    The NBN will be a monopoly.

  32. Giorgio

    The old State owned SEC in Victoria was a captive of leftist unions for years ,in spite of being a monopoly it lost money and accumulated large debts,when it was privatised thousands of SEC workers were laid off,large numbers of them unemployable through lack of work ethic. Since then strikes are very rare when they used to be common,the same thing happened to Melbourne transport system,strikes are rare now either the commos have died out or the workers have woken up to themselves.

  33. Gab

    Unfortunately there are still some ex-SEC employees being employed in private energy retailer and distributor companies.

  34. Giorgio

    Dot,how true ,NBN is an attempt to Re Nationalise Communications,strange isnt it that revolutionaries always grab communications first? Looks like our green alp leftards are copying their heroes ,Fidel and Che .

  35. .

    That is what the issue is about really.

    Kev’s laptops, super fast broadband to make them worthwhile, and getting to shut up criticism in the process (and also implement the filter to make Kev’s laptops a goer).

    We can only conclude that 11 years in opposition totally ruined the mental state of ALP Cabinet members.

  36. Giorgio

    Yes Dot ,thats assuming they ever were in a normal state,which in some cases is a big assumption.
    Clive met Mao ,Chou and the Last Emperor I just sent a post to Bolta saying ,I met Napoleon a few years ago ,well it was at Royal Park Mental Hospital ,there were three Napoleons there so I am not sure if I met the Real one?

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