Catallaxy Files

I am not a rabid believer in privatisation. I believe that it probably did not make sense to sell the airports and that a long term lease or management contract over the terminals would have been better. I also have my doubts about capital intensive projects like highways. There is little entrepreneurial skill in managing a road . They are mostly an exercise in capital raising, which theoretically a government can do at lower cost. I realise there might be a flaw in this argument, though I can’t spot it.

But there is no doubt that with any activity that requires a few management skills, the government will be rubbish. I have written here about the Sydney Ferries, a great example of this principle. Since I wrote that, services have been reduced and fares increased, usually not a winning business strategy.

Another example is the post office.

We get our mail delivered to a post office box. I won’t bother you with the reasons – they have to do with a postman who did not always want to deliver the mail and who was known to smash the letter box of anyone who complained.

I have to go to the post office each day to collect the mail. We are charged to rent the box ($80 a year) and also pay a fee ($70) to instruct the post office not to give our mail to the postman but instead to put it in the box. Now, the box is pretty small so if anything arrives that won’t fit or which needs a signature, they put a card in the box asking me to go to the counter. There is usually a long line at the counter, sometimes out the door. The post office does all sorts of other things as well as handling letters and selling stamps. They process passport applications, which seem to take about ten minutes. They  sell inkjet printers, DVDs, toys and  telescopes. So the line moves very slowly. The new CEO of Australia Post. Ahmed Fahour, who used to be with NAB, understandably wants to  take them into the banking business. That is unlikely to shorten the lines.

I also use a service called Mail Boxes Etc. I get large parcels, cases of wine and anything  that needs a signature delivered there. They do photocopying, printing and other office services. The funny thing is that there is never a line. They know me and as I go through the door they are usually ready with my parcel. Once the manager stopped me in the street to remind me they had a parcel. MBE is not government owned.

I am surprised that there a still people about who believe in government ownership of business.

The Greens want the NBN to never ever be privatised. Bob Ellis says nothing should ever be privatised. Academics are arguing against sale of Queensland Rail. But none of these people live in what some of us call the real world – they have never, so far as I know, had to produce anything and then persuade customers to hand over money for it.

What I do wonder, though, is whether any of them has been to a post office?.

Sydney ferries are beaut. We chose our current house because it is close to a ferry wharf. Getting a ferry to and from a concert in the city confirms one’s feelings that there is much right with the world.

So it’s a great pity the Sydney Ferries are so incompetently managed. The mismanagement is well described in painful detail in a report by Brett Walker to the NSW government in 2007. Even if you are not interested in the ferries, the report is worth reading as an example  of why governments should never run businesses.

The business has been reorganized many times of the past 10-15 years. It has been moved about the Transport Department (at one point, when it was part of  City Transit ferries were repainted blue to match the busses), corporatised then uncorporatised. Even when it was the responsibility of a board, the minister (without authority) interfered by firing a chief executive and vetoing a maintenance contract.

Hardly the way to attract  and motivate high quality managers. So it’s no surprise the the business has chewed up six chief executives over eight years. If you read Walker’s report it is clear that the greatest problem is union capture. Walker does not mention it but if you ride on a ferry you might see that it carries an engineer as well as a master and a deckhand. The engineer’s job became redundant in the mid 70s when the current generation of ferries was commissioned.

Walker recommended that expressions of interest be sought from companies interested in taking over management of the ferries. He said the the Manly Jetcat service was so inefficient and loss-making that it should be closed immediately.

The government accepted the report in principle and invited expression of interest. And it did close the Jetcat service. But then a company whose main business was running whale watching cruises offered to run the Manly fast service. That seemed to make sense as the fast services only cater for the peak house commuter runs and the vessels could go whale watching in the middle of the day.

The service started early 2009 and was successful despite the noisy pickets from the Maritime Union. Then early this year the government announced that another company would take the contract. That company had no experience and owned no vessels. It did however have a record of getting along with unions. The first company did not give up. It continued to operate, using different wharves.

Just stop and think about that for a minute. The Manly fast ferry service, run by Sydney Ferries, was making large losses and considered irredeemable by the government. But now we have two private companies competing without subsidy to do the run.

If that run can be make profitable, it seems almost certain that a private operator could run the rest of Sydney Ferries very well.

So what did the government do? In December it announced that the ferries would remain under government management. The Premier explained the decision thusly: “This is a tough decision, but it is the right one. Over the last few weeks, I have listened to the community and responded. We believe the decision to keep Sydney Ferries in public hands is in the best interests of Sydneysiders,”

Most observers believe she listened to the Maritime Union rather than the community.

Then the other day the government announced that several routes will have less frequent services (hourly during the day), including mine.

The Liberal Party, almost certain to win government at the next election has said it will grant franchises to private operators to run the ferries. But as past Liberal governments have never had the courage to reform transport I would not bet on it happening.

The NSW Department of Corrective Services (the Orwellian title of the government department managing prisons) has been fined $215,000 for failure to provide a safe system of work resulting in the death of a prison officer. He died after being attacked by a prisoner being transferred at Silverwater Jail.

Fair enough. Working at the prison is a dangerous job so the management has a very high duty to protect its employees.

Trouble is that this fine is just the transfer of money from one government bank account to another. Presumably the D of CS will be reimbursed by the Treasury for that amount. There is no profit to be reduced or anywhere else for the money to come from.

Doubtless it will be said that the fine “sends a message” to the department but that seems to be a fairly hollow way to force change upon a government department. Firing a manager or two would send a clearer message.

All this is an argument for privatisation. A fine is a real penalty to a company with shareholders and probably a company would be quicker the make management or system changes to reduce the risk of this kind of thing happening.

Telstra is beaten on much more by the government now that it is a privately owned company that when it was part of the government even though its anti-competitive behavior and policies then were much more outrageous than they are now. Older readers will remember when we were not allowed to attach anything to the phone system – answering machine, portable phone or whatever – that we did not buy from Telstra. Only Telstra employees were allowed to touch anything to do with the system or our connection.