The theory of privatisation is simple: the market will always deliver better, more efficient and cheaper services to consumers than governments can. As an economist, this mantra was repeated to me both while studying at university and working in the finance sector.
Given the NSW government’s discussion to privatise the delivery of electricity, it is time to move beyond the textbook and consider reality. Unfortunately for advocates of privatisation, this reality is significantly different as we can see from international examples, including New Zealand and the United Kingdom.
Do not get me wrong, I am neither against privatisation per se nor believe that it is always a bad idea. Rather, my position is one that argues that each industry must be looked at on its own merits and informed, long-term decisions need to be made rather than blindly following an ideology that does not always work.
In other words, there is a need to consider which industries have a natural propensity for privatisation, and which should be considered as belonging to our community and, therefore, being outside the market. To do this, we can begin by splitting government assets into three groups.
The first group is what can be called commodities. These commodities can be defined as those assets that fit neatly into a market logic: that is, they can be delivered for profit and the goals of the private sector align with those of broader society. Here, the private shareholders can demand profits while competition ensures that service delivery remains a priority.
The gaming industry is one example. The privatisation of TAB Corp. can be considered a success as the market is large enough to encourage competition and service delivery can be achieved through many channels. Certain dimensions of insurance industry – such as car insurance – can also be considered to be ripe for privatisation as there are enough competitors that ensure the price remains competitive. Privatisation of GIO, for example, while it has its critics, also removed the burden of risk from the government and has allowed the private sector to carry it.
The second category is those government assets that can be considered outside the market. These are those assets whose service delivery allows our community to operate: these include water, health care, education and yes, energy.
In such industries, the market logic and the needs of society come into conflict. To explain this, I will return to my first year economics textbook and the basic rules of supply and demand. What makes a commodity valuable is its scarcity. This is why diamonds are more valuable than water – though most of us can comfortably live without diamonds. The market then, gains from scarcity as it drives up prices and profits. In contrast, our society is better off if we experience abundance.
Further, the service delivery of these goods and services, if provided with only the profit motive in mind, leads to exclusion. While global warming means that we need to reconsider the use of electricity, we still need to ensure that all sections of society can access such assets. In other words, as a member of a community, I am happy to pay a little extra for electricity knowing that the farmers and others living in remote parts of our state also have access to energy.
The market does not reflect this logic and as a result, it is difficult to imagine the private sector being interested in delivering services to remote communities without substantial price rises: just ask the executives at Telstra and the Commonwealth Bank of Australia.
So, how are we to understand such assets? We should think of them as ‘commons.’ While the word commons has a history in Middle Ages’ England and its use has all but disappeared from the English language, it has relevance today. The term commons is being applied to all those assets, both provided by nature (such as air, water and the oceans) as well as government services that we all use but no-one owns. That is, assets common to us all.
In fact, such commons have been passed on to us from previous generations and in truth, we are only holding them in trust for future ones. The concept of the commons allows us to draw a line in the sand and say that some dimensions of our society are much too valuable to trust to the whims of the market.
The third category is those assets that fit somewhere between the market and the commons. We can think of Telstra in this way: if the federal government had its way over again, it would probably privatise service delivery and keep the infrastructure in public hands. This way the competition between service providers could ensure new technologies and cheaper prices, while remote parts of the nation are assured access.
The answer then, is not to sell off assets but to invest in the infrastructure to ensure that we achieve that twin goals of efficiency and sustainability. In situations like energy delivery, massive amounts of investment are needed to achieve these goals, and in reality, only the government is in the position to undertake this. Anything less leaves many in our society vulnerable, and betrays the legacy left to us as well as the duty we owe to future generations.
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