Do you agree with privatisation?
What are your thoughts about privatisation? I reckon it is a failed experiment and that we could trust our services more when they were run at the government level.
The chair of the Australian Competition and Consumer Commission (ACCC) Rod Sims had some interesting thoughts on the topic recently.
In a speech, Mr Sims slammed the privatising of assets without allowing for proper competition or regulation, saying that they created private monopolies that raised prices, reduced efficiencies and harmed the economy.
Mr Sims put forward two possible solutions to avoid privatisations creating future unfettered private monopolies.
“One potential solution is that all governments agree not to privatise an asset unless there has been a prior public regulatory and competition assessment by a Commonwealth or State regulatory body,” Mr Sims said.
“Another approach would be for a market power test to be introduced to determine whether assets with significant levels of market power should face some form of regulation.
“These are important issues that deserve more discussion among those interested in the health of the economy,” Mr Sims said.
Many monopolies are subject to regulation, such as gas pipelines, electricity networks, railways and the NBN.
In contrast, many ports and airports, which are essential gateways for our economy, are largely unregulated, mostly due to decisions made when they were privatised.
This lack of regulation of monopolies may increase the sale price, but ends up being, via higher prices to justify the higher sale price, a multi-decade tax on Australian consumers and exporters.
“Privatisation can generate important benefits to the economy, such as improved incentives for cost control, investment and innovation to meet the needs of consumers,” Mr Sims said.
“There have been many examples of privatisations that have been done well and that have benefitted Australia. The privatisation of Qantas was done appropriately, for example, and the privatisation of Telstra was accompanied with measures to promote rather than constrain competition.
“The problem is that, in more recent years, many of Australia’s key economic assets have been privatised without regulation, and often with rules designed to prevent them ever facing competition. This makes us all poorer,” Mr Sims said.
“You regularly hear people calling for microeconomic reform these days. The best way to do that is to expose more of our economy to competition, and by dealing with excessive market power. Through some poorly formulated privatisations, Australia has on a number of occasions been doing the opposite.
“We should either privatise to improve the efficiency of our economy, which clearly can be done, or not privatise at all,” Mr Sims said.
What are your thoughts on privatisation? Which institutions and companies do you think should be nationalised again?
Privatization in Australia is no longer a macroeconomics theory of minimum cost and maximum efficiency. It is part of the political desire for a small government, allowing big enterprises to look after our workforce, the health of our economy through supply and demand, and the allocation of our natural resources. This is the core business model of capitalism in the West.
The paradox of privatization is the minimization of costs against maximization of shareholders' value through dividends. If we want a comparative advantage selling our products and services overseas, and attracting overseas investments in Australia, our public utilities and services should be owned and managed by our own public authorities. The costs of our utilities, such as the supply of electricity, gas, water, garbage collection, and transport, are the basic and fixed costs of all our business enterprises.
When people cry out for affordable housing, sustainable small businesses, a competitive manufacturing industry, and commercial and residential construction, the base of these fixed costs can be very devastating for any competition. Also, no regulations by the government can create competition, because it is a function of the supply and demand in the market. Self-regulation and monopoly power are self-destruction of some respectful professionals, for example, the residential construction industry, the financial industry, the racing industry, and the media industry.