Comments on: Refuted economic doctrines: privatisation

By: Adam C

Adam C — Thu, 01 Jan 1970 10:00:00 +0000

The author’s argument here does not support the broad conclusions he is making. Where the government is operating a business intended to make a profit as well as provide a public service, Australia Post being a good example, discounting the business’ projected future cash-flows at the government bond rate is totally inappropriate. This is simply because the future cash-flows are much less certain than those derived from an investment in government bonds. This has nothing to do with the efficient market hypothesis (EMH), discredited or otherwise. While the EMH is based on risk and return principles, these principles are not based on EMH, but on common sense derived from millennia of people engaging in business and commerce.

As such, Quiggin’s argument, which is really the well-established one that government has a lower costs of borrowing (i.e, through issuing government bonds) and should use this for public benefit, only really holds where the government is not seeking a commercial return on its investment, such as the building and maintaining of hospitals, schools and military equipment. Where making money is part of the objective, it is the adequacy of the risks and returns that matter, not the government’s own cost of capital.

By: Peter Goon

Peter Goon — Thu, 01 Jan 1970 10:00:00 +0000

Worthwhile read that underpins the fatal consequence of most privatisation, outsourcing and ‘down size to right size’ activities undertaken by Western global governments over the past decade or so - that is the resulting deskilling of the government department that allows the total indifference to what is real (a.k.a. ‘bullshit’) of the less than scrupulous privateer types to dominate and baffle the decision makers who, after all, have difficulty, at the best of times, with discerning fact from the comfortable fiction they are fed by their advisors.

By: Andrew S

Andrew S — Thu, 01 Jan 1970 10:00:00 +0000

Despite the use of economic jargon to add complexity, the article would seem to over simplify the privatisation v public ownership debate.

Some key points that you are missing:

1. Where business is concerned with profit, government is concerned with re-election. Hence investment decisions made by government do not use "engineering calculations of the need for investment in various kinds of infrastructure" but are highly politicised and concerned primarily with securing votes.

2. Privatisation from a consumer perspective is not just about efficiency but competition. The benefits of efficiency gains from privatisation are generally irrelevant when the result is a monopoly/oligopoly as many of Australia's major industries would attest to.

3. Efficient is not the same as equitable. Businesses seek to sell their products for the highest price possible at the lowest cost of production. If the goal is 'equitable' pricing of a service/product (eg eg urban and rural consumers paying the same price), this will not be provided by a profit making enterprise without sufficiently strong competition or legislation.

By: Victoria Collins

Victoria Collins — Thu, 01 Jan 1970 10:00:00 +0000

May it not also indicate, according to your hypothesis, that governments’ should provide the capital at lower than market interest rates, and private enterprise should obtain an efficiency dividend from running the enterprise effectively, in a loose partnership with the government, on a long-term basis, and a loan that is repaid to the government at less than market rates, but higher than the government borrowing rate.
The infrastructure, which has depreciated over the life of the loan to allow the company to reduce taxes to be paid, allows the private enterprise to make a profit 3 ways. Firstly, from the enterprise dividend., as adjudged by an independant arbiter on a financial year to year basis. Secondly, from fees and charges for public use of the infrastructure. Thirdly, from savings on the loan interest rate which, coming from the government instead of a bank, will save them money over time.
Hence, they should be able to make a profit, as should the government.
Also, the public should benefit by having an option at the end of the life of the agreement to keep ownership of the piece of infrastructure at its original cost price, or sell it at a profit to the private sector. We could have a plebiscite at each election to vote on it.

By: Ben Gilna

Ben Gilna — Thu, 01 Jan 1970 10:00:00 +0000

Hmm... I wish I could have followed that, but don't have the requisite understanding of economics.

I am left with the ever-tightening of clenched teeth as the privatised services I have to deal with display as much (more?) incompetence as public ownership ever delivered, my costs go up, my confusion rises as I have to figure out who's going to rip me off least, and meanwhile some smarmy bugger is laughing all the way to the bank. That he probably has shares in.

I don't want to join this 'economy'. I don't want to get rich. I don't want to use my credit card for a flat screen TV. But I don't want to feel like a third-class citizen if I do something constructive for society, like teach, nurse, etc.

I feel like I've been robbed, for years...

By: Richard McGuire

Richard McGuire — Thu, 01 Jan 1970 10:00:00 +0000

The privatisation hypothesis is about to get a real workout. At the end of this month Communications Minister Conroy is to announce the successful tenderer for the rollout of high speed broadband. Telstra dealt itself out of process because its tender, apparently did not meet the criteria. Being the owner, and theoretically in control, of the bulk of this nations telecommunications infrastructure, it is difficult to see how the broadband rollout can proceed without the co-operation of Telstra. One aspect John Quiggin did not touch on, is the loss of control that comes with the loss of public ownership.

By: Andrew

Andrew — Thu, 01 Jan 1970 10:00:00 +0000

The argument that government businesses are inherently less efficient than private ones has always puzzled me, and there does not appear to be a lot of evidence for it. Public managers rarely earn the kind of salaries reserved for executives of private companies, or provide the same incentives for short-term planning, and public enterprises do not have to support a continual drain into share dividends. The main inefficiency in public companies is the interference of politicians, who have rarely allowed adequate re-investment in capital or new technology. Thus a public enterprise might find itself a moribund candidate for privatisation through no fault of public ownership per se, but by a failure of political independence. Rather than throwing the proverbial baby out with the bathwater, surely it is a better idea to allow public enterprises to operate with adequate safeguards to ensure their good management when politicians seek to treat them as cash-cows.

By: steve martin

steve martin — Thu, 01 Jan 1970 10:00:00 +0000

Irrespective of the efficiency of private enterprise over government control there seems little point from a public’s point of view if you are exchanging a government monopoly for a private one.It just means that any profits go to the monopolist rather than the government (Taxpayer) for a government capital gain which as is the wont of governments will prove to be ephemeral.