Government privatise current assets the right thing to do?

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  derpdeder on 24/06/2014 - 12:15

  I support full privatisation of most public assets, or at least have a private company manage the public assets with the ownership retained by the government.

  The main reason is staffing. Public sector employees are a very inflexible workforce - if it isn't in your job description, a job description that may have been created years ago, it is not your job. Poor job perform does not seem to have a consequence. While it is the same in the private sector, if someone is not performing the role required of them, you restructure the position or make them redundant.

  While this can happen in the public sector, it comes at a large political costs - look at the backlash to the QLD premier's cut of the public service jobs. The cut was needed (and very poorly executed) but political parties want to get re-elected and the heat that cutting public sector jobs may not be worth it, so we end up with poorly performing human resources.

  Moving the staffing responsibility and sometimes the physical asset itself to the private sector generally results in a better performing asset which is in the public's benefit.

  • 

    ESEMCE on 24/06/2014 - 12:29

    +4

    Great in theory, but in reality all you get is worse service from the Private company and invariably at a higher cost..
    Examples:
    The states (except NSW) Privatised Electricity 10-20 years ago, now we have the highest prices worldwide! (carbon tax is not to blame - it's overcapitalised networks that account for 70+% of the increases)
    Telstra - Privatised 15 years ago - hardly the pinup example of customer service!

    • 

      derpdeder on 24/06/2014 - 13:26

      • Is NSW electricity pricing not the largely the same as other states and not lower? Australia is naturally going to have a higher cost base for electricity due to the distances involved and the maintenance of the infrastructure with less people paying into it. The price has increased rapidly recently but we are still behind many other countries and far from the "highest prices worldwide"
      • Telstra is a difficult one as it still retains many elements of a public piece of infrastructure. While customer service may be lacking, this is only one element to judge it on - the performance of its network easily outdoes Optus and Vodafone.
      • 

        ESEMCE on 24/06/2014 - 16:38

        1) NSW prices are the same due to the national electricity market. Retailers can't get billing right and producers have built a network that is massively over requirement.
        2) would like to see your evidence. Here's mine…
        http://www.euaa.com.au/2012/04/australians-now-paying-near-t…
        Given we produce energy from the cheapest energy source (ie coal) we should be close to the bottom!
        3) Customer Service is supposed to be better since privatisation according to you!

      • 

        derpdeder on 24/06/2014 - 18:27

        You should have a read of the article you've linked - even as an article released by a bias group advocating for electricity consumers, it says that we are not close to the most expensive.

        At times of a historically high AUD, they are comparing all their figures in AUD - no wonder we are near the top. When they do a comparison adjusting for the high AUD, we come out under Japan and the EU - have a look at figure 5.

      • 

        ESEMCE on 24/06/2014 - 21:09

        The 2014 price projections are low if anything..
        I pay 32c/kWh off peak!

        And yuou misinterpret Figure 5.. At times of High AUD we effectively pay LESS!
        When (not if) $AUD1 buys only 80 US cents, to get the same value we'll have to pay $1.25 to buy the same fuel, therefore bills will go up again!

  • 

    edgar28 on 24/06/2014 - 12:50

    My Uni professor mentioned that it is the biggest disaster —> "have a private company manage the public assets with the ownership retained by the government"

    Corporate decision not to invest on non profitable area, but the shareholders step in (politician) force the company to spend the money due to publicity, Regulator audit the decision years later and write down the asset - lose lose situation.

    Part of the abstract used
    http://www.abc.net.au/news/2010-03-09/further-steep-power-pr…

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    pjetson on 24/06/2014 - 12:52

    Moving the staffing responsibility and sometimes the physical asset itself to the private sector generally results in a better performing asset which is in the public's benefit.

    That sounds like ideology rather than fact. Which previously publically owned "assets" that have been sold or transferred to the private sector are now better performing (whatever that means), and if you can think of any, which have been to the public benefit?

    All the ones I can think of now provide a lesser service, at a higher cost, and with that higher cost now not going to the government.

    • 

      derpdeder on 24/06/2014 - 18:41

      +1

      Brisbane Airport for one, Port of Brisbane for another.

      This cannot really be summed up in one post but there are a number of criteria for judging the success of privatisation. If all criteria were exceeded, then it would be a no-brainer privatising everything. This is rarely the case - there are trade offs and you hope the decision makers in these situations get them correct.

      Qantas for example - not going too well financially but air fares for consumers have come down a lot since its sale. Without a doubt some of this is structural change in the airline industry, but some is attributed to it performing better.

      Commonwealth Bank - going very well financially. Banking, in particular home loans, is cheaper than it was before it was privatised. Again, structural and competitive changes assist here too.

      I do not want to claim privatisation was the sole reason behind these benefits, far from it, but an organisation that is more receptive to change is.

      • 

        pjetson on 25/06/2014 - 08:42

        Brisbane Airport for one, Port of Brisbane for another.

        Okay, I'm not familiar with what's going on in Brisbane. Are these enterprises now providing better service and/or lower costs to the public? Is the government forgoing revenue that was previously available to them from these enterprises?

        Qantas for example - not going too well financially but air fares for consumers have come down a lot since its sale

        So Qantas not going well financially is an advantage to the public? My understanding is that Qantas is pushing for the removal of local ownership. How is that to the public advantage?

        Commonwealth Bank - going very well financially

        Yes, but so are all the banks. The government has given up that profit for what end result? And they have lost any way of directly influencing banking behaviour. And as for lower costs, it is often written that Australia has the most expensive banking system in the world.

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  one man clan on 24/06/2014 - 13:37

  +4

  Sydney Airport is the perfect example of why selling off profit-making public assets is a terrible idea:

  http://www.smh.com.au/business/airports-pot-of-gold-20130822…

  Sold for 5.6 Billion dollars in 2002 - and is ridiculously profitable, and does so with little to no risk. Macquarie Group paid no tax to the government in the first 10 years of ownership.

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  zambuck on 25/06/2014 - 07:59

  One reason for lower return on assets when they're in public hands can be requirements to service everyone. eg. Australia Post is required by law to deliver a standard letter to a large percentage of the population for the same price, no matter the higher cost in regional areas. When privatisation occurs, these requirements can be loosened, either up front or thanks to special pleading later on.

  Another reason for higher privatised profits is a combination of poorly written contracts and shrewd operators cutting costs. This of course isn't limited to privatisation but also applies to outsourcing in general. eg. Council garbage trucks pick up roadkill as a matter of course, but when privatised, that's an extra cost to the government because it wasn't explicitly itemised in their contract.

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  Cheshire Cat on 25/06/2014 - 08:27

  +1

  It's ideology driven and based on false assumptions. Essentially governments seem to love publicising the costs and privatising the profits (to their mates often).

  Either the public asset / company makes money so why would you sell it or it doesn't so who would buy it?

  The electricity system is the perfect example, in NSW there has been a massive recent spend on the network but this has improved the quality substantially and won't need more major investment for quite some time, in Victoria where prices are essentially the same but it is private they have neglected the network, brownouts and blackouts are quite common during peak periods and the network operator will shortly be forced to spend big on the network due to degradation of the system. Prices will therefore rise considerably 'like they have in NSW recently' so they will be paying a lot more just to bring the network up to an acceptable standard.
  If we hadn't sold telstra we would have had an NBN a decade ago, the waste of money that is selling sydney airport, the road closures they put in to restrict people to using toll roads and also guarantee certain returns to the private toll road owners etc….the list goes on.

  Selling public needs is a stupid idea and makes no social or economic sense.

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  ramshead on 25/06/2014 - 09:02

  Ross Gittens (SMH 14 June 2014) gives an analysis of electricity prices based on a speech by Professor Ross Gaunaut of Melb Uni. It concludes that prices are in a death spiral (will continue to rise) because of the original inept contract offered to private operators by the then Government. Sorry can't give link, but easy to google .

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  srhardy on 25/06/2014 - 09:12

  commbank is doing well at the expense of its customers…

  It used to be the AU Reserve & lending (banking) before being broken up and sold (public arm) & the result is home loans now cost way more than the 3% they used to cost… why? because the money is created out of nowhere so how much should one profit from the creation of wealth???

  The reserve when spun off was under international control, influence and manipulation and interest rates hit almost 17%

  well done (not)

  Home loans now cost 7-9% and when you pay off the loan at 30-40 years, the only profit is for the bank when you sell…

  dumbass! & Oh, the commbank owe its customers 200mill+ refunds if they litigate for corruption of invested money - good1!

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  [Deactivated] on 25/06/2014 - 09:28

  Not it's not (the right thing to do). They're public assets, purchased with public stolen tax money and that produce income. When sold, there's a one-off payment. Then where does income come from? More stolen taxes.

  Why do we need so many politicians to represent us? LOL. We don't. Government has destroyed manufacturing in this country, with things like free trade agreements which favour imports. The Australian producer/manufacturer either closes or moves production offshore. The result is, lower quality products take the place of previously reasonable quality ones. Just rubbish - more landfill.

  As they enact policies that destroy manufacturing, they simultaneously have to create public servant jobs to hide what would be the real unemployment rate. Jobs that have no real point, other than making life miserable for the average Australian. Idiotic pen-pushers who wonder what new law or restriction can they dream up today. Oh - and providing jobs for their relatives/mates is always a priority.

  Pity Australians are too lazy and apathetic to get off their backsides and oust BOTH major sides of politics (like some other countries with balls have).

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  daveozsydney on 25/06/2014 - 15:22

  +1

  Some good comments there.

  Public investment has merits where there is:
  a) a high need for capital as governments have a lower cost of capital borrowing ;
  and b) the product or service has wide appeal that adds benefits to people's lives. Think roads, telecom infrastructure, postal service, railways, electricity generation and supply.

  It can be quicker to get things up and running as the government has the ability to tax which means it can raise lots of revenue and so commit to ventures that would not be funded by other investors.

  In theory there should be no difference in efficiency but as derpdeder has alluded to, there often IS in practice and there are lots of examples of public sector inefficiency. Some of what I have experienced is the inability to innovate and launch new products or services, cut roles where they are not required, the inability or unwillingness to look for savings, and the political obsession with how much money is invested, not a focus on the outcomes.

  Political-
  An example - media reports are almost always about how many million or billions of dollars are being spent on new roads, schools (and related halls ;) ), new hospitals etc because on the national balance sheet these are recorded as assets.

  Media Focus
  There is no government or media focus on the measured outcomes i.e. the purpose of spending on roads is to allow people to travel places more quickly, spend less time commuting, allow people to live further out and commute etc.

  If a political party spends less in an area they are criticised. So if Party A spends $3bill on education one year and party B decides to cut this spend to $1.5billion and cut teaching jobs they are criticsed. Even if the plan was to deploy concepts like online training e.g. the Khan Academy in schools or the type of training used in the corporate sector and by doing so people have more opportunity to learn and end up becoming better educated. Instead we continue to have teachers teach the same lessons each year instead of innovatively deploying new teaching techniques.

  Inability to cut costs
  For example in healthcare, if they cut the backoffice costs (for example moving the finance, procurement and IT functions carried out in each area health service to one centralised department) there would be massive savings. Most multinationals have a central function for an entire region e.g. Asia Pacific or a country. In the public sector there is often one per location or department. As realfamilyman points out there is a conflict of interest if a government is judged based on employment figures can directly affect the figures using public sector employment. Perhaps public sector employment should be excluded from the figures.

  Unwillingness to innovate
  e.g. No postal delivery on a Saturday or Sunday. No post offices in a lot of retail locations yet you can shop for most other products and services on weekends. I'm not saying that it is right to have people working weekends necessarily but as the post office is a monopoly it does not have to innovate as much as it would if it faced competition.

  Measurement of Goals
  If the focus instead was on the amount of time and cost people spend travelling per km travelled (instead of road budgets), the rate of time lost due to sickness this would encourage longer term focus activities such as health education and prevention (soft drinks, nitrates in food, alcohol, tobacco and the impacts on health) rather than waiting for the problems and then fixing them.

  Public vs. Private
  Taking things private can make things more efficient where there is a market for the goods or services. There becomes a self-interest reason for the management to cut costs and launch new products or services.

  For example, look at the cost of phone calls now (close to free for those who choose to shop around - pennytel 8c unlimited to a lot of destinations, versus Telstra, Optus 30c local calls). The cost of flights was also mentioned. These core functions being cheaper now makes the whole economy more efficient.

  In other markets where a gateway monopoly has been privatised there are no obvious benefits to the public - e.g. Sydney Airport, Ports where there is not an alternative, Railway lines to Sydney Airport - they all cost a lot more than they used to. These are a licence to print money, and the argument that a more efficient monopoly results in tax revenues doesn't work if there is a sneaky offshore structure used, although it would at best delay tax and they would still be payable in the future. It also impacts on rest of the economy if there is no option but to use the service.
  If you were to privatise roads where there is no alternative the same would result. Just higher costs for consumers.

  "Half baked" Privatisations
  Even now, Qantas suffers from the work practices inherited from government and limitations enshrined in the Qantas Sale Act, as it is not free to compete on a level playing field. It also has the hangover of public sector costs and unionisation.
  Hence I assume the strategy shift to push more flights Jetstar's way (with lower costs) when the rational approach in the absence of the unions would be to cut the costs to the market costs and move operations to the most efficient location.

  So my conclusion is that privatisation has merits where a monopoly is broken up and an efficient market is created but not where there is just a transfer of ownership and no real market.

• 

  edgar28 on 26/06/2014 - 17:54

  Congratulations on the move

  https://au.news.yahoo.com/thewest/latest/a/24301851/big-pay-…

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  Baghern on 28/06/2014 - 19:14

  If economic theory worked properly, privatising public assets is a good thing. It should be mean a more efficient/cost effective business at the same time allowing the Govt to reinvest in society.

  As it does not, which the Liberals and Labour knows does not, especially in Australia, its not a good thing.

  Our Liberal Governments and to some extent Labour looks to the USA as an example. Deregulation works to a certain extent in the US because they're "massive" resulting in more competition and where needed Regulatory bodies can "kick as's"

  • 

    edgar28 on 30/06/2014 - 15:21

    I think they print more money and float it , that's why they can……..

    20 years ago, the greenback actual value is 20 cents AUD, now? maybe 5 cents, if the world started using Euro as currency…… then AUD to US exchange would be 5 cents.

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  edgar28 on 01/07/2014 - 11:36

  In general, Government owned asset is somebody represent us to handle the common asset, and not for profit, the "profit" is kept for future expansion purposes.

  Private owned is profit for keeping, and extra for expansion. That's mean consumer has to pay more.