With ideological fervour, Joe Hockey says state governments must start selling their public assets. Alan Austin says the evidence suggests this is not the path to national prosperity.
DISMAY AT Treasurer Joe Hockey’s fervour for flogging off Australia’s productive assets seems strangely muted.
The evidence indicates, however, that privatising what remains of publicly-owned corporations would be further fiscal folly.
Hockey yesterday was jubilant at support from Coalition state governments for “asset recycling” — as though public corporations are so much junk.
Even more excited were company directors who stand to benefit from the sell-off. That popping and clinking you heard last night was champagne.
Arguments in favour of privatisation include that it enables the private sector to operate enterprises more efficiently.
The counter-argument is that privatisation usually involves selling cheaply valuable income-earning companies which taxpayers have built and paid for over several generations to private owners who then reduce services and increase charges to reap a rapid return. Consumers who used to win with fair prices and a return to the community in dividends lose both ways.
A recent example of privatisation gone seriously wrong in Australia would appear to be the disastrous coal mine fire in Victoria’s Latrobe Valley which burned for 45 days from early February. Only just extinguished, this caused untold social, economic, physical health and mental health problems for nearby residents.
Was this the result of selling assets to a foreign company which cut maintenance and safety costs, as claimed?
Perhaps the inquiry will determine that. Even if it does, it is too late to undo the damage.
The problem for serious analysis of this issue is that compelling evidence is virtually impossible to pin down.
Independent Australia’s recently-released measure of sound economic management – the IAREM score – may, however, assist.
What has been the policy on privatisation of the world’s top economies? Does economic success correlate with privatisation? Or with maintaining government-run enterprises?
The latter appears to be supported by the IAREM rankings.
Let’s consider the top eight economies in 2013:
Kuwait is a small, oil-rich nation with a history of extensive government ownership and control of the economy.
Private enterprise is now encouraged, but the government still dominates with 100 per cent ownership of Kuwait Petroleum Corporation, Kuwait Airways and many other enterprises. (Data from the CIA, Wikipedia, the World Bank and elsewhere.)
Canada is a high-tech society which benefits greatly from proximity to the United States. One difference between Canada and the U.S. is the level of large public corporations.
There are hundreds of these in Canada if ownership by the states are counted. They include Atomic Energy of Canada, Bank of Canada, Canada Deposit Insurance Corporation, Canada Post, Canada Dairy Commission, Canada Broadcasting Corporation, Defence Construction Ltd, Telefilm Canada, Marine Atlantic Inc, Via Rail Canada and Federal Bridge Corporation.
Is this one reason Canadians are so much better off than their neighbours to the South?
This is a small, high-income economy with public debt among the world’s lowest.
Government-owned corporations include the Central Bank of Luxembourg, Centre Hospitalier de Luxembourg, Société Nationale de Crédit, Post and Telegraph Luxembourg and Luxair airlines 49.96% owned.
Switzerland’s market economy is famous for its financial services, but also has a strong sector in high-technology manufacturing.
Government-owned corporations include Hotel Bellevue Palace, Swiss Federal Railways, Swisscom, Swiss Post, Ruag (aviation and space technology), Swiss National Bank and construction companies.
Small in area, Singapore is now Southeast Asia's finance and high-tech hub with a highly developed free-market economy.
It has one of the highest levels of government ownership in the western world. State-owned companies include Singapore Airlines, CapitaLand, Singapore Post, Singapore Pools, Singapore Power, SingTel, Neptune Orient Lines, MediaCorp and the Government of Singapore Investment Corporation.
3. United Arab Emirates
The UAE is a mixed economy with its IAREM score boosted by high employment, high income per person and strong growth.
The government dominates the economy owning hundreds of corporations, many of them monopolies. These include Abu Dhabi Ports Company, Arab Media Group, Dubai Lifestyle City, Emirates Post, Dubai World, Abu Dhabi Terminals, Arabian Television Network and Emirates airline 100% owned.
Norway’s government effectively controls the economy through extensive regulation and large-scale state-owned enterprises. About 20 per cent of the government’s total revenue comes just from public petroleum corporations.
Norway saves petroleum revenue in the world's largest sovereign wealth fund, valued at more than $822 billion in January. Earnings from the fund help finance public outlays.
The government owns and operates hundreds of corporations in transport, communications, finance, real estate, mining, theatre, energy and venture capital.
Having such a dominant public sector has clearly not harmed Norway’s prosperity — second highest in the world. Or is that the actual reason for it?
Australia rose to the top of the IAREM rankings through the global financial crisis with effective government intervention in its mixed economy.
Federal government-owned corporations include Australia Post, Medibank Private, ASC Pty Limited, Defence Housing Australia and Australian Rail Track Corporation. The states own many more corporations.
So it seems prosperity correlates positively with government ownership of enterprises. (Although admittedly this is not an exhaustive survey.) Most of the countries which have heavily privatised in recent decades, such as the UK, Spain, Italy and the US, are well down the rankings.
Most of these top eight IAREM countries also perform well on the Gini index – which measures fair distribution of family income across the nation. This tends to confirm the observation that privatisation leads to wider disparities of wealth and income.
Norway’s Gini index is 25.0, ranked 6th lowest in the world on the CIA list, where the lower the score the fairer the income distribution. Luxembourg’s index is 26.0, ranked 7th lowest.
Switzerland’s is 29.6, ranking 19th, Australia’s is 30.3, ranking 21st and Canada’s is 32.1 ranking 35th. Singapore is well down the list on 47.8. The other two nations are not listed.
So there appear strong arguments in both economics and social justice for retaining as much public ownership of community assets as possible.
Ideology trumps these, it seems, in Abbott’s Australia. Or is it simply repaying favours?
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