Selling off the family jewels

Written by: Kaye Lee

Published on the AIM Network website

The following is an excerpt from a report on privatisation commissioned by The Unitarian Church of East Melbourne prepared and written by Henrike Brussaard and Bronwyn Price, with the support of Prof. Rob Watts (RMIT University). It is the first in a series of reports designed “to promote and reinvent the Australian commitment to democracy and equality.”

Into the 1970s the rich paid super income tax and the wealthy paid a wealth tax. Full-time work was the norm and an elaborate system of industrial regulations meant everyone was paid a decent ‘basic wage’ – because that was the law. Governments also invested in and provided basic public services to make Australia a great place in which to live.

Into the late twentieth century, governments owned and provided the electricity and gas supplied to homes. They ran the trams, trains and buses, and supplied the telephone system. Even the universities were seen as public institutions, while Australians banked with fully government-owned banks, including the Commonwealth Bank, providing long term, low-interest mortgages so everyone could own a house. Governments built freeways and bridges. These were all cheap and efficient and met the needs of ordinary Australia for reliable, affordable services.

And then governments and politicians in the major parties were seduced by the new idea that governments needed to step back and allow ‘markets’ to do more and more of what governments had been doing so well. The Age of Privatisation was upon us.

Privatisation is a policy idea that began in the UK in the 1980s and which Australian governments picked up and began to implement in the late 1980s and 1990s.

Privatisation in Australia started with the privatisation of relatively small, government-owned businesses that were active in relatively competitive markets. Allegations made by state Liberal parties and the media in Victoria and South Australia that the governments in these states were either ‘bankrupt’ or ‘sunk in debt’ were used in 1990–1991 to justify a first wave of privatisation. This was followed with the sale of a number of banks and financial institutions by both federal and state governments.

Between 1990 and 2001 Australia engaged in a frenzy of privatisation. The second half of the 1990s saw the start of a long, sustained burst of privatisation in Australia under the Howard government (1996–2007). It was a world leader in privatisation, selling off public assets worth 20% of its total economy over this decade. This compares with countries like the UK that sold public assets worth less than 5% of its economy or the USA that effectively sold nothing.

Between 1987 and 2013 Australian governments sold off public assets worth $194 billion (in constant dollars). The Australian government sold off the Commonwealth Bank, the domestic and international airlines, naval dockyards, defence-related aircraft factories, communications satellite systems, the natural gas pipeline system, the national railway service, serum laboratories, the management of the superannuation fund for public sector employees, and a housing network for ex-servicemen.

In most cases this represented decades or more of public investment by taxpayers and governments in entities such as buildings, factories, trains and buses, power, phone and rail lines owned by public entities that returned high levels of revenue to governments for reinvestment or to meet the needs of ordinary Australians.

We have also seen the sell-off of public airports ($4.1 billion), the distribution and retail arms of state electricity in SA ($3.5 billion), six state insurance offices ($3.1 billion), WA’s Dampier-Bunbury natural gas pipeline ($2.3 billion) and Qantas ($2.1 billion).

This is a lot of wealth that was once in public hands and used for the public benefit that has now been shifted into the hands of wealthy investors and big corporates.

Governments have sold off public assets because politicians, policymakers and many economists claim that selling public assets gives governments a big pot of money that will allow them to increase public spending, cut taxes or pay off their ‘debt’. Here, the word ‘debt’ only means that they have borrowed money to invest in public assets such as roads and bridges, rail, tram and bus transport, electricity and telephone networks, schools, universities and hospitals.

Our governments have also convinced themselves that the privatised services will be more efficient, cheaper and better because they believe ‘competition’ between private enterprises is ‘naturally’ more efficient. Businesses and wealthy people have also spun the value of privatisation, saying it promotes productivity, efficiency and lower prices. These arguments are either largely spurious or are simply not borne out by evidence. In effect, these arguments are really myths.

Despite some excellent research by Australian researchers, little interest and initiative has been shown by governments and other proponents of privatisation to promote careful, evidence-based research into its efficacy for the public good. This is not surprising given that there is very little evidence to support the main arguments advanced by those promoting privatisation.

Rather, we see how corporations and investors have seen privatisation as an easy way to get their hands on very valuable assets and to do so at often rock bottom prices. As Sharon Beder put it:

“The privatisation of essential government services is not about competition and efficiency; it is about the redistribution of wealth and control.

Privatisation is promoted by a group of powerful vested interests greedy for low-risk financial investments, consultancy and legal fees, or banking business. They are aided by business-funded think tanks and economic advisers who spread the ideologically based belief that private management is superior, despite the plethora of examples contradicting this.

Privatisation has become the final resort of governments that need funds but are afraid to tax the wealthy and prevent tax evasion by big businesses. Instead, government assets are sold in a scramble for cash at the expense of ongoing dividends and government control of essential services. Struggling families and small businesses suffer most from the inevitable price rises that follow.”

Apart from the loss of value in the sale process, there have been other major costs, not all of them purely economic. There are strong social, economic, accountability and control reasons for maintaining public ownership and the operation of a range of services. This is because quality public services are the foundation of democratic societies and successful economies. They ensure that everyone has equal access to vital services, including healthcare, education, electricity, clean water and sanitation. When these services are privatised, maximising corporate profits replaces the public interest as the driving force.

Privatisation is a dangerous trend that must be reversed.