The trouble with the latest round of state government privatisations is
that those who oppose them do so for the wrong reasons, but their
promoters are also pushing them through for the wrong reasons.
Joe
Hockey's 15 per cent incentive payment to encourage "asset recycling" -
selling existing government-owned businesses to fund the building of new
infrastructure - has fallen on receptive pockets in the NSW and
Queensland governments, which are worried about their credit ratings
and, unlike the Victorian government, still have valuable electricity
transmission and distribution businesses to flog off.
The previous, Labor
government in NSW tore itself apart over
electricity privatisation, with the cabinet supporting it but the
powerful public sector unions bitterly opposing it. It wasn't much better with the previous, Labor government in Queensland.
Now
Labor is free of the responsibilities of office, it will be completely
united in its opposition and its unceasing claims that privatisation
will lead to big rises in electricity prices.
Since voters in all
states strongly oppose privatisation, Labor will hope to do well with
this argument at the NSW election in March. But polling also shows
voters are much less opposed when the sale of businesses is linked to
the building of specific new projects.
Labor's counter-argument is
deceptively simple: government-owned businesses act in the best
interests of their customers, whereas privately owned businesses seek to
maximise their profits by raising their prices.
The truth is far
more complicated than that. Whether publicly or privately owned, the
monopoly business that doesn't seek to overcharge its customers has yet
to be discovered by archaeologists. Monopolies that don't seek to
maximise profits usually succumb to overstaffing and overpaying workers
and managers. Why wouldn't they?
The public sector unions understand this full well, which is their real reason for opposing privatisation so vehemently.
They
know that whether or not the private owner succeeds in raising prices,
it will seek to improve its profitability by moving in on union perks
and rorts. They know even Coalition-government owners give them an
easier ride than a private owner would.
So voters would be mugs to believe Labor and its union mates have consumers' best interests at heart.
Unfortunately,
that doesn't mean Coalition privatisers can be trusted to do their best
by customers. The temptation facing all privatising governments is to
seek to maximise the price they get for the asset they're selling.
If
you can't see why that would be a problem, you're helping demonstrate
why privatisations so often fail to deliver their promised benefits.
The
main thing that protects customers from being overcharged is effective
competition between the privatised entity and other businesses.
So
the main way governments seek to inflate the price they get for a
privatised business is to protect it from competition, or otherwise
ensure its ability to overcharge. They tie the hands of the price
regulator in some way, or explicitly guarantee freedom from certain
future sources of competition, or sell the business to some player who
already owns businesses in the industry and so can use the acquisition
to increase the player's pricing power.
The simple truth that
escapes so many privatisation supporters on the non-Labor side is that
privatisation is only worthwhile if it leads to greater competition in
the market. If it doesn't, it will be of little benefit to anyone bar
the new private owners.
When the Keating government privatised
Sydney airport, it guaranteed the purchaser first refusal on control of
any second Sydney airport, thus virtually ensuring that even with two
airports there'd be no competition between them.
When the Kennett
government privatised Victoria's electricity industry in the 1990s it
took care to ensure a wide range of buyers.
But it seems the Baird
government in NSW has no such scruples. It planned to sell Macquarie
Generation, the state's largest power producer, to AGL, one of the
state's three largest power retailers.
The Australian Competition
and Consumer Commission tried to block the deal, judging it would have
resulted in a substantial lessening of competition in the electricity
market. But last week the commission was overruled by the Competition
Tribunal, so the deal is likely to go ahead.
Only a couple of days
earlier, however, the chairman of the commission, Rod Sims, reiterated
his view that "electricity companies have a strong commercial incentive
to have all players vertically integrated ... If electricity retailers
can tie up most of the generation then they can create a stable
oligopoly with high entry barriers and so higher prices and better
returns."
I'd be wary of believing any politician who tried telling you electricity privatisation won't lead to higher prices.
