Privatisation has failed. Australia needs to ditch the ‘incentives’ rhetoric and simply spend money on things we need
Daniel Andrews’s plan to re-establish a publicly owned state electricity commission is not just proof that privatisation has failed, it’s proof that the politics of privatisation have failed.
It is no accident that the Victorian premier is using a brand name from the past for his investment in the energy generation of the future. And it is no surprise that he is focussing on public provision of an essential service during an election campaign. The Australian public never liked privatisation as much as their political class.
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Andrews is not alone in seeing the economic and political benefits of nationalising the key infrastructure on which Australia’s economy and community are built. Malcolm Turnbull created Snowy 2.0, Barnaby Joyce is enormously proud of the publicly owned inland rail corporation, and the Queensland government – having failed in prior bids to privatise its electricity generators – recently announced $62bn worth of new public investment in renewable energy via its state-owned electricity companies.
Economic theory provides no clear rules about which assets are best owned by the government and which are best owned by the private sector. The simple fact is that different governments, in different countries, at different points in history, have made quite different decisions about what governments should own, run and sell.
Just as there’s no strong economic case for what assets governments should own, there has never been any strong economic evidence that privatisation delivers benefits to budgets either.
While governments keen to sell the assets built up by their predecessors always focus on the short-term reduction in public debt, they rarely talk about the long-term impact of lost revenue streams in the decades ahead.
Back in the 1990s, Jeff Kennett sold off Victoria’s electricity assets for $23.5bn, but it has been estimated that last year alone the electricity industry made $23bn in profit from Victorian consumers and businesses. Whoops.
The productivity benefits of privatisation are just as sketchy.
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While the rhetoric of privatisation revolves around the greater innovation, efficiency and spending discipline of the private sector, the reality is that since the trend towards privatisation began, the growth in middle managers and salespeople in Australia’s utility sector has been extraordinary. For example, between 1997 and 2012 the energy, gas and water sector – where most of the privatisation was taking place – saw its sales force grow from 1,000 to 6,000, its business, human resource and marketing numbers swell from 2,000 to 9,000, and the number of general purpose managers explode from 6,000 to 19,000. The number of technicians and trade workers, on the other hand, increased by just 28%.
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While the high prices and low quality of privatised services is widely understood, one of the least visible but most important harms associated with the change in ownership of public assets is the impact on apprenticeships and skills.
Back before economic rationalism and neoliberalism entered the minds of Australian politicians, government-owned corporations employed tens of thousands of young apprentices each year, most of whom left to work in the private sector when they finished their on-the-job training supported by formal training in publicly run “tech colleges”.
These days most of the public corporations and public tech colleges have been replaced with private companies, but perhaps unsurprisingly, the privatisation of training has not delivered an increase in its quality, but a so-called skills shortage.
It’s positive to see a state government ... investing directly in public solutions
Given that companies like burger chain Grill’d were the largest recipient of the former Coalition government’s “boosting apprenticeships commencement” wage subsidy scheme, and that privatised training colleges had to be banned from offering free iPads to trick vulnerable people into enrolling in inappropriate courses, it should come as no surprise that despite spending record amounts on training, Australia needs to look overseas to provide workers with a huge variety of skills, including electricians, bakers and bricklayers.
Privatisation has made a mess of Australia’s vocational training system. But Andrews’s plan to create new “tech schools” to introduce more students to more trades before they leave school is evidence that governments are starting to believe the economics and politics of old-fashioned public spending is a better way to fix problems.
Direct public investment in essential services through old-fashioned entities like Victoria’s State Electricity Commission and our school system allow governments to directly solve lots of problems at once. Not only can the Andrews government directly invest in the renewable energy that decarbonising economy clearly needs, it can play a direct role in shaping the wages, conditions, training and gender balance of its workforce. Likewise it can ensure that the physical investments and labour force training are located where they make the most economic, social and environmental sense.
Governments can’t and shouldn’t do everything. But after decades of privatisation, deregulation, outsourcing and the creation of private markets to replace public regulation, it’s positive to see a state government not just investing directly in public solutions, but being so public and proud in the process.
Let’s hope the federal government drops the rhetoric of building a “green Wall Street” to fund environmental protection and its “accord” with the superannuation funds to build public housing and instead spends some money protecting wildlife and building houses. It’s not high finance, but it’s a lot cheaper and more effective.
Richard Denniss is the executive director of independent public-policy thinktank the Australia Institute