"There is nothing saintly about government ownership of assets or businesses, no guarantee that government ownership will be for the greater good of the common wealth." Photo: Dave Langley
Privatisation, like so many Australian policy issues, often seems more the province of ideology than disinterested analysis. Some statement of belief will surface, cause a squall of claim and counter claims, and then blow over until the next time. Cue Rod Sims and a bunch of economists, never mind cautious politicians.
But a more sustained storm is brewing over our rich pickings – for all our capitalist ways, Australia has one of the world’s highest levels of government non-financial assets as a percentage of GDP. And whatever the federal government might get up to, state governments around the nation are facing increasing fiscal challenges that mean they won’t be able to afford to sit on lazy assets. When the roof has a hole in it, the kids need shoes and you have to buy seed to plant the next crop, there’s no place for retaining the family silver.
Among OECD nations, Japan is out in front of us with government-owned assets equal to about 120 per cent of GDP. We score silver with governments holding roughly $1.5 trillion worth – the equivalent of our gross national product. That figure has been inflated by a high level of land and mineral assets, compared with other nations. According to an IMF working paper, government sub-soil assets are equal to 45 per cent of GDP and land assets 21 per cent.
That paper is heavily cited in a feature in the current edition of the Economist magazine that examines rich countries’ capacity for further privatisation, a feature that concludes advanced economies overall are missing a big opportunity to sell or make better use of their assets. It’s a timely contribution to what should be a debate here, instead of the usual statements of position with an eye to political opportunism.
And then there’s the ideology complication. Privatisation for the sake of privatisation is not necessarily a good thing, particularly if it’s handled badly. In particular, selling a natural monopoly can be a dangerous business without appropriate safeguards.
Similarly, there is nothing saintly about government ownership of assets or businesses, no guarantee that government ownership will be for the greater good of the common wealth. Indeed, there’s always the suspicion that the profit motive let loose on private enterprise can lead to greater productivity.
The fact that some privatisations have been poorly executed is no excuse for abandoning the option. The Wallabies have lost the majority of their tests against the All Blacks, but that’s no reason to not have another crack. Past failure is no guarantee of future performance. And the quoted opinion of one academic economist that selling off an enterprise with a cash flow is ridiculous is, well, ridiculous. On that basis, no profitable business would ever be traded and it ignores the opportunity cost of what greater use governments could make of the money raised and the ability to price in the cash flow in the sale.
Pricing any asset for sale is a tricky game, as each and every IPO demonstrates. Those who criticise privatisation per se as not delivering fair value for the vendors might have in mind the first Telstra tranche, but they seem to have forgotten the last Telstra tranche. You pay your money and you takes your chances in any such transaction.
What’s missed is that the recent headlines have concentrated on simple enterprises – Medibank, Australia Post, whatever – when they are a small part of that $1.5 trillion figure. As the aforementioned Economist article points out, there’s potentially much more to it.
The Australian Bureau of Statistics gets brownie points for keeping count of the value of government assets – many OECD countries do not or do so poorly. What can’t be counted are the residual socialist attitudes of a large part of the electorate when it comes to selling off government assets and enterprises. It is curious that landslide conservative votes in Queensland and New South Wales came from electorates that are, at best, dubious about privatisation.
Part of that scepticism might well come from observing who benefits most from a change of ownership: senior management. Whether through the demutualisation of bodies ranging from AMP to NIB, or the privatisation of the juicy bit of Queensland’s railways, there has inevitably been an obscene escalation in the top executives’ pay packets. Just watch what will happen at Medibank.
The punters aren’t altogether mugs. They can detect snouts in troughs. The challenge for our weak crop of politicians at all levels is to explain to the public why key privatisations are in their (the public’s) best interests. The money is needed to build necessary infrastructure. There’s no real need for a government to own and run things that it doesn’t absolutely need to build and run when the cash is required elsewhere.
It’s not easy sell, given some past performances, but it will need to be done as our demographics and aspirations bear down on us.
Trouble is, as far as I can judge, the last pollie capable of explaining a difficult policy was Lindsay Tanner – and his seat was taken by a Green.
Michael Pascoe is a BusinessDay contributing editor