A great shared tradition

Labor’s had three years in opposition but it has failed to learn the right lessons. One is that there is nothing wrong with a good privatisation.

Indeed, it is a proud Labor tradition.

It’s a pity Paul Keating hasn’t spent more time with Annastacia Palaszczuk.

He’s backing the NSW Libs against his own party on privatisation of the electricity network.

Keating says “The Labor Party has been too late in making clear what belongs to the state and what belongs to the private economy.” The problem: “…obscurantists in the Labor Party.”

Of the 74 or so separate privatisations around Australia since 1990 the ALP did 30.

In Queensland there have been 12 privatisations, and Labor has been responsible for 9: Allgas, the Collinsville, Milmerran and Gladstone power stations, Port of Brisbane, Powerdirect, TAB, Queensland Rail Network and Sun Retail.

Why are Keating’s “obscurantists” opposed?

Ideology is one reason. Labor may have abandoned the objective of socialising the means of production, but many of its adherents haven’t.

And most of us aren’t good at the selling decision which is why we are generally better off giving our life savings to investment managers.

More seriously there is a concern that there could be market failure in particular industries, and sale of the GOC would lead to increased prices to consumers.

A spectacularly good demonstration of why this is generally not the case is an early ALP privatisation, QANTAS.

Since 1992 the “real best discount” price, the one you and I are most likely to use, has fallen by half in real terms.

At the same time ABS statistics show that per capita GDP has grown 275%. That means that relative to what we can afford airfares are about one-fifth what they were 23 years ago.

Another fear is that privatisation will cost jobs. This ignores the fact that by holding the economy back, for example by keeping power prices higher than they need to be thus discouraging industry, a GOC can be a parasite, keeping itself healthy and its host sick.

Not that all of these asset sales have been done on principle. The Bligh government probably wouldn’t have privatised $18b of assets if they had any other options, but having taken gross state debt from $6.8b to $16.4b in only three years, they didn’t.

Released from the clutches of government GOC’s can actually become dynamic job creators themselves. Again, QANTAS is a case in point.

Ten years after privatisation it had grown its workforce from 30,000 to 38,400, doubled passengers from 16m to 32m and increased flights from 1,900 per week to 5,000.

No doubt workers were more productive than under the government, but that facilitated the decrease in airfares and the dramatically increased access to air travel enjoyed by you and me, and they all kept their jobs, and then some.

In fact, governments often have a vested interest in keeping prices higher than they would otherwise be, and are often conflicted as both regulator and market participant.

To meet its promise to pay back debt from GOC dividends Queensland Labor will be more than tempted to use the monopoly pricing power to take it out of power tariffs rather than taxes.

Afterall, that’s they way they will apparently finance their plan to have rooftop solar on 62% of houses.

Another concern is that taxpayers will miss out on dividends. This is more of an issue for state governments than the commonwealth which continues to receive company tax, so having an ongoing 30% interest in net profit.

But an innovative enterprise, released from the constraints of government, can generate significant taxes to make up for the loss. Struggling to access capital, the Bligh government privatised the Port of Brisbane Corporation in 2010.

Today that port employees 4,000 and has $50 b of trade including 95% of Queensland’s containers, and almost 100% of Australia’s meat exports. It is the only Australian port to have three stevedores, all using automated container handling equipment.

Freed from government ownership it can access capital from shareholders prepared to take risks that governments can’t, creating opportunities for higher value add industry, and a higher tax take.

Bookmaker odds on individual seats suggest the LNP will struggle to hold government. If Labor fills the treasury benches privatisation will have to be on the table. Having only run a surplus once in their last two terms there is no chance they will pay back debt from dividends.

Which means they will have to return to a great old Labor tradition. One both parties thankfully share. And for good reasons.

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