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Privatise and perish

Once upon a time in a land not so far away, the governments that supplied services actually controlled the services they supplied. The main form of transportation at the time, the railways, were known as the Government Railways because they were actually run by the government of the day. Governments also ran operations as diverse as airlines, electricity generation, water and sewerage concerns, public transport in larger cities, shops in remote areas, banks, telecommunications companies as well as education, housing, making roads, building government buildings and well, most of the services we believe the government provides from the taxes we pay.

Over the past 40 or 50 years, most governments in Australia have privatised a considerable number of the services they operate. In some cases, there is an ethical dilemma if a government is regulating an industry where they are also a large service provider. For example, the Australian Government at one stage owned Qantas (the flagbearer international airline) and TAA — Trans Australian Airlines (which became the domestic arm of Qantas). For years, there was a ‘two airline agreement’ where the government carrier and one publicly owned competitor split the domestic airline market between them. The market was regulated to the extent that a government body dictated to a large extent the schedules for each of the ‘competitors’, laying open the claims of a cosy duopoly where the only real choice was to ‘chance it with Ansett’ or ‘Try Another Airline’. Regardless of your choice the similarly configured plane for each carrier (the main differences being the upholstery and in-flight meal) would usually leave within 5 minutes of the flight operated by the other carrier.

History will tell us that various federal, state and local governments of all political colours ‘privatised’ assets in the last quarter of the 20th century. The federal government sold ‘our’ telecommunications provider and ‘national’ airline through a share float while allowing other firms to set up in opposition to the now corporate giants of Telstra and Qantas. Other governments either leased out or sold off water assets through a share float, or direct to the highest bidder, assets such as public transport, electricity generation and transmission, prisons, healthcare and many others.

The claim was always that private enterprise would run the business more efficiently and be subject to less regulation. While in some cases, it has proven to be true we don’t have the alternate universe that took the other option to run the comparison. This article from last September in Crikey would suggest that Jeff Kennett’s original plan for the Melbourne public transport system to be almost cost neutral just never happened. While cost neutrality probably wasn’t the main goal (ridding the system of most industrial award rights probably had a higher priority) to be fair, Kennett’s Government didn’t sell the tracks and infrastructure, just the authority to operate the tram and commuter rail systems. So, if the tram doesn’t turn up in Melbourne the commuter tends not to blame the government funding the system, rather they blame Yarra Trams. There has been no pretence or hiding of these buyouts, or franchises, or operating agreements. Let’s call the process overt privatisation.

There are probably good reasons for some of the overt privatisation events that have been completed over the past few decades in Australia and elsewhere around the world. Arguably, governments don’t need to operate commercially focused airlines, bus companies and so on. By the same token, some assets supply the community with essential services and privatisation of these assets conceivably is not in the long-term best interests of the community as a whole. The company that purchases the essential asset from the government has to maintain supply to the community. They also have to make a return on the investment made by those that supply capital to the company, also known as shareholders. Realistically there are only a few ways of doing this.

They can reduce the levels of management which is probably not going to affect many people until something goes wrong and the remaining staff don’t have the skills and expertise to fix it. They can raise prices which is probably politically unacceptable as one of the customary justifications for privatising government assets is that the private sector is far more efficient than government in running business. They can work the asset harder, increase the timeframes between routine servicing or put off the replacement of infrastructure that is close to the end of its lifecycle which will work for a little while, but eventually the maintenance backlog will cost more to fix or will reduce the service to a level that is considered to be unacceptable (either according to the legal documentation around the privatisation or in the court of public opinion).

The far bigger problem with privatisation is when the government of the day chooses to covertly privatise. As an example, the Turnbull government recently chose to bolster the capability of the NDIS to respond to telephone calls by recruiting more staff for the call centre, the problem being that these staff are not directly employed by the government, but by a large multi-national company named Serco who claim on their website to

specialise in the delivery of essential public services, with over 50,000 people working in defence, transport, justice, immigration, healthcare and other citizen services

According to NDIA (the government agency that runs the NDIS)

The decision would put the company at the frontline of the NDIS, interacting frequently with people with disability and service providers, many of whom are still grappling with a vast, complex and sometimes confusing scheme.

“Sourcing our contact centre services from Serco will give ongoing flexibility, responsiveness and value for money,” the NDIA said in a statement.

Disability groups were less welcoming, with Disability Australia’s Matthew Bowden suggesting

“We have no details on what expertise Serco have in providing communication services for people with disability, or why the NDIA has decided to outsource such a vital part of its services,” Bowden said.

“The NDIA needs to hire more staff and make their communication avenues with people with disability more transparent. Instead, they are offloading their responsibilities, and requirements, to deliver services to people with disability.”

If you think you have heard the name Serco before, you probably have. Not only do they provide staff for a number of public functions around Australia, including prisons and probably more infamously the Australian Government’s immoral if not illegal detention camps on Manus Island and in Nauru, they run a host of public services around the world including managing rail systems, the provision of non-clinical healthcare services and defence support.

This isn’t to suggest that Serco is any better or worse than any other ‘supplier of essential public services’, but there are risks attached. John Quiggin presented a laundry list of failures of ‘outsourcing’ or if we’re more honest, covert privatisation, in The Guardian during 2016. It’s an eye-watering list.

For each occasion that provision of services is ‘outsourced’ by a government, not only do we have to ask who commands the loyalty of the people employed to provide the service, we need to realise the government paying for the service provision has no control (except for a contract with potentially dubious dispute resolution procedures) over the service provided. To make matters worse, the government loses the intellectual capacity to provide the service with their own resources should something go wrong or the provision of the service by contractors become excessively expensive.

And things do go ‘pear-shaped’. The Saturday Paper recently discussed the case of Carillion, a company that operated a number of services for governments in the UK that went broke.

It turns out the company, which described itself as an “integrated support services company”, held about 450 government contracts when it fell over. The biggest part of the business was construction, but Carillion and its many subsidiaries were also involved in activities as diverse as providing school meals, maintaining military accommodation, prisons and rail lines, providing 11,500 hospital beds and even library services, among many, many other things.

When Carillion collapsed, it not only left tens of thousands of employees and subcontractors unemployed, it left a de-skilled bureaucracy scrambling to deliver services, and led to a lot of people becoming newly aware of the extent to which services they had previously thought were provided by government actually were not.

Australia is ripe for a similar market failure. Every service, such as running prisons and staffing call centres that is ‘outsourced’ or covertly privatised is reducing the number of public servants required to do the work, but they are also deskilling the organisation that is funding the privatisation. From the fee for services provided, the company managing the privatised service such as the NDIS call centre have to fund the training, supervision, management as well as making a profit.

Surely there is a point where the contractor performing the ‘government’ work has to charge more than it would cost the government to perform the work themselves. But by the time that occurs, the government has deliberately deskilled itself to the level where it can’t make the correct call and take back the service provision, so it has to pay.

The Saturday Paper goes on to discuss Australian governments (in general) implementation of ‘efficiency dividends’ where they require those that implement the services that we elect governments to perform to do more with less in an environment where the population (and service demand) is growing. The Abbott/Turnbull Government have also drawn a line in the sand for Public Service numbers — using the number of employees at the end of the Howard Government in 2007. Both policies are inherently illogical. We have a growing population, we as a community expect a higher level of service and we are restricting the ability of those we employ to provide those services to do their job. The Community and Public Sector Union suggests

Our conservative guess, based on available public information, is that there are at least 20,000 contractors or labour hire workers in the Australian Public Service.

“But it’s hard to be precise. The Australian Public Service commissioner could not tell estimates how many labour hire staff the Commonwealth has, because they don’t track it. They only look at direct public service employment, which is shrinking.

These 20,000 contractors are funding their own corporate structures, deskilling our governments and potentially leaving us wide open to service failures if one of the larger companies decides or is forced to no longer provide the service.

It may be a risk that Turnbull and his colleagues think is worthwhile, but the risk of failure is large, has already happened in the UK and could conceivably happen here. Do you want to take the risk?

What do you think?

This article by 2353NM was originally published on The Political Sword.

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12 comments

  1. Peter F

    Google ‘game of mates’

  2. New England Cocky

    Serco, keeper of concentration camps for legal refugees locked up without trial (just in case they win and the fascist government has to pay damages … again). But what happened to previous generations of boat people, like the economic refugees from England after WWII who were shipped out of Europe by the boat-load to populate our great land, and make it much better multicultural place?

    Serco, another economic parasite on the nose of this fascist RAbbott Morriscum Dutton Turdball LNP misgovernment being freely gifted enormous largesse without any restraints of human compassion, personal health or dignity. Talk to some of the “workers” who has returned from these Nazi style concentration camps and discover the facts for yourself.

    If private enterprise is such a good financial manager then why did Enco go bust? …. or why did Lehman Bros get screwed by the US government … or why is the Australian Budget now in DOUBLE THE DEBT compared to when the RAbbott mob were elected to “bring the Budget into surplus”.

    Truly a political septic could reasonably conclude that the present misgovernment is taking Australia into a 19th century colonial future where all the natural resources that belong to the people of Australia will be passed without any, or little, financial compensation, to foreign multinational bankers and corporations for the benefit of shareholders living overseas.

  3. Ricardo29

    We are governed by ideologues, on both sides, who against all of the evidence, believe that private operators do a better job of running things than governments. As a result, these privatised services deteriorate while becoming more expensive, the administrative teams reward themselves ever more generously while screwing over those they employ with such notions as employees being sub-contractors and thus having to pay for their own holidays, Super, tools and equipment, worker’s compensation etc. and when they fail or their services become so expensive as to be unsustainable, the government, I.e. we the taxpayers, are called on to bail them out. And still we, collectively, vote them in. Let an Opposition talkof re- nationalising such failed services and the mainstream media scream ‘Socialism’ and tell lies. Note the media vilification of Jeremy Corbin for example.

  4. Ross in Gippsland

    A lot of people have been asking for quite a while now for any instance, just one will do, where privatising a government service has benefited the public which once owned it.
    I can’t think of any and as far as I am aware no one to date has been able to either.
    But the madness continues.
    As to Carillion, it has been described as an ownerless company denuded of any purpose except seemingly to enrich its directors and keep its rootless multiple shareholders happy from one profit-reporting period to another.
    There was no mission to deliver, no drive for excellence, no pride in service.
    Workers were disposable notations on spreadsheets.
    Sound familiar?

  5. Doug Young

    Way back when, our elected representatives were accountable and they possessed a modicum of ethics, decency and a sense of fair play. Unfortunately over the past twenty or so years, elected representatives have become impossibly avaricious and have sought to make themselves as unaccountable as humanly possible. It matters not which team is in office because they are all beholden to .interests other than their constituents. When Montesquiue devised separation of powers doctrine, he failed to perceive the likelihood of all three arms of government being corrupt at the same time, which is exactly the situation we have in Australia. Basically there is nowhere to go for recourse. Firstly there is the presumption that legislation does not bind the crown unless specifically stated. Secondly, we see the legislature, bureaucracy and judiciary assuming immunities and protections. Thirdly, we see all manner of watchdogs being created to cover-up corruption rather than deal with it. Fourthly, we see collusion and conspiracy between the legislature, bureaucracy, judiciary and media to protect the guilty. Fifthly, we see both the red team and the blue team colluding and conspiring to stifle and criminalize dissent. The consequence of the aforementioned is unbridled corruption and the attitude ‘why not be corrupt, after all there is absolutely nothing the sheeple can do to bring us to account’. Its not as if any activist can initiate a private prosecution as the legal fraternity collaborates with the judiciary to ensure recourse / access to justice is a total farce.

  6. Doug Young

    In response to New England Cocky, there is no discernable difference between political teams since all teams are under the thumb of the bureaucracy, which is in turn under the thumb of big business. Whether or not the Shortcake is ‘better’ than Turdbull is completely immaterial as neither of them have the authority to make change without the approval of their handlers, who are the same in both cases. We’ve seen a growing number of instances where my assertion has been proven, including the continuation of totally unsustainable immigration, neanderthal attitudes to renewable energy, the Indue racket, political pay grabs and now the demonization / criminalization of dissent. Neither the Shortcake nor any of the rats & mice have so much as squeaked in protest.

  7. MobiusEcko

    This throwaway line in an ABC Radio news piece this morning caught my attention and illustrates how far this government is going in privatising the full public service.

    The piece was on the benefits of decentralising all or part of Federal Government departments, on the lines of Barnaby Joyce’s attempt to move the chemical and pesticides regulator to his electorate. To be honest, the piece gave some legitimate reasons for doing this on top of stating the departments needed to be refunded and restaffed for the decentralisation process to be successful.

    All good so far until the commentator stated that the government is looking at doing this via recommended Public/Private Partnerships (PPP), and then continued on with the piece as though the Private bit had never been mentioned.

    By the way, Barnaby’s chemical and pesticides regulator’s office will remain in Canberra with about a third of its staff because to have lost this expertise meant the regulator became unviable. In response to being questioned on this, Joyce stated (falsely) that this had always been the intention.

  8. king1394

    So much of what has been privatised has also been given away at far below its value, allowing much wealth to be accumulated by those people in a position to buy in early. The Commonwealth Bank was issued at $5-40 originally and has been known to reach $100 in fairly recent times. I don’t believe that this increased shareholder value is only due to the running of the company as private enterprise. In fact a lot has been accumulated due to the closure of branches and reduction in employment which equals a great loss of services – in country areas, the closure of the bank can lead to the complete failure of the local economy. The taxes that have been paid to build public works such as roads and railways should return to people in the form of being their own common wealth.

    I don’t understand why assets that have been built over many years are seen as fair game for privatisation. Nor do I understand how programs such as the NDIS which are still being worked out can be thrown to companies like Serco who have no expertise with caring or helping people, despite their experience with running concentration camps. Nor do I understand the philosophy which takes very well functioning services such as formerly provided cheaply by TAFE and the old Commonwealth Employment Service and fractures them into totally inefficient and inappropriate organisations such as the many failing private training providers, and the Job Search Agencies which are a cesspool of corruption IMO. In fact, privatised JSAs, like private prisons, have a vested interest in churning their ‘clients’ rather than helping them to reach situations of security.

  9. helvityni

    There might be a few dollars saving if we privatise all schools; if the parents can’t afford to pay any fees, maybe they can teach their kids themselves…
    It’s called home-schooling….

  10. etnorb

    Sadly now it is probably too bloody late for any of our Governments to try & buy back any or even all of the various Utilities, previously Government owned companies etc. Every one of these was sold by all the Governments of Australia, including all the states, for most times not even a profit, but just to help whichever party was in power to try to balance their books & provide more monies into their kitties! No consideration for any of the “regular” voters & the rest of the general population as to how every time something was sold off, WE were the losers! Australians now “enjoy” some of the highest electricity, gas & water charges in the world, ALL the various state Government public transport facilities, many of the countries forests & even some ports are now foreign owned, & we do not get anywhere near the standards of service etc we used to before they were sold off! Unfortunately the public are always the losers in any of these sell offs!

  11. totaram

    Etnorb: “Unfortunately the public are always the losers in any of these sell offs!”

    Well, that is the idea if you haven’t cottoned on to it yet! This is how the”donors” of the people who privatise things get their rewards. You don’t think they donate to the parties out of the goodness of their hearts and a desire to see Australia prosper? No, they do it so they get to steal the “commonwealth” that has been built up over the years of hard work by the populace. That is the game. It is justified by talk of “efficiency” and other such mythical things, which the populace swallows, hook, line, and sinker!
    It is never too late for the govt. to buy these things back, but that is another story.

  12. Doug Young

    I decided years ago to configure my affairs so that I’m as independent of the organized crime gang in Canberra as humanly possible. That means I don’t pay for power, water, sewerage services, fuel and stuff-all for food. Mind you the latest round of shenanigans criminalizing dissent which was evidently supported by all political teams has me seriously considering a move out of this country. For many years I’ve had the view that Australia is the most corrupt country in the world and the evidence grows with every passing week.

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