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Tag Archives: Privatisation

Small government, like communism, might sound like a good idea but they are lambs for slaughter on the altar of greed

Deregulation, self-regulation, red tape, green tape, nanny state, small government, privatisation, asset recycling, compliance costs, free market, one-stop shop – these are some of the phrases religiously chanted by big business, and echoed by conservative think tanks and governments, with a certainty that smacks of zealotry.

We are told that the private sector is more efficient so we outsource service provision to them.  We sell off valuable assets and profitable government-owned enterprises.  We remove regulatory oversight and streamline approval processes.

We sack public servants, urge wage restraint, remove penalty rates, freeze the superannuation guarantee and hobble collective bargaining.

We provide so many concessions for the owners of capital and assets that they end up paying little to no tax.  We encourage exports whilst enduring shortages at home.  We provide a guarantee for the banks to protect them from the financial turmoil afflicting the rest of the world.  We have a whole government department dedicated to making sure the private sector does not face unfair competition from the public sector.

And still, even as companies continue to announce record profits, it’s not enough – they want more.

Now that may all be very well if all players are acting ethically, if profits are shared not only with CEOs and shareholders but with employees through job creation and wage rises and with the government through taxation, if sustainable practice and environmental protection was a non-negotiable aspect of doing business, if businesses could be trusted to tell the truth and to fulfil their part of the social contract.

But that is not the case.

The cases of malfeasance, corruption, fraud, exploitation and environmental damage just keep coming.  Cases are fought by armies of legal and financial teams, dragging them out until plaintiffs give in.  Penalties are seen as just part of doing business.

By their own actions, businesses have destroyed our trust and forfeited the right to dictate the rules.  Self-regulation does not work.  There is no loyalty or morality as the greedy scramble for an ever-increasing share of the pie, doling out crumbs that barely sustain the rest of society.

The government has abrogated their responsibility to defend us against unscrupulous merchants and employers, and the extreme class structure that results from their exploitation.  They have sold off our common wealth for short-term sugar hits for the budget.  They have privatised essential utilities and services which are now run for profit rather than the common good.

And now they are even outsourcing the drafting of legislation to the very legal and accounting firms that advise big business on how to get around the rules.

Small government, like communism, might sound like a good idea but they are lambs for slaughter on the altar of greed.

Learning for the Knowledge Economy

Welcome to Innovation Nation where we’re going to get agile and disrupt some paradigms!  The knowledge economy is the next big thing, and we’ve got some transitioning to do.

There is almost universal agreement that education is a key factor in building the ‘new’ Australian economy.  Where the major parties differ is just a continuation of the same old education policy debate in Australia, which remains fixed around funding and curriculum content.  A closer examination of the rhetoric and policy reveals how the economic theories to which politicians and policy makers subscribe defines the treatment of education policy.

One of the dominant voices in the dialogue surrounding education, and the economy in general, is that of Human Capital Theory.  This economic approach amalgamates information, learning, innovation, and research under the banner of Knowledge; which in the Knowledge Economy is now cast as an important asset or form of capital. The result is a higher level of interest in how these knowledge assets are acquired.  Or in non-economist speak, government interest in the daily operations of schools; including not only what is taught but how.

If Australia is to avoid drifting down to second-world status, enhancing the capabilities of the population is essential.  We cannot rely on minerals or agriculture alone for the prosperity of the nation; but is a human capital approach to our education policy the right road into the future?

The Knowledge Economy

According to the OECD in 1996, knowledge-based economies are “directly based on production, distribution and use of knowledge and information”.  Over the past three decades, advanced industries in Western economies have become more knowledge intensive, and now rely heavily on innovation for economic performance.

The service economy is no longer where it’s at folks.  We now find ourselves 20-30 years behind other OECD nations; and to avoid Keating’s infamous banana Republic, Australia needs to shift from the current heavy reliance on raw resources, education as export, and tourism. Value-adding in the form of knowledge-based enterprises that can actually make products and services are what is required to carve out a niche for Australia in the world economy.  This is why we are now hearing so much about innovation from our political class, as the nation tries to play catch-up.

Humans as Capital

At the core of Human Capital Theory is the desire to break down fuzzy socially-related aspects of society, like education, and place on them a unit of value.  These ideas connect strongly with broader political-economic views of neo-liberalism, and the market-driven society that its proponents champion. This way of seeing the world deeply colours the way people are viewed; for example, according to economist Ben-Porath

“The objective of the individual at any time is to maximize the present value of his disposable earnings”

While there is considerable literature criticising these ideas, Michael Apple provides eloquent polemic on the matter, it is important to recognise what makes the Human Capital Theory attractive.  The approach reduces human complexity to a quantifiable set of statistical data, that can be used to measure inputs and outputs.  Schooling becomes a process of adding capability or knowledge modules, which can all be abstracted and converted into formulas to calculate the costs, both direct and through loss of productivity, and the potential return on investment.  Allowing an optimal schooling decision to be expressed thus:

equation

Human choice and learning reduced to an equation. No mess, no fuss, because you can’t argue with figures. The inherent utility of this approach, of being able to produce statistics with strong correlations to economic data, underpins the success and popularity of Human Capital Theory in business and government alike.

However, formulas do not work without actual numbers. To produce their percentages economists and policy wonks need numbers from the real world.  This requires measurement.  In Australia, this measurement comes in the form of NAPLAN, aka: Standardised Testing; and here we see the expression of economic theory in education policy.

Much has been written on NAPLAN and standardised testing in general.  Apart from the impact on classrooms and time spent studying for tests; there are also the concerns on how the narrative of “choice” transforms schools, from places of learning into competitive businesses.  Schools and teachers then have to market themselves as the best investment for the child’s education to ‘maximise value’.   Kevin Rudd as Prime Minster stated that the MySchool website, and the NAPLAN scores listed there, were specifically designed to allow parents greater choice and enable them to “walk with their feet”.  The resulting importance for schools and teachers to score well leads to many hours teaching to the test, rather than for comprehension.

This preoccupation with testing, and of the utility-view of education reaches its peak in PISA testing, coordinated by the OECD. Like NAPLAN, PISA is focussed on measuring if students have “acquired key knowledge and skills that are essential for full participation in modern societies”.  According to PISA these are: maths, reading, and science.  To claim these three metrics can generate an accurate leaderboard of the value and efficacy of a nation’s education system is testament to the reductive power of the human capital approach.

The marriage of human capital and free-market thinking in education policy changes the very purpose of learning. Education is no longer a public good that improves society, promoting opportunity and better living standards. Instead, education is a process of adding knowledge and capability modules to future workers.  Education becomes a commodity in a marketplace of sellers and buyers.  With predictable results, as seen most recently with the corruption and fraud that has completely undermined vocational education in Australia.

What could education in Australia look like if the nation continues down this road?

Directions, choices, and consequence

South Korea gives us a glimpse into a possible future.  South Korea is an industrialised nation with democratic values and regularly ranks highly in PISA scores. Many have identified the economic and social importance of achieving high academic marks as a key driver in the performance of South Korean students in PISA testing.

To gain high marks at school and the eight-hour long university entrance exam, the suneung; families invest heavily in South Korea’s large private education market.  Sending their children to Hagwons, or cram schools, after regular school hours.  These are similar to the ‘coaching colleges’ that have proliferated recently in Australia.  The result in South Korea is that many students average 13 hours a day undertaking direct instruction. Many who support a return to ‘back to basics’ teaching commend the approach as a main contributor to the success of South Korean students.  The time-on-task and work-study ethic of the ‘Asian Model’ touted as a panacea for the apparently ailing educational institutions of the West.

However, South Korea fails to perform on broader social and economic measures.  Even by the human capital measurements published by the World Economic Forum, between 2013 and 2015 South Korea fell from 17th to 30th ranking.  When we look beyond the metrics, the real cost of the human capital / high-stakes testing approach become apparent. Korea, Japan, and China all suffer from high levels of youth unhappiness and suicide, as well as extensive bribery and corruption. The education markets spawned by this high-stakes testing approach are fiercely competitive, and bring high personal, social and financial costs for students and families.  Perhaps disturbingly we are already seeing parallels in Australia, with the increased social and economic importance of having attended a private school on one’s future opportunities.

Sadly, after all the cost, stress and testing, many graduates find it difficult to engage in creative problem solving. The result of PISA and standardised testing is a student who is very good at providing answers to well-defined problems in an acceptable format; and poorly prepared for innovative or creative thinking, key skills for success in a knowledge-based economy.  A problem underlined by evidence that links a decline in entrepreneurship and creativity to curriculum changes designed to boost test scores.  It is ironic then that Australia and other nations wish to emulate the system that many Asian countries are trying to leave behind. After topping PISA tests in 2009, China is now shifting to a more comprehensive model of assessment, with the stated goal to reduce the importance of testing in the curriculum.

Innovation Nation

At this point it is perhaps instructive to look again at the ideas associated with the knowledge economy in more detail.  Innovation is tricky, as new ideas may come from anywhere:  A scientist in a well funded lab may deliver an innovation in metal-alloy generation; however a worker in an industrial setting may also deliver the same innovation.  Though setting, resources and education (read human-capital investment) may be vastly different, they both apply what they know to generate new knowledge.  The process is not linear or incremental, but rather fluid and unpredictable.

This level of complexity and non-linearity, that there is no ‘correct’ way, understandably makes economists and policy-makers uncomfortable.  There is also the problem that despite piles of reports and articles on the subject, there continues to be a great degree of fuzziness about what the Knowledge Economy actually is. Sifting through the literature does reveal the character of the knowledge economy and indicators for success:

  • The speed of adaptation and innovation is crucial for future competitiveness.
  • Investment in education and research has a direct influence on learning and innovation outcomes.
  • Higher participation in creative problem solving and learning in the workplace leads to higher levels of innovation and knowledge production.
  • Low social distance between managers and workers builds trust and high diffusion of new ideas.
  • Knowledge must be read from different points of view, mutli- and interdisciplinary and requires engagement with and by government, industry and knowledge centres (such as universities).
  • Actors must have an awareness and understanding of the social, economic, and political facets of knowledge.

The two ideas most often listed are that broader creative thinking is needed; and that state intervention of a nature akin to the Welfare State model is beneficial, and may actually be essential. Concepts that are in direct contradiction to the neo-liberal human capital approach, which prefers limited subject proficiency and privatisation. Where then can we look to find an alternative approach to inform potential practice?

Go East

Brazil is a large nation with a population concentrated in urban areas, and a smaller portion of population spread across rural and remote areas.  Like Australia, It is also currently seeking to transition from an economy based on resources and traditional manufacturing to one where they can leverage innovation to compete in the global marketplace.

1985 marked the end of twenty one years of military rule for Brazil, as well as the end of strong alignment with neo-liberal governments in the USA and the West in general.  What followed has been a tumultuous period of reform characterised by education of empowerment; and decentralised authority, with states and municipalities having high levels of control over local school priorities.

Attempts by central authority to control curriculum by setting of competence standards or imposing centralised testing to national and international standards have been heavily criticised. How the differing view of education, as a social good instead of economic commodity is well illustrated by the local Catholic schools compared to the curriculum mandated by the World Bank.  The Catholic system teaches literacy in a social and political context; students learn the importance of nuance and how context can change meaning.  The human capital model eschews anything to with politics and concentrates instead on phonics-based instruction; thus keeping literacy linked purely with economic development.  With even a passing familiarity with our recent education ministers, one can see how the latter approach has gained much currency in Australia.

In Brazil the goal appears to be to ‘extend politics’ by educating citizens instead of workers. The national government does publish loose guidelines on curriculum.  These have familiar human capital emphasis on development of skills and competencies and building citizens’ capability in science, math, and literacy (with notable difference that bi- and even tri-lingual literacy is the norm).  However, the purpose of national testing is to create improvement programs for each school subjective to their individual circumstances; rather than to meet an arbitrary national standard.  This shows how a different economic view, in this case in opposition to the neo-liberalist market line, changes the way that policy is developed.

Many educators and policy makers in Brazil refer to Conscientização, or critical consciousness, and the importance of moving beyond mere observation and description to a level where the social, political and economic meanings can be recognised and subject to scrutiny.  Here is a conception of knowledge not simply as a unit of additional value, but that knowledge is emancipatory; enabling not mere social movement, but also greater access to freedoms and involvement in the future of the nation.

Multi- and interdisciplinary thinking, social equity, and the importance placed on having a broader understanding of economic and social contexts build capacity for students to think for themselves; and ‘outside the box’.  The national government is also building links between industry and universities through a quasi-Welfare State approach to subsidies; giving students future pathways for study and work, as well as giving practitioners access to research bodies to test ideas.

Based on observations on the characteristics for success in building a knowledge economy, Brazil appears to be on a firmer path toward leveraging of technological advancement and innovation; and the realization of a knowledge economy with a strong resource and manufacturing base.

The way forward

Human Capital Theory is a tool used to simplify how individuals and groups function to fit them into an economic equation.  However, it is a flawed tool.  It does not address the democratic and social aspects of the citizen-person, and is largely incapable of describing the complexities of learning or knowledge in the economy. This begs the question; if human capital is about enhancing the means of production, then what is it that our curriculum is preparing us to produce? What do we hope to achieve by teaching our citizens to ‘maximize the present value of [their] disposable earnings’?  The truth is, despite the rhetoric, the political and economic focus on The Market as arbiter of all good shows us that government and business are less interested in creative thinkers, and more interested in consumers. Or as Michael Apple puts it, people are

…either stomachs or furnaces. We use and use up, We do not create.
Someone else does that.

The implications for a knowledge-based economy, where value-add comes from the act of creation, are stark.

Despite ample evidence that test-focussed regimes do not deliver citizens ready to engage in a knowledge-economy; current policy directives in Australia still appear to champion the human capital conception of learning and the neo-liberal privatisation goal of education-as-commodity.  An approach highly divergent from what economists, educators and innovators are advocating as effective approaches to building a successful knowledge-based learning economy.  This dilemma dramatically underlines the need to divest from economic and political beliefs and look at the evidence with clear eyes and open minds.

We ignore the lessons from Brazil, China, South Korea, and Scandinavia at our peril. Preaching education as the answer to a future is not enough.  Promoting STEM education will not deliver results without complimentary application of resources into research bodies and policy work to change prevailing attitudes in labour-force relations.  Australia must overcome recent neo-liberal tradition and look to the Nordic and South American economies, where government involvement and Welfare State approaches are actually more effective in building and nurturing innovation and knowledge production.

Australia needs to move beyond the primitive human capital education-as-training model to a new formula of education-as-learning.  Ultimately we need to begin to view education not as a project that sets out to universalize knowledge, and forge students of today into the consumer-workers of the future.  Rather that school and curriculum is the space-time of cultural boundary where we dispute the significance of ideas and the world and negotiate knowledge and meaning.  Where learning links academic school-based learning with vocational learning in the workplace; extending knowledge acquisition with an understanding of social and economic contexts, with a focus on how to engage in hybrid thought and interdisciplinary collaboration.

In an increasingly globalised economy it is imperative that nations do not encumber themselves with one-size-fits-all theories whether they be liberal, Marxist or progressive.  Australia cannot afford to continue reducing citizens and their education into formulas.  Instead, we must look to our unique strengths and situation and build pragmatic policy that can engage Australians as active and innovative citizens in the future commonwealth.

 

leftBehind

*Edit: as pointed out by a commenter, the education equation included had been cut off at edges.  This has been corrected.  Hopefully it now makes sense mathematically, at least.

Short term sugar hit

When even the experts disagree, it’s not surprising that the electorate are divided on privatisation.  The only say that Australians get in the sale of the assets we jointly own is at election time but I sometimes wonder if voters fully consider the ramifications of privatisation and asset recycling.

Joe Hockey and Tony Abbott are both determined to use their time on the Treasury benches selling every Commonwealth asset they can and, by making funding dependent on it, they are forcing state premiers to do the same.

Joe wants to follow the Costello fire sale approach to fixing his budget while Tony wants roads, roads, and more roads to be his legacy.

Last year the Productivity Commission released a report into the provision of public infrastructure which concluded that there is “an urgent need to improve how public infrastructure projects are selected, funded, financed and delivered.”

“There are many examples of inadequate project selection that have led to costly outcomes for users and taxpayers. …poorly chosen infrastructure projects can reduce productivity and financially burden the community for decades with infrastructure that is unnecessary and expensive to maintain… The costs of poor project selection and delivery will be exacerbated if governments decide to increase their infrastructure investment programs without reforming their governance regimes…

To sum up, governments are sometimes weak at determining what, where and when infrastructure projects should be scoped and constructed. This stems from deficiencies in using coherent decision-making frameworks to assess the portfolio of potential projects.”

The PC argues that it is critical that governments build a “credible and efficient governance and institutional framework for project selection”, since “selecting the right projects is the most important aspect of achieving good outcomes for the community”.

“Properly conducted cost–benefit studies of large projects, and their disclosure to the public” is seen as key to guide project selection and improve the transparency of decision making and they recommend public disclosure of CBAs for any project over $50 million.

The report mentions the ACT Light Rail Project as an example of poor decision making.

“The ACT Government’s decision to proceed with a light rail project appears to be an example of where the results of cost–benefit analysis have been ignored without a valid explanation…

In a submission to Infrastructure Australia in 2012, the ACT Government analysed a number of options including bus rapid transit (BRT) and light rail rapid transit (LRT). The analysis estimated that the upfront capital costs for the BRT and LRT would be $276 million and $614 million respectively (on an undiscounted basis) (ACT Government 2012).

In its economic appraisal (which is essentially a cost–benefit analysis), the ACT Government found net present values of $243.3 million for BRT and $10.8 million for LRT. The benefit–cost ratio for BRT was estimated at 1.98, with 1.02 for LRT. In the assessment, the benefits of BRT and LRT were similar ($491.8 million against $534.9 million respectively), but the cost of BRT was less than half that of LRT ($248.5 million against $524.1 million, when discounted by 7 per cent). The cost–benefit analysis took into account a range of factors including journey times, and avoided environmental impacts and accidents (ACT Government 2012)…

In summary, a cost–benefit analysis showed BRT to be a greatly superior option than LRT…”

It also warns against the view that private sector provision is necessarily best, noting instead that it brings “additional risks and costs, which need to be weighed against the benefits”, and “only if well-designed and executed does a PPP agreement offer the potential for efficiency gains compared with traditional public procurement”.

– Private financing is not a ‘magic pudding’ — ultimately users and/or taxpayers must foot the bill.

– Government guarantees and tax concessions are not costless and often involve poorly understood risks.

The “poles and wires” are a prime example of this.

Every five years, the federal energy regulator grants the distribution and transmission network companies an allowance to spend on capital and operating costs. In 2009, the networks claimed to need billions to build new infrastructure to meet soaring demand and the Australian Energy Regulator approved a staggering $45 billion of spending.

Not only that, they ruled that the NSW distribution networks could claim an astonishingly high cost of capital of 10.02% per annum, which it said was equal to the borrowing costs of a private company at that time.  In fact, they borrow from a triple A–rated state treasury at rates of around 4–5%.

This meant that, for every billion dollars they borrowed to spend on infrastructure, the NSW networks were now able to charge their customers an extra $100 million every year (decreasing over time as the loan was paid off). Gerard Brody, an advocate from the Consumer Action Law Centre, said “This was just pure profit coming from consumers’ hip pockets. There’s no rational, economic reason for consumers paying that sort of money.”

According to the Australian Bureau of Statistics, the electricity industry’s profits rose by 67% between 2007–08 and 2010–11. In this same period, electricity bills rose 40%.  With tacit approval from the federal government, they carried on spending billions of dollars on new infrastructure we didn’t need, based on projections that were obviously wrong.  According to the federal treasury, 51% of your electricity bill goes towards “network charges”.

The PC report also warns that Abbott’s bribes to the states, otherwise known as asset or capital recycling,

“could act to encourage privatisation in circumstances that are not fully justified and encourage the selection of new projects that do not have demonstrable net benefits. Already, examples of promises to reinvest have emerged in regions where assets are being sold. Tying funds to particular regions is no assurance that the highest net benefit investments are being considered.”

On Tuesday, the head of the NSW state government’s infrastructure advisory criticised the Abbott government’s refusal to fund public transport projects.

“I can’t really understand the logic of saying we will only invest in a transport project if it involves bitumen as opposed to one that involves steel rails,” said Jim Betts, the chief executive of Infrastructure NSW.

“It seems to be arbitrary,” he said of Mr Abbott’s stance.  “I can’t understand how public transport is somehow beyond the pale.  It’s a shame because particularly I would like to see bodies like Infrastructure Australia able to give modally agnostic advice.”

As a short term budget fix, Hockey is also considering selling six government-owned buildings in Canberra, including one that houses the Treasury Department.

The scoping study will look at options for the John Gorton and Treasury buildings, as well as East and West block and Anzac Park East and West, which are in Canberra’s Parliamentary Triangle.

As Peter Martin points out

“Once sold, they would be leased back to the departments of Treasury and Finance and whoever needed to use them. For the next four years (as far out as the budget’s detailed forecasts go), Hockey’s accounts would look good. He would have raised serious money. Beyond that, his successors would be paying out serious rent.

The Howard government sold the purpose-built Foreign Affairs headquarters to the to the Motor Traders’ Association super fund for $217 million in 1998. By 2017 it will have paid out $311 million in rent. Foreign Affairs can’t move out, and what dressed up the budget nicely in 1998 will cost $20 million or more per year in rent forevermore.”

Medibank Private has already been sold, raising $5.679 billion which will be invested in roads.

In the four years after the Rudd ­government converted Medibank Private into a profit-making insurer, the Commonwealth collected $1.366 billion in dividends and taxes.  This amounts to a 16-fold return on the $85 million it put into Medibank.

The federal government is studying whether to sell the Royal Australian Mint, hearing-aid provider Australian Hearing, Defence Housing Australia and the Australian Securities & Investment Commission’s corporate register, according to its budget papers.

The national commission of audit also recommended selling assets including Australia Post, power generator Snowy Hydro Ltd. and Australia Rail Track Corp., the main interstate rail network.

Not to be left out, Christopher Pyne has refused to rule out selling the HECS debt.

The Commonwealth would sell the rights to its $30 billion stream of long-term debt repayments at a reduced price of, say, $15-$20 billion today.  While the Government would receive some funds up-front, it would lose the ongoing cash flow as loans are repaid – in effect substituting a future income stream for a much smaller lump-sum.

To make Hockey’s budget look better temporarily, and to pay for Tony’s road fetish, we are selling off assets that would provide a future revenue stream.  What will our children do with less revenue, no assets to sell, and increased costs to pay the private sector for what used to be ours?

Snowy Hydro, Neoliberalism and the NSW Government: The Ugly Visage of Privatisation Rears Again

Australia’s energy policy is subject to regulatory and fiscal influence from all three levels of government, however only the State and Federal levels determine policy for primary industries such as coal.

Coal, natural gas and oil-based products are currently the primary sources of Australia’s energy usage, despite the fact that 38% of Australia’s total greenhouse emissions stem directly from the coal industry. In the year 2000, Australia was the highest emitter of greenhouse gases per capita in the developed world.

After the Second World War, New South Wales and Victoria began integrating the formerly small and self-contained local and regional power grids into state-wide systems, run centrally by public statutory authorities. Workers were able to confer with one another and pass legislation with the consent and input of the public through these statutory authorities.

Enter the Snowy Mountains Scheme: a hydroelectricity and irrigation complex in south east Australia, sixteen major dams, seven power stations, pumping station and 225 km of tunnels, pipelines and aqueducts. It was largely constructed by European immigrants and is seen by many as “a defining point in Australian history, a symbol of multicultural, resourceful, independent Australia.”

A map of the Snowy Mountain Scheme, not Canberra, top right, and Thredbo, bottom left.

A map of the Snowy Mountain Scheme, note Canberra, top right, and Thredbo, bottom left.

The Scheme generates 67% of all renewable energy in the mainland National Electricity Market and provides approximately 2100 gigalitres per annum to the Murray-Darling Basin, providing additional water for an irrigated agriculture industry worth around $3 billion, representing more than 40% of the gross value of the nations agricultural production

Workers inside tunnels making up part of the Scheme

Workers inside tunnels making up part of the Scheme

The project at the time of it’s implementation was rumoured to be unconstitutional, and eventuated in the deaths of 121 workers. This excerpt from a discussion paper on the Scheme goes into some detail around the political concerns at the time of development and planning:


“Perhaps more daunting than the engineering challenges were the political ones… [then Prime Minister Ben] Chifley saw in the Australian Constitution a simple solution to the bickering that was occurring between the States. Each State wanted the greatest benefit to lie, understandably, within their own borders… There was one ready made solution for the Prime Minister, to invoke the 1909 agreement made between the Commonwealth and NSW, however that would still leave Victoria and South Australia to deal with. However, lurking in the Constitution was a solution, and that was to make the Scheme a national defence issue.

A conversation related by the Governor-General between himself and the Prime Minster summed up the attitude of the day;

McKell – The Snowy is a national work and as Prime Minister I think you should do it as a national work,
Chifley – Yes, but you know I haven’t got the constitutional authority.
McKell – I know you haven’t, but do it. Go ahead and do it. And let’s see what will happen. Don’t forget this Ben, under this Scheme we are going to build generating stations thousands of feet under the earth.
Chifley – What are we going to do that for?
McKell – So the bombs can’t get at them. This is a defence job. This is for the defence of Australia.

Indeed, the Act was introduced into the Federal Parliament under the Commonwealth’s defence power. It was fortunate that the validity of the Act was never challenged, as it would very probably have proved to be unconstitutional. It was not until 1959, ten years later, that the Act was underpinned by appropriate State legislation, with the Snowy Mountains Agreement becoming effective from the 2nd of January 1959. It was during this time of constitutional limbo that the Australian Workers Union secured more favourable working conditions under the threat of a constitutional challenge to the Authorities validity.”


From the same document:

“7. Degree of Public Interest

The possible level of public controversy over the Scheme would be examined under this heading, as well as the possible generation or maintenance of social inequity.”


This is relatively unsurprising except for the obviousness of the language. Statements like these can be found scattered through reports generally only read by rich men whose interests are covered within them.

Tumut 3 Generating Station

Tumut 3 Generating Station

The Scheme, despite being rated by the American Society of Civil Engineers as being a “world class civil-engineering project”, is in the process of being considered for privatisation. In December 2005, the NSW government announced it would sell its 58% share in Snowy Hydro, a publicly unlisted company that operates the Scheme, expecting to yield a billion dollars. This proposal was effectively vetoed by the Federal government in June 2006, by an announcement that the Federal government would no longer sell its 13% stake in the project, which forced the states to follow suit. Interest in privatisation was renewed in Feb 2014, when the National Commission of Audit recommended in its Phase One Report that the Commonwealth sell its interest in Snowy Hydro.

The National Commission of Audit was a commission formed by the Abbott Government on 22 October 2013 as an independent body to review and report on the performance, functions and roles of the Commonwealth government. The Commission has recommended slowing in the increase of the aged pension, an increase in retirement age to 70 by 2035 and the inclusion of the family home in new means testing from 2027. The commission was behind the recommendation of the Medicare copayment, also suggesting cuts to Newstart, NDIS, carers allowances, foreign aid, students, and homeless funding.

In this article over at The Guardian, it’s stated that the NCoA’s “few recommendations that affect revenue would pit states against each other with an ultimate aim of further reducing tax revenue in the hope that there will need to be more cuts to services similar to what has happened in the US over the past 30 years.”

These policy recommendations rest on a foundation of abject mythology. Baseline assumptions in the reports include: Australian governments have a lot of debt, that we are a high taxing country, with big spending from government and large deficits. In reality, Australia’s debt levels are historically small, out of 30 OECD countries only six have a lower net debt to GDP, on top of which we are the fourth-lowest-taxed country, paying around 26 percent in tax. We spend around 25% on average of the GDP, and our budget balance, according to this SMH article, is “around the middle to low end of observations elsewhere in the world at 1.8 per cent of GPD.’


SnowyHydro Discovery Centre

SnowyHydro Discovery Centre

So who are Snowy Hydro?

The mission statement at Snowy Hydro reads: “To deliver superior financial returns by being the preferred supplier of risk management products; developing our people, utilising and developing our water resources, physical assets and dual fuel capabilities, and exceeding customer and stakeholder expectations while demonstrating best practice in safety and health, asset and environmental management.”

Noel Cornish on his yacht

Noel Cornish on his yacht

BlueScope Steel’s former Australian and New Zealand steel manufacturing businesses chief executive Noel Cornish is now Interim Chairman of the Board at Snowy Hydro. Cornish is currently on the board of directors for AIG, or the Australian Industry Group, the purpose of which is to represent business interests. It has ties to the mining industry in the form of a partnership with MESCA, the Mining and Energy Services Council of Australia.

Innes Wilcox

Innes Wilcox

Its chief executive Innes Willox penned an opinion piece on the “bogus scourge of job insecurity”, proposing that the situation does not exist and that it is some kind of concerted effort by “misguided” academics, the Greens and labour unions to pursue restrictions on business. It is clear that Willox, and Cornish, subscribe to a neoliberal ideology and that workers rights are, in their minds, considerably less important than the rights of employers.

“Manufacturers in particular are facing considerable headwinds due to the combined impacts of the strong dollar, intense competition from the emerging economies, a legacy low productivity growth, relatively high unit labour costs and considerably higher energy prices. “While there are very exciting opportunities – particularly in the growing markets of Asia – taking advantage of these will require a new phase of investment and innovation,” Mr Cornish said.

In effect this is a stement that rising pay rates for workers and competition from worker run businesses are considerable challenges to the interests Cornish represents. He seems to advocate moving manufacturing to cheaper third world economies in Asia, undercutting the “relatively high unit labour costs” here in Australia. This seems like business speak for moving jobs offshore until Australian workers are prepared to work for third-world pay at third-world conditions.

It seems that the corporation has sought legal indemnity from any “liabilities” incurred by their members:

Consolidated Financial Report for the Reporting Period 30 June 2013 to 28 June 2014, Page 6, Indemnification of Officers and Auditors:

“During the financial year, Snowy Hydro paid a premium in respect of a contract insuring the directors of the Company (as named above), the company secretary and all officers of the Company and of any related body corporate against a liability incurred by a director, secretary or officer to the extent permitted by the Corporations Act 2001(Cwlth). The contract of insurance prohibit disclosure of the nature of the liability and the amount of the premium.”

Even if there was unethical or illegal conduct going on in the upper levels of Snowy Hydro, it seems in my opinion that there would be no way to prosecute those involved, or to legally request details about the offences.

Snowy Hydro was involved in a court case with the Australian Energy Regulator over claims that the company had contravened aspects of the National Electricity Rules. On the 12th of February 2015 the Federal Court of Australia declared that Snowy Hydro had breached clause 4.9.8(a), “A Registered Participant must comply with a dispatch instruction given to it by AEMO unless to do so would, in the Registered Participant’s reasonable opinion, be a hazard to public safety or materially risk damaging equipment.”

The Court declared by consent that the company had breached these rules on nine occasions in 2012-13, by failing to comply with dispatch instruction issued by the AEMO. On each occasion Snowy Hydro generated more power than the dispatch instruction required.

From aer.gov.au:

“The Australian Energy Market Operator issues dispatch instructions to generators, based on offer prices and other market conditions. AMEO’s instructions ensure supply and demand is safely balanced every minute of the day… Compliance with dispatch instructions is essential to maintain power system security. Market outcomes may also be distorted if these instructions are not followed. Where a generator is advantaged by not following dispatch instructions, one or more other players may be financially disadvantaged.”

It seems, in my opinion, that Snowy Hydro have been testing the waters to see how much they can distort the market without attracting suspicion.


A view of the Snowy Mountains from Perisher

A view of the Snowy Mountains from Perisher

What effect could this have on the environment?

The Snowy Scientific Committee is a key body set up through legislation to advise the governments on how to achieve the greatest benefits from the environmental water. The committee’s existence has come under threat from the NSW government, which wants to reform it into an advisory committee funded by Snowy Hydro. According to Environment Victoria, a document published by the NSW government critiques the SSC for being independent from government (which is, in fact, it’s legislated role), for it’s “inflexibility”, and lack of broad expertise. The report also singled out the single source of the committee’s funding and the focus of the committee on environmental issues as being problematic. This is despite the same report admitting on the first page that “projected water recovery entitlements have been achieved, some substantial environmental releases have been made and the Snowy River is showing signs of improved river health.”

The reshuffled committee would boast, instead of it’s current chair who according to Environment Victoria has expert knowledge of aquatic environments, a chair appointed by the NSW Minister for Primary Industry. It seems to me that this is a way to increase industry influence and potentially drown out environmental concerns about development of the region that stem from the public and it’s representatives.

It is clear from the actions of NSW Premier Mike Baird, who has authorised fracking programs that are likely to not only poison the water supplies that feed into major urban areas of NSW, but also permanently contaminate the enormous artesian well underneath the state, that environmental and public safety are not high on the priority list of the current government. There have been reports of children suffering nose-bleeds in towns and suburbs where the fracking has been implemented. Narelle Nothdurft, a farmer hailing from Queensland, in statements to the ABC, said that “I have 11 children and the little children have nose bleeds along with headaches and a metal taste in their mouth all the time and the noise is horrendous.”

It seems unlikely that a NSW government plan for the Snowy River Scheme will result in much more than expanded profits for corporations and further public health and safety risks for the majority of residents.


This article was originally published on the authors blog, which can be found here.

Privatisation: Just Who Is It For?

New South Wales is following Canberra’s lead in adopting what the Abbott government is referring to as “asset recycling”, which in practice translates to privatisation, securing 2 billion dollars under the deal.

Abbott’s five billion dollar scheme encourages states and territories to sell assists to fund infrastructure development.

The Baird leadership intends to funnel the money garnered from leasing 49% of the state’s electricity network into road and rail projects, though it is unclear as to whether this will actually take place and if it does, whether the decision is in the public interest.

Proponents of privatisation describe it as conferring a multiplicity of benefits to the public by boosting the efficiency and quality of remaining government activities, reducing taxes and shrinking government. The argument rests on the presumption that the profit seeking behaviour of private sector managers and owners will produce ever more efficient, cheap and customer focused services.

We mustn’t forget that the raison d’être of a business is to provide profit. People do not start up or buy a business for the sole purpose of serving the public, that sort of behaviour is more likely to be found in a monastery than in McDonalds. This basic profiteering function of business is primary in capitalist society, and we often see that rather than being customer or human centric, the businesses that make it to the big time cut corners when it comes to ethics and the treatment of their employees and customers.

It is not unreasonable to assume that the same profit hungry managers and owners the evangelists of privatisation refer to may have no second thoughts about implementing practices that make service unaffordable to large segments of the citizenry. Profit seeking organisations may decide that spending on the disabled or the poor is money wasted, and those affected may find it far more difficult to seek accountability than they would were the services government owned.

It is worth noting that efficiency is not the only goal of services like electricity, healthcare and water. One must also take into account quality, ease of access and sustainability when building a picture of what a successful service should look like.

Privatization was billed under Jeff Kennett’s Victorian government as leading to a more efficient and productive industry, passing on the savings to consumers. Despite Kennett’s comments to the contrary, electricity prices in the state have remained consistent with non-privatised states, only falling below the mean between 2004 and 2008.

There is evidence that companies running Victoria’s electricity services increased prices by up to 175% for “off-peak” periods, a decision which affects a sizeable portion of the populace who conduct their business during those times, perhaps the most notable example being agriculturists and farmers.

The notion that productivity would increase under privatisation has fallen apart, with the industry becoming an anchor on national productivity since the turn of the century. The private sector’s tactic of employing a higher percentage of managers and salespeople has contributed to further bureaucracy rather than having the intended effect of streamlining the industry.

Selling off government assets is typically coupled with the promise of the revenue being funnelled into new and needed infrastructure such as roads and rail networks, however the promise does not always carry through to reality. Economist John Quiggin noted that investment in infrastructure did not occur in Queensland under Bligh’s leadership despite almost ten billion dollars being made from the sale of government assets.

A 1991 report from the Harvard Business Review raised three key conclusions on the issue of privatisation that may help us frame the issue a little better:

1. Neither public nor private managers will always act in the best interests of their shareholders. Privatisation will be effective only if private managers have incentives to act in the public interest, which includes, but is not limited to, efficiency.

2. Profits and the public interest overlap best when the privatized service or asset is in a competitive market. It takes competition from other companies to discipline managerial behavior.

3. When these conditions are not met, continued governmental involvement will likely be necessary. The simple transfer of ownership from public to private hands will not necessarily reduce the cost or enhance the quality of services.

There are hidden costs of privatisation rarely spoken of by the politicians and their friendly counterparts in business. When a public service is privatised, much of the time employees are paid less on average and lose their existing benefits. On the surface this seems like a saving, but the costs of poverty and ill health must fall somewhere, and it seems it’s generally into the waiting arms of another state agency. The profits increase for those at the top of the pyramid, and those underneath carry an ever-increasing burden to support them.

It is also unclear as to whether privatisation actually does save governments money, with a study by the Project on Government Oversight finding that in 33 of 35 occupations, using contractors cost the United States Federal Government billions of dollars more than using government employees.

This seems yet another example of cosy relationships between politicians and businessmen taking priority over the wellbeing of the public. A more thorough, nonpartisan investigation into the history of privatisation in Australia, a cost benefit analysis and a public debate over the issue would go some ways to clarifying the relationship of privatisation to the people it affects.


This article was originally posted on the author’s blog, which you can find here.

Has privatisation passed its use-by date?

On Q&A last Monday, RBA board member Heather Ridout expressed her disappointment at the decision by the voters of Queensland to reject the Newman government’s privatisation plans.

Whether it has been noticed or not, that election result coupled with the recent elections in Victoria and Greece share a common denominator that may have far reaching ramifications for future governments all over the OECD world.

The Victorian and Queensland elections were fought primarily on the issues of infrastructure and privatisation. There were other issues in the background but these two took centre stage for most of their respective campaigns.

If you were to combine these two issues and express them as one broader concern for voters, it is likely that concern would be identified as sentiment; a feeling that selling off assets and allowing private companies to buy public utilities that result in costing users more, wasn’t right.

Austerity has been the catch cry in recent times with governments telling us that our present lifestyle is no longer sustainable. They then encourage the privatisation of public assets as if this somehow benefits us.

moneyWhen politicians look at publicly owned assets, all they see is a pile of money sitting there waiting to be collected. They think if that pile of money can be realised without effecting the service it performs, then why not sell it and spend the money on something that will make them look good.

They then try to sell the idea to the public who are led to believe that this will improve their lives and those of future generations.
But it never seems to work out this way. We have seen public assets pass from our hands into the hands of the already wealthy time and time again, without ever seeing any tangible reward.

Has the sale of Telstra, the Commonwealth Bank and the State Electricity Commission of Victoria, just to name a few improved our quality of life?

Looking at the result of these three elections it is worthwhile asking: Are we seeing a wiser electorate waking up to the hypocrisy peddled about privatisation?

In Greece, a country that has been cheated, lied to and then forced to pay the price of neo-liberal excesses by both their own government and the EU Parliament, the people decided enough was enough.

Again, it was sentiment, a feeling they had been punished enough, if indeed, they should have been punished at all. In all three locations the people judged privatisation, austerity and structural reform to be a smoke screen hiding the real agenda behind these moves.

That is not to say the people’s understanding of the real agenda is crystal clear either. But they do understand that the flow of wealth to the top end of town, at their expense, is real. Public assets are generally always undervalued.

powerThey could clearly see that their living standards were in decline while politicians, developers and corporate giants effused a smug arrogance reminiscent of the Frank Underwood character in “House of Cards”.

They decided in all three cases they weren’t going to take it anymore. It begs the question therefore: Is the public perception of neo-liberal philosophy now clearer and are the people finally beginning to reject it?

Unregulated capitalism has always been at odds with those basic human values that we hold in common; fairness, honesty, sympathy, charity, empathy. The notion that people come before profit, was somehow cast aside when the money train left the station and big capital promised big rewards for all; rewards they never intended to share.

If we can take a lesson from Victoria, Greece and Queensland, it is that big capital will have to re-assess the way it treats its most valuable resource: the people who make it work for them.

capitalThe challenge for the new governments in Australia now, is to explain this to big capital.

But if our local business writers continue to suggest as Adele Ferguson of The Age does that, “With an infrastructure backlog and big budget deficits, we can build the infrastructure we need only by selling assets and attracting private capital”, then there is still a long way to go.

Meanwhile, more governments will fall unexpectedly because they ignored public sentiment in favour of private gain.

 

Profit before people

The Abbott government’s economic policy is predicated on the assumption that any increase in the boss’s profits equals a corresponding increase in the workers’ wages – “a rising tide will lift all boats.”  This assumes that the ratio between the share of GDP going to labour and that going to capital always remains constant, something that is not the case as we see the proportion of GDP going to wages dropping around the world.

In the USA, the last 30 years has seen a reduction from 70% to 64% of GDP taken by wages. Meanwhile Norway and Sweden, held up as models of “responsible” capitalism, have seen labour’s share fall from 64% to 55% of GDP and 74% to 65% of GDP respectively since the 1980s.

Wages and profit are closely interlinked because they are both paid out of the same pot – the nation’s GDP. This means that for a boss to increase his profit, the workers must lose out on wages, and vice versa. It’s not possible to increase profits without decreasing wages, and it’s not possible to increase wages without decreasing profit.

Corporations, pushed by their constant hunt for profit and their own internal competition, will always attempt to expand their share. This can be done through direct attacks on wages or by cutting welfare, increasing wages below the inflation rate etc. The workers on the other hand, have an interest in struggling to defend and expand their working conditions and standard of living in the face of constant attacks.  The result is trade unions and workers’ movements that fight for the minimum/living wage etc, and bosses who fight for less regulation of employment conditions, and smaller pay increases.

Trade unions have lost a lot of the power that they once had 30-40 years ago, a direct result of the sustained attacks on unions by the powerful elite and media over that period. The result is that economic power has shifted in favour of capital, and away from labour.

Bosses, desperate to drive down wages to make bigger profits, turn to cheaper and less regulated labour in the developing world as a method for raking in higher profits and putting pressure on workers in developed countries to accept a lower wage. As Gina warns we beer drinking, cigarette smoking bludgers, Africans are happy to work for $2 a day in the mines.

By pursuing ever greater profits they inevitably drive down wages through automation and by access to new sources of cheap labour on the world market. The problem is that wages also make up the demand which keeps businesses afloat. With less money in the pockets of wage-earners, fewer commodities can be purchased and so less profit can be made.

The short-sightedness of capitalists trying to make as much money as possible out of each investment with no thought for the future is a fundamental feature of the system. If one business passes up an opportunity to make loads of money through greater exploitation of workers or the environment, another would seize the chance to make the profit and put its competitor out of business. This is the nature of capitalist competition – they cannot afford a long-term perspective.

Coalition governments are advocates of increased privatisation of public services. It’s true that privatisation often brings profit to the new private owners and those rich enough to afford shares in the business, but it is also true that privatisation brings worse wages and conditions for the employees of the newly privatised business. The reason why private ownership of businesses increases profit is because these owners curtail services and force down the wages of all the workers in order to pay the handful of people at the top obscene salaries and bonuses.

Developments in technology and innovation have automated huge numbers of jobs thus leaving correspondingly huge numbers without work or with a lower wage. If businesses were to invest in the education and training of highly-skilled workers they would be able to increase productivity, design new products and machinery and boost productive capacity overall. This, after all, is the point of any investment in a business.  Instead we see sackings, closures and restructuring as business tries to produce less in order to maintain their profits.

Over 160 years ago, Karl Marx said that the “bourgeoisie is unfit to rule because it is incompetent to assure an existence to its slave within his slavery, because it cannot help letting him sink into such a state, that it has to feed him, instead of being fed by him.“

Capitalism has developed to a point where technology and globalisation, phenomena that have the potential to improve the lives of all people hundreds of times over, are actually making the lives of wage-earners worse. It has reached a stage where we have the capacity to educate and train people, produce and build everything we need, and give everyone a decent standard of living. But we’re not able to realise this potential because of the unrelenting pursuit of profit.

The impoverishment of the masses and the concentration of wealth and capital in the hands of a small minority is a growing problem and as long as the right of private ownership to the means of production exists, and governments move further away from regulation, this process will prevail.

Tony Abbott’s entire approach to governing is textbook Capitalism, from his attack on penalty rates, the minimum wage, and unemployment benefits, his refusal to give industry assistance (unless you are a fossil fuel producer), privatisation of public assets, deregulation and removal of “green tape” (aka environmental protections) – every aspect is a short term grab for cash dictated and ruled by the “market”.

Oh for a government that had the courage to protect its people with a long term plan for general prosperity and well-being instead of a smash and grab raid for your rich friends.

Oh so predictable

In December last year, before the government released MYEFO or the budget giving credence to the agenda we all anticipated with dread, before we repealed the mining and carbon taxes, before we went to war or started selling everything we own to lay thousands of kilometres of bitumen, when I was much more scared of Abbott than anyone in a burqa (still am..by far), I wrote an article about the role of government.  It was largely based on an essay that I had read titled Responsibilities of Government.

After twelve months of an Abbott government, and considering where we are at now, I would like to revisit what I considered important at the time.

“The government of a democracy is accountable to the people. It must fulfil its end of the social contract. And, in a practical sense, government must be accountable because of the severe consequences that may result from its failure. As the outcomes of fighting unjust wars and inadequately responding to critical threats such as global warming illustrate, great power implies great responsibility.”

“The central purpose of government in a democracy is to be the role model for, and protector of, equality and freedom and our associated human rights. For the first, government leaders are social servants, since through completing their specific responsibilities they serve society and the people. But above and beyond this they must set an ethical standard, for the people to emulate. For the second, the legal system and associated regulation are the basic means to such protection, along with the institutions of the military, for defence against foreign threats, and the police.”

“Government economic responsibility is also linked to protection from the negative consequences of free markets. The government must defend us against unscrupulous merchants and employers, and the extreme class structure that results from their exploitation.

Governments argue that people need to be assisted with the economic competition that now dominates the world. But the real intent of this position is to justify helping corporate interests . . . siding against local workers, consumers and the environment.”

“Another general role, related to the need for efficiency, is the organization of large-scale projects. It is for this benefit that we accept government involvement in the construction of society’s infrastructure, including roads, posts and telecommunications, and water, sewage and energy utilities. Further, giving government charge over these utilities guarantees that they remain in public hands, and solely dedicated to the common good. If such services are privatized, the owners have a selfish motivation, which could negatively affect the quality of the services.

That such assets should have public ownership is expressed in the idea of the “commons.” They should be owned by and shared between the members of the current population, and preserved for future generations.”

“Indeed, while we of course still need a means of defence, including against both external and internal (criminal) aggressors, it seems clear that our greatest need for protection is from other institutions and from the abuses of government itself, particularly its collusion with these other institutions. (Many of the needs that we now have for government are actually to solve the problems that it creates.)”

It didn’t really need a crystal ball to predict our demise. Is there any hope to inform the electorate in time to avoid repeating the mistake of 2013?

 

Our Future

I do not profess to being an investment whiz or understanding all the nuances of government finance, but I am good at managing a budget and I have a few queries about our current strategy.

Let’s start with the Future Fund.

The Future Fund was established by the Future Fund Act 2006 to assist future Australian governments meet the cost of public sector superannuation liabilities.  Investment of the Future Fund is the responsibility of the Future Fund Board of Guardians with the support of the Future Fund Management Agency. The Board and Agency also invest the assets of the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund which were established by the Nation-building Funds Act 2008.

The 2013 budget stated that:

“the portfolio of assets has performed well, given the extent of uncertainty and volatility in financial markets over the past five years. Since the effective start of the investment program on 1 July 2007, the Future Fund has generated a nominal return of 5.6 per cent. Since the first contribution to the Future Fund on 5 May 2006, the return has been 5.7 per cent per annum.

At 31 March 2013, the Future Fund’s return for the financial year to date was 10.6 per cent.”

A press release on 13 June 2014 further stated that:

“The Future Fund has generated a return of 7.0% per annum since its establishment, adding around $40 billion to the portfolio which now has a value of $100 billion.”

It is interesting to note that the underlying cash balance in the budget (ie the deficit) does not include net Future Fund earnings, so we are actually better off than they let on.

As at 31 March 2014, these funds contained:

$97.57 billion Future Fund assets

$3.87 billion Education Investment Fund assets

$4.09 billion Building Australia Fund assets

$2.47 billion Health and Hospitals Fund assets

The 2014 budget informed us that the Health and Hospitals Fund will be dismantled and replaced with a medical research fund paid for by GP co-payments and increased PBS co-payments.

Further, the Government has committed $5 billion to provide financial incentives over five years to the States and Territories to sell assets and reinvest the sale proceeds into additional productive infrastructure.  The Asset Recycling Fund will be set up on 1 July 2014 to facilitate the Government’s investment in new infrastructure. It will include unspent funds from the Building Australia Fund and Education Investment Fund, and proceeds of the sale of Medibank Private and other possible privatisations.

“The Government has announced the sale of Medibank. It will continue selling assets where no compelling reason for government ownership exists with scoping studies to be undertaken into the ownership of Australian Hearing, Defence Housing Australia, the Australian Securities and Investment Commission Registry function and the Royal Australian Mint. The proceeds from future privatisations will be reinvested into the Asset Recycling Fund for new productive infrastructure.”

This money is being committed to an expansive road building program.

Projects getting the green light include:

• Fast-tracking $2 billion to accelerate stage two of Westconnex linking Sydney’s west and south-west with the CBD, Sydney Airport and Port Botany

• Roads for second Sydney airport, $3.5 billion

• Extra $1.5 billion on top of the existing $1.5 billion commitment for the East West link in Melbourne, with an anticipated 6000 jobs created.

• $944 million for Adelaide’s North-South corridor

• Perth – $1.6 billion freight-link package in partnership with the private sector

• Brisbane’s gateway motorway, no figures provided

• Northern Territory – Tiger Brennan Drive $70 million and $523 million in NT road improvement

• Tasmania – $400 million investment in the Midland Highway.

The splurge continues over the next decade to include duplicating the Pacific Highway between Newcastle and Queensland and an upgrade of the Port Botany Line in Sydney, but there are no figures.

A further $550 million is being committed for the Roads to Recovery and Black Spot Programmes, on top of the $2.5 billion previously committed.

Many of these projects are going ahead with dubious or no published cost benefit analyses, inadequate environmental impact and productivity surveys, and little consideration for the coming peak oil crisis.  The business case for Westconnex, for example, states:

“While the prospect of peak oil is emerging, vehicle technologies are rapidly progressing with vehicles powered by alternative energy predicted to reach mass market production in the foreseeable future. While this may shift demand away from fossil fuels, it is unlikely that the demand for travel will reduce sufficiently as consumers adapt to alternatives and hence travel demand on our major road network is likely to remain.”

They give little evidence to back up this claim.

So this brings me to my question.

The current government bond rate is between 2.57 and 3.8% depending on the term (2 to 15 years).  If the future fund has generated a return of 7.0% per annum since its establishment, and 10.6% in 2012, why aren’t we borrowing and investing more?  Why are we taking money out of the Health, Education and Building Australia Funds, which are earning us a good return, and selling off profitable assets, to build roads?  It seems to me that investing would bring us a greater return which could then be spent on the things we need.

If we are so worried about our interest payments, why not use some of the future fund to pay for guaranteed productivity enhancers like the NBN instead of borrowing the money?

And as far as future superannuation liability for public servants is concerned, this can be fairly accurately predicted and we can always issue more bonds should we need to.

Building roads may employ a few people in the short term, but if it is at the cost of investment in health, education, the environment, public transport, renewable energy, and the sale of assets, one has to question the advisability of such a move.  Couple that with heavy expansion of coal mining and we could end up with a whole heap of roads to nowhere creating heat islands in the suburbs, and stranded assets as the world moves away from fossil fuels.

In June 2013, the Greens started a new campaign to push the Future Fund to stop investing in coal companies.  Greens leader Christine Milne says up to $3 billion of the, at that time, $83 billion fund is invested in coal, which she describes as a “risky investment”.

In February last year, a Senate Committee was told that the Future Fund also had investment in cigarette and tobacco companies worth $221 million. Under pressure from the Greens and health groups, the fund decided to get rid of its investment in tobacco companies.

Joe Hockey was right when he told the Kiwis that our economy is in good shape and that we have no debt or deficit emergency, but it seems to me our investment strategy and asset management could do with a rethink.  It’s our Future Fund and it should be used for our future.

Selling the Golden Geese

Image

Image by author

Roll up, Roll up, Round two of the Great Howard Fire Sale is here!

We’re under New Management, so let’s have a look at what we have on the block today.

We’ve got Medibank, ACS, AGS (don’t worry about acronyms, we’ll get to them later), Australia Post, Australian Rail and state power companies.  Get your bargains here!

The Liberals and Nationals have wasted no time setting up shop again in the temple.  Apparently not satisfied with the billions of public assets sold under the Howard/Costello stewardship, the new government is looking at selling off anything that even appears to compete with private businesses, regardless of any contribution to the public good or the public purse.

Sales of public assets are often touted as solutions to a debt crisis.  The reality is they are a sugar hit for politicians to improve their numbers, and corporations to receive handouts from the public purse.

One thing always missing from the conversations about debt and privatisation is the public interest. For example, was it truly in the public interest to sell Telstra’s copper infrastructure, our major airports, or most of our gold reserves?

Public assets are historically undervalued, and when sold often undergo massive downsizing and service retractions.  In the brave new world of asset stripping and collateralized debt obligations the Australian public needs to take a closer look at what Public Corporations are, what services they provide, what they represent, and what impact their sale would have on the current shareholder… the Australian public.

ACS pty ltd
Formerly known as the Australian Submarine Corporation, this is the primary naval defence contractor for the nation, responsible for the ongoing maintenance of the Collins class submarine fleet, and is currently building our next generation Air Warfare Destroyers.

The company engages thousands of people and businesses, mainly in South & Western Australia, and took many years and billions of tax-payer investment to build it to its current capability.

A quick look at the annual report for 2013 shows that in addition to maintain and building our defence capabilities it made a reasonable return and now holds over $619 million in assets:

Return on equity         4.2%
Dividend                      $8.9 Million
Paid taxes worth         $3.2 Million

This company is a monopoly.  It is the only company in the nation capable of building military class naval vessels and the only one who can service our submarines.  This means any changes of ownership will have a direct impact on our national security.

No other company will ever be able to compete with ACS due to the massive infrastructure investment required.  How can a government put a sale price on that kind of leverage?

If the sale does go ahead, how convenient that ex-Indi rep Sophie Mirabella has been given a golden parachute to corporate boardship.   One wonders which of the large foreign defence contractors would end up owning our naval fleet capabilities, and what Mirabella’s position would be on national security versus company profits.

AGS
The Australian Government Solicitor provides legal advice to the government; it was established at Federation and set up explicitly to act in the national interest.

This is a legal practice wholly owned by the commonwealth, which has access to some of the deepest policy secrets of the government.

The AGS website proudly proclaims that it beats private firms due to its knowledge and experience of government work. The sale of the firm would be a wholesale delivery of a huge amount of expertise and knowledge into private hands.  How can there be a meaningful price tag attached to the information bank, integrity & goodwill belonging to this firm?

The high potential for conflict of interest or corruption gives pause enough.  And given that the beneficiaries would only be lawyers able to charge the tax-payer higher rates for their services; how would it be in the public interest to sell?

Australian Rail Track Corporation Ltd
Responsible for over 8 thousand kilometres of interstate rail, the ARTC was established as a single entity for business to contact to arrange freight by rail throughout Australia.  Such was the importance placed on the rail that carries our mining and farming products to port, that both state and federal governments agreed to establish the integrated body.

Privatisation of rail has failed in the UK, with service cuts, fare hikes, and under-investment in infrastructure.  A situation many in Australian urban centres would be familiar with.

Similar stories of sales or deregulation of freight & mass transit exist all over the world.  In the USA the iconic Greyhound bus service now completely gutted thanks to deregulation and forced to cut services to thousands of rural towns.  The cities fare no better, with large cuts to bus & rail that disproportionally impact on low-pay workers.

Land and agricultural resources are vital to the Australian economy, this puts rail infrastructure into the ‘national security’ category.  To sell the ARTC, most likely to a foreign multinational, is to put our future prosperity up for ransom.

Medibank Private
The sale of Medibank is apparently justified by the fact that it is competing with private businesses.  The same argument could be made that Police are competing with private security firms, so should we be selling the police as well?
Medibank covers 29% of the Australian market, or approximately 3.8 Million people.  There are few health insurers who would not want a piece of that pie.  The annual report is positively glowing:

Return on equity         15.4%
Dividend                      $450 Million
Paid taxes worth         $82 Million

As part of servicing a public need Medibank launched AHM, the only insurance that actually spells out (literally in black & white) what cover you need to avoid the Medicare levy, and to stop the Lifetime Health Cover age tax.

Medibank is not a drain on the public purse; it is a leader and award winner in promoting community health; and a leader in the insurance community for high standards.

Finally, it is paying millions of dollars every year in dividends into the public purse.  Given the constant cat-calls for government to be run like a business, it is surprising that there should be opposition to a government property that is making money… for the government.  The only argument for selling Medibank is ideological, as there is no benefit to the public interest.

Australia Post
On the one hand the Liberals and Nationals want the local postie to process your Centrelink forms, on the other they want to sell it.

Given that the coalition wants to shut down the Clean Energy Finance Corp, which is currently earning the tax-payer $200 million per year. It is perhaps unsurprising that they also want ape their UK Tory counterparts who forced a partial privatization of the Royal Mail in the UK in spite of increasing profits.

Some articles are already inserting misinformation about Australia Post having an “ailing bottom line”, the same tactic used by the UK Tories.  The reality is Aus Post paid a massive 18.5% return on equity last year, all “during a period when addressed letters are declining”.

Compare this to the struggles of U.S. Mail.  Some have been arguing that the problems at U.S. Mail are due to unions and no lay-off clauses.  The reality is that the organisation has been reliant on low-skill, low-pay workers to keep overheads down and failed to automate or innovate. In addition U.S. Mail has to contend with government laws that prevent managers making sensible business decisions to restructure or diversify their business base.

This is the success of the Australia Post Corporation; it continues to deliver it’s regulated community service obligations while turning a profit. It has shaken off the assumption that it was an out-of-date institution and built itself into a truly modern business that is making serious money for the tax-payer:

Return on equity         18.5%
Dividend                      $243.7 Million
Paid taxes worth         $447.3 Million

Australia Post is another huge monopoly, with massive infrastructure and service commitments. Regional Australia and many urban communities rely heavily on their post office for far more that buying stamp or sending parcels.

When you read current CEO Ahmed Fahour commenting that community service obligations are ‘stifling’ business, it is easy realise that after privatisation regional and ‘unprofitable’ services would be the first items to be stripped bare.

As illustrated above, ideologically driven arguments for privatisation do not balance when weighed against the Public Good.  Interest rates for government loans are at historical lows so debt hysteria is completely invalid.  And why sell money-making enterprises that will assist in paying back the debt?  Why sell the golden geese?

An interesting attribute that is common across all of these commonwealth companies is that they are flagships in their arenas.  This is because they serve a public need and are capable of having long-term goals beyond mere money making.  These public bodies create new markets and build new products & innovations that private enterprise does not have the courage or resources to accomplish.

The entire premise of establishing a public corporation is to allow essential services like remote mail services, or secure rail transport, to be funded by the profits from the corporation’s unregulated activities.  Australia Post is a classic example; in 2013 regulated services lost money, other services covered the loss and made a profit overall.  The original NBN Co was another; it planned to use profits from urban areas to subsidise connectivity in Regional Australia.

Far from being a two-step process toward privatisation, public corporations need to be maintained as fiscally responsible ways for government to provide for the needs of the nation and spurring innovation, while giving private businesses the opportunity to benefit from new markets and reliable delivery infrastructure.

The corporations and political enablers that prey on these public assets do not care about the base-line services that they provide, only in the short-term profits that they can cleave.

Before Australia sells off its hard-bought Tax-Payer assets, perhaps we should take a closer look and see why private corporations are so eager to get their hands on them.

Privatisation: Coming to Public Schools and Hospitals Near You

Here is @KayRollison’s latest rant, I mean, post.

Usually it’s nice to be proved right – but not when you’re proved right about something as bad as this. I’ve been saying for some time that an Abbott government would have a much more right wing, neoliberal, or just plain nasty agenda than some people seem to think. And here we are, seeing an example of a right-wing privatisation agenda played out in Queensland for our edification. There is no doubt that this is the same path Abbott would love to take this country down.

One of the reasons sometimes given for the premise that an Abbott government would be essentially inactive is that the right wing agenda of small government has run its course – there’s hardly anything left in government hands to privatise. But anyone who thought that is mistaken. Not only is there Medibank Private and Australia Post, there’s all those services left to outsource, like education, health, and disability.

Abbott and Newman probably didn’t figure out for themselves how to push the boundaries of outsourcing further than asset sales. They didn’t need to – their Conservative mate David Cameron in Britain has been showing them the way. This article in The Guardian describes what is happening there as the creation of a ‘shadow state’; all the real state’s substance is being eaten away by outsourcing of what should be its core functions, in favour of an unaccountable, corporate, copy of a state. ‘The winners are private equity and shareholders. The losers are the low-paid and the vulnerable. And in the end we all pay,’ writes Zoe Williams. Here are some of the issues she raises; I’ve expanded on them a bit.

  • Outsourcing is based on the principle that private provision is always more efficient than public provision. This is an article of neoliberal faith, not an evidence-based assessment. It is rarely true, unless you put the bar of what constitutes ‘efficient’ very low, and forget about ‘effective’ altogether.
  • Efficiency is always defined as doing more with less. Services deal with people, and the only way of doing more with less is to process more of them in less time, or get rid of them altogether off the books. There’s often an incentive system, based on how much you’ve reduced your case load by. In non-efficiency speak, that means dealing less effectively with people’s needs by shorter consultations, being more impersonal, and making the service more regimented and rule bound. And it’s not like there’s competition within a service – the consumer can’t shop around. They’re stuck with the company that’s won the contract.
  • Services must now make a profit – why else would they be attractive to private enterprise? Other than greater ‘efficiency’, the main way to make profit is to cut costs – which in this case means wages. Government employees (in Britain, often local government employees) lose their jobs, and a lucky few of them get re-employed at lower wages with worse working conditions, probably as casuals with no job security.
  • Competition is supposed to push down costs. But Williams explains that contracts are written so that only the largest firms, like Serco, Liberata (love the name) and Capita are able to tender – we’re talking billions here. ‘And when they say competition,’ she writes, ‘what you’re actually left with is four or five – sometimes only three – companies, who barely compete with one another at all but instead operate as an unelected oligarchy.’
  • There’s no accountability. The government is no longer responsible for providing an effective service. The company won’t disclose any information; everything is ‘commercial in confidence’. If things go badly enough wrong, the government may have to break the contract – and pay for the privilege of doing so. So it’s lose/lose for the taxpayer as well as the ‘consumer’ of the service. The failed privatisation of Modbury hospital in SA is an instructive local example.

What Williams describes is an excellent example of the operation of a market society as opposed merely to the market economy we already live in. In a market society, the only human role is as an individual consumer. Getting the services you need becomes your particular responsibility, rather than the responsibility of the state. In Britain they talk about the ‘welfare market’. Says it all, really.

Image by cultivatingwealth.com

Image by cultivatingwealth.com

Privatisation is, of course, already quite advanced in Australia. However most of what has been outsourced so far has actually involved something physical, like buses (Serco here in Adelaide), or water supply.  Not much by way of human services has been privatised. Prisons are arguably a human service, and there are already some private ones –Serco again, and GEO Group (a subsidiary of an American company.) The old Commonwealth Employment Service, which was definitely a human service, was privatised by the Howard government. But outsourcing human services is not a road we have generally taken – until now.

The Queensland Commission of Audit, chaired by none other than Peter Costello, has now delivered its final report on ‘ensuring value for money in the delivery of front line services’, which is not very good code for ‘what other government services can we outsource’. Unsurprisingly, it recommends a massive sale of assets including electricity providers Energex and Ergon, and seven government-owned corporations, including the Queensland Investment Corporation, and SunWater. Queensland obviously has some catching up to do; most other states have already sold off such assets. But LNP thinking on privatisation in Queensland goes further – just like the British Conservatives. Over the last few days, we’ve seen press releases announcing that private companies will build and maintain 10 Queensland state schools, that all prisons will likely be privatized (with fewer staff per prisoner) and that the delivery of a range of health services will be through private and not-for-profit health providers and partnerships. (I’m sure it’s just a coincidence that Ramsay Health Care donated $100,000 to the Liberal Party last year.) So you cut the public service, as Premier Newman has done, then say that services can be better delivered by the private sector. This complements the ideological agenda of asset sales, and has the added advantage of undermining the power of the public sector unions and thus the Labor Party. A win all around for the LNP. And all announced after the election.

Abbott shares Newman’s love for privatisation. He’s even copying Queensland’s post-election audit commission. Not much left to privatize? Don’t be deceived. They’ll be eying off all those (by definition) inefficient government services. And it’s hard to unscramble an outsourced omelette. By the time we get another Labor government, the damage to the state and its citizens will have been done.

By Kay Rollison

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