Academic journal article The Economic and Labour Relations Review : ELRR

Privatisation, Myopia and the Long-Run Provision of Economic Infrastructure in Australia

Academic journal article The Economic and Labour Relations Review : ELRR

Privatisation, Myopia and the Long-Run Provision of Economic Infrastructure in Australia

Article excerpt

Introduction

The onset of the global financial crisis in 2007 has been transmitted into the economy as a slowdown in consumption, investment, growth and employment in Australia. In this context, it is timely to revisit the validity of the arguments for privatisation and outline the impact of the extensive program that started in Australia in the 1980s, accelerated in the 1990s and still continues (Aulich and Wettenhall 2008: 57). It is important to assess whether the justifications for privatisation continue to have validity in terms of the outcomes of the policy. A key issue is whether new public infrastructure investment will extend policy horizons beyond short term market considerations; whether it will avoid some of the direct and regulatory costs of the previous policy and crucially, if it will lead to the injection of new investment with a long term benefit at a crucial time in the economic cycle, to help sustain employment and economic growth.

This analysis will show how the program of privatisation changed the policy priorities of governments, from the long-term provision of public infrastructure to underpin development, to the short-term goals of the realisation of budget surpluses, the retirement of debt and the realisation of short-term efficiency gains in the delivery of services. Privatisation has been successful, to some extent, in achieving these short-term financial goals, but it has also increased the longer-term costs and also the complexity of regulatory supervision required in the establishment and administration of new quasi (managed) markets for public services. In the process, privatisation has entrenched new monopolies in the Australian economy and undermined the legitimacy and role of new public investment in infrastructure.

Over twenty years have now elapsed since the start of the program of privatisation in Australia. The monetary impact of the program has been valued in terms of the sales of government business enterprises (GBEs) alone of $113b between 1990 and 2007 (Chester 2007). If other forms of privatisation like contracting-out of public services and the use of public/private partnerships are taken into account, the actual value is significantly higher than this amount (Aulich and Wettenhall 2008: 68). Other impacts of privatisation, such as its effects on the regulatory framework, pose important challenges to the maintenance of acceptable standards of governance, accountability and transparency in governments in Australia (Johnson 2007). These concerns are not only issues in the provision of infrastructure but extend far beyond it, to reflect the changing role of the state (Chester and Johnson 2006).

To manage the effects of privatisations, successive governments have built an extensive, complex, costly new regulatory framework to govern entry and exits from new markets, investment and prices. The consequences have been mixed. They include the provision of some new services, regular government budget surpluses at both the State and Commonwealth level and a reduction of public debt. They also include an increase in private debt and a significant and growing under-supply of new infrastructure investment by both the public and private sector. It will be argued that this under-supply of infrastructure is generated by a myopia in policy making created by the process of privatisation. This is likely to become more important as governments urgently seek short-term domestic economic policy solutions through public investment in infrastructure, to the challenges of maintaining growth and development in Australia in the current economic environment.

While there have been many academic studies, interest group papers and government reports advocating the major program of public sector infrastructure privatisation, studies evaluating the cost and longer-term effects have been much less common. The studies that have been undertaken (Wettenhall 1999; Privatisation, Myopia and the Long-run Provision of Economic Infrastructure in Australia 59 Walker and Walker 2000; Considine 2001; Collyer et al 2003) have provided important insights into the transaction costs of the privatisation program and the impact on services. …

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