Privatisers shoot themselves in the foot

By June 4, 2017Australian Politics

Privatisation is the alpha and omega of the neoliberal bible: Government is bad, Business is good. According to the tenets of neoliberalism, markets, when freed from state interference, are the most efficient and most moral way of providing goods and services to society. Although, most neoliberals (except perhaps for the Institute of Public Affairs) have a limited role for the state in enforcing the law, and in providing a social safety net, they generally argue for a dramatic reduction in state provision of services in Health and Education, and a significant reduction in the regulation of corporate power. This is commensurate with their call for an extreme cut to government spending1. The irony in this philosophy is that it requires the state to construct, regulate and maintain the neoliberal economy. This irony was fully on display in the Thatcher regime, which on the surface appeared to be a deregulating regime, but required the state to regulate its implementation and maintenance; this lead to an extensive reregulation of economic activity1.

Neoliberal economics has in Australia, as in almost all English-speaking western democracies, come to dominate policy-making over the last 30+ years. It has often been assumed that neoliberalism arose as a solution to the world economic crisis of the 1970s. It did not. What happened was that the crisis provided “the context for the mobilisation by … capital in an attempt to shape state policy making in their own interests. This neoliberal power bloc actively pursued the dismantling of key institutions, social functions and the welfare state. It was not just aimed at increasing capital profitability, but was also aimed at diminishing the power of organised labour. This has been characterised as the historic victory of capital over labour”1. As we have seen with the recent ‘show-trial’ Royal Commission into Trade Union Governance and Corruption, this aspect of the neoliberal project is still trudging onwards.

Neoliberalism has delivered enormous profits to the corporate sector, but has failed to deliver anything of worth to the general populace. That is in part because, while it may argue for smaller government, it is mostly about organising the state to serve the interests of capital rather than the general populace1.

A prime example of the failure is the privatisation of the electricity grid. There was little or no popular discontent or populist uprising regarding shortcomings of the electricity grid. It worked as well as it could be expected to do. However, it was the Business Council of Australia (BCA) which formed an electricity task force to “provide a leadership role to support and achieve reforms in the electricity industry, thereby assisting Australian enterprises in becoming internationally competitive”1. Unsurprisingly, the BCA persuaded the government to direct the Bureau of Industry Economics to undertake studies (funded by the BCA) comparing Australian services with the best from overseas. Of course, there were some shortcomings identified and the BCA recommended allowing competition in the electricity market, and that at least some of the government enterprises should be sold to the private sector1. This was also ably supported by the proliferation of corporate-funded think tanks that wrote copious reports with the same aim.

Business was also critical of community service obligations of the state electricity systems whereby uniform tariffs across the board, were designed to effectively cross-subsidise remote-area customers. Business didn’t like this and one report by, among others, the IPA estimated that businesses were overcharged by 28%. This, they stated, was impeding ‘competitiveness by distorting service provision’1, the archetypal neoliberal statement. Of course, these statements ignored the improving efficiency of the existing system. As an example, the State Electricity Commission of Victoria had undertaken reforms and had cut electricity prices by 3% every year from 1985 (to 1991)1. The aim of this privatisation was to shift the costs of electricity onto the householder, thereby subsidising electricity costs for business.

Although generally unpopular with the general public, privatisation was wildly popular within the business community, so most state governments pressed on with it. Perhaps the most egregious example was the Olsen government in South Australia, which had been re-elected in 1997 after promising not to privatise its electricity. Within weeks, it reneged on that promise1. The reason state governments found it attractive was because it promised a large, if short term, influx of cash into state coffers, and as many states had a significant debt, it was often used to reduce it. Given that many of these electricity authorities provided significant income to the state governments, the sale was something that gave the states no net benefit in the medium term. Indeed, it was calculated that the interest savings on the retired debt would fall consistently short of the earnings foregone1.

Governments were also warned about the likelihood of price manipulation. This was subsequently confirmed to have happened by an analysis undertaken by the Australian Bureau of Agricultural and Resource Economics (ABARE). One of the methods by which prices are manipulated is by the generators withholding capacity on hot days until the price spikes, then selling their extra capacity at a higher price as demand rises1. This was perhaps best shown by comparison of the privatised system in South Australia, where prices had risen by 40%, up to 30% more than prices in the non-privatised system in New South Wales. On top of this, some of the businesses that had championed privatisation in South Australia, found themselves to be paying considerably more for their electricity, even to the extent that some would shut down their operations on hot days. Reliability was also worse. In January 2001 there were 500 blackouts. This was believed to have been caused, in part, by generators and suppliers cutting maintenance staff by up to 65%1. It seems to have come as a surprise to governments that these companies were not about service, but simply maximising profits. If that means cutting generating capacity to keep prices high; great. If that means causing blackouts to maximise prices when people most need the electricity; even better. It is amazing how stupid some politicians can be, that they do not understand that businesses are solely about maximising profits. They are not concerned with the wellbeing of the society, or the health of people, unless it impinges on their profits. If they thought they could get away with it, they would happily kill people to maximise their profits. The tobacco industry has been doing this for half a century or more.

Regulatory structures set up to ensure the smooth running of the market have failed to prevent price manipulation, and have failed to ensure reliability of supply. While you or I pay increased costs for our electricity, as do some businesses, the real winners have been the corporations who bought the state-owned industries and imposed the higher prices we all pay. According to the con-men of the BCA, the IPA and assorted think tanks, as well as governments of a conservative persuasion (although not universally so), we were also supposed to reap numerous benefits of competition, whereas in reality, all we get is price gouging.

This brings us to the recent debacles in South Australia, where almost the entire state was blacked out after a large storm brought down power lines. Prime Minister Malcolm Turnbull, lied by omission when he blamed the blackout on renewable energy, before being forced to backtrack, seemingly, like Donald Trump, being unaware that he had contradicted himself2. Then he backtracked again and put the blame on renewables and the fact that there wasn’t enough storage. This is just a technique called deflection, whereby you make statements designed to take attention away from the real problem, which is the privatisation of state utilities and price gouging by the energy companies.

The problems with energy supply has led to a group including the BCA and several other organisations calling for a bipartisan approach to energy policy2. It is not often you come across an organisation with as much gall as the BCA. They got the privatisation they lobbied for, and now that it has been shown to be an abject failure, they go all conciliatory and pleading for politicians to come together and sort it out. Their behaviour is sickening.

The funny thing about this bleating regarding reliability, with the aim of decreasing the attractiveness of renewables, seems to have had the opposite effect to that intended. It has resulted in a spike in enquiries about battery storage for those with solar panels. This will further exacerbate the problems that power generators and distributors have. As people go for photovoltaic panels and battery backup, and generate and store their own electricity, the less the generators have to generate and the less the distributors have to distribute. They thus have a harder time justifying new capital investment and so the efficiency of the generation and the grid declines. This will lead to more blackouts and brownouts, which will generate more interest in home generation and storage from the average punter.

So, it seems like the privatisers and their government supporters have shot themselves in the foot.





  • Jim Jago says:

    I agree that in general privatisation of government assets in the last 25 to 30 years has been an economic disaster. Things such as Telstra, Australia Post (which I suspect is at risk) and the electricity and water networks should always be retained in government hands. The closing down of the last coal-fired power station in South Australia was totally due to the fact that under the system being used (I forget its name) it was unprofitable. As I understand it, there is about ten years supply of coal left at Leigh Creek. One of the silly things about the whole operation was that at a business forum some months ago, the Premier, Jay Weatherill, denied that the company had offered to sell the whole lot (mine, power station, raiilway) to the government at about this time last year. This was simply stupid because many people in the room had seen a copy of the letter. Weatherill denied it twice and then said that the offer was not consistent with ALP policy–it was absurd. A few years ago the Weatherill government flogged off the forests in the south-east of SA. Do these fools realise something can only be sold once? It is clear that the present SA state government is out of its depth and some of their ministers are not up to it. . The problem is that the opposition is equally hopeless.

    Re the major power blackout in September last year, there was actually a problem with the renewables, despite claims to the contrary. Certainly once the big pylons were blown over the whole state went out due to undue load placed on the interconnecter to Victoria. Where there was trouble with wind power was that some of the wind system was not adjusted in terms of frequency to get the system started again–sounds daft but apparently true. This has now been done–one hopes. How this actually works I do not know, but of course, Turnbull and others made a meal of it all with their less than honest comments. The other major problem was that there was a perfectly good gas-fired power station (i.e., a base load station) over near Port Adelaide that was sitting idle–this is one of the problems of privatisation.
    Coming back to SA premiers, as stated the Olsen government lied to the electorate in 1997. John Olsen of course was tossed out by his own party a couple of years later. He had stabbed Dean Brown in the back a few years earlier, despite the fact that the Liberals held a 36-11 majority at the time. However, Olsen’s subsequent career is interesting. The Labor premier, Mike Rann, appointed Olsen as the SA Consul-General in San Francisco (I think) and currently he is Chair of President of the local football league. Hence, he has not suffered unduly.

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