Privatisation - Has This Been A Benefit to The Consumer?

Lwd41 on 06/08/2017 - 10:06
Last edited 06/08/2017 - 11:12 by 1 other user

I've been trying to think of an instance where Privatisation has ended up being of benefit to the consumer?
Not having any luck really, l can think of plenty of instances where it has led to us bring worse off e.g

  1. Household Gas supply - excessive profiteering by suppliers
  2. Electricity - excessive profiteering
  3. Water - excessive profiteering
  4. Toll Roads - excessive profiteering
  5. Airport short term parking - excessive profiteering.

Can you think of any that have gone the other way and improved service at a lower cost?

General Discussion

Comments

    • super8 on 07/08/2017 - 09:49
      +3

      Agreed*.
      *Provided you include Courts under the heading of Law & Order.

      • dealman on 07/08/2017 - 10:50
        +1

        Of course.. courts and the prisons also.

        We absolutely don't want the prisons managed by private parties running for profit… The goal is rehabilitation and recovery..

    • Yotta00 on 07/08/2017 - 10:26

      Serco is doing a horrible job for the prison system.

    • Peck on 07/08/2017 - 10:43
      +3

      The point is that there IS no competition, let alone 'healthy' competition, in many areas. EG Tollways, airports.

    • ninetyNineCents on 07/08/2017 - 19:55

      If its a monopoly in a local area or even nationally the gov should manage and own it.

      If you apply this idea it quickly becomes apparent that the items mentioned by our friend dealman are matches…and the rule works.

  • super8 on 07/08/2017 - 09:48
    +10

    CHEP (Commonwealth Handling Equipment Pool): was a small Federal Govt operation; now operates in 45 countries, employs 7,500+ people.

    CSL (Commonwealth Serum Laboratories) was a Federal Govt body; now operates in 30 countries, employs 19,000+ people.

    I suggest international export success stories of these kind would not have happened without "Privitisation". They generate significant tax revenue and employment for Australia.

    • dealman on 07/08/2017 - 20:50

      Just because you found a couple of examples where this has work does not make the rule.. These are in fact the only examples of public sector companies doing well. In most other places public sector companies are a drain on the economy and only reward the employees and their unions.

      The bad for customers bad for the economy and bad for the government to be running them. This is not just in Australia but all across the world simply comes down to incentives…

      • super8 on 07/08/2017 - 22:10
        +1

        Aurizon (former coal/freight division of QLD Rail) is a clear example of a dud privatisation as you described.

        Still run as a quasi-government organisation currently. Still captured by the unions.

        It takes many decades for an organisation to shed it's public sector roots. Id guess CBA did it fairly quickly because retail banking became increasingly competitive once international banks set up shop here (ING, Rabo, HSBC, B of China, Citibank et.al), I'd say Telstra still hasn't completely removed the public service mentality from its workforce, mabey never will completely.

  • dufflover on 07/08/2017 - 10:42
    +2

    Anything run for profit will not end well.
    Important social infrastructure (banks, utilities, public transport, etc) should never have been fully privatised with at least one govt owned "basic service competitor" in each industry.

  • peterpeterpumpkin on 07/08/2017 - 11:31
    +5

    As bad as these privatised companies are has anyone else noticed that the government seems to hire, retain and promote the bottom of the barrel? If you knew the people I know that were promoted to management positions you'd be shocked. And no, they haven't changed since high school but maybe they magically mutate into logical, intellectual beings at work. While they did have non-intimidating surnames and happened to start as young males (http://www.theage.com.au/victoria/victorian-government-trial…) I don't think name bias alone could account for it. I'm thinking idiots favouring idiots?

  • Mrgreenz on 07/08/2017 - 12:43
    +1

    Transfer of wealth for a quick hit of cash. Obviously a private company is aiming to make money from it and in most cases do im sure.

    Double hit to tax payers, their nationally accrued assets sold off to then be rented back to them indefinetly.

  • Xastros on 07/08/2017 - 12:51
    +2

    Question is why can't the government just operate these services efficiently in the first place?

    • tryagain on 07/08/2017 - 13:01
      +1

      Unions, for one.

      • Xastros on 07/08/2017 - 13:17

        Unions exist for the private sector too.

        • tryagain on 07/08/2017 - 13:36
          +1

          They certainly do, they seem to be far more influential in the public sector though.

    • ninetyNineCents on 07/08/2017 - 19:57
      +1

      @Xastros

      THe gov did do a reasonably good job with electricity. Nobody can honestly say privatising electricity is now a better deal for the public.

      In fact i dont think anyone can present an example where transition from gov to private has actually resulted in a better deal for the public. My bet is 80%+ of the time things were easily better under the government.

  • etto on 07/08/2017 - 13:04
    +2

    The NZ govt. did alright when they privatized house insurance just before the earthquakes.

  • TheBilly on 07/08/2017 - 13:34
    +1

    It's logical; a private company is out to make a profit.

    Nothing else matters.

    What governs the gap between "NOW" and "PROFIT" is Ethics.

    Ethics are subsequently governed by the majority of the people in the society where that business operates.

    If this practice is Poor/unethical it is a reflection of that societies ethical standards.

    Best example is;

    Companies that operate in say China and Australia - They will operate differently in the 2 locations - As why would they spend the same money in China when the standards and requirements are lower.

  • [Deactivated] on 07/08/2017 - 13:35
    +1

    It's just like a farm
    You can have things that help you combined with hard work make a profit and reinvest in yourself and future
    Or you can sell the tractor and pump for quick cash then subdivide when there's nothing left
    Simple really, just one doesn't require hard work or future planning

    • shaiguy on 07/08/2017 - 15:58
      +1

      I wouldn't call it comparable. But if you want to compare farms you can do it like the following:

      Same sized and types of farms next to each other.

      Farm A (Government owned): uses 2 x 30 year old tractors (every year or 2 management discuss whether to buy new tractors but decide it's too difficult and there's no point until it's broken - when they do break down they call in super expensive donkeys from the next town), hires 20 workers who take it easy, other costs escalate at 2 x inflation. Owner comes now and then to check out the farm. Checks that output is still 200 x bushels. Some years it is less for no reason. No one cares, no one accepts any responsibility/blame.

      Farm B (Privatised): uses 5 year old tractors which are re-purchased at determined optimal time (after evaluating current market value, replacement costs, etc.), hires 10 workers to do the job who are continually reviewing their processes against global benchmarks. Owners are hands on and have been in a competitively bid process so they are invested in ensuring that they are getting an efficient return. output is 250 x bushels with known reasons to explain variances and management accountability for shortfalls (not due to uncontrollable factors). All stakeholders have vested interests in the business.

      • [Deactivated] on 07/08/2017 - 16:24

        Way to overthink it

  • rollypollym on 07/08/2017 - 14:25

    Transport in Victoria. Oh wait….

  • wallet72 on 07/08/2017 - 15:29

    privatisation is ok if they would just steer clear of the essential services. Power, water, health, education and social security are not supposed to make a profit. I'd even put public transport in there.
    I've often wondered why government can't run these things to break even or even at a profit - I mean no one is going to buy a business with the plan to lose money so why can't the government run the properly? Now I know they argument about unions and politicians are not business people, but the union one is not true because the people that by these things inherit the unions as well. As for the government lacking the skill, then that's a failing with the politicians and they should lose their job. The problem with that is politics is a popularity and money contest now so none of them are ever held accountable for any of their actions.

  • OzzyOzbourne on 07/08/2017 - 16:00

    Only of benefit to the government, so they can waste more money and shareholders.

    Since when did anyone do anything to primarily benefit the tax payer?

  • nickj on 07/08/2017 - 16:15
    +9

    There's really 2 issues for "working well" - 1) customer experience and 2) financially good for taxpayers. I'll ignore the latter, since question was more about customer experience.

    Privatizations that have worked well, or relatively, for customer experience:

    • Individual post offices
    • CBA
    • CSL
    • Energy retailers
    • Telecoms retailers (e.g. the retail side of telstra)
    • Telstra mobile in capital cities.
    • Medibank health insurance
    • Qantas

    … the main thing that all of these have in common is they have competition. You can go to other nearby post offices, you can go to other banks, you can go to other blood companies, you can go to other energy retailers, you can go to other telecoms stores & companies that will be your phone company that bills you, you can go to other mobile phone networks in metro areas (Optus and Vodafone networks), you can go to other health insurers, and you can fly other airlines.

    Where is has worked poorly is when natural monopolies exist, such as:

    • Sydney airport [when a Opal single-trip one-way train ticket from the city to the airport costs $18.00, you've gone too far; it's literally just 4 stops from Town Hall. Also, the silly right-of-first-refusal condition on a second airport, made getting Badgerys Creek up a far longer and more complicated process than it had to be, really it should be been built 20 years ago]
    • Electricity distributors [gold-plating the network, since they're paid based on the amount they spend]
    • Telstra wholesale side (phone & network cables and wires) [the govt sold it, and then had to buy it back! The $11 billion paid by the NBN wipes out a substantial portion of the $14 billion raised in 1997 for the T1 listing when 1/3rd of Telstra was sold; but the NBN has had to spend far more laying fresh cable + rectifying problems in existing cabling. And the prices for home line rental and ADSL access were gouged by Telstra from the privatization until NBN - e.g. basic phone line rental with NO CALLS went from ~$9 to ~$34 in that time. And the govt has foregone the dividends that Telstra would have paid them from the shares they sold.]
    • Telstra mobile regional areas, when it's the only network. [it's why Telstra doesn't want roaming, it's why they won't allow most resellers like Aldi access to the full network, and it's why their prices are higher and data inclusions lower than their competitors]
    • Toll roads [in particular, the closure or downgrading of alternative pre-existing public roads, so as deliberately make them less attractive routes, is particularly worrisome. E.g. in Sydney, reducing Epping Road from 2 or 3 lanes of car traffic each way to just 1 lane, as part of the contract with the private operator of the Lane Cove Tunnel]

    … in these cases the prices have been gouged as high as possible so as to maximize profit, and with a natural monopoly the maximum price that you can extract is very high, OR they have worsened existing public infrastructure to make the private alternative more attractive.

    So when you sell natural monopolies, there are significant extra costs imposed on consumers, which they largely cannot avoid. That's not good for consumers. So I'm very wary of sales of natural monopolies, they usually seem to introduce problems, but the exact nature of those problems is not obvious until years later when it's too late to do anything about it. Theoretically consumers could be protected through the government adding terms and conditions in the privatization, but in practice the buyers have the best lawyers looking out for every angle, and there are many opportunities to squeeze customers in a natural monopoly, and the government of the day just wants to get it sold quickly for the highest price, so the temptation is to let bad conditions slide, with the knowledge that consumers won't get annoyed until years later. So the opportunity to protect consumers is squandered.

    Then there are a few privatizations that should have worked, but instead there has been market failure:
    * Electricity generators: failure to provide regulatory certainty around carbon policy has provided no incentive to invest in new generating capacity (would you make a 50 year investment with regulatory uncertainty?!), so now we have falling coal base-load generation capacity, with gas generators providing spot pricing, and gas costs much more; and we don't have enough renewables & battery backup to bridge the gap (with a govt that seem ideologically opposed to accepting climate change). So now we the worst of both worlds - no economic incentive to invest in dirty power, and limited economic incentive to invest in large-scale clean power, and therefore some of the world's highest electricity bills.
    * Natural gas: no proper regulatory framework that protects consumers so there's been a market failure, with excessive natural gas exported under long term contracts. For example I think I read that Australian consumers pay more for Australian gas, than Japanese consumers pay for Australian gas, which is just nuts because we have gas pipelines on the eastern seaboard (so no shipping) whereas getting the gas to Asia involves substantial overhead for LNG shipping.

    In these cases, there is competition, but the policy clarity & regulations needed to prevent market failure is missing.

    • TrevBargn on 07/08/2017 - 19:41
      +7

      A good summary. However, there is an incentive for companies to corrupt governments.

      Take Bob Carr, who while premiere of NSW gave all sorts of good deals to Sydney Airport and their owners Macquarie Bank. After retiring as premiere he was rewarded for a $1.1M per year "consulting" position at Mac Bank.

      Or more recently, Andrew Robb, who as trade minister sold off the port of Darwin. He is not a "consultant" for the company he sold it to, also earning $890,000 per year.

      There are many more examples, all the way down the public service ladder, giving your "mate" a thank you for special deals.

    • chillin222 on 07/08/2017 - 22:03

      Excellent post - totally agree

  • shaiguy on 07/08/2017 - 16:21

    In relation to your scenarios, you describe all the scenarios as "excessive profiteering"? I strongly beg to differ on this. The only case that I could agree with you on this is on Airport short term parking where given the exclusive/monopoly nature of the ownership there is no other option so you are basically forced to utilise this option. With toll roads, with the complexity and cost of a toll-road build, if the government built this it would take 3 x longer than it initially intended and they would say they would take the toll off after [X] number of years but still keep it on.

    Perhaps also putting it another way and this is a hypothetical, ideal scenario where it is a competitive market and people can choose whichever operator they want and this "general market" operates at say a 5% margin. In the same scenario, the government runs the business and generates profit for 1% (although a lot of governments would be in negative given all the bureaucracy). Effectively, that difference of 4% is what you're paying for through your taxes. You would prefer your government to be undertaking the services a government should be and if corporates can provide it better than so be it. I mean, think about it… the only reason why you want the government to provide it is because it is cheaper, but ultimately (through taxes, etc.) it would be significantly more. Even putting it on the flipside or in a reverse privatisation scenario, given fuel prices are expensive, should we now lobby the government to have bought out shell when they were selling their service stations or to have started up their own service station company? The answer is no.

  • Euphemistic on 07/08/2017 - 16:27

    Commonwealth bank privatisation has gone well for those who invested in shares when it floated.

    • ninetyNineCents on 07/08/2017 - 19:59
      -1

      Well given that all bank accounts are backed by the Australian government, it seems wrong that the big 4 banks including the commonwealth are given this free ride.

      The CBA should have remained owned by the federal government. It always was going to be a profit maker and should have remained owned by the gov. It was a gift to sell it off.

      • chillin222 on 07/08/2017 - 22:05

        You would not be saying that if you had stepped into a CBA branch before 2005 - think 'Barbara from Bankworld'. It is now one of the most technologically advanced banks in the world with incredibly good customer service, all thanks to privatisation.

        • ninetyNineCents on 08/08/2017 - 21:39
          -1

          It is now one of the most technologically advanced banks in the world with incredibly good customer service, all thanks to privatisation.

          How often does one need to visit a bank that customer service is an issue in the first place ?

          I went to the old pre privatisation cba and it was fine. Bank service is so basic, i fail to see how it can be such a disaster that you are concerned.

  • [Deactivated] on 07/08/2017 - 17:30

    The ability to rapidly deploy new infrastructure at a lower cost to the taxpayer.

    Our budget is already quite stretched with a third of our income tax going to welfare.

    • whooah1979 on 07/08/2017 - 18:32

      Our budget is already quite stretched with a third of our income tax going to welfare.

      39% according to the last tax receipt.

  • Plug on 07/08/2017 - 18:11
    +2

    Privatisation only ever benefits the government. The consumer is ALWAYS shafted in the end.

  • wty707 on 07/08/2017 - 19:17

    The Victorian electricity transmission and distribution networks that were privatised in the 1990s are the most efficient in the country. The NSW electricity transmission and distribution networks that were only just privatised are the least efficient in the country. Because of the way these are regulated, the costs consumers pay for these services are directly linked to the costs incurred by the networks. So by privatising them in Vic and allowing competent parties to run them, Victorian power prices have gone down.

    Plus the government got a big amount of cash that in present value terms is worth much more than the foregone dividends to the government because the private sector will run them more efficiently and therefore can pay more for them than they're worth to the government.

    The only way that privatisation doesn't work is when monopoly assets are privatised with poor regulatory regimes to maximise the upfront proceeds to the state. The head of the ACCC Rod Sims has been fairly critical of governments on this point lately.

    The other losers are obviously the employees of these businesses as the private sector typically isn't going to tolerate carrying an oversized workforce.

  • bobbified on 08/08/2017 - 10:36

    I've always wondered - if the private sector can turn a big enough profit to make a particular service profitable, why can't the government?

    Then I realise that the government is full of red tape, bureaucracy and all that kind of bullshit.

    When services are privately run, the difference in cost to provide the service is going to be less because they'd likely be able to their costs much easier than the government can - such as staffing, benefits, etc. Decisions can me made relatively quicker and efficiently.

    But the lowering of the cost to provide that service doesn't translate to a cheaper price for the consumer. Let's face it - privately run companies are investments and it's there to make money. The higher the return the better.

    The bad thing for us is, eventually when there's no assets left to sell off and there's nothing else generating income for the government, then it'll be back to the tax hikes to fund whatever great idea the government has next in mind.

    I find it absurd that there are instances where the government decides that we need a one off-tax hike on certain groups of taxpayers to help fund a particular natural disaster, etc. What happened to putting money aside? Where does all the tax money we pay each year go?

    I'm sick the government relying on their ability to reach into our pockets whenever they feel like it. We pay enough taxes on our income as it is.

    • [Deactivated] on 08/08/2017 - 11:25

      Gubbermeant approved safety authorised red tape is a thousand dollars a metre and they need hundreds of miles of it
      Don't worry it's all part of a great plan, when the Chinese finally come we will all be so relieved that there's someone competent to take over
      I can hear the debate now
      ' Do we really need this place , their stupid officials sold everything of value to the US and EU allready'
      'but look there's still some iron ore and bauxite left ,
      and all that bluemountainbeachfront property'
      'mmmm still don't know , convince me more'
      ' we need a base on way to Antarctic New China '
      ' ok fair enough'

    • Jikx on 08/08/2017 - 12:20
      +1

      "Why can't the government?"

      Because they are directly reportable to the people. Eg, with publically owned power - when power prices go up, the government gets the flak. So it's in their best interest to keep power prices LOW, therefore there is little "profit".

      When a public company is told to run like a private company (eg medibank) they actually give good profits. When they're privatised, without the government pressure, the profits go even higher (at the cost to the customer….. eg medibank again)

      The rule of thumb is -
      Privatising assets in a competitive environment is good
      Privatising assets in a monopoly environment is terrible
      The latter fetches more money up front, so governments do this all the time, but the end cost to the people is waaaaaaaaaaaaay higher than if the government just raised taxes.

      Airports, power, water, ports, tollroads are all examples of this. It's outsourcing of taxation with a huge amount of cream on top. But people are dumb, and that's probably the biggest problem which allows governments to get away with it.

  • payless69 on 08/08/2017 - 12:55
    +3

    AUS Post is one example of failure. Nuttin against Muslims but the last chief should be thrown to the pigs.

  • Cluster on 08/08/2017 - 14:55
    +1

    The main goal of privatisation is to raise funds for plugging budget holes. Everything else is fluff designed to make the sale palatable to the electorate.

    In most areas (water, power, airports) there is an illusion of competition, but when the start up cost is in the billions and you're forced to use the service , there are naturally very few competitors. Not a healthy environment for lower prices and better services.

    The Sydney airport train is a golden example. Other major cities often have dedicated train services that run solely to the airport. Macquarie Bank has an urban train with an incredibly high price for the last stop.

  • Thaal Sinestro on 09/08/2017 - 01:06

    All infrastructure should be owned by the government. We need a political party willing to seize back and socialize all the infrastructure that has been pawned off by previous administrations. We need a Hugo Chavez style leader. Death to capitalism.

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