Whose responsibility?


Man is by nature a social animal; an individual who is unsocial naturally and not accidentally is either beneath our notice or more than human. Society is something that precedes the individual. Anyone who either cannot lead the common life or is so self-sufficient as not to need to, and therefore does not partake of society, is either a beast or a god.

That was said almost 2,500 years ago by Aristotle. Religion continued the emphasis on social responsibility over the following millennia. Christianity has the parable of the good Samaritan and the Golden Rule, from Jesus saying ‘So whatever you wish that others would do to you, do also to them, for this is the law and the prophets’ (that is the wording in the modern English Standard Bible). Islam also emphasises community and, in fact, the foundations of Islam were based on reforming society; it also emphasises public, or communal, worship; and it has a strong emphasis on the social responsibility to stop your ‘brothers’ from doing wrong.

In the Western tradition, that began changing in the 1700s with the philosophy of Hobbes and Locke placing more emphasis on the self-interested individual, although Locke, unlike Hobbes, still believed humans were social animals but drew a clear line between civil society and the state — society creates order and grants the state legitimacy, and the state provides impartial justice and the impartial protection of property. Locke is considered the father of ‘liberalism’.

While Hobbes argued that humans in a ‘state of nature’ were constantly at war and life was ‘nasty, brutish and short’, Locke saw that ‘state of nature’ as peaceful because individuals had a duty to respect the rights of others. This was a ‘natural’ moral duty.

More recent writers, like Hayek and particularly Ayn Rand, took individual self-interest further. Ayn Rand went so far as to suggest that the individual has no ‘natural’ duties to society, summarised as follows:

We only have one life and the good is to live it. Learn to pursue your own happiness by discovering the life-promoting values it requires. Think rationally and don’t bow to authority. Join with other people when you have real values in common and go your separate way when you don’t. Don’t try to be your brother’s keeper or to force him to be yours. Live independently.

To me, it seems that these more recent approaches have come to dominate our social and economic thinking, with greater emphasis on individual rights and less on the social ‘duty’ to respect the rights of others.

The modern neo-liberal economists certainly see little or no role for government. In their perfect world the individual is free to pursue their own ends in accord with the John Stuart Mill maxim that ‘The only freedom which deserves the name is that of pursuing our own good in our own way’. But they tend to ignore the proviso in Mill’s statement: ‘so long as we do not attempt to deprive others of theirs, or impede their efforts to attain it.’

In reality, Mill’s maxim balances individual and social responsibility by stating that an individual’s freedom cannot come at the expense of others’ freedom (Locke’s natural moral duty to respect the rights of others). When we start taking account of ‘others’ in exercising our freedom and making our personal decisions and choices, we are exercising social responsibility. But there are also social responsibilities that are, or should be, communal. In our modern societies those responsibilities are often taken by government in the interests of the community as a whole.

In rejecting a social element in economics, economists refer to the ‘tragedy of the commons’ to justify that individual ownership, that is private property, is superior to common, or social, ownership. Although the idea has a longer history, the phrase came from a paper by Garrett Hardin in 1968. It was suggested that, when people grazed their herds on a ‘common’, a self-interested individual could improve his situation by adding one animal to his herd. The individual would gain the benefit. But if each individual adds one animal, or two, the common is quickly degraded. While the individuals retain the benefit of having an extra animal, the ‘cost’ (the degradation) is shared, leaving them with a self-interested benefit — before the failure of the system. Following this argument, and its corollary that Adam Smith’s benevolent ‘invisible hand’ of individual self-interest does not work for the commons, economists suggest that private property and the individual’s responsibility for that property remedies the situation.

That approach is based, however, on a misunderstanding of how commons worked. They were not ‘open access’ as the theory implies. Throughout the world where people shared resources, there were usually social and cultural rules that controlled that sharing. In Iceland, for example, the common resource of the fisheries was traditionally controlled by kinship rules that allocated spaces on the beach that were necessary for launching fishing boats. In some communities in India, the allocation of the common resource of water for farming was determined by community meetings. People accepted these approaches as essential for the well-being of their communities, or, in other words, were accepting social responsibility.

Hardin put the ‘tragedy of the commons’ in the context of population pressure and I accept that population pressure is a factor but not necessarily in the way Hardin interprets it. It is sometimes population pressure that will force people to leave a community, and enter the market economy, because the social rules prevent them having full access to the ‘common’. It is often on their return (even merely for a visit), with new ideas of individual responsibility, self-interest, and private property, that the decline of social obligations for the maintenance of the common accelerate.

It was the breakdown of social responsibility, of local rules and obligations that changed the use of the commons, and that itself arose from the introduction and growth of the market with its emphasis on individual self-interest. That can be seen in recent history in developing countries. As some people abandon the local rules to participate in the market, the ‘cost’ (in economic terms) of maintaining social obligations rises and no longer provides the greatest benefit, hastening the break-down of social responsibility. Rules of reciprocity, which were common in many societies and reinforced social obligations, also came under pressure from the influence of the market and the concept of private property.

In our own society, the health system provides an example of the roles of individual and social responsibility. A healthy population is, among other things, in the economic interests of a community or society, providing a healthy labour force and reduced costs in caring for the sick — ‘cost’ in this context includes time spent caring for the ill, which may mean two people withdraw from the labour force, the carer and the cared for. While an individual’s choices can affect their health (smoking, over-eating, not exercising) and, therefore, there is a case for individual responsibility, there are many other environmental and genetic factors that contribute to disease over which the self-interested individual has no control. Social responsibility is taken on by government to the extent that it attempts to control those external factors by, for example, pollution controls, food and drug safety, disease surveillance, occupational health and safety and even urban planning that allows for healthy environments, including access to exercise amenities (parks, walking tracks and so on). The neo-liberals would not agree with some of these. They are more likely to stress that the value an individual puts on their health is reflected in the price they are willing to pay — hence the growth of private fee-paying gymnasiums, let alone private health care.

Stressing the rights of the individual over the health of the community can have serious implications. In the case of major illness, we generally accept that individuals, even neighbourhoods or whole communities, may need to be quarantined — as in the current Ebola outbreak in Africa, or an outbreak of bubonic plague in Sydney in 1900 when many blocks in and surrounding the current CBD were quarantined, then cleaned, and people moved into camps. This is a clear case of social responsibility over-riding individual rights but I’m not sure how the neo-liberals would deal with it philosophically. There is also a tension between individual and social responsibility even with minor illness. If I have a cold or influenza, should I exercise my right to earn a living and go to work, or should I stay at home and not spread the illness to others? If I spread my illness, am I impacting the right of others to earn their living? It can be argued that paid ‘sick days’ for employees is a socially responsible way of dealing with this.

You would think that providing health care would be a ‘public good’ to be provided by government as a social responsibility but that is not necessarily so when one reads the economic definition of a ‘public good’. The economists usually consider that the market has responsibility for the efficient allocation of resources and governments the responsibility for public goods — this is the economic separation of responsibilities.

Economists define ‘public goods’ negatively, in the sense that they are basically goods the market cannot provide at a profit — no concept at all that there may be a social responsibility or a social benefit in government providing certain goods and services irrespective of the market.

For an economist, a public good must be ‘non-excludable’ and ‘non-rivalrous’. The first means that it is not possible, or not cost efficient, to exclude people from benefitting by the provision of the good. Fireworks displays are a simple example: I could set up a fire works display and attempt to charge people to attend but people could easily watch from a short distance away (possibly even from their own nearby homes) unless I set up a large exclusion area, and that may not be feasible or may be too costly.

The second, ‘non rivalrous’, means that the consumption of the good by one person does not preclude it also being used by another. If I watch the fireworks that does not stop other people from watching, or my use of a park does not stop others from using it.

I have seen sewerage systems listed as ‘public goods’ but it would theoretically be possible to have a system where people could be excluded by disconnecting them, as can happen with electricity, but that could have wider health implications that could not be restricted to the individual concerned (the very reason sewers were first constructed). So there is a socially responsible health aspect, not ‘non-excludability’, in ensuring that all people remain connected to the sewerage system but that social responsibility is missing from the economists’ definition.

The market is not in interested in ‘public goods’, as defined above, because ‘non excludability’ creates the ‘free rider’ effect: that is someone can benefit without paying — the person watching the fireworks from their own window. The market places more emphasis on ‘non-excludable’ than ‘non rivalrous’, so suppliers in the market will happily create a price for non-rivalrous goods but won’t become involved in non-excludable goods: in this context, sporting events and cinemas can be considered non-rivalrous (many people can use the product at the same time) but they are excludable (one person or 80,000 can be allowed into a sporting event — it just depends on making a profit).

Despite that, the neo-liberal approach has seen more and more goods and services moved from the public to the private domain blurring the separation of economic responsibilities. That also moves decision-making rights regarding the good or service from one agent to another and involves, or should, a shift of the associated responsibility. So if former public services are now provided by the market, should the firms in the market also bear the social responsibility that goes with them? The neo-liberal economists claim that minimal social responsibilities should be borne by the market, using Adam Smith’s ‘invisible hand’ to justify that self-interest has social benefits.

Corporate social responsibility is a significant issue. It rose to prominence in the 1960s and ‘70s but had almost disappeared by the late 1990s. It is making a comeback but the predominant economic philosophy remains that the duty of a CEO and a board is to maximise returns to the owners of a firm (the shareholders). It is argued that ‘social responsibility’ conflicts with the ‘duty’ to maximise returns, and also cannot readily be measured so there is little point in insisting that it should be part of a firm’s obligations. There is, however, an alternative argument that being a ‘good corporate citizen’ is in the long term interest of a company and the value it is able to return to its shareholders. Unless a company is intent on maximising earnings and profit in the short term and then folding (as some obviously do), a company able to sustain its earnings into the future does require some acceptance of social responsibility and good corporate citizenship. It is when they realise that their ‘image’ is important for sales, that these issues may rise to the fore.

For current ‘commons’ like the Earth’s atmosphere and oceans, economists argue that a degree of ownership is required to stop degradation, such as trading systems for reducing CO2 emissions, or tradeable quotas for fishermen, not that the problem can or should be remedied by government regulation. But if government in a democracy is representing the ‘will of the people’, then it may have a social responsibility to maintain the ‘commons’ for the people irrespective of the market. The UN is close to that view in relation to CO2 and climate change — but not the current Australian government.

What have companies been doing for over two centuries but ‘free riding’ on the rest of us by pouring their waste into the commons of the atmosphere, oceans and rivers. It is because the market has robbed the people of their control of the commons that private agents can exploit it; and also because many firms, following the neo-liberal economic agenda, don’t accept they have a social responsibility, neither generally nor in relation to the commons.

The neo-liberals ignore that people do not always act in their own self-interest. Social relationships and cultural values (social inclusivity) can mould decisions — these also shape our social responsibility. We support our neighbours in times of trouble, during floods and fires; ordinary people will run into a burning building to save someone they don’t know; people stop at road accidents to help if they can; people will care for a lost child until a parent turns up; and so on and so on. Despite what the neo-liberals think, social responsibility still exists in the hearts of the people and we are still a social animal — as infants we learn to be human in a social context, through the ‘others’ that surround us.

We should be demanding greater social responsibility, not just the promotion of individual self-interest, from companies and from government. Will we ever get social responsibility from our current government? Of course not, as it is too easy to see on which side of the fence it falls in this debate.

What do you think?



What have the unions ever done for us?


Monty Python’s Life of Brian was recently shown on free to air TV. For those that haven’t seen it, the story revolves around Brian, who lives in Palestine during the Roman occupation and somehow is involved with a group of people that want to overthrow the Roman occupation. The movie ends with Brian and others on crosses singing ‘Always look on the bright side of life’. Some Christian churches protested when the movie came out that it was a parody of the life of Jesus. The line from the movie ‘He’s not the messiah, he’s just a very naughty boy’ probably didn’t help!

The point of ‘Life of Brian’ for our purposes, however, isn’t a determination of the wisdom of the parody argument: it is a well known scene in the movie where there is a meeting of those who are trying to overthrow the Roman occupation. In the scene, ‘Reg’ is decrying the Romans by asking what have the Romans ever done for us?



So with apologies to ‘Reg’ (and the Monty Pythons in general), how about we change the question slightly to ask, ‘What have the unions ever done for us?’ given the generally declining number of union members in Australia.

The New Yorker magazine recently published an article entitled ‘Dignity’ that describes the fight by people who work for McDonalds and other fast food restaurants to get a living wage of $15 an hour. There are stories of intimidation and loss of shifts affecting those who are mobilising (most fast food workers are apparently casual); and resistance from the franchise owners and the corporate headquarters of some fast food retailers to a movement to increase the minimum wage in the fast food and other low paid industries across America. Traditionally, these employees are immigrants and not members of a union. Union membership is actively discouraged by a number of the employers — although the article does give examples of other businesses in the fast food industry that do pay considerably more per hour, produce better food and still make a profit.

The Australian Bureau of Statistics tells us in a paper released on 14 June 2014 that:

The survey also shows that 17 per cent, or 1.7 million employees were trade union members in the main job, this being the lowest proportion in the history of the series. That proportion follows a general decline in trade union membership over several years.

It goes on to say:

Of employees without paid leave entitlements in their main job, 6 per cent were trade union members, compared to 22 per cent for employees with paid leave entitlements. Trade union membership was higher in the public sector, with 42 per cent of all employees being members, compared with 12 per cent in the private sector.

So there seems to be a correlation between union membership and paid leave. Wikipedia lists the annual leave entitlements in a number of countries around the world. It is interesting to contrast countries with a history of union membership versus individual bargaining — such as Australia (20 days per annum), the UK (28 days per annum – including ‘bank holidays’) and France (25 days per annum) versus the USA (0 days per annum). There isn’t a direct correlation between any of these example countries: the relevance being that in the USA, there is no legislated minimum — it is up to the employer and employee to agree to paid annual leave.

In Australia there are 10 National Employment Standards. They include the right of paid annual leave for permanent employees (including part time workers). The ACTU’s Australian Unions website will tell you that the Union movement negotiated paid annual leave for the printing industry in 1936 and other industries subsequent to then. Full-time employee annual leave entitlement has risen from two weeks to four weeks in the past 50 years.

Traditionally people retire from active work at some point and rely on savings or contributions from others to help them live. Most Australians who are employed have one or more ‘Super’ accounts that hopefully will provide a reasonable income in retirement. In Australia, employer contributions to superannuation accounts are mandated (although the Abbott government recently determined that the next employer increase should not be made). There is also the availability of a payment from the government for those who have retired provided they can demonstrate they meet certain age or financial requirements (the ‘old age’ pension).

In the USA, superannuation (known as ‘pensions’) is a part of the ‘benefits’ package but, as The New Yorker article linked above points out, a considerable number of the low paid fast food and similar industry staff are not in receipt of any benefits over and above their wage. The USA does provide ‘Social Security’ but the USA Social Security system pays a benefit on retirement based on your income. So someone who works 30 hours a week for $8.50 an hour may only get $500 per month — depending on age and age of retirement. Remember they don’t necessarily have ‘super’ or ‘pension plan’ to fall back on. In contrast a full Australian Age Pension (in this exercise we are assuming that the person has no real savings or assets) is entitled to $854.30 per fortnight plus health care card and other concessions.

Some would say there is a ‘glass ceiling’ for women in corporate Australia. That is a discussion for another time: the issue here, however, is that up until 1969, women were paid up to 25% less for doing the exact same work as men. While there is still a gender gap in the average wage of Australians, two people doing the same work for the same company in Australia should be getting the same pay, regardless of gender. The Australian system is not perfect but it is better than the USA where its Senate in September 2014 (yes — this year) voted down a bill to legislate gender equality in wages paid.

While ‘Life of Brian’ is not an accurate portrayal of life in Palestine around two thousand years ago, there is a list of worthwhile achievements (roads, sanitation, wine etc) that were delivered by the Romans when they invaded the country. The humour behind the skit is that, after a while, these things are taken for granted and the consensus of opinion is that everywhere is the same.

The comparisons made here are only a few of the benefits of living and working in Australia. Don’t forget that the ‘centre left’ ALP and the ‘right’ LNP went to the last federal election trying to out-do each other on Paid Parental Leave (a worthy idea but the execution seems to be lacking at present). The Australian Unions website claims some of the credit for the implementation of the clearly superior annual leave, social security and ‘equal pay for equal work’ benefits enjoyed by Australians over and above those in United States — the ‘land of freedom and opportunity’. The Australian Unions website also lists a number of other achievements that were driven by the union movement, such as sick leave, long service leave and health and safety monitoring.

Not everywhere is the same. Australia has had equal pay for equal work for close to 50 years — the USA still doesn’t. Australians retiring in the future will have some form of savings that bolster (or, if they are fortunate, replace) their mandated pension entitlement: Americans won’t unless their employer decides to do it. Australia has a living minimum wage in comparison to the USA.

The ‘Dignity’ article in The New Yorker magazine demonstrates that collectivisation is still a valid tool to gain real improvement to workers’ rights and wages and, while Australians are leaving unions, it seems their employers are retaining their membership of organisations that promote the rights of business over their employees (as they are entitled to do). The problem is when employees can only find casual work (which eliminates the right to pay while on holidays for a start), they have less ability to protest when stripped of their penalty rates for working ‘unusual’ hours, when workplace health and safety measures are deliberately ignored or when compensation payments for forced redundancies are limited or eliminated by regulation (and if the employee is under 30, they may, if the current Government’s wishes are implemented, then have to wait up to six months to be eligible for unemployment assistance).

The union movement has demonstrably been a part of creating the environment that Australians enjoy. The Howard government met its downfall when it tried to take away workers’ rights, that those in other countries still don’t have — and the union movement contributed significantly to that shift in the Australian public’s attitude. While the union movement is not perfect, neither are similar organisations that protect the interests of business (Kathy Jackson and Arthur Sinodinos are examples here — one from each ‘side’). The other way to look at it is this: if there was nothing for the political right and employers to fear from the unions, why are the same groups still trying to neuter the unions’ ability to campaign and protect the perceived interests of their members in 2014 while ‘unions of employers’ are encouraged?

What do you think?



Where have all the public services gone?


Where have all the services gone?
Gone to corporates every one.
When will they ever learn?
When will they ever learn?

A year or two back, where I live, the local water provider received approval to increase the price of water. It had been involved in major infrastructure spending to enhance the local water supply, so some increase in price seemed justified, but hidden in the details was a line that part of the price increase was to offset ‘losses’ incurred during the drought some years earlier. A water company makes ‘losses’ during a drought! — wtf!.

Obviously it sold less water during the drought: it had less water to sell and the government had imposed water restrictions to conserve what water we had. What is the alternative? — that it continues selling water as if there is no tomorrow to keep up its profit and we run out well before the drought ends. For the life of me, I can’t see the logic in that. The body I am talking about is still fully owned by the government and pays an annual dividend to government but like many public utilities these days it has been ‘corporatised’. (Corporatisation is often used as a prelude to full privatisation but the evidence suggests that many government-owned bodies that have been corporatised are just as efficient, and profit-making, as any private company and have a history of paying healthy dividends to their government.)

Unlike America, which has a history of privately owned services, Australia has a tradition of government provided public services including, not just health and education, but transport, utilities (energy and water), even financial services (the original Commonwealth Bank). In recent decades our governments have been backing away at a rate of knots from the provision of such services in the name of ‘the market’ but does it make sense?

In the case of the water provider, if it had still been a purely public utility (that is providing a public service) losses during a drought would be a non-issue because it is in the public interest to sell less water and preserve what is left as far as possible. Why should a water supply be put in the hands of a private (or commercially-oriented) supplier when it is an essential service for the community as a whole? No community will survive long without water but it is now a commodity on which to make a ‘profit’.

Transport services provide the classic difference between private and public provision.

A private provider will operate, or continue to operate, those services and routes that it deems profitable. Occasionally it will run less profitable services but only to maintain the goodwill of its customers.

By contrast, a publicly run transport service is there to do just that, provide a necessary public service whether or not it is profitable. Prices that contribute to meeting running costs are justified and a public provider is more likely to offset loss-making services by the surpluses reaped during peak hour services (cross subsidisation). One issue is which costs should be taken into account in fixing prices? I recall from the 1970s, in the days when complaints about the NSW rail network running at a loss were being made, that there was a small article buried on about page 12 of the Daily Telegraph that during that year the railways actually made a profit on ‘operating costs’ — the ‘loss’ arose from the fact that loans were still being repaid, some to British banks dating back to the 1800s when the NSW railways were being established.

In an effort to offset the ‘losses’ many rail services were cut and lines closed. Regional services in particular were hard hit. That didn’t mean there were no people in those areas who needed the rail service, just not enough to ‘justify’ its continued operation. People became more reliant on cars. Some farmers lost freight services and had to turn to heavy road transport companies (that relied on making a profit, not providing a service). Of course, this pushed higher costs onto local councils to maintain the regional road network, which no doubt meant an increase in rates. So the loss of a service does not come cheap!

In a modern society, electricity is almost as essential as water and is being made more so by the many services now being provided on-line. The ATO no longer routinely distributes printed tax return forms (you have specifically to request one) and is encouraging people to do their return on-line but without electricity that would be impossible. So we now need electricity not only for energy needs — heating, cooking, light — but to participate in our society and use government services.

Despite that, some electricity services are now privatised and the rest operating on a commercial basis. In other words, a profit is being made from goods and services which I have no choice but to use.

In my view, much of the privatisation of public services came about because governments had avoided long term planning for the assets. Water, transport, electricity, health and education services require major infrastructure. There is obviously a capital cost in establishing that infrastructure and also in its ongoing maintenance, but there comes a point in time when the infrastructure needs replacement or major upgrading.

The time when much privatisation took place seems to have been that point where governments faced the replacement or upgrading costs. Instead of having planned for it over the life of the infrastructure, governments had not put money aside, always expecting they could meet it out of general revenue at the time — until they realised they couldn’t. (Although, ironically, they often poured money into the enterprises to prepare them for privatisation.) Of course, they could borrow but they were already running up debt and in the face of the political pressure to reduce debt, felt constrained. Privatisation was supposedly a double win for governments to the extent that they made money from the sale and off-loaded the expense of upgrades and replacement. John Quiggin has shown, however, that, in most cases, there wasn’t a significant financial gain to the governments over the medium term as compared to keeping the service in government hands. Whatever the financial outcome, they reduced public services.

The problem with much of this privatisation is that it is occurring in what the economists call ‘natural monopolies’, where it is more efficient to have a single supplier of a good or service to the many, rather than many providers each supplying to the few: for example, it is wasteful to have three different water companies each constructing pipelines past every house to provide ‘their’ water. The neo-liberal economists supporting privatisation have overcome this by ‘disaggregation’. Just see how they have split electricity and rail: electricity is split into generation, distribution and retail; and rail has been split into the rail networks (the tracks) and the actual services (trains). This allows them to privatise parts, if not all, of the system.

In relation to electricity, John Quiggin points out that this approach means economies of scale and economies of scope are lost. There is evidence that the so-called competitive electricity market, with many retailers now competing for customers, has led to a large increase in non-productive staff — involved in management, human resources, administration and marketing, not in electricity production or distribution. Whereas a single state-owned provider needed only one set of administrative staff (and no marketing staff), now each separate company needs a set. Previously the state-owned body operated the generation, distribution and sale of electricity (some even had their own coal mines). Electricity prices are extremely volatile, partly because electricity cannot be stored, and can vary from a few dollars to a few thousand dollars per megawatt/hour depending on the time of day. When a single entity handled the whole supply chain, that volatility was more easily absorbed. Now it is in the interests of the generators to keep supply as low as possible (that is, the minimum necessary to meet anticipated demand) so as to maintain the highest price but that becomes a cost to the retailers (and hence consumers).

The reason often quoted to support privatisation is that competition will ensure the lowest prices and more efficient and better services meeting customer needs. Consider, however, the privatisation of ports and airports that has taken place. There are not six port facilities to choose between in Brisbane or Port Kembla, or four or five airports, capable of handling commercial jet flights, to choose from in the capital cities, so there is no competition — they are monopolies. In such situations the government has to retain a regulatory responsibility just as it does for any monopoly that exists in the market: even economists acknowledge that regulatory responsibility exists in regard to monopolies so that the monopoly power is not used to set prices at what the market ‘will bear’, rather than the price being controlled by competition. If the government still needs to regulate, why privatise in the first place?

One argument, often put without question and without supporting evidence, is that private enterprises are more efficient than government enterprises. Economic theory apparently suggests that this should be so but factual evidence often suggests otherwise. Productivity in the electricity industry has not increased as fast as across the economy overall, partly a result of the increase in non-productive staff (discussed earlier). There are many examples of so-called efficiencies and productivity gains coming primarily through lower wages and lesser non-wage conditions. This is effectively a ‘gain’ to the private provider but a ‘loss’ to the worker — and, if we follow ‘middle out’ economics, a loss to the economy. Losses to the economy are magnified when the new private owner is an overseas company, as is often the case, and most of the profit leaves the country. These are ‘social costs’.

Other ‘costs’ occur when private operators incur debt, either to make the purchase in the first place or to provide infrastructure improvements after they own it. The cost occurs here because governments can raise money by issuing government bonds at a lower rate than companies can obtain finance through financial institutions or equity (shares). These higher costs are inevitably passed on to the consumer.

When efficiency is measured in dollar terms, we can end up with examples like this. In the USA in the 1980s and ‘90s, medical waste was disposed of by private companies. Normally this should be done by high temperature incineration but the private companies decided it was more efficient (cheaper) to dump it at sea. When dangerous material started washing up on California and New Jersey beaches, the public became aware of what was happening and, of course, there was an outcry, forcing the governments to intervene and legislate tighter controls.

In Europe the arguments for privatisation seem to have changed slightly. While ‘efficiency’ remains central, two new arguments have been added: ‘strengthening financial markets’ and ‘reduction of public debt’. Reduction of debt was always on the edge of this debate, at least so far as governments were concerned, but, following the GFC, it appears it is now becoming more central in economic arguments. And I think there is hypocrisy in economists suggesting governments should act to ‘strengthen financial markets’ — isn’t that interference in the market?

Basically, privatisation means the government has less ability to direct the provision of services for the public benefit, which essentially means, in the case of many of these type of services, ensuring reliability and quality. Under public ownership many electricity systems included built-in redundancies to ensure safety and reliability of supply. In market terms this is a ‘waste’ of resources but ‘redundancy’ is a critical issue for safety and reliability: almost every commercial aircraft in the world has duplication of many systems (redundancy) because safety is critical, even for commercial success. For areas where safety is less critical, the market will certainly see redundancies as pointless but, in services like water and electricity, it is reliability that is the critical issue and some redundancy may be necessary to ensure that. There is evidence that the privatisation and corporatisation of electricity supplies has led to less reliable supply. If the emphasis is on the efficient allocation of resources to achieve profits, then reliability may move down the list of priorities. Maintenance, also necessary for reliability, is one of the first aspects to be downgraded as it is ‘efficient’ to maintain only to the minimal level necessary to deliver the service. For example, in SA in 2001:

There were 500 outages in January 2001 alone. Unions claimed that the 900 workers employed to check and repair powerlines in 1991 had been reduced to about 300, whilst maintenance crews were reduced from 270 to 90.

The problem with the shift of many services to a commercial or profit-making basis is that public benefit is overlooked and government loses some control over its policies, just as in the example of making up for the ‘loss’ of water sales during a drought. Similarly, we were previously being encouraged to reduce our energy consumption in a bid to reduce greenhouse gases. If electricity consumption is reduced two things happen: some of the infrastructure may become redundant and a loss is incurred by the generators, meaning companies will increase the price of energy to make up for the loss both in consumption and from ‘wasted’ assets. But even in economic terms that is a ‘price signal’ that may counter the policy intent of reducing consumption because people may well say what is the point of reducing consumption if every time we use less, the company puts the price up to cover the ‘loss’. People may still reduce consumption based on the higher ‘price signal’ but no longer as much as they would if they felt there was a ‘moral obligation’ or a ‘community benefit’ (when they know everybody else is acting in the same way) in doing so. If these were public assets, governments should, in accord with both policy intent and public benefit, allow people to benefit (lower bills) from the effort they make to reduce consumption, which would send a positive ‘price signal’ that reducing consumption is good. When it is privatised there are conflicting messages: a government policy saying use less but the private provider saying consume more or, at the least, not rewarding people for using less.

A significant change that can occur was expressed in relation to health care in an editorial in the New England Journal of Medicine in August 1999:

Our main objection to investor-owned health care is not that it wastes taxpayers’ money, nor even that it causes modest decrements in quality. The most serious problem with such care is that it embodies a new value system that severs the communal roots and Samaritan traditions of hospitals, makes doctors and nurses the instruments of investors, and views patients as commodities.

To my mind, that is the main danger of privatisation, not economic arguments but what it is doing to our society. The neo-liberal economists argue that the only responsibility of the CEO and board of a company is to maximise returns for shareholders. That may work providing consumer goods in the market, when people have a clear choice whether or not to buy, but when it comes to water, electricity, health and education, in which people have no real choice, surely there must be a public interest criterion. The neo-liberal economic approach says no.

Governments need to step back from this privatisation fiasco that places financial markets and shareholder interests above the public interest, particularly in relation to the ‘natural monopolies’. It was once seen that such natural monopolies were the ‘natural’ province of government but no longer. Governments have bowed to the market and the neo-liberal economists promoting it, to the detriment of society, not to its benefit.

It is not too late to turn back. Although in many cases it would mean governments having to buy back what they previously owned, that is what has happened in some countries as the failures of privatisation became apparent. The UK government had to re-take the rail track network when private owners were not maintaining it as well as they should (a brief history here). The NZ government also had to buy back its rail network. In NSW, an attempt at privatising the Port Macquarie Base Hospital was a disaster and the government had to bring it back under the public umbrella. They are but the tip of the iceberg.

You would think that with so many failures, and with the supposed benefits of privatisation not eventuating, that governments would have learned by now but the words of King and Pitchford in 1998 still apply today:

… governments at both the state and federal level in Australia appear to pay little attention to the reality of privatisation, preferring to follow their own rhetoric.

What do you think?



We are all victims of short term expediency


In Australia, politicians are elected for either three or four year terms. The conventional wisdom is that the first year of their term is working out what they want to change — usually masquerading as ‘fixing up the mess’ left to them by their predecessors. The second year (and third where applicable) is when they implement what they consider to be their ‘mandate’ and the last year is when they try to convince a majority of the voting population that they are better than the other side. While there are various claims that they are making plans for the future, usually the plan is do nothing and hope they won’t have to make the unpopular decision at some time in the future when the need for the policy or infrastructure is urgent due to their previous lack of planning.

In contrast, when you go and get a home loan the usual commitment is somewhere between 25 and 30 years — although the property industry tells us that, on average, loans are refinanced or properties traded on another one within ten years.

Politicians of all persuasions claim they plan for the future. The last ALP Government in Queensland developed a plan for the state in 2020 — known as ‘Towards Q2’. According to the publicity booklet:

Our plan has been framed around five ambitions for our entire state, covering our economy, environment and lifestyle, education and skills, health and community.

The rationale for the forward planning included being better prepared for events such as the millennium drought, that threatened the water supply of a number of communities across Queensland in the early and mid 2000’s, and the subsequent flooding in 2011 and 2012. When Campbell Newman’s LNP Government came to power in 2012, it scrapped the ‘Towards Q2’ document but then created their own ‘Queensland Plan’, which is supposed to guide development, infrastructure and policy in the state until 2030. After the cost of co-ordinating ‘focus groups’ across the state — invariably attended by government ministers and senior public servants — internet sites for comments and other methods of consultation, the ‘Queensland Plan’ developed some foundations:

These foundations are: Education, Community, Regions, Economy, Health and wellbeing, Environment, People, Infrastructure and Governance.

The Queensland Government has recently issued a response to the ‘Queensland Plan’ — responding to a proposal it was instrumental in creating! If you can see large differences between the ‘Towards Q2’ ambitions and the ‘Queensland Plan’ foundations, please leave a comment below the line and educate us all!

In New South Wales, building the North West Rail Link to Castle Hill and beyond is underway. This train line, which was first announced in 1998, was originally to be a branch line from the current system at Epping to service a rapidly growing area of Sydney with inadequate road transport. (Even though buses can run express, they are still on the same roads as the private vehicles.) Wikipedia gives a history of the announcements and political games that have been played out to get to where we are now: and as you would expect, the ‘glossy’ website for the project sings the benefits of the scheme for all.

What the website doesn’t tell you is that the tunnels they are building for the North West Rail Link are too small to fit the existing Sydney double deck electric trains! Effectively it will be a separate network, which may one day go through a second Harbour crossing and continue to Blacktown.

If that’s not enough, while ‘Transport for NSW’ operates the existing rail network, Melbourne’s private train operator Metro will operate the north-west service under a contract — so the chances of co-ordination between the two distinct networks are likely to be pretty remote.

But wait, there’s more. The existing Epping to Chatswood train line is to be converted to take the North West Rail Link to Chatswood! So you have Sydney’s newest rail line being changed so the existing trains won’t fit, taking passengers from the north west of the urban area every four minutes in peak hour to a station requiring passengers to change to trains using the existing double decker carriages and then going across the Harbour Bridge on tracks that are already almost at capacity. Does this exercise in stupidity have anything to do with the ALP originally announcing the plan and the Liberal Government starting construction many years later?

The federal government is not exempt from the theory that we are all victims of expediency. Kingsford Smith Airport in Sydney’s east is Australia’s busiest airport. The Australian government sold it off in 2002 to Sydney Airports Corporation Limited (at the time a subsidiary of Macquarie Bank).

It has been recognised since the 1940’s that the demands on the current airport would outgrow the ability to deliver, as the existing airport is land locked. Over the years there have been a number of studies and promises that would deliver a second airport for the Sydney region — somewhere between Newcastle and Canberra. Wikipedia’s page describing the saga is worth a read for details. When the Howard Government sold off Kingsford Smith Airport, it agreed to a clause in the contract that the operator would have right of first refusal to build a second airport in the Sydney basin. Ben Sandiland’s excellent ‘Plane Talking’ blog on transport issues (predominantly aviation) has discussed this issue on a number of occasions — one of them is linked here. Note the spokesman for the Sydney Airport Corporation is the same Max Moore-Wilton who was Prime Minister Howard’s Secretary of the Department of Prime Minister and Cabinet.

The Abbott government announced on 15 April 2014 that Badgerys Creek would be the site of Sydney’s western airport. The commencement of the negotiation period with Sydney Airport Corporation was announced on 18 August 2014.

Ironically, the same New South Wales government that is crippling the potential of the North West Rail Link to operate in conjunction with the rest of the Sydney Trains system is funding the construction of the South West Rail Link, which does connect to the existing system at Glenfield and will pass very close to the Badgerys Creek site — using the same double deck trains that service Kingsford Smith Airport but apparently are not good enough to service the north west of Sydney.

Deputy Prime Minister Warren Truss made the announcements regarding Badgerys Creek Airport. He is the member for Wide Bay, based on Bundaberg in Queensland. He should be aware that Australia’s newest airport is located 15km west of Toowoomba — known as Brisbane West Wellcamp Airport. This privately built four-engine-jet-capable airport is privately funded by the Wagner family (who have a history in quarrying and construction businesses) and commenced construction in 2013. Qantaslink will operate a service (with Dash 8 aircraft) from Wellcamp to Sydney from November 2014. Badgerys Creek in contrast will commence construction in 2016 and not be ‘fully operational’ for a decade. While there will inevitably be greater design requirements for a capital city airport, such as Badgerys Creek, than there would be for what is effectively a regional airport such as Wellcamp, why is there such a difference in the construction times? The airports are built to the same standards.

So, if there is little difference between the ‘Towards Q2’ and ‘Queensland Plan’; if Sydney’s north west looks like having an ineffective train service which will also emasculate the rail system across Sydney; if Sydney’s second airport is still a decade away despite ‘planning’ being undertaken for over half a century (and the locals can build one in Toowoomba in under two years); are we being well served by our politicians’ ability to plan for our future?

Devising a plan or strategy for a significant period into the future is not an exact science. There will be dramatic events that affect every plan; from personal illness to global financial meltdowns. To suggest for a minute that politicians can ‘do planning’ any better than anyone else and therefore should be exempt from the expectation that plans will change is ludicrous. However, above we have three examples of planning by politicians that fail to build on previous work; rather they seem to be deliberately white-anting previous planning processes, all of which had significant time, effort and cost expended on them.

In a world where governments are telling us they have to make hard economic decisions, sack tens of thousands of staff, cut back on ‘non-essential’ services and live within their means, why do we accept that significant plans are thrown out when ‘the other side’ gets into power?

While there is an ideological difference between the ALP and LNP in Queensland, rather than scrap the ‘Towards Q2’ consultation and process (with its significant public and private consultation), wouldn’t it have been a better idea to suggest that the existing planning cycle be extended?

Building new railway tunnels too small to fit existing rolling stock is similar in action and intent to the various states having different rail gauges in the 1800s through to today. Any economic and practical analysis of the experiences caused by the ‘break of gauge’ issues throughout the 19th and 20th centuries would tell a rational observer that, even if there is a real issue with the operation of Sydney’s train fleet due to the double deck design, creating a separate system and converting parts of the current system won’t fix anything in the short or long term.

Both sides of politics have ignored the problem of the western Sydney airport for too long. The Howard government stymied the development by giving the first right of refusal to the purchaser of the existing airport, who clearly is not in favour of building a ‘greenfield’ site over maximising return on the existing site. The ALP government commissioned another study into the location (coincidentally a number of ALP-held federal seats were in western Sydney) and Abbott’s government announced it will take a decade to build — and, by the way, he won’t fund a rail connection, the most efficient method of accessing the western Sydney site from the east.

All of these decisions indicate short term expediency wins every time. Regardless of the colour of the politicians in power at the time, those who participate in the public input sessions (be they ‘town hall’ style meetings or ‘internet surveys’), collate the documents and discuss the pros and cons of various options with the politicians, almost invariably do so with dedication and commitment to making a better Australia.

That the advice is not followed for any better reason than that’s what the other side did is criminal. That’s why we are all victims of short term expediency.

What do you think?