Privatise the Profits

Despite concerns, there were no electricity shortages — load shedding — on Australia’s east coast during May or June. The outcome was managed by Australia’s Australian Electricity Market Operator (AEMO), the body responsible for maintaining the apparent delicate balance between supply and demand in a network that doesn’t have enough off-line storage to keep any surplus electricity produced until needed. AEMO effectively threw the electricity generation rule book out the window and along with the Government, demanded that various companies that own generation plant to run, averting the potential crisis, however they were paid extra to do so.

Even though a number of the so called ‘reliable’ coal powered generators were out of service due to breakdowns, other generation units were apparently taken off line because it was uneconomic to operate according to the rules. The price of the coal and gas used to generate power across most of Australia has increased due to international factors including the lack of fossil fuel supply to western Europe from Russia. While anger was directed at the companies that operate the power generators, predominately in New South Wales and Victoria, the real reason for the apparent attitude of profit at all costs goes way further back in history.

From the 1970s until fairly recently, in the name of ‘competition’, Australian Governments at state and federal level sold off a lot of their ‘essential services’ business endeavours. The list is extensive and includes Telstra, Qantas, Medibank, some power generators and a number of other household names including the Commonwealth Bank. Other government businesses including public transport operations and ports were leased to corporate entities for various periods of time. The governments did receive a ‘return’ from the sales or leases which was spent on all sorts of things in the eternal mirage of aiming for the ‘balanced budget’.

The claims at the time suggested that governments in general were inefficient business proprietors and there would be a suitable return to the taxpayer and members of the public if household names like Qantas, Telstra, railways, the power generators and power retailers were freed from their yoke of government interference, regulation and overly complicated decision making.

The reality has been quite different. We now have power generators who could be accused of gaming the system to maximise their income, large trucks owned by private concerns chewing up publicly funded roads (while formerly state owned rail lines that could easily carry the loads fall into disrepair because the cost of running a train includes full maintenance to the infrastructure — unlike a road) and our ‘National airline’ cutting domestic flights due to fuel costs and self-inflicted staff shortages.

As one of the ‘big 4’ banks, the formerly government-owned Commonwealth Bank has acted in a similar way to most competitors by closing branches, reducing services to the public and charging (at times) unreasonable fees or selling useless products through its banking and insurance arms. In fact, the Commonwealth Bank usually ‘wins’ the competition for the most complained about bank in recent years, although it’s questionable if the win should be celebrated.

The Saturday Paper recently suggested it is a wonder that Qantas ever gets a plane off the ground. In the hunt for profit maximisation apparently most ‘below the wing’ services such as luggage handling have been outsourced and the service providers’ pay those who put the luggage on a plane around $22 an hour. At a recent senate hearing
Labor’s Tony Sheldon asked Qantas general counsel Andrew Finch if the corporation requires that contractors engaged by the airline pay their employees a living wage.
Finch was deadpan in his response: “What’s a living wage?”
If you or your contractors pay peanuts, you engender a culture where some will only do what is necessary as there is no incentive to build a career. Most contractor employees will quickly work out that the service contractor and the owner of the business are only interested in cost minimisation. If someone comes along at the contract renewal period that is cheaper — the business owner will choose the cheaper supplier. In this case, the cost cutting has apparently resulted in Qantas flying plane loads of baggage around the country without passengers to try and reunite them and their possessions.

To be fair, Qantas’ General Counsel who doesn’t know what a living wage is and the Commonwealth Bank management that were charging unreasonable fees or selling junk insurance aren’t solely to blame — the political system that attempts to privatise the profits and socialise the losses has a part to play. And as the privatised power generators and gas producers have recently shown us, they have the right, as well as a legal obligation, to maximise the profits they earn for their shareholders. They are good at their job.

While profit in itself is not a bad concept, you have to ask the question if it is right and proper to withhold supply to maximise profit on a product necessary for our society. If things are as bad at Qantas as The Saturday Paper suggests, and recent reports of stranding a plane load of passengers in Dallas Fort Worth Airport for an entire day suggests they might be, the publicity will encourage people to try another airline. At the end of the day it’s Qantas’ loss, not ours as other airlines will happily take your money and fly you from Dallas to Australia. But there has to be a social contract with the owners of privatised government assets that are essential such as power, water, communications and freight transport to provide the service regardless of the immediate cost.

Past governments owned and managed banks, telecommunications. power and transport providers to provide a social good to the community. While, according to the detractors, management by government department may not be as efficient as private equity, at least government services understand and respect the need to provide a service rather than always being profitable.

Private ownership of essential services has been proven to be worse than public ownership, as the owners’ real customers are their shareholders — not our society. The costs for the ultimate customer haven’t gone down, the service hasn’t improved and the management of the private companies are required by law to maximise the shareholder’s profit. And as we’ve recently seen with power generators, we subsidise the private owners of essential assets if economic conditions change! If we privatise the profits, why do we accept socialisation of the losses?

What do you think?

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Bruce Bilney

18/07/2022

"Privatise profits, socialise losses", yes what a neat formula for the Few to become obscenely rich while the Many progressively suffer loss of services in all those areas "privatised". Thanks for this thoughtful article. But what's to be done about it? Nothing that I know of. 

Dana

20/07/2022

Quote : The price of the coal and gas used to generate power across most of Australia has increased due to international factors including the lack of fossil fuel supply to western Europe from Russia. ?

Please explain.  Most people including myself do not understand how a war/conflict the other side of the world affects the supply of Australia's coal and gas.   Is it all being exported to the detriment of Australian residents?  

2353NM

21/07/2022

@Dana - The economics of pricing has been the subject of a lot of books, the 30 second version is this.

The trade in oil, gas and coal is international. Should there be a shortage of supply in any part of the world, those suffering the shortage will look for other suppliers. Other suppliers will also know there is a shortage and be able to demand a higher price from their regular customers based on the premise that if the regular supplier doesn't pay, the supplier can find a market in region that is suffering a shortage and sell at a profit.

A quick example using RAT devices for COVID testing. When they were first approved, you might remember that they were quite expensive as there was little supply and everyone wanted them. Now all those who want them probably have a supply at home, and there is a realistic expectation that if you run out, the the local Pharmacy or supermarket will most likely have them in stock the price of the items has generally reduced significantly as there is no pent up demand for the product.

What does t-w-o plus o-n-e equal?