The case for and against privatization ?

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Still a strong case for keeping privatisation in the reform tool kit
Mikayla Novak AUGUST 19 2016

Despite recent concerns raised by the head of Australia's competition watchdog, privatisation remains a viable reform option.

Even though it has been firmly established as a modern economic reform mainstay, the notion of privatisation remains a controversial one among the public at large.


Governments try to make privatisation more politically appealing by promising to spend funds on capital projects. Photo: Darren Pateman

There are vested interests that will disparate privatisation as a matter of course, regardless of its successes, but when a longstanding, self‑avowed proponent of privatisation starts raising doubts it makes sense to take notice.

Speaking at an economics forum in Melbourne a few weeks ago Rod Sims, former Hawke government adviser and reappointed head of the Australian Competition and Consumer Commission, said, "I'm now almost at the point of opposing privatisation".

The reasons for Sims' growing scepticism about privatisation policy are two‑fold.

The first concern is that governments transferring ownership of assets to the private sector seem to be doing so with revenue‑raising as a primary objective, and this becomes more apparent when governments are gripped by a budgetary crisis.

Referring to the case of recent sales of port infrastructure by the NSW state government, Sims remarked: "I just think governments are more explicitly now privatising to maximise the proceeds."

In the past federal and state governments have used the sales proceeds from privatisation to reduce public sector debt, and more recently have tried to make privatisation politically appealing by promising to spend funds from asset sales for recurrent or capital purposes.

Paying off debt is better than frittering funds on potentially low‑value spending but the bottom line, from a classical liberal perspective, is that the bounty of sales revenues a government collects from privatisation ought to be a secondary concern.

The application of sales proceeds by federal and state governments during the 1990s and early 2000s to reduce the burden of public sector debt was welcome at the time. But the broader "political economy" problem of governmental overspending was unaddressed.

If politicians lack the discipline to control spending, as budgetary developments in recent years attest, then the sale of public sector assets today could perversely help to financially validate the excessive expenditures of the past.

Putting these considerations together, the promise of privatisation revenue is no substitute for sound public sector financial management practices.

There are far more compelling reasons to privatise than fundraising, so in relation to the revenue question there is merit in the argument posed by the national competition policy regulator.

The second major issue that Sims raised in his Melbourne talk related to the implications of privatisation for competition, not only from the perspective of rivals competing with the owners of the privatised asset but for downstream industries and final consumers.

Ever since privatisation became a part of the policy reformer's toolkit, it has been stressed that a privatised entity as part of a highly competitive environment, with numerous sellers already in place, is preferable.

At the very least there should be contestability pressures, or a credible threat of competitive entry into the industry by potential rivals, if a situation of converting a public monopoly into a private one is to be avoided.

In addition, a government preferably should not pursue any contractual arrangement that crimps competition, such as giving the buyer of privatised infrastructure a right of first refusal over future facilities located nearby, even if that potentially loses some privatisation sales revenue.

If a competitive environment cannot be ensured prior to privatisation, including through the structural separation of the privatised entity into its contestable versus monopolistic activities, it is recommended some form of regulated price oversight is needed to ameliorate the risk of monopolistic pricing.

Where privatised entities exist in sufficiently competitive markets governments have tended to relax price controls, whereas for private monopolies a regime of price monitoring, or even determinations of allowable price increases, have been implemented across Australia.

There is often a regulatory clamour for more prescriptive controls on prices charged by privatised entities and this can be fuelled by mischievous claims that privatisation, as opposed to government policies or changing market conditions, is responsible for price increases.

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Mr Smith,

what about the Comm Bank, Telstra, Qantas, Medibank, etc. ?

It is hard to imagine these Stock Exchange listed companies as part of the govt now.

Where privatization works reasonably well is when there are other competing companies such as Medibank etc.

Where it doesn't work so well is things such as Medicare where there are no competitors in the private sector.

juliar wrote on Aug 22^nd, 2016 at 11:34am:


Especially those ..... why do you think the govt. has such a 'revenue' problem? Everything that made money they sold.

they're all a bunch of retards

Don't worry given time the Governments will sell all of our sorry arse to China and we will be the third rate citizens here whilst China will do what it likes with our Country

von richtovern working out his 20 posts so he can msge Freed  Diver about my Red Baron i.d. being hacked on this site

Fuzzball wrote on Aug 22^nd, 2016 at 1:09pm:



you can't name ONE example of that ever happening

John Smith wrote on Aug 22^nd, 2016 at 2:51pm:


The private sector makes up the majority of the economy.  There are literally millions of examples 

Go visit North Korea......there's no privatization there....compare the difference...

You don't have to be Einstein to work out that putting certain services and amenities into the hands of a few greedy men will not have the desired outcome.

Juliar you sound like you have grown up knowing nothing other than the neo liberalism philosophy/mentality of Milton Friedman which states put everything in the hands of corporations and the rest will work itself out.

Well for those of us who have lived both under government run and privatization I fairly certain most would prefer government run public assets.

For starters they are cash cows for the government, why do you think the oligarchy wanted them so much..??

Its revenue for our government to use in education, roads and health etc etc.

Now that they have sold of their cash cows the only revenue they have is taxation.

Milton Friedmans neo-liberalism and Carl Marx's communism are two sides of the same coin, we need a new coin, both systems are rubbish.

Under neo liberalism the wealth is being horded by a hand full of greedy men, the oligarchy, while communism existed they threw some scraps to the plebs just to show us this system is better for the populations and nations.

Now that communism is all but dead the oligarchy not only want to destroy the middle they also want to control every aspect of our lives.

Look at what they are trying to with carbon pollution.

What about our jobs going of shore to low cost centres, they're bringing in 457 visa workers to do Australians out of a job.

There are so many things wrong with this neo-liberalism and it wont be long before most of the middle class here in Australia will start to feel it, if they haven't already done so.

When the commonwealth bank of Australia (CBA)was under our government and the RBA past an interest cut the CBA would pass it on verbatim.

This in turn forced the other leaches to do the same otherwise what would you do with your mortgage.....???

Also the CBA under government wouldn't have passed all these fees forcing the other to follow suit.

Since the 1980's every nation that has adopted this neo-liberalism philosophy is in-debt over their heads.

Some things MUST be under government for the government and the services and amenities it offers to the public to function properly.

I would even go as so far as saying all our natural resources should be under government control too.

Look at Putin and Russia they are supplying all of Europe with natural gas, how many billions does that earn Russia in revenue.

Not the oligarchy, someone like George Soros but Russia which in turn means its the governments and ultimately the people's cash cow, not some wealthy greedy businessman whos only worry is PROFIT+.

Is privatization all bad ?

No - only about 99.98% of the time.