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The deep intellectual, financial and political dishonesty of privatisation

"In 1990, British political economist Grahame Thompson observed:
'One of the most remarkable features of the ‘conservative turn’ experienced in the UK since 1980 is the paradoxical emergence of extensive reregulation of economic activity in a period supposedly typified by drastic deregulation.'
(Thompson, Grahame (1999) The Political Economy of the New Right, Pinter
Publishers, London, 1990, p135.

From Gustave Doré's engraving
for "Le petit chaperon rouge."

"Thompson’s comments point to one of the central, but least understood, contradictions of neo-liberalism: that a system which is justified on the premise of a withdrawal of state intervention in the economy has entailed an active role for the state in its implementation and maintenance. This article examines the realities of neo-liberalism in practice through an analysis of the history and experience of electricity privatisation in Australia. Such realities are contrasted with common assumptions made about neo-liberalism by both its advocates as well as by some of its opponents. The case of electricity privatisation, it is argued, highlights not only the failure of neo-liberalism to deliver its promised benefits, but also the centrality of the capitalist state and class conflict to an appreciation of the dynamics of neo-liberalism in practice. We therefore reject the ‘withering away of the state’ approach to understanding neo-liberalism. In doing this we are contributing to a critique of the role of capital and the state in neo-liberalism."

From: Damien Cahill and Sharon Beder, "Regulating the power shift: the state, capital and electricity privatisation in Australia"

Gordon Moyes, summarised the main pros and cons of privatising NSW electricity, using many of the arguments in the article cited above very usefully on his site I have not included here the reasons he set out as pro-privatisation, since the government and the mainstream media peddle these ceaselessly.

Reasons against Power Privatisation

  1. According to UnionsNSW, the State’s power industry would be in the hands of Big Business in Hong Kong or China. The potential buyers are TruEnergy, AGL or the Chinese Government.
  2. NSW does not need a new baseload power station. Reducing demand for energy through improved efficiency, energy conservation, and reduced consumption will keep the lights on and reduce costs to consumers, without massive investment in new large generators.
  3. One of the main reasons against the selling of the State’s power industries is the tendency for price manipulation by private companies when generation capacity is low and a reluctance to increase capacity (and thereby lower prices) for energy users.
  4. The experiences of Victoria and South Australia show that power industry privatisation led to higher prices for households and industry and resulted in increased blackouts through lack of critical infrastructure maintenance.
  5. The State Governments of Victoria and South Australia found privatisation attractive, despite public opinion, because it promised a short-term influx of money into government coffers. A primary political motivation for privatisation in the states of Victoria and South Australia was debt reduction. However, although state debt fell from $76 billion in 1993 to $47 billion in 1997, taxpayers were often not any better off, particularly with respect to electricity privatisations. (Beder and Cahill 2005: 6). In the early 1990s, the Victorian State Government had such a large government debt ($32 billion) that its credit rating was downgraded by international rating agencies. Privatisation was a tool for reducing government debt and therefore taxes and charges to business. Moreover, Professor Beder, Research Fellow from The University of Wollongong, debunks the myth that the state’s triple-AAA credit rating is at risk by keeping the industry in public hands, even if it requires the government going into debt in order to invest in infrastructure. That’s because this infrastructure generates income and the NSW Government is able to support the additional debt involved.
  6. Victorian consumers faced a 17% rise in the power bills from 1 January 2008, taking the cost of electricity for an average family in Victoria from $945 to $1106 a year (West SMH 02/01/08). The Kennett government privatised Victorian electricity in the mid-1990s and TruEnergy now controls a large segment of the market. Electricity prices in South Australia increased by 40% between 1994 and 2002.
  7. Under the plans pushed by the Premier and his Treasurer, Michael Costa, prices will be regulated, but only until 2013, when free market forces will operate. A survey of 1011 NSW voters, conducted by Essential Research for UnionsNSW, found 85% of people oppose privatising the electricity supply, while 96% fear private operators would force up the cost of electricity (West and Robins SMH 19/12/07).
  8. Another major consequence of electricity privatisation has been heavy job losses. Between the mid 1990s and 2003, employment in the sector fell from 83,000 to 33,000 (Wilson 2003). For example, CFMEU’s John Maitland noted: “Electricity privatisation has led to the rise of contract labour in the electricity industry which has undermined union power and resulted in inferior wages and working conditions.” Furthermore, those communities built around the electricity industry have been particularly hard hit by electricity privatisation. Victoria’s Latrobe Valley experienced job losses of 16,000 as a result of privatisation.
  9. According to Ben Kruse of the United Services Union, “Private providers are not in the business for the long haul…the employment protections tend to disappear”. Privatisation would result in lower standards of customer service. TruEnergy moved 200 billing and sales jobs from regional Victoria to India.
  10. The idea of building another power station ignores the State Government commitment’s in reducing greenhouse gas emissions, which aims to cut to 2000 levels by 2025. NSW accounts for about 28% of Australia’s total emissions, which means that it will shoulder the biggest burden of any greenhouse gas reductions. NSW’s biggest emitters are its power stations, which contribute to 10% of the nation’s emissions, or more than a third of NSW’s total. (Coultan SMH 25/01/08)
  11. Competition in the state’s power industry would inevitably result in mergers and acquisition (seen in AGL’s failed attempt to merge with Origin Energy in early 2007). These increase horizontal and vertical integration and private monopolisation of the energy market by powerful transnational energy conglomerates. Such integration has allowed for the manipulation of wholesale prices, thereby exposing energy users to fluctuation in prices.
  12. Customers will also soon have to call two separate organisations for electricity needs. A Government owned corporation responsible for power lines, poles and substations, will handle maintenance. Retail and billing will be handled by at least three private operators, competing for customers.

Thanks to an anonymous contributor for drawing my attention to these two sources of criticism of privatisation.

see also: Why Privatisation is wrong

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