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Why privatisation is wrong

Justice Michael Kirby on
Why Privatisation is wrong

The Hon Justice Michael Kirby AC CMG*, went to the trouble in 2006 to warn1 Australians about the dangers of privatization removing important government functions to a position beyond the laws made to administer them fairly.

He said “The ‘commercialisation’ of the public sector means that isolating the activities and decisions of government from those of the private sector is becoming a more complicated, and sometimes, seemingly, an impossible exercise.”(p.3)

“The exercise of public power is fundamentally different in character to the making of a decision in a purely private context. Decisions are then being made on behalf of the people, typically involving the use of money raised from, and power derived from, the people. Higher standards of accountability and responsibility are therefore attached to the decisionmaker. Public power imports public accountability, including before the courts.” (p.4)

“This reduction in accountability is a result of removing control over day-to-day actions and decisions from the relevant Minister and government departments to private sector bodies whose ultimate legal responsibility is to their shareholders, rather than to the public interest more generally.” (p.6)

He goes on to describe the outcome of a series of cases involving the High Court where the law encountered problems in getting public accountability. This problem arose in NEAT Domestic Trading Pty Ltd v AWB Ltd (2003) 216 CLR 277. It involved officials of the Wheat Board who had refused six applications from another trader(NEAT) to export bulk wheat. The AWB had acquired through its creation by government, the power to prevent by veto bulk wheat exports from Australia. It could do this by withholding approval. The power to approve or veto exports normally belongs to a government body because it is a legal power. As such it is normally reviewable and controllable through the courts. That is, the judicial representatives of “we the public” can ensure that Australian trade is conducted fairly.

The outcome of this case was that Australians had lost the power to control the nation’s wheat exports by giving that power to this private body.

Because of this case, and others, it seems very wrong for Mr Carr, Mr Keating, the Murdoch Press and the many others we hear of to be urging Mr Iemma to privatize electricity against the will of the bulk of the NSW electorate and the NSW Labor Party.

The government has given up a great deal of control to corporations in the area of banking (through deregulation) and the banks have become too strong to effectively control. There seems every reason for Australians to disbelieve reassurances that all will be well with the corporatisation and privatization of electricity, water, ports and municipal government functions and assets.

Privatisation means transferring the powers conferred by ownership of an influential or vital asset or trade from elected government to private individuals. The only reason government gained control of them in the first place was because communities gave them that control. The communities did not ever give them the power to transfer those assets and resources. This power has been achieved without real consent. In the case of our electricity, water and savings, this means that we are (involuntarily) giving up control over resources and assets upon which our comfort and ultimately our lives depend.

Peoples form governments to protect them from this kind of situation yet our State and Federal governments are gradually removing the protections they were created to provide.

This is a bad thing and Australians have reason for grave concern.

Justice Kirby concluded, “It is no good Australia preaching good governance of other lands if it neglects the issue at home.

“I commend a reflection upon these aspects of governance to all participants in this conference concerned with the basic parameters of accountability in the deployment of public power. Public power and the use of public funds beget the need for public accountability. We should never forget or neglect this basic rule.” (p.14)

But most Australians have either forgotten or given up on this simple rule.

The speech referred to was by Justice Kirby, in the University of Canberra, Corporate Governnace ARC Research Project, Corporate Governance in the Public Sector Dinner, High Court of Australia, Canberra, 9 March 2006. The speech is downloadable from here as 53K pdf file.

See also: NSW electricity privatisation, democracy, government, The deep intellectual, financial and political dishonesty of privatisation

Comments

Excellent post, Sheila.

Thomas Frank's book, 'One Market Under God' considers how markets came to be seen - in some circles - as more democratic than democratically elected governments. The book's preface describes how John Perry Barlow, a former lyricist for the Grateful Dead, railed against the authority of governments from a kind of cyber-libertarian perspective. Frank notes that Barlow's diatribe in Davos, Switzerland was, in fact, a "note perfect expression of the imperatives of global business."

It's no surprise that libertarian objectives correspond directly with the interests of international business. What's surprising is that the messages of the 60's counter culture, about getting governments out of the bedroom and away from the bong, have translated into economic rationalist liturgy.

A liturgy which, apparently, has gained widespread acceptance across the political spectrum and which is ruthlessly applied; even when evidence of its failures are clearly apparent.

John Perry Barlow can perhaps be excused for hanging on to the warped remnants of 60's counter culture. It was the environment that defined him. Keating, Carr et al have no such excuses.

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Gordon Moyes, a NSW Christian Senator, listed pros and cons very usefully on his site on 14 Feb 2008. I wonder where he stands now. He said that he thought he would vote against privatisation. 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.

How can you influence what happens

If you understand the issue and have read the arguments I have presented for and against, you can effectively influence what happens. Members of the major parties and the Greens have no option but to vote as their party tells them. But the Shooters Party and the Christian Democratic Party can vote in accordance to their conscience and the expressed wishes of their members. If you want me to know what you think then email me today. Make it brief and give me your reasons. I will read your concerns and take them into account. I may also print them in coming weeks for others to read.

While I will listen carefully to the Government argument to sell and privatize the electricity system, I am under no obligation to support them as others may be and at this stage will probably vote against the proposal. But I will read your opinion. So email me at gordon@gordonmoyes.com today (do not ring – I cannot handle all of the calls).

While the leasing of power generators and distribution can be achieved without legislation, any sell-off will need the approval of Parliament. This crucial issue will be discussed in the first week of sitting. As a democratic party, I invite you to voice your opinion, concerns and perspectives on the State’s power privatisation plans before making my decision on the future of the power industry in NSW in what could be a very even vote.

Rev The Hon. Dr Gordon Moyes, A.C., M.L.C.

References

Beder, S., and Cahill, D. (2005), Regulating the power shift: The state, capital, and electricity privatisation in Australia, Journal of Australian Political Economy, 55, June 2005: 5-22

Coultan, M., Iemma too stupid or too proud, The Sydney Morning Herald, 25/01/08

International Energy Agency (IEA) 2005, Energy Policies of IEA Countries: Australia 2005 Review, OECD, Paris
Maitland, J. (2001), Is corporatisation a viable alternative to privatisation, CFMEU website

Owen, A. (2007), Report of the Owen Inquiry into Electricity Supply in NSW, Sydney

Salusinzky, I., Costs lower for privatised power, The Australian, 15/01/08

West, A., Unions warn of high power bills, The Sydney Morning Herald, 02/01/08

Wilson, N., Power to the People, The Australian, 26-27/04/2003

www.dpc.nsw.gov.au

www.stoptheselloff.org.au

www.erig.gov.au

www.esc.vic.gov.au

Thursday, 14th February, 2008, 9:32 am | Editorials

Comments are closed.

© 2005–8 GordonMoyes.com

Damien Cahill and Sharon Beder, "Regulating the power shift: the state, capital and electricity privatisation in Australia"
ABSTRACT
This article examines the process of electricity privatisation in Australia in order to identify the dynamics of neo-liberalism in practice. It is argued that neo-liberalism is best understood as a particular mode of regulation in which the state legislates to secure freedoms for capital. In the case of electricity privatisation the main beneficiaries have been corporations rather than consumers and this has been facilitated by a whole host of new state regulations.

You can download this article free at: http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1039&context=artspapers