f there is a single economic policy that symbolises the dominant economic ideology of the decades from the 1970s to the global financial crisis, that policy is privatisation. The ideology, variously called neoliberalism, market liberalism and economic rationalism, involves rolling back the growth of the state, greatly expanding the role of the financial sector, and removing restrictions on international flows of capital. Privatisation, the conversion of public enterprises into private corporations through share floats or outright sale to a (normally foreign) buyer encapsulate all these aspects of neoliberalism.
It is striking that, given the near-universal political consensus in favour of neoliberalism, and particularly privatisation, that the public has never embraced this idea. Indeed, far from becoming accustomed to privatisation, voters have become more resolutely hostile, as numerous Australian governments have found to their cost.
Voters have had a couple of decades of experience by now in having all manner of things sold off: from the national airline to public transport systems, ports, railway lines, the Commonwealth Bank and even the national telephone network. We get it. But rather than allaying concerns, familiarity with privatisation has bred contempt in the electorate. Public views on privatisation are firmly negative and consistently so.
Advocates of privatisation often ask, rhetorically, whether their opponents would support reversing past renationalisation. The opinion poll evidence suggests that, for most voters, the answer is yes. Until recently, however, it was an open question whether such responses to opinion polls would be translated into votes.
Since no major party would advocate renationalisation, the question remained unanswered until Labour's 2016 election campaign in the UK. Leading a deeply divided party, and without a coherent policy on the central issue of Brexit, Jeremy Corbyn went to the polls on a platform that included renationalisation of the water, electricity, gas and rail industries. The pundits were united in predicting disaster, but Corbyn achieved a huge swing and came within a few seats of winning office.
The remaining trump card of those who oppose renationalisation is the claim that it is "unaffordable". Renationalisation, it is suggested, would use capital that could otherwise be invested in schools and hospitals. Economists of all persuasions have always understood that this is nonsense. Investments in assets that do not return an income flow to the government, such as schools and hospitals, must ultimately be financed by taxation. By contrast, as long as the earnings of a government enterprise are sufficient to service the debt needed to acquire or create it (which will be true if public ownership is more efficient than the private sector alternative), there is no additional requirement for taxation.
Voters have reached the same conclusion by a different route. For decades they have been sold privatisation on the basis that it would provide finance for desirable public investments. For just as long they have been told that, despite all the past privatisations, more austerity and belt-tightening is needed. As a result, according to a 2015 Essential survey, most reject the claim that: "Selling government assets frees up money to reallocate to other services and infrastructure."
Still, the widespread acceptance of spurious arguments, at least among the political class, means that it is important to consider the financial structure under which renationalisation should take place. British commentator Will Hutton recently proposed a way of renationalising enterprises without explicitly buying them back. The key idea would be to convert existing firms into a new category: the public benefit company (PBC) – which would write into its constitution that its purpose was the delivery of public benefit to which profit-making was subordinate.
The idea is appealing, but the role of shareholders remains problematic. In Hutton's model shareholders would notionally retain votes, but the non-executive directors would be appointed by the government and would be answerable to consumer challenge groups and other stakeholders. In this setting it is difficult to see how shareholders could exercise their voting power. Similarly, while shareholders would receive dividends paid of out of company profits, the whole idea of the proposed structure is to subordinate profit-making to public benefit.
Australia has, or had, a better solution: the commercial statutory authority, of which Telecom Australia (before it became Telstra) and Australia Post (until it was corporatised in 1989) were prime examples. At the state level, statutory authorities supplied essential services like electricity and water. These authorities serviced their own debt and financed new investment out of sales revenue, as well as providing a modest return to the government.
Crucially, the statutory authority model breaks with the idea that a corporate model, with directors responsible to shareholders is the best way to provide services to the public. In the statutory authority model, the public service objective is built into the governance of the organisation, rather than being imposed. Before corporatisation, Australia Post was run, not by boards and CEOs but by public commissions, including representatives of customers, workers and the community at large, and charged with meeting "the social, industrial and commercial needs of the Australian people for postal services". Over the 15 years of operation as a statutory authority, the real cost of postal services was reduced by more than 30%, a reduction that compares favourably with the period since corporatisation.
It's true that the debt issued by statutory authorities counts as part of the gross debt of the public sector. It's now fairly well understood, however, that gross public sector debt is a meaningless measure, since it fails to take account of income generating assets. The relevant measures are net worth (which takes account of the value of government businesses) and general government net debt, which focuses on the operations of government that must be financed by tax revenue. Public ownership of business enterprises increases net worth and has no effect on general government debt.
A lot of things have changed since the late 20th century, and it may be that we need new models for public enterprises in an era of renationalisation. But the successes of the statutory authority model suggest that it is a good place to start.
- John Quiggin is an economist at the University of Queensland
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