
Issue No 105		03 August 2001

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Economics

Privatisation: The Dangerous Road

Frank Stilwell argues that the corporate collapses of HIH and One Tel are potent reminders of the downside of 'people's capitalism'.


	Frank Stilwell

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The proportion of Australian households directly owing shares has risen, in round terms, from about one in ten two decades ago to one in two today. Much of this growth in share ownership is the consequence of privatisations of public enterprises. We are well down the road to owning privately what we previously owned collectively.

The sale of the first tranche of Telstra shares was the classic example of promoting privatisation. The sale price was deliberately set below its realistic market value so that there would be no shortage of buyers. The politicians were then able to crow about the popularity of privatisation. The process was subsequently thrown into reverse gear when the public enthusiasm was jolted by the disappointing shares prices following the sale of the second tranche of Telstra shares. The continuing slide of Telstra share values leaves that second round of share-purchasers about $2.50 per share worse off. Kim Beazley is now publicly pledging an end to any further privatisation of Telstra. However, it would be fanciful to conclude that the privatisation process run its course.

There are certainly signs of a backlash. Privatisation: Sell-Off or Sell-Out, a recent book about Bob Walker and Betty Con Walker shows that many of the claims made by the privatisers do not stand up to critical scrutiny. Public assets have sometimes been sold at such bargain basement prices that the result is woefully uneconomic. The posited efficiency gains coming from privatisation are often not forthcoming. More reliably predictable is the social damage resulting from the sacrifice of public service obligations previously imposed on government enterprises. Ironically, government regulation tends to become more necessary following privatisations, so the choice in practice may be between public enterprise and more strictly regulated private enterprise.

As the Walkers argue in their analysis, it is necessary to consider privatisations on a case-by-case basis, looking at the pros and cons in each instance. Logically, the reverse also applies: that consideration should also be given to extensions of public ownership where appropriate.

Beyond that case-by-case examination of different industries it also has to be recognised that there are political and ideological, as well as economic, dimensions to the privatisation issue. The drive to privatise public enterprises has been part of a broader neo-liberal policy program which prioritises individualism over the collective resolution of our social needs and concerns. Margaret Thatcher once declared her intent to 'scorch socialism off the face of Britain' and it would appear that she effectively succeeded. A similar process has been happening in Australia. It involves undermining the principles and practices - even the perceived possibility - of collectivist practices, and their replacement by selfish individualism as the central assumption of social organisation. 'Incentivation' is how John Howard has previously described it.

From this perspective, the sale of our public assets has a broader political and ideological rationale which even some on the Labor side of politics, perhaps unwittingly, have come to accept. It links up with the push towards the contracting-out of public services, the transfer of welfare state functions to private providers, and the further alienation of public land. Privatisation comes in many guises. Another is the increased use of BOOT schemes (build, own, operate, transfer) for the provision of tollways and other social infrastructure. Meanwhile 'privatisation by neglect' is undermining public education, encouraging more parents to send their children to private schools. 'Privatisation by squeezing' is making the Universities even more reliant on the sale of their services in the marketplace, including to corporate sponsors.

The common element in these processes is a drive to restrictive society on more straightforwardly capitalist market principles. The 'commodification of social life' thereby proceeds apace. The demutualisation of cooperative institutions like the NRMA is a parallel trend. The consequences include growing social and economic inequalities, most obviously in the form of the prodigious executive salary packages 'earned' by corporate executives, including those of newly privatised and demutualised enterprises.

In this increasingly unequal society, social cohesion becomes more fragile. The willingness of people to work together for common purposes is undermined because the fruits of such cooperation are not equitably shared. So, ironically, even the economic consequences of the neo-liberal program are likely to be quite perverse in practice.

Meanwhile, share ownership remains markedly concentrated in the hands of the large investors. So the rhetoric about 'people's capitalism' sits uneasily alongside the evidence of 'business as usual' for the really wealthy stratum of Australian society. The latest Business Review Weekly 'Rich 200' list shows that there are now 11 Australian billionaires, up from only 3 six years ago. To get on the list of the wealthiest two hundred now requires at least $80 million. These are not the 'mum and dad' shareholders who bought into the privatisation process: they are the class elite who continue to dominate the ownership and control of capital. An article in the latest issue of the Journal of Australian Political Economy shows how well integrated in this elite, owning the dominant blocks of shares in the major businesses and having numerous interlocking directorships in each others companies.

The broadening of public control over industry development remains the key political economic challenge. It is not achieved by privatisation - quite the reverse. Nor is it necessarily achieved by the extension of superannuation funds. There has been a rapid growth of workers' savings in superannuation funds, of course, and therein lies tremendous potential for having more influence over the investment processes. However, the capital in the funds is typically allocated according to fairly limited rate of return criteria, not departing substantially from capitalist investment principles in this respect. About a fifth of the money is invested overseas. A nationally coordinated superannuation system, financing a national investment fund, could provide a much better means for promoting Australian industry development while spreading risk in the process of managing workers' retirement incomes. Ethical investment and the engineering of a more ecologically sustainable economy could then be effective priorities. Developing this means of linking the broader ownership of capital with policies for industry development is something for the prospective Labor government to consider in the run-up to the Federal election.

The key issue is not whether workers should have a stake in industries. It is the appropriate form of that stake. Individual share ownership? Collective ownership through the establishment of public enterprises? Or the less universal form of collective ownership which the extension of superannuation arrangements makes possible? The continuing debate over privatisation should put these broader issues on the public agenda. The key issue is the disposition of workers' capital. Going further down the privatisation road individualises the disposition of workers' capital, with all the attendant risks and uncertainties that entails. Other more collectivist options beckon.

Frank Stilwell is associate professor of economics at Sydney University

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  Issue 105 contents

Interview: Whose Advocate?
Employment Advocate Jonathon Hamberger argues the case for his organisation's survival and reveals his secret union past.

Politics: CHOGM: What Should Unions Do?
Activists Peter Murphy and Vince Caughley kick off the debate about what is the appropriate action ot take when CHOGM leaders meet in Brisbane

E-Change: 2.1 - The Changing Corporate Landscape
In the second part of their series on the impact of new technology, Peter Lewis and Michael Gadiel try to understand the new corporate playing field.

Unions: Hamburgled
Jim Marr reports that the Employment Advocate has been handed a chance to salvage some credibility by cleaning up anti-union practices in the call centre industry.

Economics: Privatisation: The Dangerous Road
Frank Stilwell argues that the corporate collapses of HIH and One Tel are potent reminders of the downside of ï¿½peopleï¿½s capitalismï¿½.

History: Hard-Earned Lessons
Art Shostack looks at the legacy of the landmark strike by PATCO air traffic controllers 20 years ago.

International: Political Prisoner
Greenpeace campaigner Nic Clyde, facing up to six years gaol in the United States for taking part in a non-violent protest, speaks exclusively with workers Online.

Review: Seven Pubs and Seven Nights
Labor Council's newest recruit, Susan Sheather, shows she respects tradition by going in search of the perfect bar

Satire: Obituary: Mr Rob Cartwright - Captain of Industry
In all fields of endeavour, there are those who command our respect through their sheer commitment to excellence. One such titan was Rob Cartwright, whose chosen field, the obscure HR discipline of "moving people onto individual contracts" lost its greatest practitioner and champion late last night, following a tragic self-inflicted accident.

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