[LINK] selling the furniture-- in Detroit

[Frank O'Connor]

On 28 Dec 2013, at 3:17 am, stephen at melbpc.org.au wrote:

> Frank writes,
> 
>> .... something has to be done to stop the erosion of our infrastructure,
>> assets, lifestyle and standard of living as governments 'sell of off the
>> farm' to cater to current cash demands necessitated by the politics of
>> selfishness that's been endemic for the last 25 years..
> 
> Thanks Frank.
> 
> Good points regarding privatization, made in a powerful, persuasive manner.
> 
> Yet, according to recent media reports, Australia and NZ leads the world .. 
> 
> "Privatization Raises Billions in Australia, New Zealand" G. TAN, 5/11/2013
> Australia and New Zealand rank among the global leaders in privatizations 
> this year, raising billions of dollars as lawmakers seek to cut debt and 
> plug budget deficits. Three (recent N.Z.) deals are among the five biggest 
> privatizations via IPOs in the world in 2013, and raised a total of US$3.7 
> billion—ranking New Zealand first globally in privatization via IPO this 
> year. Australia, meanwhile, this year ranks 2nd globally in privatizations 
> through direct asset sales, raising US$9.65 billion, according to Dealogic. 
> And more assets could soon be up for bidding, including the country's US$22 
> billion student-debt portfolio and health insurer Medibank Private, which 
> is worth up to US$3.8 billion, according to analysts."
> 
> Ref:http://online.wsj.com/news/articles/SB100014240527023034825045791793621
> 70155466 
> 
> And, http://thestringer.com.au/wall-street-journal-cheers-on-an-aussie-
> privatisation-spree/#.Ur10e9IW3SM
> 
> 

Well, yeah ... this has been going on in NZ for the last thirty of forty years (since a conservative oligarchy took power before David Lange's Prime Ministership a few years later), and surprise surprise, the Wall Street Journal is still standing on the sidelines and cheering. I doubt the Spartacist Weekly would have the same sanguine view (and tone), but that's neither here nor there. (Can't remember the name of the Big Wheel oligarch now ... from memory he was a merchant banker and not a politician ... but he was the talk of the conservative set in the US and UK for many years.)

The point is that the WSJ seems to be looking at the issue through rose-coloured-glasses, and assuming that what's good for investors is good for everybody else, and that what's good for investors (no matter where they are domiciled) is good for the country that sells the assets and infrastructure to them. NZ's economic performance over the last 30 odd years has been as patchy as, if not more so, than everywhere else, and the cost has been borne, as always, by those who could least afford it.

So, if you ask the average NZ punter, many of whom are still deserting their shores and boating across the narrow channel between us to partake of the Australian experience rather than stay in the WSJ's Privatisation Nirvana, you may get slightly different perspective.

Assumptions, especially economic assumptions, are rocks on which many a theory has foundered over the last 30 years. Assumptions like 'private industry is more efficient', 'de-regulation is good', 'the market is always right', 'markets carry their own morality', 'competition reduces prices' have been proven as mythical, but not as reassuring, as 'the tooth fairy will make it right, Sweetie'. 

If the GFC and September 2008 proved anything, it's that economic assumptions are so far left or right of reality that they're effectively useless, that common decency and economics don't intersect, that no matter what happens the rich will get richer, and if that situation looks under threat they can rely on governments to send trillions of dollars in their direction to see that mistakes they have made are papered over (usually with the poorer taxpayer's dollars), that money naturally accumulates to the rich (and therefore moves slower, reducing economic activity and sending economies into recessionary spirals) and that the shrinking middle class and the working and unemployed poor will always bend over to take it up the butt. As I said, we've been through an ever increasing frequency of boom and bust over the last 30 years ... largely because we bought many of the above-mentioned assumptions, as well as little numbers like 'housing never loses its value' and 'shares will always lead the broader economy'' (That said, because shares in Oz pay regular tax effective dividends they are attractive as an investment ... I can't work out why they are attractive in an American context where dividends are rare.)

>> I guess what I'm saying is that if we sit back and let it happen, it'll
>> all get sold out from under us and one day we'll all wake up as permanent
>> tenants in what used to be our home. We'll have dispossessed ourselves..
>> As for us, we should also take the long view .. but .. baby boomers don't
>> seem to have much of a talent for that.. Which is why I still reckon we
>> should get out of the way of the following generations now ... they at
>> least have more motivation to fix the situation. Whether they have the
>> ability and tenacity remains to be seen.
> 
> 
> But here mate may I say with respect, having raised this problem, it seems
> a bit of a cop out just to offer as one solution , "we (oldies) should get 
> out of the way." Here's a problem, you formulate/implement solutions. Haha.
> 
> It seems to me that competition or regulation are the keys for any success.

Competition. Didn't work terrifically well for the banking industry after CBA was privatised (we pay some of the highest banking costs and charges in the world, in Australia,. Every time I get the monthly account I first check it for some new ones that a creative banker may have created to make my life easier ... and competition ensures that the same charge will be mirrored across accounts from different banks that I use ... Strange that), the power and gas industries, the utilities companies, the airports, or the airlines. 

I have no problems if real 'competition' is the story ... but industry and enterprise don't want real competition. What they want is at best the status quo, their own little risk-free niche, failing that at worst they'll put their hands out for government support, they'll form  collusive and cooperative cartels with their so called competitors, they'll band together to oppose any new competitors ... in short they'll protect their market turf by any means possible - and in so many ways that's inherently uncompetitive.

Also, competition doesn't necessarily lead to more efficient resource usage, lower prices, increased productivity or whatever. That's a market fallacy, but widely accepted by the the uninitiated. 

Allow me to to illustrate, using an Australian experience. In our country the bastions of unrestricted capitalism are the mining companies. In Western Australia, they mine a lot of iron ... it's their thing over there. Now, the richest minefields are a couple of a hundred kilometres inland and all clustered around pretty much the same area. They are operated by the two Big Boys of the mining industry ... BHP and Rio Tinto .. and a whole host of surrounding smaller operators .... but we'll just include Twiggy Forrest as an example.

Now, to get the iron ore to the ships from the mines is a problem. To do that, the miners have to build railways and ship their product in huge trains to the port facilities that they also have to build.

Simple efficiencies would predicate that sharing the railway and port facilities between miners would be the most efficient and effective use of resources, reduce the cost of product and reap all the benefits that competition is so supposed to bring. The miners however won't share the railway and port facilities, and each is required to duplicate or triplicate the infrastructure already put in place, in the name of competition. Given the relative sizes of BHP and Rio vs a small miner like Twiggy I leave you to ponder the benefits of 'competition', and why it costs the Twiggster about $80 per tonne to produce and ship ore, and BHP and Rio about $65. (I have no admiration for BHP, Rio or Twiggy Forrest .... but they are renowned as the competition poster boys of the Australian economy.)

Then industry and enterprise is rather illogical and indeed hypocritical when it considers 'competition'. For instance, when demand for skilled workers and supply of skilled workers failed to tally in the aforementioned recent mining boom, the wages of those skilled workers naturally went through the roof. (The mining companies also extended their employment net to nab as many married and geographically settled skilled employees who wouldn't otherwise be interested in living in a mining camp, by adopting FIFO work practices and all the problems that entailed for both the remote towns they were posted to and the workers themselves - but that's another story.)

And what do you know? As the wages skyrocketed the mining industry started to moan about 'work practices', 'rampant militant unionism' and 'uncompetitive behaviour' and 'threats to productivity' ... for demand and supply competitive behaviour which pretty much mirrored their pricing strategies to the Chinese, except on a much smaller scale.

Finally, competition can be counterproductive. In but one example, relating to the pharmaceutical industry, it had made huge profits for years treating symptoms of ulcers with antacids and like medications. The fact that in many cases the stomach ulcer eventually and invariably required surgery and or removal of goodly portions of the stomachs in question made no difference ... the industry churned out new brands of antacids for treating the symptoms. Then a couple of Australian researchers discovered the H-Pylori bug and determined that it was the cause of a goodly proportion (about 90-95%) of stomach ulcers, and that it could be nailed relatively easily and cheaply by a course of off-the-shelf anti-biotics, curing the ulcers concerned.

So, did the pharmaceutical industry adopt the new treatment? Nope ... they fought a delaying action for 10 years (during which a non-disclosed number of people had stomach operations and life threatening surgery) to stop the discovery being publicised and threatening the golden goose of the useless and ineffective medications they were selling. There's no profits in antibiotics ... no IP you see, and besides that it was a once only shot rather than an ongoing revenue stream. Competitive behaviour. Sure. Moral behaviour. No way. In the interest of society or the consumer. Not a chance.

Many other industries do the exactly same thing to protect their turf from new and better product, IP, and/or superseding technology. Tobacco, oil and gas, coal and power, etc etc. So, the example I gave isn't isolated.

The point is that competition often works against the welfare and well being of a given society and its members ... but economists and advocates of free enterprise make the assumption that it is always a force for good.

Regulation ... well, all the major industry bodies in Australia have railed against it and continue to rail against any form of regulation. A new push is in progress as I write, and the Abbott government has vowed to reduce the burden on business, to eliminate green tape, to open Australian for business and the like.

My problem with regulation is that there is good regulation and bad regulation ... and regulation that cannot or will not be enforced is simply a statement of good intent rather than anything else. You regulate something, then you better put in place people, resources and infrastructure to enforce that regulation ... or else the regulation is pointless, toothless and bad. That allocation of people and resources does stifle economic activity simply by being there, and contributes to the inefficiencies industry complains about.

Personally I'd like to see a carrot and stick approach, using the existing tax system and/or industry grants ... one raising revenue from breaches of behaviour that are disclosed, the other rewarding efforts via deductions, rebates and the like to create the situation that the government wants to occur. 

Another way is to use the market mechanisms. I don't much like government sponsored Direct Action (which will cost taxpayers and reward badly behaving sunset industries), and prefer a price on carbon or other market mechanism to reduce carbon emissions. But I also didn't like Labor's solution of penalties (carbon tax) to industry and bribes to reduce the cost of carbon for the consuming public ... it was totally illogical. You needed to make the cost of carbon higher for all to reduce the competitiveness of carbon in the market.

> 
> Eg, only privatize industries that can compete. A problem is that public 
> assets like toll roads, airports and rail systems tend to be monopolies or 
> quasi-monopolies. Any potential benefits of competition are extremely hard 
> or impossible. So in such situations careful regulation is essential. Sure 
> it's tough to fine-tune such laws, but, both a competition AND regulation
> vacuum will obviously be a cash-cow enemy to our longer-term public good.

My perspective differs. Some infrastructure is critical to all elements of the economy, private and public. Some infrastructure is utterly indispensable in any civilised society. Some infrastructure is specifically what the average punter pays their taxes for. Why we live in the company of often irritating others. Why we are social beings. Some infrastructure is so critical that it requires long term development and attention, a massive coordinated effort to maintain, and a centralised standardised approach to coordinate and develop. Some infrastructure is so capital intensive and takes so long to develop that private industry can't or wouldn't want to do it ... and should therefore not be privatised at any time.

I'd argue  that public transport and roads, power, water, gas and utilities, communications and networks, and little number like health and hospitals, and schools and education fall under that ambit. That list isn't exhaustive ... but it's the core infrastructure that I think should not be privatised.

Profit driven power prices for example impact on the competitiveness of a heap of enterprises and industries, as well as the pocket of the average punter. Control of said prices is accepted as a given in Europe (and government subsidies have been created to supplement same in the US), but in Australia we give the overseas owned power companies pretty much free rein and let prices go where they will. Some companies (e.g. Alcoa) get sweetheart deals for volume usage, but most get screwed. Efforts to assist a network already under stress (you don't want to know about power supply reliability in my area during the peak months of summer) by supplementing it with user owned solar and other sources are now actively discouraged ... to the consumer's detriment.

The same goes for the other infrastructure I mentioned.

> 
> *The central point is, Australian governments should NOT be allowed to use
> privatization as an expedient source of funds*
> 

No problem there ... as I said in previous missives. This greedy short term politicised approach has landed us in the proverbial crap over the last 30 years. But we were the ones that went along with it.

As for blaming my generation and saying that they'd done the damage, and that given that they can't even get one infrastructure project right they should get out of the way ... I stand by that.

We screwed up ... royally. We don't deserve any consideration or respect from the generations that follow us.