While on holiday’s, I was surprised to read the head of the Australian Competition and Consumer Commission (ACCC), Rod Sims, advocating a major sell-off of federal and state assets on productivity grounds, and also claiming that consumers have been gouged while they have been in public ownership. From the AFR:
Australian Competition and Consumer Commission chairman Rod Sims said the federal government’s root-and-branch review of competition laws would be more far-reaching than business expected. The review should recommend the government relinquish control of long-held assets to maximise productivity and create the greatest benefit to consumers, he said.
“I think it will be the most important driver of how Australia improves its productivity,” Mr Sims told The Australian Financial Review. “Of all the reviews going on, this will be the most important because it will be removing impediments to competition right across the economy.
“Government ownership versus private ownership massively affects the incentives people have to drive productivity change,” he said.
Mr Sims said consumers would have paid lower electricity prices if the assets had been in private hands.
“There is no doubt in my mind that energy prices, particularly in NSW and Queensland, would now be lower had the private sector owned those network business rather than them staying in the pubic sector,” he said. “I don’t think there is any doubt about that.”
Sims’ claim that electricity prices are being inflated by government ownership looks spurious. As illustrated by the Guardian’s Greg Jericho, the Victorian Government’s privatisation of electricity assets in the 1990s has not materially reduced electricity prices in that state, with prices rising in lock-step with the other jurisdictions:
According to Jericho, “neither has the promise of greater productivity come to fruition – the industry has been one of the biggest drags on our national productivity since 2000. And rather than a lean, efficient workforce, the electricity industry now has a much greater percentage of managers and sales workers than there was before the privatisation of the 1990s.”
As argued previously, there is generally a stronger case to keep natural monopolies, such as essential utilities, in public hands in order to prevent a private player from price-gouging and/or to to stop inefficient duplication of the infrastructure. The government can also better ensure access to poorer members of the community, thereby improving social outcomes.
On the other hand, there is usually a better case to privatise government-owned assets (businesses) that compete directly with private players, since the degree of market power is lower, consumers have choice, and the opportunities to price gouge are minimised.
In short, it is the degree of competition that determines consumer and market outcomes, not the structure of ownership per se. This is a view shared recently by Professor Stephen King from Monash University:
Economic research has long shown that the key driver of productivity is competition and not ownership. Government-owned businesses that face strong private sector competition operate similarly to those competitors. And simply privatising a fat, lazy, government-owned monopoly tends to create a fat, lazy, private monopoly, not a lean, mean productivity machine.
Rod Sims’ calls for a big asset sell-off, therefore, seems to wrongly presume that privatisation is superior in all cases and risks derailing the competition review before it has even started.
