Would the Mint be another privatisation gone bad?

ScreenHunter_2407 May. 13 15.50

Cross-posted from The Conversation:

The proposed sale of the Royal Australian Mint, expected to be announced in tonight’s Federal Budget, raises significant issues that should be addressed by the Coalition government before they go further down the path of privatising this and other national assets.

It is clear this government is determined to move public bodies into the private arena. But with little evidence of due diligence in the divestment strategy, it appears to be based on the simple premise that a change in ownership to the private sector will of itself improve performance.

Unfortunately, this policy ignores so much of Australia’s privatising experience, which suggests that a far more nuanced approach is needed.

Questions of regulation

In the case of the Royal Australian Mint, there are practical but fundamental questions around security and regulation that should be addressed.

Firstly, there is the regulatory environment. For instance, who sets the price of the goods and services produced by the monopoly? Typically, a public regulator is appointed for monopolies, but in the case of a privatised Mint, there is as yet no detail.

Also, do we allow foreign-owned bidders to enter the divestment market to provide competition for the sale of the Mint? Would some of the activities of the privatised Mint be able to be contracted out to foreign-owned businesses? There are important security issues involved in answers to these questions.

Further, how do we maintain the excellent research and development work done by, and for, the Mint? Who will pay to ensure that research continues to ensure the Mint retains its world-class status; and who should own any intellectual property that is generated?

A second set of questions relate to the operations of the Mint in the hands of the private sector. How can the public be assured that security is at the highest possible level – as safe as Fort Knox? How can the government be assured that if foreign competitors are in this market, that the Mint will survive, and if not, what would be the consequences of market failure?

Finally, there is the very pragmatic question of sale price and the income foregone by government over time. This is partly a question of calculating the lost revenue streams to government and weighing these against the upfront, one-off revenue generated by the sale. This may appear to be an exact science, but it is not.

Over and over, we see that the divestment of public assets has short-changed the public by the lower-than-expected valuations of the government business prior to divestment, or by inadequate ways of divesting public assets. This has occurred in Westminster-based jurisdictions like Australia, the UK and New Zealand, but also in other places such as the former Soviet Republic in divesting many of its public corporations after 1990. Taken as a group, the financial benefits have fallen very much in the favour of the private sector and against the public.

Should we trust monopolies at all?

This leads to another fundamental question: should we trust monopolies, public or private?

Even Adam Smith, the 18th century godfather of small government, argued that the regulation of monopolies was one of the primary duties of any government. Present-day proponents of small government, like New Zealand’s former Minister for Finance Ruth Richardson was particularly blunt in her view that monopolies, public or private, “rip people off”. The critical question is whether we trust a publicly-owned monopoly more than a privately-owned one? And in answering this question, we need to consider what is in the collective or public interest.

There are a number of cases where privatised monopolies have not acted in the public interest – most notably the Australian Wheat Board. Arguably, while the performance of the Sydney airport since privatisation has worked well for the Macquarie Group but the public forced to use this monopoly facility may have a different view.

Also, government is at risk of becoming an “ambulance for sick industry” when it must bail out failed privatised monoplies, as happened to the UK government in 2001 collapse of Railtrack.

Being good stewards

Governments of all persuasions are stewards for the public assets entrusted to them by Australian citizens. The impact of poor stewardship on public assets has the same effect as corruption. It reduces the public value of our collective assets. It is reasonable, then, for the public to expect high standards of stewardship and in this respect, the final negotiated price is critical.

Much has been said by this government about mutual obligation. Australians are being asked to “carry the load” when it comes to the unemployed, the sick, the aged and the disabled. In return governments too have obligations.

One of these is to guard public assets, and, specifically, divestments of public assets which should only be undertaken where there are clear gains for collective interests.

Focusing on the divestment of one small government-owned enterprise raises a significant number of questions for government to resolve before any privatisations occur. It will be both lazy policymaking and irresponsible stewardship if the government proceeds without clear answers to these questions.

Article by Chris Aulich, Professor of Public Administration, Institute for Governance and Policy Analysis at University of Canberra

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Comments

  1. I think “lazy policymaking and irresponsible stewardship” neatly sums up the last three governments we have had.

  2. It would only work if we could stop using coins. I guess the need for coins is probably going to fall and therefore the “collectibles” side of things is going to the main game.

    • Correct, here is the dollar value of coins produced by RAM for recent financial years:

      2006 – $169m
      2007 – $139m
      2008 – $167m
      2009 – $167m
      2010 – $142m
      2011 – $114m
      2012 – $103m
      2013 – $128m

      Adjust that trend for inflation and there is no money (pardon the pun) in circulating coins.

  3. I’m not sure why you guy sees a difference between currency printing and say book printing.. seems to me its just one more form of manufacturing that we can easily outsource. If thats the road we’re going down then I see no reason to exempt the Mint, I’m sure G&D will happily provide us with a competitive bid.

    • It depends on how you privatise it. If government simply outsource the pressing of the coins to designs that they specify and volumes that they request, then you’re right, there is no difference. I wouldn’t really call this ‘privatising’ though; it’s more outsourcing. There would still be a government organisation called the Mint that oversaw the whole thing, every few years they would open a tender for the contract.

      However, if you just plain old sell the mint, along with the right to take the seigniorage, then you’re privatising a natural monopoly. Insanity. Knowing Abbott and Co, this is precisely what they want to do. Giving natural monopolies to their mates is one of their main reasons for seeking government.

      Coins aren’t comparable to books in that they aren’t sold in a market; the buyers are required to buy them at a specific price, the buyers aren’t allowed to forgo them (the legal tender act requires banks and businesses to deal with coins), and there can be only one seller. An almost perfect example of a natural monopoly.

      With books, the buyers can seek other suppliers, seek alternative books that cover similar content, pay to have new books written, import books from overseas, buy ebooks, or simply not buy books at all.

  4. “Who will pay to ensure that research continues to ensure the Mint retains its world-class status”

    What benefit is derived from retaining it’s world class status? What does the RAM do other than producing circulating and commemorative coins? Give it another decade or two and we’ll probably have phased out circulating coins anyway, so the longevity of retaining the Mint’s status seems like a moot point to me. Privatise away.

    • You think that a physical currency will be phased out any time soon in favour purely of electronic pulses?

      Probably an interesting question.

      • In reply to my own question, I remember my uncle starting his own business after leaving a large employer and declaring “cash will soon be a thing of the past”.

        That was about 25 years ago now.

      • I do think physical currency will be phased out eventually (not that I want to see that happen), but think coins are likely to go sooner than notes.

      • I have a little spreadsheet that calculates the metal value in each of our coins.It simply uses cash prices and the ozzie $ and the weight of each metal in the alloy.
        Currently:

        1c =191 %
        2c=192 %
        5c=35 %
        10c=41 %
        20c=63%
        50c=35%
        1 $=7%
        2 $=3%

        Numbers are rounded,it would be interesting if anyone could tell us what production costs would be.In case of the 20 c piece I think if you include other cost we must be very near 100 %,dont you think ?

  5. You raise some valid points about security and I think the public will have concerns about letting a private enterprise, local or foreign, “print” money.

    I’m not sure I understand your innovation point, nothing RAM is doing with coins hasn’t been done by other mints or in the case of precious metals, by the Perth Mint. Are you confusing RAM with Note Printing Australia, who did innovate with polymer notes?

    Having lost $2.3 million last year, I’m not sure RAM will attract much interest in any case.

  6. I don’t trust the government to privatise anything in the public interest.
    I’m not against sensible privatisation, I simply don’t trust this mob to do it right.