Australian Competition and Consumer Commission (ACCC) head, Rod Sims, has today warned that the spate of asset privatisations being undertaken across the country risks lessening competition in key markets, harming consumers and stifling the economy’s productivity. From the Brisbane Times:
”Where governments are increasingly failing is in how to privatise”…
”Privatising in ways that limit competition in order to maximise the one-off sale proceeds is the wrong way. Such an approach increases the sale proceeds by effectively taxing future generations and Australia’s future competitiveness.”
Mr Sims was speaking after the ACCC moved to block the $1.5 billion acquisition by Australian Gas and Light Co of the largest electricity generator in the country, Macquarie Generation, which it claimed would lessen market competition, since it would result in just three companies controlling more than 80 per cent of power generation.
The first rule of any asset privatisation should be that it boosts competition within the relevant market, and at a minimum does not lessen competition.
As I have 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 typically 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. Medibank Private is an example of a government-owned business that would likely fall into this grouping.
What is most concerning about the Abbott Government’s policy of providing states with financial incentives to sell-off their assets is that presumes that private ownership is superior in all cases, rather than basing decisions on objective economic criteria, and on a case-by-case basis.
Such a “private ownership is best” approach is more likely to lead to privatisations that are not in the long-term interest of taxpayers and consumers. That is, where the upfront proceeds from the sale are below the expected net present value of future profits, and/or where the degree of competition in the market is lessened, resulting in higher costs and a less productive economy.
