I have explained previously why I believe that various state government plans to sell-off of public assets to pay for infrastructure investment would likely end up being a dud deal for taxpayers and users, who are likely to pay more for services as the new private monopoly owners gouge customers.
A new report from academics at Queen Mary and Essex universities has found that the cost of running Britain’s railways has increased by £50 billion since the sell-off in 1995, leading to a sharp rise in passenger fares.
According to the study, the “ill-judged” break-up of British Rail two decades ago had created a hugely inefficient and fragmented system that was haemorrhaging money due to unnecessarily expensive track upgrades, excessive train leasing costs, the bureaucracy of the rail franchising system, and train operating company profits. In turn, these costs have been passed on to passengers via inflated fares over the last two decades, which have risen “way in excess of inflation”.
Supporters of privatisation often argue that private operators will necessarily run the system more efficiently than public operators, and that privatising public transport will save taxpayers money.
However, experience the world over shows that the new private owners will almost always try to boost their profits by either forcing-up user costs or collecting ever-greater franchise payments from the government. We have seen this time and time again in Australia with ports, airport parking, public transport, toll roads, and utilities. In many cases, the cost-of-living burden for users is worse than raising their taxes, with the added drawback that it is less transparent since private profits are easier to hide from public view.
No wonder ACCC head and longtime supporter of privatisation, Rod Sims, recently called for a moratorium on further asset sales because of the damage that they are doing to consumers and the economy:
“I’ve been a very strong advocate of privatisation for probably 30 years. I believe it enhances economic efficiency [but] I’m now almost at the point of opposing privatisation because it’s been done to boost proceeds, it’s been done to boost asset sales, and I think it’s severely damaging our economy…
“It is increasing prices – let’s call it out… I want them to stop and think about the fact that when they’re privatising these things without effective regulation you are going to have increases in prices, and just think about the effects of that on the economy.
Stop and think. And don’t be surprised that your electorates think that privatisations increase prices. Of course they shouldn’t [increase prices] but the history tells you differently”.
Privatising natural monopolies will almost inevitably result in bad outcomes for consumers. The householder has little choice but to continue as a consumer of the monopoly service. And the new private (often foreign) owners will almost always use their market power to force-up user costs and boost their profits.
Sadly, policy makers across the world have failed to learn from history and continue to push for further monopoly privatisations with the ill-founded belief that they will magically boost efficiency and reduce costs for both taxpayers and users.
