Some things are just not suited to privatisation

Posted by Mike Kaaks

01 September 2020

This is a topic that has been on my mind for some time now - a couple of years at least. My thinking had come down to the first three things and then covid19 removed some of the politics from the fourth, which is the most important:
    1.    is the benefit of competition a myth?
    2.    what is the real motivation?
    3.    what is the macro effect?
    4.    some things are just not suited to private enterprise

The Macro Effect and the core motivation
Standing right back, or looking down from 10,000 feet (funny that we always use imperial measure for that expression) the single biggest effect is to prop up capitalism and provide opportunities for capital when globalised funds have invested in all that is available. In his book Giants Peter Phillips makes this case more eloquently and with more data. The string runs something like this: Global capital reaches a stage where there are no more things to buy. Along the way one of the things they have bought is political influence. That influence then makes the public case as our politicians tell us that we will all be better off if our assets are sold off to be run by people with real business acumen. We will either be able to retire some government debt or we will reap the benefits of that commercial expertise. Once the deal has been done, all that has happened is that the wealth gap has been widened further and our lives are less managed through democracy as our country becomes an  oligarchy.

The Case for Privatisation - Fact or Myth
Efficiency is perhaps the most common feature offered up. If a business has to deliver a 10% bottom line profit, then the efficiency gap between public and private operation has to be greater than that figure, let’s say another 10% if the public is to be rewarded for selling its asset on the basis of this tenet. Which says that the efficiency assumption includes an expectation that privately run, a business will be up to 20% more efficient than when in public hands.

A few years ago a close friend of mine, a highly successful CFO in the commercial world moved into the public sector. Am I to believe that he and any others who make this change suddenly become 20% less effective?

This debate also seems to overlook the amount of public underwriting that is ongoing for privatised enterprises. This is rarely seen in the public debate about handing over to privatised operation.

The public benefits of privatisation are at risk unless the process is supported by the establishment of an effective regulatory regime to ensure that the privatised entity operates in the interests of society, not just profit. Recently we have seen this issue of lack of regulations or poor administration of such rules surface in the Banking Royal Commission and in the Aged Care RC. Trust, ethics, and morals have been shown to be even more questionable under the spotlight of the pandemic.

Some things are just not suited to private enterprise
Today (mid August 2020) in Australia we are learning from tragic statistics and a Royal Commission that Aged Care is clearly something that does not work under privatisation. When decisions are made with the profit motive foremost then issues of care and humanity trail far behind. The litany of issues centring on treatment of residents and treatment of staff are painful to hear. And then we have the matters of the public purse bailing them out in times of failure, and that a significant proportion of their revenue comes from the public purse anyway. This all needs to be fixed. As if that wasn’t bad enough we had to endure the absolute arrogance and ignorance of one owner in the aged care sector publishing on social media photos of  his two exotic cars with personalised number plates bearing the name of “his” Aged Care Centre. I put that word in inverted commas because there are other owners including Kerry Stokes whose investment suggests there is a solid stream of income to be made irrespective of what it is spent on. Money before humanity.

And then when the pandemic hit as these businesses failed to fund or find replacement and support staff, they were again bailed out by the humane and most appropriate act of providing emergency staffing from public and private hospitals, and of moving suffering residents into hospitals. If we are to believe the rhetoric, these businesses should have been invoiced for the service.

I am reminded of the massive bail-outs in the GFC. Privatisation of profits, socialisation of losses.

Child Care is in the same boat. It is another essential function in our society that should not be privatised. Like Aged Care the income streams of businesses in this sector already rely heavily on the public purse to fund the industry, and ultimately the retuen on investment.

It is equally important that we resolve employment conditions for staff in these two sectors as it is to resolve the governance structures. The pandemic has put insecure work front and centre as an issue to be resolved.

Time to Make a Difference