Hilmer Report: job cuts and privatisation


By Jenny Thompson
and Eva Cheng

Governments and media alike are promising extensive benefits from the recommendations on competition policy known as the "Hilmer Report". A recently released Industry Commission (IC) study on the report projects that Australian households stand to gain $9 billion in extra consumption a year, or $1500 each, and the economy 30,000 extra jobs if the recommendations are put through.

The state and federal governments decided in October 1992 to inject profit maximisation imperatives into any parts of the Australian economy — particularly the public sector — not already operating under that logic. They appointed a committee headed by academic Fred Hilmer to advise them on how to translate the agreement — National Competition Policy — into concrete policy measures.

The Hilmer Report, delivered in August 1993, soon produced a dispute between the states and the federal government about carving up the revenue expected to arise from the reforms. Through the framework of the Council of Australian Governments, they commissioned the IC to study the revenue implications of the report and related measures already being implemented. Agreement between state and federal governments was reached on April 12 at the Premiers Conference.

Of far more interest is what the study reveals — or attempts to conceal — about how the Hilmer "reforms" will affect ordinary people. Most, far from gaining $1500 per year, will be significantly worse off.

The IC projections are based on the similar privatisation and rationalisation measures imposed on Australian ports, electricity and water works over the last couple of years. These have cost thousands of jobs, and the Hilmer proposals will produce yet more job cuts.

The recommendations will raise substantially the cost of rail travel, water, electricity and gas for average — especially the rural and lower income — families. The promises of "average gains" of $1500 are completely misleading: they are the average of losses for working people and larger gains for business.

Moreover, the projections are based on questionable premises, subject to a chain of "ifs" and problematic assumptions. There are also big problems in the fundamental argument that higher profits from increased productivity will be translated into reinvestment and, therefore, more jobs — that jobs lost in the public sector will be reincarnated in the private sector.

Real aims

The real aims of the competition policy, although not clearly stated, are twofold. Firstly, the "reforms" are about increasing productivity and delivering cheaper infrastructure and inputs to Australian business to give it a competitive advantage. Secondly, the rules that will be imposed on public services and infrastructure in the name of free competition will mean their restructuring in the image of private corporations; this will eventually be followed by privatisation of any "enterprises" generating a profit.

The IC report predicts the reforms' impacts on productivity and prices will be generally beneficial. But the price effects are neither so straightforward nor certain, and the other side of increased productivity is usually job cuts.

For example, proposed changes to electricity generation include the establishment of an interstate transmission network, free trade in bulk electricity for private generating companies, public utilities and consumers, competitive sourcing of generation capacity and the introduction of "cost-reflective pricing". These changes are estimated to mean the improvement of labour productivity — public sector job shedding — by 50% and the reduction of prices to large industrial users by 26%, by 29% to other industries — but no price change for domestic and rural consumers.

Ending the Telecom-Optus duality by 1997 is supposed to deliver a 20% decrease in prices over six years, but will be accompanied by a 45% increase in labour productivity, again costing jobs.

For water and rail service, the user pays picture is not even brightened by the prospect of price decreases. With the elimination — partial for rail and full for water — of cross-subsidising, the prices for ordinary consumers are expected to rise immediately.

"Cost-reflective pricing" will mean a reduction of 9% for grain freight, 39% for other bulk freight, and an increase of 15% for non-bulk freight and 20% for passenger rail. In water provision, the changes are expected to deliver a reduction in purchase price to commercial and industrial users of 18.1% and 2.1% respectively, and increase the purchase price to residential and other users by 7.5% and 31.5% respectively.

jobs and wages

The basic rationale of the Hilmer package is totally consistent with that of the Accord — that the Australian economy has to be "rationalised" by minimising production costs in order to compete effectively. Cuts in labour costs by suppressing wages are the key result of the Accord. The Hilmer project focuses on the public sector, gearing it to reduce the infrastructural costs for business.

Productivity has to be substantially increased under this scheme. This will mean widespread job shedding, as workers are forced to work more intensively. Some of the resulting savings may yield pay rises for the remaining workers. But the bulk would be channelled into company profits.

In theory, and the IC's hopes, these profits would be reinvested. However, what is done with profits is totally at the discretion of individual businesses.

The 3% increase in real wages projected by the IC, even if realised, would be a poor reward for huge productivity increases at the price of many jobs.

The claims of 30,000 extra jobs arising from Hilmer are pie in the sky. Here we can look at the actual experience of workers in ports, water, sewerage and drainage. Six years of "rationalisation" up to 1992-93 in the ports slashed jobs by half while labour productivity jumped 146%. Water, sewerage and drainage jobs were cut 25% during the same period, on the back of a 54% rise in labour productivity.

Logic of privatisation

The changes are to be implemented by the extension of Part IV of the Trade Practices Act to state and federal "government business enterprises" (GBEs). This law prohibits anti-competitive agreements (like the cartel arrangements between Ansett, TNT and Mayne Nickless exposed last year), anti-competitive price discrimination, misuse of market power, resale price maintenance and certain mergers and acquisitions.

As well, Hilmer proposed further changes to GBEs that will require them to bend over backwards to accommodate private sector competition, and to restructure their operations to become commercially viable. These include allowing competitors access to infrastructure components with natural monopoly characteristics (like railway tracks), exposing other areas to competition and removing any advantages of government ownership by requiring the payment of commercial dividends to their government "owners", along with indirect and income taxes.

The logic of these "reforms" points unswervingly in the direction of future privatisation.

The IC qualifies its own rose-tinted expectations used in producing the glamorous figures to market the changes. It says that decreases in price resulting from competition and increased productivity would be passed on to consumers in the case of "perfect competition" — but not necessarily in reality.

A GBE undergoing productivity improvements could delay passing the benefits on to consumers for a period in order to reduce debt. "The restructuring would then increase the net worth of the GBE and the dividend stream for government owners, but be paid for by the GBE's customers, rather than other taxpayers or by an increase in government debt."

The overall result would be to make the GBE a more attractive target for privatisation. The IC's choice of the Victorian electricity supply industry as an example of this process is a telling one, because restructuring of the State Electricity Commission is taking place in preparation for privatisation by Kennett.

British experience

The combination of the drive by all Australian governments to privatise anything that can turn a profit and Hilmer's uncritical reliance on the market bodes danger for ordinary people. Similar changes in other countries have not delivered cheaper or better services for most, but have been very lucrative for big business elites.

The British gas industry was privatised in 1986; the pattern of price changes since then represents a subsidising of industry by household consumers. British Gas annual reports indicate that in 1985, household consumers paid 50% more per unit for gas than industrial consumers. By 1992, householders were paying 120% more for gas than industry and 30% more than commercial consumers.

The results of the 1989 privatisation of water in Britain are even more chilling, despite the opportunities for market "competition" between the 10 companies that supply three quarters of Britain's water. In the first four years, charges rose three times as fast as inflation rate, and the elimination of cross-subsidies increased regional price differences from up to 39% to up to 76%. There were 21,286 water disconnections for those unable to pay in 1991-92, and a horrifying increase in dysentery, cholera, hepatitis and other diseases associated with a lack of clean water.

So the real message of the Hilmer and IC reports is that, unless you own a ,mining company or aluminium smelter, for example, you shouldn't start spending up big now. Indeed unless the "reforms" are stopped, you may not have a job either.