Privatisation: irrationality gone mad

August 2, 2000


Several years ago, a Melbourne woman was critically injured in a car crash in Greece. She suffered third-degree burns to 70-80% of her body. The usual treatment for serious burns, skin grafts, was not possible. The doctors could save the woman's life only if they had access to a medical technique in which new skin can be grown from a culture of undamaged skin. The technique was patented to a private company in the United States which charged a price for the procedure which the Greek hospital could not afford.

Luckily, medical researchers in Australia, working in the public hospital system, heard about the woman's predicament. They had developed a similar technique and were able to offer their services to the hospital.

This example demonstrates the irrationality of knowledge being patented by private corporations for the purpose of enriching their owners. It is just one of many examples of the irrationality of the privatisation of medical research and health services.

In Australia, the principal supplier of vaccines and antivenenes and the sole manufacturer of blood products, the Commonwealth Serum Laboratories, was sold to private investors by a federal Labor government in 1995. At the time, the privatised CSL indicated that it would cease producing antivenenes necessary to prevent deaths but which were not profitable.

Wide-ranging privatisation

Since Australian governments began the process of privatising government assets in the 1980s, a vast array of services and government enterprises have been privatised at federal, state and local government levels.

Privatisation and contracting out has affected: hospitals and health services; schools, universities, TAFE colleges and other educational institutions; prisons; gas; water; electricity; telecommunications (Telstra); banking (Commonwealth Bank); public transport; ports and shipping lines (Australian National Line); rail freight; emergency services; airports; airlines (QANTAS); information technology; CSL; defence industries; child-care; forests; roads and bridges; nursing homes; the TAB; and a wide range of local government services.

Some government assets have been sold directly to private investors or have been floated on the stock market (e.g., Commonwealth Bank, QANTAS, CSL, Australian Defence Industries). Some state government-owned electricity, gas and water utilities have been sold. At least 15 hospitals were sold in 1998 alone.

Governments also contract out government services or portions of government services. Examples of this are the federal government's Job Network, information technology services, the ambulance dispatch service in Victoria and a large range of local government services such as garbage collection, park maintenance and the meals-on-wheels service.

Governments sometimes enter into agreements with private companies to build infrastructure. The private investor provides the capital, and will then own and reap the profits from operating the infrastructure. In return, governments usually agree to lease back the infrastructure, guarantee revenue or subsidies to the investor.

An example of this is the CityLink tollway in Victoria. The state government under Premier Jeff Kennett agreed to block alternative road routes, not upgrade the rail system if that affected motorists' usage of the tollway, agreed to subsidise CityLink owner Transurban if it suffered a shortfall in predicted revenue, and granted the company substantial tax benefits. NSW governments have signed similar deals with the owners of new tollways.

These are known as BOO (build, own, operate) or PFI (private financing initiative) schemes. Sometimes they revert to government ownership at the end of a period, say approximately 20 years.

Another method of privatisation is to drive users away from the public system and into the private system by starving the public system of funds and/or closing down parts of it while increasing subsidies and handouts for the private sector. This method is commonly used to bolster private hospitals, schools and childcare centres.

Another popular form of privatisation results when governments simply abandon traditional responsibilities, like when public food inspectors were eliminated and industry "self-regulation" promoted. This has resulted in many food contamination scares in the last few years.

National competition policy

Privatisation in Australia is being carried out under the guidelines of the national competition policy, agreed to by state, territory and federal governments at the Council of Australian Governments in 1995.

However, the process had already been well under way. In the mid-1980s, Labor PM Bob Hawke and treasurer Paul Keating launched a campaign to overturn the anti-privatisation policies of the ALP and gained the support of the majority of the Labor "left".

While there was significant public opposition to privatisation, the consensus the Liberal, Labor and National parties meant that opponents of privatisation were marginalised.

While many trade unions, particularly those organising public sector workers, opposed privatisation, few were prepared to campaign against a policy of "their" Labor party. Some unions tacitly supported privatisation because they stood to gain new members after privatisation.

Opposition was dampened by the secrecy with which privatisation was carried out. In 1995, PM Keating, treasurer Ralph Willis and finance minister Kim Beazley secured from the Coalition opposition before informing the rest of the government of their plan to sell the government's 50.4% share in the Commonwealth Bank.

Details of privatisation contracts are usually kept secret, using the excuse of "commercial in confidence". This is very convenient, especially as contracts often involve substantial government subsidies to the newly privatised business.

The National Competition Council (NCC) which oversees the competition policy claims that privatisation results in increased efficiency, increased choice for the consumer, lower costs for the consumer, the breaking up of government monopolies, the release of funds to pay government debt, increased "transparency", and more government funds for other social services.

These arguments are designed to con working people into accepting privatisation, as these examples show:

Choice. Electricity privatisation may have meant that big companies have a choice about which electricity distribution company they buy power from, but the domestic consumer has to buy electricity from the privately owned monopoly electricity distributor in their area;

Monopolisation. The sale of the CSL, QANTAS, the Commonwealth Bank and Telstra have not resulted in increased competition. The only companies which can afford to buy government assets are large corporations which are semi-monopolies already.

Efficiency. Services have become less reliable and less safe as companies cut maintenance in order to cut costs and increase profits. This played a big part in the 1998 Longford gas explosion in Victoria, the 1998 Sydney water contamination, and a higher number of electricity blackouts in Victoria.

Lower costs for the consumer. The NCC's much trumpeted figures demonstrating the lower cost of electricity and gas are for business customers, not householders.

Releasing government funds for spending on other social services. This has not happened. Governments have continued to cut social expenditure.

Other consequences of privatisation have been the closure of services such as hospitals and bank branches and increased environmental destruction, such as when private electricity companies discourage alternative energy use.

Many government assets have been sold at discounted prices. For example, CSL was sold for $299 million, shortly after $209 million was spent on a new state-of-the-art blood plasma fractionation facility.

The authors of Privatisation: sell off or sell out? The Australian Experience, Betty Con-Walker and Bob Walker, argue that seven federal asset sales sold below their value have resulted in the transfer of $48 billion from the government to private shareholders.

Privatisation has never had anything to do with efficiency, freeing up of government resources or lowering costs to consumers. The benefits have flowed entirely to big corporations.

After the 1987 stock market crash, owners of speculative capital were looking for investment opportunities which did not involve manufacturing more goods to be sold on a bloated world market. Buying government assets and infrastructure was the perfect sort of investment, especially as it offered monopoly or semi-monopoly profits.

Far right

Relatively new opponents of privatisation are the far-right populist forces, such as One Nation, other far-right groups and independents, and a section of the National Party. These forces' electoral opportunism is revealed by the fact that they oppose privatisation only when the wind of public opinion is swinging in that direction. More often than not, the far right's opposition to privatisation is based on opposition to "foreign" ownership.

It does not matter whether an Australian-owned or an overseas-owned company buys a government entity. Once it is in private hands, the people lose any potential control they might have had over it.

Disenchantment with privatisation is probably greater than it has been for 10 years. This partly explains support for One Nation in 1998, the Coalition's poor result in the 1999 NSW state election and the Coalition's loss in the 1999 Victorian state election.

This has prompted the NCC to repackage its privatisation agenda, complete with warm and fuzzy terms about social responsibility and the environment. The council, run by representatives of big business, does not want governments to get cold feet now. There remain number of juicy, profit-making privatisation targets.

Some are in the process of being privatised, such as the national rail freight operator, National Rail Corp. Others cannot be privatised until the governments nullify public opposition. These include the sale of the rest of Telstra and the electricity, water or gas utilities which remain in public hands, Sydney airport and the contracting out of the government information technology sections that remain.

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