Privatisation leads to higher prices, unemployment

February 14, 2014
Electricity prices have risen by 170% compared with consumer price index since the sector was privatised in Victoria.

Australia’s central bank, the Reserve Bank of Australia, gets its powers from the Reserve Bank Act (1959). Its two primary functions are to ensure the stability of the currency and the provision of full employment.

Besides managing Australia’s gold and foreign exchange reserves, it supposedly meets these objectives by setting the cash rate to meet an agreed medium term inflation rate, which is now set at a target band of 2% to 3%.

In reality it has long ago given up on ensuring full employment. While this has bipartisan political support, no political party will own up to the blindingly obvious for fear of the policy ramifications.

If governments actually admit that they can’t ensure full employment, it is likely that calls for a living wage for the unemployed would become a pressing political demand from large numbers of people.

So the government concentrates on controlling inflation and pretends that this will have a “trickle down” effect on employment levels.

But it’s not doing too well on this score at the moment either, with its February quarterly statement projecting that inflation could rise above its upper target limit of 3%. Given that it has been above 3% for more than six months, this is hardly cutting-edge economic analysis.

If past policies are any guide, this would mean an increase in interest rates, which — in a slowing economy — will lead to further unemployment and underemployment.

What is actually driving up inflation is the huge increase in utility prices, which comes from privatisation of public assets and the application of neoliberal operating principles to those still nominally controlled by governments.

The case study into Victoria’s electricity privatisation in the 1990s released last year by the Australia Institute shows how it works. Despite coming with a promise of lower consumer prices, electricity prices have risen by 170% compared with consumer price index (CPI) increases of 60%.

Since June 1995, productivity in electricity, gas and water fell by 24.9%. In all other industries it increased by 33.6%.

Since 1997, the number of managers in the electricity sector rose by 217%. Where there was one manager for every 13 workers in 1997, there was one manager for every nine workers in 2012.

Over the same period the number of sales workers increased from 1000 to 6000. As the report noted: “Why is it necessary to have 6000 sales workers for a product that everyone needs?”

We get the same picture when examining the national inflation rate over the six-year period from 2007-2013. During this time the CPI has increased by 18% yet utility bills rose by 89%.

The case for keeping utility assets in public ownership and reversing the effects of privatisation is made to all consumers every three months when the bills come in.

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