Long-run benefits of privatisation are undeniable

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Last Friday, in an opinion piece in the Courier-Mail (see image above) that was consistent with its current “Go Queensland” campaign, I re-entered the debate on privatisation:

Privatisation, legalising Uber and deregulating trading hours are first steps towards boosting the economy

To anyone who has worked in both private and public sectors, the higher level of efficiency in the private sector is obvious. It is driven by the strong private sector desire to minimise costs and maximise profit. Hence, for a long time now, I have been in favour of privatising government-owned businesses, with the caveat that the privatisation is well-managed and monopoly businesses are (or remain) appropriately regulated. By well-managed, I mean that the government needs to ensure it gets a good sale price for the business, as privatising an income-generating business obviously affects the budget. Also, the government needs to consider the impacts of any job shedding on local economies, and appropriate labour market and training programs are introduced, if necessary.

My views on privatisation are informed by international literature reviews that were conducted in the wake of the large number of privatisations that began in the eighties, with Margaret Thatcher’s transformation of the British economy, and which then occurred all over the world. The evidence was undeniable that privatisation yielded efficiency gains, and therefore was ultimately good for the economy and living standards. The most comprehensive and authoritative review of the impacts of privatisation was published in 2001, in the American Economic Association’s Journal of Economic Literature, the world’s leading journal for reviewing and summarising the findings of economic studies. The review by US economists William Megginson and Jeffry Netter, titled From State to Market: A Survey of Empirical Studies of Privatization, found among other things:

“Research now supports the proposition that privately owned firms are more efficient and more profitable than otherwise comparable state-owned firms…

…We know that privatization “works,” in the sense that divested firms almost always become more efficient, more profitable, and financially healthier, and increase their capital investment spending.”

So economists have been confident about the benefits of privatisation for at least the last decade-and-a-half. It is time for Queensland to stop being a laggard on privatisation.

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This entry was posted in Energy, Infrastructure, Productivity, Queensland Government, Uncategorized and tagged , , , , , , . Bookmark the permalink.

4 Responses to Long-run benefits of privatisation are undeniable

  1. KT says:

    well said Gene. I have been an advocate for a long time too, this and market let proposal need to be a focus. However, unless there is a change of government this wont happen

  2. Katrina Drake says:

    Any publicity is good publicity! Good to see you with your own column – love the head shot .

    Now what is the saying ” Voters are always right, and economists are always wrong”, or is that vice versa?

    Firstly, Queensland voters love their assets. Most Queenslander’s are very happy with a large amount of private debt, as long as they own the asset. Many Qlders aspire to own their own home, plus one for investment, and are more than happy to service a large debt to achieve that goal. This translates into their thinking of state ownership of assets. They want to own their state assets.

    Secondly, many would ask what is the point of the argument that divested firms almost always become more efficient, more profitable – if most of those profits end up in the pockets of foreign owners.

    For instance, one of the most recent sales of Qld State assets was Aurizon, Qld Rail , whose largest shareholder is Invesco International – this see the profits directed back to funds on the Isle of Man. I’m not sure how that is benefiting Queenslanders economy and living standards?

    It seems economists love chewy on the old hoary chestnut of Qld asset sales, but they really need to work harder and become more creative in their ideas of funding infrastructure. There is still a generation of Qld voters that remember the Brisbane Line, and don’t like handing over assets to anyone.

    Any good ideas ?

    • Gene Tunny says:

      Thanks for the comment, Katrina. We benefit if we sell the asset and the new owners can make it more efficient because they will pay us a price that is higher than its value if it remains in public hands. Queenslanders also benefit from fewer workers being employed in inefficient state enterprises and in more productive jobs. I can’t see a problem with some profits going overseas if foreigners will buy assets off us. We could always invest overseas and earn foreign profits if that’s the best thing to do. We’re in a global economy now.

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