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Friday, July 27, 2012

Australia: The Consequences of Privatised Infrastructure

In this article Tristan Ewins considers the problems associated with privatised infrastructure: especially privatisation of roads. He critiques the abandonment of the mixed economy by Labor, and urges a return to such a model - but also the extension of a more progressive "democratic mixed economy'. Debate welcome!

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Tristan Ewins

In Melbourne’s “The Age” on July 17th the headlines proclaimed “Tolls urged on existing freeways”. Apparently advisory body “Infrastructure Australia” is frustrated with ever worsening infrastructure log-jams. Whether we’re talking about ports, roads, public transport or new utility infrastructure (gas, water, electricity) – the trend for many years now has been towards infrastructure privatisation – usually in the form of Public Private Partnerships. (PPPs)

In fact both Labor and Liberal governments have been guilty of jumping on the “PPP bandwagon” – to the benefit of their friends in the private sector for whom PPPs were often akin to “a license to print money’. Now ‘Infrastructure Australia’ is urging either public finance of new infrastructure – or privatisation of existing infrastructure and imposition of user-pays charges in order to provide the funding for new roads especially.

Tim Colebatch – also of ‘The Age’ has explored the associated issue in depth. Colebatch poses the question as follows: Australia has a choice in how it pays for an estimated $700 billion in socially and economically necessary infrastructure over the coming decades. See:

In fact we have three options.

a) We can continue to allow the infrastructure backlog to accumulate – actually damaging our productivity and quality of life – especially for families in emerging suburbs where transport infrastructure is negligible.

b) We can impose user pays charges upon existing roads or privatise them outright

c) We can actually raise taxes and invest in infrastructure the old way – via public borrowings and infrastructure bonds

In fact the neo-liberal Ideology is so entrenched now that the prospect of public investment in new infrastructure might be viewed by some as kind of radical. This is patently ridiculous - but we have an entire generation who have known little except PPPs and other forms of privatisation. The combination of mixed economy and welfare state – for decades taken for granted during the post-war period – is now thought of as belonging to the ‘political fringe’. Indeed our friends in the hard Right of the NSW branch of the Labor Party might now consider the model of traditional social democracy as “extreme”. Even Anna Bligh’s government in Queensland – Bligh herself hailing from the Left (!) – privatised energy and rail assets – in a move that led to extensive defections from Labor and Queensland unions to the Greens. And now the neo-liberal ideologues are pursuing a new wave of privatisation at a level that once upon a time would have been considered outrageous. Yet the arguments for a return to the mixed economy are clear and they are sound.

Tim Colebatch raises the spectre of Australia and its various state governments losing their AAA credit rating were we to lift our borrowing ceiling. But what if said borrowing was clearly established as being fiscally sustainable by raising taxes to the level necessary to service and repay the debt? And if increasing a nation’s debt ceiling results in a reduced credit rating – regardless of said states’ structural capacity to service the debt – does this make sense? Or is it an Ideological prejudice that ‘locks in privatisation’? Indeed: Can global or regional social credit provide an alternative? Such questions need to be posed now more than ever.

The problem is that the alternative to higher taxes and higher public investment is much more worrisome. So public finance of infrastructure is preferable for a number of reasons.

Firstly the Federal and State governments can borrow at a more competitive rate than any private sector operator.

Secondly, the argument that PPPs ‘pass on risk’ is fallacious – as when PPPs fail governments inevitably have to step into the breach and pick up the pieces.

Thirdly, privatised infrastructure involves user-charges that operate like regressive, flat taxes. Not only are the increased cost-structures of private finance passed on to consumers: but low and middle income groups are disproportionately affected.

The following is most crucial: Under privatisation most citizens pay much more in their capacity as consumers than they would in their capacity as tax payers with public finance. Privatised infrastructure is bad for equity purposes – with the increased cost structures flowing on to business as well as consumers. The consequence of this is thatinfrastructure privatisation is bad for capitalism in addition to being bad for equity.

We need only look to the costs of energy infrastructure privatisation in Australia to grasp the consequences of infrastructure and utility privatisation for a spiralling Cost-of-Living. Private investment in new energy infrastructure is being passed on in the form of consumer charges that have largely seen energy prices in Australia rise by 40 per cent over the past five years.

Full privatisation of infrastructure is obviously the greatest threat – as compared with imposition of tolls on public-owned infrastructure – as user charges become entrenched permanently, rather than comprising an ‘emergency measure’.

But how and why has the ideology of privatisation taken hold – even within the ALP itself? What are the consequences? What is the alternative?

For decades progressives and social democrats have been on the back foot when it comes to privatisation. It is the author’s opinion that many younger members of the Australian Labor Party cannot imagine what a real mixed economy would look like; or conceive why it would be desirable; or conceive anything outside of the neo-liberal framework. Within the ALP there is even scepticism with regards reform of tax and meaningful extension of the welfare state and social wage.

Even on the ALP Left there is an ‘ideological drift’: a loss of a sense of perspective and purpose as the substance of democratic socialist policy is increasingly seen as ‘unspeakable’ even in internal forums.

Without being regularly reinforced through a vigorous and participatory counter-culture traditional Left ideals are fading. Liberalism is filling the void. By while liberalism is part of the answer, it is not sufficient to meet the ‘social question’ which provided the original source of inspiration for Labor. While worthwhile causes such as the rights of refugees and the right of those of queer sexuality are important, any critique of neo-liberal capitalism is relegated to the far margins. Such a critique could advance to cause of moving back towards a mixed economy - including natural public monopolies, as well as government business enterprises which actually enhance competition while providing cross subsidies for disadvantaged consumers. And more particularly progress could be made towards a democratic mixed economy, which could also be marked by co-operative and mutualist enterprise and co-determination.

The power-brokers do not seem to understand that the firmer the control they exert over the grassroots, and the more grassroots initiative is obstructed, the consequence is the decline of the ALP as a movement, and the loss of democratic socialist ideology, culture and identity. At this rate all that will remain ultimately is a patronage machine – which is how some people seem to like it. The disillusioned flock to the Greens – and yet even amidst the current crisis of support for Labor, the Greens’ mass electoral appeal remains largely confined to inner suburbs. Labor remains a crucial electoral bastion that must be contested by progressive forces.

There has been a steady line of retreat since the 1980s on the Left - from a perspective favouring economic democracy, to a rearguard action in defence of a robust mixed economy, to neo-liberalism and a minimal public sector sustained by some residual ‘natural public monopolies’ – and finally now the almost absolute expunging of the public sector from even those sectors of the economy where it is in capitalism’s own interests to contain its cost-structures via public ownership.

We need, now, to return to the theme of the democratic mixed economy: in a sense to ‘save capitalism from itself’ – not necessarily because all facets of capitalism are worth saving – but to prevent the human suffering that comes in the wake of capitalist contradictions. And over the long term we can still aspire to the extension of political, social and economic citizenship – culminating in a qualitatively better social order.

For now a hybrid system can provide the best mix of socialist efficiency and fairness, and market-facilitated innovation and choice. This is the democratic socialism the Labor Left – and the Centre-Left more broadly – needs to return to. It demands a robust counter-offensive against neo-liberalism – not merely another faltering rearguard action in the face of this latest ideological and public policy assault. It requires pro-active advocacy in favour of a democratic mixed economy. And it requires the implementation of these principles by Labor in the field of public policy.

1 comment:

  1. BTW I concede increased costs are being passed on even with cases of public ownership of transmission; But I maintain that public ownership lowers cost structures - which have the *potential* to be passed on for our benefit in our capacity as consumers.

    Crucially privatisation of generation means you can't cross-subsidise distribution infrastructure with public sector profits... I should have made that point in the article to make it clearer...