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Graeme A. Hodge[*]
The battleground of political and social change: privatisation rhetoric vs empirical realities.
Privatisation has been a central part of public sector reform efforts around the globe.[1] Few governments have been exempt from pressures to become more efficient and to deliver better services under increasingly severe resource constraints. A range of privatisation activities has been pursued in this quest, from contracting-out services, through the introduction of user charges, to the sale of whole government organisations. These have been initiated within the broader context of deregulation, liberalisation and load shedding of government activities.
Despite the stated formal objectives of such reforms, much of it has been undertaken on an ideological basis. The ethos has often been one of ‘private good — public bad’, without explicit economic and financial objectives in the public interest. It has been an attack on both the values for which the public sector stands, and on the public sector itself. Just look at the strong ideological overtones of some of the titles; ‘Escaping the Heavy Hand of the State’, ‘Privatisation: The Key To Better Government’, or ‘Seven Deadly Myths of Privatisation’ and ‘The Bottom Line is Society Loses’.[2] The language has been brimming with colour and emotion.
In Australia, a newly elected Premier of Victoria, Jeff Kennett, announced with venom in 1992 that state public servants did not generate one single dollar of wealth, inferring that the bureaucracy needed to be cut down to size, to enable the private sector to get on with what it does so well — generating the wealth in the economy.[3] These sentiments were a forerunner to a spate of vicious downsizings throughout the public sector along with a huge privatisation program. Indeed, the State of Victoria, which led a nation already keen on privatisations, saw AU$33 billion in sell-offs, and led the world during the 1990s on the basis of sales proceeds as a proportion of GNP. This state also saw $11 billion of services redirected to private contractors for the next two decades.[4]
In the light of this international and local experience, I could be forgiven for seeing privatisation as a war. Adopting the metaphor, which I chose well before the events of 11 September 2001, it has been a war on at least three fronts. First, it has been part of a philosophical battle between individualism in preference to collectivism. The two sides here point to the tensions between maximising one’s individual private interests as against the benefits of ensuring that the collective good is a priority. Government, it is assumed, is all about the broader interests of citizens and the public interest, rather than solely private interests.
The second front of the privatisation war has occurred on the territory of public policy implementation, with service delivery increasingly being preferred through private rather than public mechanisms. This has been a rhetorical war as well as one of contractualisation, managerial reforms and change. On the one side, privatisation supporters and reformers attack with claims of inefficiency and service incompetence from government bureaucracies. On the other, public sector defenders and privatisation critics counter with observations of private sector greed, unethical behaviour and corporate failure.
The third fighting front for the privatisation war has existed through the eternal struggle of capital interests against both human and social interests. This territory witnesses ongoing battles between the powerful and sometimes shadowy influence of capital owners with a voracious desire for higher rates of investment return on the one hand, and the welfare of human beings, their human rights and governing for social cohesion on the other. The agenda here is wide, and the fighting protracted.
All three fighting fronts exist within the battleground of political and social change.[5] With decades of global experience in contracting-out operations, selling off assets and establishing markets for government services, it is timely that we now take stock and review learnings to date. So, what can we distill from our collective experience? This article aims to separate the privatisation rhetoric offered by political and investment actors from the empirical realities of citizens and consumers living on the battlefield. The aim is to ascertain the degree to which promised gains or other impacts usually occur, and assess who typically wins and loses in privatisation reforms. The article also aims to develop a series of general policy lessons.
The main section of the article offers eight broad lessons from privatisation experience around the world as well as Australia. Where possible, evidence is noted rather than repeating political rhetoric and economic dogma. Lastly, it offers some conclusions about our learnings to date.
At the risk of being accused, quite rightly, of reductionism, this article argues that there are eight critical lessons that stand out from our global privatisation experience. Lessons learned and the importance of different outcomes, of course, depend on the perspective we choose to take. The article looks at privatisation lessons primarily from the perspective of a public policy lens, rather than the lens of a banker, an economist, a citizen or a consumer. It attempts to synthesise lessons using multiple dimensions including economic, social, democratic, legal and political domains. So, where to begin? The first battle ground — that of collectivism against individualism is my starting point.
The past two decades have seen the fall of the Berlin Wall, and the almost total failure of centrally controlled economies. At the national level, the downfall of central planning for economies throughout Europe for instance has been trumpeted as a ‘triumph of capitalism’. Such an interpretation, however, is quite misleading. What happened in Eastern Europe, in Mintzberg’s words, was that ‘capitalism did not triumph at all; balance did’.[6] Vibrant, healthy modern communities need a strong private sector and a strong government sector — the mixed economy, rather than the domination of one over the other. The role of government in the economy is thus fundamentally a debate about this balance — not all of one and none of the other.
At the level of the individual, we might also reflect on the degree to which individuals are indeed best able to make decisions — to maximise, in the jargon of the economist, their own utility. There is some truth that each of us is self-interested, but translating this generalisation to a belief that the pursuit of this model leads to a better society in the long run is a leap of faith indeed.[7] We are not simply a ‘homo-economicus’ animal. Human beings want more from life than simply trading and consumption.[8] The ‘homo- economicus’ model is fatally flawed as the single driver of human behaviour in society.
So, where does the individual–collective balance lie? This is an eternal debate of political science. Philosophically, though, we now know that any hardened ideology, whether rampant deregulatory marketism at one end or collectivist socialism at the other, is equally dangerous.[9] Reformers become pathologically blind and lose touch with reality. Sure, the demise of centrally planned economies showed that the mixed economy was a powerful engine for economic growth. But it also showed that privatisation without good governance leads to a corrupt state. Russia’s ruthless and swift privatisation program, for instance, has now seen some 70-80% of all former USSR government organisations reputedly being ‘obliged to make payments to criminal gangs, corrupt officials or racketeers’.[10] It is difficult, therefore, to escape the conclusion that the privatisation prescription in the absence of enabling governance frameworks to underpin the existence of property rights[11] and the rule of law can leave the patient sicker than when the doctor arrived. Strong communities, and strong mixed economies need both a strong government and a strong private sector, by definition.
Moving onto the global battleground of public policy implementation, the second common lesson from international experience is that privatisation has usually seen clear winners and losers. The World Bank’s own 1994 report on projected benefits from its divestiture privatisations,[12] for instance, found investors winning in eleven of the dozen cases analysed, while citizens either gained nothing or lost in two-thirds of these. Other research has also confirmed the occurrence of strongly significant shareholder returns with privatisation, on average.[13]
If we look at individual cases around the globe, similarly mixed results are seen. When independent analysis of the sale of Argentina’s telecommunications company ENTEL suggests that the country as a whole was worse off by around $3.7 billion while international investors gained over $6 billion, citizens rightly become skeptical.[14] When, according to Ralston Saul[15] the revolutionary privatisation of 80% of Mexico’s state firms created 30 billionaires, all friends of the president or the party in power, while real wages plunged 52%, citizens rightly ask ‘whose economy is privatisation good for?’
What has happened in Victoria’s case? Interestingly, the winners and losers theme has been only partly true. Victoria’s asset sales, particularly those later in the program, were generally more sophisticated, having learned the preference to utilise trade sales to maximise proceeds, so that Victorian citizens were not open to the same level of losses as elsewhere.[16] Important also in minimising potential losses to consumers was the strong domestic price control regime instituted through the independent Office of the Regulator General. Where prices were subject to new competitive markets, such as occurred with the purchase of power by industry, average price reductions of 10% were reported.[17] Here, we appear to have done better than much of the earlier international experience. In terms also of electricity supply quality, a decline in the total length of time customers spent ‘off-supply’ has been reported, though with an increased frequency and total time spent off supply from unplanned interruptions.[18] Overall then, losses to consumers or to citizens have not occurred. Indeed, the biggest losses incurred in the electricity privatisations in Victoria were the investment losses born by international investors, who paid far too much for the assets.
But many of the same global winners did turn up at the privatisation party. Merchant bankers, investment brokers and management consulting companies saw a $419 million bonanza in business transactions and were big winners.[19] City based tender winners and senior executives with higher salary packages to administrate more complex contracts all did well. While we seem to have largely avoided the bargain basement asset prices seen in the UK, those in rural areas, whose services had been contracted to companies outside the rural township, saw their own local economies downsized. Likewise, those who used to spend their time delivering human services in cooperative arrangements, saw a new, but more aggressive competitive streak emerge through rules requiring 50% of all local government services to be put to tender. This allowed less time to actually deliver services and required more time to comply with tendering systems and contracting transactions. More control and direction, but less service delivery.
On the public policy front, decades of public sector versus private sector production battles have left the ground littered with casualties. But the biggest surprise on this battle front has been the empirical findings. Our third lesson is that the relative overall gains from divestiture privatisations around the world have been surprisingly modest, aside from the obvious once-off cash flow bonanza. Sure, we increased the confidence of private businesses and the money markets, but the much touted productivity and financial performance gains have been more difficult to find.
Indeed, a large international meta-analysis of divestiture results summarising all available research findings from enterprise sales around the world at the time, looked at 10,468 before and after measurements of performance. This analysis of divestiture results confirmed statistically the modest gains for the financial performance of privatised firms (ie, return on equity and return on sales), finding only slight improvements on average.[20] Likewise, parallel comprehensive investigations of the UK privatisations in the late 1990s also found ‘little evidence of any systematic improvement in performance’, with performance having improved in 82 instances (51.6%) and having deteriorated in 77 instances (48.4%).[21]
Additionally, the meta-analytic research also argued that gains for consumers in terms of service quality were due more to strong regulation and open disclosure of performance information. In fact, analysis of the relative strength of these factors showed that strong regulation and open information disclosure were several times more powerful than changing ownership.[22]
Like divestitures, the notion of contracting-out government services to the private sector has also been central to privatisation policies. Of course, the idea of using both public and private resources to deliver government services had been around for 150 years in many western countries — and so has the debate. But how successful has contracting- out services been?
Drawing again on the findings of the above meta-analytic research, another analysis summarised 23,914 available global measurements before and after contracting-out government services. This work showed that contracting-out had worked well in some areas and not in others. On average, a significant cost saving of around 6% (12%)[23] was found for contracting public sector services overall. Having said this, though, the bulk of the documented evidence related to strong savings in the areas of garbage collection, cleaning and maintenance services (ie, between 19% and 30% savings), rather than the little or no savings found for other services (which varied between an 8% saving to 24% cost increases). Put simply, cost savings available from different services were found to be statistically heterogeneous.
In terms of service quality, the little empirical evidence available indicated that, on average, service quality was unaffected by contracting. Sometimes it was better, sometimes not. This implied that the claims of both sides were extreme. Service quality was not as a rule generally improved, as claimed by one side, or reduced, as claimed by the other.
Perhaps of more importance was the finding that contracting — either in-house or outside the organisation — led to cost savings. Thus, service specification and competition appeared to be the drivers of efficiency, not the sector doing the work.[24]
These findings contrast the rhetoric promoting private delivery as the answer to all public sector service delivery ills. This idea, of a single, one size fits all panacea, was too simplistic by half. Elevating contracting-out techniques to a position as a public policy solution itself was, to put it bluntly, misguided. Outsourcing, although useful, was never a panacea in the first place — the fourth privatisation lesson.
One critical lesson from experience, but surprisingly late to be acknowledged explicitly, was being learned simultaneously on both sides of the Pacific. The electricity markets of both California and Victoria were being touted a few years ago as leading successful examples of an economists’ nirvana — the creation of sophisticated, efficient and deregulated markets for what were once deemed essential services. They were seen as having almost magical properties at the time.
Whether it was the crash of the Californian electricity trading system or the ensuing Enron financial debacle and political scandal, few would try to preach the same economic fundamentalism today. No, we might now conclude as lesson five — that markets do not naturally serve the public interest. They themselves require good governance if they are to work for all of us. The very creation of markets, along with ensuring competitive bids for contract tenders, and maintaining competitive and legal practices for financial reporting for the supply of products and services, all require a stronger and more capable role from government than ever before. Governments of the future neglect this fifth lesson at their peril.
Perhaps this is not just a lesson from privatisation experience — the need for strong, and intelligently managed competition is independent of the question of private or public ownership. Current concerns around the need for stronger and more independent auditing of companies, the requirement for governments to manage continuing insurance market failures and the role of government and private sector bodies in enhancing security all attest to the need for markets to be carefully governed rather than left alone.
For the sixth lesson, we might briefly return to Thatcher’s initial groundbreaking program. Despite improved economic efficiency being a common formal objective of privatisation programs over the past two decades, it has been recognised that there were initially no specific, explicit objectives documented early in the British privatisation program.[25] In fact, privatisation originated as a political and financial strategy, and importantly, ‘the economic rationale was appended later’.[26] Whether it was Margaret Thatcher shifting power back to government following the 1984/85 miners strike, or Jeff Kennett busting transport and ambulance workers in Victoria, government policy is about altering power balances. Privatisation, as policy, has also been about shifting power.
Despite the bluster, there were no equations or calculations proving which parts of government ought to be privately or publicly owned. It was all contestable. Perhaps the redistribution of power away from unions was beneficial. But perhaps we also traded union influence of government for the capital power of businesses and banks? What is probable is that throughout the world, we have too often traded the promise of future benefits for large actual cash flows paid immediately to chosen advisers and merchant bankers.
The New Zealand Business Roundtable experience is an interesting case study here — a group of 43 chief executives from the country’s largest companies.[27] When a series of allegations surfaced revealing that the government had accepted large political donations, mainly from roundtable members, New Zealanders began realising that a power transfer had occurred. The community, as Kelsey put it, asked the question whether government was now effectively in the pockets of big business. In Kelsey’s eyes, this was not simply an allegation of corruption:
The issue was not whether individual politicians were doing favours for their mates. It was the systemic transfer of power over the country’s economic, social and political future to individuals and institutions of private capital, driven by profit and market forces, backed by the institutions and agencies of international capital who remained shadowy figures in the background.
In Kelsey’s view, then, a massive transfer of power had taken place away from the sovereign State, with privatisation playing a key role. Such concerns, even if only partly true, raise the arguments of the then New Zealand Auditor General, Brian Tyler, to prominence. Tyler insisted that the radical changes being introduced through the 1980s demanded more, not less, accountability to parliament. Such a stand remains as relevant today as it did then. These sentiments, however, do not win favour with reformist governments seeking to deal with more compliant and obedient public servants on short-term contracts. Neither does such a stand win favour from the directors of newly privatised enterprises.[28]
One of the most noticeable casualties in the international privatisation game appears, unfortunately, to have been public accountability.
Accountability in a democracy is a central and pervasive construct. Many authors argue quite simply, that accountability is clearly increased through a sale. Instead of public sector enterprises being ‘submerged in the depths of government ministries, distinct enterprises have been created with clearly defined lines of responsibility’, they say.[29] This view is appealing in its simplicity. Indeed, it is difficult to argue against the observation that the very financial reporting requirements of the newly privatised firms have promoted improved accountability — at least in a narrow managerialist or financial shareholding sense.[30]
But accountability in the context of essential services is a more sophisticated and wider notion than financial returns to shareholders. Stone,[31] for instance, sees ‘administrative’ accountability in terms of five dimensions, only one of which has a managerial focus;
1.
accountability as parliamentary control — where administrators and agencies are responsive to the concerns of members of parliament in the context of policies and actions — traditionally termed ministerial responsibility;
2.
managerialist conception of accountability — where strategic rather than detailed control is emphasised and the agency is required to meet certain objective tests and meet specified performance measures, along with audits;
3.
accountability as judicial and quasi-judicial review — where process is critical, with strict formal standards for decision making (eg, reviews of administrative decisions in the courts through state or federal Administrative Appeals Tribunals);
4.
accountability as constituency relations — where the concerns of individuals can be represented through governing boards, holding annual meetings of constituents or conducting public hearings, or through advisory bodies and regulatory agencies, or where consumer councils or ombudsmen can take up individual grievances and monitor performance; and
5.
market accountability — where service providers are responsive to a body of ‘sovereign’ consumers, offering a choice of suppliers, a choice of quality and quantity of service and the consumer can opt out of a purchase.
Each of these five conceptions of accountability implies a different relationship with a citizen. In this light, it is not surprising that some authors argue exactly the opposite — that privatisation has resulted in reduced accountability. We might observe firstly that accountability as ministerial responsibility is clearly reduced. This is hardly surprising, since one of the key objectives of privatisation in the first place was to ‘free up SOEs’ from political influence and control.
But many commentators go further than this. Taggert,[32] for one, is scathing of claims of improved accountability. From his perspective in New Zealand, the legal process of privatisation itself strips way most of the broader accountability mechanisms that operate in the public sector — ombudsman review, freedom of information, scrutiny by the Auditor General, and ministerial responsibility. He argued explicitly that ‘there is an accountability vacuum which the courts may be drawn into’. To him, then, public accountability following privatisation was poor.
One central dimension of accountability is openness and the extent to which disclosure of information is affected. Worldwide, transparency of the privatisation process or transaction has been an ongoing concern, and plenty of examples provide case studies of failure, here.[33] Just as important as the privatisation process, though, is the question of the extent to which the openness of ongoing operations is affected. On this score, UK research[34] concluded that the disclosure of information declined following privatisation of the electricity supply industry.
Privatisation as the sale of enterprises certainly brings into focus the sharp differences between the traditional values expected of the public sector, with a degree of openness accompanied by formal checks and balances, and competitive private sector practices where speedy commercial decisions may be made behind closed doors. The adoption of closed decision-making practices along with contempt for proper parliamentary procedures throughout the New Zealand privatisation process even led Kelsey[35] to conclude that the privatisation reform was itself, ‘anti-democratic’. It transferred power from the sovereign state to the international marketplace, she argued. She cited examples of Ministers before select committees refusing, in the House, to answer questions on state owned enterprises which still retained partial state ownership. Such refusals were made on the grounds of commercial confidentiality. She also notes numerous clashes between the reforming government and independent watchdogs,[36] such as the Auditor General.
And what of market accountability? The data on this are again surprisingly scant. What little is known, though, is mixed. Saunders and Harris,[37] for instance, quote survey data from the United Kingdom that sought public perceptions on whether water industry enterprise sales had increased accountability. In this case, 28% of respondents agreed that it had, while 39% disagreed. Some 34% had no opinion or did not know, however, making the result somewhat equivocal for the sample of 828 respondents.[38]
The various threads to this international debate on accountability are complex, and at this stage largely unresolved. In total, it might be concluded that although managerial accountability may have increased, this is likely to have been at the cost of a decrease in the broader public accountability mechanisms, and with at most, questionable accountability impacts on customers. What is certain is that we are now much more focused on questions of accountability than we have ever been in the past. This in itself, may well be leading to better accountability and performance overall.
What of the privatisation experience of Victoria, Australia? The overuse of commercial-in-confidence during the Kennett era was, bluntly, a breakdown in Westminster democracy as we knew it. ‘Kennett not only presented himself as Victoria’s Chief Executive Officer, he seemed to believe it to be true’.[39] Under the Kennett government’s can-do private sector ethos, central departments even refused to show parliamentary committees their own corporate plan. The need for independent watchdogs to monitor the cavalier actions of an overzealous reforming government, the unprofessional actions of an obedient and pliant administration and the need for public access to government contract arrangements was palpable. An overwhelming and entrenched culture of secrecy supported the desire to crash through a host of privatisation reforms. These rose to first order priorities and replaced the traditional values of stewardship, accountability and public interest. Hayward’s image after the passing of the Kennett era told the story … ‘in the background lay a crippled Parliament, which had been left perilously close to irrelevance following seven years of authoritarian rule’.
There is an increased need for public organisations now to be able to specify service requirements in contractual terms, and ensure that competition for the right to provide services is maximised. Even if the best providers have been chosen for public sector work, there is also a subsequent need to monitor service provision so that companies meet or exceed service standards, quality and other contractual parameters. Experience with each of these detailed contracting elements is teaching us much. We do gain from reviewing service delivery methods, from better specification of services and from competition. But there are still large gaps between the privatisation and market rhetoric on the one hand and the new realities inside government on the other. A key lesson here has been that when government ideology takes over from sensible organisation and business operations, government itself can become dumbed down and hollowed out.
First mooted by Peters and Rhodes,[40] the hollowing-out of the state suggests that the state is being eroded or eaten away. Privatisation was seen to be a major cause of this, given large transfers of public employees to the private sector. Such hollowing out was characterised by fragmentation (and consequently weakened co-ordination), eroded accountability, a greater potential for misinformation and a decline in central capability. As well, a reduced capacity to steer the state and a decline in public sector ethics has been suggested.[41]
The notion of the contracting organisation was fanned along under the rubic of Osborne and Gaebler’s ‘steering not rowing’ philosophy.[42] Yet all was not well in the empirical world of service delivery, and, as De Carvalho noted, neither steering nor rowing were value free notions.[43] As well, one of the key recent concerns being voiced has been the departure of many types of technical specialists, and the consequential inability of governments to neither make sensible decisions involving technical issues nor manage such contracts.[44] In Australia, such concerns have only lately been taken seriously. We have witnessed disasters such as a bungled demolition by a contractor of a hospital in Canberra (where debris from the implosion blast was sent into surrounding areas and a 1kg fragment killed one of the spectators watching some 430 metres away from the hospital), and a fire on-board the Westralia defence vessel (where four lives were lost after a flexible hose supplied by the ship’s support contractor burst).[45] In these cases, a lack of technical expertise was found to be associated with the events — either in the contract management, or contractors. Government has indeed become hollowed out. Nowadays, it increasingly runs the real risk of behaving as a ‘dumb purchaser’ rather than an intelligent, informed and capable force acting in the interests of citizens.
The philosophical observations of Fox are also germane here.[46] He observed that under the post modernist analysis, words, symbols and signs are increasingly divorced from real world experience. Furthermore, he argued that ideas from Reinventing Government such as ‘steering not rowing’ were breathless in their salesmanship despite their clear inconsistencies, the at times bizarre logic and the clear linguistic manipulations.
How do these arguments compare with the Victorian experience? The state’s public sector was cut by 20%, or 50,000 jobs, under the Kennett regime,[47] but few if any independent reviews of effectiveness were undertaken. The Kennett Government’s privatisation activities were successful because they were marketed as such — through ‘consummate media management’.[48] Perhaps the most striking, and symbolic, example of the potential for a government to become ‘hollowed out’ was given by a major central Victorian government department. This department, when asked by the Auditor General to document the government’s objectives for outsourcing, replied that it could not do this by the date requested, but that it would do so a few weeks later. ‘That job …’ the department explained ‘… has been outsourced, and we need to ring up the contractor to get them to document why we outsourced’! Here, government had clearly been ‘hollowed out’.
Reformist governments such as that of Kennett have continued to be surprisingly hesitant to evaluate, in any rigorous and independent way, the overall worth of privatisation reforms. In Victoria, there was certainly a reluctance, despite the hype of language such as ‘outputs, outcomes and deliverables’ and the relentless marketing of supposed advantages, to assess policy tenets in any serious way.[49]
Victoria’s $33 billion sell-off is still greeted with uncertainty as to whether all citizens benefited from this ‘period of discipline’, as so often coined by the former government, or whether governments around Australia fell asleep in the middle of a massive heist in the order of $48 billion.[50] Considerable uncertainty, therefore, surrounds perceptions of the truth. The truth is presumably somewhere in between these two extremes. Today, more than ever, we need stronger, more creative and more capable government, not simply a contract administrator. In my judgment it is now lesson eight.
So what may we conclude, overall? The one line lesson for governments around the globe is to ‘be careful’ with privatisation policy. Like fire, it can be a useful mechanism, but as a policy servant rather than an ideological master. Privatisation can be accompanied by modest economic gains, but has in practice also seen strong winners and losers. Paradoxically, privatisation reforms have required a stronger and more capable government to ensure improved accountability and citizen benefits. Given the huge resource levels at stake in privatisation policies and transactions, and the usual one-way nature of such reforms, it is important for governments to take heed of these lessons.
[*] Professor Graeme A. Hodge is Director, Centre for the Study of Privatisation and Public Accountability, Faculty of Law, Monash University.
[1] This paper builds on earlier work: Hodge, G.A. ‘Good Governance and the Privatising State: Some International Lessons’, (2002) 6(2) Journal of Social and Economic Policy 56-67, and was presented at the American Society for Public Administration, Phoenix, March, 2002.
[2] See respectively Anonymous, ‘Escaping the Heavy Hand of the State’, The Economist, 13 June 1992, pp.69-70; Savas, E.S., Privatisation: The Key To Better Government, Chatham House Publishers; Ernst, J., ‘Seven Deadly Myths of Public Utility Privatisation’, Public presentation, Melbourne, March, 1993; and Abramovitz, M., The Bottom Line is Society Loses, (1987) 46 New Doctor 22-4.
[3] Some six years later, citizens were to roundly reject a third term for a political leader seen as out of touch with citizens, and who had gone too far on privatisation with little accountability and precious little transparency and concern for democratic processes. Such negative public judgments seemed to also follow those privatisation programs of both the United Kingdom and New Zealand.
[4] Russell, E.W., Waterman, E. and Seddon, N., ‘Audit Review of Government Contracts: Contracting, Privatisation, Probity and Disclosure in Victoria 1992-1999’, An Independent Report to Government, May 2000, Volume 1, Main Report, 176 pp.
[5] All three fronts have achieved currency recently, with the Worldcom and Enron failures and a renewed interest in the role of government in security and business regulation matters in the US exemplifying this.
[6] Mintzberg, H., ‘Managing Government — Governing Management’, (1996) Harvard Business Review, May-June, pp.75-83.
[7] The identification of contrasting values is also a useful starting point in assessing the privatisation argument here. Business in a marketplace and government are both symbolic of treasured values. Business values look towards a greater reliance on individual choices, and towards smaller government. The implicit assumption is that the financial system will solve our economic and social problems. Individual choices in markets are usually seen as more important than collective choices in political processes. Price mechanisms are preferred to discussing our needs. Secrecy behind contracts is preferred to openness for public scrutiny and debate, and the search is for market satisfaction rather than for a more just and fair society; Pollitt, C., Managerialism and the Public Services, Blackwell Publishers, 2nd edn, 1993.
[8] See Mintzberg, H., above, ref 6; Stretton, H. and Orchard, L., Public Goods, Public Enterprise, Public Choice: Theoretical Foundations of the Contemporary Attack on Government, St Martins Press, 1994.
[9] See Hutton, W., The State To Come, Vintage, 1997, p.9.
[10] Prokopenko, J., Privatisation: Lessons from Russia and China, Enterprise and Management Development Working Paper EMD/24, International Labour Organisation, 1998 (also available at <http://www.ilo.org/public/english/employment/ent/paper/emd24.htm> .
[11] De Soto, H., The Mystery of Capitalism: Why Capitalism Triumphs in the West and Fails Everywhere Else, Bantam Press, Great Britain.
[12] Galal, A., Jones, L., Tandon, P. and Vogelsang, I., Welfare Consequences of Selling Enterprises: An Empirical Analysis, Oxford University Press, International Bank for Reconstruction and Development, The World Bank, 1994, 619 pp.
[13] Hodge, G. A., Privatisation: An International Review of Performance, Theoretical Lenses on Public Policy Series, edited by Paul A. Sabatier, Westview Press, Colorado, 2000.
[14] See Abdala, M. A., ‘Distributional Impact Evaluation of Divestiture in a High Inflation Economy: The Case of Entel Argentina’, Unpublished PhD Thesis, Boston University, 1992, p.190.
[15] Ralston Saul, J., The Unconscious Civilisation, Penguin Books, 1997, 205 pp.
[16] Asset sales proceeds were not as poor as those in the UK, but the good prices for electricity assets ($23.2 billion) must be tempered against the give-aways of Tabcorp, HRL and AH Plant. In the case of the Tabcorp alone, a wealth transfer of around $3.2 billion to the private sector was estimated by Walker, B. and Walker, B.C., Privatisation Sell Off or Sell Out? The Australian Experience, ABC Books, 2000. I might also comment in passing that the excellent sales revenues from electricity assets were as much due to market sentiment and the expected ‘light touch’ regulation regime being discussed informally as they were due to any explicit government design. Put simply, Victoria was seen by international investors as the first domino likely to fall in the national competition policy driven frenzy to sell off Australia’s electricity assets. This sale ‘frenzy’ has simply not eventuated, at least not to the depth or speed initially assumed.
[17] Department of Treasury and Finance, Victoria’ s Electricity Supply Industry Toward 2000, Report prepared by the Energy Projects Division, June 1997, Melbourne.
[18] See Office of the Regulator General, Electricity Distribution Businesses: Comparative Performance for the Calendar Year 1998, Melbourne, July 1999, p.21. Note that the number of residential customers disconnected for non-payment has apparently fallen by around two-thirds since 1995, with business disconnections being halved over this time. Both of these performance results are impressive, though not without criticism. Romeril, for instance, argues that disconnection figures for the state-owned monopoly as at 1994 are an inappropriate benchmark, these being around 75% higher than those of the state facility two years previously: Romeril, B., ‘Cut Off: The Losers in Utility Privatisation — A Study of Disconnections in the Victorian Electricity Industry’, (1997) 1(5) Consumer Rights Journal, July-August, pp.7–10.
[19] See ‘Gravy Train Worth $419 m, Age, 29 May 1999, Business, p.1.
[20] See Hodge, G.A., above, ref 13, p.199. We might surmise a host of reasons for this surprising result. We could postulate firstly that earlier privatisations represented those that were simpler and less sophisticated, paying less attention to strengthened regulation, price controls and competition. This logic has a ring of truth about it. Secondly, we might question the use of particular research techniques such as meta-analysis. Against this, though, the overview research undertaken by Martin and Parker (see ref 21) used a quite different methodology and came to essentially the same conclusion. Thirdly, we might believe that the relationship between private ownership and improved performance does exist, but that, it is more complex than first assumed and likely to take perhaps decades before the data eventually yields sufficiently strong proof. Lastly, we might surmise that there is indeed little inherent difference between the efficiency of the public and private sectors.
[21] See Martin, S. and Parker, D., The Impact of Privatisation: Ownership and Corporate Performance in the UK, Series on Industrial Economic Strategies for Europe, Routledge, 1997.
[22] See Hodge, G.A., above, ref 13, p.212.
[23] This research showed that averaged over all available international measurements (most of which related to local government garbage collection, cleaning and maintenance services), a mean cost saving of around 12% was found, but averaged over services (equally weighted), a mean of around 6% was found.
[24] Furthermore, significant flow-ons also seemed to operate in that agencies not contracting services, but in areas adjacent to those doing so, showed cost reductions of around two thirds of those for areas contracting out. It is not necessary to contract all services comprehensively in order to achieve extensive cost savings. A little bit of contracting reform appears to go along way.
[25] See for example Wiltshire, K., Privatization: The British Experience — An Australian Perspective, Committee for Economic Development, Longman Cheshire, 1987, 130 pp; Whitfield, D., The Welfare State — Privatization, Deregulation, Commercialisation of Public Services: Alternative Strategies for the 1990s, Pluto Press, 1992, 545 pp; and Foster, C.D., Privatization, Public Ownership and the Regulation of Natural Monopoly, Blackwell Publishers, Oxford, 1992, 458 pp, p.116.
[26] Whitfield, D., above, ref 25.
[27] Kelsey, J., Rolling Back the State: Privatization of Power in Aotearoa/New Zealand, Bridget Williams Books Limited, 1993, NZ, 391 pp.
[28] We might note similar concerns in the United States with the rise and fall of Enron. Bush’s Cabinet is reputed to be the wealthiest in American history, with average personal wealth at around $US10.9 million; Age, ‘Bush Has Wealthiest Cabinet’, Monday, 5 February 2001. Given this, and its close political links with Enron, one could be forgiven for asking whether in the US there has also been, to a degree, a ‘systemic transfer of power over the country’s economic, social and political future to individuals and institutions of private capital …’
[29] Bishop, M., Kay, J. and Mayer, C., Privatization and Economic Performance, Oxford University Press, 1994, 378 pp.
[30] Of course much of this improvement in financial performance accountability is also achievable through corporatisation and regulation processes — without a change in ownership.
[31] Stone, B., ‘Administrative Accountability in the Westminster Democracies: Towards a New Conceptual Framework’, (1995) 8 Governance, October, p.8.
[32] Taggart, M., The Impact of Corporatisation and Privatization on Administrative Law, (1992) 51(3) Australian Journal of Public Administration 368-73.
[33] Kikeri, S., Nellis, J. and Shirley, M., ‘Privatization: The Lessons of Experience’, The World Bank, Washington, DC, 1992, 86 pp, p.70; World Bank, ‘Bureaucrats in Business: The Economics and Politics of Government Ownership’, World Bank Policy Research Report, Oxford University Press, 1995, cite a myriad of examples of lack of transparency in the initial programs of Mexico, Pakistan, and Guinea. In the United Kingdom, Wiltshire (see above, ref 25) notes that subsequent to the sale of the Rover organisation, the UK Public Accounts Committee revealed that the Thatcher government deliberately undervalued Rover to allow a takeover by British Aerospace, thereby deceiving the European Commission, and the UK taxpayers and voters.
[34] Thomson, L., ‘Reporting Changes in The Electricity Supply Industry’, (1993) 9(2) Financial Accountability and Management 131-5; Heald, D., ‘A Financial Autopsy on the CEGB’, (1989) 17(4) Energy Policy 337-50.
[35] Kelsey, J., above, ref 27.
[36] Strong similarities have also been observed throughout privatisation processes in Victoria, Australia, where the Administrative Appeals Tribunal, the Office of the Auditor General and other independent offices were all attacked and weakened by the privatising government.
[37] Saunders, P. and Harris, C., Privatization and Popular Capitalism, Open University Press, 1994, 181 pp.
[38] Likewise, the observations of Moussios, A., ‘Hybrid’ Status, Regulation and Performance: An Empirical Analysis of the Denationalisation of British Telecom’, 1994 Unpublished DPA Thesis, University of Georgia, US, 337 pp. He argued that legislation and other mechanisms were needed to ensure that service quality from British Telecom improved. This suggests that privatisation led to a reduction in accountability here as well.
[39] Hayward, D., How Mr Kennett Lost and How the Coalition Let Him Do It, (1999) December Dissent 58-64.
[40] Rhodes, R.A.W., ‘The Hollowing Out of the State: The Changing Nature of the Public Service in Britain’, (1994) 65(2) The Political Quarterly 138-51. Rhodes notes the unpublished and undated paper by Peters entitled ‘Managing the Hollow State’.
[41] Rhodes, R. A.W., Different Roads to Unfamiliar Places: UK Experience in Comparative Perspective, (1998) 57(4) Australian Journal of Public Administration 19-31.
[42] Osborne, D. and Gaebler, T., Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector, Addison- Wesley Publishing Co. 1993.
[43] De Carvalho, D., ‘“The Captain is a Schizophrenic!” or Contradictions in the Concept of the Steering State’, (1998) 57(2) Australian Journal of Public Administration 107-14. De Carvalho argues that rowing may, for instance, be undertaken in the style of the huge Roman trireme, as depicted in the movie Ben Hur. This Roman version of rowing saw galley slaves so little trusted that they were chained to their posts, the admiral standing on the deck above the rowers, and with rowing undertaken under the beating (benchmarking) of the monotonous drum. The contrast with rowing under the Vikings was stark. Viking vessels were open decked, with room for feedback between the rowers and the admiral of the ship as well as between the rowers themselves. Being free men rather than slaves, the rowers were also not chained to their posts, thus enhancing cooperation. We might contemplate whether Victoria’s steering state was closer to the Roman trireme than the Viking open deck vessel.
[44] Such problems have not necessarily been exclusive to the public sector, with other writers also proclaiming the existence of ‘corporate amnesia’ when personnel discontinuities occur in private companies; Kransdorff, A., Corporate Amnesia: Keeping Know-How in the Company, Butterworth-Heinemann, 1998, 224 pp.
[45] Yates, A., ‘Government as an Informed Buyer: Recognising Technical Expertise as a Crucial Factor in the Success of Engineering Contracts’, The Institution of Engineers, Australia, 2000.
[46] Fox, C., Reinventing Government as Postmodern Symbolic Politics, (1996) 56(3) Public Administration Review 256-62.
[47] Brady, N., ‘Slashing 50,000 PS Jobs Is Biggest Landmark – Kennett’, Age, 10 March 1995.
[48] Russell, E. ‘Rebuilding Victoria after Kennett’, (1999) December Dissent 54-7.
[49] See Russell, E.W and others, above, ref 4. This review was conducted after the fall of Kennett’s regime, and examined the degree to which six major privatisation project contracts were subject to economic, environmental or a social analysis, or else were referred to a Parliamentary Committee. These project contracts included a Casino, a Major Road, two Public Transport Projects, Prisons and a Grand Prix Event. One of the six contracts was subject to a full economic evaluation. Another of the contracts was subject to both a partial economic evaluation and to a partial environmental effects statement. The other contracts were not subject to any economic or environmental review. Importantly, no contract was subject to a social impact analysis or was referred to a Parliamentary Committee for discussion.
[50] Wealth transfers of around $48.3 billion dollars from a selection of seven Australian privatisations have been suggested, for instance by Walker, B. and Walker, B.C. above, ref 16.
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