Deals May Save Dollars

A conference in Melbourne this week addressed the issue of "public private partnerships" in infrastructure:  roads, schools, hospitals, rail facilities etc.  These partnerships are designed to maintain some of the impetus of privatisation.

Since the early 1990s over $90 billion of Australian publicly owned entities have been sold into the private sector.  Victoria was responsible for a third, mainly comprising the gas and electricity sales.

Privatisation has been an immense blessing.  It has been part of the range of micro-economic reforms that constitute the much loathed "economic rationalism".  As such, it has helped shift Australian productivity growth from among the worst in the world to among the best.  It has given the economy the flexibility to allow it to thrive when our major trading partners had gone into a series of tailspins.

If the political will to privatisations has waned, private partnerships allow some of the momentum of this process to be maintained.  They lasso to the public sector some of the cost savings and innovation seen in private enterprise.

Of great importance in this respect is the need to have full transparency.  Dealings by government cannot be like dealings by BHP.  Government does not have the discipline of profit results and owners who can sell in the event of poor performance, a feature that makes business intrinsically more efficient than government.

The public criticism that continually confronted the previous government with regard to the Casino deal was made possible because the deal was undertaken in greater secrecy than occurred with the electricity privatisations.  Those opposed to privatisation were able to harp on aspects of the deal that were never made public.  In the event, after years of trying to uncover supposed political payback nothing has come to light.  However, the issue allowed massive scope for the pro-government ownership cadres to ventilate their prejudices.

This provides a message in all government dealings and one that the present government appears to have learned well:  all dealings must be out in the open.

A final note of caution.

Private public partnerships also offer risks to public efficiency.  The outsourcing of schools, hospitals, law courts and the like may become a hidden way of increasing public spending.  Contracting out to the private sector allows governments to give the impression of controlling spending while some big ticket capital items are off the budget and being paid for over decades rather than in one year.

In addition, will public private partnerships live up to their potential?  To be sure, governments can utilise public/ private partnerships to have a building constructed and leased back to them.  But is this enough to justify the programme?  The real economies are in operations, which often means escaping the yoke of union conditions.  Will the government come at that?  Will the government say to MLC or Caulfield Grammar "We'll outsource the building, operation and ownership of schools in Victoria to you"?

It may well outsource law courts as buildings or negotiate a long term lease on a school but if that is all that is entailed this is a pale imitation of the potentialities available.

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