Critical Times

Source:The Guardian 6 August, 2008

Editorial

Names are changing all the time. Telecom became Telstra, TAA became Australian Airlines then Qantas, state public transport systems became TransAdelaide, Metro Tasmania, State Transit Authority, and so on. Along with the name changes came fancy logos for immediate brand recognition, in much the same way as the Nike logo is easily identified. What’s in a name you might ask?

Along with their new names essential public services such as water, electricity, public transport, rail freight, ports and forestry were corporatised; that is they are being run as businesses with the intention of making profits. In 1991, state governments gave a commitment under federal competition policy to corporatise these essential services and run them on a commercial basis. Some even include the word “corporation” in their name business name — Sydney Water Corporation, SA Water Corporation, etc.

Today they are referred to as government trading enterprises (GTEs). Their performance is measured in such terms as total assets, profit before tax, return on assets, debt to equity ratio, leverage ratio and dividends. Last week the Productivity Commission released its review of their financial performance and management for the financial years 2004-05 to 2006-07. The Commission defines GTEs as “Government-owned or government-controlled entities that produce goods and services on a commercial basis by substantially or fully covering their costs. They are outside the general government sector …”

The Commission notes that the “Measurement of assets, liabilities and equity are essential for assessing performance”. The quality of services they provide is immaterial when compared with the bottom line. They are run along similar lines to any other for-profit private corporation. “The poor financial performance of many GTEs underscores a long-term failure to operate these businesses on a fully commercial basis, in accordance with Competition Policy Agreements.”

Some GTEs receive financial payments to compensate for additional costs incurred because they have community service obligations — services which they are required to supply which are not highly profitable. For example, Australia Post has an obligation to deliver mail to regional areas for which the cost involved would be far higher than to an address in Melbourne.

Before Competition Policy was introduced government service providers used cross-subsidisation, meaning the unprofitable services were subsidised by those turning a profit. Under Competition Policy this is not permitted. Utilities lost their previous tax-free status. Government-owned real estate was treated like any real estate in the private sector. And they are expected to turn a profit. These and a number of other changes were for one simple reason — preparing the utilities for privatisation.

Corporatisation puts public utilities on an equal footing with any private sector competitors in readiness for privatisation. This is a de facto admission that the public sector is more efficient and can provide cheaper services and superior services than private enterprise. Once corporatised, the utility is legally obliged to give priority to profit generation for its shareholders. Initially there was one shareholder, the government representing the interests of the people; now the shareholders are consortiums of transnational corporations and financial institutions.

Services are cut, prices rise, quality falls off, maintenance of infrastructure is neglected. Eventually the public purse is left footing the bill as the company that took over the service walks away or receives huge subsidies from the government.

Victoria’s public transport system is a classic example. The Kennett government handed out contracts to the private sector for rail, bus and tram services. Despite massive subsidies, the government had to step in and take them back, do the repair work and then give them over to the private sector again.

In the process governments gradually withdraw from their responsibility to provide essential services at affordable prices or through general revenue. The long-held principle of collective, social responsibility is turned on its head. It is replaced by ability to pay and the chaos of market-driven greed instead of public ownership and public accountability and the provision of services for the public good.