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The Forum > Article Comments > A privatised monopoly is still a monopoly, and consumers pay the price > Comments

A privatised monopoly is still a monopoly, and consumers pay the price : Comments

By Stephen King, published 25/6/2014

Moving a business from state-ownership to private-ownership improves the profit incentive. Private owners will focus on their return. That means lower costs, higher prices and increased profit.

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One of the biggest economic myths, is "that competition keeps prices down".

There are heaps of examples where this deluded belief does not apply.

For example Australian's pay some of the highest SMS charges in the world, yet there are a number of competitors to this market.

A recent report show that Australians are paying the highest fees to manage superannuation, yet there are a large number of competitors to this market as well.

Another deluded belief is about supply and demand, in theory as demand falls, so should prices. Yet as demand falls for water and power, prices increase to improve profitability. This is a death spiral, as prices increase, the consumer looks for more and more ways to save money, driving down demand, and as demand falls, so does profitability and thus prices increase to increase profitability.
Posted by Wolly B, Wednesday, 25 June 2014 8:20:04 AM
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Regulation is actually much worse than the author suggests. The effect that it usually has is to increase the cost of the service (through compliance) and prevent alternative solutions from emerging to provide the competition that will drive the market to a balance between costs and profit.

Probably the biggest underlying problem in Australia is the almost exclusive focus on increasing margins as opposed to growing markets. Itís almost as if we have forgotten the lessons of QANTAS and Ansett and their airfares
Posted by Grumbler, Wednesday, 25 June 2014 8:41:52 AM
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the highest SMS charges in the world, yet there are a number of competitor
Wolly B,
I think you're mistaking business practise with the kind of greed/rip-off mentality peculiar to Australians.
Australia could be the best country with the best future if we could only change the mentality of so many of its citizens. The stuff you jack I'm alright mentality is gaining popularity instead of being condemned.
Australians are Australia's worst enemies.
Posted by individual, Wednesday, 25 June 2014 8:56:30 AM
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I returned several days back from the small, remote, economically challenged and relatively resource poor country of Latvia.

They have one dominant telco and several smaller players, just like Australia. But that is where the comparisons cease to be meaningful.

In Oz I pay for SMS's. Not in Latvia, in any of the three systems. They are all entirely free, even for customers using pre-paid SIM's.

The cost for a month of phone plus data was less than 20 Euros, say $30, the same as for a landline in Oz.

For that I was entitled to hundreds of calls to anywhere in Latvia, including mobiles, plus several hundred of MB of data, which primarily ran Google Maps and carried my mail.

That same service in Australia would cost several times as much and achieve data speeds far less impressive.

My point is that, as for the point made in the preceding comment, markets, though superficially similar, seem to deliver substantially worse outcomes in Australia than overseas. This results in higher cost of living pressures and, worse, lower productivity for our enterprises.

[Continued]
Posted by JohnBennetts, Wednesday, 25 June 2014 9:06:37 AM
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PART TWO

Where are the comparative studies that might analyse the performance of our privatised freeways, airports, rail systems, water and sewer, telephony, electricity generation and distribution, ports and ferries, hospitals, schools and even cemetries? Where is the informed and educational public debate?

This article is founded on an assumption that private corporations are magically more efficient and productive and deliver lower costs to both the owners and their customers.

The opposite is generally true.

Australian experience has been that privatisation has consistently failed to deliver efficiency to the customer or the ratepayer, regardless of market structure.

The critical difference is that publicly-owned corporations are staffed by stable workforces of professionals with wide knowledge and experience in their business, their customers, their strengths and their weaknesses. Some even become centres of excellence with global standing.

Never have I heard, for example, that Macquarie Bank has world-beating engineering or asset management teams. What we regularly hear is that Sydney airport or some other asset has increased its charges, is accountable to nobody, has unhappy customers and has a history of outrageously excessive staff remuneration, especially at the top where tens of millions of dollars are flushed away without any problem.

So, please, either abandon the a priori assumption of the efficiency of privatised corporations, whether subjected to competition or not, or produce hard evidence that this is so. It is in general patently false, at least in post-Federation Australia. It is a sacred cow, an unchallengeable and unchallenged article of faith that has been relied upon by politicians and corporate mendicants for decades.

It is also the reason behind our nation's race to the bottom in many formerly publicly owned industries.

Last, but not least, privatisation has seen the legal and financial industries bloom. It has been a windfall for these privileged yet totally parasitic industries which gold plate everything they touch and return no tangible benefit to anybody but themselves. A pox on them all!
Posted by JohnBennetts, Wednesday, 25 June 2014 9:16:40 AM
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Exactly, that also applies to former co-ops, stupid enough to hand over control to private operators. We lose out twice, once when the operation is privatized, and secondly, when the increased profits are repatriated.
Hence we not only pay more, but taxes are foregone, along with most profits.
If there were real competition, instead of increased margins and so-called competitors, operating exactly like a cartel, there'd be an element of real choice and margins cut to the bone.
The problem doesn't end there, given most of these "privatizations" are debt funded purchases, we get the added privilege of repaying the loan, through premium prices.
We have, i.e., four major oil companies competing for our custom; and only if they're not operating as quite blatant cartels, competition that drives down prices!
Extremely occasionally, we might see that happening, until the real competition, independents are driven from the, so called free market.
And who do we have to thank for this state of affairs, the cooperating or roll over and beg for a tummy rub legislators?
Just the other day, I heard a dairy farmer, bleating that he was only getting around 35 cents a litre for his milk, and simply not enough to recover costs!
I replied, what would you have gotten, when you were still part of a self owned co-op?
The silence was deafening!
Well then I continued, what actually prevents you from getting together with your neighbors and creating another?
More deafening silence!
Its as though, patent right wing ideologues, just can't seem to get it through their thick as two planks, heads, that privatization serves very few save, [I'm all right Jack, the rest of you dummies can go visit the nearest taxidermist,] and that cadre, is still a shrinking number.
Only madness, makes us able to sell off income earning assets, in return for repatriated profits, far less tax, and the privilege, as captive consumers, of paying back the foreigner's borrowings!
As lamb chop chewing Sam, kick the ball Kicovich, would say, you know it makes perfect sense.
Rhrosty.
Posted by Rhrosty, Wednesday, 25 June 2014 10:04:36 AM
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