Don’t buy it: The 5 privatisation Lies

The privatisation agenda which has pervaded public policy for the past 30 years has had disastrous results for workers and our communities. Governments of both political persuasions have privatised — and continue to privatise — our public services and assets, despite public opinion being firmly opposed.

Politicians have wised-up though and stopped using the word ‘privatisation’, and instead we hear about outsourcing, voucher systems, ‘user choice’ models, public-private-partnerships (PPPs), social impact bonds, and the commercialisation of public services. What all of these forms of privatisation have in common is that, despite the rhetoric of privateers, they have resulted in declining service quality, less accountability, and higher costs. Ultimately the privatisation agenda has meant that maximising private profit has become the driving force in public policy, rather than the public interest.

The first step in challenging the privatisation agenda is debunking the lies the privateers are trying to sell us. Here are a few of the big lies we are told:
 

  1. Privatisation is cheaper

Governments justify privatisation by saying that it is cheaper, and therefore a better use of taxpayer dollars than government-run services. There are often hidden costs which are not taken into account when assessing the case for privatisation, however, eg. the cost of scoping privatisation proposals, writing contracts, and monitoring the private provider’s performance. Private companies ensure contracts are carefully written to maximise their profits, and will charge government a premium for any services over and above what is stipulated in the contract.   

Privateers also claim that privatisation will not result in price rises for the public, and will actually be cheaper because competition will drive down prices. In practice, we know this isn’t the case – one look at our electricity bills tells us that privatisation does nothing to make essential services more affordable. The privatisation of monopolies can also lead to price gouging of the public: in the first year of privatisated Compulsory Third Party insurance in South Australia, fees rose by four times the rate of Adelaide’s inflation. There are fears that the privatisation of the SA land titles registry will lead to similar price rises for homebuyers. Since the land titles registry in Canada was privatised, there has been a dramatic increase in the cost of title surveys and the added cost of homebuyers needing to take out title insurance.

 

  1. Not-for-profits (NFPs) are better at running public services

The public is skeptical about for-profit companies running public services, so handing over services to NFPs is increasingly attractive for governments. The NFP sector has a vital role to play in our society in providing advocacy independent of government, and providing niche and specialist services to complement the public sector. But politicians are using NFPs as tools for privatisation, by claiming they are better at running services because they have closer links with the community and less bureaucracy than the public sector.

But the privatisation agenda is also negatively impacting the NFPs themselves, forcing them to corporatise and prioritise winning government contracts in order to survive. The tender process favours larger organisations at the expense of smaller NFPs, as government contracts are often too big for smaller organisations to bid on.

The advent of individualised funding arrangements (another clever form of privatisation), such as we are seeing with the roll-out of the National Disability Insurance Scheme (NDIS), will also negatively impact NFPs. With NDIS allocating funding to individuals, the funding of disability organisations will be less certain, and many may receive a reduced income. This funding pressure is likely to lead to negative impacts on workers, as well as have a detrimental impact on service quality. 

 

  1.  Privatisation is the only way governments can finance services and infrastructure

The term ‘asset recycling’ is often used by politicians as a way of creating an artificial link between the privatisation of assets and the funding of new infrastructure. Promising to build new roads or stadiums if a state owned asset is ‘recycled’ is about making privatisation more palatable to voters – and making it harder for people to say ‘no’ to privatisation. In the case of revenue-generating services such as land titles registries, it makes no economic sense to sell these in order to fund other infrastructure that will not generate revenue for government. Privatisation is also an easy fix for governments to avoid going into debt, which is seen as too politically risky. This is also the motivation for entering into public-private partnerships (PPPs) to build infrastructure. It does not make any sense economically, as governments can borrow money at a lower rate of interest than private companies.

While it might be better politics to enter into PPPs and sell off services for a short-term sugar fix of cash and to avoid going into debt, it is short-sighted. The more sensible solution that would serve our community in the long-term would be ensuring that corporations and the wealthy pay their fair share of tax to fund public services.

 

  1. Privatisation creates competition, which means more efficiency and innovation

Privatisation proponents say that competition will lead to more efficient services.

There is not much competition or ‘market’ for services currently.

Again, the privatisation of the land titles office is puzzling – it is unlikely to increase efficiency, since we already have the most efficient system in the world. And innovation is already happening with the move to more and more online-based system.

The other question we have to ask is: are there some services that should be exempt from competition? Surely there are some services which are essential to our community.


Social impact bonds

In reality, privatisation privatizes the gains and socializes the gains.

Loss of public sector capacity – means that there is less competition as there is not a credible threat that the public service will take over running the service again – eg. job network.

The privatisation of revenue-generating assets and services where the state has a monopoly defies logic. It is difficult to see how the government could save money by privatising these types of assets and services – apart from the one-off sugar hit of cash from the sale.

Social impact bonds (sometimes called social benefit bonds) are a new way of making a profit from human services. Based on a contract between private investors and government; private investors fund services that have the potential to save government’s money : the core concept is finding an investment that will accomplish social objectives as well as make money. While investors may accept a lower rate of return in exchange for making a difference, making a profit is an essential part of social impact bonds. Balance between making profit and meeting a specific social need -  public services have to service the whole population, profit isn’t part of it . Shouldn’t be about making up for shortfalls in govt funding of public services.

Social Impact Bonds designed to meet a socially desirable outcome, for example, reducing recidivism, homelessness, supporting troubled families. The government agrees to repay investors their capital and an agreed-upon profit if the outcomes are met – if the outcomes are not met, the investor receives nothing back. Because of this, a lot of time and resourse are spent on determining how the outcome will be measured. Due to the risk of investors losing their money, it is unlikely there will be SIBs in areas where problems are so complex and severe that success is uncertain.

A lot of the rhetoric around social impact bonds is that they lead to innovation (the assumption being that innovation is something that can only occur in the private sector) – that the profit motive incentivizes innovation.

While they may have better intentions than for-profit private companies, they still face the same pressure to make returns for their shareholders.

Conclusion

To win the fight against privatisation, we must expose the truth – that privatisation does not benefit our community, and instead is a way of transferring public wealth into private hands. Our union is working with other public sector unions in Australia to debunk these privatisation lies through our initiative The People’s Inquiry into Privatisation. The inquiry has travelled around the country speaking to communities about the impact of privatisation. The inquiry is currently producing its final report and recommendations, which

lies – and then have an honest conversation about the role of government in our community and the types of services we want and need.

What are the alternatives?

Our union has joined with other public sector unions in Australia to speak to communities about their experience of privatisation through the People’s Inquiry into Privatisation. We want to start a national conversation and debunk the lies told by our politicians to sell privatisation.

Privatisation means more accountability

The details of privatisation deals are kept hidden from the public, obscured in secret contracts labeled ‘commercial confidence’. Without knowing what is in these contracts, the public have no way of knowing whether the private company is meeting their obligations. Secrecy and loss of accountability mean more opportunities for corruption: just look at the fiasco of private Vocational Education and Training (VET) providers.

Risk stays with the public sector

The public are denied important information about how a potential privatisation will impact services and costs – we don’t get the detail, just the sales pitch. Often, the fact that the government is considering privatisation at all is hidden from the public.

 

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