Lazy hypercritical Liberals
Tony Abbott's grand infrastructure plan may be an expensive road to nowhere
The prime minister is throwing billions of dollars at projects before any proper cost-benefit analysis has been done
http://www.theguardian.com/world/20...ture-plan-may-be-an-expensive-road-to-nowhere
Lets hope things are handled a bit better than the Vic Government selling of Rural Finance to Adelaide Bendigo bank. Seems fishy to sell a public asset insecret to one party without have some form of competitive tender.
Someone on macrobusiness summed it up quite nicely
Trying to “pay off” government debt by selling assets to private monopolists and tax farmers is rather like trying to “pay off” one’s home loan by having it transferred from the bank to a bunch of loan sharks armed with cricket bats and rottweilers.
Private monopolists and tax farmers are not philanthropists. They are not giving the government money out of the kindness of their hearts. They are doing so in the expectation that they will be able to gouge it back in the form of monopoly pricing on their captive customers and from their farmed taxes.
The deadweight losses associated with monopoly pricing and tax farming are no different from the deadweight losses imposed by taxation. And yet, whereas the wacko laissez-faire extremists will condemn any form of transparent taxation, they will applaud such concealed “private taxation” by rent-extractors.
Private monopolies are classically allocatively inefficient. It’s just that their inefficiency isn’t of the sort that shows up in any published profit and loss statement.
When a [nameless] private airport monopoly, for example, needlessly delays – for years – the building of a second runway, the cost manifests itself “invisibly” in the form of lost time for travellers stuck in holding patterns, and in the form of extra fuel usage by airlines.
For the wacko laissez-faire extremists, however, this would be regarded as “efficient” because it raises the rate of return on the company’s restricted asset base.
When a private road tolling tax farm runs at below capacity because the profit-maximising toll has encouraged drivers onto local streets, the cost manifests itself “invisibly” again in the form of lost time, in extra fuel usage, and in reduced amenity for those affected by the traffic.
For the wacko laissez-faire extremists, however, this would be regarded as “efficient” because it raises the company’s rate of return.
When a privatised grain-handling authority closes regional depots and dynamites the silos (to prevent potential competitors offering to buy them), the cost manifests itself “invisibly” in the form of farmers having to build on-farm storage and transport their grain further by road.
For the wacko laissez-faire extremists, however, this would be regarded as “efficient” because it raises the company’s rate of return.
But even more worrying is the direct line running from privatisation to corruption.
Public agencies put work out to tender on a competitive, transparent, price-based system. In contrast, additional work by private monopolies and tax farms is almost invariably achieved through secretive, “commercial-in-confidence” renegotiations. Invariably the monopolist or tax farmer is in the commercially advantageous position of controlling the critical assets and revenues and thus being able to present a “take-it-or-leave-it” proposal.
(We still don’t know exactly what concession were offered in order to get the announcement of a new runway shortly after the election. Tolls on drivers dropping off passengers perhaps??)
As a matter of cosmetics for the gullible, there is usually an “independent adviser” involved, but having myself worked in this role I can testify that it is worse than useless. Imagine, if you will, a judicial system in which supposedly “independent” judges were selected by the Minister on a case by case basis from a pool of barristers. Imagine, if you will, that their deliberations were held in secret (“judicial-in-confidence”).
Imagine, if you will, that those same barristers were themselves hoping to be involved in other commercial dealings with the government. And imagine that the Minister had made it clear that he wanted a particular verdict to be reached!
If it weren’t so serious it would be laugh-out-loud funny.
There is a direct line running from privatisation to corruption.
But even beyond allocative inefficiency and corruption of the transparent and competitive tendering system, funding infrastructure through private monopolies and tax farms actually degrades public finances.
One only need look at the history of public debt in the United Kingdom. (See (
http://www.parliament.uk/briefing-papers/SN05745.pdf). Public sector net debt (excluding financial sector interventions) fell from 44% of GDP in 1980 to 26% in 1991 following the massive Thatcher privatisation program [much of which was actually “good” privatisation aimed at promoting competition . . . unlike today’s scams] but by 1997 it was back up to 42%. It is now above 70%.
In the long run privatisation erodes government finances. While public revenues are being progressively alienated, politicians keep topping up the public debt (to buy votes), but have progressively less and less public revenue to service it.
What we are actually seeing here is the collapse of the corrupt system of elective government.
Politicians facing re-election want to spend money buying the votes of powerful minority voting blocs or marginal electorates. And they want to hide from the majority the cost of what they are doing. They achieve this through privatisation.
Privatisation of this type simply doesn’t address the underlying problem: desperate politicians wasting money trying to buy votes then trying to conceal what they have done.
Politicians won’t stop spending. But the alienation of revenues though privatisation means that public finances deteriorate and politicians become ever more dependent on the rentiers and tax farmers.
This is a throwback to the seventeenth century. It is a throwback to the Stuart kings trying to bypass parliament. It is a throwback to the ancien regime. It is a throwback to Colbert and the ferme generale.
It is not just internally inefficient (involving layers and layers of facilitators and other “ticket-clippers”). It is also a system that imposes layers and layers of deadweight losses: over-pricing and under-investment, costs that are built into every transaction in the economy.
Buy an imported car? It will have an invisible “private monopoly port tax” built into the price. Buy imported clothes? They will have an invisible “private monopoly airport tax” built into the price. Buy some groceries? They will have an invisible “private monopoly toll road tax” built into the price. And so it goes on . . . and on.
Over the time the accumulated deadweight losses of this byzantine system can only grow.This is a slow-ticking time bomb. It is a system that will eventually collapse under the weight of its own accumulated inefficiency.
But there is a reason that ancien regimes becomes “ancien”. The reason is that their members refuse to face up to what is going on around them. They keep pretending to themselves that they can go on squaring the circle.
Until eventually they can’t.