The Mail on Privatising Power

STONE the crows! Since when did political players in NSW start imitating apparatchiks in Japan? Since they wanted to work out ways to stop the privatisation of under-performing publicly owned assets is when.

In NSW it is the electricity system, in Japan the Post Office (which is less interested in delivering letters than providing financial services). Different industries, equivalent issues, demonstrating what occurs when patronage and protecting public sector workers become a primary purpose in politics.

Both jurisdictions have under-performing economies because political leaders either don’t dare defy the power brokers or are short on the smarts needed to beat them.

Political commentator Simon Benson’s new book explains how individual ambitions and inter and intra factional fighting prevented Morris Iemma from selling the power system, just as the comrades had conspired to stop Bob Carr doing it a decade before. [1]

Morris Iemma didn’t have much choice to sell, or at least lease the generators, leaving the distribution networks in government hands, to appease the public sector. The Owen Report had explained that NSW was running out of power and its generators could not compete with interstate private providers in the national electricity market. [2]There was also the matter of a generation of under-investment in Sydney’s transport infrastructure that had to be made up.

But none of this mattered most to party players who feared what would happen to power workers if the private sector took over or to ambitious Labor Party players who were worried about what the unions would do to the Labor Party’s federal election chances    – including, according to Benson, then opposition leader Kevin Rudd.

And so Iemma was sacked by the party. It started a trend. Also sacked was the premier who replaced him and the chances of the premier who replaced that one staying in office after the general election next March are not good, if Saturday’s Penrith by-election is any indication.

It’s the same in Japan, where the prime minister who won the election in 2009 is already gone and his replacement is in a fight to reform the country’s equivalent of our electricity system – the Japanese Post Office, which does more than deliver letters, it provides banking, sells insurance and virtually keeps the government afloat by investing 80 per cent of depositors’ money in government bonds.[3]

And it also employs enormous numbers of government workers who like their public sector perks and pay; the postal union has 229,000 members and backs parties, which oppose privatisation. [4]

And the politicians know not to annoy it. When Junichiro Koizumi was prime minister he was so determined to reform the Post Office he took on the majority of supporters of the status quo in his own Liberal Democratic Party. Immensely popular with the electorate, he won a general election on the issue in 2005, only to see the LDP back away from his plan when he left office.

And despite promising to reform the Post Office the coalition government led by the Democratic Party of Japan, which won last year’s election, did not want to upset anybody important. Shizuke Kamei, the minister responsible for reducing the Post Office’s stranglehold on financial services, was keen to transfer up to 100,000 casual workers onto the Post Office’s permanent payroll.[5]

The Post Office is typical of the way Japan works, or more to the point, doesn’t. Powerful public servants, their allies in government services and in the protected private sector use state subsidies and constraints on competition to ensure insiders prosper at the expense of everybody else, especially consumers.

The result is an inefficient and expensive domestic economy.

According to the OECD, Japan’s labour productivity per hour worked is 30 per cent below the US level.[6] During the export expansion beginning in 2002 labour productivity in manufacturing rose by 7 per cent per annum compared to 2 per cent for services, the area that accounts for 70 per cent of employment.

There are also anti-competition policies that protect small and medium enterprises, as well as barriers against service imports and foreign investment. Farmers are protected to a point that the average produce price they receive is twice that on world markets.

The winners are workers and employers on the inside of the economy. The losers are people, generally young, caught in the casual economy, which rose from 20 per cent of the workforce in 1990 to 34 per cent in 2008.[7]

Even worse the insiders’ economy is based on unsustainable public sector spending, which is why ministers do not want to upset the Post Office with its vast sources of savings financing government debt, approaching 200 per cent of GDP.[8]

Gosh, powerful unions, a bureaucracy at the centre of a system that rewards insiders at the expense of everybody else and politicians who either benefit from the status quo or get rolled when they try to do anything about it.

Remind you of anywhere?

As the people of Japan suffer from a domestic economy based on assisting the well connected, so the citizens of NSW are hurting because Iemma was stopped from selling, or even leasing power stations. As Benson argues:

The issues facing NSW now, with its congestion crisis and the collapse of a coherent strategy to deal with it – largely because of lack of funding – are directly attributable to Iemma’s failure to proceed with his $15 billion privatisation.[9]

During the argument over electricity, union opponents of privatisation posted Sydney with signs warning “you would pay more” if it happened.

It didn’t but we will. The state government is now spending money fast to ensure the lights stay on. And all this because keeping a few thousand privileged power workers on the public payroll was the main objective of the labour movement and its friends in the parliamentary Labor Party that removed Mr Iemma.[10]

It’s a racing certainty that union officials are using the same sort of argument in Japan, warning voters of the disasters to come if the Post Office loses some of its enormous power.

And if the voters are not convinced, who cares? Union officials and bureaucrats can still push politicians around. The way the privileged use power to suit themselves is the same in every culture.

[1] Simon Benson, Betrayal: The Underbelly of Australian Labor (Pantera Press, 2010)

[2] Funnily enough the text of the Owens Report is now not easy to find on the Department of Premier and Cabinet website

[3] The Economist March 31, 2010

[4] Aurelia George Morgan, “Reversing reform: how special interests rule in Japan” East Asia Forum, April 12, 2010 recovered on 16 June

[5] Aurelia George Morgan, “Japan’s postal reform and the farmers” East Asia Forum, April 22, 2010 recovered on 16 June. Admittedly Mr Kamei did not get away with it, resigning last week in the face of DPJ determination to push on with reform. Rick Wallace, “Japan minister quits in protest” The Australian, 12 June, 2010

[6] Randall Jones, “Japan’s Economic Challenges” OECD Observer, 267 (May-June 2008)

[7] Organisation for Economic Cooperation and Development, Economic Survey of Japan, (September) 2009

[8] Michiyo Nakamato, “PM warns Japan must rein in debts” Financial Times, June 11, 2010

[9] Benson op cit 281-282

[10] According to the NSW pricing regulator average prices will increase by a cumulative total of 20% for Integral Energy, 36% for Energy Australia, and 42% for Country Energy. “According to the AER, these higher prices are necessary to enable higher levels of investment in the state’s electricity distribution networks to improve network security and reliability of supply,” Independent Pricing and Regulatory Tribunal , NSW, “Electricity Prices to Rise” March 18 2010, @, recovered on June 16