Privatising Essential Services: Economics and Ethics
Privatisation is a complex matter, being widespread in different forms and having many factors which affect its impact on the public and economy. I’ll focus on the privatisation of essential services – industries like transport services, electricity grids, water, fossil fuel, toll roads, etc. Privatisation of these services has been politically relevant for decades now, largely gaining steam in the 1980s as Margaret Thatcher heavily pushed privatisation in England and Ronald Reagan in the United States, as explained by Andrew Clark.
But what is privatisation? Generally, it’s when a government-owned service is sold to a private company, either in whole or in part. This means the government no longer runs or has less control over that service, but it also means they don’t get any or as much revenue from it. A mix of private-public ownership has become more popular, such as for WestConnex in Sydney, in which the Liberal NSW government in 2018 sold 51% of the Sydney Motorway Corporation (which was the government agency handling the project) to Sydney Transport Partners (led by Transurban, who owns the M2, M5, Lane Cove Tunnel, Cross City Tunnel, and 50% of the M7 and other major motorways). Privatisation can also involve government contracting out services to private companies.
Supporters of privatisation argue that private companies are more managerially effective and better at cutting costs than the government since a company’s holy-grail priorities are making a profit and satisfying shareholders, as expressed by John Goodman and Gary Loveman. Ideally, this would mean lower costs since the company would surely pass the savings down to the customer, right? Actually, no. An example is the fossil fuel industry – while countries such as Australia and the US have seen skyrocketing petrol prices over the past couple of years, oil companies such as Shell and BP have seen massive profits. In 2022, CNBC reported that Shell made their largest ever annual profit of $40 billion. Overall, this ‘cut-throat’ cost-saving mentality leads to far worse outcomes for customers and the public generally, as companies often save money by worker lay-offs, increased prices, lower wages, and cutting corners on safety and maintenance.
Goodman and Loveman further state that privatisation promotes market competition, benefiting the customer by lowering prices and creating more service options. However, corporate monopolisation is unavoidable for essential services (have another look at how many motorways Transurban owns!).
No one, apart from the ultra-rich, can buy a whole transport system or electricity grid, and you can’t exactly start your own family-run, local toll road or railroad system. The infrastructure of these services is almost always built by the government first and privatised later. In the end, there are only a handful of options, if not just one, such as for water, trains, buses and toll roads. If your route to work is operated by Busways, you can’t exactly choose another bus provider to get to work.
Overall, privatisation doesn’t offer any benefits over government ownership. The only difference is that companies are designed to make money, not serve people.