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Privatisation: As Easy as ABC?

Prof Graeme HodgeMonash Centre for Regulatory Studies

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Session Outline

1. Privatisation (definition, values and promises)

2. Does Privatisation Work? Meta analytic international review Case Study: Victoria’s Electricity reforms

3. Transcending Privatisation Debate: The Rise of Independent Regulators

4. Challenges, observations & Implications

5. Conclusions

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1. Privatisation – definition & values

Privatisation world-wide trend ~

$85b pa in ESA political movement, swept along by

collapsed central economiesDefinition: “transfer of enterprises/service

functions from public to private hands”

Public-Private PartnershipsEnterprise SalesContracting-Out

(Private Sector Develop’t Strategy)

Private Sector Model: Individual choosing in markets, using

Demand/price (closed private actions) Search for market satisfaction (or exit) Sovereign customers amidst competition

Public Sector Model: Collective choice in polity, using need for

resources (open public actions) Search for justice & equity Sovereign citizens using voices amidst

collective action in polity

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Economic (increase efficiency)

Consumer (lower prices, better services, more choice)

Political (eg reduce union power, smaller government, ‘free up’ SOEs)

Fiscal (raise revenue, reduce deficit)

Social (share owning democracy)

Reduce CorruptionAct on advice & increase confidencePlacate External Bodies (- Banks) Ideology (... Our Belief )

1. Privatisation – promises

Hotly contested!Meta-analysis of 162

empirical reports n=10,468 msrts

Productivity & Financial increases were significant - but so was performance of control firms not privatised

Labour productivity gains No simple link between

size of private sector & natnl eco growth

Other meta-reviews found ‘little evidence of systematic performance improvement…’ (Martin & Parker 1997), though not all…

2. Does Privatisation Work? - International Meta Analysis

Narrative reviews suggest consumer promises often not met

M/A of British Telecom found sig. service quality improvement, but regulatory intensity & public accountability were far stronger influences than ownership change

Winners & losers theme (investors vs citizens, Argentina vs NYSX)

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Most critical issue in the privatisation of SOEs is the effectiveness of new regulatory & competition arrangements

Developing Countries• In 63% of firms, profitability improved•In 80% of firms, efficiency improved (Cook and Kirkpatrick, 2003)

Ownership

Degree of Competition

public

private

monopoly market

Regulationstrong

light

2. Does Privatisation Work? - International Meta Analysis

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2. Does Privatisation Work? - Victoria’s Electricity Reforms

Now: additional generators

Now: AER, ESC

Now: 5 distributors / 15 retailers

Performance?Customers had a charter of

rightsPrices down 14% from 1994

to 2000 ‘Time-off-supply’ down by

31% (to 199 mins pa)Residential disconnections

down by 2/3rds since 1995

But;Unplanned outages upPrice reduction was

regulated (& after an SOE price rise of 10%)

Disconnections rose markedly just before 1995 sales under new commercial practices

2. Does Privatisation Work?- Victoria’s Electricity Reforms

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So;Victorian politics - saw ‘pure’ policy designs flourish

& reforms score a ‘credit’Success depended on careful regulatory/market

design before privatisation

The later CLCV/MCRS review in 2006 found price benefits from reforms were not equitably distributed (with gains

mostly going to industrial/high volume users, and with low volume rural regional / domestic users missing out), … little reliable consumer price data… & a recent fall in disconnection figures (due to introduction of wrongful disconnection payment in 2004…)

What’s next?

2. Does Privatisation Work?- Victoria’s Electricity Reforms

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0

50

100

150

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1960 1970 1980 1990 2000

Year

Num

ber

of a

genc

ies

People talk now about living with a regulatory state (law), regulatory governance

(eco) & regulatory capitalism (pol sci)

The arrival of regulatory governance: The privatisation era era of regulation

Regulator numbers tripled in 1990s both in economic regulation (electricity, telecoms, competition…) &

social regulation (food safety, pharmaceuticals, environment…)

We recognized ‘independent’ mechanisms better governed utilities (away from politics…) & ensured consumer gains after privatisation

International ‘knowledge consultants’ (US$170b &

463k staff across 140 countries) were crucial here

The diffusion of agencies in 36 countries and 7 sectors (Gilardi, Jordana & Levi-Faur 2006)

3. Transcending the Privatisation Debate: The Rise of Independent Regulators

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We have been rethinking ‘regulation’. It; covers multiple disciplines & is decentred across all sectors includes huge range of regulatory mechanisms/tools has international linkages…

Today’s paradox; A professional regulatory technocracy exists Yet regulatory activity is political activity

•‘Hard’ Law•Codes/guidelines•‘Soft’ Regulation(self-regulation)

Law/regltnsCodes / G-LsContracts / grantsEcon $ € Information / transparencyMarkets / licenses/ accredtn

•Gov’t•Independent Instns•Hybrid•Global•Self-reg•Co-reg•Meta-regltn

3. Transcending the Privatisation Debate: The Rise of Independent Regulators

Economic Social

Regulation is: about reordering priorities & power, & policy

permanency (not just risks)

‘a distinctive mode of policy making’ (Majone 1999) &

an ‘alternative mode of public control’ (Minogue ’02, p653)

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4. Challenges, Observations and Implications

a) Keeping the Regulators (big ‘R’ and

small ‘r’) accountable (to many stakeholders?)

b) Institutional ‘depoliticisation’ has shifted the debate arena

c) Regulatory discretion the passive regulator the active regulator

d) Other (eg reducing regulatory burdens, establishing ‘what works’…)

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In today’s age of regulatory capitalism; Privatisation discussions continue reflecting our values/beliefs Continued debate around the role of government But it is regulatory sophistication & integrity that matters most

Lets remember; Regulatory activity is political activity! Arena shifting has occurred for debates Regulators with greater legitimacy remain accountable Regulatory discretion sees some regulators being passive and

others activeMinisters need to remain vigilant, transparent and open

to rediscovering the public interest (as well as ensuring business confidence!)

4. Conclusions