The proposed sale of the Royal Australian Mint, expected to be announced in tonight’s Federal Budget, raises significant issues that should be addressed by the Coalition government before they go further down the path of privatising this and other national assets.
It is clear this government is determined to move public bodies into the private arena. But with little evidence of due diligence in the divestment strategy, it appears to be based on the simple premise that a change in ownership to the private sector will of itself improve performance.
Unfortunately, this policy ignores so much of Australia’s privatising experience, which suggests that a far more nuanced approach is needed.
Questions of regulation
In the case of the Royal Australian Mint, there are practical but fundamental questions around security and regulation that should be addressed.
Firstly, there is the regulatory environment. For instance, who sets the price of the goods and services produced by the monopoly? Typically, a public regulator is appointed for monopolies, but in the case of a privatised Mint, there is as yet no detail.
Also, do we allow foreign-owned bidders to enter the divestment market to provide competition for the sale of the Mint? Would some of the activities of the privatised Mint be able to be contracted out to foreign-owned businesses? There are important security issues involved in answers to these questions.
Further, how do we maintain the excellent research and development work done by, and for, the Mint? Who will pay to ensure that research continues to ensure the Mint retains its world-class status; and who should own any intellectual property that is generated?
A second set of questions relate to the operations of the Mint in the hands of the private sector. How can the public be assured that security is at the highest possible level - as safe as Fort Knox? How can the government be assured that if foreign competitors are in this market, that the Mint will survive, and if not, what would be the consequences of market failure?
Finally, there is the very pragmatic question of sale price and the income foregone by government over time. This is partly a question of calculating the lost revenue streams to government and weighing these against the upfront, one-off revenue generated by the sale. This may appear to be an exact science, but it is not.
Over and over, we see that the divestment of public assets has short-changed the public by the lower-than-expected valuations of the government business prior to divestment, or by inadequate ways of divesting public assets. This has occurred in Westminster-based jurisdictions like Australia, the UK and New Zealand, but also in other places such as the former Soviet Republic in divesting many of its public corporations after 1990. Taken as a group, the financial benefits have fallen very much in the favour of the private sector and against the public.
Should we trust monopolies at all?
This leads to another fundamental question: should we trust monopolies, public or private?
Even Adam Smith, the 18th century godfather of small government, argued that the regulation of monopolies was one of the primary duties of any government. Present-day proponents of small government, like New Zealand’s former Minister for Finance Ruth Richardson was particularly blunt in her view that monopolies, public or private, “rip people off”. The critical question is whether we trust a publicly-owned monopoly more than a privately-owned one? And in answering this question, we need to consider what is in the collective or public interest.
There are a number of cases where privatised monopolies have not acted in the public interest - most notably the Australian Wheat Board. Arguably, while the performance of the Sydney airport since privatisation has worked well for the Macquarie Group but the public forced to use this monopoly facility may have a different view.
Also, government is at risk of becoming an “ambulance for sick industry” when it must bail out failed privatised monoplies, as happened to the UK government in 2001 collapse of Railtrack.
Being good stewards
Governments of all persuasions are stewards for the public assets entrusted to them by Australian citizens. The impact of poor stewardship on public assets has the same effect as corruption. It reduces the public value of our collective assets. It is reasonable, then, for the public to expect high standards of stewardship and in this respect, the final negotiated price is critical.
Much has been said by this government about mutual obligation. Australians are being asked to “carry the load” when it comes to the unemployed, the sick, the aged and the disabled. In return governments too have obligations.
One of these is to guard public assets, and, specifically, divestments of public assets which should only be undertaken where there are clear gains for collective interests.
Focusing on the divestment of one small government-owned enterprise raises a significant number of questions for government to resolve before any privatisations occur. It will be both lazy policymaking and irresponsible stewardship if the government proceeds without clear answers to these questions.