Whenever an industry is suffering from administrative setbacks, governments have a tendency to swing towards privatisation as an alternative. While this may be a comfortable alternative for the government who couldn’t sustain or improve the industry any longer, it is not always in the best interest of the populace.
As the Australian government entertains the notion of privatising the electricity sector, here are some lessons from history and other countries that tells us to pull the plug on the idea of privatising electricity.
The effect of surging power prices on Australian households incomes has convinced many to believe privatisation to be a nice idea. The error of this belief is that the problem of surging power prices has never been the fault of the government policies such as carbon tax, but with price gouging.
With the government and the industry already promoting privatisation as the way to go, many Australians believe privatisation to be the solution to achieving low prices.
One of the arguments in support of privatisation is also that it helps to increase efficiency in a sector. History has proven that this sentiment is not always true as Professor Sharon Beder of the University of Wollongong proved in her book, Power Play:
The Fight to Control the World’s Electricity. The book provided historical context using how public and private ownership of the electricity sector in countries such as the United States, the United Kingdom, India, Brazil and Australia.
Due to the nature of the electricity sector, these firms have also enjoyed superior treatment with frequent government bailouts, subsidies and below market-rate loans.
At the onset, the Australian government was in control of the four sectors of the electricity industry comprising generation, transmission, distribution, and retailers. These sectors have since been split into competing firms and spun off.
Now, despite the efforts of the National Electricity Market (NEM) to create competition, the commission’s internal problems coupled with the power of the oligopolistic industry prove to be huge barriers.
Another major argument in favour of privatisation is the moral hazard under public ownership. The irony of this scenario is that the private sector has been found to be equally guilty of the same. Private firms would blackmail administrators with bankruptcy and blackout into approving policies favourable to them such as increasing prices and subsidies.
Supporters of public ownership of sectors such as the electricity industry believe that most of the pros of privatisation can still be gotten during public ownership and the cons can be sidetracked.
Problems such as price gouging is better under public ownership as the public firms will invariably return the money back into the state’s economy, even if indirectly.