1 Privatisation: As Easy as ABC? Prof Graeme Hodge Monash Centre for Regulatory Studies

2 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

3 1. Privatisation – definition & values Privatisation world-wide trend ~ $85b pa in ES A political movement, swept along by collapsed central economies Definition: “transfer of enterprises/service functions from public to private hands” Public-Private Partnerships Enterprise 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

4 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 Corruption Act on advice & increase confidence Placate 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 & nat nl 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)

6 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 monopolymarket Regulation strong light 2. Does Privatisation Work? - International Meta Analysis

7 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 rights Prices down 14% from 1994 to 2000 ‘Time-off-supply’ down by 31% (to 199 mins pa) Residential disconnections down by 2/3 rds since 1995 But; Unplanned outages up Price 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

9 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

10 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

11 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/regltns Codes / G-Ls Contracts / grants Econ $ € Information / transparency Markets / licenses/ accredtn Gov’t Independent Instns Hybrid Global Self-reg Co-reg Meta-regltn 3. Transcending the Privatisation Debate: The Rise of Independent Regulators EconomicSocial 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)

12 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’…)

13 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 active Ministers need to remain vigilant, transparent and open to rediscovering the public interest (as well as ensuring business confidence!) 4. Conclusions