Help! I need an unbiased economist or accountant to explain something to me.
This morning I heard on the radio that the National-ACT government is making it easier for private companies and multinationals to run (and eventually own) our water supplies and delivery services. And I heard Rodney Hide explain that this was because ratepayers were demanding “lower rates and better performance”.
I assume he would really like to have said that ratepayers wanted to “pay less for their water supply and that it be supplied more reliably”, but that may be something different altogether so he couldn’t say it.
Before I ask the questions I need answering in order to make up my mind on this issue, I need to say that I have for the past 20 years been strongly against private companies and multinationals owning the infrastructure or having the sole rights to deliver public services and products that are essentially monopolies.
For example, I’m firmly of the opinion that New Zealand’s electricity market has been screwed up (and still is) by attempts to corporatise it. For almost every New Zealander, there is no real choice but to plug into the national grid to get electricity, and whichever company is our chosen retailer, the outcome is no better than it would have been had a single publicly owned supplier continued to run the show. The so-called competition in the “electricity marketplace” is mere tinkering around the edges of what is otherwise a great business game for the major players.
Likewise water. I have no real choice in who provides the pipes to my house and makes sure clean water comes through it. It’s a monopoly service in any particular geographic area, and Hide wants to put it increasingly, and for longer contracted periods of time, in the hands of multinationals.
Now I’m not one of those cardigan-wearing, tree-hugging luddites that are branded such if they appear politically left of the ACT party. I’ve run a successful business of my own for 10 years, and before that was an employee of a large private business. (Nesting my parentheses even further, by “successful” I don’t mean “made heaps of money”; I meant “made enough to live comfortably while building up a large number of clients who appreciated my services”).
Back to my question: how does placing water infrastructure and/or delivery by local bodies into the hands of multinationals make for (a) lower payments by consumers and (b) better performance [whatever that means]?
Let’s see. If the city council doesn’t deliver the service, it will charge less in rates. True! No problem with that. But now, how will the private company running the service make any money? How will it be able to not only survive but also pay a dividend to its shareholders? By charging for water use, of course.
But who will they charge for the water use? It can’t really be the councils which have given them their 30-year contracts, because then the councils would have to raise rates to source those funds. So it would have to be the end users of every drop of the water. Water metering would become universal. We’d be paying less to the council for our rates, but at the same time we’d be paying the water supply company for our usage.
OK, we’ll just be changing the people we send our cheques to. But hang on – that water supply company has to pay for more than just the infrastructure maintenance and the delivery costs (which the council had to do), it also has to pay dividends from its profits (oh yes, profits – they have to get more money from us than the actual cost of supplying the water) to its shareholders. And as most companies capable of handling such large contracts will be multinationals, most of those profits will go offshore.
Right, unless an economist can tell me I’ve got this wrong, we’ll be paying more overall (less in our rates but more to the private supplier), but at least we’ll be getting better performance, right?
If the record of so many private companies supplying core goods and services is anything to go by (think Telecom’s XT), then I’m not as confident as Hide. And what if they get it wrong? What if a determination to make a profit (which is the top priority of any company with shareholders) overrides costs such as adequately maintaining infrastructure and water purity? They’re on long-term contracts, so local body councils can’t just replace them willy nilly.
When water delivery is a public operation, there is accountability through the ballot box and other public lines of complaint and redress. When it’s in private hands, you can’t vote with your feet, your hands, your wallet, your mouth …. There is no alternative supplier (short of drilling your own back-yard well). You cannot vote them out.
Unless I can be persuaded otherwise, then, I think I’ll stick with the belief that basic, life-supporting public goods that are supplied through effectively monopoly channels should be in the controlling hands of accountable civic bodies, not multinational or private companies.
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The core belief of the ACT party is that private business is necessarily more efficient than public service. They must be made to show me some research to substantiate these feelings of theirs. Mr. Hyde’s willingness to up-end these critical, complex systems just shows how poor he would be at running an actual business.
The New Zealand public would do well to examine this core assumption about private business producing better outcomes than a well run public service.
Michael, well said. I agree entirely. David
I can not explain it to you but on my own understanding, there are so many risks of letting a private company took over a certain service. Unlike the government who can control the prices, once it is handled by a private enterprise, they will be the one to decide about everything. Scary.
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