How the Labor Party Sold Australia’s Public Assets for a Song

Many people think of privatization as a policy of conservative parties. In Australia, however, it was Paul Keating’s Labor that initiated a gigantic fire sale of public assets, setting in motion a process that made billions for private companies at the expense of everyone else.

Bob Hawke and Paul Keating in May 1991. (Peter Morris / Fairfax Media via Getty Images)

In the 1990s, Paul Keating’s Labor government kicked off one of the most aggressive waves of privatization seen in the developed world. The resulting fire sale transferred a vast amount of public wealth to the private sector while alienating Labor from millions of working-class voters.

Keating’s sale of Qantas, the national airline, and the Commonwealth Bank are the two most notorious examples. However, the damage cut deeper and wider than many people realize. Keating’s sweeping reforms laid the groundwork for two decades of privatization, outsourcing, and corporatization at both federal and state levels.

Privatization in Australia was a bipartisan affair. Keating’s neoliberalization of the Australian economy paved the way for his Liberal successor John Howard, who went on to accelerate the transformation Labor had initiated after taking office in 1996. More than two decades after the great sale of public assets began, we can now draw up a damning balance sheet of the whole experiment.

Corporatization and Privatization

This process of marketization began with a series of major economic reforms launched by Keating’s predecessor as Labor PM, Bob Hawke. Hawke abolished tariffs, floated the Australian dollar, and introduced the Prices and Incomes Accord, which drastically undermined the ability of trade unions to organize. As Elizabeth Humphrys has argued, it was the Australian Labor Party (ALP) under Hawke and Keating that introduced Australian-style neoliberalism.

These reforms laid the basis for Labor’s 1990s privatization wave. It began with the National Competition Policy Review — also known as the Hilmer Committee — established by Keating in 1992. The Committee’s report inspired the National Competition Policy (NCP), a batch of reforms whose stated goal was to expand the reach of “competitive markets” into more sectors of Australia’s economy and society.

John Howard. (Wikimedia Commons)

In 1995, Keating’s federal government endorsed every recommendation of the Hilmer Report. Every state and territory government followed suit. Soon, governments across the nation were aggressively enforcing a competitive, market logic in crucial sectors like electricity, gas, aviation, finance, transport, and communications.

Crucially, the NCP imposed “competitive neutrality” on public enterprises. Previously, publicly owned services and institutions had benefited from advantageous regulatory frameworks. They were able to borrow money at a cheaper government rate. They were also exempt from taxation and weren’t required to turn a profit.

Competitive neutrality changed all this. The policy insisted that the Australian government had to strip public companies of these advantages, forcing them to function like private corporations and “compete fairly in a competitive market.”

In 1996, just before Keating’s electoral defeat at the hands of John Howard’s Liberal-National Coalition, the federal Labor government also endorsed the “Competitive Tendering and Contracting by Public Sector Agencies” report. This recommended a massive expansion of outsourcing in the public sector, via contracting and competitive tendering, the further marketization of public administration, and a hollowing out of government agencies. One striking result is that the world’s four biggest accountancy firms now win over half a billion dollars a year in federal government contracts.

The NCP inspired the creation of the National Electricity Market (NEM) in 1998. This set about building a slew of complex, ever-changing regulatory frameworks and monitoring agencies. These agencies were supposed to perform the hopeless task of ensuring that private businesses with a natural monopoly over electricity production and distribution would deliver reliable services. The launch of the NEM encouraged state governments to break up their own electricity authorities, aggressively privatizing and corporatizing them over the next fifteen years.

Before the NCP, the federal Labor government had already begun reorganizing telecommunications along a corporate model. In 1995, Telecom became Telstra which, though still publicly owned, now operated as a business.

John Howard took corporatization to its logical conclusion by initiating the sale of Telstra in 1997. However, Labor PM Julia Gillard supplied a useful reminder of the bipartisan investment in privatization when she sold off the last of the government’s Telstra shares in 2011.

The Public Good

Before corporatization, publicly owned statutory authorities, whose primary goal was service delivery, ran electricity, gas, telecommunications, the postal service, and water, amongst other amenities. Under the corporate model, directors of a board are responsible to shareholders and their primary goal is profit.

As the economist John Quiggin has described, in the statutory authority model, providers have the objective of delivering public services built into their governance, rather than being imposed on them from the outside by watchdogs and regulations. Under this model, a public commission that included representatives of customers, workers, and the wider community ran Australia Post, not directors and CEOs.

The aims and outlook of the postal service were thus radically different to what they would become under corporatization. Before the reforms, the remit of Australia Post was chiefly concerned with meeting “the social, industrial and commercial needs of the Australian people for postal services.” Other state and federal statutory authorities upheld a similar social responsibility, ensuring that they delivered services efficiently and effectively while also creating well-paid jobs with good conditions.

Australia Post boxes and van. (Wikimedia Commons)

From the 1990s, governments set about privatizing their state-owned banks; electricity, water, and gas networks; and imposing corporatization on any assets left in public hands. As a result, the last few remaining publicly owned corporations now differ very little from their private-sector counterparts, often engaging in the same profit- and rent-seeking activities as private corporations. This has ended up discrediting public ownership and encouraged further privatization moves.

The Great Rip-Off

Proponents of neoliberalism have argued that competitive markets deliver services cheaper and more efficiently. But the public and many experts have long known this to be a lie.

Since privatization, levels of productivity and efficiency in the electricity system have declined, while the costs associated with marketing, sales, and bureaucracy have ballooned. As a recent Australia Institute report stated:

Real output per employees in the electricity sector has fallen by 37 percent between 2000 and 2018, due to the excessive allocation of ultimately unproductive labor to advertising, sales, contract administration and other activities associated with privatization.

Under private ownership, the number of managers employed by electricity providers has doubled, and the number of sales staff has quadrupled. By contrast, as the Australia Institute found, “over the same period, the number of electrical tradespeople and other workers involved in actual production has grown just 21 percent.” Incredibly, the electricity sector now spends more on finance and banking than it does on the fuel that powers its generators.

In 1995, political economists Clive Hamilton and John Quiggin released an analysis showing that the privatization of Australia’s publicly owned pharmaceutical company, the Commonwealth Serum Laboratories (CSL), two years earlier had cost taxpayers at least $607 million. This was partly because the Australian government now had to buy services from the newly privatized CSL, but also because of the loss of revenue and assets for the state. As Quiggin and Hamilton observed:

The fiscal impact of the sale is the same as if the Government were to borrow $607 million, commit itself to paying interest on that sum for eternity, and simply dissipate the funds. From a taxpayer’s viewpoint, the privatization of CSL was a disastrous transaction.

CSL is now the most valuable corporation listed on Australia’s stock exchange, with a market capitalization of $140 billion. In 1993, Paul Keating sold it for $299 million — roughly half a billion dollars in today’s money.

Moreover, the figure cited by Quiggin and Hamilton almost certainly underestimates the true cost of privatizing CSL. For example, the Commonwealth government just signed a deal that involves paying CSL $1 billion to purchase medical products that the company had already developed when it was still under public ownership.

In sum, privatization has led to a chaotic, bloated, inefficient system that charges more and delivers less in terms of quantity and quality alike. Ordinary people have paid the price, while private companies have made a killing.

Reaping the Rewards

Foreign and domestic private financial institutions were the real beneficiaries. These investors made enormous fortunes by participating in the public floatation of multibillion-dollar public corporations. As the Reserve Bank of Australia (RBA) noted in a 1997 bulletin:

Many overseas institutional investors [were] attracted to public floats in Australia, while foreign banks have participated in syndicated loans to finance trade sales of PTEs [public trading enterprises].

The RBA estimated that privatized PTEs accounted for one-tenth of Australia’s share market capitalization in 1997.

Today, the largest shareholders of Telstra, Qantas, CSL, and the Commonwealth Bank are multinational hedge funds and investment banks. The largest shareholders in Commonwealth Bank and CSL are BlackRock Inc. and The Vanguard Group, two of the world’s largest investment funds. These two firms alone manage $14.8 trillion worth of assets — ten times greater than Australia’s entire GDP.

The total combined profits of Telstra, Qantas, CSL, and the Commonwealth Bank in 2019–20 were just shy of $14 billion, and that’s before you even consider the billions more made by privatized electricity and gas corporations. With monopoly or near-monopoly ownership over key assets and services, these privately owned companies occupy positions of incredible power that come with minimal accountability.

They’re not the only ones to get a slice of the pie. Australia’s privatized services and amenities must finance their operations by borrowing from other financial institutions, who then claim billions of dollars in interest. Analysis of the privatized electricity sector found that the cost of finance as a proportion of total costs rose from 3 percent to 10 percent between 1998 and 2014. Publicly owned statutory authorities, by contrast, can be financed by the issue of government bonds, which is much cheaper.

Essential services like electricity or telecommunications were formerly provided at cost, but now “consumers” must subsidize private profit margins and the increased running costs associated with their bloated corporate structures. Between 1996 and 2016, electricity prices increased by 183 percent, three times more than the rate of inflation. The few remaining publicly owned electricity suppliers and networks have also hiked their prices because they have to follow the principles of competition and corporate governance.

The Public Against the Parties

Why wasn’t there more coordinated public opposition to this wave of privatization? And how did John Howard win a historic election victory in 1996 with a program that promised, among other things, to sell Telstra?

An internal Labor review of the ALP’s loss to Howard, presented to its national executive, identified Keating’s program of privatization as the primary cause of a wave of disillusionment among Labor’s working-class voters. As the report argued:

Labor’s record on Qantas and the Commonwealth Bank raised questions about our candor and ideological commitment to public ownership. Selling off national icons was deeply unpopular and raised questions about what Labor stood for. Many of our own people didn’t believe us when we said we wouldn’t sell Telstra.

The document presented Labor’s commitment to privatization as an aspect of its support for “economic rationalism” — more commonly known today as neoliberalism — which was the guiding spirit of the 1983 Prices and Incomes Accord. According to the review, the accord demanded that wage-earners would “make a disproportionate sacrifice to the process of restructuring the economy.”

As the authors of the review noted, because a Labor government allied with trade unions had implemented these attacks, they “led to significant disillusionment.” Working-class voters remained deeply opposed to the sale of public assets. But since it was the ALP spearheading privatization in a system with just two major parties, they had nowhere else to turn. John Howard didn’t win because of his commitment to privatization: it simply wasn’t a dividing line between Labor and the Liberals.

Since the 1990s, the political class has found itself at odds with a public that fiercely opposes privatization. A 2015 Essential poll found that 70 percent of Australians agree with the statement that “privatization mainly benefits the corporate sector.”

Backlashes against the further sale of public assets have weakened both Labor and Liberal-National governments. Queensland is a clear-cut example. In 2012, Queensland Labor dropped from fifty-one seats to just seven after its leader Anna Bligh pushed through a deeply unpopular program of privatizing major ports, roads and rail.

Even though Australia has experienced almost four decades of bipartisan support for neoliberalism and privatization, ordinary people still strongly support public ownership of essential amenities and services. If we can translate this popular sentiment into political power, we might be able to start undoing the damage such policies have inflicted on workers and communities in Australia.