fatvegan

Partial privatisation represents the worst of both worlds, having all the costs of public ownership and few of the benefits.

John Quiggin (who I like) reckons that partial privatisation is the worst of both worlds. He claims that the Telstra management doesn't have a clear goal, because its biggest shareholder makes demands of it beyond making lots of money. The idea is that people have to have one objective, and only one, if they hope to be effective at something.

I'd like to disagree with him. While, conceptually the idea of having only one objective is appealing, I don't think it's realistic or even that important. Managers regularly juggle the mixed demands of ethics and profit-making. Or balancing fund-raising and fund-spending, in the case of NGOs. And the demands of customers, employees and shareholders. In the grander scheme of things the interests of customers, employees and shareholders might be aligned, but on a day to day level they aren't. You can always choose to raise wages and price less aggressively at the expense of shareholders. Even balancing the short-term interests against and long-term interests is a difficult but inevitable task. In theory, any short-term compromise of shareholders interest could be framed as benefiting them in the long-term. So not only is impossible for agents to have one dominant agenda, but I think they also have ample practice as juggling many agendas. The job is made especially easy in this instance, because the government doesn't get involved in Telstra as a shareholder. The government restricts itself to regulating, and doesn't seem to throw its weight around in board meetings. In this case the government has a much harder juggling act than Sol Trujillo does. Any independent giant monopoly, such as Telstra, would have tussles with regulators, regardless of how much of it the government owns.

I'd suggest that partial privatisation is actually the best of several worlds. The company is run as a private company - the government is effectively a silent partner. The government attempts to regulate it as best it can. That's an unending, thankless task, that will never be simple. But the government's ownership interest acts as a sort of hedge against bad regulatory decisions. It makes the consequence of under-regulation less severe, since half the monopoly profits go to the government anyway. It's also far less dramatic if the government decides to renationalise it. Any minority investors have to be aware that they are always entirely at the whim of a majority shareholder, even if the majority shareholder usually sits quietly in corner. But that risk should be factored in by markets anyway, particularly in the case of critical industries such as telecommunications. Partial government ownership just makes the process smoother.

Yes, it does tie up government capital that could be used productively elsewhere. But who really cares. The governments of industrialised countries don't suffer from a lack of capital. It strikes me that there are far more important, and delicate problems, than ensuring that every tax dollar is spent optimally.