Should they privatise Australia post? thoughts/arguments/queries?

[spectroscopy]

What are everyones' thoughts? I haven't heard many arguments and everyone I know thinks that its a bad thing to privatise. We have been talking about it in some classes at school and I just wanted to start a discussion on here so I can get a feel for both sides of the argument !
cheers

[slothpomba]

I guess it should be first asked why people want to privatise it. Do they want to privatise it because its pragmatic? It has some kind of clear, practical reason OR do they want to privatise it because it's a matter of ideology?

This year Australia Post’s profit after tax was $311.9 million; this is 20.8 per cent higher than our 2010 underlying profit after tax (excluding restructuring costs). This is a pleasing result considering that the decline in addressed letter volumes accelerated faster than we forecast. We expect that this trend will continue as consumers, businesses and government agencies increasingly shift to digital communication channels.

Underpinning the improved result was $5.9 billion in revenue. Taking full ownership of StarTrack this year meant that, for the first time in our 204-year history, we are predominantly a parcels business. This structural adjustment is reflected in our Parcel and Express Services business contributing 45.1 per cent of our total revenue.

We delivered a strong rate of return for our shareholder, the Federal Government, paying a cash dividend of $243.7 million (up 25.7 per cent this year). Our return on equity was 18.5 per cent.

Source - http://auspost.com.au/annualreport2013/financial-report.html

Why would you want to sell off a business, thats not only essential to Australians but also making a profit for the government? It'd madness. Short term gain from the save but long term loss for sure. If you use the sale money on something with an even greater monetary and social return for Australia, it might be justifiable but i'm pretty sure they'll just use it to balance the budget bottom line.

[Professor Polonsky]

Surprisingly enough (given my rather leftist economic record), I don't think privatising AusPost would be such an awful thing. I'd certainly have privatised it before Telstra and Qantas.

There are basically three reasons why privatising something would be an awful thing:
a) It's an essential service, that all residents need (affordable) access to
b) Strategically, it is important that it remain under state control (infrastructure, mostly)
c) It's not something you're really going to trust private industry with (defence, law enforcement)

The argument against privatising postal services is mostly that they will cease operations in rural areas, and discontinue non-profitable services. It might mean that you won't be able to send mail from Echuca to Lakes Entrance, for example; or that if you do it might take significantly longer or cost a lot of money.

Not so long ago, that would've been absolutely terrible. But these days? I'm not so sure.

Still bad, of course. Almost any privatisation is.

[Stick]

What are everyones' thoughts? I haven't heard many arguments and everyone I know thinks that its a bad thing to privatise. We have been talking about it in some classes at school and I just wanted to start a discussion on here so I can get a feel for both sides of the argument !
cheers

I heard that it'd involve only delivering mail on Mondays, Wednesdays and Fridays. With the boom of the internet and emails, we don't rely quite as much on our postal system, but it's still something society needs in order to function. It's not appropriate to send everything by email and I can imagine several issues affecting families and businesses if this was to take place. I don't know too much about the politics and economics behind it all, but I will be against it if it does involve this reduced service.

[abcdqdxD]

From the replies above, the word 'privatisation' seems almost taboo-like. The whole point of privatisation is to improve Australia's productivity and economic growth. By running it as a for-profit business, there are likely to be efficiency gains and this will benefit both the suppliers and consumers.

It'd madness. Short term gain from the save but long term loss for sure. If you use the sale money on something with an even greater monetary and social return for Australia, it might be justifiable but i'm pretty sure they'll just use it to balance the budget bottom line.

The purpose of privatisation isn't to balance the budget, in fact, the sale of AUSPOST will have a negligible effect in averting our budget crisis. It's all about increasing Australia's international competitiveness and efficiency amid slowing productivity levels over the past decade.

Now, I'm not for or against privatisation, but it's important that people don't join this debate with a pre-determined opinion on the issue and categorising privatisation as "OMG the government is selling off Australia", "oh we're screwed", etc.

[Professor Polonsky]

I'm a heterodox interventionist and anti free-trade with largely socialist streaks. Arguments about "privatisation increases productivity" are unlikely to win me over. That is precisely why I avoided the larger argument about privatisation.

About your argument though, postal services is a relatively small industry. Privatising it is unlikely to cause enough economic gain to offset the loss in social services. My point was, however, that this loss isn't so large either.

[abcdqdxD]

I'm a heterodox interventionist and anti free-trade with largely socialist streaks. Arguments about "privatisation increases productivity" are unlikely to win me over. That is precisely why I avoided the larger argument about privatisation.

About your argument though, postal services is a relatively small industry. Privatising it is unlikely to cause enough economic gain to offset the loss in social services. My point was, however, that this loss isn't so large either.

Why are you anti free trade?

[slothpomba]

I heard that it'd involve only delivering mail on Mondays, Wednesdays and Fridays. With the boom of the internet and emails, we don't rely quite as much on our postal system, but it's still something society needs in order to function. It's not appropriate to send everything by email and I can imagine several issues affecting families and businesses if this was to take place. I don't know too much about the politics and economics behind it all, but I will be against it if it does involve this reduced service.

We don't but a lot of old folks do. My parents dont use email for instance. It's one of those weird psychological biases, we assume people are more like us than they actually are. A lot of elderly people certainly don't use email either. That said every few days should be fine, letter volumes are falling and they are making a loss on it.

From the replies above, the word 'privatisation' seems almost taboo-like. The whole point of privatisation is to improve Australia's productivity and economic growth. By running it as a for-profit business, there are likely to be efficiency gains and this will benefit both the suppliers and consumers.

That's hogwash. For starters, it's already run like a for-profit business, it just happens the shareholder/owner of the business is the Australian Government, it's making a profit already. I don't see how selling it off will somehow result in a wizard casting a spell on it that will give "efficiency gains" or improve our productivity or economic growth. It seems to be doing pretty well already. I still cant understand why you'd want to sell a successful business thats making the Australian government money and benefiting all Australians. Upon it's sale, it'll make the Australian government no money on a yearly basis and theres the potential for slashed services harming Australians.

Most research shows that privatisation doesn't make things magically better. Indeed, a recent review by the productivity commission found that there is no significant difference in efficiency between public or private hospitals for instance.

It's all about increasing Australia's international competitiveness and efficiency amid slowing productivity levels over the past decade.

Governments can run businesses just fine, it's doing rather well here.

[abcdqdxD]

We don't but a lot of old folks do. My parents dont use email for instance. It's one of those weird psychological biases, we assume people are more like us than they actually are. A lot of elderly people certainly don't use email either. That said every few days should be fine, letter volumes are falling and they are making a loss on it.

That's hogwash. For starters, it's already run like a for-profit business, it just happens the shareholder/owner of the business is the Australian Government, it's making a profit already. I don't see how selling it off will somehow result in a wizard casting a spell on it that will give "efficiency gains" or improve our productivity or economic growth. It seems to be doing pretty well already. I still cant understand why you'd want to sell a successful business thats making the Australian government money and benefiting all Australians. Upon it's sale, it'll make the Australian government no money on a yearly basis and theres the potential for slashed services harming Australians.

Most research shows that privatisation doesn't make things magically better. Indeed, a recent review by the productivity commission found that there is no significant difference in efficiency between public or private hospitals for instance.

Governments can run businesses just fine, it's doing rather well here.

Yes, the government is running it just fine and I'm not going to argue otherwise. I was simply presenting the other side of the argument as the idea of privatisation seems to be vilified.

[slothpomba]

Yes, the government is running it just fine and I'm not going to argue otherwise. I was simply presenting the other side of the argument as the idea of privatisation seems to be vilified.

Sometimes there is only one truth, one reality. Take science, people dont sit down and have a humanities style debate about it all, theres only room for one truth and thats based on evidence and what is reflective of reality. There isn't always two sides to every story. In this situation, privatisation is a bad option and ought to be looked upon with disdain.

Few things i missed as well (thanks to others pointing them out):

[privatising Australia Post...] It's all about increasing Australia's international competitiveness

I'd like to see how privatising our local postage company will improve our international competitiveness. I get that you're arguing from general principals but it's fairly unreasonable and illogical to not take things on a case by case basis.

In the words of Ian McAuley, professor of public sector finance at the University of Canberra:

Decisions on what should be in public hands versus privately owned should be based on economic criteria rather than sweeping and untested generalisations about efficiency....

The division between public and private ownership should based on well-established economic principles rather than the outcome of a partisan conflict or vague claims about “efficiency” and “social benefits”. We are already bearing the economic cost of inappropriate privatisations – toll roads, energy and water utilities, health insurance – where commercial incentives conflict with efficient resource allocation.....

[abcdqdxD]

I think you've taken my comment out of context. I said: "The purpose of privatisation isn't to balance the budget, in fact, the sale of AUSPOST will have a negligible effect in averting our budget crisis. It's all about increasing Australia's international competitiveness and efficiency amid slowing productivity levels over the past decade."

I was referring to the purpose of privatisation in general , not Australia post in particular. The comment on Australia Post was only regarding revenues from its disposal. Of course, it's not always international and in this case it's domestic. But its our international competitiveness (and productivity) that should be of greatest concern in our current economic climate.

In regards to the benefits and costs of privatisation, I'm not sure why you're pulling out comments from Ian McAuley. Privatisation in general is an issue that divides many well-regarded economic commentators. You will rarely, if ever find 30 economists who hold identical views on the same issue. It is not difficult to find an expert opinion to backup your own view. In fact, you will almost always find someone that agrees with you. For example:

Mr Sims said privatisation would be key to improving Australia's productivity and that the government ought to consider all government-owned assets in its ''root and branch'' review of competition laws.
''Generally, the private sector will run commercial enterprises more efficiently than government,'' he said.
But a former ACCC commissioner, Stephen King, came out strongly in favour of a sale of Australia Post on Monday, saying the national broadband network would make letters redundant.
''It should certainly be looked at and my own view is it probably should be privatised,'' Professor King said.

Rod Sims is the current chairman of the Australian Competition and Consumer Commission.

I also don't like the fact that you think there is "one truth" when it comes to economics. The global economy is always evolving, and our economic models must continually adapt to our changing realities. Unlike most maths/sciences, the beauty of economics is that there is rarely one clear-cut answer. If economics were that simple, the world's economy wouldn't be in the dire state it is now.

I've conceded that I'm not pro-privatisation in this instance - as you said, it's a case by case basis and you have to weigh up the potential economic benefits against the social costs. I don't see the need to continue to keep vilifying the concept of privatisation.