Inflation is a complex issue, and while there are many factors at play, one crucial aspect often overlooked is the role of privatization. In this article, I will delve into why privatization is a significant contributor to Australia's persistent inflation problem and why addressing this root cause is essential for long-term economic stability.
The Privatization Effect
Privatization has been a contentious topic in Australian politics for decades, and it's no wonder that the public is wary of it. The data speaks for itself: the sectors experiencing the fastest-rising costs in the Consumer Price Index (CPI) basket over the past two decades are utilities, medical and hospital services, insurance, schools and childcare, water and sewerage, and housing. These are all areas where the government once provided services at affordable rates or for free. Now, they are either privatized or operating alongside underfunded public options.
The issue arises when essential services are handed over to for-profit entities. When global events, like energy price shocks, occur, these companies often raise fees to protect their profit margins. With limited transparent competition, they can get away with it. The privatization of services like energy, healthcare, and education has led to a situation where the government's balance sheet may look better in the short term, but the long-term consequences are dire.
The Impact on Workers and the Economy
The impact of privatization on workers is profound. Expensive public contracts, higher fees, and increased interest rates due to inflation can lead to unemployment and a decline in living standards. For instance, over $20 billion in public money goes to private schools annually, with no control over their inflationary fee schedules. This is a significant drain on the economy and a direct result of privatization.
A Historical Perspective
Australia has a history of using price controls to manage inflation, dating back to the post-war period and the 1970s oil crisis. The Prices and Incomes Accord in the 1980s is another example of legally capping company charges for essential services. These measures have proven effective in the past, and they could be a quick fix to the current inflation crisis.
Long-Term Solutions: Public Provision and Control
The only long-term structural solution, in my opinion, is to prioritize public provision and control. We need to repair the underfunding and expansion limitations of our universal public education and Medicare systems. By adding childcare to the public education stack and dissolving markets for fee-charging schools, GPs, dentists, and specialists, we can wean privatized parallel systems off the public teat. This approach ensures that essential services are provided at affordable rates, protecting citizens from profiteering.
In the energy sector, where exposure to global supply shocks is most painful, establishing a new Commonwealth entity to build, own, and deliver cheap renewable energy is crucial. This move would prioritize public ownership and control, reducing the impact of global energy price shocks on the economy.
Conclusion: A Way Forward
In conclusion, privatization is a significant contributor to Australia's inflation problem. By prioritizing public provision and control, we can address the root cause of inflation and ensure a more stable and prosperous future for the country. While it may face resistance from the business sector, the benefits of this approach are undeniable, and it is a necessary step towards a more equitable and sustainable economy.
As Alison Pennington, chief economist at the McKell Institute, suggests, it's time for the government to step up and reclaim the field. With geopolitical inflation risks on the horizon, the only solution is to take bold action and prioritize public ownership and control in essential sectors.
