Date created: 28 November 1996 Last modified:18 December 2002 Maintained by: John QuigginJohn Quiggin
31 January 1997.
The passage of legislation enabling the Howard government to sell one-third of Telstra presents the Labor Party with both a challenge and an opportunity. The Labor Party has repeatedly condemned the proposed sale as contrary to the national interest. Until now, however, there has been no need to say what a Labor government would do if faced with a partially privatised Telstra.
The continued maintenance of a private minority shareholding in an enterprise like Telstra is an untenable position. The directors of the enterprise would be in an invidious position, as would the minority shareholders. Directors responsible to a government majority shareholder could not possibly disregard public policy imperatives in an area as important as telecommunications, but in doing so they would violate their fiduciary obligations to disregard the interests of everyone except their shareholders. Minority shareholders would be locked into whatever services and pricing polices, and whatever pattern of dividend distribution, the government chose to impose on them.
In the event of a Labor victory in 1998, then, the only options would be full privatisation or repurchase of the minority shareholding. This is not a choice which will appeal to the leadership of the Labor Party. Full privatisation would mean yet another abandonment of a firmly stated position, yet another betrayal of the faith of Labor's traditional supporters. It would also, for all the reasons Labor has advanced in the debate over Telstra, be bad public policy. The sale price would be insufficient to compensate taxpayers for the loss of Telstra's profit stream and community service obligations would be eroded steadily.
The alternative of repurchase looks even more politically alarming. The success of the push for microeconomic reform, including privatisation, has depended in large measure on the quasi-Marxist belief in the historical inevitability of the process, on the view that, in Mrs. Thatcher's memorable phrase 'there is no alternative'. The possibility that a major piece of microeconomic reform could be reversed is anathema. A commitment to repurchase would ruin any chance of Labor's regaining the support of the policy elite.
Furthermore, any process used for the repurchase of shares in Telstra could be extended to reverse other privatisations such as those of the Commonwealth Bank and Commonwealth Serum Laboratories, or even to nationalise existing private enterprises. Labor would be open to the charge that it was returning to the socialist objective that, nominally at least, it has never abandoned.
The Labor leadership will thus be tempted to duck the challenge of taking an explicit position on the issue. This would be a bad outcome for the Australian people. The uncertainty created by such a stance would reduce the sale price that could be achieved in the sale of a minority shareholding and thus would make taxpayers worse off. On the other hand, without an explicit electoral mandate, repurchase of the minority shareholding would be politically impossible. Labor would be pushed willy-nilly towards full privatisation, but in a fashion that minimised the return for taxpayers.
With the Howard government campaigning for full privatisation, the do-nothing option would also be politically untenable. Labor lacked credibility opposing partial privatisation in 1996, and it would look even weaker proposing preservation of a partially privatised status in 1999.
The option of announcing support for full privatisation would be humiliating in the short term, but would mark a final break with Labor's past and a definite commitment to bipartisanship in economic policy. Labor could then campaign on a platform of social liberalism and, if the Howard government stumbles, superior competence, precisely the marketing mix that Bill Clinton used in his overwhelming victory over Bob Dole. In effect, Labor would become an Australian version of the US Democratic Party. Ironically, the Australian Democrats, originally founded with this role in mind, would end up as the residual legatee of the Labor tradition in Australia.
The alternative of a commitment to repurchase would involve greater risks, but also greater opportunities. Such a commitment would demonstrate that Labor could provided a clear alternative to the Coalition's policy agenda, and that Labor was willing to offend powerful interests, such as the financial markets, in the interests of good public policy.
Throughout its period in office, the Hawke-Keating government claimed to be pragmatic rather than ideological. In justifying the sale of 'icons' such as Qantas, the Hawke-Keating government argued that the boundaries of the public sector should be determined by considerations of public benefit rather than by tradition and historical accident. This position is coherent only if it involves a willingness to shift the boundary in either direction, disposing of public assets where they are no longer useful but also extending public ownership where necessary. If extensions of public ownership are ruled out from the start, we are left with the purely ideological commitment to the private sector exhibited, for example, by the recent report of the National Audit Commission. The issue of Telstra provides the new leadership of the Labor Party with the opportunity to show where they stand.
John Quiggin is Professor of Economics at James Cook University and author of Great Expectations: Microeconomic reform and Australia, published by Allen & Unwin.