Napkin stimulus thoughts 2
Posted by Dave Bath on 2009-02-05
Yesterday’s post Napkin stimulus thoughts 1 covered why a cash bonus will be used for economic activity much less than a strategy of creating secure jobs by the government owning businesses, or at least taking significant equity.
This post will cover the long-term advantages of the government becoming a market player in many sectors, because it will put Australian businesses in much better shape.
Currently, many small and medium businesses, the ones that are so important to the economy, have inefficient "back office" services, and many have immature business process re-engineering capabilities – capabilities that are critical for success through the current economic crisis, and more importantly, after the economy starts to improve again.
If the well-received Gershon Report (see my reviews here and here) is implemented quickly, the human capital to define and implement improved business processes will soon be available within the public service. This would provide decent process models, which, together with leveraging of large centralized servers to be used by government business enterprises that move into new markets, would increase efficiency of operations.
When those government business enterprises, covering non-essential services, are floated (or equity sold) once the economy is well on the rise again, those businesses would inherit all the standard software, and would merely need to buy servers to run it on (especially if the government has end high-end free engines like PostgreSQL and the Apache suite.
End result: highly competitive Australian enterprises, with job security in the meantime for tens or hundreds of thousands, and an economy that doesn’t suffer too much from loss of confidence.
And let’s face it, to have security of employment under public-service conditions, many would discount their wages… especially those who are at the higher end of the market: if you have an insecure wage of $100K, you’d probably take a $20K pay cut (which probably is a correction anyway).
What sorts of businesses should the government take over and restructure?
The easiest markets for the government to enter are those it started outsourcing a few years back, for example, cleaning services. Rather than each agency having their own cleaners, which almost always causes inefficiency, a central government cleaning service would avoid these overheads, and even avoid those costs that current private industry has to pay… for business services (e.g. billing, labor allocation to sites), because these would be running on centralized government servers.
And of course, those cleaners would have job security, and keep spending.
If Rudd wants infrastructure built, we should create a government business enterprise that builds infrastructure. These services could compete for work in the private market, or tender for contracts let by state governments.
Because we know that there is more than a decade of inactivity on infrastructure, we know that there will be lots of work to do directly for the government anyway – any plant and equipment needed to build roads and bridges will be needed for at least a decade… so it makes sense to buy some rather than hire all of them at a premium. (Those who hire them out or supply a workforce in the rush to build infrastructure will be charging a premium, with profits typically going to managers and shareholders rather than the workers who need support.)
As we know, when you are building lots of infrastructure, the "Public Private Partnership" model is a recipe for rorts. If state governments are throwing cash around, cash that Auditor Generals have time and time again has been wasted, then we should be happy if that money is "wasted" back into federal revenue rather than increase the profits of companies, particularly international ones!
It’s not like governments haven’t taken over businesses before:
- ABC Radio in Melbourne was originally 3LO, purchased when the ABC moved into the Melbourne radio market – although this didn’t happen in other major cities.
- When the Melbourne Metropolitan Tramways Board was created, it was basically a rebadged private company, the Malvern Tram Company.
If this approach is taken, does the government create a new company (such as was done with the original Commonwealth Bank), or does it take near-complete equity in an existing good company that is finding it hard to raise capital?
This decision should be made on a case-by-case basis, and will probably need to take into account the sector it is investing in.
Ironically, this would be a return to the mixed economy of the 1950s and 1960s – looked upon by the Liberal Party as a "golden era" for the country.
I repeat this again… it need not be a permanent arrangement. The enterprises owned by the government should not be sold in one rush when the economy recovers, because the lack of investors would mean prices for equity would be low.
My guess as to timing? Government purchases would occur for two or three years, be "kept in trust" for about five, or until the economy is again healthy, and then sold off over three to five years.
After all, if the Singapore government can make a profit (and take those returns out of the country) from Australian infrastructure and essential services like telecommunications and power, why shouldn’t the Australian government be able to do the same – because the profits would stay in the country, we can either use the money for something else or lower prices to citizens!