Simplification of State

“It is not my intention to make anything comprehensible”

 – René Magritte

The privatisation of public utilities and services have been condemned by some citizens who are concerned for the provision of fundamental infrustructure necessary for the function of a harmonous, economically sustainable society. These claims are based on the premise that financial deal structures can impinge on the pearls of collective effort raised for the purpose of encompassing all in opportunity to strive. Recent budget announcements in Australia have pointed to delegation of many policy responsibilies to the state level. Federal funding for health, education and other public projects are diminished and a new-found pressure on states to administer appropriate measures has emerged. The shift in fiscal federalism is uncertain on the surface because entitled, profit-based industries could potentially capsize traditional methods of welfare policy. This change may see ‘air in the sails’ of improved state government and community participation. Non-profit interest groups intend to establish cooperative partnerships with government organisations to generate greater efficacy of services in more relevant ways with increased understanding of citizen’s needs.

Community consultation and input of how the provision of services are granted directed by increased autonomy of state capacity may safely advocate for the docking of beneficial, incremental transformations in judicial arenas for the social, econonomic and environmental safety of Australians.Quarantine of various agendas on a state level will determine the receivership of evaluated, qualified, passports to public need.This essay will explore historical perspectives of the regulation of utilities, the consequences of heavy administration, inconsistency with government advocacy for privatisation and the function of public utility, threats of industry monopolisation in the agricultural arena and myopia of government agenda to effect sustaining growth. Aditionally, the way in which economic circumstances shape Public-Private Partnership infrustructure projects will be confirmed. Finally, knowledge structures overcoming contract woes and the potential for community-developed partnerships to carry out some services and essential infrustructure will be illustrated.

Recent decisions regarding Commonwealth treasury may have influences from the Hayekian[1] point of view; that it is not advisable to create artifical market conditions for protective social and economic purposes. Arguably, Federal funding of utilities and services create national debt,attracts interest, disrupts natural economic fluctuations through synthetic cycles, compounds fiscal discord and reduces the accountablitiy and efficiency of provisions. Governments around the world are discovering the limitations of providing infrustructure and services, becoming increasingly reluctant to invest in public projects rather; proclaiming the coefficients for growth are higher from the privatisation of industries and service providers.

Since the industrial era, the roles of the state have altered. These changes have occurred through a series of three ‘waves’. Initially, when governments faced expensive outlays for telecommunications, transportation and energy, also projects deemed to entail high risk, they sought the alliance of entreprenaurial financiers to share the burden. Toward the end of the nineteenth century, during the inter-war period, many nations concentrated on domestification, by maintaining the regulation of infrustructure and services. Since the 1970s, market-driven corporations have reflected changes in policy-making, since utility monoplies became the protagonists of the infrustructure narative, albeit, often with government direction. Federal concerns for public services were usually crowned by political agenda, for example opting for control of communication and transportin times of international conflict aided defencestrategies, whilst encouraging private industries established networking – integrating citizens. Maintainging regulatory patterns with privatised infrustructure and services reduced the rise of individual benefit and maintained general, non-discriminating provision of community resources (Clifton,2011). Many contemporary critics are sceptical of these mechanisms for state delivery of services by noting functional errors which limit intents and purposes.

One accusation of this regime is that governments are partial to self-serving through expanding departments and programs, sidelining public need. Allsop (2012) reccommends minimising state bodies in order to fund more infrustructure, he also claims tax receipts prior to the global financial crisis were not utilised for the best national interests. Allsop also notes:

Of course, one should avoid idealising the past. Colonial governments in the 1880s were just as prone to building railways to nowhere as the current federal government is to building unnecessary school halls, but clearly the comparatively lean nineteenth century governments were able to get more things right on infrastructure than their bloated twenty first century counterparts manage. So if we want to hear the word infrastructure without the word backlog, it might be worth giving smaller government a go again (p. 27).

Seemingly the reduction of Federal government fiscal policies would warrant minimising national entities which have provided service to the state governments in the past. Such as finance for education, health, and transport. Certainly, if government departments create partnerships with industry and service providers, the nature of their role would pertain mostly to contracting and monitoring projects, in turn reducing workload; requiring fewer government agents.

Contracting private industries can also have consequences for government departments themselves, for instance, losing accountability and decision-making ability to their constituencies who finance the deals. In addition to this, installation of infrastructure may continue without regard for public perception since governments have allocated responsibility to the non-government organisations. Johns (2011) asserts this issue when she states:

A tendency towards deal structures’ replication without regard to prior failure is also fostered by a deal- and model-orientation. These orientations invest the decisions that flow from them with an autonomous logic that insulates them from particular types of inquiry while favouring other lines of inquiry (namely those most readily translatable into a vocabulary of deal marketing). It also connects the jurisdictional spaces in which decisions are taken about the financing of urban infrastructure with a variety of other spaces, often without commensurate alignment of interests and investments (p. 393).

To overcome this disconnection between the stakeholders involved, greater inquisition must be made by the organisers of the financers. Decision-makers may need to develop financial, deal-making specific vocabulary and knowledge. However, identifying the effects of non-government organised funding will gauge whether the proposed way of handling the project is conducive to public needs. Precedents of accomplished cooperatively managed projects should not account for approval of financial models without deeper questioning of what the proposed financial models will actually do. Regardless of how sophisticated the marketing structures appear, they remain open to negotiation through shrewd analysis.

The notion of enhancing accounting practices is continued with suggestions that determining ‘value for money’ is essential for the efficacy of PPPs. Grimsey (2002) highlights the need for uniformed government policy when commissioning private industries. He notes how the Victorian government led policy guidelines through Partnerships Victoria which was consequently adapted by the New South Wales, Queensland and South Australian governments, then adjusted to suit the particular state context. These procedures require the recognition of assets on the state balance sheet, to avoid governments expanding activity beyond their means and exhibit transparency. It also rules that the private party should not be receiving tax deductions from the assets in focus since the government is absorbing most of the risk in the investment. Finally, stringent protocols for risk analysis and allocation are imbedded; also ‘real worth’ of ventures is benchmarked in order to improve accountability. It has been suggested that the Commonwealth government develop a method for managing the risks involved with private partnerships also: “The absence of such a unified policy hinders the creation of a national market that would streamline the procurement process and increase competition, forcing down costs for both governments and bidders” (p. 269). This indicates that governments are not necessarily saving money through contracted affiliations; instead assets purchasing on credit terms with conditions. Presently, the Westminster system provides some verification of the usage of government expenditure in this way through budget bills to the parliament, ultimately representing the people. However, in the case where public borrowings are not reflected in the balance sheet, necessary scrutiny of spending is relinquished. There are further assertions regarding the inadequacy of traditional models of public and private accountability which follow.

Privatisation can be inconsistent with the basic function of public utility in situations where governments advocate for reform without clearly projecting implications. Johnson (2008) suggests increasing economic competition and reducing government expenditure has been paramount for many bureaucratic departments, however inflationary growth effects have not been anticipated and long-term provision of infrastructure services is lacking. He noted that the Reserve Bank of Australia reported in 1997 the largest programs of privatisation in the Organisation for Economic Cooperation and Development (OECD) and weighed this with:

The emergence of the infrastructure deficit reflected the fact that the attention of governments were clearly focused on generating the clear short-term budgetary benefits of privatisation, rather than analysing the broader longer-term consequences of the process on government, business and the community or recognising the longer term constraints that a lack of investment in the infrastructure stock would impose on the economy (p.67).

This alludes to the concept of private privileging and the difficulty surrounding sustenance of sectors such as education, health, utilities and transport when monopolies have substantial stakes in these areas, creating challenges for accurate costing. Moreover, threats of monopolisation are apparent in the specific case of plant breeding in Australia.

Broad acre crops and the associated scientific knowledge in Australia, has historically been largely dominated by public programs and therefore access to the infrastructure essential for improved plant breeding methods has been relatively adversary-free. With the expansion of intellectual property rights and increasing competition in the industry, plant breeders (separate from multipliers) adapt through becoming more commercially viable – passing on the costs to growers seeking new varieties. Industry have substituted some funding into research and development programs which have opted to license technology to the private sector and become more commercialised due to perceptions that grain growers were reaping rewards without reciprocity. Essential Plant Breeding Infrastructure (EPBI) is the key ingredient that all breeders need access to for competitive grain markets since it drives agricultural innovation. Lindner (2004) explains this efficiency:

Use of these techniques in conventional plant breeding is already reducing the time lags from initial crossovers to release of new varieties, reducing the cost of development of improved crop varieties, and enabling the development of superior improved crop varieties that are more productive, produce better quality grain or both. (p. 304).

In order to share the costs of the infrastructure, Canadian and Australian authorities have developed independent cooperative policies between breeder firms and technology providers where subscription fees are paid by each consortium member in return for exclusive access to unlimited molecular marker technology. In Canada the agreement is an optional flat fee, meaning levels of production will determine affordability, then compound disparity between various levels of company profit. Whereas the Australian policy makes membership compulsory, but the cost of this is dependent on the syndicate’s production. As privatisation encroaches, threats of monopoly over EPBI become increasingly concerning since competitive advantage will likely cause wasteful duplication over innovation in terms of grain production. To minimise this behavior; provided attractive yields are maintained, grain industries and crop breeders can negotiate with government organisations to invest in scientific patents to ensure plant breeding resources are not limited by profit-driven industries. Organisations such as the Commonwealth Scientific Industrial Research Organisation (CSIRO) can seek funds elsewhere to sustain technological innovation and Australian industry access to EPBI would continue to be maximised. The changeable nature of government procurement through PPPs necessitates constant weighing especially when domestic and international markets are uncertain.

Volatile capital markets equate to higher costing finance with reduced amounts of equity and debt capital available. Despite Australia weathering global financial circumstances reasonably well compared with other developed economies experiencing reductions in Gross Domestic Product, projects listed on the Australian Stock Exchange lend themselves to refinancing and medium-term corporate debt. Herein consequence, it is probable that the form of future PPPs may be lighter in terms of risk allocation, for example, higher reserves, stronger credit credentials and more rigorous debt-service criteria (Regan, Smith [P1] &Love, 2011). This, in combination with the shift in Federal fiscal policy puts the provision of fundamental state services in a predicament.

Drawing from the old English proverb; ‘necessity is the mother of invention’, the initiation of many new educational programs, community partnerships and public projects could emerge as more independent mechanisms for the delivery of public infrastructure. Research demonstrates how some local Australian areas in parallel contexts have overcome new-contracturalism. For example, Cameron and Gibson (2005) reported on a pilot project situated in the Latrobe Valley, Victoria, which addressed social and economic concerns in response to the state withdrawal from the power industry, a significant employer of citizens of the region. The existing wealth of the Valley was harnessed through community development and action research. Initiatives which utilised volunteer labour such as; cultivating sustainable food supply, making of goods and exchanging projects and cultural activities. Cameron and Gibson (2005) explain:

An action research approach based on collaboration between people with professional training and others who have been marginalised can produce tangible outcomes. We also found that broader theoretical commitments, in this case poststructuralist attention to the effects of representation, can be translated into communicable ideas that have the power to inform practical research actions and to reach a non-specialist audience further afield than the Latrobe Valley (p. 284).

Here, the local municipalities play an integral role in alleviating financial pressures of the community through indirect assistance. With limited ability to make state and Federal financial transactions, development strategies may compensate currency to a certain extent. Similarly, a partnership between a community centre and a non-government organisation responded to youth issues in Torrens Valley, South Australia in response to the community facing adverse effects of globalisation.

In response to the inequity of basic community services between rural and urban Australia as a side-effect of privatisation of government assets and pursuit of profits, Packer, Spence and Beare (2002) explored potential obstructions to successful partnerships bearing political and economic autonomy. Difficulties encountered were limited funding and engaging the community. However with inclusive practices that empowered young members, the program increased resources of the rural community. “The generation of sustainable resources for rural young people has been one of the most unique and significant achievements of this partnership…The community’s capacity to attract external resources by documenting their local contributions gives further confidence as a sustainable program” (Packer, Spence &Beare2002, p.324). In contrast to this, the long-term projection of public-private ‘managing’ of education services is contested by some who foreshadow the argument that government intervention of knowledge services is problematic.

Peters (2013) explains from a Hayekian perspective, that natural equilibrium prevails from untouched markets. The physics derived concept of ‘spontaneous order’ which can be understood from observing crystals, galaxies, growth of language and social norms, demonstrates how three aspects of Hayek’s theory can be applied to the evolution of learning institutions. They are: human action creates learning environments, not human design, the thesis of ‘primacy of tacit’ or practical knowledge is privileged over theoretical and that traditions are constantly filtered through natural selection “Hayek (distinct from Buchanan) claims that we must give up the modern ideal of an interventionist public policy and replace it with an ideal of cultivating general conditions within which benefits might be expected to emerge” (p. 14). Bearing this in mind, in the situation where state school funding becomes increasingly scarce, how individual actors on every level embrace the lack of fiscal distractions could determine stronger, cooperative regimes toward life-long learning. In conjunction with this, Lipovetsky, cited in Peters (2013) comments on: “The shift towards ‘performativity’, the accent on so-called ‘useful knowledge’ with direct applicability in society and “a slide away from ‘liberal education’ towards vocationalisation and the increasing influence of governments and inter-governmental agencies in encouraging these shifts” (p.22).Using the foundations of previous models of management throughout history, more open, democratic, knowledge-sharing, collaborative trans-national learning environments could transpire in novel forms of learning despite the change in funding.

Conversely, the Federal fiscal shift in Australia heralds’ murky water, since public reliance on revenue is innate. Sturgess, cited in Galligan, Lim and Lovegrove (1993) affirmed:

One of our deepest human needs, particularly in uncertain economic times such as these, is the need for security. We don’t want to be told that the lifestyle that we grew up with is threatened, we don’t want to hear that the society we have become comfortable with must change and yet that is the very message which our more responsible political and social leaders keep giving us. And, frankly, we don’t want to hear it…And yet…security lies in change (p. 13).

If issues aren’t able to be clearly articulated the in complex, contested, political arenas from the leaders representing the public, the onus falls back on citizens of the democracy to enact spaces for discussion, cooperation and active participation in provision of services and infrastructure. Using Hayek’s philosophy of ‘spontaneous order’ and ‘primacy of tacit’ can advocate for looking inward for inspiration for an outward outcome. Historical regulation of utilities,  consequences overbearing administration, government advocacy for privatisation and the incongruence of provision for public utility, the implications of patents in the grain growers sector, moulding Public-Private Partnership infrustructure projects, community-based ventures promoting independence similarly thrive with visionary leadership and astute strategies for balancing the hopes and fears in respect to policy change.

[1]Hayek (1967) formalised the theory and bolstered it with the insights of David Ricardo and John Stuart Mill. In its essentials, the Hayekian theory shows how a monetary disturbance can induce an inter-temporal discoordination of economic activities (the artificial boom), how the discoordination eventually comes to be recognized (the bust), and what adjustments are made necessary by the money-induced discoordination (the recovery). In brief, the injection of new money through credit markets suppresses the rate of interest, thereby causing resources to be inter-temporally misallocated. Capital goods appropriate for a relatively lengthy, or time-consuming, structure of production are created at the expense of capital goods that would be more compatible with the existing, less time-consuming, structure. The credit-financed capital restructuring entails a net increase in economic activity, which constitutes the boom. But with the passage of time, the still-incomplete capital restructuring is revealed to be inconsistent with actual resource availabilities. The newly perceived scarcities are reflected in increased prices of uncommitted resources and in a corresponding increase in the demand for credit. These increased costs necessitate the liquidation or abandonment of misallocated capital. Labor which was complementary to the abandoned capital becomes unemployed. The bust is followed by a recovery in which market adjustments in relative prices and wages allow for the eventual re-absorption of unemployed capital and labor into the structure of production (Garrison, 1986).

References

Allsop, R, 2012, ‘Correcting the Infrustructure Defecit’ Institute of Public Affairs Review, vol. 64, no. 1, pp. 26 – 27.

Cameron, J and Gibson, K, 200, ‘Alternative Pathways to Community and Economic Development: The Latrobe Valley Community Partnering Project’, Geographical Research, vol. 43, no. 3, pp. 274 – 285.

Clifton, J, Lanthier, P & Schrӧter, H, 2011, ‘Regulating and Deregulating Public Utilities 1830 – 2010’, Business History, vol. 53, no. 5 , pp. 659 – 672.

Galligan, B, Lim, B & Lovegrove, K, 1993, Managing Microeconomic Reform, Federalism Research Centre, The Australian National University, Canberra, ACT.

Garrison, R, 1986, ‘Hayekian Trade Cycle Theory: A Reappraisal’, The Cato Journal, vol. 6, no. 2, pp. 437 – 459.

Grimsey, D and Lewis, M, 2002, ‘Accounting for Public Private Partnerships’, Accounting Forum, vol. 26, no. 3, pp. 245 – 270.

Johns, F, 2011, ‘Financing as Governance’ Oxford Journal of Legal Studies, vol. 31, no. 2, pp. 391 – 415.

Johnson, M, 2008, ‘Privatisation, Myopia and the Long-run Provision of Economic Infrustructure in Australia’, The Economic and Labour Relations Review, vol. 19, no. 1, pp. 57 – 72.

Lindner, B, 2004, ‘Privatised provision of essential plant breeding infrastructure’, The Australian Journal of Agricultural and Resource Economics, vol. 48, no. 2, pp. 301 – 321.

Packer, J, Spence, R & Beare, E, 2002, ‘Building community partnerships: an Australian case study of sustainable community-based rural programmes’, Community Development Journal, vol. 37, no. 4, pp. 316 – 326.

Peters, M, 2013, ‘Managerialism and the neoliberal university: Prospects for new reforms of ‘open management in higher education’, Contemporary Readings in Law and Social Justice, vol. 5, no. 1, pp. 11 – 26.

Regan, M, Smith, J & Love, P, 2011, ‘Impact of the Capital Market Collapse on Public-Private Partnership Infrastructure Projects’, Journal of Construction Engineering and Management, vol. 137, no. 1, pp 6 – 16.