Fran Collyer Jim Mcmaster Roger Wettenhall

Case Studies in Australian Public Enterprise Divestment Fran Collyer Jim McMaster Roger Wettenhall Published by Pacific Institute of Management and Development The University of the South Pacific Suva, Fiji Islands, 2001 ii First published in 2001 by Pacific Institute of Management and Development University of the South Pacific, Suva, Fiji Islands ISBN Copyright 2001 by C. Collyer, J.McMaster and R.Wettenhall This book is copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form without prior permission of the authors. iii Contents 1 Introduction 2 Belconnen Mall 3 State Bank of South Australia 4 NSW Grain Corporation 5 The Sydney Fish Market 6 Government Insurance Office of New South Wales/GIO Australia 7 Commonwealth Serum Laboratories/CSL Ltd 8 Victoria’s Totalizator Agency Board/TABCORP 9 Snowy Mountains Engineering Corporation 10 Port Macquarie Base Hospital 1 CASE STUDIES IN AUSTRALIAN PUBLIC ENTERPRISE DIVESTMENT Chapter 1 INTRODUCTION This collection presents nine case studies of public enterprise divestments in late 20th century Australia, one occurring in the mid-1980s and the other eight in the first half of the 1990s. In this introduction, we explain how we came to undertake these particular studies, and describe the research methods we have used. Other commentaries and assessments based on the research program of which these studies were a part are being published elsewhere, and are noted briefly at the end of this introduction. There is now a huge international literature on privatisation, both supportive and critical; as one of the major privatising techniques, public enterprise divestment commands an important place in this literature. But most available studies deal with the general movement, presenting argument for and against; some of the most interesting items are those seeking to show how and why privatisation became so popular in the last two decades of the 20th century, and the paths of diffusion as it spread out around the world after the early attacks on the public sector and what it stood for by a few national leaders like Thatcher in Britain, Reagan in the United States and Pinochet in Chile. But this literature contains few case studies providing information about specific cases of public enterprise divestment. As the program whose origin and development we describe below built up, we have found ourselves presenting papers about it at various national and international conferences and university seminars; we have usually found much interest in the “stories” about the transitions individual enterprises have experienced as they have been affected by this privatising agenda, and received requests that we should make our data more widely available. We have also found a few other scholars beginning to pursue similar paths, and getting similar responses. We have repeatedly been told that such case studies provide very good teaching material for use in relevant courses, and it is in this spirit that we now offer our set of nine such case studies. This said, we acknowledge another rare but significant and systematic exercise in approaching the study of privatisation in this way, one in whose design World Bank officer Ahmed Galal played an important part. Galal developed a research proposal which led the World Bank to commission a series of privatisation case studies, and he managed the proposal on the Bank’s behalf. He had built on some exploratory work on a proposed methodology for evaluating the effects of privatisation in which Leroy Jones of the Boston Area Public Enterprise Group (or BAPEG) had played an important part,1 and the outcome was a study of four 2 countries which had, by the mid-1990s, done much privatising. The countries were Britain, Malaysia, Chile and Mexico, and across these countries 12 privatised enterprises were investigated by World Bank and Boston University researchers. The results were presented at a conference in Washington in June 1992, and both the conference proceedings and a summary volume were published two years later.2 Galal believed that, from a fiscal point of view, there might often be good arguments for divesting an enterprise. But he warned that there was enough anecdotal material available to suggest that the expectations would often not materialise. Nowhere in the world, he declared, ‘are we able to find even a single serious and balanced study of what actually happened in the wake of divestiture’ (Galal 1990: 8-9). This was the huge empirical gap he wanted to rectify, and he designed the World Bank project with this objective in mind. In the event, this project produced useful information about pitfalls in privatisation schemes, about policy successes and policy failures, about difficulties in attributing causes to changes in performance, and particularly about how privatisation outcomes affected different stakeholder groups in each case studied. As we discuss our own methodology below, we note some points of connection between this World Bank study and our own. The case study program Conception and objectives The research project in which these case studies have formed a central focus attracted a beginning large grant from the Australian Research Council, and the study has been in progress for about five years. It has been undertaken primarily in the Centre for Research in Public Sector Management (CRPSM) in the University of Canberra. Over the period of the project, the principal investigators have been Jim McMaster, Dean of the University’s Faculty of Management and Associate Professor of Economics when the project began in the latter part of 1995, and Roger Wettenhall, at that time recently retired as Professor of Public Administration in the University of Canberra and newly accredited as Visiting Professor in CRPSM. They were soon joined by Dr Fran Collyer, a sociologist who had hitherto worked mostly in the field of health sociology, in the capacity of Research Officer. The three have continued to be associated in the project throughout its development, though towards the end of 1999 Professor McMaster moved to the University of the South Pacific in Fiji and Dr Collyer to the University of Sydney---resulting in the need for the association to be pursued at fairly long distance over the past year. 3 The primary aim of the project was to show how privatisation has been impacting on Australia through a detailed examination of divestment action in a small group of enterprises disposed of by government in the period 1986-1995. A secondary aim was, as far as was possible in the time and space available to us, to set these particular experiences against a wider picture of the worldwide movement. For most of its settled history, Australia has steadily established, and occasionally disposed of, public enterprises. Except in the recent period, ideology has rarely been significant in this process; mostly the relevant decisions have been taken on severely pragmatic assessments of socioeconomic need in areas such as transport and communications, electric power, irrigation and water supply, commodity marketing, banking and insurance, and the unlocking of the resources of the Snowy Mountains. As an extension of this process, from the 1970s Australia embarked on a serious program of public enterprise management reform. This major thrust continued through the 1980s, even as some other Western polities which also had many public enterprises (led by the United Kingdom and New Zealand) were dramatically shifting gear and selling off such enterprises to the private sector. These so-called asset sales were an important part of the developing worldwide privatisation movement, and were matched by massive shifts in the countries of Eastern Europe from public sector to private sector orientations; many developing countries were moving similarly, often in deference to pressures from international financial institutions. Australia was in no sense a leader in this privatising movement. In 1990, Wiltshire described what had happened up to that time as mere ‘flirtation’, and four years later he found it necessary to explain why the ‘ideological drive behind privatisation has not really caught on’ in this country (Wiltshire 1990, p. 224; 1994, p. 204). But a rapid change was occurring through the middle ‘90s, so much so that, by March 1998, a Sydney newspaper could proclaim Australia to be a ‘world leader in selling public assets’. It asserted that ‘Australia, led by Victoria’s Premier, Mr Kennett, is [now] officially one of the world’s keenest privatisers’, and quoted an investment banker who suggested that another $80 billion could be raised from sales of public assets over the next five years (Hughes 1998). The Reserve Bank had just reported that, among the OECD countries, Australia was second only to Britain in the value of privatisations from 1990 to 1997; and, relative to the size of the economy, second only to New Zealand (RBA 1997, p.8). This dramatic conversion was begging to be documented. We concluded that this task could well be approached through case studies, which have accordingly constituted a central focus of our research. Such case studies would provide the best data on how the disposal of public enterprises has been handled in Australia, and the best opportunity for exploring the vital question of the costs and benefits 4 of privatisation---or, put in another way, who wins and who loses from such disposals. This concern with winners and losers is apparent in much of the international literature, and is flagged specifically in the World Bank study noted above (Jones 1994). What Australian literature has emerged on the subject of privatisation is---apart from one important book published earlier this year (Walker & Walker 2000)--- mostly either anticipatory or reporting on overseas experience. Since Australia’s own experience is more recent, it has not yet attracted much serious analysis.

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