Essential Report

Garbage In, Garbage Out

Aug 10, 2012

Today’s installment of reality versus fantasy is brought to us courtesy of Barry O’Farrell’s flogging of that tired-old, and entirely false, presumption that the magic of privatization and outsourcing and will cure all ills. It reminds us that the Coalition’s entire economic philosophy is anchored by false, phony and economically bankrupt ideas.

Here is the news, though, it’s not really news since it simply puts a rubber stamp on the Coalition’s ideologically, non-economically sound, plans. From the Fantasy Review (known to bankers as the Financial Review), another so-called journalist, Michaela Whitbourn, shows the basic flaws in what passes for journalism:

The NSW public service would be forced to compete with the private sector under the recommendations of a review chaired by businessman David Gonski which pushes for major changes to how the state provides health, transport and other important services.

The government supported most of the 132 recommendations and said it would use competition to ensure the public sector’s performance kept pace with the private sector.

“We have to change the way we manage and deliver, and we have to change fast,” NSW Premier Barry O’Farrell said.

“When suppliers compete to provide a service or a good, they’re forced to improve their efficiency, their quality, their pricing, and customers . . . take back control through the exercise of choice.

Mr O’Farrell and Treasurer Mike Baird yesterday released the final report of the state’s Commission of Audit, chaired by Mr Gonski and conducted by former Sydney Water managing director Kerry Schott. [emphasis added]

So, to clear up one obvious point: is it surprising that the “audit” conducted by a former Sydney Water managing director — an organization that is panting to privatize — would advocate for privatization? This is classic “garbage in, garbage out”: you get results based on the bias you go into any project with.

One of the reasons that these theories aren’t laughed at is simply that the traditional press is lazy and does not understand basic economics. Reporters are not doing their research and so they simply show up, regurgitate press releases or reports, without doing any independent research — not to mention independent thinking. You don’t need to be a deep thinker though. You can rely on that very secret, obscure tool called “Google”. It takes any average person like yours truly about 30 seconds to find evidence from across the planet that privatization does not work. Repeat: it does not work.

To wit. In the US, just to take one example, the government paid billions of dollars more for privatized services in 33 of 35 occupations. Conclusion, from People for the American Way:

Some privatization efforts are windfalls that enrich major corporations or politically connected local businesses at the expense of taxpayers. Sometimes the cause is simply a mismatch between the resources and expertise of a public official and a major Wall Street firm.
“There’s a reason that there’s been so much enthusiasm in the finance community for privatization deals. You are dealing with a less savvy partner,” said David Johnson, a partner in a firm that advises struggling municipalities. “The bigger sucker is always the government.” Privatization can be good business, whether successful or not. When privatization plans fail and government steps back in, politically connected financiers brokers, and law firms can still walk away with millions of taxpayer dollars.

There is a long history of the push for privatization which has no sound basis in economics but a very solid history in anti-union, pro-business sentiment:

In recent years, dozens of privatization initiatives have been proposed, passed, or implemented. They are aimed at water treatment, transportation infrastructure, education, prisons and prison services, health care and other human services, government buildings, municipal maintenance, emergency services, and more. Those efforts are frequently promoted by the same Wall Street firms that helped create the recession and financial crisis; by right-wing foundations, think tanks and political donors who are eager to exploit the budget-balancing desperation of public officials; and, of course, corporations eager to tap public coffers and take over assets built with taxpayer funds.
 We could go on and on.

What’s pretty clear is this: O’Farrell, The Coalition and their other privatization groupies can’t have an actual serious debate about the economics of privatization — because they can’t win on the numbers. So, they make it all up to hide a far more serious agenda: the undermining of wages for public workers, and for society as a whole, in favor of siphoning off more wealth to big business and the elite.


The Fantasy Review Goes Off Into La-La Land

Aug 2, 2012

Why I spoil my appetite — a good lunch salad is a sad thing to waste — by reading drivel is always a mystery. But, if you make the mistake of reading the Fantasy Review — among bankers it’s known as the “Financial Review” — you run that risk. Today, it was Jennifer Hewett’s fault. While we live on the planet of reality, where actual facts matter, Hewett inhabits the world of mystery and alchemy, where things get mixed together and stuff just happens.

Hewett is annoyed, as anyone can tell from her tortured column today, by yesterday’s speech by Wayne Swan, which I previewed yesterday with a modest observation that Swan was simply stating the facts that about Clive Palmer, Gina Rinehart and Andrew Forrest: “One tycoon is using his money to challenge the principle of fair taxation through electioneering; a second is using his money to challenge it through the courts; and a third is using her money to challenge it by undermining independent journalism”.

Hewett is entitled to disagree. But, the problem is that  she — and a whole host of transcribers of press releases (what we formerly used to called “journalists”) — don’t bother to connect with the reality-based world when making arguments. They pretend as if shit just happens, as naturally as the sun rising in the east and setting in the west.

Let’s look at a few examples from the column (subscription to the Fantasy Review is required). First:

It is true that manufacturing jobs in both countries have been in long-term decline and are being hit particularly hard now. Those changes are partly due to a changing global economy and the rise of Asian manufacturing, partly due to the excesses of a debt-fuelled consumer and banking binge in the US and Europe.

Aha. “The changing global economy”. Well, wait a minute. The”global economy” changes because rules change. It isn’t a natural phenomena, nor magic. Those rules that were changed, mostly via so-called “free trade” agreements, set up a new regime based on one thing, and one thing only: where could companies find workers who could be exploited by paying them the lowest wage and forcing them to work in the least regulated, most dangerous conditions. The decline, then, was in wage standards, which, then, triggered the “rise” of Asian manufacturing.

Then, Hewett goes on:

Adapting to this inexorable shift and being able to ride the waves of change without falling off is the hard part for any country, any government, any company.

“Inexorable shift”. What utter nonsense –it isn’t a natural phenomena. It’s only inexorable, ironically, precisely because of the point Swan made, which Hewett hates: tycoons set the rules. Their rules say: we reap the money, we set the terms, we drive wages as low as possible.

Well, of course, like all good “free market” idealogues, you knew this one was coming: when all else fails, blame Europe:

Nor does he reflect on the rather elusive economic benefits of that model of government intervention – high taxation and economic and political paralysis in Europe. That’s equality of a different sort.

It’s almost boring to have to point out that the austerity destroying millions of jobs and the livelihoods of millions of workers, impoverishing generations of people and threatening the stability of at least Greece and Spain, has almost nothing to do with taxation — actually, that’s not exactly true since part of the crisis has to do with rich people refusing to pay higher taxes — but actually the problem is that the financial implosion created by greedy bankers wiped away trillions of dollars in wealth, triggering an economic meltdown.

Lastly, and this is Hewett’s dumbest point:

Yet this Treasurer is not at all taken, for example, by America’s extraordinary capacity for innovation in a range of industries, its economic flexibility and its ability to generate new sources of growth.

If this country wants to adapt the American Disease, which has killed the middle class, diverting 30 years of wealth growth from the people who created the value into the hands of the few so that more people live in poverty in the US – 46 million – than at any time in the half-century the US government has measured that figure, well, fine. But, deal with the facts of what the American model accomplished — not some fantasy version of what you’d like to happen.

Why bother with this? A fair point. The problem is that too many people have bought this idea of the “free market” and the notion that de-regulation is the way to happiness. Except the facts don’t support that fantasy.



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