Bite Size Advice. Paul J. Thomas
this fact is often overlooked by the anti-globalisation protest movement. Ironically, these activists are more than happy to use the outputs of globalisation – cheap cars, low-cost electrical items, affordable designer clothing and iPods to name a few.
What the protesters fail to understand is that global free trade promotes economic growth, creates jobs, makes companies more competitive and lowers prices for consumers. Free trade is a global economic engine which is the biggest eliminator of poverty and creator of opportunity that the world has ever seen.
Posting Date: 12 November 2012
Should governments privatise?
Margaret Thatcher started doing it in the late 1970s. Ronald Reagan jumped on the bandwagon in the early 1980s. The Japanese followed suit in the mid-1980s. Now everyone’s doing it – privatisation is sweeping the world. Both developed and developing nations are divesting themselves of government owned enterprises including railroads, airlines and telecommunications.
The motivation to privatise is typically driven by a combination of three factors: (a) the desire to raise cash to retire government debt; (b) the need to reduce subsidies to profit-losing state enterprises; and (c) the hope that private investors will bring managerial practices and technology to upgrade utilities.
In the extreme, privatisation results in the transfer of ownership and control of state services and enterprises to private ownership. But more common are public-private partnerships in which the facilities are still owned by the government but managed privately.
Supporters of privatisation claim that governments are bureaucratic, inefficient and incompetent at providing services. Public sector defenders, on the other hand, label the private sector as greedy, unethical and prone to corporate failure. While neither sector has a perfect track record, it’s unhelpful to tarnish either with sweeping generalisations.
For my part, I do not see privatisation as inherently good or bad. My contention is that it has to be done right. Privatisation works best when there is vigorous competition among alternative service providers. There also needs to be a clear understanding of which enterprises are best suited for a public-private partnership approach.
Privatisation in Australia started in earnest with the sale of the first tranche of the Commonwealth Bank in 1991. It continued with the privatisation of Qantas airlines (which began in 1992) and has since gained momentum to include the partial sale of Telstra and the sale of Sydney Airport.
Australian governments, both Commonwealth and State, have now privatised a significant portion of the public sector. This includes electricity and gas in Victoria and electricity in South Australia. We’ve also witnessed the sale of the State Bank of NSW, the State Bank of Victoria, GIO in NSW and SGIO in Western Australia.
Privatisation is not a panacea to public sector woes nor is it a licence to print money for the private sector. While many people worry about the government selling off the family silver, privatisation is an important element of microeconomic reform which is designed to improve market efficiency by limiting government interference in the economy.
Like all public policy debates, the privatisation debate is an emotive battlefield. Politicians, interest groups and the general populace treat privatisation arguments like warfare. Once you pick a side, you’re expected to support all of your side’s arguments and attack every argument mounted by the enemy side, lest you be accused of being a traitor.
I think we need to be a bit more pragmatic. A case-by-case approach to privatisation is essential – as is an open mind – to the potential social and economic benefits of any asset sale. Transparency is also crucial as taxpayers understandably want to know that asset valuations are realistic and that procedures for calling for bids and evaluating offers are fair.
Posting Date: 14 March 2011
Global banking laws
While on holidays recently, I saw many things which are legal in Europe but illegal under Australian law. In London, I saw crowds of people drinking on footpaths outside pubs. In Dubrovnik, I saw dogs being walked in the lobby of a five-star hotel. In Zurich, I saw scores of cyclists riding on roads without bicycle helmets. And in Frankfurt, I saw smokers light-up in sidewalk bars, cafés and restaurants.
What’s right and what’s wrong depends on where you are in the world. From how much income tax you pay to which side of the road you drive on, nation-states determine their own sovereign laws. But this is changing. While elected governments still make national laws which are binding (“hard law”), unelected experts are increasingly making non-binding international rules (“soft law”) which countries are adopting.
In a globalised world with cross-border trading, the emergence of “soft” international law invariably results from the inadequacy of “hard” national laws. A good example of this is banking regulation. Until the early 1970s, banking regulation was considered the exclusive preserve of national policy makers. However, the collapse of a German bank and a US bank in 1974 showed that financial crises were no longer confined to one country.
It became clear that coordinated international action was needed to prevent shock waves from one nation’s problems reverberating worldwide. As a result, the central bank governors from the G10 countries began meeting at the offices of the Bank for International Settlements in Basel, Switzerland. Their aim was to develop uniform international safety standards for banks. The Committee became known as the Basel Committee on Banking Supervision.
The Committee – which has since been expanded – acts as an advisory body and produces Accords (banking regulation recommendations) rather than laws. Even though it has no legislative power, the Committee’s members are senior representatives of bank supervisory authorities from around the world and its views hold great sway. The Basel Accords have become the regulatory standards for virtually all nations with international banking activities.
Among other things, the Accords specify the amount of capital that banks and other financial institutions must hold. The original Basel Capital Accord (now called Basel I) was reached in 1988. This had some shortcomings, so a New Capital Accord (Basel II) was released in 2004. Neither Basel I nor Basel II prevented the Global Financial Crisis. Therefore, a third Accord – Basel III – was endorsed by the G20 Leaders in 2010.
Few see the new set of Basel III regulatory requirements, which will be phased in globally from 2013, as a panacea. Notably, Mervyn King, governor of the Bank of England, believes “Basel III on its own will not prevent another crisis” and that the new levels of capital are insufficient to avoid a further disaster. The harsh reality is that no set of rules can ensure the solvency of the banking system or its resilience in a crisis. Like driving a car, banking involves risks which can’t be totally eliminated.
Banking regulation will continue to evolve, punctuated by bursts of activity every time that there is a serious crisis to manage. In broad strokes, my contention is that the likelihood of future crises can be reduced through better risk management systems and strengthened governance processes – two things which are continually under the spotlight at Gateway.
I’m conscious that the Basel Accords seem obscure and irrelevant to people outside banking. Yet they are the backbone of the financial system and are designed to protect depositors’ and taxpayers’ money. In Australia, we are fortunate that our banks, building societies and credit unions are well-managed and well-regulated. Australian depositors have good reason to be confident in their financial institutions.
Posting Date: 12 September 2011
Explaining political leanings
I understand the difference between up and down. I also know the