Wednesday, 20 June 2007
An Australian Experience-floats and selling
An early sign of change to come emerged perhaps from the forthright words of Malcolm Fraser "Life is not meant to be easy" in 1971. The so-called "long boom" from 1950 to the early 1970s reached an end. It is then imperative for people to keep calm while taking the bitter pills for the predicted cure of malaise in the economy.
Being a Labour member and surrounded by an easy life mentality inherited from the Menzies years, the Whitlam government managed to install more social welfare mechanisms, including the Medibank. This echoed previous moves in the US of the Great Society and other trends in centre left governed countries of Europe. In the meanwhile, he started the early drives of competition and made tentative moves in a short of period of time in office. Tariffs were cut across the board by 25%, and the Tariff Board was abolished in 1973. These moves were intended to address international trade issues and respond to demands of GATT on lowering tariffs.
Another major change to the "traditional" economy of Australia occurred in regard to the Australian dollar. It had been pegged to the British pound, but with the rise of US dollar after the Bretton Woods system, changed all that. The floating dollar was the reality of the world's financial market, and the Australian Labour government at the time had to devalue the Australian dollar in 1974, leaving the comfortable pegged pound system in doubt. This was followed by further devaluation under the Fraser government. Combined with tariff cuts, these were considered the prices to pay to make Australia a recognised force in international trade, meeting the raised standards, frankly, not to be marginalised or discriminated against by advanced economies.
The Fraser years touched on few issues in international trade, and in general his handling was soft, moderate on deregulation. This appeared unsatisfactory to earnest believers of newly emerged popular ideas from Britain under Mrs. Thatcher or Ronald Reagan of the US. The situation in Australia was not as bad and brutal as elsewhere; a copying of British Thatcherist tactics to get things moving was postponed and in any way would not be warmly welcomed. The far right Liberals of the 21st century now cry for lost opportunities under Fraser and for having had to wait for the time of John Howard to fully execute their wholesale plans.
The succeeding Labour governments ironically became the converts of Thatcherism and rolled out the first plans of change, which were conjured up by conservative politicians such as Howard but slipped off their hands. This is called new Labour, or dry Labour, fundamentally pro-labour but keen on shifting lines to suit macro economics situations. To them, principles of economics and international business are more essential than political economy, They would feel utterly isolated if they did not take actions similar to those in other developed economies, in a brave new world where socialism was mostly discredited and social welfare was attacked relentlessly. Even red China made tentative moves towards utilising market forces in the 1980s. How incredible and unimaginable it is that the right, left and communists were aiming at similar goals in the same decade. To the new Labour government, following the pack would be the right choice.
The more energetic and pragmatic player in the Labour government, Paul Keating, pushed hard for proposed changes to get under way, to the extent of making the famous jibe of Australia becoming a "banana republic". This smacks scare tactics, in a daring effort to generate a sense of crisis and urge towards change. The Labour government did seize upon the mood of the nation, and went down to implement many of market friendly reforms. It grew not shy of taking out some of conservative lines of rationalising from abroad and from the Coalition. In my early years in Australia, the impressions of this country remained full social welfare covers and multiculturalism, a pleasant, working society which was bathed in both free market and caring spirits. Little did or could I envisage the changes behind the scene and coming this way.
Deregulation included the floating of the Australian dollar. Thereafter, the value of the dollar is up to the financial market of the world to decided or to manipulate. Floating is now the rule, not stability which underpinned previous financial systems. An immediate consequence of this floating is wild swings and a roller-coaster ride in exchange rates. One of my university tutors, an American scholar, occasionally lamented the lost value in his salary, a nominal value to 1.2 times or more to the US dollar when he came to work in Australia down to 0.6-0.7 USD a dollar. On the other hand, many expatriate Australians used their foreign currencies to buy properties in Australia, feeling extraordinarily rich at the time of a much weaker AUD. Domestic housing booms ensued.
The Labour government also lifted those restrictions on foreign investment and ownership in Australia. From that time on, Australian corporations or assets can be easily transferred to foreign hands, either traditional Western businesses from the UK or the US, or from other sources such as Japan and East Asia. There was then a murmured story that a wealthy Singaporean businessman was so impressed by the beauty of Melbourne that he offered to buy the entire city up, to no avail in front of panicked Victorian officials.
Under deregulation, public corporations were not open to market competition but to grabs of foreign as well as domestic investors. Getting rid of these sometimes inefficiently run corporations completely or partially would generate huge financial gains to governments and sharply reduce budget deficits in an instant. This represents a kind of conventional wisdom, rather than any new thinking, since "selling family silvers" has been a tried move to cope with financial difficulties by noblemen, royalties, and commoners alike in the time long past. This time around in contemporary Australia, the differences in selling are that it involved public assets built up on public revenues from many years back.
Under the rationale of competition, state monopolies are to be gone. As a result, many state corporations went under the hammer or listed to attract external buyers. The Commonwealth Bank was offered for sale in three phases from 1991, finalising in 1996 when the bank became a public listed financial institution. Qantas Airways, the national airline, began to sell its 25% shares initially in 1993 to British Airways. A complete sale may not be sensible, for the implication of losing the proud national symbol of "flying kangaroo". A change to the airline's fate cannot be ruled out, as the most recent merger talks involved Singapore Airlines in some forms.
Deregulation of telecommunications experienced a much more dramatic turn and went on more thoroughly. The Australia Telecom had to share the market with a new comer Optus, which was owned by Sintel Group and opted into mobile phones, broadband and 3G businesses. At one time, a strange scene emerged. The national corporation of Telstra (Australia Telecom) was headed by an American CEO Frank Blount, while Optus, supposedly a foreign holding, was headed by a fair dinkum Australian CEO, Bob Mansfield. The irony could not be more in the open when they both spoke in public in their respective strong accents. This awkwardness was partially fixed when Mr. Mansfield took up the position of Chairman of Telstra in 2004, returning to his rightful place.
Competition of this kind evidently worked to the benefits of users. Calls from Australia to China used to cost 5 to 6 dollars a minute in my early years in Australia; then it came with special offers, then cheap phone cards, and eventually average rates dropped significantly, with monthly plans of low fees.
Telstra was also offered its shares to sell to the investors and the public. This behemoth cannot escape the chop of dismantling. The first public offering came in 1997. I fiddled through the thick Telstra prospectus, just for a peek, but hesitated on buying any offered shares. this proved a bad business decision, as the purchase of the first offering remain profitable on paper, even after long turbulence in later years. The second offering was in 1999 and made investors loath later, as price of the stock dropped and losses showed up on paper. The third offering, the T3, was considered in 2005, and is still in process amidst wranglings. It is just well a sequence of Terminator movies, as the actions taken undoubtedly aim at the termination of this mammoth corporation seen as a state liability. As the Terminator again, the state custodian will cease to function after the curtain fall.
For these selling, they were executed by the Coalition government, after Labour's initial drives. With the agenda of deregulation endorsed and state holding discredited at the federal level, state governments made their own moves, turning public utilities including water, gas, and power into private hands. Achieving budget balances was an ultimate goal to governments, and they to varying degrees favoured unloading available assets in a privatisation rush. Rail transport in Victoria is now in the hands of Connex, and toll roads came under Transurban. Other state governments, now all Labour, followed suit and do the same in a full speed forward drive.