This is a final version submitted for publication. Minor editorial changes may have subsequently been made.
Sharon Beder contends there is no evidence that the full privatisation of Telstra would lead to greater efficiency.
Privatisation is not just about selling government enterprises. It is also about selling the merits of privatisation to a sceptical public. This is especially the case when it comes to the government's push to sell the publicly-owned half of Telstra.
The first step in selling privatisation is to promote private enterprise as superior to government enterprise, particularly with respect to efficient, cost-effective delivery. This message has become accepted wisdom yet the evidence is not compelling.
Where private and public provision of essential public services have been conducted side-by-side, public provision is often more efficient. In the US, through a century of public and private provision of electricity, public enterprises consistently offered cheaper electricity to householders and it was Federal government schemes that extended the service in rural areas when private companies failed to do so.
Private enterprise is supposed to be so much more efficient because of competition and the "disciplines of the market". However, many of Telstra's services are already subject to competition and the rigours of the marketplace. Other parts of Telstra's operations are not subject to competition because telecommunications involves infrastructure that it is not economical to replicate. As this infrastructure is so vital to the economy and public welfare, many people rightly argue that a private company whose first priority is profits should not control it.
Government enterprises can be made more "efficient" if their objectives are narrowed down to commercial ones. This is what happens when government enterprises are prepared for privatisation. Workforces are drastically downsized and costs cut so that the organisations will be attractive to purchasers.
Private companies, freed from social obligations such as universal access, equity and reliable service to remote individuals, are able to cut costs by concentrating on more profitable services. They can compete for more lucrative customers by reducing unit costs for big users. In this way cross-subsidies are not eliminated but shifted from disadvantaged individuals to big business. The cost of the social obligations, if they are still met, is borne by taxpayers and shareholders and large businesses reap the savings.
If privatisation does not improve efficiency or lower prices for most consumers, why is it still being pushed so hard? First, it is because the short-term influx of capital, or the promises that this enables, can help government to win the next election.
Second, many government advisers have a financial or ideological interest in privatisation. Over the past two decades, consultants have made millions of dollars from privatisation. Think tanks have promoted the ideology of reducing the role of government and increasing the role of markets in public service provision. It is they who manufacture the myths about inefficiency of public enterprise and the boon of government debt reduction.
Finally, established private service providers are promoting privatisation. Multinational service companies are pushing to extend the General Agreement on Trade in Services (GATS) to public services such as telecommunications. GATS opens up the provision of public services to international "free trade" and would facilitate market access for foreign service providers.
Globally the privatisation and deregulation of another essential service - electricity - has led to wild price fluctuations, a decline in service standards, blackouts, electricity rationing and the formation of giant multinational electricity firms that are able to blackmail governments and withhold supply for their own commercial ends. If Australia fully privatises Telstra it will be exposing another essential service to similar risks.