53 – Coffee, basketball and privatisation. What significance could they have for Australian local government?

Posted by Colin Weatherby                                                                                    1000 words

the barista economy

Image from The Age, 11 March 2015

On the 11 March 2015 there were three articles in the Melbourne Age newspaper on different topics that each held a message of potential relevance for local government.

The first was ‘Welcome to the barista economy. The article is based on a speech by Christopher Kent from the Reserve Bank of Australia (RBA) who looked at changes in household expenditure patterns over the past 30 years.

One thing is clear: we are spending a lot more on ‘services’ than we are on ‘stuff’. The share of household spending on services is up from 53 per cent to 65 per cent of household consumption.

The RBA explains the increased spending on services as a result of cheaper goods because of better productivity and more goods coming from ‘emerging economies’. The world has become better at producing goods and people now have more money to buy services, which in effect is buying time. We can afford to employ someone to perform tasks when our time is better spent on other activities, we don’t have the skills, or it improves our quality of life (e.g. leisure).

The barista connection highlights the growth in service industry jobs. Coffee shops are everywhere. Having a coffee has become part of every outing.

I think that the significance for local government is twofold. Firstly, councils will be part of providing the services that people want to consume, especially leisure services. Secondly, if people are starting to buy services, such as home cleaning, gardening, and meals, to have more time available for leisure or other pursuits, they won’t want councils wasting it with poorly designed customer service processes. Activities like booking hard waste collections, registering pets, joining the gym, or getting a permit will need to be efficient and convenient to meet their expectations and avoid ugly interactions.

The second was ‘NBL chairman Graeme Wade rejects Andrew Gaze’s call to shut league’. The National Basketball League (NBL) in Australia is in difficulty with several teams foundering and in administration. The league looks set to start next season with only six teams guaranteed to play. Former champion player and Australian Olympian Andrew Gaze has suggested that the league be shut down. His reasons have significance for local government.

“Shut it down, get the model right, because the model is broken”, he said on SEN 1116 on Wednesday morning. “Don’t put band aids over it. The model is broken, there’s got to be new ideas and a new thought process on how the competition could be run, because this is death by a thousand cuts”.

I am not suggesting that local government cannot take to the court or that we should be shut down until we get it right. We are potentially up for death by a thousand cuts with rate capping. I do think the business model needs to be reviewed because it isn’t working. Councils are losing touch with communities. The quality of politician is generally declining. The focus of top management has become survival. The fundamental approach is ‘business as usual and 5% annual cost increases for customers’. No serious effort goes into reforming the ‘business’ or finding ways to contain the cost increases leading to price increases or provide added value for the increase. I haven’t even heard of a council that has articulated its business model or its value proposition.

The response of the chairman Graeme Wade was that there is no need to shut down the league because “we can drive and talk at the same time”. I am sure we can do the same in local government. Unfortunately we only start talking when there is the threat of reforming legislation by the State.

The third was ‘Privatisation should not mean paying highest price’. The focus of the article is planned asset sales in NSW and other Australian states, particularly electricity infrastructure and ports. Whilst state governments and the national government actively pursue asset sales and privatisation, the Australian Competition and Consumer Commission (ACCC) chairman has raised concerns about unintended consequences of the ‘bonus’ payment promised by the national government to states selling assets of 15% of the sale price.

The ACCC is concerned that it could ‘exacerbate government’s long-running habit of focussing too much on getting the highest sale price for an asset, at the expense of competition’, which then pushes up prices post-privatisation. He has particular concerns about regulatory or anti-competitive arrangements put in place to favour the new owner of the infrastructure and encourage them to pay more to acquire it. Examples are given.

I am not suggesting that councils will or can sell assets where they are able to increase the price by reducing competition with negative consequences for consumers. They just don’t have those types of assets. But councils will be looking to sell or privatise assets in response to rate capping. I think the significance is more in the changing nature of the debate over asset sales. Twenty years ago in Victoria most state electricity assets were privatised and water assets were ‘corporatised’. Of all the Australian states, we were most exposed to asset privatisation. The mood across Australia seems to have changed and people are now becoming concerned about the long-term consequences of the sale of public assets.

For local government, the types of assets likely to be privatised or sold include sale of land from the ‘community land bank’ that the council considers is surplus to current requirements; long-term leases for facilities such as landfills, pools or community centres that could be with other public or private organisations; and the sale, and then leasing back, of plant and equipment required to deliver services.

So what is the significance? Local government services should to be time efficient and convenient or they risk being annoying and inconsistent with the expectations of the community. The council’s business model and value proposition should be explicit and tested with the community to ensure the value they expected is being provided. The sale of assets or privatisation of services should be done in close consultation with the community about both the short term and the long term benefits and costs.