From: miw@cc.uq.oz.au (Mark I. Williams)
Subject: Re: Will Victorians vote stupid yet again...?
Organization: Prentice Centre, University of Queensland
Distribution: aus
Date: Mon, 5 Oct 1992 04:45:12 GMT

ajw@squid.mel.dit.CSIRO.AU (Andrew Waugh) writes:

>Victorian governments have always financed assets from borrowings.

Yes, but public dept as a percentage of the economy is incredibly high
in Victoria.

>(Incidentally, asset financing is exactly the same in all other states
>of Australia.)

Just not true. Have a look at the levels of public debt in Queensland.
they are *much* lower than in Victoria. There are *lots* of other ways
to finance public assets. Examples: state lotteries, contracting them
out and allowing tolls to be levied (i.e. convert public debt into
private debt), and even (gasp) taxes. Issuing bonds and other ways of
raising money on the finance market will always be required by
government, and of course J.M. Keynes would tell you that it is good for
an economy to have a level of public debt. However, you don't have to go
down the Argentine road. (Of course, these days Argentina is in somewhat
better shape than Victoria.)

>The 'rational' for financing assets from borrowings is that the assets
>benefit future generations; it is only fair that these future
>generations help pay for the assets. 

The 'rationale' is that borring money for public works increases the
money supply and provides jobs, thus raising demand and promoting
growth. It is known as 'pump priming', and it works well under a fixed
exchange-rate regime. Under floating exchange-rates, it either causes
the currency to be devalued (and hence the debt burden to be increased
unless you are the US and can borrow in your own currency) or it causes
interest rates to rise, thus stemming growth. In other words, it doesn't
work anymore, which is why Keating isn't doing any of it.

>A final problem is that a large amount of the assets are essentially
>unsaleable. Who do you sell the road system to? Consequently, the
>assets that are sold have to serve twice. They have to cover their
>own cost and the cost of the assets which cannot be sold. This leads
>to the selling of the `plums' -- assets which are readily saleable --
>and, potentially, leaves the State with a core of unsaleable assets
>which generate little or no revenue to cover their debt.

Which is exactly what they should be doing! If the asset is readily
salable, it should be sold because the marketplace can make more
efficient use of it. If it can't be sold, then it isn't an asset. It's a
*service*, which is what governments should be providing. 

That's what got Victoria in so much trouble in the first place. The Cain
government thought it would go into business in a big way, in
competition with the private sector in many cases. Of course the public
sector doesn't have to toe the line in the way the private sector does,
and *of course* it going to be mismanaged. 

Of course you can get badly managed private-sector organisations as
well. Any organisation with a monopoly/near monopoly and which is
sheltered from proper scrutiny will have the same characteristics.

cheers,


--
Mark Williams         The University of Queensland       miw@cc.uq.edu.au
+61 7 36 54012   (w)  Prentice Centre
+61 7 36 54477  (fax) Qld 4072  Australia
Nullum magnum ingenium sine mixtura dementiae fuit.  -- Seneca