Daily Bulletin


Daily Bulletin

The Conversation

  • Written by The Conversation Contributor
imageJapan Post Bank Co President Nagato.Reuters staff

The US$12 billion listing of state-owned Japan Post Holdings overnight makes it the largest initial public offering (IPO) in the world this year. In choosing to list its postal business, Japan follows the lead of Britain, which privatised the Royal Mail in 2013.

The float split out the financial and insurance arms of Japan Post, and delivered for Japanese retail investors, with the stock soaring as much as 56% on its first day of trade.

Investors might be happy, but the question is whether international governments should be privatising core infrastructure, and what this privatisation might mean for other government-owned postal services around the world, such as Australia Post.

Privatisation trends have over time reflected the consensus view of economists regarding the efficacy of state-owned enterprises. For the first three-quarters of the 20th century, state ownership was a common feature across industries such as railways, industrials, communications, financials, health and postal services. At this time, economists placed significant emphasis on the importance of competitive pricing, even if that meant accepting government ownership in non-competitive industries.

However by the 1980s, economists had widely recognised the inefficiencies of government ownership. The World Bank associated it with excessive employment, wage distortion, low product quality and economic costs, all incurred for the purposes of achieving political objectives rather than for social welfare. For example, the British mining industry was propped up for decades after World War II at a huge economic cost purely because the National Union of Mineworkers had sufficient influence to bring down the government.

As a consequence of the problems identified with socialism, the Thatcher government initiated a raft of privatisations in the UK, a move that was subsequently replicated across many other regions, including Asia, Europe, Latin America and Australia. The 1990s saw the privatisation of a raft of large Australian companies, including Qantas, the Commonwealth Bank, CSL, TAB Corporation and Telstra.

This trend of privatising state-owned firms has continued into the 21st century, as evidenced by this weeks’ IPO of Japan Post. Last year the National Commission of Audit recommended the Australian government continue with its program of privatisation, explicitly identifying our own mail service, Australia Post, as an appropriate candidate for privatisation in the medium term.

Service guarantee

The case for privatisation is now compelling. Advocates of state ownership point to a need for government intervention to support goods and services that are socially important yet not economically viable to the private sector. An example is the delivery of mail to sparsely populated areas. However, the government can always enter into contracts with private firms that provide mail delivery concessions in return for an agreement to deliver mail wherever the government wishes.

In the case of Japan Post, the government has contracted to ensure that its universal service is maintained, even in the remotest areas. Similarly contractual agreements to maintain service to remote areas were put in place when the Australian government privatised Telstra, so there is no reason why Australia Post’s coverage would be affected by privatisation.

Even in the presence of an entirely benevolent government, public ownership is still likely to be unfavourable. There are significantly lower incentives for innovation in state-owned firms compared with privatised firms. The payoff structure of private firms enables shareholders to fully benefit from the upside of successful innovation.

Consider all of the major innovations across history that have shaped society; very few of these innovations have come from state-owned enterprise, despite the historically high government ownership of firms. As 19th century economist Alfred Marshall poignantly wrote:,

“a government could print a good edition of Shakespeare’s works, but it could not get them written.”

If any industry is in need of innovation it is the postal service. The structural shift in the use of postal services with the advancement of technology has resulted in Australia Post’s revenue decreasing significantly in recent years. It recently announced 1900 redundancies.

The privatisation of Japan Post will not only provide the government with significant capital to support its tsunami disaster reconstruction efforts but also provide its postal service with a more agile ownership structure that is better equipped to innovate and prosper.

There may be a case for state ownership in a limited number of industries which are characterised by a lack of need for innovation, an inability for governments to contractually protect social welfare and the failure of free markets due to lack of competition and inelastic demand. But postal services do not satisfy these criteria.

It appears inevitable Australia will follow Japan’s lead within the next decade and privatise Australia Post. The weight of evidence suggests this move is in the best interests of Australian taxpayers.

Paul Docherty receives funding from Platypus Asset Management.

Authors: The Conversation Contributor

Read more http://theconversation.com/japan-post-soars-in-ipo-should-australia-post-be-next-50196

Writers Wanted

NBN upgrades explained: how will they make internet speeds faster? And will the regions miss out?

arrow_forward

Is fast-tracking funds to Foxtel the best way to support the media during COVID?

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Prime Minister National Cabinet Statement

The National Cabinet met today to discuss Australia’s COVID-19 response, the Victoria outbreak, easing restrictions, helping Australians prepare to go back to work in a COVID-safe environment an...

Scott Morrison - avatar Scott Morrison

Business News

Ten tips for landing a freelance transcription job

Transcription jobs are known to be popular in the field of freelancing. They offer fantastic job opportunities to a lot of people, but there are some scammers who wait to cheat the freelancers. ...

News Company - avatar News Company

How To Remove Rubbish More Effectively

It can be a big task to remove household rubbish. The hardest part is finding the best way to get rid of your junk. It can be very overwhelming to know exactly where to start with so many option...

News Company - avatar News Company

4 Tips To Pass Skills Certifications Tests

Developing the right set of skills is valuable not only to your career, but for life in general. You can get certified in these skills through obtaining a license. Without a certified license, y...

News Company - avatar News Company



News Company Media Core

Content & Technology Connecting Global Audiences

More Information - Less Opinion