Market based reforms in Australia adopted throughout the 1980s, 1990s and early 2000s could provide important lessons for the United State as it seeks to fix its ailing infrastructure, a free-market think tank in the America has argued.
In its latest report, the Heartland Institute argues that an approach to infrastructure policy reform similar to that adopted in Australia during the Hawke/Keating/Howard era could yield substantial benefits in the United States.
In particular, it argues that the US could learn from the National Competition Policy which was put in place between 1995 and 2005 before being succeeded by the National Reform Agenda.
“America can learn important lessons from Australia’s recent and important infrastructure reforms, which were focused on enhancing privatisation, deregulation, and improving competition,” the report said.
Throughout the United States, there has been debate about how to rectify challenges associated with the quality of that nation’s infrastructure.
In its 2017 Infrastructure Report Card, the American Society of Civil Engineers assigned a ‘D+’ rating to the quality of US infrastructure, which it described as ‘crumbling’.
Proposals to address challenges broadly focus on spending more money – sometimes supplemented by private financing.
According to a 19 page plan issued by the U.S. House Committee on Transportation and Infrastructure, the Democrats’ plan would see around $US760 billion of US taxpayers funds spent over five years on roads, broadband, rail, water, airports and navigation.
The Trump plan – found in a 50 page proposal titled the Legislative Outline for Rebuilding Infrastructure in America – has a price tag of $US1 trillion and includes rural infrastructure, ‘transformative projects’, incentives for non-federal financing, a streamlined system of environmental approvals and complementary regulatory reform.
In its report, the Heartland Institute argues that these proposals are expensive snf ignore market-based mechanisms through which to drive better infrastructure outcomes and performance through greater competition.
Instead, it says the US should look to market based reforms implemented throughout Australia over recent decades.
As well as the privatisation of federal and state infrastructure and other government assets in the 1990s and the more recent asset recycling program implemented by the Abbott Government, it says Australia’s National Competition Policy which was in place from 1995 until 2005 was ‘truly unique and potentially revolutionary for the United States and the rest of the world’.
Under that policy, which was enacted via three agreements between the Commonwealth and states/territories:
- trade practices laws prohibiting anti-competitive activities (such as the abuse of market power and market-fixing) were extended to all businesses including previous exempt government owned enterprises
- a policy of competitive neutrality ensured that government owned businesses have no advantage over their privately-owned competitors because of their public ownership
- a National Access Regime enabled businesses to use ‘nationally significant’ infrastructure (like airports, electricity cables, gas pipelines and railway lines) which are owned by government and other businesses
- laws which restricted competition were reviewed
- extension of price monitoring to all government businesses that have a market monopoly was considered
- specific ‘related reforms’ were introduced to increase competition in key infrastructure sectors such as gas, electricity and road transport where there were pre-existing reform commitments
- specific ‘related reforms’ designed to better manage Australia’s water resources
- national standards in accordance with agreed guidelines and principles and advice from the Office of Regulation Review were introduced.
Australia’s approach, Heartland argues, delivered substantial benefits.
It points to a 2005 assessment by the National Competition Council (established to assess progress and to make incentive payments to states who implemented the reforms), which found that the $5.5 billion worth of taxpayer funds which were paid to states and territories over ten years as incentive payments for implementing the reforms yielded more than $1 trillion in benefits through productivity and pricing improvements in gas, electricity, urban water, telecommunications, urban transport, ports and rail freight.
It also points to a substantial slowing in prince increases for major utility services which occurred between the mid-1990s and the mid-2000s before energy prices started rising again amid overinvestment in poles and wires and subsidies for renewables.
Whilst it acknowledges that Australia’s approach was not perfect, the Institute says the US and others could benefit from adopting similar reforms.
“Australia’s NCP reforms show market competition is the only high-quality regulator,” the Heartland Institute says in its report.
This is true even in industries that have been considered for many decades to be natural monopolies, like infrastructure.”
“That doesn’t mean Australia’s NCP was perfect. Far too many regulations remained in certain sectors of Australia’s infrastructure system, and many sectors eventually adopted higher-cost, socialized policies, such as renewable energy requirements.
“Nevertheless, Americans have much to learn from Australia’s infrastructure system. If the United States were to adopt a similar model, it could be applied for four to eight years at a cost that’s well below $100 billion.
“If the United States were to go this route, it’s likely Americans would enjoy similar successes as those seen in Australia, delivering trillions of dollars in economic benefits.
”The best way to fix America’s crumbling infrastructure is for U.S. policymakers to (1) embrace decentralization, from the federal government to state to local governments; (2) private sector participation; and (3) reforms that embrace free-market competition.