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5.6 Infrastructure reforms
5.6 Infrastructure reforms
Apart from education and industrial relation variables, the statistical analysis also included an institutional variable, marking those sectors that were subject to significant industry-specific microeconomic reform measures during the study period. This was done by using a dummy variable (one) to mark the sectors affected, as shown in table 5.10.
|
Electricity and gas supply |
1 |
|
Water supply and sewerage |
1 |
|
Construction |
0 |
|
Wholesale trade |
0 |
|
Food retailing |
0 |
|
Household good retailing |
0 |
|
Motor vehicle retailing/service |
0 |
|
Accommodation and restaurants |
0 |
|
Road transport |
0 |
|
Air transport/travel |
1 |
|
Rail, water and other transport |
1 |
|
Storage and transport facilities |
1 |
|
Communications |
1 |
|
Finance |
0 |
|
Insurance |
0 |
|
Cultural and recreational |
0 |
The reason for introducing this dummy variable is the very strong LP growth recorded in infrastructure industries (see table 4.1). Given that these industries were subject to specific competition enhancing measures, it was considered useful to identify them separately in some regressions.
The decision about which sectors to mark as significant is based on information from media reports, Productivity Commission publications and a paper on deregulation of services in OECD counties by Nicoletti (2001). A binary variable was used because of the difficulties of quantifying the size of reform. It is easier just to identify sectors where significant reforms have occurred.
Industry-specific competition reforms were heavily concentrated in infrastructure sectors, that is, EGW, transport and communications. There were also some industry specific competition reform measures in other sectors—particularly in banking and retail trade. These sectors were excluded because apparently competition reforms in these areas had a less significant impact than in those sectors more directly under government control.
This is not to say that competition reforms did not have a significant impact on measured productivity growth in finance and to a lesser extent in retailing. Most of the financial reforms were completed before 1984–85, but some lagged effects might have occurred during the study period. These reforms include the flotation of the Australian dollar and opening up of financial markets to foreign competition. Although the scale of entry of foreign banks into Australia was fairly limited, by virtue of increasing the threat of entry this reform could have stimulated competition and productivity growth. The privatisation of the Commonwealth Bank also had some impact on the level of competition. However, the Commonwealth Bank was operating as a commercial enterprise in a competitive environment for many years before it was privatised. In retail trade, the deregulation of shopping hours might have affected productivity growth. It is impossible to estimate the size of these effects from the data used in this study.
In contrast to finance and retailing, in infrastructure reform affected industries there is some ‘natural monopoly' element present, usually because of a need for a ‘common carrier', such as telecommunications lines, electricity lines, railway tracks, pipelines or because of the requirement for centralised facilities, such as seaports, airports, postal and telecommunication centers. The purpose of microeconomic reforms introduced in these sectors was to raise the commercial orientation of public trading enterprises and stimulate competition by improving the ‘contestability' of these markets by private firms. Various techniques were applied to attain these objectives, including:
- privatisation or corporatisation
- deregulation
- franchising operations to private contractors
- making it legally mandatory to provide access for competing enterprises to ‘common carriers', such as telecommunication and electricity lines, pipelines and railway tracks
- sub-contracting non-core activities to outside suppliers
- vertical segmentation (unbundling) of activities for the purpose of privatisation or sub-contracting
- ensuring ‘competitive neutrality' between government agencies and private service providers
- reducing government subsidies and ‘community service obligations'
Various combinations of these measures were applied in different industries. The Productivity Commission has published numerous reports on competition reform measures in individual industries. Reviewing this large literature is outside the scope of this paper.1
The crucial point to note here is that these industry-specific competition reforms apparently lifted the productivity performance of certain service industries (such as railways) well above the level that would be expected on grounds of technological progress and general changes in the economic environment.2
In MFP regressions the infrastructure dummy usually turned out to be quite significant. However, in LP regressions it was usually less significant. Note that infrastructure reforms affected only a small portion of service industries. In 2001–02, the infrastructure sectors tagged in table 5.10 accounted for 21.8 per cent of value-added and 9.9 per cent of employment in the 16 service industries examined.
1 The interested reader can find extensive literature on the subject in the Productivity Commission website: www.pc.gov.au/publications.
2 For more details on rail reform refer to PC (1999b).
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