Why sell a successful State company in the service of a doubtful ideology?
Opinion: The public and private sectors are permeable, and productively so, in the modern economy
Does it make sense to sell one of Ireland’s largest indigenous companies, Bord Gáis Energy (BGE), to a foreign multinational to repay a fraction of the debts of the collapsed private Irish banks? Should the Government privatise performing State enterprises? Is our current industrial policy focused only on private firms, and especially multinationals? Do profitable State enterprises no longer fit with our industrial or enterprise policy?
The view that private endeavour is superior to public and that the State has to be pushed back as much as possible is an ideological one and is open to challenge. Ireland’s bank rescues saw the public sphere expand, while internationally states showed that they could be very strong in the globalised world when the crisis hit, rescuing huge private banks. The State moves in and out of many areas of the economy. Public and private are permeable; indeed they are deeply intertwined, and productively so, in the modern economy.
Public enterprise can and does play an important role in the economy, provided it is well governed, as indeed it is in Ireland. The Government does not have to privatise State companies. Privatisation is not included in the troika memorandum of understanding and the troika explicitly denied seeking any privatisation of State companies at a meeting with the Irish Congress of Trade Unions on October 22nd, 2012. In any event, the troika is gone but it must be said that the proceeds of €1.1 billion (less huge fees to professionals and banks) from the BGE privatisation is insignificant in comparison to the cost to the taxpayer of Ireland’s bank bailout.
The taxpayer has a portfolio of international shares that it could sell, if it really had to, amounting to €6.6 billion. Of this, €1.1 billion is in north American equities, €736 million in private equity firms, €243 million in corporate bonds, €454 million in property, and billions more in shares in banks and other multinationals all over the world. It would make greater sense to sell our shares in some of these firms than to flog off BGE, which is Ireland’s 35th largest indigenous firm.
The experience of the privatisation of Eircom should inform our policy. This entity had performed very well in State ownership and invested heavily. What did privatisation bring? First, no investment; second, a less than world-class telecoms system, predators having sucked so much value out of it; third, big losses for shareholders; fourth, examinership.
Given our recent history, most people must now have serious doubts that private enterprise, especially the Anglo-American “shareholder value” model, is superior to other forms of ownership. The “commanding heights” of the private economy – the banks – had to be nationalised because their directors and management ran them into the ground, destroying shareholder value and even endangering the State itself. Nobody wanted this to happen. A large section of the top indigenous firms collapsed and had to be saved by the State. The top five Irish-owned companies – four banks and Quinn Group – and the leading “developers” were all rescued by the State, at some cost.
There is a long history of dynamic State companies contributing value- added, jobs and spun-off leading companies and entrepreneurs. Ryanair, for example, is a byproduct of Aer Lingus. Aer Lingus backed its former leasing executive, Tony Ryan, by taking a sizeable shareholding in GPA. GPA failed but left Ryan with enough money to establish Ryanair.
Tony O’Reilly, Eddie O’Connor and many other leading entrepreneurs began their careers in State companies.
There is no evidence of any enterprise strategy in the discussion of the BGE sell-off, which is largely based on price and on asserting that the decision was forced on the Government by the troika.
The importance of a thriving indigenous sector, privately or publicly owned, should be a key part of industrial policy. One advantage of a State firm is that it cannot be taken over by a predatory private equity firm, as was Eircom. Indeed, to be effective, the shareholding in State firms should be in the State holding company, New Era, and out of the immediate reach of governments without Dáil approval. But New Era is a disposal agency, not a developmental one, as currently structured. It should be investing in the expansion of jobs in dynamic State firms, not flogging them off.
Privatisation is a transaction that does not add value. And those who think regulation is better than ownership of strategic companies are naive. The decision to retain part-ownership of Aer Lingus demonstrated business nous.
An open, island economy needs a judicious mixture of foreign multinationals and vibrant indigenous firms, including State-owned commercial enterprises. Our present incoherence of our industrial policy manifests itself in hostility to building and expanding successful State companies while facilitating the rapid move to prop up failed private banks and developers. It places too much emphasis on (potential) job announcements by multinationals and proclaims that “the cornerstone of our industrial policy is our low corporation tax”, a policy that is increasingly out of our control.
In conclusion, the State moves in and out of the economy in many ways, directly and indirectly. Rescue and State aid to companies had been abandoned as a policy decades ago, so the rescue of our failed private banks, Quinn and the developers came as a reversal of that policy. Yet maintaining and building profitable State companies seems to be no longer part of our vision. This is deeply regrettable.
Policy seems to greatly favour private enterprise, and especially if it is foreign- owned. Yet we have seen that the private and public enterprise spheres are very permeable. It is time for a new enterprise policy study in the light of recent history.
Paul Sweeney is an economist and has written several books and articles on privatisation and public enterprise