Flogging off all our best assets is not the solution
The terms of reference for this group ensure the only outcome will be wholesale privatisations. It will be a fire sale, writes PAUL SWEENEY
THIS GOVERNMENT has made some stupid and costly economic decisions – the bailout of Anglo Irish Bank and Irish Nationwide, the Nama valuations, the blanket bank guarantees, its fiscal policy. Now it plans to flog off indigenous companies at a time when solid enterprises are needed.
These actions and the economic policies of tax-cutting and deregulation generated the biggest crash in any economy. Now the Government is going to make things worse by selling a huge swathe of productive indigenous Irish industry to foreign multinationals, speculators and friends.
The Review Group on State Assets and Liabilities recently established by the Minister for Finance is “to examine and provide advice on the proper stewardship of State assets and on opportunities for the better use of those assets.” Its terms of reference include considering the potential for asset disposals in the public sector, including commercial State bodies and to draw up a list of possible asset disposals.
The terms of reference for the group ensure the only outcome will be wholesale privatisations. It will be a fire sale.
The terms of reference show a lack of understanding of national balance sheets. If there is any change to the balance sheet as a result of privatisations, it will be a reduction. Selling an asset for cash should not affect the balance sheet, but with asset prices depressed worldwide, privatisations being priced low to sell, and transaction costs being high, the full value will not be achieved and therefore our net position will fall.
We will get cash, but as letter writers to The Irish Times have perceptively pointed out, we will be selling off productive assets to throw the capital into the hole that is Anglo Irish.
Colm McCarthy, the chair of the review group – more accurately the privatisation board – can argue that that the cash will be used to pay off the national debt. But the dogs in the street know the capital from selling ESB, RTÉ, and our ports and airports will go straight to the Government-guaranteed speculators who lent to Anglo Irish!
Is there a need for cash? The NTMA has just reported that we “are in a very strong funding position” and “the Exchequer is fully funded through to the first quarter of 2011.” Ireland has €20 billion sitting in cash balances today and our pension fund is worth €24 billion. All of its funding has been three times over-subscribed.
Furthermore, the national debt will be close to the EU average at 87 per cent of GDP at year end. But the net debt position will be only 38 per cent. Interest on this debt is best paid off when we return to economic growth, not by liquidating capital assets in a time of decline or no growth.
Why sell off productive enterprises/assets rather than develop them to create more value and jobs? How long would it take to build up an enterprise like the ESB or RTÉ? Even with high interest rates and a rising (but not high) national debt, the real question is: can we afford to sell these iconic enterprises to Eon, Monsanto or British Airways?
Strategically, do we want to lose control of our indigenous enterprises, built up with hard work, to foreign multinationals? Privatisation will also reduce economic growth in the long run as productive assets are being sold.
Minister Eamon Ryan is correct to challenge the ideology of “public bad: private good” which is driving this blunderbuss. If anything, the reverse is true. The idea of a superior performance by the Irish private sector over the public sector has been deeply tarnished by bad behaviour in that sector.
The once-respected venerable companies, Bank of Ireland and AIB, the privatised Irish Life and Permanent and the upstart corporations like Anglo Irish Bank, the Seán Dunne companies, the Quinn Group, Bernard McNamara, Quinlan Private and so many more, demonstrate the lack of real entrepreneurial ability and the gross incompetence of many within Ireland’s private enterprise sector. With a serious entrepreneurial deficit in the private sector, which we hope is temporary, we must retain and build enterprise wherever we can find it. We must harness the best of both sectors and not sell off one for short-term cash.
Some of the largest indigenous companies are State-owned. The performance of State companies has been very good for two decades. They employ about 40,000 directly and many more indirectly. They have a turnover of around €10 billion and generate profits in the region of €500 million annually. They generate substantial dividends in normal times to the taxpayer.
ESB alone paid €815 million in dividends in the past few years. Privatisation would both kill off this income stream and importantly, developmental potential.
The establishment of a State holding company (SHC) – a new governance structure for commercial State companies, proposed by Congress in 2005, partly endorsed by Fine Gael – would free up capital for re-investment within these companies, give them clearer objectives and a developmental role here and internationally.
Further, the SHC could be used to leverage their considerable assets for borrowing, outside the strictures of the EU’s growth and stability pact. This would generate a major investment stimulus programme in real jobs.
The extraordinarily narrow terms of reference set by the Government means that the review group has no choice but to recommend privatisation. Three of its four terms of reference demand privatisation. And the fourth term is only about restructuring. There should be restructuring but importantly, better governance of State companies too. There is no opportunity for the group to recommend the development and expansion of the sector.
The review should recommend that at least one bank is retained in public ownership to ensure credit is never stopped again for business. But such is the bias in the terms of reference that it cannot do this. That is why it is the privatisation board.
To sell off monopolies would be a double disaster. ESB, BGE, DAA, An Post, the ports, RTÉ and Coillte have monopoly operations which should be regulated, not privatised. There are economies in maintaining integrated utilities too.
In 1999, the government privatised the telecom fixed-line monopoly, Eircom. It is clear that the Government has not learnt from this mistake. As a largely State-owned company, Eircom was debt free, profitable and investing heavily in broadband and in its mobile arm. Privatised, it was asset stripped and is a shadow of its former self. In this so-called smart economy, we do not have decent broadband.
There has been a major change in world economics. The dominance of the Anglo American economic model has collapsed. The collapse of the Soviet Union was supposed to lead to the universal adoption of liberal economics, within various forms of capitalism. Emerging countries in Asia, Russia and South America have already abandoned the liberal model in favour of their own varieties of capitalism.
A key part of this change is that most other countries are utilising their state companies and sovereign wealth funds to invest strategically in their own interests. Few are selling them off. China is buying up land and resources all over Africa. The Fortune Global 500 reveals that there are 37 Chinese companies in the world’s top 500, most of them state controlled. A surprising number of the other 500 companies are owned by governments. There is a new public/private paradigm, with greater regulation and more dynamic state involvement in business.
Some say that we are over-dependent on foreign direct investment (FDI). This privatisation programme will tip that dependency further. It is also argued that Ireland’s reliance on FDI may be under threat as multinationals invest more in emerging economies, especially in Asia, which are growing rapidly.
Whether FDI declines or not, we should nurture our indigenous enterprise sector, public and private, for job and wealth creation – not sell it off.
Paul Sweeney is economic adviser to the Irish Congress of Trade Unions