Jim Power: We shouldn't sell off our state assets to vulture capitalists interested only in extracting short-term profit.
THE sale of state assets, in other words privatisation, is an emotive subject that elicits strong ideological views. The left believes that the state does a better job delivering goods and services than the private sector, while the right believes that the state should have minimal control over state assets and that the private sector can deliver goods and services more efficiently and effectively than the public sector.
As in most matters of an economic nature, neither perspective is correct. We have numerous examples of state failure in delivering goods and services, of which FAS springs to mind as just one example. On the other hand, there are also numerous examples of the private sector failing to deliver in an efficient and effective manner. The banking fiasco readily springs to mind in this regard. It doesn’t really matter who owns the assets, if they are used and managed incorrectly, market failure will inevitably follow.
What we got today was government action based on two reports. Firstly, the IMF/EU Memorandum of Understanding states that ‘the Government will undertake an independent assessment of the electricity and gas sectors with a view to enhancing their efficiency. State authorities will consult with the Commission Services on the results of this assessment with a view to setting appropriate targets for the possible privatisation of state-owned assets’.
Secondly, in the Programme for Government, the incoming administration committed to targeting ‘'up to €2 billion in sales of non-strategic state assets drawing from the recommendations of the McCarthy Review Group on State Assets when available – assets will be sold when market conditions are right and when adequate regulatory structures have been established to protect consumer interests’'.
Consequently, today’s announcement should not come as a shock to anybody, particularly Fianna Fail, who laid the foundations for Howlin’s announcement. In the event, the measures announced are at the more conservative end of the spectrum.
The sale of Bord Gais Eireann’s Energy business, not including the two interconnectors and the gas transmission or distribution systems, and some of the ESB’s non-strategic power generation capacity, are not that significant. The important strategic parts of the businesses are being retained and will remain within the control of the state.
The possible sale of Coillte’s timber and the Government’s stake in Aer Lingus make eminent sense. One has to wonder why the state owns a relatively small stake in the airline, particularly as it is unwilling to utilise its ownership strength to influence company policy. Witness the failure of Government to intervene a few years back when the company moved some of its slots from Shannon to Belfast.
All of these assets could be sold without having any adverse impact of Irish consumers. However, the stakes should not be sold at rock bottom prices and the proceeds should not be used to delay or postpone the necessary correction of Ireland’s totally unsustainable public finances. Paying down debt and good investment in job creation would make sense, but the investment has to be good.
In future discussions of the sale of state assets, I think it will be vitally important not to hand over control of strategic assets to the private sector. The sale of Eircom to vulture capitalists interested only in extracting as much short-term profit out of the company as quickly as possible was a disaster. It prevented the necessary long-term investment in infrastructure and this turned out to be a total fiasco for the company itself and more importantly for the country.
We must never make that mistake again, but we must also ensure that state assets are managed in an efficient and effective manner.
This whole debate must not be taken over by ideologues – proper management and regulation of the assets in the best interests of the people of Ireland must be the priority regardless of who owns the assets.
Jim Power is an economist
