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Brendan Keenan: An inefficient semi-state is something we just can't afford

THEY call it "selling the family silver", but there is not much that gleams in the state assets covered in the McCarthy Report.

At the very least, the residue of decades of comfortable monopoly would have to be scraped off most of the state companies before there is any prospect of selling them. How that could be done without enormous industrial unrest and political controversy is anyone's guess.

In fact, the task given to the group by former Finance Minister Brian Lenihan was not simply to advise on the sale of state assets. It was to report on how the assets "could be better deployed or disposed of to support economic recovery" -- a much wider remit.

The objective was not even solely the reduction of national debt, although the very first sentence points out that it is not sustainable for the State to continue to borrow at current levels, and all avenues for reducing expenditure and raising additional revenues must be explored.

Yet, perhaps surprisingly for a report with the name Colm McCarthy attached, it is cautious about the quest- ion of actual sales. It warns against selling cheaply, either in a "firesale" where buyers know there must be a sale, or because reforms to increase value have not been put in place.

That will produce a few ironic chuckles in AIB and Bank of Ireland. They were forced to sell what really was family silver -- especially AIB's profitable Polish bank -- to reduce their debt.

That is a standard dema-nd of creditors when a com- pany gets into trouble. They usually want whatever they can get now, rather than bei-ng prepared to wait for bett-er times which might bring them more money in the end.

The Irish Government is unlikely to play that kind of hardball with state companies. Especially not one with the Labour Party in it. But our Government is not the only arbiter.

The European Central Bank -- an enormous creditor of the Irish banks -- forced the pace on asset disposals there. Will the EU and IMF -- enormous creditors of the Irish Government -- do the same on state assets?

The bailout agreement does not contain a precise commitment to raise funds from such sales. According to the McCarthy Report, the amounts involved would be small. It puts the net value of the commercial state companies, and some other assets, at €5bn.

The Coalition has suggested it might raise €2bn by having sales. That was interpreted as meaning fairly limited disposals. Ministers may have thought so, too. If McCarthy is right, they might have to sell quite a lot to get €2bn.

There could, however, be political pressure for more from the EU. Greece, where the state owns more property than the private sector, has been obliged to increase the amount due to be raised from public assets. "Sell the beaches," said one unsympathetic German politician.

Ireland may not have much to sell, but it may be expected to show willing, especially since it is already accused of "putting nothing on the table" after digging in on the corporation tax rate.

And Mr McCarthy himself is not putting things completely on the long finger. He said it might take "a year or two" before a sale could be completed, which is probably a lot quicker than many would like -- especially those who work in state companies.

The real benefit of the report may not be identifying the amount of money which might be raised, but its analysis of the situation of the state companies. It confirms in detail what has been generally known from past research -- that as a rule they deliver a poor return on capital, pay remarkably generously, and face huge future losses on their pension commitments.

The main argument for selling such companies is that these inefficiencies will be sweated out in the private sector. The strong argument against privatisation is that the private owners then reap the benefits, not the customers.

If they are not to be sold, then the State itself must impose efficiencies on its companies through tough price regulation. As the report says: "Economic regulatory agencies need to incorporate, explicitly and on a common basis, the minimisation of cost to the rest of the economy."

Faced with the opposition of trade unions and other vested interests, successive Governments have signally failed to do this. Across much of the sector, pay, including pension payments, averages €100,000 per employee. Restrictive work practices add to that cost, but companies know the regulations largely allow them to pass on their costs in higher charges.

Ireland cannot afford this in its present circumstances. The ESRI reckons costs for business need to fall by at least another 5pc to sustain an export-led recovery. A fall in state costs will have to account for much of that.

If assets are to be sold, Ireland, which has lagged behind other northern European countries in this regard, can learn from their experiences. Unfortunately, we are most familiar with the UK, whereas countries like the Netherlands and Sweden often have better examples to offer.

McCarthy draws on these experiences -- in particular that networks are better left in public ownership. That may be why it is cautious about whether the airports should be sold but why it sees no reason why electricity should be generated, or peat harvested, by the State.

Except that, with the fate of their Aer Lingus colleagues before them, workers in these companies will have no intention of taking their chances in private employment. Perhaps the most that can be expected in the end is that, with the threat of privatisation, the State will be able to put more of a commercial squeeze on its commercial sector than it has in the past.

Irish Independent