Jim Stewart: The composition of the Privatisation Board, and its terms of reference, makes inevitable that the conclusions will be: privatisation of all major state Commercial State Bodies as a preferred solution; if not full privatisation, part privatisation via public/private partnership; and as a final option drastic reduction of any State subsidies as in the case of the CIE Group. Cutting subsidies to CIE was already one of the recommendation of the McCarthy/Department of Finance Report (p. 74, reduce Public Service Obligations to CIE; replace lightly used rail services with bus routes, etc.). Cutting public transport has been a particular obsession of McCarthy, who opposed Dart electrification. It is one of a few examples of proposed cuts in the Report of the Special Group on Public Service Number and Expenditure, not contained in evaluation papers published by the Department of Finance.
The same procedures used in producing the McCarthy/Department of Finance report will likely be followed in this new report. Officials in the Department of Finance will draft chapters, proposals and conclusions which will be largely accepted by the Privatisation Board.
Who is driving these policies?
These recommendations are likely to be as already described. The reason for this is that prevailing IMF views are largely held within the Department of Finance. While privatisation was not a policy recommended by the recent IMF Article IV consultation, the report in several places acknowledges IMF staff agreement with “the authorities” (not defined but referred to elsewhere as “the officials of Ireland” and also states the IMF report also states that meetings were held with senior officials from the Department of Finance, etc.). The IMF together with the World Bank helped establish privatisation as part of the Washington consensus, often with disastrous policies for developing countries. These discredited policies are now being reintroduced as conditions for IMF loans to countries with large budget deficits such as Greece.
Why privatisation is not a solution
Privatisation largely involves an exchange of ownership. The State will obtain financial assets in exchange for real assets. These financial assets could be invested in other real assets, but this is unlikely, rather Government borrowing/debt will be reduced. This exchange will be costly. Firms such as Goldman Sachs, Merrill Lynch, PricewaterhouseCoopers, Arthur Cox, etc.(all featuring in advice to the Government in relation to the banking crisis) will again be paid large fees. Apart from the cost, privatisation is no solution to Irish economic problems. The States net Balance Sheet remains the same, but the policies privatised companies may pursue will be very different. Some firms such as the ESB are natural monopolies. Regulation is key - an area where Irish agencies have a particularly poor track record. State control of monopolies can address deficiencies in regulation. What about commercial policies? Paul Sweeney has argued coherently that commercial policies of formerly State owned companies have been disastrous for Ireland’s economic success the best known is Telecom Eireann. But policies pursued by other privatised firms have added to the economic crisis for example the former ICC and ACC banks. The operations of the former Irish Sugar company (Greencore) are now focussed largely outside Ireland, and as such are unlikely to contribute to the development of agribusiness within Ireland as recently expressed in the 2020 Food Harvest Report.
In the current crisis we have been badly let down by former and current employees of the Central Bank, the financial regulator, those who designed and encouraged our gross over reliance on tax incentives, those in charge of our planning process, but in particular by institutions largely in the private sector, banks, building societies, professional firms such as auditors. Corporate governance has not been an issue in Commercial State Bodies in contrast to private sector firm such as Banks, the Quinn group, and DCC. The solution is not more economists with their misguided views on ‘efficient markets’, and ‘rational behaviour’. Banks in recent years have lost billions, competition policy as implemented by the EU Commission has lost billions more. Nor is the solution privatisation.
Arguments against privatisation are compelling. It is important that they are expressed.
Dr Jim Stewart is Adjunct Associate Professor at Trinity College Dublin. His research interests include Corporate Finance and Taxation, Pension Funds and financial products, Financial Systems and Economic Development.
He is widely published and his titles include Mutuals and Alternative Banking: A Solution to the Financial and Economic Crisis in Ireland (2013), Choosing Your Future: How to Reform Ireland's Pension System (co-author, 2007) and For Richer, For Poorer: An Investigation of the Irish pension system (2005).