By Steve Painter
SYDNEY — "In 1984, when the British government privatised part of British Telecom, more than 2 million Britons bought shares", says one of the ads in the Greiner government's recently launched, $2.5 million privatisation advertising campaign.
It's true; that's what happened on the first day. But the ad doesn't mention the events of the second day, when several hundred thousand of those same bold Britons flogged off their shares at a 90% profit.
The Thatcher government sold British Telecom well below its market value and, not surprisingly a lot of people got in for their cut. Many of the profiteers in the British Telecom privatisation were small investors, but it was the big players who made the biggest killing. Within two years, British Telecom shareholders added up to less than 4% of the population.
In a 1986 study, The theory and practice of privatisation and the British experience, Hugh Stretton points out that the British Telecom privatisation was carried out according to advice from City of London financiers, including some whose clients bought into Telecom. "The first Telecom issue sold next day at 90% above the government's selling price; buyers made 90% overnight, and the taxpayers lost about £1.3 billion" (close to A$3 billion).
Something similar happened in Australia with the Commonwealth Bank's first share issue last year. One-third of the bank was sold off to around 200,000 people (about 1.1% of the population), and when the shares were listed on the stock market in September a selling frenzy resulted in a $250 million profit for a lucky few. "It was a bonanza for stockbrokers too, with small shareholders creating large volume as they stagged [resold] their shares and took a quick profit", burbles Trevor Sykes in the February 11 Bulletin.
This is the truth of the matter. Privatisation is overwhelmingly about speculation, not production. It certainly won't create jobs, and it's more likely to set back than to assist economic recovery.
Only the more efficiently run and profitable public enterprises are usually sold off, for the obvious reason that no-one wants to buy the losers even if they do provide important services. "If part of Qantas were floated in the same way as the Commonwealth Bank, it would be a flop because it is at present a loss making entity ... Qantas is going to be very hard to sell", notes Peter Forbes, equities manager for the Queensland Investment Corporation.
There is a wealth of evidence from around the world that efficiently run industries and services are about equally productive no matter whether they are under public or private ownership. Privatisation of an efficient public company certainly adds nothing to overall production.
On the contrary, the process of privatisation can have very serious effects on the overall economy. Its main effect is to suck in vast amounts of capital, some of it undoubtedly borrowed overseas and some tially new, productive investment. Hugh Stretton notes that the flood of capital into Britain's newly privatised industries was matched by a drop of around 50% in new investment in other areas.
Moreover, the British government was unable to reduce public spending and was forced to spend the proceeds of privatisation just to keep the country running. Meanwhile, most of the small investors proceeded to spend their windfall privatisation profits on everyday consumption, creating a mini-boom that pulled in a flood of imports.
The net result of all this was a further collapse of British manufacturing, and a 4% increase in unemployment, which rose from 10% to 14%. Privatisation might have affected everyone, but it certainly wasn't for everyone.
The Greiner ads also claim that privatisation in Britain has been a democratising process: "Since the beginning of British privatisation program, share ownership by individuals in that country has grown from around 9% of the population to nearly 25% or approximately 12 million people by the end of 1990". This in itself is a telling commentary on prevailing capitalist attitudes towards government. Gone is any pretence that government represents all of the people and therefore government property belongs to all of the people: ownership by (a greatly exaggerated) 25% is superior to ownership by "the people's government".
What's more, the figures themselves are extremely suspect, at best reflecting a temporary situation as small investors from the most recent privatisations wait for the best opportunity to sell. Stretton points out: "Cable and Wireless started with 150,000 shareholders and after a year had 26,000, with three quarters of the shares in less than 500 hands. British Aerospace fell from 157,000 to 27,000. One hundred shareholders hold 80% of Amersham" (a subsidiary of the Atomic Energy Authority). There's no reason to believe that shares in privatised companies will show trends any different from that of all other shares: a steady drift towards concentration in fewer and fewer hands.
In another of the ads in its series, the Greiner government claims that privatisation "frees more funds for important community needs, such as the police, roads, schools and hospitals". If Thatcher's Britain is any guide, this is one of the biggest lies of the Greiner campaign.
Writing last December for New Statesman & Society, Nick Fielding points out that government spending in all areas except social security changed very little between 1978-79 and 1988-89, the years of the big privatisation drive. Education and science spending declined slightly, from 14.5% to 14.1% of the overall budget; housing spending dropped dramatically, from 6.7% to 2.0%, but that was due to a housing privatisation campaign in circumstances unique to Britain; health and personal social services increased slightly, from 14.2% to 16.7%. Social security spending rose almost 6%, from 26% to 30.9%, largely due to the steep rise in unemployment. Spending in most other areas changed very little.
The main problem for the medium term is: what happens when the funds from privatisation run out? In the past decade, the British government income from its more efficient and profitable public enterprises for one-off payments arising from their sale. At the same time it has maintained roughly the same levels of welfare and other public spending, not because it wanted to but because it had to if it wanted to avoid serious political unrest. The mass poll tax revolt showed the potential results of tightening the economic screws even further on an already hard-pressed population.
To maintain essential services, the British government spent the privatisation funds. But the privatisation process is approaching its end. The plums have already been sold off, and what's left is a rather stodgy mix. The next step must be higher taxes to maintain essential public services. The Greiner promise of more funds for important community needs can only be a short-term one. In the long term, community facilities and services are threatened by the privatisation drive.
The Greiner government is not the only one preparing to flog off parts of the public sector for dubious short-term political and economic ends. The federal government is trying to figure out how to follow up the Commonwealth Bank sell-off with privatisations of Qantas and Australian Airlines. Around the states, Launceston airport and the Abel Tasman ferry service, the Victorian TAB and a new power station at Collie in WA have all been mentioned as long- or short-term privatisation targets.
In Queensland, the Goss Labor government is beginning moves in the direction of privatisation with the corporatisation of Suncorp, the TAB, the railways, the government tourist bureau, the electricity commission, port authorities and parts of the Department of Primary Industry. In New Zealand, corporatisation was a first step to privatisation of many government services and industries.
Of course, the NSW Liberal government is leading so far in the privatisation stakes. The Government Insurance Office is already on the market, and the State Transit Authority, Water Board and NSW State Bank are being mentioned as likely next targets.
According to Nick Greiner, "Involvement of mum and dad investors, particularly in NSW, is one of our key aspirations". If the British experience is any guide, the mums and dads will find themselves a few years down the track picking up rather large bills for the latest feeding frenzy of the financial speculators who did so much to give us the present recession.