Debunking Privatisation

at | 33 Replies

From top: The International Monetary Fund (IMF) October 2018 fiscal report; Eamonn Kelly

There are a couple of startling contradictions to Fine Gael fiscal policy contained in the Executive Summary of the IMF’s latest fiscal monitoring report: “Managing Public Wealth”.

The first is that, according to IMF economists and measurements gleaned from their global survey, privatisation of public properties is always a sure-fire loss-maker.

Contrast this with Fine Gael’s eagerness to privatise everything as the main plank of fiscal management.

The IMF conclusion was arrived at by using a different approach than that normally used in order to measure a nation’s wealth.

Rather than simply looking at income versus outgoings, the new approach uses a balance-sheet method, taking assets into account; publicly owned bodies and natural resources.

The problem identified by the IMF under the old approach was that it invited governments to focus on debt rather than taking a wider assessment of a nation’s wealth.

The report says:

“Balance sheet strength is not an end in itself, but rather a tool to support the objectives of public policy. The long-term aim of government is not to maximize net worth, but to provide goods and services to its citizens and possibly to create a buffer against uncertainty about the future. Current net worth should be seen in this context.”

Notice that in this assessment, the citizenry in and of themselves are also considered to have a net worth value.

Contrast this with the results of privatisation policy as they have impacted on health and welfare in Ireland during austerity. The casualties speak for themselves.

There may be a visible and measurable short-term gain in privatising public utilities for instance, creating the kind of figure-happy stats that Fine Gael rush to press with, but the overall value of national assets will be naturally reduced.

It’s a bit like burning the furniture to keep the fire going and pointing at the blazing fire and exclaiming, “Are you all warm now!”

The IMF report goes on:

“Similarly, cutting back maintenance expenditure reduces the deficit and lowers debt, but also reduces the value of infrastructure assets, which could cost more in the long term.”

So, cutting public spending and services and contracting out to private concerns will, as many people have already worked out, cost more in the end.

Though again the initial figures will look “nice”. Until, that is, the private contractor settles in and nails everyone to the wall with a price hike, slyly cutting level of service while they’re at it to maximize profits. Before you know it, you’re paying dearly for minimal or even no service.

And you’re stuck with it because the cost of restoring the original public service is prohibitive.

The UK Independent, reporting on this fresh approach by the IMF, said that the UK had

“…undergone one of the most drastic privatisations of any economy since the early 1980s…incentivising departments and local authorities to sell off assets to fund day-to-day spending under the premise that such an approach is necessary to cut the deficit…”

This is a similar approach to the one Fine Gael-led governments have been taking to balancing the books.

The IMF however have now contradicted this approach, warning that focusing on debt “misses large swaths of government activity and can fall victim to illusory fiscal practices”.

… that serve two functions: one, it provides conservative government with selective short-term figures that look like positive gains; and two, it delivers future profits of public assets into private hands.

Eamonn Kelly is a freelance journalist

Illusory Fiscal Practises: The IMF Debunking of Privatization (Eamonn Kelly)

33 thoughts on “Debunking Privatisation

  1. Cian

    Contrast this with Fine Gael’s eagerness to privatise everything as the main plank of fiscal management.
    what exactly have FG privatized in the last 7 years? (or even promised to privatise?)
    And contrast that with what was privatised in the previous 7 years… and the previous 7 years…

    Contrast this with the results of privatisation policy as they have impacted on health and welfare in Ireland during austerity.
    again, what health and welfare bits have been privitised in the last 7 years?

    And if anything was privatised – why? what was it like before privatisation? is it better or worse now?

    Reply
  2. Cian

    Lets look at the privitisations in Ireland, and what government was in charge at the time.

    Lets play “who is the repeat offender?”

    1987 Nitrigin Éireann Teoranta [FF]
    1991 Irish Sugar [FF–PD]
    1991 Irish Life AssuranceLife. [FF–PD]
    1992 British and Irish Steam Packet Company (B&I) [FF–PD]
    1996 Irish Steel [FG–Lab–DL]
    1999 Telecom Éireann / Eircom [FF–PD]
    1999 Cablelink [FF–PD]
    2001 ICC Bank [FF–PD]
    2002 ACCBank [FF–PD]
    2006 Aer Lingus Group plc. 75% [FF–PD]
    2006 Great Southern Hotels [FF–PD]
    2015 Aer Lingus Group plc. 25% [FG–Lab]

    Reply
    1. Brother Barnabas

      so out of 26 major privatisations, FG was a majority government and took the decision on 23 of these… so 88% is attributable to FG. that’s a damning statistic, wouldn’t you agree, cian?

      Reply
        1. SOQ

          In fairness, 2 grand a day in Irish Water as a consultant was not a bad gig. You agree Venessa?

          What is your rates anyways. I normally only ask that question of very fit gay males but anyways.

          Reply
          1. Vanessa off the Telly

            Excuse me?

            And since my post from this afternoon seems to have
            I don’t know….

            Anyone?
            Broadsheet?

            In the meantime
            If anyone is looking for another FG privatisation
            The provision of social housing should appear on every list

          2. Cian

            Except the NAMA billions were private debt in 2007.

            NAMA borrowed to acquire the debt. And are selling the assets to repay the debt.

          3. johnny

            They issued 10 year bonds, no one except the Irish govt ever pays them back just ask Dennis O’Brien,they had lots options,they picked the worst one-could have spun out a REIT,done some joint ventures,etc.

          4. johnny

            The roll then over Cian,no govt ever repays sovereign debt,its just the way it is.
            NAMA wasn’t govt debt it was all off balance sheet-or were they a govt dept them :)

          5. Cian

            “the principal and interest on the Notes [on NAMA bonds] is unconditionally and irrevocably guaranteed by the Minister for Finance.”

          6. Cian

            johnny, I don’t know where you are going.

            NAMA was set up to buy property from the banks and sell it off within 10-years.

            I don’t think it would be accurate to call this a ‘privatization’ since the raison d’être for NAMA was to sell the private assets (temporarily public) back to the private sector.

          7. johnny

            Here’s where I’m going,under FG the state sold close 70 Billion of assets in a fire sale, to such a extent that two very senior x NAMA employees, pealed off and set up a REIT and a prop co. to wait for it,take advantage of this insanity.

            Mulcahy and Nolan,both set up companies to profit off NAMA (the state)-why didn’t NAMA spin off a REIT.

            Didn’t want upset the plans of its senior executives and stalwart FG supporters ?

          8. Cian

            Johnny – we have the same conversation each time NAMA appears. You talk about 70 billion, and I say that most of this is NOT HOUSING.

            Re: REITS?

            What if I told you that NAMA has already done this?

            NAMA has also established National Asset Residential Property Services (“NARPS”) as an innovative model to expedite social housing delivery. NARPS purchases properties directly from NAMA debtors and receivers, at market value. NARPS then onward leases these properties to local authorities and approved housing bodies on long term (20 year 9 months) leases, which include an option for the local authorities or approved housing bodies to purchase the unit at market value towards the end of the lease term.

            NAMA has delivered 1,400 units for social housing in this manner.
            NAMA has delivered 1,000 units for social housing by selling directly to the councils.

            https://www.nama.ie/social-initiatives/social-housing/

        1. curmudgeon

          It’s easy to miss since they were allowed to keep the name. That not normal and was possibly illegal at the time. Its why we had water protests but not gas ones!

          Reply
    1. Cian

      They have continued a process that was begun 20-odd years ago when local authorities started to sell off social housing.
      Yes it should be stopped- but it is unfair to pin this on the current government.

      Reply
    1. EK

      Cian, you only turn up to defend Fine Gael, so I guess you’re probably working for them. It’ll be no surprise to you then that Fine Gael are believed to be hoping for an electoral mandate from which they will privatise the health service, the social welfare service, public transport and anything else they have a mind to privatise. Everyone knows that privatisation is their big fetish. The list of things already privatised that you so helpfully supplied in the deluded belief that you would win the argumetn, will save them the bother of privatising. In terms of workers, sub-contracting by employers, backed by Fine Gael, is essentially the privatisation of individual wortkers, and done for the same reasons, to free government and the business community they serve for the responsibility of social care. The only thing they won’t privatise is their own government jobs, because they enjoy the public money and the pension perks. Though in a sense these are already, strictly speaking, privatised. Apart from all that, the point of the article is that according to the IMF, after doing a global study of economies, they have found that privatisation is, and I quote, “an illusory fiscal practise”. It is a loss-making venture.,. This is now in black and white, in an IMF report signed by IMF economists. If Fine Gale win an electoral mandate and venture on privatisation of public services they will be doing so against best international scientifically proven advice.

      Reply
      1. Cian

        The IMF article seems interesting – I only skimmed it.
        If Eamon (you?) had written the article above without mentioning FG (so many times) it would have been more palatable. But by putting the blame totally on FG is unfair – especially as it is done without evidence.
        So either provide evidence, or retract the accusations against FG.
        I’m not paid by FG or a member or have any dealing with them. I comment on any post here – especially when I see mistruths or fake facts.

        As for any future election – if they propose to privitase stuff – and get reelected – then they have a mandate to to it. Even if the IMF say this is bad. We live in a democracy.

        Reply
    1. Rob_G

      Are we reading the same article/comments? Eamonn writes an article that is pure conjecture; when he does actually refer to some privatisations that actually took place, it was in the UK. Then Cian posts a few facts to add a bit of levity to the proceedings, and Eamonn responds with:

      “It’ll be no surprise to you then that Fine Gael are believed to be hoping for an electoral mandate from which they will privatise the health service, the social welfare service, public transport and anything else they have a mind to privatise.”

      – how much more can you qualify your made-up, fact-free ‘commentary’?

      Reply

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