Colm McCarthy's Fire Sale of Semi-States

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The former chairman of the Special Group on Public Service Numbers and Expenditure (otherwise known as ‘An Bord Snip Nua’), UCD economist Colm McCarthy, is currently heading another cutting group, the Review Group on State Assets, which is looking into the fire-sale of state firms.

State enterprises such as the ESB, An Post, Irish Rail, Dublin, Cork and Shannon airports, (all owned by Dublin Airport Authority) 10 port companies, the VHI, TG4, RTE, Eirgrid, CIE, Bord na Móna, Bus éireann Expressway, Bord Gáis, HRI, RTÉ, utilities (like water and refuse collection, where provided through local authorities), and Coillte are being looked at.


The potential sell-off of Coillte stemming from the outcome of McCarthy's fire-sale group's eventual report, has led to recent fears that the international forestry firm, International Forestry Fund, chaired by one, Bertie Ahern, could soon own 7% of Ireland.

Of these semi-states, Coillte is a very valuable state asset, with a net value of over €1.2bn - which is mainly the value of the land and not the trees. It now looks like this international forestry body, of which the former taoiseach is chairman, could make a bid to buy Coillte, which essentially owns 7% of the land in the state.

Bertie Ahern was appointed the chairperson of the International Forestry Fund earlier this year. The IFF is backed principally by the Irish Forestry Fund and Helvetica Wealth AG of Switzerland. Based in Switzerland and Liechtenstein, it claims it can give the benefits of an offshore bank account to ordinary investors...

This is just one example of the unpredictable outcome of a sell-off of one of these assets in the midst of a recession. We have a bitter experience of how such privatisations worked out with Eircom, the M50 toll road and many costly and inefficient public private partnerships/PPPs. Under any normal democratic circumstances this mass privatisation would not be feasible, due it being profoundly unpopular – even within a representative democracy and attending corporate and state media.

However, as the American neoliberal economist and Pinochet supporter, Milton Friedman, explained, "only a crisis – actual or perceived – produces real change." After a crisis has struck, he added later, "a new administration has some six to nine months in which to achieve major changes; if it does not act decisively during that period, it will not have another such opportunity."(see Naomi Klein's "The Shock Doctrine" and its quoting of "Capitalism and Freedom" by Milton Friedman). Our task is to prevent this, or any future government from taking advantage of any democratic deficit.

Unfortunately the Irish publics' participation and democratic input into McCarthy's sell-off group, is on a par with the upcoming budget and the IMF/EU bailout. Practically nil. The other members of McCarthy's group, are Donal McNally, Second Secretary General Department of Finance, (the Department of Finance has long been in favour of selling such semi-state companies) and Alan Matthews Professor of European Agricultural Policy at Trinity College Dublin. There is limited media debate and analysis about the groups' credentials or judgment in these matters, or on whether the stated objectives of the fire-sale privatisation -- to stimulate job creation and support economic recovery -- have every worked in practice. We must assume that a technocratic veil has fallen over these policy options.

In fact, there is ample empirical evidence elsewhere of such "shock therapy" style sell-offs, and similar here, all of which suggests the selling of public assets will do the exact opposite of the stated intentions. Privatisation will inevitably lead to job losses, poorer and more unequal provision of services and ultimately increased charges for consumers.

Furthermore, the argument that we would get needed funds by such a sell-off, simply makes no sense as asset prices are on the floor at the moment and their sell-off would cut the vital semi-state income stream causing further harm. It would amount to a fire-sale, with more proceeds simply funnelled into the banks and the interest paid on the IMF/EU bailout.

The work of the Review Group on State Assets has more to do with ideology than any technocratic science. McCarthy has frequently advocated the sale of all commercial semi-state companies, so it is perhaps unsurprising that he would be chosen by this government to head a body concerned with... the selling off of commercial semi-state companies. The Department of Finance has long been in favour of selling several such companies.

McCarthy's ideology is laid bare by reading the report he wrote in 2005, for the economic consulting firm DKM (working for National Toll Roads, NTR), where he lauded the potential benefits to the exchequer of the truly disastrous and costly (yet very profitable) M50 West-Link toll bridge. Yet McCarthy’s enthusiasm for private transport over public was clear in his abject horror at the much less costly public provision of the DART public transport project which he railed against as financial insanity and profligacy. However, like many such mainstream neoliberal economists' projections, it was to be disproved by reality - the government had to buy out NTR for 600m, less than two years later.
 
So if are supposed to live in a democracy where is the alternative? Well, don't look to the opposition for any change in policy.[1] The only difference between FF and FG, in this respect is while Fianna Fail might want McCarthy to provide a fig-leaf for a sell-off, Fine Gael is much more brazen in support of a sell-off of public assets (see "Survey of state-owned enterprises" July 2010 by Leo Varadkar TD, and Fine Gael’s New Era plan). For instance, along with many other sell-offs, FG proposes to split the ESB and Bord Gáis from their networks in preparation of their privatisation.

FG would also create a new semi-state called, Irish Water, backed by necessarily high water charges revenue and fattened-up for eventual privatisation to multinational water corporations. Such a privatised water company would inevitably lead to job-losses, increased charges and environmental pollution as evidenced by the activities of such privatised water companies elsewhere – in the UK where per capita water consumption is somewhat higher than it is here, despite charges, (demand for water is always inelastic with respect to price), and the water companies are frequently near the top of the environmental regulator's polluting list after maintenance related job losses and lack of infrastructural investment.

Michael Noonan, Fine Gael's finance spokesman said he was in favour of the selling off of such state assets and that 40,000 public sector jobs would have to be cut. Like on many subjects, Labour largely equivocates on the specifics and its bottom-line on such sell-offs in any negotiation for government, while giving no inkling as to how any FG/Lab government would proceed.

Like every economist, McCarthy is no neutral technocrat, but what's worse is that these privatisations are from the same failed market fantasist economic policies which people rightly associate with the banking collapse and the dire state we are in.

We need the exact opposite to these failed policies, to more privatisation, to austerity cuts and an obsequious reliance upon the failing institution of "the market". In a recession, the cuts simply do not work and they never have. As highlighted recently by the Cork economist, Tom O'Connor, the funds and wealth to invest are certainly there and would create much needed economic activity if redistributed to those on lower and middle incomes.[2] A start would be an increase in public funding, particularly to renewable energy projects, and a public sector reform agenda of non-hierarchical workers democracy with nested federated participation within the existing publicly owned companies. All such public enterprises should be required to have completely open and transparent accounting along with consumer participation and regulation on investment, remuneration, pricing and budgeting.

Public services should not be modelled on market transactions, with wasteful internal competition, and important decisions devolved to undemocratic technocratic bodies. Instead democratic unions, workers and consumers councils and civic society need to start the process of creating a democratic and participatory economic programme, outside of the market, and irrespective of the changing of the seats of any particular government.

WORDS: Eric Hayes

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