June 30th, 1999, will be a date for historians. Another critical day in the protracted, tortuous negotiation of the political and constitutional future of this island was marked. It was also the day when the concept of a "shareholder democracy" became real through the mammoth public subscription for Telecom Eireann shares. The former process was carried on in this phase in the realm of high politics by a political elite, the popular mandate having been given 13 months before. The second involved the expression of a huge popular mandate for a policy, which up to two years ago dared not speak its name, the privatisation of State companies. It is a policy, the "dangers" of which our politicians are blind to, according to a recent headline in this newspaper.
The privatisation of State enterprises is the correct strategic policy for this country. This is not just because EU rules require the elimination of state aids and the introduction of competition. It still fundamentally because the State has better things to be doing with its ability to raise tax and create public assets than to hold and control commercial enterprises such as hotels, an airline, airports, commercial forests and so on. No more than we need the State to ensure the provision of washing machines - an essential domestic service - than we need the State to own and control an airline. As for privatised companies themselves, such as Irish Life, Greencore or Irish Steel, there is simply no argument that they, their customers, their employees or the State would have been better off had they remained in public ownership. Each has thrived in private ownership. The recent good news about the development of FLS, the new owner of TEAM, is a further example.
As for the putative dangers of privatisation, they are well-known and, I would think, quite apparent to Ministers and their advisers. The remedies are also well-known from international best practice. We cannot repeat the mistake of thinking that the British way is the only way, so that if Britain had failures, we are bound to repeat them. The only real dangers are tactical - will the best price be realised? Is one stakeholder likely to benefit disproportionately? Can private monopolies be prevented? Will high quality, value for money services be delivered to the public throughout the country? Where needed, can community-wide pricing be ensured? There are plenty of dangers attaching to non-privatisation, such as the continuance of poor services by monopolistic State franchises, the stifling of innovation by the public service system of capital funding of State companies, and the difficulties State companies have in implementing their own commercial strategies, in particular in relation to pay and conditions. Fundamentally, there is the danger of the divergence of public capital from higher priority social purposes into areas where the private sector would supply services anyway.
As for widespread share ownership, I do not believe that Telecom Eireann shares must be widely held directly by the public for its privatisation to be successful. It is just as well if they are held by private pension funds and insurance companies, using the proceeds of ordinary people's policies. Nonetheless, the fact that many small investors will now hold Telecom Eireann shares means that the public is exercising more direct control over how to channel its savings. This is one meaning of a "shareholder democracy".
Rather than a small number of politicians and civil servants making investment decisions on behalf of the public, that power is returned to members of the public who save and invest. Ideally, it will stimulate more shareholder activism. Another effect is that part of the national debt may be privatised. The State is swapping its Telecom Eireann asset for cash. Some of the cash is provided by people who have borrowed it. If the State uses part of the proceeds of the sale to retire some of the national debt, the stock of debt in the economy has not changed; it has just moved from being a public liability to being a private one.
The Telecom Eireann privatisation is a milestone in the State's economic history. The fact that it is being done in an open way with no whiff of subterfuge and scandals will disappoint those who assume such goings-on are inherent in capital markets.
It is a significant achievement. Let us celebrate this and further privatisations, not just grudgingly accept them as inevitable.
Oliver O'Connor is managing editor, Fintel Publications
