The final chapter of the Eircom saga is a tawdry battle over a few cents. Two years ago, in the midst of the hype for a shareholding democracy, anyone who had forecast what was to happen to Ireland's largest company would have been locked up.
First, it was sold off by the State at a cost in professional fees of over £100 million, and even greater fees are being extracted today on its dismemberment. Its recent cannibalisation by Vodafone and now the disposal of the remnants to private venture capitalists is a sad spectacle.
A real irony is that one of the players who is making a bid is doing so on the wealth created by buying a licence in controversial circumstances for just £15 million to carve out a slice of Eircom's business. This business was later sold to British Telecom for over £2 billion.
The Eircom debacle was as inevitable as night follows day. At the time of privatisation many of the realities of the privatisation process were conveniently glossed over. For example, the myth of a shareholder democracy was always just that. The institutional investors and the employees' ESOT, with their block votes, always effectively had control and, in the final chapter now apparently upon us, this is the case as well. Well-meaning innocents crowding the RDS were victims of political and financial institutional hype. The whole episode must give pause to other planned privatisations. It must provide space to consider the wider range of issues in relation to privatisation of State companies.
State companies were first established in the late 1920s and early 1930s. The motives were mixed. Economic "Sinn Feinism", a weak private industrial sector and need for infrastructural development were key drivers. The development of these companies was one strand of a two-stranded industrialisation approach, viz State companies for large projects and tariff protection to promote smallscale indigenous manufacturing. The latter, after a promising start, petered out, constrained by a tiny home market and complacent native capital protected from real competition.
By 1960 the State companies, encouraged by Lemass, had grown significantly in parallel with the promotion of foreign direct investment (FDI). State companies enjoyed prestige and public approval and were regarded as wellmanaged by their private-sector peers. When Telecom was created out of a Civil Service department, the State company model was appropriate and effective. The Reynolds investment strategy created real value in the company.
Since the 1960s FDI has been the predominant driver of the economy. However this dominant role has always given cause for concern. Industrial policy reviews such as Telesis and Culliton, and many other commentaries, have argued that, in the long term, substantial indigenous companies are a key requirement of sustainable economic prosperity. The commercial State companies have always formed a significant part of the core of the large-scale indigenous sector. Of course there have been successes in developing some strong private-sector companies such as Kerry Foods, Elan, CRH and Glen Dimplex and the two main banks.
One of the benefits of strong indigenous companies is that key functions, with the highest-quality jobs, remain in Ireland. However, we remain dependent on the FDI sector. And the current overall economic boom has resulted in this important issue about the structure of our economy receding into the background.
The expected sale of Eircom will remove a key indigenous player. Was the dismemberment of public value in the case of Eircom part of a clear strategy on industrial policy? Privatisation made its fate inevitable for reasons of scale alone.
Irish State companies may be large and significant on the Irish stage, but they are very minor players in an international context. Even the ESB, arguably our most successful State company, with an interesting international portfolio, is a modest company in international terms.
International cherry-pickers, scanning Ireland's high-growth economy for useful acquisitions, have few enough targets to choose from. We are not the only economy concerned with this issue. Other European states have pursued a more strategic path.
One of the key problems for significant Irish State companies such as Aer Rianta and ESB has been the ambiguous attitude of their shareholder - the Government. Any commercial company, be it in the private or public sector, needs supportive and demanding shareholders. Government as shareholder has often been reluctant or lethargic in approving new investments or providing equity, as is required by, for example, Aer Rianta.
GOVERNMENT has not been demanding either in terms of dividend or other clearly delineated forms of return from State commercial companies. Two options remain for commercial State companies. One is to privatise and leave them open to almost inevitable break-up/takeover by large international companies, with the loss of key functions, expertise and decision-making. The other is to leave the companies in State ownership, but in a competitive framework where relevant. They must be driven strongly and aggressively with strategies appropriate to their size and current strengths through demanding targets and appropriate shareholder support.
The dominant fallacy is that competition, including EU deregulation requirements, demands privatisation. State ownership and competition are fully compatible, contrary to popular misconception.
It is essential that future privatisations be considered within a broad policy framework. The emphasis has been on popular (or populist?) shareholding - itself a sham, as was demonstrated by the effective institutional control of Eircom. The real agenda was a dogmatic drive to privatise. The current superficial puff and spurious excitement focused on "players" masks the effective disposal of important publicly-owned infrastructure.
Substantial issues are ignored. On the eve of broadband implementation, strategic loss on a staggering scale may lie ahead. It is time we focused on real strategic issues in a coherent industrial policy framework.
James Wrynn is lecturer in business policy in the faculty of business, DIT, and is a former deputy chairman of ESB