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After Privatisation December 10, 2013

Posted by WorldbyStorm in British Politics, Culture, Economy, Irish Politics, The Left.
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Ian Jack in the Guardian on Saturday has a thought-provoking article on the nature of privatisation, how far it can go and just how large the gap between the period before the arrival of Margaret Thatcher and now actually is.

It is of particular interest given that we were just discussing nationalisation as an aspect of social democratic programmes in the last day or two, and it points perhaps to just how much has been lost and how much was achievable by the left even under mildly progressive governments. Or to put it another way it points to how much the space within which the left can operate and expand the project has been constrained in the last three and a half decades – which of course was the point of the exercise – and how much has been forgotten.

Jack notes that it was Harold Macmillan who introduced the phrase ‘selling the family silver’ in relation to the processes of privatisation, and not in a complimentary fashion, though he later disowned it.
But it is when Jack gets into the detail that the differences between now and then come into sharp focus:

At the time of Macmillan’s speech, privatisation had hardly begun. British Rail’s ferries and hotels were the first to go (how strange it now seems that the best hotels in almost every city outside London were owned and run – usually well – by public servants in the most literal sense). But British Telecom, British Steel, British Airways, British Shipbuilders and Rolls-Royce – all of them listed as targets in the Tories’ 1983 manifesto – had still to complete their journey from the public sector, and the big privatisations that that would affect every household had yet to come. Gas, water, electricity: people puzzled as to how the same stuff flowing through the same pipes and wires could be owned by different companies, and yet somehow it became so in the name of competition. Then came the British Airports Authority and British Rail and large chunks of the Ministry of Defence, while many public institutions such as local authorities and the NHS outsourced much of their activity and shrank sometimes to the role of regulator. Nigel Lawson triumphantly announced “the birth of people’s capitalism”, but many private companies sold out to foreign ownership; others were taken over by private equiteers; others again subsumed into octopus-like businesses such as Serco and G4S, which picked up the contracts for outsourced work ranging from Royal Navy tugboats to nursing assistants.

There are issues, obvious one’s in relation to some of those companies. Rolls-Royce springs to mind, although it was not simply a car manufacturer. The Concorde project from earlier in the 1960s and 1970s likewise. The idea of state funding to ensure Phil Collins et al made it to the United States in jig time was problematic, to put it mildly. But the sheer scope of nationalisation is demonstrated by this list.

And why not. Why shouldn’t the state run hotels or ferries? I’ve always been puzzled too by the idea that a state-owned airline was somehow odd. Semi-state bodies charged with doing so seems eminently sensible in a broad range of areas and with a better understanding of market conditions and so forth what reason is there that such bodies couldn’t turn a penny for the state?

The bizarre nature of attempting to marketise areas, such as public utilities where there was no clear logic to same is underlined by Jack. This wasn’t competition but the pretence of same, and we’ve seen examples of that much closer to home, and one suspects will continue to see more. The chimera of ‘people’s capitalism’ likewise.

Jack offers an excellent quote to sum up these processes:

The words of the novelist and reporter James Meek ring ever truer. “The commodity that makes water and roads and airports valuable to an investor, foreign or otherwise, is the people who have no choice but to use them,” Meek wrote last year in the London Review of Books. “We have no choice but to pay the price the toll keepers charge. We are a human revenue stream; we are being made tenants in our own land, defined by the string of private fees we pay to exist here.”

What is most evident is that we, the citizenry, are coerced into transactional relationships in a myriad of areas – and that often due to an inability of the private sector to live up to its own rhetoric that of necessity means that many are shut out of those relationships in whole or part.

It’s darkly entertaining though to read Jack’s closing thoughts.

But why not take it further and outsource the air force, the army and the navy? Mercenaries from poorer countries would be cheaper, accepting even worse rates of pay than the average British infantryman. Why not outsource the police, given that prison warders are already privatised? Why not outsource the government? It has cut so many parts from itself that it does no more than bleed on its stumps.

Clearly he’s unacquainted with the libertarian right and those who cleave to similar paths albeit using less overt rhetoric. The current Tory project is ever more nakedly about constraining the size and shape of the state, and state provision, in a manner which, in part due to the thinness of the state in the period since Thatcherism, is vastly more easy than it was in 1979 onwards.

That said he does offer the idea of outsourcing the British political class itself, say to the Finns… yeah, that’s not the worst idea.

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Comments»

1. CL - December 10, 2013
2. Dell Boy - December 10, 2013

“And why not. Why shouldn’t the state run hotels or ferries?”

What a bizarre statement! You might as well be advocating that the state take over every corner sweetshop.

BTW did you ever actually stay in a Soviet-era hotel? A stern mamushka sitting at the concierge desk on every floor to ensure no immoral activities were engaged in. Jesus imagine the Irish equivalent, a retired muinteoir or some-such standing guard over the morals of the nation!

Imagine this monstrousity sitting on Dublin’s quays: http://en.wikipedia.org/wiki/Ryugyong_Hotel

dmfod - December 10, 2013

Yeah, much better to have the shell of Anglo instead.

WorldbyStorm - December 10, 2013

Oh ‘Dell Boy’ who said anything about the Soviets in relation to nationalisation? Since when are the two synonymous? Though your language usage has improved somewhat since yesterday’s comments by you no marks for comprehension.

Dell Boy - December 10, 2013

Not synonymous no, but outside the UK, the Soviet era does provide us with one of the best known examples of what happens when the state gets involved in economic activity that it has no business getting involved in.

Conversely can you provide any sane reasons has to why the state should be involved in running hotels?

* far as I can see, it’s not a natural monopoly in fact quite the opposite

* it’s of little strategic importance to state security

* it doesn’t require the advanced technical know-how or massive capital funding that only the state can muster (unless of course you go building a Hotel of Doom as a vanity project in a famine-ravaged country with a stone age economy)

* it isn’t something that won’t emerge anyway to meet demand when left to it’s own devices (in fact if anyone on this site has travelled to Cuba in the “Special Period” would have seen how the business of keeping visitors housed, fed & watered emerges very naturally as free enterprise at a micro-level … unless of course you travelled as a guest of the regime, in which you would have been kept far away from the reality on the ground)

WorldbyStorm - December 10, 2013

Your oscillation between insult and glib knee jerk responses as exemplified by the above in relation to serious discussions undermines any desire I would have to engage with you. You’re not that funny and you’re not that smart.

Dell Boy - December 10, 2013

Huh, is that a reason?

Or a cop-out?

One suspects you didn’t really expect to be challenged on the hotel point and have nowt to back it up.

WorldbyStorm - December 10, 2013

Oh yeah, you’re so right, I have to take everything you of all those commenting on here say seriously because… erm… actually remind me again? Why? After the way you comment here and your interactions hitherto? One has more than the suspicion you’re an idiot if you don’t understand the answers to those questions.

You’re not a serious person, your interactions here haven’t been serious and I don’t take you seriously. You’re trying to be serious now? Why with your approach would I waste any time at all discussing any topic with someone who doesn’t know the first thing about traditional social democracy or the soviets or the differences between those two ideologies. There’s no good reason at all.

Moreover you labour under a terrible misapprehension that there’s some onus on me to respond to you or anyone and particularly to self-appointed standard bearers of some ideology or another, whether left or right, republican or its antithesis. Nope. There’s none at all, and certainly not to people who spend their life unable to decide if their function here is to attack all and sundry and take the piss and then every once in a while poor you wants a proper discussion bless… and we’re all mean and stuff and won’t listen. Wonder why?

By all means, scurry away and console yourself that I don’t have a reasonably well developed rationale as regards the place of nationalisation, privatisation (oh yes, that too) and whatever if it makes you feel better. Go on. Whatever my thoughts on those matters I surely won’t be exchanging them with you.

Dell Boy - December 10, 2013

Au contraire, I don’t think you owe me any kind of response.

But I’m pretty sure that if you had any kind of compelling argument in favour of state ownership of hotels, you’d have busted it out several comments back in this thread.

The nature of the beast is not to hide his light under a bushel, clearly.

WorldbyStorm - December 10, 2013

Such an ego and so eager for validation that you just cant stop coming back, but the clue in no response is because its you who is asking. If it were any of numerous non leftists and non trolls like Irish Eagle or whoever I’d respond. But you? Again with the comprehension deficit.

Dell Boy - December 10, 2013

Area man owning popular website on which he posts 24/7, lapping up rapturous agreement from a coterie of fellow bloggers, sees compulsive eagerness for self-validation in an occasional dissenter.

Irony escapes said area man, obviously ;)

RosencrantzisDead - December 10, 2013

Conversely can you provide any sane reasons has to why the state should be involved in running hotels?

::sighs::

1.) Market failure. 2.) The fact that tourism is a key industry in our country and is oft touted as one of the ways we will ‘recover’.

it isn’t something that won’t emerge anyway to meet demand when left to it’s own devices

This point is flat wrong.

The Tourist Traffic Acts regulate the hotel industry in Ireland. They specify the minimum facilities that a hotel should possess. If a hotel does not have these facilities, it cannot call itself a hotel, obtain a liquor licence, or avail of many other benefits and tax breaks available to a hotel. The purpose behind the legislation was simply that the hotel industry in Ireland would not and could not produce by itself the quality and facilities that international travellers would expect. State intervention was necessary. This level of intervention continues right up to this very day.

The State also takes on the role of grading hotels to assess facilities for tourists and requires that hotels register a maximum room rate.

In addition to the intervention by the Tourist Traffic Acts, the Irish state also had state run hotels (The Great Southern Hotel Chain already mentioned), mainly around train lines and near airports. Again, the ‘market’ did not magically produce the facilities so state intervention was necessary.

Dell Boy - December 10, 2013

The fact that the state is tasked with regulating and grading hotels is an excellent reason why it shouldn’t also be owning and running them.

And the fact that some legislation exists allowing the state to own hotels doesn’t seem like a good argument as to why it should do so.

The state is allowed to do all manner of crazy and destructive things, the question for politics is which of these things are the least crazy and destructive.

And again, I don’t see the market failure (absent state-inspired distortion) … as I mentioned before, travelling around Cuba makes it abundantly clear how emergent enterprise will meet the needs of visitors even in the face of a hostile state apparatus and an extreme paucity of seed capital.

Similarly for the Great Sothern Hotels … I’m lost as to where you’re going with “… the ‘market’ did not magically produce the facilities so state intervention was necessary”. The Great Southern Hotel in Eyre Sq was built way back in the mid-1800s by the then Great Western Railway, long before the vogue for nationalization of such things.

RosencrantzisDead - December 10, 2013

Again, Dell Boy, we have moved from your initial premise of ‘state involvement in hotels is crazy and only North Korea would do it’ to ‘the Irish State should not be involved in the running of hotels.’ This has been quite a day for you.

The point regarding registration of hotels is that the policy was to ensure a standard for the international traveller which the market at the time (the acts were introduced in the 1930s and 40s) did not provide. So we have pretty heavy regulation of the hotels industry and have had for some time.

As to the Great Southern Hotels, I was referring to the chain, not to individual hotel,s and the point was again to encourage provision of services for Ireland’s nascent tourism industry.

In sum, the facts and history of the development of the hospitality sector in Ireland undermine your various claims about state involvement in hotels being ridiculous. You can make all the claims about Cuba you want, I, however, am happy to stick to this country.

Dell Boy - December 10, 2013

“As to the Great Southern Hotels, I was referring to the chain, not to individual hotel,s”

What you actually wrote: “the ‘market’ did not magically produce the facilities so state intervention was necessary.”

When it was pointed out that the market did in fact produce the facilities (i.e. the actual hotel where people stay) the guts of century prior to nationalization, then you shift to the market not magically producing a chain called the Great Southern Hotel Group Ltd.

Does it matter in the least to the weary traveller whether the hotel they stay is called the Railway Hotel or the Great Southern Galway Hotel or the Meyrick Hotel as it’s now known. As long as the sheets are clean, they don’t care about the name or the chain that it belongs to.

WorldbyStorm - December 11, 2013

Area man owning popular website on which he posts 24/7, lapping up rapturous agreement from a coterie of fellow bloggers, sees compulsive eagerness for self-validation in an occasional dissenter.
Irony escapes said area man, obviously 

You’ve been down this line once already in the fairly recent past where political insults and attacks on others turned into attacks on me personally and once was enough. The bitterness evident in it (and the personal antagonism to me) over what one might ask, is bizarre. This is a blog that I write because it engages me and others, not the word of God and has never been promoted as such. Any projection on your part about self-validation is in your own head (and let’s not even get into the issue of political pluralism).

You don’t contribute, you’re not a dissenter, you’re someone who delights in dancing around being insulting and then whining when you’re called on it. As I’ve noted there are those like Eagle et al who have profound disagreements with our politics but can engage courteously. You can’t and that tells its own story.

I’ll paraphrase smiffy, because I think it’s appropriate…
…there are some very dangerous people online, people who express a morbid fascination with extreme violence, who insult and berate others, who persist in doing so when asked to desist, who flip almost instantaneously from insults to demanding that they be engaged with seriously and then make gratuitous personal attacks, who lack all proportion about what the internet is and isn’t and who are obviously suffering from some kind of mental or neurological disorder, people who I would prefer didn’t post on here. People like you.

People just like you ‘Dell boy’.

RosencrantzisDead - December 10, 2013

Actually, facilities do matter to a weary traveller and this was the point of the legislation and what I was getting at.

From Sean Lemass’ speech at the second stage of the Tourist Traffic Bill, 1938:

Increased publicity must, however, fail in its purpose unless holiday-makers are adequately catered for, and it is in that connection that our holiday industry displays its greatest weakness. The accommodation is entirely insufficient and, to a large extent, out of date. In the matter of ordinary amenities and essential public services, Irish holiday resorts are, in many instances, lacking, and no effort has been made to repair the deficiencies.

A quick recap: you said on this thread that the question of why should a state not run a hotel was ‘bizarre’. I, and many others, pointed out that it was not bizarre and quite common, even in this country.

You shifted the goalposts to saying that the state should not run hotels and claimed that the market would work just fine without it. Again, facts got in the way of that claim – Ireland has been intervening in the hotel industry for years due to market failure.

Now you are claiming that because a hotel was built in the middle of a city without government intervention, this negatives all of the history I have cited. Try again.

RosencrantzisDead - December 10, 2013

The State ran the Great Southern Hotel Chain via semi-states such as CIE and the Dublin Airport Authority/Aer Rianta.They were privatized in 2006, I think.

In fact, even a cursory analysis of the tourism/hospitality trade in Ireland reveals a rather high level of state involvement given its importance for the countries trade and its propensity for market failure. Also, the State is once again involved directly in the hotel and hospitality business via NAMA, who have taken over many hotel related debts and are working to restructure them into viable an sensible businesses. For all the free market talk in Ireland, there has always been the involvement of the state in key sectors.

As for transport, the importance of state involvement in these sectors is so readily apparent that even the ravenously free market EU sees recognises its necessity. On the flipside, the EU sees the role of the state as ‘correcting’ the market whenever it tends towards the irrational. But if recently history tells us, the market is in need of constant correction (the EU Commission has yet to cotton on to this part).

Those of a more social-democrat bent (or those who distrust the current structure of the Irish state) could adopt Joe Stiglitz’s proposal and have the state take out shareholdings in key industries and companies. This shareholding could be used to ensure fair work practices, fair trade policies and good returns for the State. And all of this without needing to implement a celtic Gosplan.

RosencrantzisDead - December 10, 2013

country’s*

There are many more typos/misspelling, but I shall not deal with them all here.

Liberius - December 10, 2013

The flaw surely in that Stiglitz proposal would be the vast amount of state resources that you would have to use in order to acquire those shareholdings; after all in this social democratic concept there wouldn’t be room for seizure without compensation. Not to even mention the likely legal ramifications considering the American legal systems penchant for meting out extra-jurisdictional ‘justice’ on behalf of high finance if our social democrats were minded to it.

RosencrantzisDead - December 10, 2013

Stiglitz’s proposal was in relation to the US and was premised upon the budget surpluses that the US had enjoyed during the late 90s and early 00s. In particular, he was suggesting counter-proposals to the GOP lead drive to privatize social security by placing the fund into the hands of private finance. Stiglitz argues, quite convincingly, that if the fund were given to a government investment vehicle it would save on transaction costs (Wall Street, Stiglitz said, would gouge you) and you could use it for publicly beneficial purposes.

You certainly need to money, but, short of a socialist revolution, you will also need the money to nationalize industries or enterprises. The problem is not unique to Stiglitiz’s proposal.

Michael Carley - December 10, 2013

At the moment, the state could probably acquire quite a few substantial assets, quite cheaply, for a price above their market value.

Liberius - December 10, 2013

Oh certainly I don’t doubt that we could take some important assets into public control using shareholdings, I just doubt whether it could be done to the degree needed.

To give an example of what I mean: Aer Lingus, If i’m reading these numbers correctly, has about 534,000,000 shares with each share being worth about €1.30 at the moment with the government already holding 25.4% of those shares; to raise the governments control to 50.1% would cost at the moment about €171,500,000. I’m not greatly convinced that that could be replicated across the economy before high finance came in to stop you.

It may seem extreme but I really just don’t see how you can in a single state without wide scale international co-ordination accomplish the transfer of assets into public control without a complete break from the markets. I do see potential though for the markets to be marginalised in this process with that international co-ordination, but in that case why even bother with the softly softly approach of shareholding?

And just so nobody is in doubt I wouldn’t advocate Ireland going it alone as I’m not convinced of the merits of an autarkic economy in the context of a multi-state international framework.

Michael Carley - December 10, 2013

I was thinking of the banks, and a fair bit of real estate.

RosencrantzisDead - December 10, 2013

You don’t really need a 50% shareholding to make an impact on a company. Anything above 25% and you have an effective veto on most important business. You will also guarantee yourself an ability to get at least one or two of your chosen people elected to a board.

I should point out – Stiglitz is not advocating outright state ownership through shares. He is advocating an increased state influence on companies through shareholding. A five or ten percent stake in a company or a group of companies can allow you to have great influence on their business strategy.

Liberius - December 10, 2013

Doesn’t that limited control though simply rely on disunity of direction amongst the other shareholders? While that’s certainly a factor in some companies it isn’t universal, and I’d be convinced that, in the face of increased focus on employment rights and long-term rather than short-term strategic investment, the passive shareholders would become active to protect their investments.

On the banking I’d imagine the public at-large might not take greatly to the idea of expending more resources for the benefit of bankers and their dependants in high finance. Surely it would be more effective simply to establish a new public controlled bank than can then absorb the assets of the old banks.

RosencrantzisDead - December 10, 2013

You could face a coalition of the other 75% or even 40%, but that coalition has to band together in a monolithic form to defeat you. This is an unlikely scenario, however, since we are presuming that finance will go against you simply because you are the state. Anecdotal evidence of the state’s shareholding in AIB and BOI implies this isn’t the case. The Irish State is reputed to have leaned on AIB and BOI to ‘go easy’ on businesses in certain sectors even though those businesses may have been behaving ‘badly’.

A massive coalition, however, still won’t dislodge your veto. Irish law requires that particularly important decisions are passed by special resolution and a special resolution requires 75% of the vote.

A company could, in theory, alter their articles to change the requirements for some votes to be a simple majority.

But altering your articles requires passing a special resolution.

The Stiglitz proposal is not without difficulties and I am not saying it is bullet-proof. But it makes for an interesting alternative to outright nationalisation. Another way to reform companies, and ensure democratic influence over capital, is to force them to have employee and civil society representatives on their board once they surpass a certain point (turnover, profit, no. of employees) and require all companies to adhere to certain CSR requirements.

Liberius - December 10, 2013

Wouldn’t that be something of a strange case though as many of the banks shareholders purchased those shares when they were worth considerably more than they currently are; I’d imagine they be more interested in the state expending large amounts of its resources in an effort to increase the share price rather than being bought out for a pittance.

An additional problem though has to be the fact that many companies in strategy sectors of the economy are not listed on stock exchanges and are instead wholly owned subsidiaries of multi-national corporations of both the listed and exclusively private variety. Eircom,UPC and our mobile phone operators come to mind there.

Legally enforced representation on the boards with voting rights of workers is certainly an idea which has legs. The German Bundesliga gives a certain amount of proof of that with it’s strong fan representation system.

Dell Boy - December 10, 2013

The basic reason that NAMA has had to get involved in the hotel business is the distortion of the hotel industry caused by the state’s idiotic tax shelter policies that created an orgy of hotel construction with nary a solid business case to be found.

If the state creates the incentives that result in “luxury spa hotels” being thrown up in a field in Roscommon and elsewhere purely to avoid tax, then obviously that’s going to cause a massive over-hang of inviable hotel capacity down the line. And so we have seen …

RosencrantzisDead - December 10, 2013

So you admit that there is state involvement in hotels now? I thought this was a ‘bizarre’ proposition that you could not even fathom.

You conveniently ignore the private sector actors who i) argued for the tax shelter policy, ii) obtained finance for these useless hotels from other private sector actors, and iii) actually went off and built these useless hotels.

But it is entirely the State’s fault, of course.

Dell Boy - December 10, 2013

No, it’s not an investment in any rational sense. Rational connoting the expectation that plowing resources into an enterprise will yield some positive outcome.

What we have here is a rescue of banks rendered insolvent by distressed loans, where a great many of those loans were secured on essentially unviable hotels, built purely for the purpose of tax avoidance.

If the state were to have handed out valuable tax concessions to people painting themselves orange, the streets would be choked with naked Tango’d masses.

The rationality of that behaviour would be irrelevant in the face of massive perverse incentives used by the state to distort the equilibrium. As ye sow, so shall ye reap …

Bartholomew - December 10, 2013

The Paradores in Spain are a terrific chain of state-owned hotels in historic buildings. Some Italian towns (Pisa for example) have similar projects. And, as RiDead said, the glory days of the Great Southern Hotels were when they were state-run.

RosencrantzisDead - December 10, 2013

Yes. These private sector actors engaged in ‘irrational’ and myopic behaviour. But they did so of their own volition. The State policy was incredibly stupid, but a lot of lawyers, accountants, builders and bankers begged for that policy and the State listened to them.

None of this absolves the private sector entities from anything they did. The State did not force them to avail of these tax breaks.

Anyway, we have moved a long way off from your initial ‘State run hotels. Lol! Wut this North Korea!?1!’.

We might actually get to the question WbS asked: ‘Why not have the satte run hotels or ferries?’. Certainly, we have seen the fallibility and myopia of private enterprise.

3. Michael Carley - December 10, 2013

I did stay in a Soviet hotel, and it was nothing like a UK state-run hotel, just as BA was nothing like Aeroflot.

4. dmfod - December 10, 2013

On what’s been lost in the US, David Simon of the Wire has a passionate defence of the welfare state and Keynesianism in the Observer some people might find interesting.

http://www.theguardian.com/world/2013/dec/08/david-simon-capitalism-marx-two-americas-wire

He does the whole gatekeeping thing of ‘Marx is useful only as a critic of capitalism’ though, which is disappointing as I kind of hoped he’d be more radical than that. His ying and yang view of labour and capital also really grates, but in a mainstream US context at the moment, or indeed in Ireland, even that has begun to sound radical.

WorldbyStorm - December 10, 2013

Very useful link, thanks and I’d agree he jettisons Marx with undue haste. Some telling observations on it even if there’s a reductionism and even emotionalism about the idea it’s just ‘greed’. Maybe a bit more Marx would be no harm there! Though he seems to almost acknowledge that later.

5. CL - December 11, 2013

‘Dublin Bus routes orbiting the city, some local Dublin Bus services and Bus Éireann commuter routes to the capital, as well as others in Waterford, face privatisation’
http://www.irishtimes.com/news/politics/more-than-20-dublin-bus-routes-to-be-privatised-1.1614767
I suppose this is the ‘new (neoliberal) normal’. Has there been even a whimper of protest?

WorldbyStorm - December 11, 2013

Not much if any.


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