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.
“Balance sheet strength is not an end in itself,” says the report, “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.” IMF Fiscal Report Oct 2018
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.
So, while 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, 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”.
The UK Independent article by Ben Chapman gives a good example of the profits to be made from nationalizing public services in contrast to the current view at home that they are better off privatised.
The argument really comes down to counter claims of Left and Right as to whether privatization or public ownership is more profitable. Privatization seems more profitable in the short term, but once you factor in the value of the asset being privatized, as the IMF has done, everything changes:
“In this view,” the article goes on, “Labour’s proposal to renationalise railway franchises and water companies would not, as the Conservatives have claimed, cost hundreds of billions of pounds. The government would merely create debt on the liability side of the balance sheet while gaining an asset of the corresponding value, resulting in a net cost of zero…”
The Right tend to concentrate on the initial debt, building their argument for privatization from there, but will not look at the later long-term profits of publicly owning the asset. And for very good reason, because certain chums might be standing to gain from the privatization, since the asset, now in private hands, has the “potential to generate further income.”
The Independent article continues, “…For example, privatised water companies paid £6.5bn in dividends and interest to shareholders over the last five years, [UK] according to data compiled by the GMB union…” (GMB=British Trade Union – originally General Municipal Boilermakers.)
Under privatization these profits would naturally fall into private ownership.
So, the conclusion is that privatization of public assets, far from being fiscally sensible as the Right are forever claiming, is, according to IMF economists, a guaranteed loss-making venture in the medium to long-term, for the public. An “illusory” practice that serves 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.