Public sector enterprise and privatisation…

A company announced this week that it was creating 300 new high tech ‘green’ capital jobs. It is a profitable organisation and maintains a highly skilled workforce. As far as innovation goes, this company is second to none. It began as a turf cutting plant and now plans to expand into green technology operations. It will be investing €7 million in developing mechanical and biological treatment systems for biodegradable waste such as wood and plant cuttings.

It made operating profits last year of €23.8 million and paid €12.9 million to its shareholders. A sustainable, healthy growth by any comparison (given size and industry).Yes, that organisation is the public sector dinosaur: Bord Na Mona. The organisation along with CIE and ESB that the McCarthy report recommends the state should sell off.

Transferring semi public sector enterprises into 100% private ownership does not necessarily lead to more productive, efficient or competitive organisations. The unconditional benefits to private ownership are more often than not based upon theoretical-ideological arguments not empirical fact. The creation of public enterprise in Ireland (which provided thousands of jobs) and across the EU, provides just as much evidence of innovation than stagnation (think about state owned ‘Statoil’ in Sweden).

One of the rationales behind the creation of public sector enterprises in the 1950’s – 1960’s, in Ireland, was to create demand for local human capital. The state offered skilled employment to an existing workforce that could otherwise only be got through emigration. The public sector enterprises of CIE, Bord Na Mona, Telecom Eireann, ESB, IDA amongst other public sector agencies gave employment to a whole new generation of Irish workers. It helped build a local culture of work, industrial development, applied skills and management that would have never occurred in the private market. It created the initial wave of networks for Irish business that exist today.

This important role of public sector enterprise has been neglected by economic commentators during the past 15 years. The fact that ESB and Bord Gáis over priced consumers during the ‘boom’ years was a regulatory-market fault. They like any organisation will rationally decide to maximise their profits given certain incentives. They like every other private sector organisation and professional service over priced, and let’s be honest, ripped off consumers. If anything, the introduction of the profit motive to these organisations was the causal factor (and incentive) for their overpricing. This coupled with a lack of competition would be an objective explanation.

The same arguments being propagated by economists about the benefits of privatisatising ESB, Bord na Mona etc are identical to the arguments that led to the privatisation of Telecom Eireann in 1999. A decision that has led to one of the most inefficient telecommunications network in the OECD. Private does not automatically equate to productive, efficient or competitive. It can lead to the flotation and reflotation of a very healthy organisation on the stock market, where speculators run rampant.

All organisations, whether public, semi public or private can lead to waste and inefficiencies. This is usually the result of a whole variety of causal factors. Identifying the ‘public’ nature of an inefficient organisation is just as simplistic as arguments against the ‘market’. Given the current unemployment crisis, the state should consider creating more, not less public sector enterprise.

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