From: livesey@solntze.wpd.sgi.com (Jon Livesey)
Newsgroups: soc.culture.british
Subject: Re: Privatisation snippets
Date: 14 Oct 1992 20:45:18 GMT
Organization: sgi
Distribution: world
NNTP-Posting-Host: solntze.wpd.sgi.com

In article <10670@baird.cs.strath.ac.uk>, jim@cs.strath.ac.uk (Jim Reid) writes:
|> In article <1992Oct13.115324.5165@osf.org> david@postman.gr.osf.org (David George) writes:
|> 
|>    In article <JIM.92Oct12172829@hunter.cs.strath.ac.uk> jim@cs.strath.ac.uk (Jim Reid) writes:
|>    >:The difference is that the Government has been *deliberately* selling
|>    >:off shares in the nationalised industries at artificially LOW prices.
|> 
|>    Maybe you could produce some evidence to support this claim ?
|> 
|> Certainly. The first privatisation was Amersham International. Within
|> about 1 month of it being sold, shares increased in value by a factor
|> of seven. The first big privatisation was half of BT. The shares were
|> sold at 120p. On the first day's trading, they had increased to
|> 150-160p. I recall reports that they peaked at 180p then: 50% more
|> than the government's valuation. These BT shares now trade at roughly
|> three times the price paid at privatisation 8-9 years ago. This far
|> outstrips inflation or the general increase in stock market prices.

There are two obvious fallacies here.   First is that there are
*many* companies which have nothing to do with the UK, including 
one I used to work for, that show the very same effect.   They 
come on the market initially at one price, and within a short 
time, show a great rise.

If you believe, as Mr Reid seems to, that this is evidence that
the share were offered "deliberately" at too low a price, you 
have to believe that the directors of that company, whose share
were being offered in the sale, were deliberately screwing 
themselves.     Why would they do that?

Of course, they are not.    The fact of the matter is that 
there is no "natural" price for shares in a company.   The 
price is whatever the market sets for the shares from time 
to time.   If at the time of the offering, no one is quite
sure how well the company is going to do as a public company, 
they won't offer too high a price for it.   If after a few 
months it becomes clear that the company is going to do far 
better as a public company than as a nationalized company, 
then the price that people are willing to offer will rise.

There is no "Price".    There is only the price that people
happen to be willing to pay from time to time.

The second fallacy is that one should judge by comparing the
rise in price of shares to the rise in the general market.
This is wrong for two reasons.    First is that companies like
BT are in markets, such as communication, which are growing
much faster, and have generally higher profits than the economy 
as a whole.   The second reason is that a nationalized company 
in such a market is going to do even better than a normal 
company in the same market because, having been released from 
civil service management, it's going to stop trying to ration its
product, or run itself to maximize employment, and instead run 
itself to maximise profits.

The final point to notice here is that Mr Reid is playing a
Catch 22 game.    If the price of BT shares had remained flat
in the last three years, he would have claimed that the Govt.
had ripped off the ordinary men and women who bought them.
Instead, people who bought the shares made a profit, so he 
claims that the Govt. ripped off the taxpayers.

jon. 
Xref: sparky soc.culture.british:14238 alt.politics.british:292 soc.culture.celtic:6866