From: mossop@pangea.Stanford.EDU (Antony Mossop)
Subject: Re: Privatisation snippets
Organization: Stanford Univ. Earth Sciences
Date: Fri, 9 Oct 1992 01:41:54 GMT

In article <1b1r3qINN5sm@grapevine.EBay.Sun.COM> martin.baines@uk.sun.com writes:
>In article 6689@bristol.ac.uk, smee@bristol.ac.uk (Paul Smee) writes:
>>A few interesting (well, I thought they were) privatisation anecdotes:
>>
>>British Rail -- the government are looking into selling it off, in
>>pieces.  There is a strong rumour that SNCF (the French Railway, in
>>essence government owned) are looking into buying bits of it.  (The
>>government denies this, but on the other hand government statements of
>>economic-policy intent don't feature highly on my credibility list this
>>week.)  Would be wonderfully ironic if we were to end up with a
>>'nationalised' railway system, but run by (and with profits going to)
>>the French nation.  Very 'Euro', at least.
>
>What profits? At the moment BR as a whole loses big money. Even
>Intercity is only marginally profitable at the moment. If
>SNCF think they can make decent profits by running bits of
>BR that's fine by me: the tresury will get its 33% Corporation
>Tax on the profits, rather than them disappearing into
>invisible cross subsidy.
>
>>Scottish water -- being discussed.  One reader (presumably a Scot)
>>points out to me that this isn't 'nationally' owned, but rather is
>>owned by the individual local government units, and that one of the
>>difficulties that the government is having with working out the
>>privatisation is that the money would, therefore, go to them, except
>>that the government is also trying to figure out how to eliminate them
>>as a tier of government.  This confuses things.  Never mind that.
>
>This was also an argument when the "parts of the English water
>industry that were not already private" was privatise. In the
>1974 local government re-org the Water Authorities were created
>from the assets of the old local aunthorities. They used
>exactly the same argument and didn't get anywhere.
>
>>Was a letter on the subject in one of the Scottish papers last I was up
>>visiting there.  Missed the beginnings of the exchange, but it was
>>possible to work out the whole thing from this letter.  It appears that
>>one of the local Scottish councils had taken a stand against the
>>privatisation of Scottish water.
>
>See above: I don't think they will get very far.
>
>>Another reader had written to the paper, suggesting that it was very
>>hypocritical of them to take that attitude, when they had, as an
>>investment, bought shares in the English water companies when they were
>>privatised.  The letter I saw pointed out that this was only sensible.
>>'If the English want to give money away, it is only proper canny Scots
>>practice that we should have some of it.  That does not mean that we
>>have to be enthusiastic about giving our money to them.'
>>
>>Finally -- It occurs to me that no one has yet mentioned what I see as
>>the only strong argument against government ownership of industry, and
>>that is the fact (and method) of the privatisations themselves.  Any
>>sensible private company that wanted to dispose of bits of itself would
>>KEEP the profitable bits, and flog off the unprofitable ones --
>>precisely the reverse of government methodology.  AND, they would sell
>>it at full market value, rather than artificially setting a give-away
>>price.  QED.
>
>Sometimes companies sell off assets (parts of themselves) for reasons
>other than being unprofitable: in fact selling unprofitable parts
>of your company is often impossible except to asset strippers!
>
>Companies may sell bits for strategic reasons (e.g. they no longer
>represent core business) or just to raise operating cash to
>get over a short term cash flow problem (e.g. Macdougal Douglas
>recently selling its computer business). In any case the requirement
>is to "maximise shareholder worth": if a business is worth more
>on the open market than its return on assets to the parent
>corporation it is a good argument to sell it. This does *not*
>mean profitable bits are never sold, just the reverse.
>
>The government is in a very similar position: if they think that
>they can use the money they get from selling a business better
>than having the capital tied up they can (I would say should)
>sell it. Also remember profit is *not* equal to the net amount
>of cash the business has to give to the government, rather it
>is a measure of the amount the total assets of the business has
>grown. Also remember that if the privatised asset is then
>run profitably the government makes money from corporation
>tax; if the privatised industry makes a loss the government
>doesn't need to foot the bill. Add in the fact that borrowing
>to run the business no longer counts in the national debt
>and the fact that the management of the business gets the
>government out of its hair and you have a win, win situation.
>QED.
>
>Finally the argument about "full market price" is a red herring:
>the fair market value is what the markets will pay. The
>government can't win in the eyes of the left: if the share
>issue was over subscribed they get critised for the price
>being to low (e.g. the BT privatisation) if the offer
>is under subscribed they get panned as well (e.g the
>BP privatisation). 



>                    In fact the situation is identical
>to you selling your house: if you accept an offer and
>are happy with it at the time that is the "full market
>value". Period. If someone later comes up and says
>"you could have got more for that" so what? You had the
>choice of selling or waiting, you were happy at the
>time, why worry? The government is in the same position:
>the "full market value" is the price at which the asset
>is sold, and all parties to the sale are happy on the
>day. Period.
>



Hmmmm?
My perception of the situation has always been that it's identical
to someone else selling your house for you, whether you like it
or not. They do so at a bad price to some shoddy property dealer
leaving you with a nagging suspicion of bribery. They then get
a position on the board of this property developer with a very nice
pay packet, put up your rent to more than what your mortgage repayments
were and then forcibly evict you when you can't pay. I can assure
you that not all parties were happy on the day of the sale.

Tony Mossop, geophysics, Stanford




>Martin
>
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