Privatization, a very public matter

Illustration by Manos Symeonakis

Trying to make out what’s going on with the Greek economy at the moment is much like attempting to get a good night’s sleep when there is a clutter of pregnant cats outside your window. Somewhere between Greece’s emergency lenders, its government and its opposition parties, reality has been lost and it has become difficult to judge the privatization plans – which have prompted all the scratching, biting and catcalls – on their merits, if they have any.

When he was in Athens a few months ago, the International Monetary Fund’s managing director, Dominique Strauss-Kahn, likened himself to a doctor, called in to save the sick man of Europe: debt-ridden Greece. But recent developments suggest that what Greece really needs is not a doctor but a psychologist. More than anything else, the country is suffering from a serious case of schizophrenia. Certainly, the PASOK government and its main opposition, New Democracy, have displayed a worrying mental instability and lack of clear thinking in their reaction to the tactless statement by representatives of the IMF, the European Commission and the European Central Bank (the troika) on February 11 about Greece needing to raise 50 billion euros over the next five years from the sale of state assets.

The government’s delayed response to the troika’s statement made it seem as if Prime Minister George Papandreou and his team had stirred from a deep slumber. It was a slow, clumsy comeback that clouded the real issue. PASOK had every reason to feel aggrieved about the troika now not only shaping but also announcing Greek economic policy, and not even paying lip service to the country’s sovereignty, as compromised as it may be. But this was a point that had to be made – as forcefully as possible – behind closed doors. Trying to play tough in public with the organizations that are lending you 110 billion euros and preventing you from going bankrupt really doesn’t cut a swath. Nobody in Greece, or anywhere else, will for a minute think that angry words via the media will shift the balance of power between the government and its creditors. It’s clear to everyone who wears the pants in this particular relationship.

The outburst that emanated first from the keyboard of government spokesman Giorgos Petalotis and then the mouths of various PASOK members had an immediate negative impact because the troika said its February 11 news conference would also be its last, meaning that its representatives would no longer have to answer questions or justify their decisions in public – hardly a victory for transparency or democracy. Beyond that, the jingoistic tone of the government’s retort, which suggested that only the Greek people had the right to order ministers around, did nothing for informing the debate over privatization.

Greece has debt of more than 300 billion euros to pay off. As of 2013 its emergency loan installments will end and it cannot expect to receive cash injections from the EU and the IMF forever. It has to find a way of tackling, on its own, the debt it built up through years of irresponsible governance. One of the options available is to seek to profit from state assets. To couch this debate in nationalist terms is irresponsible and counter-productive. Papandreou’s assertion, for instance, that the government would pass a law forbidding anyone in power from selling state land without the approval of Parliament is virtually meaningless. Apart from a token symbolic value, it has no real substance because any government at any given time, unless it’s a coalition, will have a majority in Parliament and will therefore be able to approve any sale it needs or wants.

Also, it seems a bit rich for Papandreou to make bold claims about selling public land in the same week that a think-tank named after his father, the Andreas Papandreou Institute of Strategic and Development Studies (ISTAME), said that a study it carried out found that 45 percent of the state’s land had been snatched by land-grabbers and that Greece would be lucky if it could find 100 pieces of prime real estate to sell. In Greece, it seems, it is fine for public land to be taken over by opportunists, profiteers, monasteries, or whoever else it may be, but it is anathema for it to be sold to pay off the debt that burdens every Greek taxpayer.

Determined to prove that it can beat PASOK at its game, New Democracy displayed an even more pronounced split personality by both castigating the government for being supplicant to the troika but at the same time saying that it should have started selling off state assets much sooner. This neurosis was epitomized by ND leader Antonis Samaras in his speech to the party’s political committee on Saturday when, in almost the same breath, he accused PASOK of handing the keys to Greece over to the troika and proudly reminded people that he had suggested that 50 billion euros could be earned from privatizations as far back as last summer.

ND’s consternation has combined very well with the government’s muddled thinking to leave Greeks with little idea about where the country stands, what assets it has and how they could be used to help Greece stand on its own two feet. There has been little talk of which, if any, state enterprises could be sold off, of which publicly owned companies investors might be willing to take over the management or if the ambitious 50-billion-euro target is even remotely achievable. Most importantly of all, there has been absolute silence on the question of what the drawbacks to privatization might be, whether the medicine being administered to Greece by Dr Strauss-Kahn and his associates is actually any good for the country.

Privatization may be a way of Greece taking ownership of its own debt problems and an injection of capital would allow it to buy back its own bonds at a discount, thereby helping pay off a sizable chunk of what it owes. However, this should not disguise the fact that privatization comes with many deep pitfalls. Britain, which was the first European Union country to embark on widespread sell-offs in the 1980s, is another country that has been toying with the idea of privatization over the past few days. Prime Minister David Cameron is set to present within the next two weeks proposals to allow private firms to bid for contracts to run virtually all public services.

This is light years beyond what Greece is currently considering but it’s a reminder that Britain is testament to why privatization is often not in the public’s greater interest. The first wave of sell-offs in the early 1980s included Jaguar cars, Rolls Royce, British Gas and British Steel, signaling the beginning of the end for the country’s industrial base and its potential to create jobs. This was followed up in the 1990s with the disastrous privatization of the railways, which led to a more expensive and inferior service. The Labour government of the late 1990s allowed the private sector to extend its reach through a series of Public Private Partnerships (PPP), which meant that by the beginning of the last decade key services such as healthcare and education were largely reliant on private investment, which often came with some very dangerous strings attached, such as private contractors being able to sell their contracts to build public infrastructure or run services to subcontractors. This whole process led to some firms that were particularly successful in winning these contracts transforming themselves from financial small-fry to profit-making behemoths in just a few years. From a Greek point of view, though, the most significant lesson to be drawn from the British example is the implication that the PPP schemes had for British debt. The partnerships were essentially a form of borrowing – private firms were given contracts to build or operate for a fixed-term in return for reaping the revenues from the project. In 2003, the Treasury estimated that the government had accumulated 110 billion pounds worth of debt from its PPP initiatives.

As Greece considers how to exploit its assets, its schizophrenia will only cloud its judgement. Privatization is neither a panacea for the country’s ills, nor – if approached with maturity – is it a threat to national sovereignty. It’s a policy that should not be adopted just for the sake of it, nor avoided just to make a populist gesture. It’s a strategy that should only be followed if it’s in the public interest to do so. Sadly, nothing that has happened over the last few days suggests that anyone – be it the troika, the government or New Democracy – really has the public interest at heart.

Nick Malkoutzis

14 responses to “Privatization, a very public matter

  1. LOL! “a clutter of pregnant cats outside your window” is hardly a problem any more. A bunch of cats in heat is a huge problem, though.😉

    But what you are saying about privatization is true. Indeed look at Britain. And I could ad a few similar examples from the Netherlands too. Privatization, when done right, is a great tool for cashing in the accumulated silver ware and invest that in the future. Alas, as it stands at the moment in Greece, there will be no investment. Just squandering these last pieces of wealth on the ever growing expenditure of the government.
    As long as Greece is not able to get its spending in line with its income, it should hold on to the few pieces of silverware that it still might have.

    • Interesting that the Netherlands have also had problems with privatization. It’s a process that is susceptible to all kinds of complications. I think one of the major problems for Greece is that in all honesty, there is not much here that investors will be willing to spend money on. Unless, of course, you look at selling islands and state property next to the sea but that opens up another can of worms and the government has ruled it out anyway.

  2. In my view, any state enterprise that is conceptualized and started to improve citizens’ lives, make expedient use of the buying power of the masses, and provide an essential service to society at large, can only be allowed to get as big, or as small, as the country can afford. If the rail systems for instance (remember the example of Britain mentioned in the article) provides an essential service, but costs the country too much given the specific needs of industry and citizenry, then it has to be privatized even if the end result is a more expensive, less expansive rail system, BECASUE THAT IS ALL THAT THE COUNTRY CAN AFFORD. If the economies of scale does not support its profitable (or at the very least break-even) operation and the country simply cannot afford it, it is folly to suggest that privatization might not be in the public interest. If the country cannot afford e.g. a rail system in its current form it has to look at alternatives, whether it means less convenience for public and industry or not! To think of such public corporations as “silverware” can only be a nationalist point of view, as it serves only the ego of the country and its blind politicians, not the people or the situation it was created for. National airlines and public transport systems in many countries are testament to this. Countries that have managed to keep costs down, whilst providing an efficient service that provides for most of the needs of industry and citizenry got it right, but this is a volatile industry that responds to a multitude of outside influences at the drop of a hat and thus needs to be dynamic and fluent, not exactly the image of public corporations around the world. Simply put, don’t hold on to such “silverware” because they look profitable now, it’s actually the best time to sell them to improve efficiencies even further, despite the drawbacks that come along with “improved efficiency”. I agree that the proceeds of such sales will only go into a bottomless pit of Greek government expenditure, but it might buy some time to try and mend the Greek economy with drastic measures. The culture of non-payment/non-compliance of the Greek nation (we want everything for free, paid for by the taxes that we don’t pay), combined with rampant corruption that goes unpunished even when exposed, suggest that these so-called “silverware” in the Greek national cabinet cannot be profitable whilst under public administration. Release the Greek government and its people from the burden of administering and funding public corporations, to concentrate on bigger and more important matters, such as creating an expansive Greek economy from nothing. Greece is in dire straits, to cling on to public corporations that are either profitable or not will not save the day, despite the egotistical satisfaction gained from clinging onto them.
    The Greek economy needs a complete overhaul. It reminds me of a joke years ago about Jaguar, that suggested that the English invented an oil leak and built a Jaguar around it, well the Greeks invented a flawed , corrupt, nepotistic, over legislated, poorly administered and utterly confused system with billions in borrowed money, and wants to build a country around it. Go figure.

    • Great response – I like the Jaguar analogy, which I hadn’t heard before. There is sound logic in what you say but one side of the argument that is not heard very often is that a lot of these state bodies and public enterprises lose so much because they have been mismanaged for years by officials that were appointed because they were someone’s brother, cousin or friend. This has meant that losses have built up over the years and that these companies have had to borrow more and more to stay afloat. The argument put forward by some of the unions is: set up a proper business model and run these enterprises so they don’t cost the taxpayer billions rather than sell it off to investors for a short-term cash injection but lose the right to long-term control.

      • Selling out national sovereignty was never on the cards and have never been in any country I know of. It’s a caricature to stop any real discussion about what are basic roles for a state and what is not.
        Tell me, what’s the difference between selling an island to a, let’s say, Greek tycoon and selling it to a foreign tourist company. I would bet you that the Greece state has a better change to keep up Greek laws on that ‘foreign’ island then on the one owned by a Greek tycoon. Don’t you agree? I just point to the stretches of beach around Athens which are fenced of by Greek ‘interests’. And no mayor can do a damn thing about it.
        No, as long as these caricatures are floating around we will never be able to discuss this issue in earnest.
        And one needs to do that or else the totally wrong things will be privatized. There needs to be a clear goal and plan to control those privatized companies to stop them from becoming a monopoly like the state has until now.
        Be sure that there would be enough interest from foreign investors if the Greek state was organized in a logical and accountable way. But it isn’t it’s companies just serve one group. And that’s not the customers or the citizens of Greece.
        Lot’s can go wrong with privatization Most of all with quangos taking over a monopoly. Also in different ways. The Netherlands is battling for decades now spiralling costs in the health sector. But it is totally differently organized then here in Greece. Doctors form private ‘companies’ who work in hospitals. Hospitals have become quangos And cost are going through the roof.
        On the other hand, the telecom-world is functioning very nicely after the Dutch OTE became privatized. Lot’s of different companies found their place resulting in more choice and pressure on tariffs. A very good watchdog was the lifeline that accomplished this.
        Just two examples. And in none of these control was “lose the right to long-term control”. As state you never loose the right to control a private company on you soil. NEVER. That’s also a myth created out of politics or self interests.
        What would be investors targets here in Greece? Telecom of course. I still can not understand what brought about the de facto (re-)nationalisation of Cosmote and Germanos.
        But I shudder at the thought that this Greek state would privatize more at the moment. Time and again it showed it can not be trusted in controlling and correcting things that go wrong. And in most cases the state itself is the biggest wrongdoer. All those halfway privatizations here are riddled with corruption like there public opposites. Hospitals, KTEOs, Universities to name just a few.
        Common problem? There is no independent justice in this country. There is no way control will be independent and accountable here. And as long as that remains, Greece won’t get out of it’s troubles.

      • Using your original scenario about selling an island, consider for a moment if the tourist company you mention turns out to have Turkish investors or is later bought out by a Turkish investor. You can see immediately what kind of complications this would cause. This is one of the key reasons that the prospect of selling islands or beachfront land is such a sensitive issue. Greece’s territory is being disputed in the Aegean and in some of its northern borders, so there is a very clear fear of allowing undesirable influence in through the back door.

  3. Further to the comment upon comment above, to note:”The argument put forward by some of the unions is: set up a proper business model and run these enterprises so they don’t cost the taxpayer billions rather than sell it off to investors for a short-term cash injection but lose the right to long-term control.”, I wish to add the following opinion. I have seen this attempted and offered as solution where I came from, and to date not one of the state enterprises that has experienced rescue efforts of this nature has been able to turn the corner. As long at the enterprise remains under the control of government or any of its institutions, it is forced to operate to the satisfaction of its masters, and not the market or economic forces. The debate will continue for ever, whilst the Greek taxpayer (the unlucky few) continues to foot the bill.

    • I will agree with you that constant interference from politicians is unlikely to ever contribute to the health of a public company. I would say, though, if a firm gets the chance to prove that it’s profitable, then it’s in the politicians interests to let those running it get on with the job of bringing revenues into state coffers. I realise that the process is rarely this simple.

  4. What complications? Sorry, but that is as much a caricature as any I heard in the ‘discussion’ around this subject. Again, there is no souvereignty transition in any such sale. And stating this as a ‘problem’ is as much as admitting that these territories are rightfully disputed.
    But if that’s the fear you make a privitazation law that states that Turks and Citizens of FYROM can’t buy Greek property. And as these are no EU-countries it should be no problem.
    Or does this fear also aply to other non-Greek entities like… say German or Dutch citizens? I bought land here, but who says I might not be a front for a Turkish investor? I smell a high dose of either xenophobia or clear stonewalling the subject here…

    • What might sound like a caricature to you or me nevertheless remains a very tricky issue for any Greek government to deal with. Clearly, Greece is not averse to selling land to foreigners on a private level – this has happened in all parts of the country already. But there is a very difficult psychological barrier to get over in terms of public land being sold to foreign investors. It is not an issue of xenophobia, although there may be an element of that, it is an issue of sovereignty concerns that are deeply rooted in the Greek psyche and continue to be part of the daily life of this country. No other European country, for example, suffers regular incursions of its air space or territorial waters from a neighbouring state. Of course, what this does is to create a taboo, which government’s do not have the time or the inclination to debate. Much of the press and a sizeable chunk of the public would never allow this subject to be discussed dispassionately. Therefore, for a government that is under pressure to raise money fast – 50 billion euros in four years don’t forget – it’s an issue that is best avoided. That’s why they say that they will get Parliament to vote on any land deals and why they want to agree long-term leases, even with the Qataris looking at Elliniko, rather than outright sales.

      • If what you are saying is true, and I think it is, Greece will never get out of this mess until all those ghosts from the past are dealt with.
        But out of what I am hearing all around me it sounds too often as another lame excuse to avoid to face up to decisions and choices. And this is “deeply rooted in the Greek psyche and continue to be part of the daily life of this country” too.

      • Anton, there is no doubt some privatizations will take place over the next few years. 50 billion euros is unrealistic – I don’t think anyone believes it is achievable. The important thing is for Greece to show that it is willing to help itself get out of this mess rather than just rely on others. We will just have to wait to fill in the details.
        But I don’t think Greece is the only country where the sale of certain public assets will prompt an outcry. Don’t forget that the Conservative government in Britain had to abandon in February its plans to privatize public forests after a huge campaign to stop the process. “Sorry, we got it wrong” was the relevant minister’s response. It’s just political reality that the current Greek government can’t open up new fronts of confrontation with the public.

  5. I agree, 50 billion is unrealistic. And yes, Greece should show that it is willing to help itself get out of this mess by restructuring the way this country is governed and organized, so that when restructuring comes the country is ready to not slide into the same swamp again. As it stands now, every measure that has been and will be taken will drown into the same deep hole as it was for the last 30 years.

    To achieve this Greece people and their politicians have to finally start to prioritise. Make simple list about what is the most important, less important and what can be abolished. Same goes for privatisations. Until now it seems every measure stems from a acute crisis. Look at the two hospitals that will close in Athens. Everybody knows there should be closures or mergers of hospitals in the country. But no one dares to make a list that can be discussed. So we wait until one or two drown and we will save those. Fine, but when in good time we have to finally choose where and what hospitals we must keep open these two might not be on that priority list. So, energy and money will have been spent in vain.

    That goes for all privatisations. They have been going on in Western Europe for many years now and Greece could learn from the mistakes made by those countries. And in my opinion nature is maybe the one thing that can not be privatised. That’s why that British plan prompted such an outcry. Although the way Greece is handling it’s public owned nature almost has me come to the conclusion that any alternative could not be worse…
    But for other things like electricity, post offices, railways, other public transport and so on, it would be good to look at where other countries found out what worked and what did not work.

    And the state? It should fall back on it’s traditional roll of watchdog for the common good and stop playing being entrepreneur and stop micromanage. Greek governments have proven beyond any doubt that they never can be a creator of wealth. It should instead set up some basic rules and enforce them. There is nothing wrong with selling shipping lines and require the companies who will bid for them to have also minimum services to small and remote islands. Same goes for possible privatisation of the post. If as a society we find it important that small communities will be served by postal companies we have to put that into the licenses we sell to those companies. If they want to serve easy targets like Attica? Fine then they also have to serve remote areas against a reasonable price.

    Do we really need a high school in every small village? Or could we merge them in bigger towns that are still easily reached by the students. Or maybe we could change schools into annexes of main regional schools and keep them open by removing the overhead?

    Do we really want windmills and photovoltaic installations scattered around every beautiful nature place in the country or is it possible to concentrate those activities into places where industrialisation already destroyed the surroundings?

    Why does Greece needs hundreds of tax-0ffices when a country like The Netherlands can do with just 5?

    Just a few examples. But these are real questions and decisions that have to be taken and approved of by the people of Greece. But we will need a New Deal between all citizens of Greece so that “political costs” shift from better not acting at all to punish those who dare not act.

  6. These are interesting qualitative discussions. I wonder if anyone ever looked at this more quantitatively – created a P&L and balance sheet (imprecise granted) – then do a pro forma on reduction of debt via asset sale to create a sustainable budget.

    I realize this is a thought experiment given the intransigence of the Greeks around selling assets or ever living within their means.

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