In a perfect world, this article would have begun with a quote from the gangster/shrink movie Analyse This, released in 1999. In the event, though, the movie’s rating — due in large part to the ‘salty’ dialogue — leaves little that can be included here without censoring so much of it that it more closely represents morse code.
It stars, you might recall, Billy Crystal as a psychiatrist and Robert De Niro as a mob boss. De Niro, as Paul Vitti, reluctantly asks Crystal’s Dr. Sobel for help. Of course, being Hollywood, all’s well that ends well — and it’s a very funny journey.
Both men are there because they expect to be able to work together — and to both benefit from the process??? notwithstanding some aggression and disagreement along the way. Which, if you’ll excuse the metaphor, is often the relationship between government and investors when it comes to privatisations.
Most people will have a view on privatisations. But, without being unkind, most of those views are couched in an ideological world view. Government either should or shouldn’t own particular types of business, for those people.
Which, I’d submit, is a problem.
But that’s not to say each camp doesn’t have a point. The econocrats and competition-focused types — the Paul Vittis, if you will — believe, with some justification, that the private sector can run businesses much more successfully (read: profitably and with greater efficiency) than government. That’s hard to argue, given falling staff numbers and rising profits in organisations that were previously in government hands.
Those who focus primarily on the social good — let’s evoke the good Dr Sobel — will often argue that government has an important role in the provision of many different services. They would suggest the profit motive in otherwise-privately-owned businesses means that we all pay higher prices for the products and services we use.
Of course, life is not that simple??? or that black and white.
And there are a heap of hits and misses complicating the story. Privatising Commonwealth Bank hasn’t exactly helped the bank meet its regulatory requirements. Or improve competition in the banking sector. But Qantas — and its relatively poor post-float bottom line performance — has probably saved the government from a heap of (potentially costly) issues.
Telstra shareholders are either happy with their lot — if they bought the first tranche and remember to include their dividends — or unhappy if they bought T2 at the height of the dot苏州夜总会招聘 frenzy. But the taxpayer has missed out on the profits made in the meantime??? assuming the company would have made those profits in public hands, without job cuts. Meanwhile unions decry those losses, many consumers complain about services.
From a purely economic perspective, of course, there’s no reason — other than lack of political will — that those organisational changes, including job cuts, couldn’t have been made while the organisations were in public hands. And the buyers — either stock market investors or private equity companies — are only going to buy if they’re getting a good deal. The mythical win-win
In investing, win-win outcomes are very rare — it’s like selling your house. If you get a great price, the buyer overpaid. If she got a bargain, you lose out. So if these floats are — to use the investment banking euphemism –‘successful’ because the share price rises after the listing that’s money that the government left on the table.
Think about Sydney Airport, the nation’s power stations, our state TABs and the ‘poles and wires’ deal in NSW. Add in Medibank Private and QR National (now Aurizon).
Where there were willing buyers, those buyers either got a bargain, or were sold a pup. No-one takes the deal unless they are expecting to make money from it — cash that could have otherwise accrued to government coffers.
I have a deal of sympathy for those arguing for privatisation — most services have improved, capital investments have been made, and in at least a few cases, the risk of ownership belongs in private hands. Would Telstra, as Telecom, have invested sufficiently in mobile spectrum and new technology? Would Qantas have been a millstone around the government’s neck? CBA, despite its troubles, may not have become a market-leading player in technology implementation and discount stockbroking.
And those people — often including me — have a simple, and very reasonable, solution. Ownership is one way to exercise control, but governments have an equally powerful set of tools at their disposal: regulation.
We’ve seen the NBN negotiations where the federal government essentially repossessed the cables, ducts and pits from Telstra. The government controls banking policy on capital requirements and ownership concentration. It can decide how airports, railways and power stations are to be run.
Where the rubber hits the road, though, is governments’ awareness of the need — and willingness — to regulate effectively. Will a government really regulate to hurt a private owner of formerly government-owned assets? And with the budget balance foremost in mind, governments could easily be incentivised to pass regulations that would boost the value of the assets they’re planning to sell.
It’s also tempting to wonder what decisions might have been made differently if government still owned some of those assets, particularly in energy. Would there be as many coal-fired power plants? Would distributed energy (where locally produced and stored energy replaces or augments the main ‘poles and wires’) be further along if there was no government incentive to lease the distribution assets? Foolish takeaway
In a perfect world, ownership by government is a redundant requirement where that same government sets the rules for how a privatised asset is used or a privatised business is run. If you believe — correctly — that the government will do the right thing, the risk probably belongs in private hands, where service provision can be assured.
The real question is whether such regulation is, can and will be enacted to protect the public interest. If a mob boss and a psychiatrist can part as friends, maybe it’s possible??? Or maybe that’s just Hollywood.
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Scott Phillips is the Motley Fool’s director of research. You can follow Scott on Twitter @TMFScottP. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).