Tuesday 22 May 2012

Good reasons for not liking the partial asset sales programme

We have another BERL Report. This time on the government's partial asset sales programme. See Offsetting Behaivour and Welly Gnome for comments on this report. Given that it was commissioned by the Green Party you will not be surprised to hear that it is very anti the asset sales idea. But the report may have reached the right conclusion, albeit via the wrong reasoning. There are good reasons for not liking the government's partial asset sell off. Here are a few I can think of:
First, selling only 40% of the shares in the companies is unlikely to make an difference to the way the SOEs are run. In particular the sell off will not make the firms anymore efficient since the government will still be the controlling shareholder.

Second, if the government really does want to maximise the income it gets from the sales selling 49% is not a good idea. 51% is worth a lot more than 49%, that is people will pay a premium for control.

Third, selling to "Mums and Dads" will do nothing for the amount of money raised, since Mums and Dads will need a discount to make them buy shares.

Fourth, selling to "Mums and Dads" will do nothing for the efficiency effect of having private owners, since there will be too many "Mums and Dads" for them to be able to coordinate their effects to effect the firm's behaviour.

Fifth, given that each "Mum or Dad" will own only a very small share of any of the firms, they have little incentive to become informed on the firm's activities since they will only capture a very small amount of any improvement in performance they could bring about. This is another reason why performance is unlikely to change.

Sixth, the discipline of bankruptcy or takeover is not greater since the government is still the controlling shareholder and is unlikely to let either of these options happen.
What I don't get is why Labour and the Greens haven't argued along these lines.

These problems could be overcome by a well run competitive auction of 100% of the shares in the SOEs to all buyers, both national and international.

1 comment:

Alex said...

I think the thing to remember is that almost everyone has a different reason for wanting to stop the asset sales, for example most of the Green activists I know are worried that private investors will want more short term profits and be less interested in investing in renewables. As long as the coalition can keep sight of the shared goal, the referendum, we have a chance of stopping the asset sales, which is a good thing for anay number of reasons.