No the Government has not lost a billion pounds of your money

The title above refers to this article on Labourlist which is about the sell off of Royal Mail that has been criticised for not achieving ‘value of money’. I find this line of attack somewhat annoying. Labour put up a very weak opposition to privatisation at the time (because they wanted to do the same thing), so has instead now resorted to saying the privatisation was ‘botched’.

The argument that the Government’s mistakes have ‘cost’ the taxpayer millions is based on some quite dodgy thinking. It assumes that in terms of the sale price, the higher the better because the Government can then spend the proceeds, and that if it doesn’t achieve the highest possible price, it has ‘lost’ money. The Guardian has a story up today detailing what an extra £750m of ‘taxpayer’s money’ could buy. This is not how government spending works though. If the Government wants to spend an extra £750m, it can just soak up some of the private sector’s excess saving by issuing some gilts, or it can – horror of horrors – just create the additional £750m through its agent the Bank of England.

In a lot of ways, having made the decision to privatise Royal Mail, it would have been better if they had just given shares – for free – to each household in the UK. This would have generated some much-needed economic stimulus as people sold their shares and spent the proceeds. As it is, selling Royal Mail for less than it’s ‘worth’ doesn’t impact the Government’s ability to spend on what it wants in any way.

The argument then should be over a nationalised or privatised Royal Mail – basically, is Royal Mail better off in public or private hands? Here are a few genuine questions we need to know the answers to to know if the privatisation was/will be a success:

Will prices now be lower or higher?

Will the service be better or worse?

Will Royal Mail’s staff have better or worse pay and conditions?

Who ultimately now owns Royal Mail?

What returns are they making?

Are those returns the result of productive investment, or rent-seeking and abuse of a near monopoly?

Will any assets be sold off? Who benefits from that?

Those are some real questions. I’m sure there are plenty of others!

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7 thoughts on “No the Government has not lost a billion pounds of your money

  1. I’m not in agreement with the Privatisation of the Royal Mail. But if things are privatised how should it be done?

    Privatisations don’t raise any spending money for Government. Governments don’t need to sell off assets to get money to spend. That money will have come from the sale of other investments , or gilts or whatever. ie Inactive money. So it would be inflationary if that money were spent just the same as if it were printed.

    Governments don’t need to tax to get money to spend either but they do. The taxation is usually of active money in the economy. The removal of active money is deflationary, Governments then spend , which is inflationary, and the two effects counterbalance.

    So doesn’t it matter if Governments privatise at a knock down price?

    I’d say it still does matter. Not because the price makes much immediate difference in the workings of the economy but because it transfers wealth to the buyer which previously belonged to the seller. The big problem with western capitalism is that the rules are made by the wealthy. They are sitting on huge piles of cash. They are scared stiff of inflation. They’ve decided they can’t make any profits by creating jobs for the unemployed. They have decided they want to see inflation as close to 0% as possible to protect their cash piles.

    From their POV: if that means unemployment is 10% then so what?

    1. I don’t think I disagree with that, although I find I am a lot less angry about the sale price than the sale itself. I’m fine with the argument being “It’s a distributional nightmare. A lot of wealthy people have had more wealth transferred to them for doing very little”, but I do object to the idea that a low sale price has lost the taxpayer money and that somehow we can now afford to employ less nurses or teachers. This just seems to perpetuate myths that continue to hold us back.

      1. That’s true. But it’s still correct for Mark Ferguson to make an issue out of the low sale price. I may write this up as an article and submit it to Labourlist.

        But just quickly – there’s a parallel with taxation. If you or I receive a tax bill for £1000 then its going to have a deflationary effect on the economy. We’d have to not go on holiday, not buy that new TV, or not eat out at a restaurant quite so often, or whatever, to be able to pay it . This gives the Government the ability to spend and take up the slack without creating inflation.

        But if the Duke of Westminster or Alisher Usmanov, or Roman Abromovitch, all multi – billionaires, received the same tax bill it would have no deflationary effect whatsoever. Their consumption wouldn’t decrease in the slightest. Any money received would be in the same category as money received for privatisation sales. From purely short term considerations the Government may as well just issue new money.

        So does this mean that multi-billionaires should be excused tax? Some people in MMT circles may think that but not me!

        1. I’m not sure that’s what’s happened though. You seem to be saying the government should have just auctioned off Royal Mail to whichever hedge fund or oligarch would pay the most. I’m not sure you could get them to ‘overpay’ though, so their wealth stays the same or goes up slightly. Everyone else has lost a share in a valuable asset. The government could then redistribute the proceeds on a per capita basis I suppose. The government actually offered everyone a chance to buy some shares, and anyone who did has made a paper profit of about £200. If they just given the shares away to every UK citizen, the ‘oligarchs’ may still end up with ownership at the end of the day (which is why it shouldn’t have been sold!), but they’d have had to directly redistribute some of their wealth to everyone else to secure that ownership. The fact that a few large institutions made a massive overnight profit is a feature of privatisation, not a bug resulting from this particular one.

  2. MMT draws heavily on accountancy theory. So the argument would be that the replacement of an asset by money , from the Governments POV, means that it hasn’t gained anything from the sale. Both sides of the balance sheet are equal both before and after the sale.
    That is only true if the assets are sold for their market price. If they are sold off for less then the buyers are gaining at the expense of the sellers.
    MMT doesn’t suggest that it makes no difference if State assets are looted like they were when the USSR collapsed!

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