As the privatisation juggernaut – from Royal Mail to RBS – continues to roll, the government is hoping to net billions more from the sale of public assets.
Privatisation was originally sold as the route to Mrs Thatcher’s much vaunted ‘popular capitalism’. Yet shares bought by the public through privatisation have mostly been sold immediately, while share ownership is even more concentrated today than in the 1980s. A large number of these companies have been bought up by private – increasingly foreign – owners.
Far from spreading wealth, decades of sell-offs have thereby created an economy even more heavily skewed in favour of a few private owners and increasingly reliant on a single model of enterprise – the privately owned and run company – fuelling Britain’s widening wealth and income gap.
No longer able to claim it will spread popular capitalism – always a myth – the government have a new defence, that sales will help pay down the deficit. Yet it makes little sense to use long term capital assets to finance a temporary revenue gap.
Sales offer a one-off windfall – the family silver can only be sold once. They mean the permanent loss of collectively owned public assets, and the income that they deliver over time, both built up over many decades. Although such sales can reduce the cash debt at a given moment, they aggravate the problem of public indebtedness as the asset base which helps to balance the debt shrinks away. This is simple short-termism that will be paid for by subsequent generations.
Yet there is an alternative approach that would limit the long term impact of persistent privatisation. The sell-off of what remains of the family silver is set to continue, but at least the proceeds should not be passed lock, stock and barrel to the Treasury.
Instead of disappearing into the Treasury black hole, the proceeds from privatisation could instead be paid into a newly created Public Investment Fund, a collectively owned, social wealth fund. In this way, the benefits of historically accumulated public assets could be used to fund a range of public projects that benefit society as a whole, including investment in economic and social infrastructure. There would also be much greater transparency in the way the revenue is used.
Imagine the shape of the British economy today if such a Fund had been established with the sale of British Gas and British Telecom in the mid-1980s (or if all public assets had been pooled into a single protected giant social wealth fund). With billions of annual sales since then, and part of the Fund used and part reinvested, it would have grown to represent a very sizeable chunk of the economy’s overall wealth, providing a powerful balance to private capital, and able to fund a range of socially useful projects. We have of course, already lost this opportunity. But the future proceeds from such sales could still be used in socially useful ways.
The idea of Social Wealth Funds could also play a much wider role in the economy, helping to create greater balance and plurality. For example, if the proceeds of right-to-buy, now to be extended to housing association tenants, had been paid into a Social Housing Fund to fund new housing, instead of grabbed by the Treasury, the sorely depleted housing opportunities facing today’s youngest generation would have been transformed.
Depending on how they are financed, such funds have the potential to be a powerful weapon in the anti-inequality armoury. They would greatly improve the overall balance sheet of the public finances in the process. We could stop fretting about the national debt!
Although they have been spurned in the UK, such Funds are widely deployed elsewhere. More than 50 countries now operate state-owned sovereign wealth funds, though mostly resourced through the exploitation of natural resources, notably oil, and used for a diversity of purposes. Since the early 1980s Alaska has operated a highly popular fund which pays an annual dividend to all citizens. Perhaps the most successful and transparent of these funds is the Norwegian Fund. Created in the early 1980s and now worth an estimated $700 billion – and overseen by an independent ethics committee – it holds one per cent of global equities.
Britain has wasted the opportunity to finance such a fund them from part of the proceeds of North Sea Oil, but it is far from too late to find other ways of building such funds, starting with the revenue from the future sales of public assets.