Matt has posted about asset sales and believes that they’re a good idea as long as the government gets a fair price. He seems to be saying that the government’s decision to sell assets should be the same as a private company’s. Only the government isn’t a private company, so the costs and benefits to be weighed are a little different.
To begin with, once the government has committed to asset sales it is politically committed to selling. That puts it at a disadvantage relative to potential buyers; one that they will be all to happy to take advantage of, as Rob Salmond has recently discussed. The fact is that government asset sales are a political manoeuvre, not a commercial decision, and that puts the government in a weak bargaining position with whoever offers to buy the assets. That’s one of the reasons why assets always seem to be sold at a low price, relative to their commercial worth.
So, if governments struggle to extract a good price for their assets, why sell them at all? The late Roger Kerr had an excellent series on his blog in which he detailed some of those reasons. The main two are that
- Asset ownership is risky and the costs of that risk fall largely on those who depend on the government for their livelihood; and,
- Privately owned companies tend to be run more efficiently and profitably
The main objection to asset sales is usually not on financial grounds but equitable ones: selling the assets transfers the future revenues from the state to a small number of private citizens. Now, if the assets were sold at a fair price that would not be an issue, as Matt notes. However, not only are they likely to be sold below their real value, but the additional profits realised by a privately owned company certainly accrue to only the owners of the equity. On the one hand we might say that is fair because they have, through their good business sense/ruthlessness [delete as preferred], generated that increased value. If they have generated it and paid their taxes then what claim do taxpayers now have to it? On the other hand, some will say that those people should not profit from taking advantage of the Crown’s weak bargaining power. In the latter case, one could either opt to tax the returns or design an ingenious contract by which the Crown was fairly compensated for their weak bargaining power. The extent to which you think that is possible probably determines your support or opposition to the sale of state assets — other than ‘strategic assets’, whatever they may be.