Has any time been agreed? Is it agreed that we vote on this question tomorrow night in view of the fact that it is a three hour debate?
Private Members' Business. - Sale of State-owned Assets: Motion.
Acting Chairman
As I understand it, the House will decide that tomorrow.
We come back on 29 April.
The House may give more time tomorrow. Deputy Colley will use some of my 40 minutes.
I move:
That Dáil Éireann calls on the Government to take the necessary steps to facilitate the sale of shares in such State companies as are thought appropriate and feasible, to employees of such companies, to members of the public, to Irish pension funds and other institutions; to sell such other appropriate State owned assets as are not needed for national strategic purposes, and to apply the proceeds of such sales in the reduction of public debt and the stimulation of economic and employment expansion.
I am proposing this motion in the hope that we will have a debate which eventually will lead to a policy in this country that will be inspired by principled pragmatism on this question rather than on one influenced by outdated ideology. The type of debate we have had in the country — we have not had one in this House on this point previously — has tended to be influenced by what I describe as outdated ideology rather than principled pragmatism, and it is a matter to which we need to give considerable attention, and we need to do it without the sort of hangups, ideological and otherwise, that have been a feature of the debate on this topic so far.
A short extract from the programme of the Progressive Democrats published in October 1986 is worth quoting. It is on page 25. There are five references in all to this point in this document but this is the main one that I will read, if I may, to put on record the attitude of the PD's to this problem. The quotation is as follows: Public Ownership of State Assets:
The proceeds from this programme will be used to reduce the level of state debt. This will, in turn, reduce the cost of servicing the national debt which is paid annually on the current side.
Ireland is now unique in Europe in not pursuing a programme of disposing of the state's commercial assets. France is currently undertaking a widespread programme of selling state assets to the public. The Progressive Democrats believe that such a policy is essential here if we are to get the nation in its broadest sense to work more efficiently for the benefit of all.
The returns from such a programme will begin to come through in year two. It will provide a valuable opportunity for investment at home to pension funds who are starved of these possibilities at present, and will ensure the utilisation of Irish capital for the benefit of our economy while reducing the calls on the state. We see no point in the state retaining assets of value on which it gets no return, while at the same time it has no pay up to 14% to borrow funds. Each year, Irish pension funds have many hundreds of millions of pounds for investment.
Since the suggestion is sometimes made that this whole idea of the State selling its assets in one form or another is new, or unique, or something dreamed up by the PDs or subsequently by Fine Gael, I would like to make brief reference to an article which appeared in The Times, the London paper, of 27 June 1986 setting out the position throughout the world and underlining the fact that this country is unique virtually in the fact that it has not undertaken any programme of this kind. I will quote, if I may, just a couple of brief paragraphs from that article:
Privatisation has become one of the world's growth industries. Governments everywhere — in the advanced economies, the Third World, even communist — are divesting themselves of state holdings and activities. Japan, having privatised its telecommunications system and launched its state tobacco and salt monopoly towards the private sector, has now embarked on the sale of Japan National Railways, which is to be broken up into six passenger and one freight company. This sale will dwarf that of Telecom, Britain's biggest to date.
Later the article makes reference to a long series of countries and I have picked out one or two of them as examples of what is happening even in unlikely places. I quote:
Private food production in Hungary now accounts for half the total, and people are being invited to bid for the right to run state enterprises for profit.
Elsewhere it says:
A country such as Sri Lanka, torn by civil strife, deregulates and privatises its bus system, sells loss-making textile mills, and puts the telecommunications system up for sale.
Nominally socialist Spain sells Seat, the national car manufacturer, while at the other end of Europe the rather more right-wing government of Turkey sells the Kevan hydro-electric dam and even the Bosphorus Bridge.
That article goes on to give a long list of examples of what is happening in the world today. When we look at the reality of things we realise why it is happening.
We are putting this country at a great disadvantage by not being part, in some degree at least, of that movement. Some of the more obvious reasons why, particularly in this country, it is necessary for us to begin to take this road can be stated briefly. We need, perhaps above anything else, to diminish the impact of the State on our economy. We need in that way to create a more vibrant economy by giving more scope to those in a position to make it a vibrant economy, and nobody can suggest that the State is in that position. By doing this we would create capital for the State rather than the position we enjoy today where the State is sucking up the great bulk of all the capital available. Inevitably, private involvement, management and so on of many of these companies who are run entirely by the State at the moment will lead to more efficient allocation of resources.
We must ask ourselves whether we are in a position to continue the level of State spending here which as a proportion of our GNP is incredibly high even by comparison with countries which are nominally Communist. It is interesting to note that even what are usually regarded as the most Communist of all countries, the USSR and China, are moving towards private activity, private commercial activity, and away from more and more State activity.
The proportion of our GNP which is consumed by the State in one form or another is two thirds and, in comparison with our neighbours in Europe or elsewhere, that is an unbelievable proportion. There is no doubt that in general terms that money is spent less efficiently by the State than if it were spent otherwise than by the State. That is not unique to Ireland; it is a fact of life throughout the world, recognised throughout the world, and my suggestion is that it should be recognised here.
Many problems face the State and State companies today which cannot be overcome by the State alone. Some 30 or 40 years ago the reverse was true; there were many things that private or privately owned companies could not do and the State had to intervene. One example is Aer Lingus who require £700 million or £800 million and there is no way in which this State will be able to raise that money and pay it to them in the way it has supported other commercial State entities in the past. I know of no evidence that Aer Lingus, for example, are averse to raising private capital. Probably their management, like the management of all well run companies of that kind, would be quite happy to find themselves in the position in which they could raise private capital.
One aspect of involving assets or investment other than the State's is that losses must be borne by the investors. Unfortunately, a feature of our State companies is that generally they make losses and many of them make enormous losses every year, and every year there is a procession of Ministers into this House, whichever Government happen to be the Government of the day, looking for more and more money basically to fund such losses. Therefore there is in such a move an additional incentive to efficiency which we are lacking at the moment because it does not matter whether a company is efficiently run, as we have seen. Ministers, including myself, have come in here asking for more money to make up for the losses and the inefficiencies and I do not recall any senior management being fired in circumstances in which, if they were not employed by the State, certainly they would be fired. It is interesting to note that in Britain particularly — and indeed in other countries — two or three years before privatisation of a company actually took place there had been a great rush in each case to make the company commercial and efficient because the management began to realise that they would be fired if the company did not perform. It is worth making the point that it is desirable there should be greater shareholding among the public at large here than is the case. People become more aware of the realities if they are shareholders but are far removed from reality if they are simply shareholders via the taxpayers' money, which is invariably being lost anyway. We have in this country substantial funds of small savers and others, through pension funds and life assurance companies, that have no opportunity at all, or very limited opportunity, for investment even though the companies are obliged by law to invest 90 per cent of their funds in the Irish economy.
I should like to return briefly to some of the historic reasons for many people here holding certain views on this matter and will try to show that they are no longer valid. One of the first points I want to make in that regard is that there is a belief here that if the Government of the day do not own some particular undertaking they lose all control of it; therefore, that they are opting out if they opt out of full or majority ownership. That is quite untrue. Let me take the banking world as an example. The Government own only two very small banks of a specialised nature — the ACC and the ICC. They constitute only around 1 or 2 per cent of our whole banking system. Nonetheless, the Government control our banking system very tightly by regulation without owning any of it other than the small ownership of the two specialised banks. That can be the case in any other field in which the Government feel that in the national or public interest it is necessary to retain control, even if they give up ownership.
We must realise there has been here for a very long time — almost, indeed, from the foundation of our State in the early twenties — often what can only be described as the misuse of capital. There was very little opportunity for any proper utilisation of capital for the right purposes. In the twenties we had the Civil War and its aftermath and at the end of the twenties we had the Wall Street crash and the almost total lack of trading activity in the world at that time. In the thirties here we had an economic war which obviously severely curtailed our ability, at a time of protectionism, to become involved in any major economic development, so that what did take place tended to be behind tariff barriers for particular purposes in our own country. In the forties we had the Second World War and its aftermath which devastated, if not us happily, unfortunately many of our neighbours and trading parties.
For a long time, therefore, we had no development because we really had nothing to develop and no great opportunity. We began, as a result of that, to acquire a banking system that was not geared for specific purpose lending but adopted an attitude of lending against assets. People began also to adopt an attitude of borrowing on the security of assets and of understanding that they could not borrow unless they had specific assets. The result of all this is that so much capital that should have been productively used — and in other countries and other economies would be so used — in this country was diverted into the ownership of assets when it was not necessary for productive purposes that that should have happened.
This State is, by and large, starved of capital. You have only to look at the interest rates charged in the interbanks money market today and for some years past to realise that fact. Unfortunately for us, living in a country which is starved of capital in that way, any successful effort to create a surplus or a profit or to generate capital — and you can call it any one of those things, essentially it is the same thing whatever you call it — is sucked into the State system and is absorbed by the State; whether it is borrowed by them, or otherwise consumed by them does not matter. It is, in fact, absorbed by them.
On top of that whole economic system that has developed here with this obsession with the ownership of assets we have superimposed a kind of personal attitude towards ownership of things, also. That is a legacy from the 19th century and our attitude to land and being dispossessed of land. That is not something that dies very easily and even after three or four generations and a century almost it has not died. It influences us in a way that does not apply to any other European country because no other European country is as devoted to the possession of fixed assets as we are. What is important for us now is not ownership but rather utilisation of assets. Who owns them does not really matter. What does matter for this country is how they are utilised and, in particular, that they are utilised for the benefit of this country. As long as you have them to use them, you do not have to own those assets. That fact is recognised by many of the most successful firms in this country today. I could name one of the largest and most successful public companies who have, as a matter of deliberate choice by themselves, no investments in bricks and mortar. They chose not to, for reasons into which I shall go later.
Some years ago, when I was Minister for Industry and Commerce, I gave a reception in Dublin for visiting financial people. The president of the particular association was a German and he made a speech about Ireland. He said that he found it fascinating because in certain important respects he found Ireland to be the opposite of Germany. I have seen this next item quoted elsewhere, so it must have made an impact on others also. He said that in Ireland everybody buys his house and rents his television set, whereas in Germany everybody rents his house and buys his television set. He, as a German, said that the Germans are right and they are, from their point of view, but we absolutely assume we are right.
They are both consumer durables.
The point he was making was that the utilisation of capital in more profitable ways is what is needed by us. That utilisation of capital, for example, in more profitable ways is the approach of people like the Germans, the Japanese, indeed the Americans and many other successful countries. Capital has been used here to acquire and maintain fixed assets but it has been done by leaving a shortage in manufacturing companies for the purchase of raw materials, a shortage for the payment of labour and a shortage, generally, for the production of goods. Research and development in this country and, generally speaking, marketing and sales are starved of investment.
There are similarities between our existing national situation and a manufacturing company which is in that position. A manufacturer who is utilising all his gross profits to service existing capital debt limits his opportunity for expanding production which would be the very means he would need to escape from the stranglehold he is in. Such a company would do their utmost to reduce its debt, and the cost of its debt, by disposing of all or part of its assets and leasing or renting back those assets if they were getting no return on them for more productive use. This country can be allied to that sort of position because in order to service our existing debt we have to utilise all our income tax revenue. Apart from having a very serious effect on the Exchequer and, therefore, on the level of taxation that has to be levied this also has an effect that, I might say in parentheses has been neglected in the recent budget, which will be under discussion tomorrow. It neglects the interest rates situation. The situation we face today raises a much higher level of expectation in the lender to us than it would in the lender to a company of the kind I have indicated. That is the reason the general plateau of interest rates has been raised and maintained at the present level. Unless we are prepared to recognise those realities, the difficulties we have will continue.
This relates very closely to the purpose of this motion which is to get the State to divest itself of things it does not need to have. As in the case of a manufacturer it can, by divesting itself of ownership, make available to it capital that it does not now have to improve the means of production. If a manufacturer disposes of fixed assets which are crippling him in trying to service them, it gives him the opportunity to finance his work in progress, to finance his expanded labour costs and his investment in marketing, and that is precisely what the State should do.
In Ireland we have an ideological hangup about ownership and the retention of ownership that is not the case in other countries. Whatever is available by way of capital should be ploughed in to what is to be produced rather than where it is produced, which is what we seem to find more important. There are many areas where State funds are invested in fixed assets to no useful purpose. Apart from companies there are many assets, buildings and land, all over the country, on which there is no return and which are, in fact, a drag on us in one form or another, but which are left there and are not realised. An example, which I hope will soon be removed, would be part of the docks in Dublin which, if sufficient encouragement is given and a framework is set up by the State can be developed by private investment. I hope this will be developed in the same way as many of the derelict docks in London, which were lying there for the past couple of decades, have now been developed at no cost whatever to the British State. There are many other similar things, which if the State could divest themselves of them, tremendous progress could be made.
At present, in the property market, the current yield that is looked for from a State tenant is about 6 per cent to 7 per cent or from any other good tenant as the State would be regarded. While that is the yield sought for modern space, the Government is borrowing money in order to provide things of that kind at a cost today of 11 per cent and only a few months ago at a cost of 14 per cent which was then the yield on long term gilts. It does not make sense.
If the State could remove itself from the position it is in and has been in for some time, of sucking up all the available money and paying so heavily for it, of building and creating and investing in things that it does not need to invest in, but which other people are prepared to invest in at a lower rate of interest, then it should let them do it. I do not want to refer to individual companies but I cannot help thinking about Irish Life which is actually heavily constrained by the fact of its State ownership. The management and staff are anxious that it should no longer be owned by the State and where the State has a return of £300,000 per annum, where the chief executive's valuation of it is somewhere between £100 million and £200 million; let us say £150 million, what businessman in his senses would retain assets of £150 million in order to draw a dividend on them of £300,000, which is less than one-third of a million? Nobody would do it. Would it not be very much better for us to realise that money and thereby reduce our borrowing which is costing between 11 per cent and 14 per cent, give us an income of £300,000 and save ourselves, perhaps, £20 million?
I want to give Deputy Colley an opportunity to speak on this matter. Unfortunately, I am not in a position to develop a number of these points as much as I would wish if I had the full time. I want to draw attention to the fact that a survey was carried out in Washington of the US Federal Government's requirements in terms of buildings, which would be very substantial, in the District of Columbia in 1979. It was found that more than half the buildings or space occupied by the Federal Government was rented because having studied the matter they could not see any point in doing otherwise. It was much less costly for them and they had no hang-up about ownership. If the current cost of renting anything is at a lower yield than the cost of money, then neither they nor us nor anybody else who manages our affairs sensibly should do otherwise.
In a country like this where there are very scarce resources of capital those scarce resources should be directed towards stimulating growth promotion or activity and not locked into bricks and mortar; either in the literal or metaphorical sense. I think it is worth reminding ourselves that the new investments in Irish equities today are well over 80 per cent by Irish institutions using Irish people's money acquired in small amounts weekly or monthly, by deductions for pension funds or life assurance funds and so on. Those institutions which are representatives of hundreds of thousands of people in this country are denied the opportunity that should be given to them and which they would welcome to invest in Irish equities. If they were in another country they would certainly have that opportunity. If we want to bring in foreign capital for these purposes, all we need do is put in a currency guarantee clause and we will get unlimited foreign capital if we want it. People will say that is taking an exchange risk. The truth of the matter is we have borrowed and owe £24 billion, half of that to foreign lenders, and by borrowing in their currencies we have given them, in effect, a currency guarantee clause. Therefore, we would not be in any different position. We are also entitled to ask about the position of employees in these companies; in other countries, where it has been enormously beneficial, they have been given the opportunity to invest in their own companies.
I happened by accident last night to look at a television programme at approximately 11.45 p.m. at the end of the BBC 2 transmission, called TeléJournal on which they transmit the main French news of that night, or German, or whatever it happens to be, a foreign one, and last night it was France, it was TF1. The main news as far as the BBC were concerned — although TF1 did not put it across as such — was that TF1 had been privatised on last Saturday night——
——and a Communist capitalist had died.
Yes, that is correct. They gave that more prominence — the man who sells butter to Russia. I suppose the staff may have felt a little unhappy about it but the BBC thought it was enormously significant and played it up tremendously.
Who won the contract?
A most peculiar mixture of people — who included, above all, Robert Maxwell. I would have thought the French would not have wanted to have anything to do with it. It also transpired that this is the third public channel in France that has been privatised in this present year and it does not seem to be causing any major problems there.
A phrase often used in relation to this matter by those opposed to these kinds of ideas which are worldwide today is one used by the late Earl of Stockton, formerly Harold MacMillan, arising, I would have thought, partly out of his antipathy to Mrs. Thatcher is that she is selling off the family silver. If some of the companies about which we have been talking are to be described as the Irish family silver I would describe them as fairly tarnished EPNS. We are in a much different position in this country. If we want to maintain our strange, unique ways, our lack of practicality and pragmatism as to what is happening around us, if we want to maintain a lack of a commercial sense at all times, we can retain this tarnished EPNS, the family silver, but we are in danger of doing it at the expense of getting rid of any food off the table.
Deputy Colley has seven minutes.
I should like to draw the attention of the House to the possibilities open to the Government concerning the provision of services by the private sector previously undertaken by the public sector. I should like to examine in a little detail the whole concept of privatisation or wider ownership of public assets. It would be true to say that the private ownership or funding of State assets can take and have taken many forms. We are all familiar with a number of these already and we accept them as part of the ordinary conduct of Government. We live in a mixed economy, some would say weighted too heavily towards the State. But we have not heard up to now any claims that the State is falling down in its duty by, for example, sub-contracting the provision of goods and services such as office accommodation, cleaning services, the general medical service and so on. In these examples the public sector still determines what services will be provided or supplied. However, efficiency in production may improve because of sub-contracting with competition from alternative suppliers. Also some degree of choice is given to the consumer in contracting out arrangements.
The franchising concept where public services are provided by the private sector and financed through charges to the public, for example the East Link Bridge, is another example of an option which has been taken up by the State in order to provide services which are needed but which the State cannot afford to provide itself.
Another area where we can talk about privatisation which has already occurred, to a lesser or greater degree, is that of the liberalisation of regulated markets. I have in mind here many services which up to now have been considered to be the domain of the State, for example, air transport, passenger transport, road freight and broadcasting. Another area already brought into the privatising net is that of tenant purchase of local authority houses, giving people real ownership of an asset, and relieving the State of the enormous burden of maintaining these houses. There are also some activities such as car insurance in Ireland, and welfare payments in the United States, which the State requires to be carried out but it mandates the private sector to provide these services. This is a situation in which the State requires something to be done but allows the private sector to do it and also requires the private sector to finance it.
It is worthwhile examining the reasons for the setting up of the commercial semi-State companies in the past. These range from the inability or unwillingness of the private sector in our earlier days, as an independent State, to develop new industry, to develop vital products or services, for example, Bord Na Móna and the B & I. There certainly was a place for a State-owned Bord Na Móna, ESB, Sugar Company and so on in earlier years, given our early state of commercial development. We had no tradition of industry or enterprise nor access to capital as individuals. Neither had we experience of marketing internationally nor of product research and development.
The case could be made for saying that the very existence of these large Staterun monopolies, or near monopolies, was a major disincentive to private enterprise becoming involved. We are now being fed with the notion that somehow these State companies had the capacity, and were intended to fill the employment needs of this country. Neither was true. The whole thrust of the establishment of these State bodies was that they were to provide services and products where there were no private companies doing so. If private companies had become involved in the provision of the same services they would have had to compete against the State. This was not what was intended as being in the nature of these companies. Now, many Irish companies would, if they could, compete on an equal basis and get involved. However, our tax structure, for one, discourages enterprise; some markets are not free and are heavily weighted in favour of State enterprises in any case.
I want to acknowledge the success of many State companies in the past 30 years, and the vision and commitment which those who were entrusted with the task of running these companies showed. They gave a sense of pride and achievement to a country which otherwise showed few signs of being commercially alive. However, as time has gone on, the disadvantages of the inordinate growth of the State sector have become more obvious. In particular there are restrictions which State ownership places on State companies, a few of which I will name. Government clearance is needed on key decisions, often necessitating delay. As I have said, they cannot compete with the private sector. Their pay and conditions, particularly in senior jobs, are severely restricted. They have commitments to specific markets and are subject to price control. They cannot close down elements of the company or make redundancies on a commercial basis alone, and they have limits on access to capital markets and foreign investment.
In an economy such as we have — have had for many years now, and will have in the foreseeable future — it is not possible for the State to fund the enormous amount of capital needed to maintain the existing State enterprises and their necessary and recurring capital costs, let alone find funds to initiate new enterprises. In such an environment State companies will flounder for lack of capital and also because of the difficulties of making provision for future development. It is quite feasible for a State company to operate well in the market place for some time but, when it comes to the point of needing to re-equip, modernise or develop new markets and products, it may be limited in its access to capital markets, experience delay in obtaining Government approval on key decisions, and find itself the victim of a set of political priorities on spending which have absolutely nothing to do with commercial realities or the needs of that particular enterprise. There appears to be some idea around among those who would wish to see the expansion of State enterprises encouraged that most if not all of the existing State companies' problems arose from Government inaction where equity and loan capital was concerned. That is getting to the nub of the discussion. What I am suggesting is to allow the proper financial environment to be provided for State companies so that they can operate on an efficient a basis as possible.
State companies are victims of the same situation that many private companies experience. It is because of the inordinately large size of our public sector that the Government have had to resort to such large-scale borrowing, and that in turn has put pressure on capital markets and so on interest rates. So private enterprise is not just short of equity capital; when it can get it, interest rates are so high that the death knell sounds for many companies. The public at large, and particularly employees of these State companies as well as institutional investors, will want to subscribe for shares in State-owned companies, as they would if they were offered an imaginative scheme for investing in a managed equity fund, perhaps State guaranteed, which would offer equity capital to new private enterprise. The State has kept a monopoly on so much of the capital available through high interest rates that new enterprises find it almost impossible to get started. We are told glibly that public sector industries are owned by the State acting for all the people. What is the significance of that statement? Are we supposed to feel more secure in the knowledge that the State, faceless and nameless, has control over these enterprises? That very control and the nature and essence of State control is the cause of many of the problems associated with State ownership. The control the State exercises over State-owned commercial enterprises is not compatible with the commercial freedom needed to exist in the open market. In effect, the same small group of people will run the company whether it is in State ownership or public ownership, that is, with shares publicly subscribed for.
I am sorry, Deputy, but the order requires that I must say that your time is up.
May I finish on a short note? This motion represents a pragmatic move towards putting State enterprise on a more realistic and efficient footing and in the process providing a reduction of the public debt and stimulation of economic and employment expansion.
I move amendment No. a1.
To delete all words after "Dáil Éireann" and to substitute:
"Reaffirms its support for an efficient and profitable semi-State sector as a major instrument for economic development and the provision of employment, and endorses the policy of the Government in maintaining and developing a viable semi-State sector which will provide an efficient, cost-effective service to the general public and actively pursue opportunities for growth."
The terms of the amendment which I have just moved are in line with the commitment which was given in the Fianna Fáil Programme for Government, and with the sentiments expressed by all speakers from this party when the question of the semi-State sector was debated in the House in December last. At that time the Government in office also expressed their support for the concept of "an efficient and effective semi-State sector as a major instrument of economic development and the provision of employment". The record of the Fianna Fáil Party in Government over the years has, firmly established our bona fides in this regard. I would claim that Fianna Fáil have done more than any other party to build up the State sector. The record of this party is there for all to see. In certain cases it may be necessary to adjust to changing circumstances. Our policies today must also be our own, not those of earlier times, or those of other countries but related to our own needs, our own time and our own circumstances.
The question of the semi-State sector cannot be considered as if it were an academic concept which existed independently of the national economy and economic developments generally. No less than other enterprises, these bodies have had to contend with the forces which over the past decade and a half have transformed the economic environment. Some have coped better than others. Some have experienced particular difficulties and others have had success. The State-sponsored bodies commercial sector is wide and varied. It ranges from the generation of energy supplies to the operation of transport services, from the provision of communication facilities to manufacturing and processing enterprises. Generalisation in this context is difficult and can be downright misleading. The issues arising are varied, the nature and detail of the problems to be addressed differ considerably.
It is only a matter of weeks since the Government took office. Since then much of my time and energies and those of the Government have been devoted to the preparation and introduction of the budget. Nevertheless, as the Minister charged with general oversight of policy relating to the semi-State sector, and particularly its financial dimension, I am acutely conscious that we must continuously assess the role of the State companies in presentday circumstances, to ensure that their resources and talents remain fully employed towards the realisation of the goals shared by all in this House — the promotion of development and the generation of employment. However, if they are to do this it must be from a position of strength. Weaknesses must be identified and dealt with, greater efficiencies must be introduced and viability firmly established.
While this Government believe that the commercial State bodies can be a major force for economic development, we are equally aware that unless these bodies are run efficiently and contain their costs they can become a burden on the rest of the economy. There is an ongoing demand for State cash injections into the commercial State bodies. Last year £98 million was provided in the form known as non-programme outlays, the bulk of which went to these bodies. This year I have provided £75 million in the budget for this purpose. This is less than the £90 million which the previous Government proposed but, given the state of the public finances, no more could be afforded.
This cut on the previous Government's proposed allocation demonstrates an essential point, namely, that while this Government believe that the State bodies can make a major contribution to development, we are not prepared to finance losses caused by mismanagement or a failure to contain costs. Our approach is that the commercial State bodies can and should be run with as much regard to efficiency, and to commercial realities, as their counterparts in the private sector. No State body should be under any illusion that it can expect the Exchequer to finance without limit its mistakes or to make up for any failure on its part to generate the funds it needs for investment. A great deal of responsibility, therefore, rests on the bodies themselves.
This Government's approach to the semi-State sector, as will be clear from my remarks, will be positive and developmental. We are, and always have been, a party which seeks the best solution to the economic problems we face. To do any less in the current economic climate would be irresponsible foolishness and would ill serve the people we were all elected to represent. So, while our commitment to the notion of State enterprise is firm, this policy will not be pursued irrespective of cost. The resources are not there to do so. On the other hand, and here is the nub of the question, we are not prepared to adopt a general policy of selling commercial State bodies for its own sake, as the motion at present before us seems to suggest is the policy of the Progressive Democrats.
As I said earlier, it can be dangerous and misleading to generalise about the semi-State sector. This Government will carefully evaluate the position of all State bodies operating in the commercial sector — their performances to date, their present position and their future prospects. We will look hard at the role they play in the economy, their relevance and impact in the changing circumstances of the present day. When we have done that, we will take the decisions required. We will do so in the interest of the State, bearing in mind the contribution these bodies make to economic activity and to the provision of employment.
The motion before us asks that we take such steps to sell shares in such State companies as are "appropriate and feasible" and apply the proceeds to the reduction of debt and the stimulation of economic and employment expansion. For the reasons I have indicated, the Government reject the approach inherent in the motion. We are not prepared to take indiscriminate steps to dispose of bodies many of which have been established and developed at substantial expense to the taxpayer and which perform a valuable role in the economy.
The proposers of the motion may believe that the removal of these bodies from the State sector will suddenly infuse them with a spirit of enterprise and success which they previously had lacked, as if a magic wand of some sort would be waved. I do not agree. We have had successes and failures in the public and private sectors. The State has spent large sums bailing out private firms in difficulty, as well as its huge investment in the public sector. Change of ownership is not a panacea for solving problems, and I would not subscribe to any notion that it is.
I do not rule out the possibility that in the case of individual bodies, when their situation has been analysed and evaluated, changes including some arrangements with private companies might be desirable. Indeed, in our Programme for Government we pledged to encourage, where appropriate, the potential that exists for new joint ventures between public and private sectors. Each case would have to be considered on its merits and the action taken would depend on the specifics of the situation. Any action which may be taken however, and I can assure Deputies of this, will be on the basis of mature and balanced consideration. At present we have no proposals in mind.
As far as non-strategic, superfluous State assets are concerned the situation is somewhat different. An example of this category of asset might be land surplus to requirements and for which no useful role is foreseen. Certainly in current economic circumstances we would have no wish to hold on to any non-productive assets, if such exist and are in the ownership of the State.
Has the Minister any plans to identify such assets?
I was about to come to that. The Deputy has pre-empted what I was about to say. I believe that some such assets have already been identified and I am pursuing this question. However, in all honesty, I must say I would not expect that any attempt to sell those assets would realise any great amount — certainly not in the context in which we are speaking.
Ideology is no guide to the way forward. The policies to be pursued must have as their goal the growth which we all recognise as being necessary, if the full potential of this country is to be realised. This applies no less to the semi-State sector, which for so long has played a vital role in our national development. This Government will consider closely and effectively the position of the semi-State sector and the role which it has to play in our future development. We will examine carefully the circumstances of all bodies and take whatever decisions are necessary to maximise their contribution to the economy and to the country.
My concluding note is that everyone in those bodies, from workers to directors, must play their part and recognise that the way to generate growth and overcome problems is largely for them to find. If they find it this Government will back them.
No policy.
The Coalition were in power for four years and they did not have much——
Deputy John Bruton to move his amendment to the Minister's amendment.
I move amendment to amendment No. a1:
To add to the amendment after "growth" the words
"and urges the Government to include, as part of this policy, the selective sales of shares in State Companies to members of the public, Irish pension funds and other institutions on the following basis
(a) where an element of significant public interest is involved, the State would continue to hold a majority of the equity or would adopt such other measures as are necessary to protect the public interest in question
(b) the continued growth of, and employment in, the enterprise and sectors concerned would be a major concern in structuring any sale of shares and in the application of the proceeds
(c) subject to (a) and (b) above, the proceeds would be applied to the reduction of public debt, the reduction in demands for equity that would otherwise be made on the State, and the stimulation of economic and employment expansion generally
(d) a guiding factor would be the need to ensure that public sector enterprise is a dynamic and flexible factor in the economy generally, moving forward in sectors where development needs are greatest, rather than confining itself in sectors in which the State has had a traditional commercial involvement".
The purpose of my amendment is to amend the Minister's amendment. Our approach accepts the full wording of the Minister's amendment, but seeks to go on from that. It seeks to draw some of the logical conclusions inherent in the Minister's words and urges that the policy of selective sales of shares in State companies, subject to four guidelines which are set out in my amendment, should be undertaken. The Minister stated that he was not prepared to take indiscriminate steps to dispose of bodies which may have been established and developed at substantial expense to the taxpayer. I agree with him and nobody here, certainly not the Fine Gael Party, is suggesting any such indiscriminate sale. What we are suggesting is a discriminate sale of State assets when this appears to be pragmatically sensible from a commercial and economic point of view.
We would accept that selling assets in itself is not a panacea for any of the problems which exist, but I say this to the proponents of State enterprise: if it is an ideological position that once an asset or a company comes into State ownership, whether by accident or design, that it shall never at any time cease to be in State ownership, that limitation in itself sets a limit on the scope of activity of State enterprise, because the proponents are saying that the State must be very careful not to get into anything because, if it wants to get out, the ideologists will throw the book at it for attempting to disengage itself.
The opponents of selective sales of State assets are the greatest enemies of public enterprise in Ireland at this time because they are seeking to put a limit on the role of State enterprise by saying that once the State gets in, it cannot get out, and by inference, the State will not get involved in the first instance because it knows it will be caught. Far from being friends of public enterprise, I contend that the parties of the left who are opposing on ideological grounds even the selective sale of State assets are setting a limit to the activity which could be undertaken by the State.
One of the guiding principles in the Fine Gael approach to public enterprise is set out in paragraph (d) of our amendment which says that a guiding factor would be the need to ensure that public sector enterprise is a dynamic and flexible factor in the economy generally, moving forward in sectors where development needs are greatest, rather than confining itself in sectors in which the State has had a traditional commercial involvement. That view informs Fine Gael's opinion that the State must be prepared to sell some State assets so that it can reinvest money in State ownership of other assets.
Fine Gael have strongly supported the concept and the actuality of the National Development Corporation. One of the mandates of the National Development Corporation is that they can invest in something in order to prime the pump, to get the investment going, but once going there is nothing to stop the State, i.e. the taxpayer, realising the capital gain from its good investment and putting the money into something else. You get the maximum number of jobs rather than the minimum number for each £1 the State invests. You do not imprison the State investment for all time in a particular use but you ensure that it can be moved from one area to another. That attitude is profoundly favourable to public enterprise and is a much more modern view of what public enterprise should be than the view hostile to any sale of State assets that is expressed by certain other parties.
The ideological parentage of these views is considerably mixed. Franco's Spain was one of the great nationalisers of industry. The Instituto Nacionalde Industria under Franco brought about the position where the State owned 747 industrial companies. The Socialist Government of Spain at present under Felipe Gonzalez are in the process of selling these nationalised industries set up by the Falange. For instance, the Socialist Government in Spain sold previously State-owned textile companies, previously State-owned travel and tourist companies and went so far as to sell Seat, the Spanish motor manufacturer, to Volkswagen. That is the attitude of a Socialist Government in Spain. They are prepared to sell off the investments of the ultra right wing nationalising Franco regime.
Likewise, Sweden who had a Socialist Government for practically its entire history in this century, sold off Luxor, an electronics company, Sodra Skeagarna, a forestry company and a number of banks. There is no reason from a party point of view why one should say privatising is a matter for the right and nationalising is a matter for the left. In fact, it was the right in Spain that nationalised the companies and the left are privatising them. I do not see any reason why we should not be as flexible or as imaginative as the people in Spain. Nor should it be seen that privatisation — I do not like that word; it is simply the transfer of shares from one ownership to another in order that money can be invested in another way — or the sale of State shares in enterprise is in any way hostile to the interests of trade unions in those companies.
I will quote from an article in New Society, a magazine whose political leanings are not to the right, of 21 June 1984. It took the opinions of various trade union officials in companies which had been privatised by Mrs. Thatcher to see whether or not this move had served or disserved the interests of trade unionists. In that magazine Veronica Bayne who represents the CPSA, a white collar union representing people in Amersham International which had been privatised, stated that pay had improved considerably once the company had been privatised. Likewise, in the cases of British Aerospace, Britoil, and Cable and Wireless the unions report improvements in the way companies consulted unions and in their general attitude to unions once the ownership had changed from being a wholly State-owned company to one in which there was considerable private ownership, including ownership of the company by those working in it. That may be one of the reasons why trade union-employer relations had improved. Trade union members, as a result of the open policy of selling shares in the enterprises, had become part owners of the company. The traditional divide between the interests of the worker on the one hand and the interests of management on the other had been abolished by both becoming performers of the same role on both sides of the table.
Likewise, unions have increased membership in privatised companies. The trade union, Apex, reported that their membership in Britoil was increasing considerably, much more than — to use their words — in the bad old days of the British National Oil Corporation. There is no reason why one should be opposed to this on the grounds that it might be either ideologically unacceptable — we have seen the example of Socialist Spain — or adverse to the interests of trade unionists — we have seen the examples of what happened in the United Kingdom where companies have been privatised. There is no reason why one should be fearful of this from the point of view of the public interest. There is the concept of the golden share where the company continues to be in the ownership of the State but for a single share worth £1 the holder of that share is specifically enabled to veto any change in any specified article of association of the company. If one wanted, in selling a particular company, to say that the new private owner shall not do A, B, C, D or E, all one needs is to take a golden share in the company for the price of £1 when one is selling it and to say that without the consent of that £1 shareholder, the State, no change can be made in any one of those specified articles.
I have to agree that a change in the ownership of a company does not work miracles. If you privatise a monopoly and it remains a monopoly in private ownership just as it was in public ownership, it can be just as abusive of the interests of the customer or the consumer as was the previously publicly-owned monopoly. It is extremely important, if one is considering sales of companies which have monopolistic conditions, that proper legislation exists to ensure there is adequate competition. I believe privately-owned monopolies are considerably worse than State-owned monopolies. Privatisation is no substitute for an active competition policy. One must have an active competition policy no matter who owns the company. That is why I believe any attempt to examine the role of State companies must also be accompanied by the active promotion of the legislation prepared by the previous Government to update fair trade legislation.
At present vast chunks of public services, the supply of electricity, the supply of telephones and the supply of banking services, are totally exempt from examination by either the prices authorities of the State or the restrictive practices authorities of the State. Small operators selling holidays or a barber selling the services of cutting people's hair can be investigated by the National Prices Commission or by the Restrictive Practices Commission. However, the ESB, Telecom Éireann or An Post are not required to subject themselves to any competition policy or scrutiny while small corner shop operators in the private sector are subject to scrutiny.
Irrespective of whether it is intended to sell shares in these companies, it is essential that they be subject to a competition policy because no matter who owns them they will abuse their position unless there are strictly defined competitive rules applying to them. Therefore, I urge the Minister for Industry and Commerce, Deputy Reynolds, to bring forward, as a matter or priority, the legislation prepared by the previous Government, which is already published, on fair trade law which would remove the exemption from competition policy scrutiny of all these public enterprises. This would also apply to the privately owned banks who are currently exempt from scrutiny by the fair trade authorities.
One of the problems faced by publicly owned companies at present is that they come within the limits of the Devlin pay guidelines. One of the reasons for companies in Britain doing well in private ownership is that they are no longer required to set an upper limit on the salaries they set for the people whom they employ in senior positions. Of course, one could allow State companies, while remaining State-owned, to pay any salary they liked to their chief executive but it is more difficult to do that if the company is privately owned. The Minister for Finance would be a shareholder earning a salary perhaps one-tenth of that paid to the chief executive of a company in which he was the principal and sole shareholder and that situation is potentially slightly anomalous. The Minister, Deputy MacSharry, is worth a great deal more than he is being paid——
The same applies to the Deputy.
Yes, indeed. Other reasons, apart strictly from ownership, have inhibited the operation of State companies and one is the restriction on salaries. Clearly, if one is moving towards a position in which ownership is varied and in which there will be private shareholders, that provides an opportunity to lift some of these limitations, thereby providing an opportunity for companies to expand more fully. There is also the danger that bureaucracies — I speak without regard to my friends in the Department of Finance, although I cannot now talk to them — do not always function as one would wish them to do. They tend to be slow in making decisions.
Cable and Wireless in Britain made a major investment in Hong Kong which proved to be extremely profitable. They made that decision in a space of about three or four days after they had become a privately owned company. If they had had to consider making that investment decision three or four years previously, when they were still State-owned, they would have had to consult the Department of Trade and Industry in Britain who, in turn, would have had to consult the Treasury. There would have been letters and memos going here and there and eventually the matter would have ended up in Cabinet where everybody would have contributed his or her anecdote and knowledge of Hong Kong and its economy. This process would have taken from six months to two years by which time someone else would have made the investment in Hong Kong and Cable and Wireless would have lost a valuable opportunity of investment. It is inherently impossible for a public enterprise to make quick decisions of this kind; once the company is owned by the Government there are layers upon layers of people who have to make sure they will not be criticised for having done something unwise. A consults B who, in turn, consults C who consults D who eventually consults the Taoiseach — who probably consults somebody else if he does not consult God — and a decision is not taken for a very long time. The difficulty with being publicly owned is accountability and, therefore, valuable opportunities are lost unless there is an extremely influential management which is completely trusted by the Government.
There have been notable successes in State enterprise in Ireland due to one or two personalities in these companies — I could name them from the existing public sector — who have had the confidence of all Ministers who did not make any inquiries because those executives had a good track record and they let them get on with it. Unfortunately, they are in a minority. Most public enterprises have had their bad days as well as their good days and, as a result, are scrutinised with great care by public servants and politicians, including Opposition Deputies putting down questions. The result is that they never make any creative decisions because of this fear of public accountability. One of the ways in which one could get rid of that would be by selling either a majority or a minority share in the company because, once you sold even a minority share to the private sector, the private sector interest would insist on procedures to protect their investment, one of which would be a time limit on any approval of commercial decisions. We could achieve the benign effects for which we are looking in terms of a more creative approach, of speedier decision making and possibly even salary setting for chief executives, by selling a minority shareholding. You do not have to sell 51 per cent. A minority shareholding will be sufficient to get all of these creative effects because they will be demanded by the private sector and investor as a precondition to their investment.
I should like to make a few more points. There is a major case to be made in Ireland at present to change the way in which people hold wealth and savings. We are obsessed with saving in the form of owning our own houses. People are prepared to tie down and restrict their income for 30 years ahead so that, at the end of their lives, they will own their houses although they will probably only completely own them for the last five years of their lives because the mortgage will not be paid off until then. At that stage, their daughter may be living in Limerick, their son in Kerry and another offspring in some other part of the world and not one of them will be in the slightest bit interested in inheriting the house for which their parents have made sacrifices over the years.
Instead of becoming the exclusive owner of an asset which none of their children is interested in inheriting, we should encourage these people to become the owners of shares in companies originating in the private or public sectors. That would mean a much more productive use of capital and, as Deputy O'Malley rightly said, we are very short of capital. Our GNP per head is only 60 per cent of that of Britain and yet we assume we should have a living standard of at least 110 per cent of that in Britain. If we want to have a living standard of that kind, we must use the little capital we have more effectively. Imprisoning it forever in public enterprise because of an ideological hang-up which says we will never sell it, or tying it up forever in houses because each of us most own his own house regardless of whether that is the best use of investment, is not a way of ensuring that we use our limited capital resources to the best effect to create employment. In order that we might achieve our full potential as a nation, one of the things I would like to see coming out of this debate would be the stripping away of the ideological hang-ups which exist about how one should save and what one should put money into.
I would like to distinguish between the amendment put down by Deputy Noonan and me and that put down by the Progressive Democrats. Our amendment contains a specific requirement to take account of the interests of those employed in the enterprises. That does not seem to be prominently referred to in the amendment put down by the Progressive Democrats. Another difference between the two amendments is that we want the public sector to remain a dynamic and flexible force in the Irish economy. We are not trying to disengage the public sector from the economy; we are simply trying to make its role more flexible and dynamic. We are concerned also that one would have an adequate means of protecting the public service interest elements of any of these enterprises. This is not referred to in the Progressive Democrats' amendment. The approach of Fine Gael is different from that of the Progressive Democrats. I would be so bold as to say that it is more fully thought out but not inconsistent with the attitudes adopted by the other parties.
It is fully thought out.
I am sorry to interrupt the Deputy but we must move on to the next business.
Debate adjourned.