Partial privatizations not the solution for economy’s problems

The government’s recent decision to sell its remaining 7.5 percent interest in the National Bank of Greece (NBG), the country’s biggest, to institutional investors signals a new round in privatizing public assets. This, however, seems to have been decided without a strategy for the restructuring of the economy and strengthening of competitiveness. This move and any similar ones certain to follow are only dictated by pressure and anxiety from the widening public deficit. Observers consider such moves as having negative effects in the medium term, besides their short-term positive effect. These moves appeal to the market, as they bolster investor interest, widen the shareholder composition of large groups and limit the state’s power to intervene in business activity. Yet these moves as they occur do not, in the medium term, change anything substantial in the economy’s structure, productivity and market competition, as the management is always controlled by the government, which maintains the privilege of appointments – in NBG’s case through the social security funds which have a 20 percent holding, and through relative majority holdings in other cases. This way the government both sells off some of the state’s possessions to cover consumption expenditures (which is wealth redistribution, for example, as opposed to spending going mostly to contractors or arms suppliers) and at the same time precludes true privatization of these enterprises – that is, the entry of private entrepreneurs who would undertake the management, introduce new methods and know-how and, crucially, invest capital they would not rein in at the sight of the first obstacle. Enterprises with governmental administration and mentality and with their capital dispersed in equity funds do not constitute the best scheme for the market in the long term. The objective of a privatization policy should not be to raise as much cash as possible but to let new players in who will change the situation in growth, revitalize competition and bring in new direct investment and new jobs. In fact, the policy of partial privatization is not the wisest of moves for the state either, as this government was telling today’s opposition when the latter was in office, accusing it of quick-cash methods and of selling off the family jewelry. This revenue may boost the budget but is a one-off. The tap will soon run dry and the state will be in greater trouble. First, with a massive public debt, second without the holdings it had, and third without realizing any privatizations toward the restructuring of the economy along European standards. Analysts argue that the sale of the NBG stake marks the start of a process the government will follow in other cases as well to cover pressing revenue needs. No doubt the same will happen to the Postal Savings Bank, the Hellenic Telecommunications Organization (OTE) and Emporiki Bank. In cases where large state companies constitute monopolies, the government is justified in continuing the kind of part-privatization policy PASOK began. In other cases, however, what excuse is there for the government to fear proper privatizations that could change the entire atmosphere in the economy?