Archive for the 'Economics' Category

Proceeds of privatisation

I was a little surprised to hear talk of privatisation on the Today programme this morning. With the iconic sales of British Airways and the utilities well in the past, it’s easy to forget that there are still many public corporations and that long after the downfall of Mrs Thatcher, and throughout the Blair years the government has continued to privatise state owned enterprises. Only last week it was finally announced that the government would go ahead with a trade sale of the Tote.

I don’t disagree with privatising companies that no longer need to be owned by the state. It’s good for both the state (the realisation of capital tied up in the public corporation which can be put to better use) and the company (the opportunity to flourish without the constraints of public ownership). Nevertheless, I was a little disturbed to hear that there are concerns in the Treasury regarding a shortfall of funds as a result of privatisatons being cancelled/postponed due to market conditions. Source: Brake put on £6bn UK sell-offs [FT.com].

Why on earth is the Treasury dependent on income from privatisation? I can see some ideologues might argue that the nature of the state is that over time it will expand and incorporate unnecessary components; and so a concerted effort towards continual privatisation is needed to keep it in check. There may be something in that but even so, we should not see privatisation as a reliable source of future income. Surely the income from the sale of state assets should be saved as a fund for the future, not on annual expenditure. This is no worse than Nigel Lawson’s use of privatisation proceeds to fund tax cuts.

I’m sure the government would argue that they are spending the money on schools, hospitals, etc. and so are investing for the future. I consider that sloppy accounting. The cost of putting aside a little every year to fund future renovations should always be included in the education, health, etc. budgets. Otherwise we’ll always end up in a position where after 20 or 30 years we find buildings crumbling apart and in need of repair. Proceeds from one-offs such as privatisation should be additional to these basic requirements.

Keeping up with China

This month’s IET Engineering & Technology magazine focuses on China. Two particular articles worth reading are The Next Science Superpower? and Space: The Chinese Way.

The opening paragraph of the second article is the most striking:

China made its first manned spaceflight 40 years after America and the Soviet Union, but that doesn’t mean it is 40 years behind them in space technology.

This principle applies more generally to science and technology in China and it’s development too. The Industrial Revolution may have taken us some time, but today’s developing countries will not take that long and will catch up with us very fast. What happens when they actually overtake us?

Politicians from across the political spectrum have spoken of the need to meet the challenges of globalisation. Yet I think none have really addressed this challenge head-on. The march of progress in developing countries means, inevitably, that our wealth (in relative terms) is diminishing. Could that, at some point, result in a reduction in absolute wealth, and in our standards of living? What happens to the UK when a consumer boom built on cheap imports, rather than any real industry comes to an end because we can’t afford “luxury” Chinese exports?

I often looked at the Make Poverty History campaigners and wondered whether they realised that for the starving in Africa to get a fairer share of economic wealth, we would have to give up ours. Were all the protestors really so magnanimous as to want to give up some of their standard of living in order to raise that of others?

I think there are some hard choices ahead of us about how we remain competitive as an economy as well as what standards of living (absolute and relative) we are prepared to accept and aspire towards, for ourselves and others.