January 20, 2010
Our cupboard is bare, so we must sell family silverPosted in Irish Economy · 331 comments ·
Like all nursery rhymes, the origins of ‘Old Mother Hubbard’ are more complicated that they seem at first. When I was young, the rhyme was repeated to reinforce the value of savings. The moral of the story was that if you don’t put away something in the cupboard when times are good, you’ll have nothing to fall back on in bad times.
For years, it was thought that the “bone” in the rhyme referred to money, the Old Mother Hubbard was shorthand for all of us who forget to save in times of plenty, and the dog referred to anyone close-by who needed something to tide them over.
In fact, the rhyme may have a more complicated, political meaning, referring to the demise of Cardinal Wolsey and Catholicism in England. Wolsey was Henry the VIII’s trusted adviser and head of the Catholic Church. When he couldn’t deliver the Vatican’s blessing (the cupboard) of divorce (the bone), poor old doggie (Henry VIII) got nothing from the church. So the King set up his own church and the rest is history.
Whatever the origin, let’s go back to the idea that Old Mother Hubbard is someone who needs cash and goes to find whether she has put something aside for the bad times.
Now think of Brian Cowen as Mother Hubbard and consider the next stage of the Irish recession.
In the next year or two, Ireland will have to go to the cupboard to see whether we can sell assets for cash. That’s what happens when you are broke and can’t pay your bills. It is already happening in the real world. Have you noticed the mushrooming in the “cash for gold” business in recent months? These gold-buying outfits are now becoming commonplace on our streets. It has been like that for over two years now in Belfast, but it is only beginning to catch on here. I spent a lot of time recently in Belfast and was amazed to see the amount of shops — in reasonably well-heeled areas — advertising “your gold for cash”.
Whether North or South, the message is the same. People need cash and are selling their assets to get lolly. Like Old Mother Hubbard, we now have to go to the cupboard. Countries have to do the same and — strange as it may sound now, because it has not been talked about for years — Ireland will have to sell some of the family silver to stay afloat over the coming years. Privatisation is back on the cards.
This should not come as such as shock because if you look at any country which has experienced a debt crisis following a period of economic mismanagement, privatisation is a normal result. The chaotic Labour government in the UK of the late 1970s, which had to go cap-in-hand to the IMF, was followed by the privatisation agenda of Margaret Thatcher. Likewise, the humiliated Carter administration, which allowed American government spending to get out of control, was followed by Reagan’s home-spun conservatism supported by his economic catechism of “sell everything” (to your mates). You could even see the end of the Soviet Union being down to state and regime bankruptcy, which led directly to the privatisation of the Russian oligarchs. All around the world, the government that bankrupts the nation — this one and the last one in our case — is followed by one that must sell assets to balance the books.
For those of the right-wing persuasion this is a godsend, the “natural” opportunity that comes from crisis. For those of the left-wing view this is the incarnation of Naomi Klein’s “shock doctrine” where a crisis is engineered to force through policies which move ownership from the people to private shareholders.
Whichever way you look at it, it is likely to happen because we have no money to fill the potholes or to re-line our leaking reservoirs. But what if, like Old Mother Hubbard, Cowen goes to the cupboard and finds that while the cupboard is not quite empty, what’s left doesn’t amount to all that much.
What’s in the cupboard? Well, did you know we have a semi-state company for seaweed? Or do you remember that we have a separate commercial semi-state body for greyhounds? Or horses? As well as RTE, TG4 and, if we are in the flogging game, the port of New Ross, or Dun Laoghaire Harbour, Dublin Port and the ports of Cork, Galway, Drogheda and Waterford. We could also flog the National Lottery and Radio na Gaeltachta. What do you make of the cupboard so far?
It’s unfair to judge yet because the really big semi-states include CIE. This is Bus Eireann, Irish Rail and Dublin Bus together. The total revenue is â‚¬789m. Unfortunately, the total cost of operation was â‚¬1.18bn in 2008. The company also has a net pension liability of â‚¬560m. Maybe it’s not worth so much, on the market.
Then we have An Post. It made a profit in 2008 of â‚¬31m. Although it has a pension liability of â‚¬582.3m due to the financial downturn, which means the company has a shareholder’s liability of â‚¬212m. It is basically insolvent.
Oh my, oh my, the cupboard looks bare. What else is in there?
Bord Gais is an interesting one because it has been spending lots on wind farms. This is one that might be worth selling. It has good cash and not unreasonable debt in relation to its assets, and has 900 staff.
Bord na Mona has a profit of â‚¬19m on a turnover of â‚¬400m, which is hardly an O’Leary-esque return. But with a decent enough balance sheet we might get something for it.
ESB made a profit of â‚¬273m on turnover of â‚¬3.5bn last year; its net debt of â‚¬2bn seems high but if you look closer it has a â‚¬2.6bn pension deficit — of pensions it has promised to staff who have yet to retire.
Taken together, it seems that although this Government or the next one might want to sell its assets, there is not that much of significant value in Irish semi-states. That doesn’t mean they won’t be sold. Like the hundreds now selling their gold jewellery for cash, the forced seller never gets a bargain.
Yet again, Irish taxpayers will be shafted by our politicians. Old Mother Hubbard Cowen will go to the cupboard at the worst possible time and sell assets for the worst possible price. Maybe, like Cardinal Wolsey, this signals not merely a bad economic deal but the end of an era.