There is a need for free markets in the places where deficits are highest. And it’s high time this was tried. That is the subject of today’s rant by your editor. Comments are welcome.
There is the good side of the crisis for European countries. Too cut their deficit, they will be forced to try privatizations crafted to remove the “acquis” or perquisites that were handed out to workers in the state sector. The same thing applies to US state and local deficits.
The main reason for privatizing is that it will raise money for cutting deficits in the PIIGS and state and local US government. Selling off the railroads, the power company, the telco, the waterworks, the toll bridges, the bus lines, is also a way to increase efficiency via competition.
But privatization without dismantling the network of perqs will be insufficient.
Tenure for teachers who cannot teach is the perq most Americans get exercised about. That is why you need private and charter schools in this country. But the main school system in most places continues to keep teachers who would be better off trying another trade. Competent teachers have no recourse when their union opts to protect the incompetent. Seniority is another black hole. Just because someone has been on the job longer does not mean more is owed him or her. Again, this is part of every union negotiation worldwide Perqs are forced down government throats by the powerful state sector unions, because unions are stronger in the state sector. Private companies usually resist the worst excesses, although not always (as in the auto industry).
Apart from deficits, the single unifying feature of the PIIGS countries, even Ireland, is the odor of sulphur from government corruption. (France has it too; and France is also going to have to cut its free-spending ways, Pres. Sarkozy has announced.)
Euro-perqs include pension overpayments to railroad workers no longer deserving of early retirement because of the hardships of shoveling coal in the heat.. Gross-ups here and there are used by the oldest civil servants — cops, firemen, prison guards, and LIRR employees – to beef up their retirement pensions by counting overtime. It is a big game in the USA too.
Other perqs include the right of airline workers to fly gratis on their own vacations, the casus belli of the current strike by long-privatized British Airways. (It reminds me of taking out a credit default swap guarantee for your Lehman bonds with Lehman itself.. If BA is driven into bankruptcy by the strikes, the staffers will lose their right to fly on holiday with the airline.)
Even though France Telecom was privatized ages ago, former teleco employees got the right to a full pension after only 25 years of work if they had three children. These gold-plated retirees, among them my buddy Josiane, now in her mid-80s, are still feeding at the France Telecom trough. Early retirement and pension excess are a big source of deficits.
Acquis include other abuses. The “Putain de la République” worked for a nationalized French oil company whoe management control was seized in the first hours of François Mitterrand’s presidency. Elf money flowed into the coffers of Paris governments left and right, and only when the stench became overwhelming was the company merged into privatization. The gas and electric utility unions in France, the waterworks in Brazil, the civil servants in Portugal, all get excessive pensions after a career of working to rule ended by an early retirement.
In my view, there is no need for government ownership of oil companies in countries which are net oil consumers; in producer countries perhaps. Should ports be run by governments? Do you want a state-owned electric grid? If there is no budget money for highways or railways needed to move people around, let the private sector build them and collect tolls or fares.
The free-flowing funds cement a nefarious link between politicians and recipients of money like unions and contractors. Running for office is expensive, and it is nice to get donations from civil servants and unions. Privatization would halt that payola, which is why, short of crisis, it is resisted.
Corruption is not confined to financing political campaigns. It runs the regulatory gamut, from those charged with inspecting offshore oil rigs oto those inspecting New York City building cranes. Why are these functions assigned to governments in the first place? The state lacks the necessary expertise. Let’s outsource them.
Your editor is a certified liberal Republican, raised in Jack Javitz’s congressional district, formerly employed at the Senate Foreign Relations Committee by Clifford P. Case, New Jersey’s liberal Republican. I voted for Obama.
Your editor met yesterday with Vijchu Chantatab, the executive vice president of Thai Capital Fund (TF) which we do not currently own, during his trip to New York. We have been getting reports from two Thai-based foreigners married to Thais, my cousin and Paul Renaud of www.thaistocks.com and I wanted a 3rd opinion. Mr. Chantatab’s fund is a hybrid large cap fund, 40% aiming at optimization in tracking the SET (Bangkok) index, and 55% aimed at selecting good stocks (AKA “alpha”). However, because of liquidity concerns, TTF is totally concetrating on the top 100 shares of the 450-stock main Thai index. With $1.3 bn under management in TTF, and another $30 bn in equities managed by its parent Siam Commercial Ban;, TTF cannot afford to invest in small and mid-cap shares where Paul Renaud finds winners. The 70-yr-old Thai bank has a total of $500 bn under management.
Mr. Chantatab agrees with Bloomberg (as reported yesterday by Paul) that short-term the Thai large sector shares will underperform, because they have gone up so sharply. He is advising the bank’s institutional clients to move money within Thailand into bonds, money market funds, and a bit into real estate. The logic is that the Baht will continue to produce good results, and money should therefore be kept inside the country. “Money markets aand bonds are an alternative to the SET,” he said. And while constrained about talking politics, Mr. Chantatab did cite a lesson: “history shows that political issues should be considered a buying opportunity in Thailand.”
Thailand payoff for foreign investors is usually boosted by forex. The Thai Baht
The situation is not a dire as my reelatives fear, he said. GDP in 2010 will grow 2.9-3.2 percent, he thinks, vs earlier pre-event estimates of 4.2%. In Q1, before the turmoil, Thai GDP rose an impressive 12% according to Mr. Chantatab, and exports rose an even more astonishing 29% in the quarter over the prior year He cited sectors like food and beverates (tunafish and beer) as being likely to flourish despite the political uncertainty. Manufacturing and manufacturing-related services will also do well. However, there will be a negative impact on hotels, restaurants, and other services, a key GNP component, if tourists stay away.
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