1. It forecloses the possibility of some intelligent banking reforms. Should big banks be split so that they are no longer too big to fail? If they must stay intact, shouldn’t they become dull utilities that take only minimal risks? There’s a case for either. But these possibilities would make the banks less attractive to potential shareholders.
There’s a trade-off between reforming the banks and maximizing the revenue we’d get from privatizing them.
2. It was share ownership of banks that got us into this mess. The failure of banks was a failure of shareholders to exercise control. The Tories want us to return to an ownership model that has demonstrably failed.
The FT says they want to give “[voters] a say as shareholders over how they are run.” But would they exercise this say responsibly? Would they rein in banks’ risk-taking or would they instead cheer on their recklessness? And even if they do urge caution, will chief execs - many of whom regard retail shareholders as a nuisance - take notice?
3. The move wouldn’t improve public finances. If these were measured properly, privatization at the right price would merely exchange the net present value of banks’ future cashflows for a cash sum. The government’s overall balance sheet wouldn’t change. And if, as the FT suggests, the shares were “offered at a sufficiently attractive price” - that is, under-priced - the public finances would worsen.
Privatization only makes sense in terms of the public finances if you make a fetish of government borrowing, and ignore the asset side of the balance sheet.
4. Mass privatizations do not create a shareholding democracy. We needn’t look at Russian experience to tell us this. Thatcher’s privatizations had the same non-effect. In 1981 - before mass sell-offs began - individual shareholders owned (directly) 28.2% of UK shares. In 1990 - when Thatcher left office - they held just 20.3%. Sid sold.
Let’s be clear, then. What Osborne is contemplating here is simply the expropriation of state assets for the gain of his favoured client base.
We should not, though, blame him for this any more than we blame bears for shitting in the woods. It’s the nature of the beast; it‘s what politicians do.
What is deplorable, though, is that the government has given him the opportunity to do this, by not using nationalization as a stepping stone to more radical reform of the banks.