How not to privatize
The other day my colleague Massimiliano Trovato and I had an op-ed in The Wall Street Journal Europe, on the forthcoming “privatization” of Poste Italiane, the Italian postal service. I’ve always thought that the old Milton Friedman mantra on tax cuts (“I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible”) applies to privatization too: I am in favor of privatizing anything under any circumstances and for any excuse, for any reason, whenever it’s possible.
Well, it ain’t so. For the very simple reason that sometimes government calls “privatization” something which is actually not privatization. The “privatization” of Poste Italiane is one of those cases.
Massimiliano and I write:
On Jan. 25, the Italian government announced that it is seeking to sell a 40% stake of Poste Italiane to institutional as well as retail investors, with a 5% stake to be set aside for the company’s own employees. As the public offering goes forward, the Italian treasury will remain a controlling shareholder. Rome has not spelled out any plans for further divestment at this time.
The partial flotation of Poste Italiane is expected to yield between €4 billion and €6 billion in revenues, to be used to curtail government debt. This is of course a commendable use of money, but the impact on Italy’s total debt stock, which currently stands at more than €2 trillion, would amount to a mere 0.5% reduction–that is, assuming the funds don’t get hijacked for more pressing needs in the process.
The government’s idea to set aside 5% of the stocks for postal workers is one of the most perverse features of this “privatization” plan and may create a conflict of interests: Shareholders aim to maximize profits, whereas workers understandably want to preserve the status quo. When a company is privatized, it typically undertakes a severe restructuring to enable it to navigate the private market. But workers acquiring 5% of Poste Italiane would necessarily become a powerful constituency, opposed to any further progress in liberalizing postal services in Italy.
For one thing, the Italian government is not “privatizing” Poste Italiane in a meaningful sense, as it shall keep control of the company. Poste Italiane enjoys a favorable regulatory regime (that we describe in the article) that should cease to be in place, if the postal sector is to be properly liberalized. Those investors that will join the Italian Treasury as shareholders are not very likely to be okay with a liberalization of the postal sector, as they are basically buying their share of a rent.
But I am also quite concerned about the notion of giving stocks to employees. The Italian postal service is heavily unionized, and this was the way in which their consensus to the “privatization” was secured. But, particularly in the case in which a lock-in clause is envisaged, I think this is a clear example of a policy which goes to the benefit of unions (that gain a place on the company’s board and could thus have an even stronger voice in its governance) but not to the benefit of individual workers. The political upshot is pretty clear to me: building a powerful constituency against any change in the regulatory regime of the postal sector. When a proper “privatization” happens, a company moves out of the government sphere to enter the private sector. Not only will this not happen with Poste Italiane, the government is making sure that this will be even more unlikely to happen in the future.