Royal Mail Privitisation: Royal Fail

Royal Mail used to be a public utility – now it is a private business.

Here’s a moral argument against the privitisation:

What used to belong to everyone in the country is now in private hands. If you bought shares in the company you could sell them for a profit – but the value of those shares will only be realised when you off-load them. Before the benefit to you was constant – a public utility run for your benefit. Now a private company run for the benefit of profit-maximising share-holders. And who exactly will you be selling you Royal Mail shares to?

You might be convinced by this, or not. Here’s another which is less emotive.

Criticisms have been levelled at Vince Cable for the process of selling Royal Mail, chiefly because of the valuation. The valuation was set by the government at £3.3billion. The IPO (Initial Public Offering) of 330p was thought to have been far too low when the price jumped immediately after trading opened. JP Morgan pitched in by claiming to have made a valuation of £10 billion. Cue brickbats being thrown at Cable for incompetence – the family silver had been sold off at a budget price. The tax payer had been short changed again.

On this interpretation the undervaluation was the result of foolish, incompetent accounting. How could the government have got it so wrong? Here’s another way of looking at it.

The low IPO for Royal Mail wasn’t an accident but deliberate. The deliberately low pricing would be very beneficial for anyone who got in early. Having been allocated shares the price rose and a quick profit could be turned by flipping the shares. This was what appealed to the small investors, who were convinced this would be a good way to make a fast buck. Some people well off enough to have an account manager would make some risk-free cash.

The real beneficiaries – it shouldn’t be a surprise to learn – were the large financial institutions. Those firms advising the government on the privitisation were allocated shares in larger quantities. This is known as ‘leaving money on the table’ – in other words for the companies arranging the deal. To avoid the impression of impression of impropriety theoretical divisions were made within these companies. Enough to be able to convince an ineffective Commons committee that there was no dodgy dealing, but not enough to prevent the act. Furthermore, larger investors hoovered up those shares being sold of in small doles by small investors well before the price had topped out. The sell-off of Royal Mail was pitched to the public as intended to go to long-term investors – those like supposedly responsible pension funds. In reality much of the ownership of Royal Mail has very rapidly gone to hedge funds and migrated overseas. The once public institution is now subject to the whims of the financial leviathans. The man on the Clapham omnibus (ordinary Joes) who made a quick profit were playing precisely into the hands of the people who made the low valuation in the first place.

But the question still remains – why would the government take bad advice and make itself look incompetent? The coalition accrues two benefits from the deliberate undervaluing of Royal Mail. It avoids selling at a price that then falls, or fluctuates, which would inevitably reek of failure. Secondly, all those small investors get an immediate piece of the action, unaware of the role they play in handing unaccountable foreign investors the lions share of the money. The government is buying the votes of people who demographically are likely to be swing voters. It’s a tiny bit of feel-good amongst a lot of feel-bad.

Which argument is more convincing? Either way it’ll be a long time before the penny (black) drops for the majority of the public about the scandalous sell-off of the Royal Mail.

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