Issue 258 of SOCIALIST REVIEW Published December 2001 Copyright © Socialist Review
As the economy falters, the taxpayer is left to bail out private companies says The Walrus
For the champions of global capital, an unexpected dividend of the bombing campaign in Afghanistan is that it has helped drown out the increasingly familiar thudding sound back home of yet another corporate collapse. Unlike this time last year--when the imminent ruination of the dot.com pioneers could be explained away as entirely the responsibility of a bunch of unreliable wackos--now we've got one top ranking corporation after another plummeting earthwards.
Up until just before the start of the war probably the most spectacular casualty had been Marconi, formerly GEC, once the biggest and most successful engineering corporation in Britain. In the six months to September, it now turns out, it had managed to clock up losses to the tune of £5.1 billion. But by that time, profits had also started to nosedive at Vodafone, till recently the richest company in Britain, and its main rival, BT, was turning out a very good impression of a company coming apart at the seams. In a fine display of entrepreneurial flair, the losses at Vodafone in the six months to September stacked up at £8.5 billion, and at BT they had reached a staggering £22 billion. The combined half year losses for BT, Marconi and Vodafone, by the way, are roughly the equivalent of the entire NHS budget for this year and next year.
And all this was before we got to know about the latest calamities at Railtrack or in large sections of the world aviation industry, most of which had been brewing up long before 11 September. As most people had always realised--apart from the Tories, New Labour and its management--Railtrack had always been a basket case from the minute it was thought up. With the airlines, even though transatlantic and internal flights in the US have slumped for obvious reasons, the long term problem worldwide is massive overcapacity--too many airlines competing for passengers. The founder of Easyjet, Stelios Haji-Ioannou, estimates that in Europe alone '14 national airlines is about eight too many'.
The obvious answer to this problem might be a drastic reduction in the number of different operators but that has always been easier said than done in the airline industry. As a recent article in the Financial Times explained, the main reason for this is that, despite all the rhetoric about globalisation, 'sovereign countries, however small, continue to be as attached to the idea of having a national airline as they are to having a flag and a national anthem'.
This procession of corporate failures has not only put rather a large question mark over the supremacy of the private enterprise and free market model, it has raised the issue of state bailouts for private firms (especially those which are essential to both the credibility and day to day running of each nation state) in a way that has not happened since the onset of Thatcher-Reagan privatisation in the 1980s.
This does not mean that big business has suddenly undergone an ideological conversion. It's simply that for some of the hardest hit firms (UK Coal and British Energy are two other recent examples) public handouts are the only way they are going to get any money. So never mind the incessant preaching about the need for 'prudence' in the financing of schools and hospitals that we got rammed down our throats for so long--now it's stump-up time the minute the men in suits get their hankies out.
In the most blatant example yet, the banking consortium which had initially promised to fund National Air Traffic Services has also been a-knocking at the door of transport secretary Stephen Byers to provide an emergency injection of funds--just three months after its controversial part privatisation (which the unions forecast would turn out to be 'Railtrack in the skies').
More to the point, the Financial Times itself noted that 'it will also call into question the viability and risk associated with public-private partnerships'--not least London Underground (aka 'Railtrack under the ground'). They are, of course, referring to the 'risk' involved in parting with their own cash, not the much greater risks which face the workforce at Nats (and London Underground), let alone public safety. Shortly after the Nats selloff went ahead, and despite repeated promises to avoid any more cutbacks, the consortium in charge announced that it intended to reduce costs by £60 million over the next 18 months, that 226 staff would be made redundant, and that planned upgrades for the two main air traffic control centres had either been scaled down (in the case of Swanwick) or cancelled altogether (in the case of Prestwick).
It turns out that the major carriers which make up the Nats consortium--British Airways, Virgin Atlantic, BMI British Midland and Easyjet--had come to these decisions before the attacks on the World Trade Centre had taken place. And the main reason they had reached these conclusions was that, the minute the government had caved in to the privatisation demand, the banks involved--Abbey National, Barclays Capital, Halifax and Bank of America--became uncomfortable with the level of debt they were providing and demanded an immediate revision of terms.
Like the management at Railtrack, the banks have always assumed they could get away with mugging the taxpayer like this because they have got the government over a barrel since there is no way it could allow either the railways or air traffic control to go out of business. The trouble is that what these recent failures of corporate governance have revealed is that--as the Financial Times points out--private sector consortia will always try to push any extra risks onto the government, as they are already doing on London Underground.
The banks directly involved in two of the consortia which are lined up to provide debt capital for modernisation of the tube--Metronet and Tube Lines--have already made clear that what happens next with Railtrack 'will have an impact on the banks' willingness to finance the tube'. But bankers not directly involved in the project are more sceptical. One is reported to have said, 'It is not immediately obvious that the economics will support this structure, and at the end of the day it will rely on the government to put its hand in its pocket.' The upshot is that we now have an unusual alliance between Ken Livingstone, Bob Kiley, Mick Rix, Bob Crowe and the editor of the Financial Times, all of whom have come to the conclusion that--if Railtrack is anything to go by--'when things go wrong, taxpayers will once again be left with most of the cost'. The government, therefore, 'can and must go back on its plan for a similarly botched structure for the tube'.