Campaigning to postpone the sale of AIB is not socialism – it is common sense!

 

As a business person most would assume I am a Capitalist but for the record I have always been openminded as regards the ideals of Socialism. The case I wish to make here is our futures are best served by a blend of both Capitalism and Socialism. And Socialist ideals have worked very well in Capitalist systems, most notably in the first three decades of the National Health Service in the United Kingdom, our nearest neighbour.

Pardon the oxymoron, but Ireland in the 1960s to 1980s was one of the most “Socialist” Capitalist States in the world. A small country, back then with a population of less than four million, and thus lacking economies of scale, we had no choice but to have the State create and operate, our electricity company, ESB, our gas utility, BGE and in 1957, our State voluntary health insurance scheme, the VHI, which gave the health insurance world Community Rating which is an incredibly socialist ideal, no matter what is your age or health status, everyone pays the same premium. Of course, true socialism would not allow a two-tier system which in effect exists in Ireland as we have a private health system operating alongside a public one and have not been able to advance a system of universal health care.

From 1889 Ireland had Agricultural Co-op’s, a movement inspired by Sir Horace Plunkett. Whilst global food giants Glanbia and Kerry Group seem very different today, very successful and very Capitalist, each grew out of the Co-operative movement, very pioneering and founded on Socialist ideals, milk suppliers producing in commune for their Co-op, in which they owned shares.

By the nineteen-sixties, it was inevitable that the State would set up food companies to brand and export Irish produce and so Bord Bainne, Bord Bia and Bord Iascaigh Mhara were founded. When the creation of what we now know as the National Dairy Board, Bord Bainne was being debated in the Dáil there were fascinating contributions about whether the State should be directly involved in commercialism. The debate featured Agriculture Minister, Fianna Fáil’s Paddy Smith and James Dillion then leader of Fine Gael with contributions from Louth Deputies Padraig Faulkner on the Government benches and Paddy Donegan from the opposition.

Inevitably, there was a huge row in 1962 when Minister for Industry and Commerce, and later Taoiseach, Jack Lynch, head-hunted the former Ireland and Lions rugby star, Tony O’Reilly, from running the Cork agri-suppliers Suttons, and appointed him as Chief Executive of Bord Bainne, paying him a king’s ransom of £3,200 per annum. Shockingly, on top of that he was given a new, black Mercedes. O’Reilly would create the number one, all-time, best-selling butter brand in the world, Kerrygold. The investment by the State in hiring O’Reilly was one of the wisest our country ever made.

The thinking behind the emergence of commercial semi-states was laid out in 1957 in the Programme for Economic Expansion authored by the new Secretary General at the Department of Finance, TK Whitaker.

Unfortunately, the Capitalist/Socialist model of Commercial semi-states was regularly abused by Governments when trying to massage the unemployment figures. It was not unheard of that the Chief Executive of a semi-state would be told, actually ordered by the Minister, to employ an extra few hundred people, to boost employment statistics.

The other major mistake was that successive Governments did not demand dividends from the Commercial Semi-states. In fact, the opposite was the case. Subventions became common practise. Monopolies like the ESB and Bord Gais Eireann should have been making serious money for the national exchequer but Governments were just happy they were “breaking even” or not costing them anything. The lesson learned from all of this is when we postpone the sale of AIB and retain ownership of that bank for the next five to ten years we must set a strong dividend policy ensuring AIB pays annually into the Government coffers.

The cost of the AIB bailout was approximately €20Billion funded by the people of Ireland. Our citizens now live with the largest per capita national debt in the EU. Through great sacrifice and severe austerity the people have seen the Irish economy recover and with it AIB. Today the bank has recovered and is once again profitable with the potential to produce future annual profits of €2Billion or more.

Why would we now sell such a valuable asset as AIB now that it has returned to profit? The currently planned sale of AIB will only generate a sale price of approximately a multiple of four or five times its annual profit.

To paraphrase the Nobel economist, Paul Krugman, after nationalising the pain why privatise the gain? If AIB is going to be profitable why shouldn’t the people of Ireland who bailed out the bank benefit from future gains?

Please note the EU forced the Irish Government to bail out or nationalise AIB. The EU has not instructed Ireland to re-privatise the bank, so, the majority of its shareholding can and should remain in State ownership.

AIB should be put to work, for the foreseeable future, for the benefit of the Irish people and used as a cash-cow to finance the State’s economic, social and environmental funding priorities for the benefit of all, and not be sold off in some fire sale to an international fund that might very well asset strip the bank and then sell it on for a large profit to some Global bank.

A sell-off now by Government would mark a short-sighted politically expedient windfall for some short-term gain, the sale of the family silver, so that a few could cash-in.

The potential resource that would accrue to the State annually from retaining its stake in AIB would match or exceed the fiscal space allocated in our annual Budgets as demonstrated to be between €800m and €1.2bn – and that subject to external shocks of health budget and corporation tax fluctuations.

Instead a more just and inclusive policy would be to retain AIB in its current capacity as a generator of significant funding for the State, all the more particularly as we head in to the choppy and uncertain waters of a post-Brexit era and looming international trade wars and tariff hikes.

Footnote:

I have been a client of AIB, it is also my business bank, for more than twenty-five years, and have enjoyed a great relationship and excellent service from the bank. In all dealings with AIB I have always been in terms as regards borrowings and on the best of terms as regards being a customer of the bank. Over the years I have provided training services to all the major banks including AIB but for the record in the last ten years I have not been involved in any work with AIB as regards the State guarantee of its deposits, its bailout, restructure or recovery. I believe it is a bank with great potential and with its dedicated employees will be very successful again but as a citizen I believe the people of Ireland will benefit more by postponing the current plans to sell the bank.