[sbpost]The worst of the fat cats

eircomtribunal

Excellent article by Kathleen Barrington. (So Con has pulled his head back out and swung himself into an S class. The closest we've come to show Con's picture was here.)

Union double standards on privatisation
04 June 2006 By Kathleen Barrington
Several years ago the former general secretary of the Communications Workers’ Union (CWU) invited some financial journalists to a fancy Dublin restaurant called Chapter One. Con Scanlon was hosting a lunch in the aftermath of the Eircom flotation which saw his members become substantial shareholders in the former state telecommunications monopoly.

Scanlon proved a very charming host. But the irony of the general secretary of the CWU inviting the financial media to a posh lunch in one of Dublin’s finest restaurants was not lost on the assembled journalists, particularly as many of us still recalled the CWU’s earlier anti-privatisation ad campaign in which the union had heavily criticised corporate ‘‘fat cats’’.


Well, we have since learned the hard way that there is no such thing as a free lunch. The country has been picking up the tab for Scanlon and the other Eircom shareholders ever since.

Consumers pay the highest telephone line rental charges in Europe.

Taxpayers gave the Eircom employees their first tranche of shares for free, then funded tax breaks for the Eircom employee shareholders and were finally forced to invest in the development of new state telecommunications networks in areas where Eircom failed to invest.

Scanlon, who headed the Eircom Employee Share Ownership Trust (Esot), has become a millionaire in the process. When Eircom was floated on the stock market for the second time in 2004, it emerged that he had made the best part of €1.8million in shares and pension contributions in a three-year period.

It is true that the trade unionist had to content himself with the crumbs from the Eircom table as his payout was dwarfed by the €29 million which Eircom’s top four executives scoffed in the period.

Even so, a few caviar crumbs is better than no caviar at all. And it certainly leaves the man on the street with the impression that Scanlon is effectively indistinguishable from the corporate fat cats his union once scorned.

For a start, Scanlon looks the part as he drives round Dublin in his S-Class Mercedes. He now associates with the assorted merchant bankers, stockbrokers and venture capitalists his union once so disdained.

Some of his new-found wealth was made possible because of a tax deal which the former rightwing finance minister Charlie McCreevy conceded for the benefit of Eircom’s employee shareholders in a move that paved the way for Tony O’Reilly and his venture capitalist backers to acquire Eircom back in 2001.

Scanlon is also the deputy chairman at Eircom, the prestigious post as second in command to the billionaire O’Reilly.

Like O’Reilly, Scanlon is also emerging as a player in the media market having been named last month as a member of a consortium which is bidding against the likes of telecommunications billionaire Denis O’Brien for a new youth radio licence for the south-west.

If his bid is successful it means the man who once represented communications workers is now set to employ them.

But the greatest irony of all is that, if the takeover of Eircom by Australian investment fund Babcock & Brown is approved, Scanlon will soon be serving as deputy chairman of the new company which just happens to be incorporated in the tax haven of the Cayman Islands.

There is no issue with trade unions fighting on behalf of the interests of their members. After all, that is what unions are for.

But it is worth recalling the CWU’s role in Eircom you hear the trade unions voicing concern about the privatisation of other state assets, especially the state airline Aer Lingus.

The truth is that the unions have shown that - like the venture capitalists whom they profess to despise - they are in love with lucrative monopolies.

The real reason the trade unions are so hostile to the privatisation of Aer Lingus is that they recognise that the Aer Lingus pickings are relatively slim because Aer Lingus already operates in a competitive market.

They know full well that their members would not enjoy the same opportunity to make money as they enjoyed with Eircom.

If the employee shareholders in Aer Lingus decided to reward themselves by putting up air fares, you can bet your bottom dollar the response from Ryanair boss Michael O’Leary would be to undercut them and win a raft of new customers.

Eircom, by contrast, was able to push up line rental prices dramatically, because it retained a monopoly in line rental.

A state-owned monopoly is - notionally at least - constrained in its attempts to rip off the public because most governments fear that if a state-owned company behaves badly, the electorate will revolt. A private monopoly is only answerable to its private shareholders.

The worst kind of monopoly of all is a private monopoly in which the employees are also shareholders, because the employee shareholders will prefer to make profits by putting up prices rather than by cost-cutting, especially where cost-cutting involves job cuts.

This is especially true if the monopoly is selling products or services that are crucial to the development of the wider economy such as telecommunications.

The real message for government from the Eircom experience is not so much that privatisation doesn’t work - it is rather that competition is a necessary precondition before any privatisations take place, because privately-owned monopolies tend to exploit their customers more than publicly-owned ones.

The task of government should be to devise ways to protect businesses and consumers from such exploitation, the task of trade unions should be to devise ways to protect their members from exploitation by greedy employers.

And it is more than a little ironic for trade unions to join in the exploitation of businesses and consumers and the destruction of state assets built at taxpayers’ expense when it suits them, only to lecture us all on the evils of privatisation when it doesn’t.

P.

DublinWriter

Mercedes S-Class? He's worse than Hitler he is!

The decision to privatise Eircom was a political one. Scanlon was there to protect the position of the workers, which he did.

However the greed of the workers was only matched by the greed of the initial shareholders who thought they were buying a magic-mealticket.

And just remember Enda Kenny fans - who was it that seriously floated the idea of compensating the initial Eircom investors?

Sarsfield

DublinWriter, your first line is unacceptable. Not sure if you're jesting or not, but it don't matter.

I'm starting to like Kathleen Barrington.

Altreab

DublinWriter wrote:

Mercedes S-Class? He's worse than Hitler he is!

The decision to privatise Eircom was a political one. Scanlon was there to protect the position of the workers, which he did.

However the greed of the workers was only matched by the greed of the initial shareholders who thought they were buying a magic-mealticket.

And just remember Enda Kenny fans - who was it that seriously floated the idea of compensating the initial Eircom investors?

Which i guess is why they are still in opposition I have to say it makes me sick when the union leaders are talking about "Fat Cats" and they are often making more money that the people across the table during national pay discussions.(there was a report in a sunday news paper during the last national pay agreement discussing this very point) It really doesnt help their case that they are working for the poorly paid workers as they claim, and which i have to say they do in many many cases,but Kathleen Barrington has really hit it on the head in that article. The unions have a real double standard at the moment. No privatision unless we get a 15% chunk for free and there is a killing to be made in a year or 2. Oh and no competition to be allowed in while we are shareholders.

This is what they are doing with An Post IMHO. I have no doubt that if the goverment had given the go ahead for the last Stamp rise they would have done the deal with mangement. Similar situation in Dublin Airport with Siptu. Remember about 18 months ago the Siptu shop stewart in the Dublin Airport branch resigned because Shannon Airport management had the nerve to sign a contract with Ryanair without clearing it with the Dublin Airport branch of Siptu. The local branch of Siptu in Shannon and Siptu head office Knew about the Shannon deal and hadnt raised any serious questions about it!!

I have nothing against any group of people be they management or workers doing what they can to make a Euro or many ..... just dont be hypocrits and complain about others doing the same or when your monopoly is regulated.
*RANT mode OFF*

Foxwood

DublinWriter wrote:

And just remember Enda Kenny fans - who was it that seriously floated the idea of compensating the initial Eircom investors?

The ordinary Joe on the street who bought eircom shares as a long time investment (something to cash in in their retirement) was forced to sell their shares (the only choice they had in the matter was whether they wanted their checks before or after Christmas - an awful lot of people whould have kept the shares if they'd been allowed, and the Government should have ensured that they were allowed - the deal needed approval from Mary Harney before it went ahead). What Fine Gael proposed was that those ordinary punters, who never held any other shares, should be able to write their loss off against their taxes, just like all the real speculators do.

A speculator who makes 10K on stock A, and loses 3K on stock B, only has to pay capital gains tax on the 7K overall gain. He is allowed to offset the loss against other gains. But a non-speculator who only ever owned eircom shares wasn't allowed to offset the loss against their taxes. Fine Gael suggested that, as a matter of tax fairness, the ordinary punters should be allowed claim that capital loss against their taxes, just as real speculators can. A loss of 2K would lower your taxabe income by 2K, and lower your actual tax by 400 or so (the offset would be at the Capital Gains rate, not the 41% rate of you're in the higher bracket, just as you'd pay an extra 400 if you'd sold the shares for 2K profit). You wouldn't get a check for 2K from the government to cover your losses, you just wouldn't pay tax on "negative income".

Of course Fianna Fail spun this as "compensating speculators", when the speculators were already getting the tax offset. The Meeja, never the brightest when it comes to money, never quite figured out what the proposal really was.

(The current example of ordinary working joes being stung by the taxman in a way that real speculators aren't has to do with Employee Share Schemes. If your employee sells you shares at 85c when the shares are trading at €1, the PAYE worker will be stung for tax on that 15c even if he doesn't sell the shares and realize a profit. If he holds onto the shares and later sells them at a loss, he'll have paid "capital gains tax" without making a capital gain, and he can whiste for a capital loss rebate!)