Lleldlate ola i LT ic | FEATURE Continued from page 1 But not the banks and investment houses. Despite the government’s privat- ization debacle, they made $20 million from commissions on the share sales and an additional $8.6 million from applica- tion fees on the free shares. But even those amounts are minuscule compared to the fortunes that have been made from privatization by the City of London — Britain’s powerful financial district. In a report published in May, 1985, entitled Stripping Our Assets: The City’s Privatization Killing, the British Trades Union Congress revealed that various merchant banks and investment consul- tants had reaped £274 million in fees and commissions for the companies privat- ized before 1985. That figure does not include the commissions on the sale of shares in British Gas and British Air- ways, among the biggest issues so far. When British Telecom was privatized in Canada — with its head office in Vancouver. In turning over the actual sale of pub- lic sector assets to private banks to han- dle, governments are taking the advice of the Adam Smith Institute to “privatize the privatization.” But in that there is a fundamental conflict of interest: the same integrated financial companies that are counselling the government and set- ting the share prices are also advising investors on purchasing the shares. Even apart from the larger issue of the alienation of the public sector, the sale process has cost the public dearly. A report released in July by the National Audit Office — the British equivalent to Canada’s Auditor- General — criticized the Thatcher government for the excessive cost of pri- vatizing British Airways and British Gas. In the case of British Airways, the report said the actual transfer of shares cost the public £42.6 million, which represented _ The share sales: corpora ‘A key player has been the N.M. Rothschild Bank, which has also advised the B.C. government on privatization. Significantly, Rothschild Inc. has just set up business in Canada — with its head office in Vancouver.’ in December, 1984, fees and commis- itself as an experienced company around ~ the world on the issue of privatization,” Richard Pond, a researcher with the Labour Research Department in Lon- don, told the Tribune. sions totalling £128 million were paid out for the sale of shares. A number of banks shared in the rake-off, including Barclays Merchant Bank, Kleinwort Benson, Lloyds Bank International, N.M. Rothschild and SG Warburg. In many of the privatizations, a key player has been N.M. Rothschild and Sons, the London-based merchant bank. “The N.M. Rothschild Bank is touting “It is involved in privatization pro- grams in Malaysia, Chile and France as well as Britain,” he said. : Oliver Litwin, the president of N.M. Rothschild, has been deeply involved in the privatization program in this pro- vince, advising the provincial govern- ment’s task force headed by Intergovernmental Relations Minister Stephen Rogers. Litwin was also one of several Britons taking part in the Fraser ‘nstitute’s July seminar on privatization, including Dr. Madsen Pirie, director of the nght wing Adam Smith Institute and John Williams, manager of corporate finance for the Kleinwort Benson Bank. Also at that seminar were more than 30 representatives of banks and invest- ment houses, most of which would stand to benefit from any sale of Crown assets. Significantly, Rothschild Inc., the par- ent company of N.M. Rothschild through the Swiss-registered company, Rothschild Continuation Holdings, has just taken steps to begin doing business 4.7 per cent of the total proceeds of the Sale. The merchant bank, Hill Samuel, which had advised the government on the share price, also set the price too low, the report noted. As a result, the government effectively lost £317 million in proceeds on the first day of the sale. The price jumped 68 per cent at the close of the first of trading — and that money went straight into the pockets of investors. The process has also underscored the Thatcher government’s adherence to another of the Adam Smith Institute’s key pieces of advice — to undervalue the shares in public companies when they’re offered for sale. _ The government and its merchant bank advisers have been aided in the deliberate undervaluing of assets by the very fact that the companies are going on to the stock market for the first time and have no set share price. But even in the latest privatization of British Petro- leum, whose shares from the first phase of privatization were already selling on the London exchange, N.M. Rothschild and the government took steps to offer discounts on the shares being offered to the public and to offer investors deferred payments, effectively giving them interest free loans. Observer business writer David Simpson called it “ingenious financial engineering.” But the result is that the public loses its assets — and loses on the sale of them as well. “So far,” British Labour Party trade and industry critic Tony Blair told the Commons in July, “the government’s 6 e PACIFIC TRIBUNE, OCTOBER 21, 1987 er TT Wet eps QO) sen \ ec | mn loss on its main privatization list totals £3 billion, which is a really massive Sa to the taxpayer.” At the same time, some of the main beneficiaries of the dramatic increases in share prices have been members of the British Conservative party — including cabinet ministers. The Labour Research Department conducted a computer analysis of suc- cessful share applications in the privati- zation of British Gas and British Telecom. : In the case of British Gas, the oe eae a department “found 124 Conservative MPs — nearly one in three — who owned or had owned shares in their own names, accounting for 106,000 shares.” Even Princess Diana had got in on the act with British Telecom, holding 800 shares of the newly privatized company through a nominee account held by the Coutts Bank. Whether current conflict of interest guidelines would prevent Social Credit MLAs from buying up shares in newly- privatized Crown companies is uncertain but there would presumably be nothing —