Germany can draw on more than six decades of experience in the privatization of state-owned enterprises. As early as the 1960s, large companies such as Volkswagen or the mining and electric company VEBA partly passed into the hands of private shareholders.
At the time, however, the government did not primarily want to make sluggish state-owned enterprises more efficient, believes Detlef Sack of the University of Wuppertal.
“This wave of privatization in the 1960s was primarily driven by the idea that parts of state-owned enterprises were sold to the general public in all areas,” said the political scientist, who in a 2019 book examined the history of privatization in Germany and Europe.
The idea was to involve the German population more in the stock market. The new shareholders were expected to come from all walks of life and participate more in the social market economy.
Lessons from Telekom and Deutsche Post
Even more than 30 years later, when Deutsche Telekom first went public in 1996, the shares of the state-owned company were being marketed as “people’s shares”. The managing director at the time, Ron Sommer, even promised that the shares would be “as safe as a supplementary pension”.
But after the tech bubble burst in 2000, those promises completely vanished. “Here, too, there was the idea of selling state property in order to allow citizens to participate in the full spectrum of material prosperity,” writes Sack.
At the time, newcomers to the stock market were frequently encouraged by advisers to buy Telekom shares without being told that it is not enough to bet on a single share. The fact that investors had to rely on a range of securities from different sectors and countries to limit risk was too often suppressed in the stock market fever of the time. This has resulted in losses, great frustration and a great deal of loss of confidence among hundreds of thousands of new investors.
Ron Sommer, then boss of Telekom looking for an investment in the company in 1996
In contrast, things turned out better for the German postal service, Deutsche Post, and its private investors. The company, which has been partially privatized since November 2000, has long made windfall profits with what was originally its US-based subsidiary DHL. There, the company took advantage of online shopping by delivering packages for Amazon and other online retailers.
Another trend that has manifested itself over the past 20 years is the fact that institutional investors are increasingly put forward in the privatization of public enterprises. “Today’s privatizations are primarily driven by the idea that state-owned enterprises must become more efficient. Investors come from the capital markets. It’s a completely different logic, ”said Sack.
The experiences of privatizing state-owned enterprises in Germany are varied. Especially when it comes to winners and losers. As for the losers, especially, many employees have been on the wrong side in privatizations for the past 20 to 30 years, writes Sack. “Those who were previously employed in state-owned enterprises are the losers in this process. Efficiency gains have often led to layoffs and reduced employment in the medium term.”
Increased competition was the most important factor, especially with many state-owned enterprises privatized in the former socialist East Germany after 1990. Sack believes that the privatization of some of these enterprises could not prevent their demise. because of the sudden competitive shock to which they were exposed. in a market economy after reunification. “Suddenly, the shipyards were faced with competitive pressure from the shipyards in South Korea and Taiwan, to name just one example,” he wrote.
On the flip side, Sack sees taxpayers as the indirect winners, as the sale of state-owned enterprises means money flowing into the public purse. In addition, many executives are taking advantage of the transition to privatized companies by increasing their income with salaries more in line with the market.
Privatization does not necessarily mean job loss
The fact that privatizations do not always lead to job losses becomes clear when waste management is taken into account. The reason was a high proportion of unionized employees with collective agreements in municipal waste management companies.
Even after privatization, there has not been a serious drop in employment in all areas. “The employees have played their own role here. And if they are able to organize themselves strongly as a collective, then waste disposal is a very positive example, at least in parts of the western part of the country. Germany, ”Sack said.
Strong unions in municipal waste disposal companies saved many jobs after privatization
However, he considers the privatization of municipal associations and housing cooperatives a serious mistake. “With hindsight, these are mistakes. But it must be said that this goes hand in hand with other trends, namely that there are not enough apartments built. In addition, the public sector has not provided sufficient subsidies for affordable housing.
Sack blames some of the blame on local and state government officials for the current housing shortage in major German cities and the explosion in rents. “They did not realize it on time and did not take timely countermeasures.” Privatizations in the housing sector have contributed to the sharp rise in housing costs, but they have “not been the deciding factor,” he wrote.
What is left when everything is sold?
In a few cases, the German government has not been able to offload a business it wanted to sell. Over the years, they have thought about privatizing Deutsche Bahn, the national railway. To help make the company look better on paper, little has been invested in the rail network for years.
Today, a train journey can be an adventure with delays, cancellations, and overcrowded cars. All this has served no purpose since there is no longer any question of listing the company on the stock market. Huge investments are needed to repair its infrastructure and develop job profiles for the digital age.
To this day, there is a heated debate over what is left after a country sells its best trading assets. Does this make a society as a whole poorer and less able to maneuver when needed?
Detlef Sack admits that this makes a company less capable of making decisions in parts. “But that doesn’t make them poorer,” he concluded. For him, we must stop thinking that the amount of money always remains the same. After all, money does not disappear in the capital market, but rather comes back into the economy.
This article was adapted from German.