The money from the sale of T-HT shares was supposed to end up in investments that would enable production for export, which is the only way to balance foreign trade and state finances. And thus ensure decent pensions
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Written by: Miodrag Šajatović |
When large consumption can no longer be financed by sell-offs, politicians will be able to tell citizens: ‘Why are you complaining? You participated too!’ |
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Before World War II, women in Slavonian villages eagerly awaited elections for the Assembly of the then Kingdom of Yugoslavia. There was always at least one party that, in exchange for votes in the elections, offered – skirts. Times have changed. Instead of skirts, today voters are attracted to vote for the ruling party with – shares. It is no coincidence that Sanader’s government timed the initial public offering of T-HT shares just before the elections, which are now certain to be held on November 25. The shares, it is true, will not be given away for free, but an atmosphere has been created that guarantees a profit of at least 50 percent in a few weeks. It seems to be a perfect political move: the share of state ownership is reduced, which is demanded by international institutions. No opposition party dares to loudly oppose the sale of state-owned share packages when the revenue is intended for repaying debts to pensioners. No one would want to ‘offend the pensioners’ before the elections. And there is also the flattery of the middle and upper middle class who have spare money and will profit from stock speculation. When it becomes evident in a few years that almost all state family silver has been sold in a short time and that large consumption can no longer be financed by sell-offs, politicians will be able to tell the most influential group of citizens: ‘Why are you complaining? When you made a big profit on shares overnight, you weren’t complaining. If we committed an economic crime, you are participants too!’ In a political sense, this move by the HDZ government is indeed excellent in the short term. However, looking at the project from an economic perspective, things are not so ideal and one-dimensional. The positive side of the euphoria surrounding the registration of T-HT shares is a new lesson in educating a broader layer of citizens about shareholding and stock market rules. Wealthier layers in all capitalist countries hold part of their wealth in shares, and so it must be in Croatia. Moreover, if someone needs to take a ‘commission’, it is better that it is transparent and mass than that two or three ‘intermediaries’ raise profits when selling to a strategic partner. And that would conclude the list of advantages of the latest government privatization project. The list of weaknesses and dangers is longer. The key shortcoming is that billions of kuna collected from the sale of shares will be spent all at once. It is undeniable that the pension standard is low and that every kuna is welcome. But today’s gifts in the form of repaying debts to pensioners could cost the state finances dearly in a few years under the burden of the country’s over-indebtedness and its inability to generate high growth rates built on solid foundations. In other words, the money from the sale of T-HT shares was supposed to end up in investments that would enable production, specifically for export, which is the only way to balance foreign trade and (indirectly, through higher tax revenues) state finances. And thus ensure decent pensions. The second trap is that domestic investment and pension funds will buy T-HT shares from citizens at higher prices. With other unchanged conditions, this means lower returns, so it may happen that someone profits from reselling shares today, but then loses on future income from funds, including pensions. The third dangerous message being sent boils down to the conclusion that we can all profit from state gifts and speculation. Stock market speculation is not inherently bad; it is part of the stock market game. But in Croatia, it has been shown for decades that the clever, not the hardworking, fare best. Those who took loans in the 70s saw their installments eaten away by inflation. If they built weekend houses by the sea with their help, today they are wealthy. If they also received social apartments, at the beginning of the 90s the state gifted them for five to six thousand euros. Today they sell them for 100,000 euros, and if they invest that money in shares that the state offers at a discount, they will profit even more. Shareholding is justified if it serves two functions: first, if it provides capital for entrepreneurial projects that will generate profit, and second, if it ensures that private owners, including small shareholders, are controllers and encourage company managers to work faster, better, and more profitably than when the owner is the state. In the euphoria of who will earn more on T-HT shares, perhaps we should also take this into account. |
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