A privatisation bandwagon not worth jumping on

COMMENT: `Yorkshire Water and British Gas got a bad name not because of being privatised but because they are monopoly utilities with a public duty who failed to look after their customers'

When British Airways was buying a 25 per cent stake in Qantas it was greeted at the airport by a protester holding aloft a placard which read "Piss off Poms." Had it been Michael Atherton walking through baggage reclaim and not Sir Colin Marshall, the message, no doubt, would have been expressed in less measured tones.

But never mind. You get the picture. BA might be a great outfit over here but to the average ocker, Sir Col is not fit to tie Dennis Lillee's boot straps. And why is this? Because the great British privatisation story, of which BA is a part, has been sullied and undermined by the antics of a few rogue utilities who have brought disgrace to the name of private enterprise.

So what is the answer? Write to a few dozen chief execs, hold a breakfast in a swanky London hotel and launch a campaign to promote the virtues of privatisation at home and abroad. After all, there's gold in them tha' hills if only we can persuade the rest of the world that privatisation is not just about saving on bath water and pigs called Cedric.

It is easy to see why companies such as BA and Unipart should complain at being tarred with the same brush. However, it is also easy to see the pitfalls in such a campaign, starting with the decision to launch it into the white heat of the longest General Election campaign on record.

That has effectively prevented Sir Colin and his steering committee from doing anything meaningful for six months or until such time as polling day is over and done with.

But even when they do know who is in power, what are they going to do to rehabilitate the image of our privatised companies in overseas markets?

The first problem is the danger of extrapolating from the specific to the general and back again. Yorkshire Water and British Gas got a bad name not because of being privatised but because they are monopoly utilities with a public duty who failed to look after their customers. BA, whatever the man at the Sydney Cricket Ground may think, has long been perceived as a fabulous airline not just because privatisation has freed it from the dead hand of state control but because it looks after its passengers.

This leads on to the second problem which is whether successful privatised companies really want to be associated with some of their brethren with a less impressive track record. Would National Power and PowerGen, both of whom have done well in overseas markets, really like finding themselves bracketed with Thames Water, for instance, whose foreign diversification has proved an unmitigated disaster?

The danger is that this campaign, far from accentuating the positive, will end up applying the tar even more liberally. That, together with domestic political considerations, perhaps explains why there were so many no shows at breakfast yesterday - 74 were invited, 45 turned up.

As Groucho Marx once observed: never join any club that would have you as a member.

A change of name has done nothing to reduce the narcoleptic effect of detailed international trade negotiations. The World Trade Organisation, which took over a year ago from the General Agreement on Tariffs and Trade and has held its annual meeting in Singapore this week, has been as ditchwater- dull as its predecessor. But it has, amazingly, come up with an eye-opening agreement to crown its first year of existence.

This is the deal to abolish tariffs on $600bn-worth of information technology products by the year 2000, in the biggest ever free trade agreement for a single industry. By tonight countries accounting for 85 per cent of trade in goods from computer monitors to software should have signed up.

It is hard to exaggerate how important this is. The IT industries are already expanding by around 15 per cent a year, making them the fastest- growing sector virtually everywhere in the world. The progressive cuts in tariffs during the next four years will reduce prices and boost demand, generating more output and jobs around the world.

It was successive rounds of free trade pacts that delivered the golden age of growth in the 1950s and 1960s. When the momentum of liberalisation faltered, so did those widespread gains in prosperity. This week's new deal could restore that economic magic in the next century. When you think that almost every household appliance and even some greetings cards (the kind that sing when you open them) contain a microchip already, the possible spillover effects of falling prices of the relevant technologies are mind-boggling.

It is simply not possible to forecast what will happen to European economies after monetary union, which is why economists have taken instead to publishing imaginary scenarios, ranging from the Panglossian to the darkly apocalyptic.

Most of the printed predictions emerging from the City err on the optimistic side, which is not surprising, since investment banks are more interested in building market share in the new euro capital markets than in frightening off potential clients with dire warnings that it will all fall apart.

Yesterday the Centre for the Study of Financial Innovation, a think tank funded by 30 banks and companies, the Bank of England and the Treasury, published an antidote to all that.

Calling its pamphlet "The Crash of 2003," the CSFI suggests that France rather than Italy will be the weak link in the chain. It will be forced out of emu within a year of EMU's full implementation in 2002.

With late 1990s growth in the world economy running out of steam, the French economy will come under heavy pressure in 2002 as the presidential election approaches with no easing of unemployment. But at the same time the stability pact, which is meant to keep deficits under control, will put a squeeze on the budget.

President Chirac will propose reform of the pact, but Germany will take fright at the thought of bailing out weaker emu members, so confidence in the euro will slump.

Rescue plans for emu fall apart, France reverts to the franc and soon after Italy, Spain and Ireland quit. Written as a report in 2003 to Prime Minister Blair on the break up of emu, it makes plausible reading.

Scenarios are of course just that and who can tell whether this one will prove to be total nonsense or not. But the author, David Lascelles, has detected a scepticism that is abundantly clear to anyone listens to what is being said around the City.

This is not a matter of raw Tory europhobia. After all, at senior levels the City is probably the most cosmopolitan place in Europe.

But many people really do have serious practical doubts about the emu project because it is so politically driven and in danger of losing touch with business, employment and financial market reality