Monday, October 27, 2008

Lessons from previous state-owned 'Private Enterprises'.

With large scale Governments investments into private entities on the rise, I think this would be a good time to look back at similar situations to see how such private entities fared post government intervention. The best case in point would be France. France has had an extended policy of nationalization under their late president Francois Mitterand.

One example is Credit Lyonnais, the French bank that was nationalized twice...once in 1945 after the world war and the other time when the bank's assets and liabilities were moved to a state owned corporation.Credit Lyonnais collapsed completely after it had squandered away vast resources while financing Giancarlo Parretti's takeover of MGM in 1990. In addition, the former president of the bank, Jean-Yves Haberer, was under investigation over allegations of inaccurate financial reporting and misuse of business assets. The case revealed the strong links that existed between the bank's state-appointed heads and the government during the administration of the late president Francois Mitterrand. Credit Lyonnais was ultimately fully privatized in 1999. It was acquired by another bank Credit Agricole and reorganized.

Recently, there was strong public reaction to Congressman Waxman's revelation that AIG spent $440,000 on entertainment at a resort in California. But the fact that those were never AIG employees but self employed agents (Agents being critical to an insurance company) was never much publicised. If a private company is run by politicians who don't have the requisite experience to run private organizations, shareholders would be better off with a newer management board than an inexperienced one from the government.

Companies that were nationalized but subsequently allowed to go private such as Renault are healthy (is that even possible in today's market?) and profitable, thus furthering the cause for privatization rather than nationalization.

1 comment:

  1. Tejus,

    Good governance is hard to find. You might enjoy this one,...


    .... time for bloggers to move mountains