The German Krankheit: Failed privatizations - and beyond

Once Germans get to do something, they do it quite totally. A note on German media brought back some unpleasant memories about privatization today. In the fourth part of the series on the German Krankheit (disease), we take a look at mishapped privatization and the sell-off of taxpayers' assets to private investors.

German media today reported that the German printing office, which obviously had been on the brink of bankruptcy several times before, could be about to be sold to private foreign investors (such as private equity funds or investors acting through proxies).

Obviously, the German printing office in Berlin does, what government institutions normally should do: it produces passports, Euro notes, driving licenses and other official documents. It is needless to say that in the process of doing so, it gets in touch with highly sensitive data. On Tuesday, members of the second chamber of the German parliament, the Bundestag, have voiced concerns over a possible sell off of the Bundesdruckerei printing office to foreign investors through the state bank of Hesse, being one of the chief creditors wanting to get rid of sour credit from a 2001 privatization deal of the Bundesdruckerei having gone seriously wrong.

The row over the printing office is only the last in a row of more-than-questionable privatization deals of public assets in Germany:

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  In 1996, Germany's federal government sold off assets in Deutsche Telekom. Deutsche Telekom had been part of the German PTT, which was later split into Deutsche Post and Deutsche Telekom, which both became publicly traded companies. Not only were Deutsche Telekom and its assets, taxpayers had already, publicly floated. DT's IPO, being the first aggressively advertised going-public in the German media, also made many individual small investors lose significant amounts of money.


• 
  Deutsche Telekom spun off its online-business, T-online, in 2000 at the German counterpart of NASDAQ at a stock price of 27 Euros. Investors in T-online were squeezed out by the very Deutsche Telekom in 2005 at a meagre 9 Euros.


• 
  The German Post Office, Deutsche Post, was floated on the German stock market, and has since been a moderate success story. Set aside the fact that Deutsche Post also brought a rich basket of taxpayer-paid assets to the table, a guaranteed monopoly in letter transportation and a customer service at best described as gruesome are the foundations on which Deutsche Post AG, now being a private company with a state guaranteed monopoly until (presumably) late 2007, are the two foundations of "success".


• 
  Deutsche Post AG later made DHL an affiliate and switched its parcel service, which had been a traditional field of activity of the state owned Post Office, to its new affiliate. The switch was accompanied by a huge ballyhoo and a millions-of-Euro ad campaign on all media channels. Now, in a terse statement, Deutsche Post AG says, it wants to re-integrate the parcel service into its normal post office branches again. Only naive observers probably might ask what the previous money burn at outsourcing time was all about.


• 
  German railways, Deutsche Bahn AG, is to have its IPO within one year. As was the case with Deutsche Telekom and Deutsche Post, Deutsche Bahn was and still is a 100% affiliate of the German state. In a political row over the highly valuable real estate assets of the company, it was decided that Deutsche Bahn AG will not bring these assets to market when floated, leaving them in the hands of the German state. Deutsche Bahn AG will now be operator of the infrastructure, practically strangulating all serious attempts of competitors to offer value-travel on rail. In its stride to become "competitive", Deutsche Bahn AG has become a true world champion of bad customer service and high prices. As an example, French railways SNCF would bill clients around 59 Euros for a one way trip Paris-Lyon (108 Euro at peak hours). A comparable trip from Mainz to Munich would cost the German traveller 83 Euros, making travel in Germany around 40% more expensive at most times.  

Not only at the federal level is the story of privatization one of technical failure. Many cities, amongst them Dresden with a strong Socialist faction (PDS/Linkspartei, former communist ruling party) at the helm have started selling of municipal housing, leaving many citizens on social welfare at the hands of private equity funds as landlords. The same development is seen in many critical infrastructures where Germany hasn't had a tradition of private ownership, such as water utility companies.

With an all but complete incompetence on behalf of German politics to set out clear standards for privatizations, it becomes clear that quick sell-offs in public assets are little more than an emergency program to keep budgets from toppling and hanging in the balance, with little or no clear vision of the future on behalf of the political class - beyond guaranteeing enough budgetary space for exuberant state spending on civil servants' and politicians' wages and pensions.