Clegg wrong on bank privatization


Eamonn has a post on the Guardian's Comment is Free site today, criticising Nick Clegg's suggestion that shares in the nationalized banks be handed free out to every elector. You can read the whole thing here, but this extract should give you the flavour:

Colleagues and I contemplated such ideas in the late 1970s, as a solution to Britain's huge nationalized industry sector, but we quickly abandoned it…

We went through 20 years of privatizations and we gradually worked out the best ways to do it. The shares need to be offered to those who actually want to own part of a bank. They need to be offered cheap, and in installments, so that a wide number of the general public participates. There needs to be national advertising to generate interest. Shares must be easy to buy. There need to be incentives to discourage people from flogging them at the first opportunity. The share offer needs to be underwritten by financial institutions. Some part of the shareholding needs to be reserved for financial institutions – but that proportion scaled back if the public demand exceeds expectations. The shares should be sold a bit at a time, so the taxpayer gets the full value possible from a (hopefully) rising share price over two or three years. Which they wouldn't under the proposed scheme.

We have learnt all these techniques before, in previous privatizations. It would be a mistake to ignore all those lessons, even from the best of motives.