The Trade Union Movement in Ireland Part 2 – The Rush to join Privatisation

Joe Craig

4th April 2004

The former state company Eircom, originally floated on the stock market in 1999, returned to the stock market this month with much comment but without the popular privatisation frenzy of the initial launch.  The company returns having been sold in 2001 to Valentia Telecommunications after its mobile phone arm was sold to Vodaphone, also in 2001.The 450,000 small investors who bought shares in the initial flotation at €3.90 per share lost heavily when they were forced to sell up at €1.365 per share.  Those who held on to their Vodaphone shares are also nursing a loss of around 40 per cent.

They will be flabbergasted at this turn of events and look on with a mixture of anger and incredulity as a company which now has 10 times as much debt as the old company, no mobile phone arm – one of the few areas of potential growth for a telecoms company, low internet/broadband penetration, 0% sales growth projected for the next year and a pension fund deficit of €227m as of December 2003, returns to the market in an offer called ‘too good to be true.’

This is because the dividends on offer amount to five times the average of other European phone companies, almost five times that offered in 1999, and will account for half the company’s free cash flow despite a poor record of investment since its takeover.  This continues a policy of looking after its owners rather handsomely as it utterly fails to develop its services.  Last year it refinanced itself and still gave €400 million away in dividends to its shareholders.  As ever in the performance related pay culture of free market capitalism failure pays almost as well as success.  Former chief executive Alfie Kane left the company with a €3.8 million pay-off.

This time there was to be no room for the hype about popular capitalism as the minimum investment required was €40,000 and only ‘high net worth’ individuals could apply.  Irish stockbrokers Davy, Goodbody and Merrion were only offering the investment to their private clients.  Once again while the small person comes out covered in shit some come out smelling of roses.  Eircom’s four executive directors will together have reaped a total of €29 million from the company by the time of its new floatation while Sir Tony O’Reilly will recover €43.5m on an initial investment of €25m plus the dividend of €10m he received last year.  Providence Private Equity will make a profit of around €280m on an initial investment of €314m – a return in excess of 50% per year!  Soros Private Equity (of George Soros fame) will have turned €155m into €198m including €40m of dividend and Goldman Sachs will have turned €10m into €12.64 m plus €8m dividend.

Another story of capitalist greed and excess?  Well yes.  But this is not the worst of it.

Trade Unions

This honour belongs to a prominent part of Ireland’s trade union movement.

The original privatisation itself, on which so many lost out, was only possible because the company’s main trade union, the Communication Workers Union (CWU), agreed to support the privatisation if the company’s workers were allowed to join in through a Employee Share Ownership Trust (ESOT) which gave them 14.9% of the company in exchange for changes in working conditions etc and €130m, which it borrowed.

The sale to the vulture capitalist of Valentia, crystalising the loss to small, shareholders, went ahead only because of the support of the ESOT (despite the other bidder offering more) and because of tax changes by the government.  As a result the ESOT increased its share in the company to 30% at a cost of €202m.  The latest sale excluded the ESOT portion which necessitated the Trust putting up another €85m so that its ownership share was not diluted.

What is most scandalous however is that the floatation has revealed big time the extent to which some trade union leaders have done very well out of this sorry story.  The general secretary of the CWU, Con Scanlon, has made €1.9m out of it.  This includes shares worth €580,000, a pension worth €1m over the next 10 years and a lump sum of €230,000.  He earned fees of €106,000 last year for being deputy chairman of the company which is similar to what he earns as a trade union boss.  As the ESOT had raised its share of the company from 15 to 30 per cent it was able to nominate another director – John Conroy of Merrion Capital who also did very well out of his association with the trade union movement by getting 125,000 shares.  ESOT now owns the company along with a further 10% who are Irish, 40% UK and 10% each US and European.  It has been estimated that up to 20% is owned by hedge funds looking for a quick buck.  The company has registered itself in Britain which means that the Irish exchequer will lose out €22m per year in stamp duty payments.

David Begg of ICTU has now said that the privatisation of Telecom Eireann might have been a ‘major mistake and contrary to the public interest.’  The executive of the CWU apparently wants Scanlon to explain these payments (what do they not understand?) and Blair Horan of the Civil Public & Service Union has said the level of remuneration ‘simply cannot be justified.’

Scanlon has denied there is any conflict of interest, a denial couched not only in the true language of social partnership but the language of the purest capitalist arrogance.  He said that trade unions had been trying to get on the boards of companies for years and this is just what had now happened. True.  ‘That’s where the workers want to be, where the decisions are being made.’  Responding to the charge of a conflict of interest he responded that ‘having a healthy company is in everyone’s interest.’  He said ‘There is no-one on the board that doesn’t have some conflicts to manage.  I don’t see any difficulties in managing these things.’ (I’m sure he doesn’t.)

Charges of conflict of interest would appear to be true, but only if you still believe that the trade union bureaucracy truly represents the interests of the working class it leads.  It has not done so for a very, very long time.

This is not to say that what has been revealed about Scanlon is not important.  It does represent a new low in the bureaucratisation of the trade union movement.  Until now these bureaucrats could be called workers’ bureaucrats because they derived their fat salaries and comfortable lifestyles ultimately from the dues of their working class members.  They could always look forward to jobs on the boards of state bodies or other organizations that would pay handsomely and some such as Phil Flynn were able to make the move from union bureaucrat to banker and strike breaker.  They could do so if they played ball with the government and fulfilled their appointed role as jailers of their members in social partnership arrangements that sacrificed workers interests to the bosses.  They could do this however without being so obviously in the pay of the employer.

The concern of Begg and others is that Scanlon’s shamelessness makes all too obvious the treacherous role played by the trade union hierarchy.  They are worried it could spark resistance to their grip on organisations that are supposed to belong to the workers and which are supposed to organise them but which most workers feel are out of their control.  They collect dues but participation rates in union meetings are tiny and the vast majority of members are totally inactive.  When they do want to take action their strike ballots are ignored or subverted and the union machinery often becomes an obstacle to rank and file organization.(see our article on the fight against transport privatisation)  The fat pockets of Scanlon et al threaten to openly reveal the gulf of interest between union member and union bureaucrat.

Worse Again

But this is not the worst.  Why has there been no outcry at what has been going on?  After all Scanlon has been on the board of Eircom for years.

The truth is that buying off the bureaucrats has been carried out on a lower level at a lower level.  The ESOT that gives Scanlon his big pay days also gives significant numbers of union members smaller, but still significant, pay days.  Essentially privatisation has been achieved not just by buying off the bureaucrats but by buying off some union members.  This is why Scanlon will receive no reply when he says that ‘I haven’t got any cheques back from any of Blair Horan’s members.’

Privatisation has exposed the sectionalism that is the very nature of trade union politics as not just woefully limiting but sometimes positively reactionary.  The recent Eircom flotation will net the 14,502 members of the ESOT €4,551 each on average with some getting €6,800.  Not nearly enough to turn the workers into capitalists, in fact it is tiny compared to the income workers continue to need from selling their labour power, but enough to politically divide the working class.  Certainly enough to get them to buy privatisation.

Of course this is short-sighted on the workers part – just as it was of those who thought they could make a killing by individually buying shares in 1999.  The dividends have been paid for by jobs; over 13,000 worked in the company in 2001 and only 8,387 at December 2003, and it is planned to fall further to 7,000 by 2008.  It has been paid for in work changes and most importantly in the freedom of the workers to defend their class interests.  It has been paid for in the unity of the working class generally.  It makes it easier to portray semi-stare workers as selfish and privileged and unconcerned about their working class customers.

Eircom has dragged its feet over regulators demands that it provide a universal phone service to all households, no mater how individually unprofitable, and has tried to end this obligation.  It has introduced three price rises on its line rental within a year while failing to adequately inform those of the help it must give to the most vulnerable.  While this goes on Scanlon calls for less regulation of the company – a good example of non-conflict of interest?  He sits as a prominent director of a company that pays huge dividends to the already super-rich through fleecing its working class consumers. 

And Elsewhere

This strategy of buying off sections of the working class has become a pattern.  It lies behind the recent lock-out of An Post workers who are facing cuts in salaries, work changes and an immediate plan to reduce postal delivery staff by 1,350.  Management attempted a provocation in its suspension of hundreds of sorting staff and have played hard ball by refusing to pay the 3% pay increase due under the latest ‘ Sustaining Progress’ partnership deal.

The CWU had already won a ballot for strike action by six to one but its demand for a 14.9% share of the company in its own ESOP (Employee Share Ownership Plan) utterly undermines any opposition to wage restraint, job cuts and changes to conditions.  Management have already made it clear that achievement of a ‘healthy’ company that Scanlon says is in everyone’s interest means all of these.  The company lost €46.4 million in 2003 and is forecast to lose at least €30.6 million this year.  The demand for an ESOT gives the lie to any pretence of opposition to privatisation.

In Aer Lingus workers have voted nine-to-one for an ESOP.  In the Electricity Supply Board the unions, while claiming they want the company to remain in the public sector, want their current notional share of 5% increased to 20%.  Workers in the VHI have been promised an ESOP if it is sold and while the unions again claim to be opposed to privatisation they are demanding an ESOP if it goes ahead.

In Bord Gais an ESOP of 14.9% would give each worker shares worth almost €250,000!  The Department of Communications has said that this is not on and has instead offered to talk about 5%.  Bank staff in the ICC, ACC and TSB have all made out of privatisation – around €150,000, over €50,000 and just under €50,000 respectively.  Workers in the Irish National Petroleum Company got almost €40,000 each.

Such payouts previously affected small groups of workers but the privatisation of Telecom Eireann has made it a much larger phenomenon.  Support for privatisation, even in the dishonest way it has been done, undermines fatally any idea that the unions represent the wider interests of workers.  Who is going to fight privatisation if the workers most affected support it?

Of course such a strategy is of limited application and many state services cannot promise large bribes upon privatisation.  Sooner rather than later workers pay for it.  But if it is only sections that immediately and obviously do so the sectionalism of trade unionism leaves workers wide open to division and manipulation.

The utter failure of Irish trade unions to effectively resist privatisation and now increasingly join in supporting it should raise deep questioning among all class conscious workers, a questioning that is not yet in evidence.

What is the future of a movement that has so utterly failed and is now so obviously bureaucratically diseased?
Is this failure the result of the very nature of trade unionism, which seeks to influence the level of exploitation but not overthrow the system that creates it?
If so then is the fight to reform unions going to lead to inevitable failure?

However the answers are arrived at it is clear that the fight against privatisation and the whole social partnership agenda is a political one that only a political programme can give a satisfactory and adequate answer to.  The building of a new working class political party must be the objective of all those who continue to fight inside and outside the trade union movement against privatisation and social partnership.