Steel producers fully privatised

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In autumn 2003, the Austrian government started to sell off the state’s remaining shares in companies, and notably fully privatised two former state-owned steel production companies, VOEST-Alpine and Böhler-Uddeholm. These privatisations were accompanied by a number of protest actions, mainly organised by the VOEST-Alpine workforce. However, these protests, as well as objections put forward by the parliamentary opposition, did not proved very effective.

The state public holding company,Österreichische Industrieholding AG (ÖIAG), was set up by law as a holding concern to administer and manage the companies completely or partially owned by the state. In 1993, however, the operational relationship between ÖIAG and its (still) state-owned subsidiaries was dissolved by means of substantial restructuring measures. Since then, ÖIAG's statutory role has been to sell off (ie privatise) its state shares in companies. Thus, this institution changed from an operating concern holding a set of shares in (partially) state-owned companies to an executive privatisation agency which is mainly obliged to carry out the privatisation of all these firms on behalf of the government. In this way, most of the (former) state-owned industries have now been fully or partially privatised.

By early 2003, there were only a few companies left in (partial) public ownership. In February, the coalition government of the conservative People’s Party (Österreichische Volkspartei, ÖVP) and the populist Freedom Party (Freiheitliche Partei Österreichs, FPÖ) returned to office after a long period of negotiations in the wake of the general election held in November 2002 (AT0303202F). Its official programme for the coming legislative period, presented in March 2003, includes the almost complete privatisation of ÖIAG’s remaining shares. On 1 April 2003, under the terms of the 2000 ÖIAG Act (ÖIAG-Gesetz), the government thus ordered ÖIAG management to privatise the remainder of the holding company’s shares which had remained in public ownership. The following joint-stock companies (or remaining shares in them) still under the aegis of ÖIAG company are to be completely sold off within an'appropriate time period':

  • Böhler-Uddeholm AG (steel manufacturing);
  • VA Technologie AG (technology and services);
  • VOEST-Alpine AG (steel production);
  • the State Mining Holding Company (Österreichische Bergbauholding AG); and
  • Telekom Austria AG

Moreover, the government aims to sell off a notable share in the still fully state-owned Austrian Post Company (Österreichische Post AG) (AT0204203N) to a'strategic partner', in order to initiate the first steps in its planned large-scale privatisation. It also plans to privatise a major share in the national post-bus company (Österreichische Postbus AG) (AT0206202N), which is at present fully owned by Austrian Federal Railways (Österreichische Bundesbahnen, ÖBB). According to the ÖIAG management’s plans presented on 6 September 2003, all state shares in companies held by ÖIAG should be sold off by 2007, which would mark the end of the present ÖIAG holding company.

Steel producers fully privatised

The two steel producers/manufactures - VOEST-Alpine and Böhler-Uddeholm - which still to a certain extent remained in public ownership were to be fully privatised in the course of 2003. As a consequence, the state’s 34.7% share in VOEST-Alpine (which employs about 14,500 workers) was sold off on the stock exchange in September 2003, and the state’s 25% share in Böhler-Uddeholm (with about 9,500 employees) in November 2003. The proceeds amounted to just under EUR 500 million and EUR 134 million respectively, figures seen as too low by a number of experts and representatives of both the parliamentary opposition and organised labour.

Interestingly, the criticism expressed by the parliamentary opposition generally confined itself to opposing what was seen as the unfavourable timing of the sell-offs (resulting, it was claimed, in achieving below-par prices) rather than substantially questioning the privatisation as such. Only the Chamber of Labour (Arbeiterkammer, AK) and some trade union representatives clearly called for the state to remain a'key shareholder' in important industries by continuing to hold a minimum strategic share of 25%.

In the run-up to the sell-offs, there were a number of protest actions and demonstrations against the government’s privatisation policy, which were organised mainly by works council members at VOEST-Alpine and in which some 10,000-15,000 employees participated to some extent. However, it was claimed that these protest actions were supported by the main opposition party, the Social Democratic Party (Sozialdemokratische Partei Österreichs, SPÖ), symbolically rather than substantially. It was the SPÖ itself that set the political and legal course for the privatisation of the large, national state-owned industries at the beginning of the 1990s, though its position on nationalised enterprises had previously been quite different.

Post-war nationalisation

After the Second World War, the SPÖ favoured the nationalisation of larger industrial enterprises on a number of grounds. First, there was a broad national consensus among the relevant political parties in the post-war era - the SPÖ, the ÖVP, and the Communist Party (Kommunistische Partei Österreichs, KPÖ) - to take enterprises which were formerly'German property' (ie enterprises founded or taken over by the previous German Nazi regime) into state ownership. This was mainly to prevent the confiscation of these enterprises by the four Allied powers occupying Austrian territory in the post-war period. Hence, the three political parties concerned agreed to nationalise all'German property' enterprises by enacting two Nationalisation Acts (Verstaatlichungsgesetze) in 1946 and 1947. Nationalisation of these businesses prevented their confiscation by the Allies, except for those companies located in the zone occupied by Soviet troops. Thus, Austria’s three largest banking institutes, the whole mining and mineral oil industry as well as the most important parts of heavy industry (located in the zones occupied and governed by the three western Allies) were taken into state ownership. About 300 industrial enterprises and about 140 farming areas of'German provenance' confiscated by the Soviets (and incorporated intoUSIA concern run by the Soviets) were not covered by the Nationalisation Acts before 1955, when all occupying powers eventually withdrew.

Apart from such'patriotic' grounds and some inherent necessities for the nationalisation of key enterprises (such as the lack of any solvent private capitalists in the initial post-war period), the SPÖ identified a number of other reasons to nationalise parts of the economy. On the one hand, the SPÖ’s aim was to prevent'asymmetric accumulations' of private capital which could have translated into immediate political influence for individual entrepreneurs. On the other hand, the SPÖ considered'strategic public ownership' of certain enterprises an appropriate means to keep the economy under political control. The explicit goal of'strategic public ownership' was to achieve the'optimum' for the national economy (including social and welfare goals), instead of the'maximum' in terms solely of business profits. This approach proved very successful until the 1970s, when Austria had become one of the most developed countries in Europe in terms of productivity, employment and welfare standards. However, a sophisticated system of proportional representation and very close links between the management of state-owned establishments and political parties (in particular the SPÖ) and the trade unions paved the way for non-transparency of managerial activities and (partially illegal) mismanagement. Such developments resulted in substantial restructuring measures (including privatisation in some cases) of most state-owned industries mainly beginning in the 1980s.

The case of VOEST-Alpine

The state-owned VOEST-Alpine steel production and manufacturing company - which previously employed several tens of thousand of employees, in particular at its headquarters in Linz and main plants in Styria - was long considered to be a'prototype' establishment in terms of the goals of the national economy. In the post-war reconstruction era, VOEST-Alpine produced raw steel far below the world market prices and thus provided cheap raw materials for Austria’s small-scale private sector processing industry - which was an indispensable prerequisite for Austria’s rapid reconstruction. Partially funded by the state, Austria’s main steel producer withstood the world’s steel sales crisis and was able to avoid collective redundancies such as those carried out in most other steel producing countries. Instead, both steel production capacity and the employment level remained high. Moreover, VOEST-Alpine trained more apprentices than it needed for its own recruitment purposes. Thus, the state-owned company bore the costs of training apprentices who were then often recruited by small and medium-sized enterprises in the private sector.

Furthermore, the state made strategic investments in the successful development of innovative technologies. The L-D (Linz-Donawitz) mode of steel production designed, developed and introduced by VOEST-Alpine has become an international standard for the production of high-quality steel. Such state research and development (R&D) investments and incentives are particularly important in a country like Austria where the rate of R&D investment by private sector companies is among the lowest in the OECD countries. Apart from this, the state’s ownership of VOEST-Alpine facilitated technological reorganisation and modernisation of its production sites from the 1980s onwards, in particular with regard to environmental goals. Most probably, this would have proved much more difficult if full privatisation had been realised before now.

Last, but not least, social security provision for employees, co-determination rights for the works council and trade unions, and effective equal treatment policies for men and women (in particular in terms of pay) were much more developed in state-owned establishments such as VOEST-Alpine than in the private sector. Such attainments in terms of industrial relations have, however, been discredited by some participants in ongoing public debates over the supposed unfair privileges of employees employed in establishments linked to the state.

Despite taking national economic and public welfare goals into account, rather than just aiming to achieve maximum profits, VOEST-Alpine managed continuously to yield a profit (with the exception of a period in the 1980s). In the view of the prevailing (neo-liberal) opinion which deems the state an'inferior entrepreneur', this performance may be surprising. However, some commentators point to a series of national and international studies substantially questioning the assumption that the state tends to function worse in running businesses than private enterprises, as suggested by mainstream economics.

Commentary

The complete sell-off of the state’s remaining shares in the steel producers VOEST-Alpine and Böhler-Uddeholm, as carried out by the ÖIAG holding company in autumn 2003, marks the final stage of Austrian state's ownership of key industries. By 2007 at the latest, ÖIAG management must, in line with the government plans, sell off all of the state’s remaining shares in companies. This policy has been criticised only slightly by the parliamentary opposition. Both SPÖ and the Greens (Die Grünen, GRÜNE) have focused their criticism mainly on the proceeds of the privatisations, which they regard as far too low. As regards VOEST-Alpine, the proceeds amounted to slightly more than double the profits yielded in 2002 (EUR 223 million). Given the same profits for the coming years, the state (which owned about a third of the company) will have lost out from the bargain seven years after the sell-off. By then, the potential dividends lost by the transaction will exceed the proceeds realised (assuming a stagnation of profits).

The most substantial objections to the present privatisation policy have been put forward by the Chamber of Labour (AK). First, it has stated that each sell-off of a well-performing establishment owned by the state results - in the long run - in a loss for the public and brings about an asymmetric accumulation of shares. Second, it has described the privatisation of'global players' such as VOEST-Alpine and Böhler-Uddeholm as a'sell-out' of Austrian key industries to (foreign) competitors. It also considers the planned full privatisation of Austria’s largest telecommunications provider,Telekom Austria, to be a'sell-out' of a public interest company.

AK’s fear is that the sell-off of so-called key companies (which have particular strategic relevance for the national economy in terms of the labour market, infrastructure etc) may result in relocations of important parts of these companies (such as planning divisions, R&D units and highly specialised production sites) to foreign countries, or even the companies’ split-up and partial closure. Therefore, AK calls upon the government to transform ÖIAG's legal status from a privatisation agency into a strategic holding company holding a minimum of 25% key shares in each establishment of choice. This 25% threshold of shares would grant the state a de facto participation in all relevant matters of management decision-making.

Notably, only a few months after the complete privatisation of VOEST-Alpine, its management threatened to reconsider a planned EUR 1 billion investment at the main production site in Linz. Management stressed at the beginning of January 2004 that this investment will be made only if the government proves its willingness to provide a more favourable framework for business in terms of company taxes, road haulage tolls, and special levies for power consumption and pollution. In the new management’s view, taking into account any public interest beyond solely business interests must be seen as mismanagement.

Against this background, is appears amazing that there is hardly any public debate over the question of whether the state should remain a strategic owner in certain economic sectors. The government’s stance is clear: according to its neo-liberal policy line, any company share withheld from the private capital market by the state is a distortion of free-market competition. However, the self-imposed restraint of the SPÖ with respect to the privatisation issue seems to be inexplicable since, in particular, the privatisation of the traditional VOEST-Alpine company proved very unpopular. Apparently, the SPÖ has accepted the coming end of the state holding any'strategic public ownership', which was for a long time a key policy instrument of Austrian governments. (Georg Adam, University of Vienna)

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