to the removal of private ownership in their industries.
1.5 In the case of gas, electricity and coal, major reports had
already emphasised
a need for reorganisation and in some substantial public
involvement already existed (60 per cent of electricity supply
and 37 per cent of gas were publicly owned). Even in the most
controversial case, the nationalisation of iron and steel, state
involvement had already been established with the creation of
the Iron and Steel Board in 1934.
1.6 Trade Union pressure, through both the TUC and the Labour
Party, was of
considerable importance in the case of and railways and, to a
lesser extent, the iron and steel industry. A number of
arguments were deployed by the trade unions. In the case of
the miners workers’ control was important, but more important
were sectional considerations concerning security of
employment, working conditions and pay – all of which, it was
felt, would be improved under public ownership.
2. Problems
2.1 Performance: it was suggested that nationalised industries
should cover their costs, but it remained unclear what their
economic objectives ought to be and this has resulted in
considerable debate concerning how their performance should be
evaluated. Should they be evaluated on the basis of commercial
rates of return associated with the private sector? Should the major
consideration be ‘social’ in that they meet peoples’ needs
regardless of market considerations? Or should they attempt to
achieve a balance between these two objectives? Prior to the
introduction of privatisation, much of the debate focused on these
considerations and, in particular, whether an appropriate balance
could be achieved.
2.2 Accountability and Control: a second ‘problem’ was related to
the accountability and control of nationalised industries. Herbert
Morrison (former leader of the London County Council and
grandfather of Peter Mandelson) persuaded the Labour Party that
the public corporation was the most appropriate organisational form
for a state-owned industry. It combined commercial flexibility with
political accountability, though he accepted that the precise nature
of public accountability would need to be worked out in the light of
experience. Yet, he did not want these industries to be directly
controlled by the relevant government departments, as was the
case with the Post Office, or employees. In practice, however, the
relevant Minister played a significant role in the operations of these
industries, often leading to criticism that their role was political
rather than economic.
3. Privatisation: The Thatcher Effect?
3.1 The crisis of social democracy and the end of consensus
politics.
1
3.2 The ideology of the New Right, Conservatism and privatisation.
Privatisation as a large-scale economic experiment? This not to
suggest that it was motivated by a clear rationale or grand design.
In fact, there were a number of reasons given and they shifted in
importance between 1979-97 – after 1984 non-ideological reasons
became increasingly important.
4. Privatisation: a policy succession?
4.1 Limited denationalisation in the 1945-79 period, for example,
Steel, BP, Thomas Cooke and the Carlisle Breweries. Examples of
nationalisation in the post 1951 period would include Rolls Royce
Aero engines and Upper Clyde Shipbuiders.
5. Importance of the topic
5.1 Privatisation symbolised, in theory at least, the relationship the
Conservatives wanted to see between state and society.
5.2 Lawson maintained that privatisation has not only 'swept the
world' (N. Lawson, The Observer,1987), and it was also argued that
the UK experience had provided an appropriate role mode viz:
'The lessons we in Britain learned-sometimes painfully-in the
pioneering years of privatisation are relevant to all countries
currently struggling to transform stagnant state- dominated
economies, they can join the free market with visible gains for
industry, its employees, its customers, and for the Government
that set them free' (John Moore, Privatisation Everywhere: the
world's adoption of the British Experience, 1992)
Although the peculiarities of the UK constitutional, political and
financial systems made the implementation of the programme
possible, but at the same time do they make it difficult to transfer
the UK experience to other countries?
5.3 Academics sympathetic to privatisation have claimed that it
has been a major economic and political success (for example
Pirie and Velanjovski). Not surprisingly, this conclusion has been
the source of an ongoing debate about the merits of this policy
initiative.
5.4 What is noticeable about the UK experience is the scale of
privatisation and its impact upon the mixed economy, the mode of
employment, share ownership and patterns of housing tenure. In
1979, for instance, state-owned industries accounted for eleven per
cent of the UK’s national output; by 1997 it was less than two per
cent. During the same period over one million jobs were transferred
from the public to the private sector.
5.5 Privatisation also had an important impact upon the policy
debates within the opposition parties and, for the Labour party, led
to significant policy changes, for example, The Policy Review
(1989) and their 1992/7/2001 election manifestos.
6. Definitions of Privatisation
6.1 'An umbrella term for very many policies loosely linked by the
way in which they are taken to mean a strengthening the of the
market at the expense of the State' (Heald).
The primacy of the market has also been stressed by a number of
other writers: '..the underlying idea is to improve industry
performance by increasing the role of market forces' (M. Beesley
and S. Littlechild); 'It is an approach that recognises that the
regulation which the market imposes on economic activity is
superior to any regulation which men can devise and operate by
law' (M. Pirie); '..a wide range of alternative means by which the
public sector is exposed to market forces' (J. Shackleton).
6.2 Other writers have stressed the transfer of service or goods
production from the public to the private sector of the economy (P.
Dunleavy; J. Kay and D. Thompson; A. Peacock).
6.3 The Economic Progress Report (1982) contains the
Conservative government's first definition of privatisation: 'the return
of industries' assets to the private sector'. In practice, this is not
strictly true for at least two reasons. First, some companies were
never in the private sector. Second, their privatisation programme
was much broader than the sale of state industries.
7. Forms of Privatisation
7.1 Asset sales, that involve denationalisation via Stock Market
flotation, as happened with the Conservative government’s disposal
of British Gas, British Airways, British Coal and British Telecom,
for example.
7.2 The sale of public sector companies previously bought by the
government, companies such as Jaguar or Rolls Royce.
7.3 The sale of government holdings in private companies such as
Amersham International and British Petroleum (including the
previous Labour government’s sale of BP shares).
7.4 Liberalisation and deregulation: expanding competition with
state monopolies as with the Bus industry.
7.5 Contracting-out work previously done by direct labour or
administrative staff in local government (legislation in 1980, 1988
and 1992), the NHS, the civil service and the prison service. New
Labour has adopted a ‘Best Value’ approach to CCT in local
government and the twelve criteria share many of the sentiments
introduced by the Conservatives.
7.6 The 'leveraging' of private investment into deprived areas and
City Technology Colleges, the introduction of private sector
practices into the public sector (internal markets, performance
related pay, commercial rates of return on assets, market testing
in the civil service);
7.7 Replacing subsidies and increasing charges, especially in
relation to welfare services (prescription charges, declining number
of NHS dentists, charges for eye tests).
7.8 The private provision of public services, such as nursing homes
for the elderly, hotel accommodation for the homeless, private
sector training programmes organised by the 92 TECs in England
and Wales (now the Learning Skills Councils), and financial
incentives to op-out of SERPS.
7.9 The sale of local authority and New Town property: tenants
received discounts that were initially set at up to 50 per cent of the
notional market price, with actual discounts related to their length
of residence. It was later increased to 60 per cent and then to 70
per cent for those with at least three years tenancy. Between 1980
and 1996 2.2 million properties were sold to tenants or Housing
Associations.
7.91 Franchising - regional TV companies and British Rail routes
(Virgin, Regional Railways, Stagecoach), though the track is
owned by one company (Railtrack).
7.92 The Next Steps initiative (introduced following a Sir Robin
Ibb’s report): led to the creation of Executive Agencies with greater
management freedom/responsibilities and a contractural obligation
to deliver services at a certain (market) cost, e.g. the Quality
Assurance Agency in Higher Education and OFSTED for quality in
Schools.
7.93 The Private Finance Initiative (1992)- public-private
partnerships in the provision of services. Reduces the need for
immediate public sector expenditure (e.g. Channel Tunnel Rail
Link, London Underground).
8. Methods of privatisation
8.1During the period 1979/80 to 1991/2 the sale of state assets
raised forty-two billion pounds and at the time of the 1997 election
this had risen to approximately sixty-five billion. During this period
different methods of privatisation were employed:
Companies,such as the Rover Group and the ROF, were sold
to single buyer (British Aerospace).
In other cases’ parts of an industry were 'hived off' to the private
sector, eg. British Rail Hotels and Sealink.
Somefirms were sold-off through a single public flotation (e.g.
Amersham International), while others were privatised in stages
(BP and BT).
The National Bus Company and the NFC were sold by a
worker buy-out.
Franchising-regionalTV companies and former British Rail tarin
routes (e.g. Virgin; South West Trains).
Latersales often involved restructuring of the industry before
privatisation. This was most evident in the electricity supply
industry two large private electricity generators were
established in England and Wales, together with a separate
company managing the national grid, owned by the twelve
regionally based distribution companies. In addition, the
Conservatives formed a separate state-owned company,
Nuclear Electric, to manage nuclear power stations following
the City’s refusal to support electricity privatisation if their
assets were included in the sale. British Energy (nuclear
electricity generator) was finally sold in 1996.
9. The Development of the Privatisation programme
9.1 There is no reference to the term ‘privatisation’ in the
Conservative’s 1979 manifesto and there was very little discussion
of what was to gradually evolve as a major component of their
‘policy for industry’. Consequently, many writers have argued that
they lacked a coherent strategy with respect to privatisation,
though Young maintains that it was a coherent policy since it ‘was
applied as a philosophy on a sustained and continuing basis’
(Young, 1986, 245). It was also consistent with many of their
broader ideas (for example, reducing public expenditure, ‘rolling
back the State’ and the emphasis on market provision). Young
accepts the experimental status of privatisation, but argues that
when they were returned to power they had a number of specific
proposals, namely:
The sale of shares in the National Freight Corporation.
The return of aerospace and shipbuilding to the private sector.
The deregulation of bus services and the discounted sale of
council properties.
Yet these manifesto commitments were hardly a major feature of
their policy agenda, especially in the context of their wider
economic policy objectives. Moreover, they failed to fully implement
these modest commitments during their first administration: shares
in the NFC were not offered to the public, shipbuilding remained in
the public sector and, despite the absence of an election
commitment, Amersham International, Associated British Ports,
Britoil and Cable and Wireless were sold. In addition, British Rail
Hotels were hived-off from British Rail and British Telecoms were
de-regulated with the establishment of Mercury in 1982. The lack of
a coherent strategy is further illustrated by the way in which
privatisation was pursued even when it was incompatible with the
overall aims of government: first, when it failed to introduce
competition and, second, when it cost government money by the
under-pricing shares.
9.2 Although the rationale for privatisation has shifted, it was only
in the second, and subsequent administrations, that it developed
into a significant policy initiative. Nonetheless, in their 1997
election manifesto they still regarded privatisation as a success
and promised to sell London Underground and Parcelpost.
10. The rationale for Privatisation
10.1 The aims of privatisation gradually evolved over eighteen
years. However, they emerged after the event rather than in
opposition and some of their aims were clearly incompatible.
Overall, no coherent strategy emerged and, in this respect, Bishop
and Kay’s suggestion, that it was a policy adopted almost by
accident, is very appropriate. Vickers and Yarrow identify seven
aims of the Government's privatisation programme:
Reducinggovernment involvement in industry.
Improvingcompetition and efficiency in the privatised industries.
Reducingthe PSBR.
Easingproblems in public sector pay determination by
weakening public sector trade unions.
Increasinghome ownership.
Encouragingshare ownership.
Gainingpolitical advantage.
11. Conclusions
11.1 Privatisation has had important implications for the structure
of employment and the mixed economy.
11.2 It has challenged the nature and extent of state provision,
especially in the welfare sector.
11.3 Opinion is divided over the electoral impact of changes in
housing tenure and share ownership.
11.4 A change in ownership need not necessarily increase either
competition or efficiency and efficiency is not the same thing as
effectiveness. In this respect, measuring the success of
privatisation is difficult:
In terms of effectiveness you need to consider the quality of
service provision (e.g. do trains and buses run on time?), and
the fact that cost-savings may lead to additional public
expenditure (e.g., the cost of unemployment benefits).
Privatisationhas resulted in lower charges for gas, electricity
and telephones in real terms. Yet was this due to falling energy
prices and technological developments? Alternatively since
privatisation water charges have risen by a third in real terms.
Was this due to excessive profits, incompetent management
or the need for extensive capital investment?
The number of people owning shares has undoubtedly
increased (from around three million to nine million between
1979 and 1997), but the value of personal holdings, as a
proportion of the value of all shares, has fallen. Between 1981
and 1995 it fell from 28.2 per cent to 20.0 per cent (54 per cent
in 1963)and the wealthier sectors of society still dominate
personal share ownership.
Althoughthey reduced the power of trade unions, the
Conservative government's industrial relations legislation and
the growth in unemployment are probably more significant in
this respect.
Despitethe rhetoric of 'rolling back the State', the Government
can still use a wide range of measures to intervene in the
private sector (for example ‘golden shares’).
Policycoherence? No. The rationale for privatisation changed
over time, often in response to political and economic needs,
eg. asset sales to reduce the PSBR.
11.5 Privatised companies have attracted substantial criticism:
Therehas been a considerable increase in both the benefits
and salaries of senior management, which has often been
unrelated to performance.
Qualityof service provision-lack of investment by the water
companies, resulting in water shortages; record breaking
complaints about British Gas; cancellation of trains (SW Trains
and Regional Railways fined) and bad time-keeping (Virgin).
Regulatorybodies should be given far greater powers if the
interests of consumers are to be protected, especially if the
company has a dominant position in the market. Moreover,
because the Monopolies Commission failed to prevent utilities’
mergers, the potential for consumer exploitation is even greater.
The ‘selling of the family silver’ (Macmillan) has increased the
tax burden since the ‘profits’ of nationalised companies are no
longer remitted to the Treasury. For example, four years before
privatisation the electricity companies remitted six billion
pounds to the Treasury, but in the five years after privatisation
only 3.1 million in taxes were received by the Treasury -
equivalent to an additional tax burden of £139 for each
household. On the other hand, supporters of privatisation have
pointed to the public expenditure costs of public ownership.
Needto reverse the Conservative’s policy of CCT and restore
the status of the public sector (especially of local government)
as a service provider, rather than an enabler. New Labour has
made it clear that this is contingent on the performance of
Local Authorities.
Needfor greater accountability of Quangos and Agencies,
which were increasingly responsible for the delivery of services.
LocalAuthorities should be allowed to use the receipts from
council house sales for building and repairs.
Deregulation:has resulted in a lowering of standards: for
example, MAFF’s decision to abolish the 1978 regulations
governing feeding animal protein to cattle, contributing to the
BSE problem, Bus deregulation has led to a loss of routes and
a decline of passenger journeys.
12. New Labour
12.1 Before the 1997 election New Labour accepted that
privatisation could not be reversed and since assuming power they
have privatised both Air Traffic Control and the Defence Research
Agency and continued with the PFI. The Liberal Democrats, for
example, promised to take Railtrack back into public ownership.
New Labour replaced the public ownership section of clause IV with
a market friendly form of words, and Tony Blair has admitted that
privatisation may continue if it was in the public interest. Will they
continue to oversee a further decline in the role of the state? One in
which central government departments, regional bodies and local
government become 'enabling', as opposed to facilitating,
organisations, charged with the responsibility of overseeing and
awarding contracts in a massively expanded private sector.
12.2 However, they have introduced:
A Windfall Tax on privatised utilities; the revenue has been used to get
250,000 under 25-year-olds off benefit and into work;
Greater transparency in the regulatory process and the introduction of clear
performance targets for the utilities, with penalties for failure;
An end to self-regulation in the financial services sector, via a
Securities Investment Board.
