The case for privatisation
It seemed obvious in the mid 1970s looking at poor technically backward bankrupt U.K. seeking loans from the IMF that we needed big changes. As an investment analyst I looked enviously at large profitable competitive US companies in important sectors like telecoms and energy and saw how far ahead of our nationalised industries they were.
The U.K. state owned and ran the railways, the postal and phone systems, gas , electricity, coal, shipbuilding, aero engines, steel, weapons manufacture, some car assembly, some oil, water and waste water, refuse collection and much else. Many of these industries were starved of capital investment, made major strategic misjudgements and often generated losses. They added to state deficits and the overall state debt burden. Why not free the state of the heavy financial demands and free the businesses of the heavy hand of state control?
I set out in books and articles how the UK’s post war big nationalisations like coal,rail and steel had led to many lost jobs, to large losses for taxpayers, and higher prices for customers. Privatisation could lift much of the financial burden, cut the chances of job loss and improve the quality and value for money of the goods and services.
As soon as industry was privatised all its investment spending dropped out of the state budget. No longer was an improved telephone exchange or a renewed blast furnace competing with money for the NHS. The industries could increase their investment if they could satisfy markets it was a profitable venture.
Out of state control their losses no longer fell to taxpayers to meet. In the private sector they were more likely to be profitable so they would contribute more by way of business tax. The sale itself would generate a one off capital receipt which appeared as negative public spending in government accounts.
The performance of privatised industries usually improved substantially after sale. Managers were paid bigger bonuses for better results. Many employees became shareholders or were given bonuses to align their interests with success of the company.
As the state privatised it could introduce competition into monopoly services. Competition is the best regulator. As many critics of privatisation feared bad conduct once in private ownership the larger monopolistic businesses also could be given industry specific regulators to preserve services or features people claimed to value.
The battle of ideas in the 1970 s
Most establishment and academic opinion in the 1970s believed the great nationalisations of the mid century were the right way to proceed. There was little analysis of them as trading businesses and an unwillingness to contrast them with private enterprise comparators in the USA. I sought with the CPS and others to set out just what had gone wrong and how the state,the employees and the customers were suffering.
Our steel industry had attracted large public investment to put in five big modern integrated plants only to spend the 1970 s and 1980 s seeking customers to justify the large potential production. Political debate was all about progressive closures under Labour and Conservatives.
Our telecoms industry was still putting in electro mechanical switching from a British produced system the telecoms monopoly wanted which did not sell abroad. The US was well advanced with electronic switching.
The water industry had a network of ageing pipes for a smaller Victorian population. It could not get the large sums needed to expand and renew its networks.
The electricity industry depended heavily on coal power stations that posed air plllution issues and were only 32% thermally efficient.The rail industry was in retreat, losing much of its freight business as well as experiencing declining passenger travel. The coal industry was constantly closing puts claiming they were no longer economic. With the advent of North Sea gas it lost market share rapidly.
All this needed explaining to counter the nationalisation bias and optimism. The nationalisers where they did accept problems usually blamed a shortage of subsidy and investment money from the government. It was remarked at the time we did not own the nationalised industries, they controlled us. The Chairmen were in a powerful position to demand the state covered their losses as they could threaten cuts or big price rises in crucial services. Most were not in a strong enough position with clear enough plans to implement large scale modernisation investment.
By 1979 the CPS had plans a plenty to sell assets, spin off businesses, privatise whole concerns, introduce competition and raise expectations. I produced a grid of all the nationalised industries, setting out their financial results, their investment needs, the assets they could sell, the opportunities to sell all or part of the business, the way employee shareholdings could be introduced and the main issues a privatisation would arouse.