The Official History of Privatisation, Volume II – Popular Capitalism 1987-97, by David Parker, Routledge, RRP£75
Anyone glancing at the headlines in UK newspapers in recent weeks could be forgiven for thinking they were back in the 1980s. It is not just the flavour of austerity, or the rising union militancy. From the Royal Mail to roads, policing to prisons, talk of a fresh round of privatisation recalls the battles of the Thatcher era – battles of lasting relevance to British politics.
This is why the final volume of David Parker’s official history of privatisation is so timely. Amid the current gloom over the state of the economy, this balanced and meticulous account helps us understand the extent to which the privatisations of the 1980s and 1990s – still viewed with suspicion by many in Britain – helped the UK emerge from a bleak period of economic decline.
Margaret Thatcher was pursuing several objectives: to raise money for the exchequer, weaken the trade unions, encourage wider share ownership and relieve politicians of controlling large industrial enterprises. But the most important result of privatisation was to inject competition into industries that had been insulated from the market and to force previously protected national champions to sink or swim by their own efforts.
It is sometimes forgotten how far the pro-competition policies pursued by the Thatcher and Major governments, and largely maintained by New Labour after 1997, contributed to the improvement in productivity growth during those years. Privatisation was only one ingredient in the recovery, but it removed an incubus of inefficiency and weak management that had helped to make the UK the sick man of Europe.
This is not to say that privatisation was a miracle cure for poorly performing companies, or that it was brilliantly handled. Some companies, such as British Leyland, were too far gone to be saved. Others, notably British Telecom, used their new freedom to engage in ill-judged diversification. But when BT ran into trouble in 2001, the pain was felt by shareholders, who did what shareholders are supposed to: turf out the old managers and install new ones.
As Parker shows, the mistakes the government made in the early years were partly due to Mrs Thatcher’s reluctance to risk head-on confrontation with the managers of the state-owned corporations. The extreme case was British Gas, whose chairman, the formidable Sir Denis Rooke, was determined to keep the company in one piece, insisting that the retention of a big, integrated gas producer with supposedly world-beating qualities was in the national interest. British Gas was floated, but Rooke’s co-operation had been bought at a high price. It was not until the late 1990s that it was dismembered and a competitive gas market established.
Similar issues arose in electricity. Walter Marshall, chairman of the Central Electricity Generating Board, believed the planned break-up of the industry was madness. Although he was forced to give way, the replacement of the CEGB by a duopoly of National Power and PowerGen did little to promote competition. Nigel Lawson, chancellor of the exchequer, would have preferred a much more radical restructuring.
Privatisation on its own was not enough; in gas and electricity the benefits of lower prices and wider customer choice came mainly from later decisions by regulators. But was competition pushed too far? Were consumers’ interests given too high a priority, to the detriment of producers?
Critics of privatisation lament the absence of strong, British-owned companies comparable to EDF, majority owned by the French state. Much of the electricity sector in Britain has passed into foreign hands, which, it is argued, are less committed to the UK and less inclined to buy equipment from UK manufacturers.
Whether such protection would make British manufacturers perform better is doubtful, but it is true that no pressure has been put on the privatised utilities to buy from domestic suppliers – in striking contrast with France, where it is hard to imagine France Telecom, in which the state holds a stake, dropping Alcatel as a supplier, as BT did with Marconi.
Is the UK under the present coalition government moving nearer to the French position? Competition is being encouraged in health and education, but in industrial policy, trust in free markets appears to be fading. In electricity, for example, the government is dictating fuel choice in a way that harks back to the pre-privatisation era. On procurement, there is talk of reviewing large infrastructure contracts to favour UK companies. The idea of the state as industry’s partner and protector – source of so many expensive mistakes in the 1960s and 1970s – may be back in fashion.
Sir Geoffrey Owen is a senior fellow at the London School of Economics and a former editor of the Financial Times
