15: privatisationin the uk economic theory and policy

1

2019–20

ECON2547Economic HistoryJohn Powell

15: Privatisation in the UKEconomic theory and policy[ would have been w25 ]

for detailed reference list seewww.economicstoolbox.comECON2547 Economic History • 2019-20 1

Reading

§ Parker (2009)§ Millward (2002)§ Rhodes and Hough (2014)

§ Millward (2014)§ Middleton (2014)

See economicstoolbox.com

ECON2547 Economic History • 2019-20 2


Outline and learning outcomes§ Introduction

• Establish context and scope of privatisation– Nationalisation

§ The intent of privatisation• Outline the basis for privatisation

– Motives for privatisation§ The scale of privatisation

• Review the number of sales and proceeds§ Assessing privatisation as policy

• Explore the debate over outcomes from privatisation

§ Review

2

Introduction [print]

§ “The term “privatisation” has common public currency from the early 1980s” (Parker, 2009:1)– Bulk of privatisations occurred over 1979-1997,

peaking in the 1980s– Variety of forms – eg PFI, contracting out

(but we will focus on sell-offs of state-owned industries)

– Can’t be separated wholly from other economic policies of the period: “Sometimes the whole set of economic policies is labelled “Thatcherism”.” (ibid)

§ Before examining privatisation, we need a sense of the nationalised industries that became its focus– eg 1844 Railways Act; inter-war lobbying


Introduction

Industries taken into state ownership 1945-51(Parker, 2009:7)§ 2.3 million employees§ Key industries: coal, rail, electricity, gas,

iron and steel (20% of UK GFCF)


Introduction

§ Public corporations had separate corporate legal status, separate accounts but had a broad set of both commercial / economic and social goals: – “public interest objectives” (Parker, 2009:7-8)

§ Most industries remained in public hands through the 1950s and 1960s, and in the 1970s several more were added: Rolls-Royce (1971), British Leyland (1974), aerospace and shipbuilding (1977) (ibid:18)

§ However, “By the late 1970s, there was considerable dissatisfaction with the state of the nationalised industries” (ibid:17), though “it is wrong to suppose that all … were consistently poor performers” (ibid:18) eg Gas


Neither sufficiently independent from government nor properly accountable to government• statutory

monopolies

3

The intent of privatisation

§ Parker (2009:25) argues that particular tranches of “[e]conomic theory provided an important intellectual underpinning for privatisation”

§ However, he does recognise that there is a counter-view, noting Kay and Thompson’s 1986 EJ article (ibid)

§ John Kay (2002), on the 20th anniversary of the announcement of BT’s privatisation, noted that “There was no master plan when the Conservatives came to office in 1979”

§ Despite the generic application of the term to reflect a more general liberalisation, “not only were the sale of public assets and the liberalisation of markets not the same thing, but… they might often conflict” (ibid) – eg telecoms, gas


eg Austrian, Public choice theory, Agency theory, Monetarism

The intent of privatisation

Motives for privatisation§ As Parker (2004:5) admits, “a fully articulated

rationale for privatisation was never formally provided by government” (ibid:5)

§ Nonetheless, a number of motives have (retrospectively) been identified (some ideological)(eg see Rhodes and Hough, 2014:3-5)– Raising money (to reduce PSBR…)– Making industry more efficient– increasing consumer choice– Spreading share ownership

§ To these, the “emasculation of public sector trade unionism” (Kay, 2002) can likely be added


The scale of privatisation


BA, BAA, BP, Rolls-Royce, Royal Ordnance Factories

Royal Mail

BNFL, QinetiQBT

BT

Number of sales (Rhodes and Hough, 2014:10)§ Peak in 1987– five sales§ Some privatisations involved several sales

eg BP, BT

Thomas Cook

AEA tech, British Energy, Railtrack

4

The scale of privatisation

Net proceeds (Rhodes and Hough, 2014:11)§ Peak in 1991 at £11.8bn § Note that over 1979-1997, receipts were less than

2% of government revenue (Kay, 2002)


£ billionscurrent prices

BT – £5.4bnNational Power / PowerGen – £2.8bnRegional Elec (Scotland) – £3.5bn

Royal Mail – £1.98bn

Assessing privatisation as policy

§ As Middleton (2014:501) notes, “The reaffirmation of markets in the private sector, and their steady introduction into the public sector, form the background to policy impact since the later 1970s”– But causality is a “difficult question”

§ Similarly, Rhodes and Hough (2014:11) admit that “the counterfactual… is difficult to assess” and that, given multiple motivations for privatisation, “certain trade-offs between success criteria are inevitable” (ibid:12)

§ The complexity of the assessment will vary between the (utility) privatisations of industries and privatisations of individual firms (ibid)– Regulation of natural monopoly privatisations

(where new market created) (ibid)ECON2547 Economic History • 2019-20 16


§ Parker (2009) examines policy impact on “consumer prices, investor participation, employee conditions, management remuneration, the public finances and the overall performance of the economy” (Rhodes and Hough, 2014:13)

§ Parker concludes that “it is difficult to generaliseon the success of the policy overall” (cited in ibid)– Still often a lack of competition in utility industries– Ownership often now outside UK control

§ Millward (2002:7) argues that, at the level of the firm, “privatisation had no impact on long-term productivity trends”

§ Similarly, Millward (2014:412) notes that the “impact on economic efficiency is not at all clear”– Competition (eg telecoms) may reflect tech change


5


§ Kay (2002) is generally pretty damning about the success of privatisation. For instance:– “Customers have on balance gained from

privatisation, but not hugely”– “Nor did privatisation have much impact on the

structure of share ownership… most share certificates drifted into the hands of the same insurance companies and pension funds which own shares in other British companies.”

– Regulatory issues§ Ultimately, “The subsequent effects of

privatisation are as much a consequence of the fact of change, rather than the effects of any specific change.” (ibid)


Review

§ Rhodes and Hough (2014:13) admit the importance of ideology in driving privatisation as a policy

§ The direct influence of Hayek (and indirectly Friedman) must be recognized

§ As Seymour (2012) suggests“In historical context, privatisation seems to answer a number of dilemmas for the Tories. By spreading market incentives, it erodes the public sector basis for Labourist politics. By opening the public sector to profit, it gets a lot of capital into circulation. And by reducing the power of public sector workers, it suppresses wage pressures, thus in theory making investment more appealing.”


see Monbiot (2019)

Review


6

Next:

§ Module review lecture§ Revised assessment

(to replace exam – info available Mon 30th March)


15: privatisationin the uk economic theory and policy

Documents