Thursday, 25 November 2010

The privatisation story

The Institute of Government held a 'policy reunion' last night for ministers, civil servants and others involved in the Thatcher privatisations. Talking to Andrew Gamble beforehand, we agreed that it all now seemed very long time ago. It was very difficult to convey to contemporary students just how nationalised industries had dominated the economic and political landscape.

Privatisation had been selected because it was a policy success selected in a survey of PSA members. The story told last night was a familar one: privatisation had not been a significant part of the Government's original plans, but had developed into a political and administrative programme. There were a variety of motivations: raising money; reducing the role of the state in the economy; curbing the trade unions; widening share ownership (although this did not really succeed in the longer run); building political support etc.

The general tone of those involved was rather self-congratulatory and they explained the failure of the programme to do enough to boost competition in terms at the pace at which decisions had to be taken and the influence exerted by the existing managements of the industry who did not want competition at any price. Breaking up an industry would have extended the time line for a privatisation from two to five years and would have meant that the key BT sale, which really started the process, would have not gone ahead.

While I did not obtain any major new insights, there were some interesting points of detail which I may deal with in a subsequent posting.


Anonymous said...

Picking up on your comment about the self-congratulatory tone, would you agree that rail privatisation was a failure? British train fares are the most expensive in Europe, yet their creaking infrastructure and service doesnt compare with state-run European railways. Indeed it was considerable government investment under Labour and the visible hand of regulation that achieved about real improvements, but a state run system may have been less fragmented and provided more value for money.

Wyn Grant said...

It's very easy to forget how poor British Rail as a corporate monopoly was. Some privatised lines are a considerable improvement on what was there before, Chiltern Railways being a case in point. Of course, it is a very old system but when one tries to build HSTs on the French or Spanish model, the Nimbys come out in force. I think there were mistakes made in the design of privatisation in that fragmentation was taken too far. If one subsidies train fares more, it invariably results in the less well off subsidising the better off who use trains more.

Anonymous said...

you make some very good points. But as far as I know there was considerable underinvestment in British Rail before privatisation. Does the choice really have to be between inefficient state-run services and exorbitant privatised railways. Was/Is there no way Deutsche Bahn, SNCF could have provided role models for the UK? while the state was too heavily involved in the UK economy, cannot public transport justifiably be described as a public good?

Wyn Grant said...

It's not a public good as defined in economics, no doubt it could be described as a merit good. Whether there is some other model I don't know.