Interview: Professor David Parker
The Official History of Privatisation
Steve Macaulay
The issue of privatisation of state ownership and private ownership
has come up again recently with the current economic crisis. So it’s
very fortunate that we have got in the studio today the author of The
Official History of Privatisation, Professor David Parker.
Now David, if we look back at the history of privatisation–we are
talking about thirty years now aren’t we?
David Parker
Almost thirty years, yes.
Steve Macaulay
Now, when it all started out, people will probably be quite surprised
now that it wasn’t so much of a clear cut philosophy as something that
emerged over time?
David Parker
No it wasn’t. I think there were some people in the first Conservative
government, such as Sir Keith Joseph and Nicholas Ridley a little later
on, who clearly had a philosophical leaning towards free markets.
And that was to some extent inherent within the entire Conservative
Party. But in May 1979 when Margaret Thatcher was elected, the
election manifesto, the Conservative’s manifesto, contained very few
commitments on de-nationalisation.
There was a commitment to de-nationalise the shipbuilding and
aerospace industries, which had only just recently been nationalised
by the Labour government, and to undertake some private capital
inputs into the National Freight Corporation, some liberalisation of bus
services. But above and beyond that very, very little at all.
Now two explanations have been put to me for that by the former
ministers in that government. One was they did want to denationalise, but they didn’t want to take risks during a general election
by telling the public they intended to do it in case the public then
voted against it. The other, which I think is probably the more correct
one, is that they hadn’t yet formulated the policy.
Steve Macaulay
So if we boil down the policy principles that eventually emerged –
what were the underlying themes that come out?
David Parker
Well, interestingly enough, the economic efficiency one which now
dominates, was not as prominent in 1979 as it became later. Indeed, I
found going through the Departmental and Ministerial and Cabinet
papers, quite frequent reference to this particular business, this
particular state corporation, is pretty well run and that is why we can
sell it: because it does look efficient and profitable. And bear in mind
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Professor David Parker
that the less profitable ones – and some of the loss makers – their denationalisation came much later in the 1980s. In some cases like the
railways and coal, well into the 1990s. So the economic efficiency one
wasn’t so strong at that time.
What were strong issues was first of all the state of the government’s
finances; the public finances which were in a terrible state when the
Conservative government was elected in May 1979 – certain echoes of
what might happen next year, in fact – and the Conservatives wanted
to cut taxes. They found it extremely difficult to cut public
expenditure. In fact the Conservative governments during the 1980s
never cut public expenditure in real terms: they cut its growth, but
they didn’t actually cut the real public expenditure.
So in the early years of the 1980s the receipts from the sale of
government assets were quite important to government. And then
the other issue, which was important right from the early stage, was
the small shareholder issue of spreading share ownership amongst a
larger number of people. And that particular policy was quite
successful for a time.
Steve Macaulay
So if we pick up this issue about successes and failures. With the
benefit of hindsight now, would you be able to pick out what you
would see as the particular successes and the particular failures? And
there maybe some reasons why, too?
David Parker
Well, some people might object to the term failures. I mean there are
some people who think that all of them were successful – it was just
the degrees of success. But let’s deal with how you frame the
question.
The successful ones were undoubtedly companies like Amersham
International, the National Freight Corporation, arguably British
Aerospace has done well since privatisation on the whole – although it
was only in the state sector for a matter of three or four years.
The less successful one – or what you might call the failures – possibly
questions could be raised about water and sewerage because in that
particular industry there is no competition: there wasn’t when it was
state owned, effectively there isn’t now in almost all areas of water
and sewerage. And the railways. And the railways is of course
arguably the most controversial of all.
And then I might just chip in – I mean there have been some denationalisations which then went on to fail financially: shipbuilding
particularly, private coal mines come immediately to mind. And what
that indicates is that they were doing badly under state ownership,
private ownership couldn’t save them either – they just went under.
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Professor David Parker
Steve Macaulay
And of course the general public tended to look on this somewhat
askance?
David Parker
Yes. It is interesting actually that the public in general, when asked
about forthcoming privatisations such gas, electricity or water would
indicate – very large numbers, usually the majority would indicate that
they didn’t support the privatisation. But then of course large
numbers, millions of small investors, individuals, then rushed out to
buy the shares when they were on offer because they were usually
offered at such an attractive price. There was such a prospect of
making a quick capital gain by selling the shares when trading in them
again on the stock market, that the public was very attracted to those
issues.
But yes, privatisation of industry generally was probably marginally
winning votes for the Conservatives. What was successful was the
other aspect of the privatisation programme which we are inclined to
overlook in discussions like this, which was the sale of council housing.
Council housing was definitely politically very successful for the
Conservatives during the 1980s.
Steve Macaulay
So if we pick up the issue about winners and losers – we have talked
about investors, the people that bought council housing – can you
identify other groups that won and some that lost?
David Parker
Yes. One way of approaching this actually is to look at the situation in
the 1940s/50s and the kind of underlying values of public policy at that
time, compared with the values of the 1980s/90s.
In the 1940s and 50s, coming out of the Great Depression and the
Second World Ward, and so on, there was very much a thrust in public
policy towards equity, fairness, a more equal distribution of income of
wealth and arguably perhaps inadequate attention to creating the
wealth in the first place. I think what happened in the 1960s and 70s
was because of growing economic problems. The 1970s was a
particularly bad period for the British economy of course, coming to a
crisis during the Winter of Discontent, so called, in 1978/79. But the
pendulum swung very much in favour of creating the wealth and if
that meant a more unequal society, then so be it.
So in answer to your question, undoubtedly privatisation changed the
income wealth distribution. The big gainers were, of course, The City
– The City made millions, tens of millions and then when it exported its
expertise on privatisation overseas in the 1990s, hundreds of millions,
from privatisation. Accounting and legal firms did very well because
there was a huge amount of documentation that had to be drafted
and checked legally between companies, and companies and
governments, and so on.
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Professor David Parker
Other big beneficiaries, the senior management, because top salaries
tended to be depressed in the public sector. We are talking today
about MPs and they are of course saying well the reason we are
sometimes generous with our expenses claims is because we are not
paid enough. Well, in a sense that is carried through to the public
corporations in the 80s. Senior management was not well paid, so
understandably when these companies were privatised, the salaries
went towards market levels for running big companies.
Other big gainers – well, of course, some of the big investors who
made money on the shares, come immediately to mind.
On the losers side, well lower paid labour because the studies that I
have done show that the average wage paid by companies after
privatisation didn’t change much, but what did change was the
distribution between the top and the bottom within the workforce.
People towards the lower end, unskilled parts of the workforce, were
often more casualised, put into separate companies – there was a lot
of outsourcing of activities. And although pensions were by and large
protected for the existing employees at privatisation, any new
employee afterwards benefitted much less in the sense that the
pension was much less attractive.
So they were the big losers. And some suppliers. The demise of the
British nuclear generating industry, the demise of the British
telecommunications supply industry, was a direct result of
privatisation.
Steve Macaulay
Looking back now, it’s over a quarter of a century, have things worked
out the way the originators intended? How have things developed?
David Parker
Well, an interesting question, simply because underlying that is the
premise that people thought in the long term at the time when they
were undertaking the policy. I think that wasn’t true. The
Conservatives were desperate in the 1980s to get rid of the state
industries: they were often losing money, although not all of them, but
often losing money. They certainly took up a lot of ministerial time
and when anything went wrong in the industries it became a political
issue rather than simply a business commercial issue.
So the Conservative ministers were desperate to get rid of these
businesses. And as privatisation became more and more successful in
the sense that the businesses were sold successfully, of course more
and more candidates for privatisation came up. Did they think in the
long term? Did they think what would be the situation in
twenty/thirty years? No, I think by and large it wasn’t the case. And I
have raised with former ministers the issue of did you take a view, or
did you expect, for example, the electricity and water industry might
fall largely into foreign ownership – and the attitude was no, we didn’t
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Professor David Parker
think about it very much. And when I posed the question well, would
it have changed your policies if you knew what we know now? By and
large the answer is no, they were so keen to get rid of them.
Steve Macaulay
So if we look ahead at the next quarter of a century, do you see how
the future of privatisation is going to work out?
David Parker
Well I think we are seeing at the moment, obviously we have seen a
number of nationalisations of banks – or technically not
nationalisations but state purchasing majority shares in these
companies. I don’t think that is a trend. I think what we have seen in
this current Labour government is that they have taken over the banks
with great reluctance. There is no ideological underpinning as there
was in the 1940s for nationalisation.
So I don’t see in any of the major political parties at the moment, any
great desire to go back to owning state owned industries. What I
think will change is that in the 1980s the word industrial policy became
almost taboo in government and many political and economic circles.
I think we are beginning to see the resurrection of an industrial policy
mentality within government at the moment. A view that
governments can’t just leave all industries to market forces. And of
course one of those that you can’t leave entirely to market forces is
the financial system, sometimes called the plumbing of the economy.
Steve Macaulay
David, there are some really useful insights. Thank you very much.
David Parker
Thank you.
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