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. Last Updated: 07/27/2016

Britain Asks: Why Privatization?

LONDON -- Margaret Thatcher transformed privatization from a dry economic concept into a crusade during her 11 years as prime minister.


State utilities such as gas, oil and telephones were sold off in the 1980s in a social revolution which created an army of small shareholders, many of them loyal to the ruling Conservative Party. With Thatcher long gone, her successor, John Major, is pressing on with government sell-offs, chopping up Britain's railways into bite-sized pieces for private investors and selling the country's privatization expertise worldwide.


But the public mood has changed dramatically from the enthusiasm which marked the first wave of sell-offs. Britons are starting to remind themselves of the benefits of state ownership and are increasingly skeptical that privatization is an economic cure-all. Many believe that the government's divestment program has more to do with balancing the budget books than improving Britain's economic well-being.


As opposition grows, critics say Major's stubborn commitment to his predecessor's dogma could be the final straw that breaks the Conservatives' hold on power for more than 15 years.


Two months ago, a public campaign forced the government to ditch the privatization of the Post Office, intended to be its flagship policy in this year's legislative agenda.


Its plans to privatize the railways are in disarray with potential investors worried about the complicated arrangements and the public concerned about the threat of reduced services.


"The humiliating end of its Post Office privatization exercise marks in our view the end of the tide of ideological driven privatization in Britain," Paddy Ashdown, leader of the minority Liberal Democrat party, told a recent news conference.


"I think it's a fair comment," said Dr Christine Whitehead, a privatization specialist at the London School of Economics. "They clearly need to raise revenue ... But it's more a political question than an economic question ... if you stop now, you do lose the momentum," she said.


Part of the problem, economists say, is that the relatively easy privatizations of the early 1980s such as British Gas and British Telecom -- both profitable and flourishing companies -- have given way to a very different sort of sell-off.


The Conservatives have raised around ?60 billion ($94 billion) from privatization since taking power in 1979, selling electricity, water, steel, car, bus, port, freight, defense and electronics firms as well as oil, gas and telephones.


Whitehead describes the current wave of privatizations as mainly "loss-making organizations with social obligations which can't be funded simply out of profits". The Post Office was a classic case. Many, including Major, see its rural outposts as vital to the survival of country villages, which they believe are the heart of England. Other potential targets, such as Britain's air traffic control system, were also dropped quietly from the privatization list for fear of the political storm they could provoke.


But the government remains committed to privatization, announcing recently that it wanted to sell the Treasury building.


Chancellor of the Exchequer Kenneth Clarke, Britain's finance minister, wants private developers to refurbish the monumental workplace for his civil servants in return for part-ownership of the prestigious building in the heart of Britain's political establishment. "No part of the public sector will be spared from the search for new projects," Clarke told a private finance conference. "This includes the Treasury itself."


The biggest sale on the books at the moment is a four billion pound ($6.25 billion) disposal of the government's stake in the country's two biggest power generating companies.


The sale of Railtrack, set up to run the rail network ahead of the privatization of passenger services, is valued variously at between ?2 and ?6 billion.


The opposition Labour Party argues that the government's fixation with privatization has less to do with its desire to cut government's role than with a need to fund pre-election tax cuts to win back disenchanted voters.


Labour's campaign against the government's privatization drive has been boosted by public outrage over multi-million pound salaries and incentives given to chief executives of newly privatized utilities at the same time as charges to customers have risen and jobs have been cut.