From time to time new suggestions are made for the shortest book in history. My first knowledge of such an accolade was for “ Italian War Heroes” (steady on! (ed.), many years ago. I think that I have found a good candidate for the 2020s, “ Friends of Privatisation”.
The most recent attempt at privatisation was that of Channel 4. Over 90% of individuals respondents to government consultation opposed the idea. The plan vanished with a change of Culture Secretary.
Robert Colville deserves a medal for his valiant attempt to defend the state of UK Water. You do not have to accept his full message to accept that the real picture is more nuanced than the media headlines suggest.
However, there is a pattern here that is worth exploring. The collapse of nearly 50% of UK energy suppliers, the failure of yet another rail franchise barely makes the news. The dreams of the 1980s of a share holding democracy have not materialised. Poll after poll shows that “ Public Ownership” of Rail, Energy, Water and other essential services is widely supported by the population including Conservative voters.
I want to argue here that the current model of privatised regulated services is now damaging to the UK economy and confidence in the wider private sector is a central part of the “Broken Britain” narrative, as here.
In turn, decline in the faith in democratic institutions is a common contemporary theme. Claims in the 1990s that the fall of Communism had led to the end of history seem laughable.
So, what’s gone wrong and how can it be fixed?
On a road trip through Canada and a visit to Alaska, I was struck by how, even outside of the tourist traps, many small communities had full rows of shops, functioning bus services and other. It was not uncommon to see leisure facilities, libraries and other services in communities of a few thousand that would embarrass towns in the UK that are 10 times the size. Notably, many of them were locally and community owned. This in part reflects settlements made with first nation peoples. However, the proud declaration outside a shop of “family owned since 1936” or a building “serving the community since 1953” is very different to most UK high streets. There was, I felt, a real sense of place.
I am not sure that a belief in “public ownership” picked up by the polls translates into a clamour for more national institutions. Yet, I cannot see evidence from Think Tanks and policy circles on how rebuilding confidence in politics and economics is to be delivered in the UK.
One of the early arguments for Privatisation was the notion that the Public Sector was “crowding out”, the private sector. The argument was that if the public sector retreated from house building and bus services, for instance, then the private sector would more than compensate. A recent article in the Times called 1980s bus reforms as “ill conceived and damaging deregulation”. A few years ago the comments would have attacked that description, but not now.
Similarly, planning reforms at the end of the 1980s have not lead to housebuilding in line with societal demands.
Another argument was that the private sector would invest, avoiding the trap of public sector short termism over capital spending. Above all, the risk would fall on the companies. Yet we have found that, as with the financial crisis on 2007-08 when an energy company fails, the costs fall on the bill payers. Gains are privatised, losses are socialised.
Much of the focus on regulation in the 1980s was around economic regulation, notably RPI-x type thinking. However, now we see the challenges of dealing with the externalities that a mere transfer of ownership do not address. For instance, transport infrastructure has impacts on pollution and public health. Free bus services in the centre of Australian cities is an example of taking a wider perspective.
The health of our rivers and seas has deteriorated with major environmental impacts.
One argument for privatisation of services was that removed from public sector bureaucracy that prices would fall as private sector efficiencies kicked in. Twitter is full of examples of the situation we have actually found ourselves in, with higher transport and energy costs than comparable countries.
One example was an academic going from St Albans to Bath for a Roman Archaeology meeting. A return train ticket in the UK was £217. A return flight to Rome was £137. Similarly, an accountant discovered that instead of buying a return ticket to Liverpool, if he went on the same train but bought around 20 tickets each to the next stop it worked out cheaper.
At a meeting of a City Think Tank around 1990, I asked about the future of regulation and was told by one of the advocates of privatisation that, in time, regulation would diminish as the free market took over. Now the need to tighten regulation and worries over “ regulatory capture” are the areas of concern.
Perhaps the most successful example lies in Telecoms, where the Privatisation of BT was an early venture. Here, I would argue that it is technological advance, rather than ownership that has made the difference. In 2022, the OECD Fibre penetration average was 37.7%. The UK figure limps in at 11%. Here prices have fallen relatively, but that is clearly technological not ownership driven.
The FT’s big read on the “Return of Big Government” completes the picture, for me.
In the end, I think that this mix is deeply unhelpful and toxic for societal and economic health. Tackling productivity issues that have long dogged the UK but are spreading more widely is a global challenge. I think that good public services and a dynamic private sector are both needed to address challenges in the UK and internationally. What I am asking for is some fresh thinking on the governance arrangements that will provide an effective way forward.
Stepping back to the broader context, I think it would be possible to play number games and show that if you look at ownership of UK assets by sovereign wealth funds, state backed companies and foreign pension funds then the argument could be made that the UK still has a similar proportion of state owned assets. The difference is that today it is foreign states not the UK pulling the strings.
The societal concerns embodied in the “take back control” meme I think reflect a sense of lack of agency and powerlessness. Crudely put, why should investments in my sewerage systems be required to meet the dividend needs of foreign pension funds?
The late (Sir) Sam Brittan wrote an interesting book in the 70s on the “ Economic Consequences of Democracy”. I remember discussions with him on its contents. An economic liberal and marketeer by inclination he was also a thoughtful man and a brilliant writer. I wish someone would update it!.
A final example. In the early 1990s I spoke at a Conference in London. One of the other speakers was a Partner of one of the big Consultancies. He argued that British Expertise in Privatisation was now working in Russia after the end of the Cold War and would help secure a stable, democratic and prosperous Russia. Marks out of 10 for that?
After the Financial Crash of 2007-08 there was much effort to put the system back together again. Today feels different. Faith in Humpty Dumpty’s resilience has evaporated.
The dawn of the industrial age was accompanied by a flourishing of new governance and funding models from the joint stock company, the co-op movement, friendly societies, charities and many others. If we can capture some of that spirit, I think the current talk of “declinism” can be addressed globally. That is a goal worth committing to. The UK has an international reputation in Financial Services that has the potential to make the next step change innovations in governance. Let’s go for it!