A few weeks ago, London was the scene of a heist of spectacular proportions. We may never know the full extent of what was stolen, but the indications are that it was anywhere between £1 billion and an eye-watering £6 billion. Although the robbery was carried out in broad daylight, it is unlikely the money will ever be recovered or the perpetrators brought to justice. This is because they were sitting in some of the world’s largest financial institutions – Goldman Sachs, Barclays, Bank of America and UBS – and acting on behalf of the British government.
Their instrument was the undervaluation of shares in Royal Mail, which with the initial public offering immediately soared from 330p to above 500p. The company was sold at £3.3 billion but in J.P. Morgan’s estimation the real value may have been as high as £10 billion. No wonder the IPO was oversubscribed. It was, as TUC General Secretary Frances O’Grady pointed out, akin to “selling five pound notes for four quid.” The biggest private shareholder is now the hedge fund TCI, which snagged 5.8 per cent of the company. The principal victim of this daylight robbery is, of course, the British public.
There has been plenty of public and media commentary – and even a little outrage – at this latest instance of the looting of Britain’s dwindling public sector. After all, even Margaret Thatcher was “not prepared to have the Queen’s head privatised.” The sell-off was conducted in the teeth of sceptical public opinion as well as fierce opposition from postal workers, with 96 per cent opposed in a recent ballot. Billy Hayes, General Secretary of the Communication Workers Union, denounced the manner in which a centuries-old public company, returning regular profits to the Treasury, was “flogged on the cheap for no good reason.” Postal workers have voted for industrial action, seeking guarantees on pay and working conditions.
Missing from most of the discussion, however, is any recognition of just how extraordinary all of this is. Business Secretary Vince Cable may have faced some tough questions about the handling of the flotation but it will blow over. No heads will roll. Asset-stripping of the public sector has become a fact of life. Even among the British left, battered by the serial privatisations of the 1980s and 1990s, there is a certain wearied resignation, a sense of going through the motions in the face of the seemingly unalterable order of things.
We should resist this normalisation. Viewed from an international perspective, Britain is an extreme outlier regarding privatisation. In no other advanced industrial country would quite so flagrant a rip-off have been engineered and tolerated. Nowhere else – not even in the corporate-dominated United States – is there such a degree of nonchalance about ownership and control over vital infrastructure and public services. In the UK, the attitude seems to be that if it isn’t nailed down then it is for sale. Privatisation is increasingly the British disease.
From Pinochet to perestroika
Privatisation has been a prominent feature of the British political landscape for decades, but on the basis of an assumed international policy consensus about how to improve efficiency and economic performance. It is true that, since the 1980s, privatisation has been a key instrument in the toolkit of neoliberal globalisation, enforced from Latin America to Asia to Africa wherever the writ of the IMF and World Bank could be made to run. By 2009, 132 of the world’s 500 most valuable corporations were privatised former state enterprises. But within this neoliberal framework, very few countries were actually prepared to go quite so far quite so fast as the UK.
In a 2002 encomium to privatisation, HM Treasury calculated that, all told, between 1980 and 1996 Britain had racked up fully 40 per cent of the total value of all assets privatised across the OECD. This is an astounding figure. Elsewhere, the only remotely comparable experiences occurred in countries – Pinochet’s Chile and the disintegrating Soviet Union – that were undergoing exceptional transitions and in which the rule of law was basically inoperative.
Chile was the original laboratory. Between 1975 and 1989, under the jackboot of the Pinochet regime and at the urging of carpetbagging Chicago school economists, the country implemented two waves of privatisation. Not merely companies nationalised by Allende but a host of older public concerns – including 16 banks and thousands of mines, real estate holdings and agricultural enterprises – were auctioned off to elites at bargain-basement prices.
Given the accolades afforded the “Chilean miracle” by Milton Friedman and others, it is worth noting that the first wave of Chilean privatisation was a major embarrassment. All but five of the banks and many of the other enterprises failed and had to be taken back into public hands. By 1983 the government-controlled portion of the economy again equalled that under Allende, and critics mockingly referred to a “Chicago road to socialism.” (The second wave of privatisation, beginning in 1985, eventually returned many of these firms to the private sector).
Road tested in Chile, privatisation was then exported out across Latin America and worldwide. Under Margaret Thatcher, Britain served as the most prominent conduit and cheerleader. With free market economists again hectoring from the sidelines (see Thatcher’s correspondence with Hayek), all memory of capitalist mismanagement of factories and mines in the interwar years was forgotten as the commanding heights of the economy – electricity, gas, water, steel, civil aviation, telecoms and railways – were delivered up for auction. It was a massive transfer of wealth from public to private interests, marketed to the people with soothing promises of a shareholder democracy.
As with Royal Mail, the brazenness of the theft was stunning. In his magnificent recent book on public ownership, Andrew Cumbers, Professor of Geographical Political Economy at the University of Glasgow, found “considerable evidence that state assets were sold off at remarkably cheap prices.” Shares in BT jumped from 130p at privatisation to £15 by 1999. Railtrack was sold for £1.9 billion, but within two years had soared in value to £8 billion. The rolling stock company Porterbrook Leasing, privatised for £528 million, was re-sold just eight months later for £826 million, while the other two rolling stock companies were subsequently sold for £900 million more than their privatisation price. The architects of privatisation could barely be bothered to disguise what they were up to. Former Chancellor Nigel Lawson went so far as to state in his memoirs that undervaluation was a deliberate government tactic.
Hugely important strategic considerations were at work, as was evident in the subsequent development of the UK economy. Privatisation not only allowed for attacks on the trade unions but also – together with big bang deregulation – contributed to the build-out of London-based capital markets. The £3.9 billion rollout of shares in BT in 1984, for example, was six times bigger than any previous IPO and four times the size of any other capital-raising exercise in the world at the time. In this way, the privatisations of the eighties and nineties helped secure the City’s continuing place as a world financial capital.
In addition, the sale of 2.5 million council houses at a total value of £86 billion – more than all other privatisations combined – helped generate the real estate boom and (as Stephen Wilks notes) ultimately contributed to the property credit bubble. Revenues from the sale of other public assets – totalling £69 billion between 1979 and 1997 – allowed successive Tory governments to maintain public spending while cutting taxes for short-term electoral gain. Leon Brittan insisted that “people always overestimated Mrs Thatcher’s grasp of economics while underestimating her grasp of politics.”
By the time the Berlin Wall fell, privatisation was in full swing. With the “Harvard Boys” providing the tutelage, the former Soviet Union saw a bonanza of primitive accumulation as state assets were distributed among a gangster-capitalist nomenklatura and new billionaires minted virtually overnight. A disaster for Russia, the effects are visible today in London property values and ownership of the Premier League, with the UK increasingly a playground for Russian oligarchs. (Vladimir Putin has been unwinding some of this via a rolling programme of re-nationalisation, especially in the energy sector).
Privatisation was also the keystone of structural adjustment programmes imposed across the global south, leading in many regions to a “lost decade.” When centre-left “Third Way” governments took office in Western Europe they largely acceded to the existing dispensation, continuing the sell-off by other means and bringing in private capital by the back door. New Labour was among the most avid, as can be seen in Britain’s fateful adoption of the private finance initiative, or PFI.
A tale of two post offices
Although privatisation was installed rhetorically and ideologically throughout the advanced industrial world, in practice no country embraced it as fully and wholeheartedly as Britain. Elsewhere, it was a much more pragmatic and opportunistic and far less ideological affair. This can be seen in the contrasting experience of the United States, often considered the beating heart of free-wheeling no-holds-barred market capitalism. Despite attention-grabbing headlines detailing spectacular “privatisations” – often ending in fiasco – such as Chicago’s parking meters, Atlanta’s water system and Indiana’s toll road, the American reality is more complex.
First, contrary to the British custom of literally selling public assets outright, the American model usually consists of contracting the operation of such assets to private interests for extended periods. While this can be detrimental to both consumers (in the form of higher prices and inferior services) and the wider public, at least the assets themselves remain in public hands. One benefit of such an arrangement is that when “privatisation” goes bad, the contracts can be – and often are – cancelled and public management restored without the complications of a full-blown re-nationalisation. A study by Professor William Megginson, a privatisation expert at the University of Oklahoma, found that between 1961 and 2000 just two state-owned enterprises were privatised through a public share offering in the United States: Conrail in the late 1980s and United States Enrichment Corporation in 1998. By contrast, there were 43 such privatisations in Britain.
Secondly, when it comes to the actual sale of public assets in America, public and politicians alike are often chary. This reluctance can throw up some strange bedfellows. In 2013, the Obama administration’s budget included a proposal to privatise the Tennessee Valley Authority, a New Deal-era creation and the largest public energy utility in the country. The TVA currently provides 165 billion kilowatt hours of power to 9 million Americans, has $11.2 billion in sales revenue, and employs more than 12,500 people. As with Royal Mail, TVA privatisation was touted as a way to keep some routine but necessary borrowing off the public books.
Fierce opposition quickly emerged – led by “free market” Republicans well aware that the TVA has provided affordable energy to their constituents for eight decades. Senator Lamar Alexander, a Tennessee Republican who has vehemently opposed government tax credits and subsidies for renewables, called the proposal “one more bad idea in a budget full of bad ideas.” Congressman John L. Duncan, Jr., another Tennessee Republican, described privatisation as “something that has been proposed in the past and been determined to be a very bad idea.” Tennessee’s other Republican Senator, Bob Corker, was equally dismissive: “I doubt this idea gains much traction.”
For an even more direct contrast in attitudes, take the saga of the United States Postal Service (USPS). Interested in both eliminating a low-cost public competitor and facilitating the massive transfer of valuable real estate to private hands, U.S. corporate interests, including FedEx and UPS, have had the post office in their crosshairs for years. In keeping with this, Congress has repeatedly crippled efforts by USPS to remain economically viable. In 2006, the Postal Accountability and Enhancement Act forced USPS to pre-fund 75 years of potential future retiree benefits in just ten years – a whopping $103 billion a year. Renowned consumer advocate Ralph Nader called the plan “something that no other government or private corporation is required to do … an incredibly unreasonable burden.” According to Nader’s calculations, without the pre-payment obligation USPS would likely be profitable. Furthermore, Congress has repeatedly stymied attempts by USPS to rectify its financial situation by cost-saving measures or changes in services.
The point is that, unlike Royal Mail – quickly privatised with minimal opposition despite its profitability – the deeply-indebted USPS is still firmly in public hands after years of determined corporate lobbying, and will remain so for the foreseeable future. Much of the reason relates to the anticipated negative reaction of the American public to higher costs and reduced services, seen as inevitable consequences of privatisation. Only in Britain is the attitude to privatisation so gung-ho as to completely override all such considerations.
Public ownership for the twenty-first century
Despite the taboo on public ownership enforced by the mainstream media and widely observed by the political class, opinion polls continue to demonstrate strong popular support for the idea in Britain. In fact, privatisation never commanded majority support even at the height of its popularity in the 1980s. The recently launched ‘We Own It’ campaign is finally penetrating the fog of misconceptions to bring much of this to light.
Part of the problem is a legacy of misunderstanding surrounding the experience of public ownership in the UK. In implementing the Labour government’s nationalisation programme after 1945, Herbert Morrison strongly favoured the model of top-down centralised public corporations at arm’s length from democratic control. This foreclosed the possibility of more participatory forms while supplanting older and more varied traditions of municipal and cooperative ownership. Moreover, the newly nationalised industries, many of which had been lossmaking when in private hands, faced serious restrictions, including limits on borrowing and artificially low pricing of their outputs. Far from being a drain on the economy they actually subsidised the private sector.
Perhaps more surprisingly, despite all the constraints the British public sector largely outperformed comparable private sector companies. As Andrew Cumbers points out, “total factor productivity … in the nationalized industries of gas, electricity and water increased by 3.1 per cent between 1950 and 1985, a figure that was higher than both their US privately owned counterparts (2.6 per cent) and UK manufacturing as a whole (1.8 per cent) over the same period.” It didn’t matter. Stuck with the reputation of being inefficient, bureaucratic and underperforming, by the time of the Thatcher assault they were sitting ducks.
In fact, evidence from around the world – from Korea and Taiwan to Norway, France and Germany – amply demonstrates that public ownership can be highly efficient and competitive. Many of the world’s best-known companies, from Singapore Airlines to Japan Post Bank, are significantly publicly owned, as is much of world oil production. There is also the great irony that many of the companies that have taken over operation of Britain’s privatised utilities, infrastructure, and public services are themselves state owned and operated – but by other countries. In recent weeks the French public energy giant EDF and two state-owned Chinese companies have signed an agreement with the government to build a new nuclear power plant in the UK. The profitable publicly run East Coast mainline is also to be put up for sale, with potential bidders including SNCF and Deutsche Bahn, the French and German state-owned railways.
Public ownership, then, need not be inefficient. It need not be distant, bureaucratic and unaccountable either. Many of those advocating public ownership today are calling for a more decentralised, plural and democratic form of collective ownership than that prevalent in the past – one in which local communities and public sector workers have greater opportunities for participation and control. Such models are springing up already. Latin America, the first continent to experience neoliberalism and the first to emerge from beneath its heel, is now the epicentre of experimentation with new public ownership forms for the twenty-first century. The water sector, in particular, is witnessing a wave of re-municipalisation in which local authorities and worker cooperatives are coming together with trade unions and civil society groups in so-called “public-public partnerships” that point the way to exciting new arrangements superior to the top-down public ownership of the past.
In the wake of the crisis, late neoliberal capitalism is made up of so many naked emperors it can seem like a visit to the Roman baths. Chief among them is privatisation, shorn of its clothes by the actual performance record of the privatised companies and immense costs to the public. Profits, dividends and share prices may have gone up, but privatisation has done precious little to lower prices or provide better services to consumers – quite the opposite. Given all this, perhaps angry postal workers will be the ones to begin the fightback. As we have proposed to the Communication Workers Union, postal workers could pool their individual shares in Royal Mail, which collectively amount to ten per cent of the company, in a union-managed trust and use the dividends to purchase new shares, working toward a controlling interest in the firm. The end result could be an innovative new partnership between workers and the state. Either way, privatisation in Britain should long ago have run its course. It is high time that public ownership be placed firmly back on the political and policy agenda where it belongs.
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