"The state sector cannot be controlled in its size or its scope, and that its inherent nature cannot be changed by the actions of government"
In the continent of Europe, the French have embarked upon a massive programme of £65 billion of public sector sales. The first offerings were very successful, and were hugely oversubscribed. Spain started by selling SEAT, its auto manufacturer. The German govemment decided to concentrate on industry, transport and banking. Italy began modestly, by selling minority stakes in state- owned companies. Turkey, more adventurously, sold the Keban hydroelectric dam and the Bosporus bridge. TheJapanese have privatized their railways and telecommunications. Canada has sold airframe manufacturers and some arms and mining concerns. In the United States the story is one of rapidly growing use of contractors Malaysia has started a major privatization programme,Bangladesh and Pakistan have progressed by privatizing individual textile, jute and sugar flour mills. Jamaica has done the same with sugar refining and hotels. South American countries have enabled private investors to buy holdings in state companies, especially oil, banking and electricity.
On average, private business has costs of production that fall between 20 and 40 per cent lower than those in the public sector. p21
Ways to Privatise
Method One: Selling the whole by public share issue
The first of these is the need to secure the support of the management and the workforce. The case of British Gas is most instructive because an attempt to privatize the gas showrooms was made in 1981. It was opposed by both management and unions and was unsuccessful.
Privatization in 1986 was for the whole industry, he workers in British Gas had a special part of the share issue reserved
The shares rise in value, as most of those in privatized companies have done, public support for privatization is maintained.
An added effect in Britain has been the development of a pool of professional skills in privatization services which are very much in demand in the rest of the world.
British Gas doubled in one day the total number of people in Britain who owned stock. The total spent by N .M. Rothschild, who handled the privatization, was £200 million. This corresponded to 3.2 per cent of the sum yielded, a figure on the low side of the average for private share issues.
Privatization in a single piece is certainly quicker, he price of a unit sale is undoubtedly higher
MONOPOLY AND REGULATION
BT Regionalised utils would have enabled them to be measured against each other , simply promising to break it up later but not within ten years would maybe help but decreased share price.
I was obliged to maintain both its emergency and directory services,this hit hard at the union campaign which lad laid stress on these services. The government rejected the US model of price control based on a , fair return' on capital. The regulatory agencies in the US had not achieved an impressive performance. They were subject too often to .capture' by the industries they were supposed to control; and the method of price regulation notoriously resulted in over-capitalization, as firms sought ways to expand their permitted profits.
The British government opted for controls known as the 'RPI minus X' formula, in which price increases were limited to a set figure below the increase in the retail price index.
(how about privatising the pipe laying people and allowing them to lay as many pipes as they like and sell them to whoever they like - might have happened as a result of road privatisation)
Could privatise with the proviso that the company must break itself into 4 competing units etc
Method Two: Selling a proportion of the whole
Useful when the company has been making a loss.,second sale gets higher price
BT was done this way (51.2% sold) , regionalised utils would have enabled them to be measured against each other , simply promising to break it up later but not within ten years would maybe help but decreased share price
Britoil too - undersubscribed- doubts about Oil, inviting bids above a minimum price - too inflexible
Method Three: Selling parts to private buyers
Sometimes government approached by the buyers sometimes vice versa. Let it be known everything is for sale. Eg British Rail hotels- (29 at one time) - Gleneagles,
BR sold its ferries as Sealink, British Leyland sold fridge company, National Coal Board sold land and vehicles for £19 mil, Dep Transport sold service stations, much land and buildings,
he original attempt to sell divisions of British Leyland, illustrates the dangers involved in sales to private buyers where insufficient groups perceive direct gains from the transfer. Leyland Trucks was merged ,with the Dutch company DAF Trucks
Method Four: Selling to workforce or management
National Freight sold to workers at their suggestion- very successful , productivity up 30% since privatisation. Also Redhead, Victualic, Swan Hunter(management)
Method Five: Giving to the workforce
DS : Give the unsaleable schemes to the tenants or guarantee their mortgages
BR sold hoverspeed to the management- performance went up dramatically
Method Six: Contracting out the service to private business
Great savings but really privatisation of the services would be better still
Method Seven: Diluting the public sector
"Chronic capital shortage is a standing weakness of the public economy" Private road funding, development of council estates- priesthill by Baratt- bought 190 homes to upgrade and sell, National bus co ( before it was privatised), Dartford Bridge over Thames £86 million cost, tolls to last a maximum of twenty years, bridge returns to state sector then or when debts and loans repaid, Channel Tunnel- no public money Method Eight: Buying out existing interest groups
Closing rent controls to new entrants but keeping it for old for political reasons. Method Nine: Charging for the service
NHS charges for spectacles, dentistry and medical prescriptions., but high criticism's every time prices go up Method Ten: Setting up counter-groups
Create new politically active vested interests in the new order eg council house sales ( rents were uneconomically low, driving out private landlords and leading to house rationing). Private health care interest group including dependents now 5,309,000 in 86, 9.4% of population. Method Eleven: Deregulation via private associations
Transferrin admin of regulation to private sector .....hmm Advisory commitee of bird sanctuaries replaced in 82 with reliance on RSPB to do the same advisory function voluntarily Method Twelve: Encourage alternative institutions
University of Buckingham 1971 , private university- charges tuition fees of about £5400 per annum. Mostly law which it does in 2 years instead of 3 Method Thirteen: Making small-scale trials
Freeports,enterprise zones Method Fourteen: Repealing monopolies to let competition grow
Prior to 1980 from 1930 , buses tightly regulated , who are who could not get a license. , frequency, timetable, fares charged. Relaxed in 80, prices plunged., passenger traffic went up 60% and by 200% on more popular routes (providers had risen), extended in 1986, in some places privates moved in , in others publics changed first to make privates unnecessary. BT and mercury, and allowing connection to BT network of other phones ,created a vast increase in phones (versus BTs one type) In 1981 , Post office lost monopoly of express mail services (over £1), (post office in Uk and US had previously shown lack of seasonal good will by actions against Scouts delivering Christmas cards for old people ) Electicity grid in 1983 became usable by all, Method Fifteen: Encouraging exit from state provision
Contacting out of SERPs Method Sixteen: Using vouchers
Means money is spent on the sevice itself rather than anything else 70s -National Transport Tokens Method Seventeen: Admitting demand pressures
Parental choice in schools Method Eighteen: Curbing state powers
Government official interference, deregulation Method Nineteen: Applying closure proceedings
Hospitals: unecomical , other nearby hospitals , 27 since may 79 Teacher training colleges Method Twenty: Withdrawal from the activity method
If demand decreases public sectors don't pick this up like private sector does. Method Twenty-one: The right to private substitution
Council tenants could repair and bill the local government from 1984
Cash privatisation (to foreigners ) in Hungary worked better than vouchers (Czech) Privatisation Banking and insurance in France had only been nationalised a few years before privatisation Before: Privatisation need budgets that look at bottom line not just allocate funds and need marketing 5 years plus to change culture in companies Nationalisation was often when companies failed (esp in Greece) Consumer sovreignty only works for privatised companies Services now "more efficient, responsive, cheap and more varied" Arguments against: not promoting competition, sold undervalued- no loss makers sold, make it harder for unions to operate says TUC Shareholders 1-5.5 in France, 2 - 9 UK (mills) Priv Monopolies: BAA now half revenue (43% from flying ) and 54% from car parking, retailing etc Mexico: some monopolies CREATED by privatisation ( Cananea copper sold to Mexicos only other copper company) Lack of stock markets and investors mean Western style only happens in ASEAN . More common is selling to foreign owners. Management contracts also favoured. Direct sales not always quickest : Girobank to A & L took a long time Nat Freight sold to workers- after 4 years capital gain 1000% Complete break up of firms into many buyouts- National Bus co Workers buyouts have been very successful 1991 hand over government departments to agency status £29 billion raised up to water and elec ( not including them) Cable and Wireless profits up 6 folds since privatisation( 8 years) . Associated British Ports( up to 8 years), Enterprise Oil (fomerly British Gas) , doubled reserves. BA received service award. Biggest privatisations were staggered to allow markets to cope IDEA: Utils : 4 water cos,sold internationally to 4 other water companies, each able to use the others infrastructure, and sell direct to each others clients ( better than infrastructure sold seperately because then monopoly problem) the 4 others use the same infrastructure , perhaps make each marketing company own a DIFFERENT infrastructure company ( or all 4 own the infrastructure jointly) School privatisation shares to employees and staff BA became nationalised in 77 in 1939 there were 2000 enterprises ( inc LA s) supplying water in Eng and Wales Act of Parliament reduce these by 1973 to 39 LA contracting out -not so successful- conflicts of interest Fire Services in the UK are one of the most expensive in the world. The US and Denmark have private ones. Labour from 1946 -1951 nationalised gas, elect, health, B of E, railways, coal, Public cos went from 1 to 10% of GDP, Mrs Thatcher 10.5 - 6.5 % of GDP- £20 bn raised BT has shed nearly half its workforce since privatisation in 84, Telecom Finland 40% since 89 Economist 23 9 97 ( the cost to the companies of supplying a long distance call is about the same as a local) Capital costs for cellular are cheaper than for wired. An intenational minute costs about a cent (US) Privatisations of telecoms companies since 1990 ,num per year: 10,10,6,6,8,9,12 Economist 20th Sep 97 Government 100 years ago in the OECD of now was less than 10% of GDP In UK it jumped from 1913 -1920 from about 13 to about 30% only in Japan did it ever decrease ,from 25 - 18% between 37 and 60 before increasing to 32% now (about same as US). In the US it was only 2% in 1913( down from 3.9% in 1870) , by 1937 it was still only 9%, trebling by 1960 to about 27%, and by 1/5th since then to 32% while public spending in Japan more than doubled. Even in 1870 Frances tax to GDP was 12.7% (highest in Europe) Since the economies have been growing by an average of 3.7% pa the governments are taking an every higher per centage of an ever higher amount. Another advantage of Twinning is that governments can't then spend the money on other things. Switzerland has always been lower than the average 2.7% in 1913, still 6.1 in 1937, 37% today War preparations in Germany took it to 42% of GDP in 1937 when the average was only 18% and Britain 30%. Transfers and subsidies about 23% gdp, governement consumption 17%, invest 2%, interest 4% 13% in US for transfers By 1960 UK had lost its "lead" in the welfare state race and by 1970 Fr, Belg, Swe had left it far behind The state has grown in good times as well as bad, feeling more ambitious Up to 1930s the state really dealt with only matters considered to be genuine market failures- how can we stop it outgrowing these In countries that spend less on government they have(<35 vs >50) : the same life expectancy, higher growth, higher incomes , slightly lower infant mortality, slightly more unequal 5.6 vs 7.2 % to the lowest 20%. British public spending goes to the middle class ;socialist Julian Legrand's study shows 40% more health care goes to the top fifth than the bottom, 80% more secondary education, 4 times more bus subsidies, 5 times more univerisity education.