Milad Sherzad looks at the story of privatisation in the UK, taking lessons from the 1994 privatisation of British Rail to learn the distinction between when privatisation is necessary and when it risks going too far.
The year is 1993; the UK has gone through nearly a decade of Thatcher and her privatisation journey but even she had stopped short of privatising the railways, calling it a “privatisation too far”. John Major and his cabinet however are pushing towards the legislation that would ultimately pull the plug on almost half a century of state owned railways in the UK. Was it this decision that truly showed the extent of how far privatisation can go?
Nationalisation of industry in the UK
State versus private ownership is by no means a recent political or economic debate; it has ravaged our nation for countless decades and has culminated in the system we currently see today. Up until the second world war, most industries were barely touched by the state. However, the outbreak of conflict led the Government to take a more prominent role in key industries such as coal, energy and manufacturing; these decisions were made in order to help streamline planning and distribution in such a volatile time. Further, Attlee’s Labour government, elected in 1945, pioneered this idea of nationalisation by setting out legislation to bring the Bank of England, transport, coal and many other industries under control of the state.
Those in favour of deregulated, privately owned, invisible hand guided markets, argue that they create the best societal optimum by only producing what is demanded by a society, with limited waste and with profits being guided towards entrepreneurs, arguably creating incentives for people to take the risks in setting up business. On the other end of the spectrum we find those that argue in favour of the state owning the means of production: by regulating the markets, a state can ensure that the needs of the people are best met, there are better accountability of issues, that prices do not over inflate and that, in certain scenarios, it can facilitate a loss-making industry that provides an essential service, something a private firm, by definition, would be unlikely to do. However, as you may have guessed, it’s tough to find a country in the present day that represents either of these systems as most nations have opted for a synthesis of the two: a mixed economy.
The Thatcher Revolution
It was not until 1979 that we began to see a shift in the role of the state, starting with the election of Margaret Thatcher as Prime Minister. Thatcher’s governments reversed many of the decisions of the Attlee ministries over the course of the 1980s, privatising British Airways, British Telecom and British gas to name a few. Her arguments at the time were centred on the stagnant economy and falling British status and respect on the World stage; that privatisation would lead to more efficiently run industries, lower costs, and overall better quality and innovation. In a sense, her thinking was right: we saw failing industries revitalised. Take BT for example: as a state monopoly it used to, apparently, take up to 6 months to get a new phone line installed whereas today, with so many competitors in the market, we cannot imagine waiting more than a week or two. Quality of life has risen for many due to these changes of ownership however, benefits were not completely widespread. The impact of privatising the coal and steel industries unequivocally ended in tatters: entire communities were abandoned and shut down due to job cuts as a result of private firms not being able to sustain the industries and their sheer size. While these job losses and community destructions are not to be taken lightly, it could be argued that the industries themselves were operating at an inefficient point whilst as a state industry and that privatisation allowed these industries to shift towards a more efficient point of market equilibrium. So, in a rather conflictual manner, we have seen that privatisation led to both simultaneous rises and falls in quality of life for people across the UK and we must ask ourselves, is there a crucial factor at play in helping us understand at what point Thatcher should have stopped privatising?
Privatisation of the railways: a step too far?
Although the privatisation of British Rail was not undertaken by Thatcher herself, it was no doubt inspired by her sweeping reforms of the 80s; when Major hammered the final nail in the coffin for British Rail, things began heading downhill. Arguably yes, it was a good decision: we saw passenger numbers rise dramatically from around 750 million journeys in 1995 to over doubling by 2015. While there are other factors at play here, we cannot ignore that fact that this dramatic rise contrasts with the figures of the nationalised British Rail, which was displaying dismal and stagnant passenger statistics over its last two decades in existence; therefore, it can be argued that this privatisation was necessary to reinvigorate the British population and their passion for the railways, inspired by improvements made by private rail operating companies. However, these milestones of progress were marred by poor safety in the late 1990s and early 2000s, culminating in the renationalisation of RailTrack, the firm responsible for the maintenance of the track, signalling and certain major stations. We can view this action as the Government realising that complete privatisation, at least in the case of the railways, was a step too far; that safety shouldn’t be bound by budgets. Another issue we’ve seen with railway privatisation has been the rather dramatic rise in fares over the years, with Britain’s railways being named one of the most expensive in Europe and on top of this all, the UK Government finds itself spending more in subsidies for the railways now than it did back when it was under state control. Surely, these mass inefficiencies cannot be ignored when a key argument of privatisation was to resolve the inefficiencies of a state operated railway?
How much is enough?
If you hadn’t guessed already, I’m in favour of not just renationalising the rail network in the UK, but creating a more prominent role for the state in certain markets/groups such as British Airways and the energy industry. The reason that I focus mostly on the renationalising of, or larger state regulation of, transport and energy industries is that they are crucial in the fight to tackle climate change; we can no longer solely rely on private firms to adjust their production and incur higher costs in the pursuit of a ‘greater good’, a pursuit of lower emissions. By allowing the state to take a more dominant position in these industries, it can use it’s financing abilities and impartiality to actively lower emissions and craft a better prepared future markets system that safeguards the environment. Therefore we can see that while Thatcher’s privatisations may have been positive in certain aspects, influencing the rail privatisation was an enormous step in the wrong direction as we sorely need a reliable rail network that is cheap enough to the consumer to act as a strong competitor to road and air. My belief in increased state responsibility is grounded in my view that as a nation develops, its government becomes more socially responsible, less corrupt and ultimately should make more decisions that positively impact society rather than beautify the policymakers career. However, this view is quite a ‘Shangri-La’ of scenarios, especially with the marked rise of populism worldwide over the past few years. Populism no doubt acts as a limitation on how much control we should allow a state to have in markets and we must exercise caution into the future. It undermines, completely, the idea of socially responsible governments as the policymakers will likely be in pursuit of prolonging their future careers and their ultimate decisions risk not being in the best interest of the population; if we hand the state more control of certain industries, the risk of catastrophic failure rises under a populist government, specifically one that is ideologically extreme. The solution? Any amount of privatisation must be undertaken incrementally, in order to both limit risks of a sudden shift in power and to ensure that any decision, if resulting in failure, can easily be reversed. Fundamentally this applies to railway privatisation as incremental policy change in the 1990s would have likely prevented wide scale privatisation and we would not be seeing the negatives that we do today. Ultimately John Major took a step too far with the railways, but it provides us with a lesson that we most certainly need to learn from.