Privatisation: A Policy in Search of a Rationale: A Comment
The Kay-Thompson paper interprets privatisation as the sale of public sector industrial assets. It would be best to stick to this interpretation, for the discussion of other aspects of privatisation in the Kay-Thompson paper is not extensive. The authors list five possible aims in the denationalisation of public sector industry. (i) improvement of the economic performance of the industries concerned, (2) resolving the difficulties of relations between government and nationalised industries, (3) revenue raising, (4) reduction of the power of public sector unions, (5) the promotion of a popular capitalism through wider share ownership. Some of these aspects are not analysed at all, and others only partially or indirectly. The authors' interest is obviously mainly in the first aim improved economic performance. Here they provide an illuminating summary of recent academic literature, which suggests that it is the interaction of private ownership and competition which produces efficiency. Competition ensures that low efficiency is penalised by low profits; while private ownership and effective capital markets ensure that low profits are met by eventual withdrawal from the activity concerned. The main thesis of the paper is that the managements of nationalised industries will oppose more competition, either in the form of breaking up existing structures or introducing a more liberal regulatory regime. But as the co-operation of existing managements is important (or essential? the authors are not clear) to the success of privatisation, they have the power to frustrate the competitive objectives. Hence privatisation has not brought competition, but simply involved the transformation of public into private monopolies. Moreover this tendency has increased as the privatisation exercise has got under way. The result, as I understand the authors, is not merely useless or neutral, but positively harmful, because it is more difficult to unscramble organisations or change the rules of the game after denationalisation. My first inclination was to agree with the authors about the broad tendency, although to substitute the slogan 'missed opportunity' for their 'worse than useless' conclusion. But on re-reading the paper doubts grew. Most of the early acts of privatisation did not include public sector monopolies. They were either sales of concerns already operating in highly competitive markets such as Britoil, or Amersham; or they consisted of sales of shares from the Government portfolio such as the successive tranches of BP. The authors list six examples of asset sales involving public sector monopolies or semi-monopolies. These are British Telecom, British Airways, British Airports Authority, National Bus Company, British Gas and the Regional Water Authorities. 2 [ 33 ] ECS 96