The Comparative Efficiency of Public and Private Enterprise in Britain: Electricity Generation between the World Wars
The present British government's interest in transferring the ownership and control of nationalised industries into private hands appears to have been unaccompanied by any detailed analysis of whether, and if so by how much, privatisation will produce efficiency benefits. Crude comparisons reported in the daily press cannot claim to hold other factors constant. Pryke's (1981) study of British nationalised industry performance and Rowley and Yarrow's (1981) study of the British steel industry are among the few academic references to experience outside North America.1 Here we tap a rich vein of experience to compare the productive efficiency of the enterprise types under a distinctively British (i.e. not 'armslength') approach to regulation. Recent British economic history has rarely thrown up data as useful as that in the United States where comparable plants co-exist under different control regimes, but earlier periods have. The supply of electricity between the world wars by mixed ownership is very well documented in the Reports of the Electricity Commissioners. We focus on electricity generation rather than supply as a whole, partly to ensure a greater homogeneity of the products of the firms and partly because of interest in the 1983 Energy Act allowing private generation to supply the CEGB with electricity for grid distribution. First we discuss some general ideas on comparative performance of public and private enterprise and consider the relevance of these ideas to an evaluation of efficiency in the electricity industry. In the second section we specify the cost function for the industry, then go on to discuss the data and the sample. In Section III we present the parameter estimates and consider their implications. This is followed by a short concluding section.