SWP 40/91 PRIVATISATION TEN YEARS ON: A CRITICAL
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SWP 40/91 PRIVATISATION TEN YEARS ON: A CRITICAL
SWP 40/91 PRIVATISATION TEN YEARS ON: A CRITICAL ANALYSIS OF ITS RATIONALE AND RESULTS DAVID PARKER Senior Lecturer Finance, Economics and Accounting Group Cranfield School of Management Cranfield I~t~~e;~ Technology bedford MK43 OAL (Tel: 0234 751122) Copyright: Parker, 1991 Abstract Privatisation SUPPlY side reviews the has featured reforms policy since and its as a major 1979. achievements. part This of the article Government's critically Introduction Just as the the 1980s It 1940s will therefore is be remembered seems privatisation timely (1) the (2) introduction monopolised sale however, the attention and which Table 1 lists Table 2 the is all of the raised has sold almost state a major stake namely aerospace, rail, telecommunications, state only the Three 1 & 2 around broad date in and total In the 1979 the most important aero engines, air and most paper. assets. vehicles, and the the to UK's is, travel, water. railways oil, By remain i99i, in the (1) monopolies; terms (2) of here.) reasons privatisation: profit It sale; the gas industry previously sector. (Tables in coal of this haulage, electricity, main and captured state of motor the two areas has each bn of road of had privatisations many steel, coal, however, in achievements (liberalisation). from f40 privatisation. has focus major of into which primary nationalisation, (denationalisation), competition the amounts industries, the assets programme Government had decade owned suppliers former of programme state of era review The of by state as the as the to programme. strands: the remembered have it raises it widens raising public making; and (3) been it share put efficiency ownership sympathy provides forward for useful in in with private funds support of sleepy state important gains enterprise and to the augment coffers Exchequer's dictates In a reduction this assessed made to in the of the in light of a decade's the its upon privatisation to The the property rights neoclassical improve An attempt has the performance rationale, contentious, and the is privatisation first the paper expecting for grounds and drew theories. Both economics and the to public servants available data on sponsoring in earlier disinterested employees are According to state strongly one of 1970s choice and are rooted in the boards of rational Weber and utility had by exponents, other in people. popularised pursuing their industries, politicians to argued theory leading state different officials motivated its no century choice public interest", of the public theories departments are the on the in in some detail. theory, Parliament ownership concept reviewing choice in and state right" "new According of most against and are worth notion since critically changes. maximiser Whereas extent theoretical argument came from government experience. what the is Argument economic civil is the performance The Efficiency to rationale However, argument, concentrates above question, objectives? efficiency actual PSBR. each the policy macroeconomic when time a paper answer achieved the at the that the "public government own self-interest. Niskanen (1971), - this translates the into office, public bureau, ease bureau". For chances votes of of making politicians remaining any even tax payers. In this that become and influence of manning and were Property rights critique. This of efficiency industries. from the industries in public state State tax assets, They do not out in it would fall under seeking the the trades both over- view UK. In sector the 1970s lagged net of well of state 1981). source and loans The has on inconsistent and profits of the public choice the differing levels private industries payers. burdens suffer nationalised the by "public pessimistic complemented that the gain and rent This (Pryke, to industries would sector the considered would be born maximise in shifting notably private the being the the policies state of investment. the to of managing considerable industries argued government, tlowns'l the theory through directly face in in economists the negative market. in of groups, the capital as choice seemed to in policy of output ease shaping resultes the growth growth by management wasteful ownership subsidies of that Consequently, behind kind pressure productivity attempting office in unions. public it means perquisites patronage, and in the '@...salary, power, public demoralised objectives of changes, one which atmosphere, inevitable pursuit regulation, justifying interest", the sectors raised with no formal own tradeable external state public, lay property in rights or have the funding guarantees, which shares in or principle in the rights to and shares sell them - buying run, hence raising are considered to of vital the Inefficient managerial this in leads the sum, idea operating control and making east, on the is (Figure .The 1 around public popularised in is the which private sector. public to take over. attenuation the inevitably of of leads to civil servants relationship that based firms rely on the in Figure 1 by capital it lower the in of resources. was direct and bid. in immune intentions early.'1980s efficiency away from private a waste firms takeover the agent-principal the illustrated i.e. good in by new management are sector well- price theorists, in and are them share held buy which hostile perspective, the to in improve This missing public to efficiency industries the sector a takeover is the politicians, companies rights spur No matter efficiency. to to free the censure AGMs are and selling property to are deflating exposed rights rights in price, thus to property property In share nationalised a public shares to, sector shares companies and enterprises and the company vulnerability From further according private of firms the of the Owners traded. be failing, the Ultimately, is in By contrast, management. leaving meetings general annual attend privatisation would on removing private capital a movement political control property rights political from towards market. west to reliance market. here.) choice and the UX by the Institute of literature Economic Affairs was and the Adam Smith on thinking and it about early is not from openness There to is emphasis take with USA .where capital well-being. bids market It is threat the as high the considered Aerospace which led to of of Rolls to Ford's belated recognition thinking about the the the this, thus and are rare UX and the Of course, but at capital notion share the least market strategic The is of contradiction of Jaguar precisely of takeovers. the may with a number importance, of desirability in takeovers removal takeover efficiency, share" takeover the the was introduced foreign) Royce. of managerial a ttgolden (especially and over- Japan bids common place. for The golden be an of War than an open an investment, hostile that motivator unwelcome to economies for with beneficial. lead a reason the demonstrated shares long-term the square retention firms. prevent to key in of efficiency. difficult Government's privatised be However, economically which more demonstrates for also in not might The since are may not experience necessarv it over markets have is 1970s studies market bids the Party. particular, that much better such not over profits capital performed In influence in Conservative active suggestion economic Germany the sectors markets more on short-term lowering their a hostile some in capital that had a major and private problems. private conclusively undoubtedly public notably free of It the 198Os, operation have Institute. of to of companies eg. British golden share be seen as in government a Turning to heart of working motivation the of public is went with an enthusiasm which number competition in creating to Parker, in the product neoclassical models of Leibenstein (1966) has competition are competition north to markets. south, and arguments, markets that is the are an ownership square of the self-interested the in with civil the the 1980s idea of 1989) will is therefore not cut. have argued is enterprises efficiently perfect has competition emphasised the way the of and competition central to and monopoly. link of necessary (Millward course, of increasing reliable The role 1986). clear that a more management between the Also, product and ttx-efficiencytt. x-efficiency illustrated i.e. in from Figure capital the for gains which Q 1 by leads from increasing a movement from towards more competitive market and competition notion economic efficiency change gains monopoly the accepting beneficial largest studies levels which combining By the privatisation is, and allocative The at example, and Hood, market efficiency of lies that Kay and Thompson, allocative market in operate 1983; to (Dunsire efficiency an environment incentives hard economists some Indeed, idea For believing for raise necessarily the own manning is one" case economic The that its which detailed caricature. cutting after sector, literature, crude a public suggest about "looking the choice government individuals service in that performance, can be expected to both capital private more it where appears there competition and more reliance on private north-west to The actual movement plotted south-east in the privatisations movement in competition. while the in a number Figure. It the state same the now before than but 1991, the the have Commission permit increased present time, promise of competition even more British Airways where competition to report in takeover is compete cent as of before. monopolies, in competition competition from cable from and PCNs, still retains Gas remains gas, though, following the it is being industrial declined its which British Also, there (a south market to At the offers is a to highly regulated, a rival within reservation about the efficiency, the only case north power, in the a forced market. already major 10 per generation competition. strengthened (NFC), than faces 1988, in an increase market. electricity actually with privatisation, domestic competition has allowed after of word, future UK telecommunications supplier significant no more open to the few a State BT been with to cars. has very Freight continued are firms that had less Jaguar years from seen National always and in seven monopoly Monopolies other privatisation. Communications 95% of as industry, Mercury in be such to water .can - in market, particular privatised south sector applies of associated to - a movement 1. been Firms UK haulage The of north markets in Figure have from capital a where move). an industry when it was UK, British the capital Caledonian. Given market the in earlier ensuring fact role of that the opportunity was not the taken to inject time of privatisation it is worth Also, step necessary created later bus services, the privatisation Share to BT, at regret. was The not a legislation liberalised any energy relevant of privatisation. coach supplier to and utilise preceded systems, distribution electricity the of decline recent industries. shares has at the grown giving priority assets, the from around have been vouchers There 7 to are has time been supportive privatised of cent since their telephone owning have hinted firms that hold the of the War, investors share ownership. when selling shares 1979. Small advertising offer of the By state has trebled shareholders campaigns bonus of shares or and gas bills. gains "property goals by has been a institutional owning expensive political Since shareholder and the ownership individual variety, also large adults through suggested of of 25 per obvious a by the small proportion against to the share Governments. held to Sid" fostering individual expense enticed '@Tell in Conservative of of as a rival firms source competition. and enabled proportion It that a state Ownership goal time into remain increasing of the Reversing the must Mercury and gas competition recalling in which more for the Conservatives democracy@@, but at a possible private shares, economic shareholders capitalism. ministers Also, and employees will in from dividend. be more where employees have been given preference in share now have a direct companies. The strike This a only that true argued that financial health of they work harder been will the arguably they their and large because stake it in its and consequent benefits. Rather, is institutional firm. brokers actively detailed an investors Similarly, because small charges, in the shares, the ones to be courted It is flotations also easy on the to a lot of thus it during is less the large a takeover bid. exaggerate composition are the of impact share This only a and effort of continuous far outweigh the and industries the funds transactions shareholders by a time for more is dominated costs proposition who have operation little of is literature who has scrutiny economic rights will small following a person dealing to market investors. The share of many small invest performance. numbers market for to appears efficient a capital can There capital property than economic industries promotes rational monitoring managements the rather an enterprise monitoring in with is the efficient market shareholders large that one contradictions privatisation. more consistent than instrument, argument capital more follows the more creating The mechanism which pursue of between producing privatisation. small been and in to one policy contradiction important a has the is attempt has shareholders in in implication using arise. few interest governments objective by it less. When be flotations, at large stake costs, likely of ownership notably to investors trade who are privatisation in in Britain. The Government of adults shares holding in than four reversed the investors fell market is an private Raising Just but only the of the financial their constraint this more has nor it, the as it of the institutional shareholdings of share whose insofar of as the on management may be a desirable in power proportion investor, hold Privatisation in 20%. However, important shares deeoened 1980s proportion investors 17% have not private 30% to the 54% of 1991). the raise in has growth to rise the capital behaviour in development. Funds there objective funds is of for wealth the shares opening been market sold value reducing the provided windfall the have on the funds capital (as with priority number been though potential general the between and a conflict If simply has raised in also maximising could have This is conflict shareholding Exchequer. through shares an. apparent promoting there efficiency, payers it During sector, as the 1979, and but relentless from the (HM Treasury, ownership expense market the since company continued the l one institutions. City emphasise enterprises share 2) to shares only widened at likes given usually first at day of for the Exchequer spread of share gains Figure to the of policy promoting goal of been raising to spread small shareholders, away. Instead, far less trading but ownership. ttstagstt 2 illustrates, 10 that had of the at the than (see at the the It a cost their Figure cost has to of also tax Government's ability set to a valuation does (Figure 2 around Figure 3 illustrates the not price appear the effect spending under UK public reduce the Although privatisation in much fact positive PSBR into receipts have play have only in a ltmassagedtt government finances supported. In years (Figure the of the been look 1987-88, At but share financial of did best, of small the way public they turn supplement have way cannot spending in a to receipts public points the privatisation some dramatic 1.5 negative convention of privatisation in by as made the useful percentage treated on in 1988-89, be GDP, but in by less. the problem of We saw earlier coupled terms has the revenues 3 aound here.) Assessing operating market experience). government's repayment. that other true accounting the one year, a debt provided are improved Suggestion reduced with sector of taxation. they the privatisation revenues size receipts finances, the of The deficit. to here.) 1980. thus close to be improving PSBR since public and flotation Efficiency some empirical results and regulation that efficiency with Argument: more privatisation of the competition is enterprises in the most likely to concerned product raise when market. the it is We now turn to consider privatisation some of the available at Figure the 1 efficiency raised the Since most early to change that approached impact of by looking at reviewing research York east into the shifts considering the the data need relating to recently effects in terms in ownership. The of the for some for recent on-going issues regulation of make conclusive judgments of per industries in the most profitable Steel an the enterprises in the 8th indicator state have sector. ownership been date 4 former generally of from just is tells too say is mixed. companies in A terms nationalised were followed one year resulting would of (Manaaement inadequate enterprise impact performers is in still to position, and BT. level is What we can placed profitability and the in 1990, The star 20. British efficiency, remained Britain's top it concerned. firms in 1983, on the privatised in be after of employee However, trends companies Authority companies, to the experience profits p.55). so far occurred study Airports results privatisations on many of the. these by on and financial of by is by to date monopolies. Privatisation: own and west of concludes natural This University discussion to economic companies undertaken of evidence on efficiency. privatised of the the by British 5 water Today, May 1991, considered on gains in us nothing its economic about privatisation. Perhaps as profitable had they Table a 3 gives a series selection apparent have of at the British indicator) per improved most dramatically in Rolls Royce and leads to are begun the really The idea in performance (Table 4). total factor raises the productivity firms they to privatizationtt. After than and Kay in studied to that in Table also practices cases 1989 have a percentage productivity privatised at privatisation Of question, faster Bishop declined of BT has appeared many of occurred before was privatisation of industries GDP and private 1979 also sector and ttwholly accounting observed: also course, 1988 concluded between studying 3, they the British declined, nationalised as the reproduced since may not employment redundancies). profitability the in (though cars but working the badly demand Ports that where Interestingly, their growth rose of this increased 1980s Ports, in the productivity actually as wasteful some support programme but their labour in adverse British Oil. necessary? raised Associated always Jaguar crude Enterprise of and by (a not has declined affected it employment privatisation, marginally employee British improvements improved Oil is salaries has Enterprise at manager Royce but for It performance has were receives a major top and Associated elsewhere while firms, a shake-out Gas and that, other the terminated but firms Sales movements). privatisation. Ports, two latter their BT and Rolls British indicators since on capital Gas, Associated performance improved The return of (the figures impressively, resulted. case financial companies from risen of that in the 1988 unrelated data similar in '#The overall picture substantial have increased, relationship of privatization not privatized growing causation and immediately more runs privatization, has from growth rather than the fact from the to it and other But the tended of grown, declined. apparent but one have to have profitable, is profits changes industries and ..... employment these is emerge output change. margins The to of data. be seems the faster that the profitability to way round.** (pp.40- 41) (Tables 3 and 4 around The York research The research and and in of the a study of the nationalisation) the the author the public had independence, and a reduction in operations. day-to-day of the more in ownership the Thatcher National other effects of ownership Freight cases changes for British were the effects included; of had (privatisation of and status the financial involvement studied in or involved political summarised privatisations, involved, on economic of status direct 1986 studied management in are was changes The organisations Corporation, test major commercial status between organisations boundary These of two paper undergone sector. York this public-private or of of The introduction changes University performance.' crossed within at which financial either oroiect undertaken 1990, consisted here.) and their Figure 4. Aerospace but a Figure Only and the since all of 1 west to the movement, east discussion 4 around employment efficiency (2) function, (3) in through The ratios. to product productivity ensure that the of productivity 5 summarises that a was organisations the change), privatisation of ltprivatisationtt a services changes observed 5 around What the results improve in the the Royal British Aerospace. However, the of the Ordnance improves out of the and includes both for failed and the of Rolls performance performance ten Transport Airways results postal the hypothesis The HMSO, London hypothesis, and cases six This the simply economy. British Freight, not national control in Mint, accounting with were study. supported - the Royal compared macro of productivity standard political from National in 'the of were generally cases. and the a basket of terms employment factor results nationalisation, as expected and total results contradicted following of away studied consistently labour in established an trends movement performance may of an analysis Table (Table using terms (1) ways: three measured was (1984 to here.) Performance trends relevance general of privatisation. (Figure and have results the Royce improved to improve telecommunication Factories. here.) imply performance, is that a Figure but that this 1 west to improvement east shift is not guaranteed. Performance factors and than ownership. performance caution. other with of in that that supported by international and of Schneider, studies is relevant natural the terms may of the on in the changes in and that owned theory. factors, with the firms our Where most markets production and (for Pommerhene the efficiency What product of enhanced earlier by both is in the and these market publicly rivalry. discussion competition especially and more 1983). in efficiency profits Borcherding, is always higher Parker, one, similar of many publicly are costs competition with accords same or record be of firms of e.g. Millward is the upon relative Studies usually see privately monopoly only private variable, economic status that evidence which depends in they a key conclusion focus performance. performance operating though 1982; and and enterprises. in do suggest often owned private especially productivity, reviews management, improved some be associated competition studies demonstrated efficient, to greater encourage ownership owned firms not with needs may or may not other ownership treated research in upon about and - namely, economic which have depend of Reaulation of privately future which factors, public qualified improvements The .conclusion of may propositions which ownership contracts The Problem be efficiency market, employment to implies sources changes Simple need This product improvement A of precluded electricity, the by gas and cost A water industries, production in the regulate private between dynamic but monopolies, both cases, some form of this is to likely economic this suppliers. In protect consumers government regulation public which in to utility runs out the the supply calls. for terms water The impact which rural the the largely into now regulated BT, which has an and as the utility must call boxes This by terms was their the first license and which sets operate, including and emergency 999 formula by the by structure and operating instance, policed (OFTEL). public as well regulation regulated is In mechanism political first services, are Telecommunications example, in Under legislation privatised, system regulatory gas, be under of are privatisation For state and structured. monopolies 25 years Prices and the Office has been copied .of for and electricity. of on managerial suppliers more visible not exploitation exist. pushes is to monopoly. monopoly to need choice state bureaucratic Privatisation licences. lower and sleepy or must and reactive their the firms from within.the privatised of the in words, monopoly pressures. operating other private hidden cases lies between be flexible down result private is UK the reported sector. of open and makes it the are and competitive to ownership laid public explanation likely In there of a regulatory behaviour. electricity, system In gas the depends USA, and water upon where have its influence private monopoly existed for many years, the regulatory and commercial the of broad and lengthy rent agencies in supplier American operations. been the consumer. been preserving a suggests where incentive exists investment - to the the so-called regulatory siding with date up in the the UK independence, the capturetl is monopolies a view of return to have achieving on costs an exist prices is base Averch-Johnson effect But exists, reduced capital or capital. on capital control extend the Thirdly, return to used to regulated of US. Firstly, are "regulatory 1971). to of price the and through an more (Averch control introduced extended to the other Figure 5. It was and subsequently monopolies, is summarised the minus permitting for Although rate privatised, "RPI and and 1962). The method overcome alia, many opportunities Secondly, with management the resources private rate in commendable Stigler, on the for inter considerations too that "satisfactory" incentive litigation control, criticised shown regulated a ceiling Johnson, have 1976; generally where US have threat (Peltzman, given seeking experience present has Consequently, bodies confusion, been experienced lawyers. against to UK. system the regulatory led environmental have quasi-judicial lobbyists ever service, problems has The regulations much as in the Three the disaster. level pricing, system distortionary X1' formula increased in effects was profits in of intended the UK when BT was US style to resulting control from privatised designed regulation. prices lower to The while costs. However, despite control, it precisely the (Figure 5 around The flaw could its does inflation contain in its the was 7% the to reduce profits shareholders. to savings are reviewed. In tNtoo high" is lose other to of increasing to 6.25% five with 1991. set a rate gas supplies. expressed more to when time that and the "Xl' but from cost formula profits is are factor shareholders the time price 'IX** factor view to what rate return the of of the formula is of that around indeed to In gas prices 5 to of Water growth of body the 4.5% in General Office being regulatory profit. Director he considers is the IrXtl was raised James McKinnon, about if that when the the In May 1991 the concern only for boosting work pricing benefit rise incentive only drive, when years. BT's of will BT could 3% thereby OFTEL decides the a that an the can gain initally formula than this be a "satisfactory@' known earn lead therefore 3%, leave to consumers - appears has made it to if to profits, in return can example, by the a BT efficiency - at most, renewal by words, improvement considers of regulation. less covered back Thus shareholders at RPI However, out. it the costs increased practice, which For designed therefore renewed set was following efficiency In by clawed not factor. charges management to flaw rate as US style "Xl* tariffs This up major direct here.) 4%. by a same inefficiencies lies raise over advantages profits face 1989 and of OFGAS, should be 7% on regulated Supplies in (OFWAT) the water industry, which is ahead of estimates made at the time of privatisation. Profits But gained through threatening 'regulator, monopoly noises made about especially destroy managerial become more efficient. Also, the firm's to risk of a change cost of capital. prevent unduly in lowering quality Gas that being penalty. Therefore, the distortionary American in and facilitate the service privatisation, calls monitoring new entry. the by the by the raises the bodies have prices formula or by OfGAS informed quality might this and account by raising the the costs this Recently, in of take pricing that be way, of service raised as however, a risks purpose. Xl* formula on resource there future regulation. OFTEL has been associated is no sign the quite the drawn interconnection gas overcome removing Indeed, has not allocation Also, forseeable industrial reduce regulatory **X** factor minus and to profits **X** factor its profits **X** factor, service. regulation. international into "RPI style pricing of effects competition the of as investors discovered the The use of blurring Since it the unacceptable. by an up-grading increasing of if the covered sacrificed, a further growth insofar Moreover, not are incentives .in monopolies services the British was the the when accompanied *@X**factor, of exploitation into charges, pricing, the with of new need for reverse. regulating and precisely OFGAS to Conclusions The , UK now experiment, much been surrounded now are like able to its conclusions suggest themselves: have been better reducing the PSBR led theoretical enterprise. . At it 'present conclusions relies the is upon of sector, optimistic management of same time, the on organisations have broad and in policy; there for no a policy sector sure are to which of private of these case for privatisation pessimistic view of motivation in consider an effect on what view the to available privatisation three ownership share be could The theoretical alongside exposure pursue public to possible policy principle, the Only theoretical the underpinnings possible correct. to has Two conflicts empirical not its but attempt in and research. effects. inevitable a particularly public overly is analyse widening chunks large to defective or (Hemming privatisation principle - the to is transferring in efficiency, privatisation sound sound executed increasing goals: (2) is world objective actual alongside privatisation the than begin rationale (1) privatisation nationalisation, by more rhetoric economists a to around copied But 1988). Mansoor, subjected was 1980s the in of the operating registered disciplining private empirical would some capital evidence efficiency improved market. on the is At effects ambiguous. performance the of Some after while privatisation, efficiency gains Economic competition a (Parker, cost .the 1989 the also savings gas other borne the into new than *large suggest operating UK's experience services 20% or more has British were Gas. the recorded recognised this. industry fields end an during generation Sea that high electricity North permitting telecommunications, by the electricity announced government out Government of suppliers ensuring around the from evidence goverment of recorded have sector. in for was injected 10% of through is privatisation competition public factor key Belatedly .1990). to international tendering where During the and this competitive 198Os, in the and is efficiency, of while theory seem others Also, and since has been sold in March 1991 duopoly in the to some new applications to run trunk networks. In at public least the utilities immediate will After 7 years of still controls 95% of the private limited the water a small industry dominant competition sector's to remain the from in their Mercury of gas amount of the it difficult industries. industrial BT market; and electricity to privatised Communications, UK telecommunications share is the however, future, while supplies market. is In much of see how competition can develop. The existence creation privatisation of of privatised a regulatory has altered monopolies structure the has for form each of necessitated the industry. regulation Hence, - from political direction to operating legislation, the pivotal role and water industries how any their present threat (the regulatory have been industry from of to Environment, Mergers Rivers example, the chances the of price control. remains industry an ever of muddle appears confusion not only Agriculture, the Commission to - the OFWAT, but Department the European the it regulatory of Pollution, Ministry Commission, and scrutiny for removed of there maximise of the terms water the see intervention, the to to responsibility of now subject Given difficult political in of electricity has capture structure designed is American regulatory Inspectorate H.M. direct notably on the is privatisation distortions, based Moreover, it means bodies. gas, abdicated have the regulatory economy, while resulting introduced the could But by telecommunications, in government inefficiences has the control and licenses of behaviour. length arm's of the Monopolies and and the National Authority!). Consequently,. the the form extent the firms without and 1990s behave. of or surprising to privatisation. If costs, prices, rates almost managing the to regulators of return industries. and heated its the whether evidence available see created economic the to regulation as to its given evidence likely The UK has much 'thought permanent is it impact is to This on regulatory government involved and service With what about on the regulatory effects. get debate structure be temporary is particularly failure in in the or US time of questions of the at way quality, consequences? they are Footnote 1. The research Council (Project included as no. was funded part of its E0925006). Professors Keith by the Economic Management Other Hartley in members and Social Government of and Andrew the Research Initiative research Dunsire. team References **Behaviour of the firm under L.L., American Economic Review, Vo1.52, H. and Johnson, Averch, regulatory constraint**, 1962, pp. 1052-69. Does Privatization J.A., Business School: London, M. and Kay, Bishop, from the UK. London Work? Lessons (1988). Borcherding, T., Pommerhene, W. and Schneider, F., **Comparing the Efficiency of Private and Public Production: the evidence Zeitschrift fur Nationalokonomie, from five countries**, supplement 2, 1982. Vo1.42, A. and Hood, C.C., Cutback Management in Public Dunsire, Popular theories and observed outcomes in Bureaucracies: Whitehall. Cambridge University Press: Cambridge, (1989). Hartley, K., Parker, D. and Martin, status, ownership and productivity**, No.2, May 1991, pp.46-60. Hemming, R. and Mansoor, International Enterprises. (198.8) . Economic HM Treasury, KayI J.A. search of pp.18-32. A.M., Privatization Monetary Fund, Briefing, and Thompson, a rationale**, S., *'Organisational Fiscal Studies, No.2, Today, and Public Occasional Paper May 1991, May 1991, pp.14-15. versus x-efficiency**, 1966, pp.392-415. p.55. Enterprise: Millward, R. and Parker, D., **Public and Private comparative behaviour and relative 'efficiency*@, in Millward, R Parker, D., Rosenthal, L., Sumner, M.T. and Topham,.N., (1983). P&i.c Sector Economics. Longman: London, Niskanen, W.A., Jr., Government. Aldine: Parker, D., competitive pp.653-68. 56, D.J., **Privatisation: a policy in Economic Journal, Vo1.96, March 1986, efficiency Leibenstein, H., @***Allocative American Economic Review, Vo1.56, June Management Vo1.12, Bureaucracy and Representative Chicago, (1971). *@The 1988 Local Government tendering**, Urban Studies, Act and compulsory Vo1.27, No.5, 1990, status and D. and Hartley, K., **Organisational Parker, the effects on employment", Applied Economics, performance: 1991, pp.403-16. Vo1.23, No.2, February Parker, D., Hartley, K. and Martin, S., *'DO Changes Organisational Status affect Financial Performance?**, Strategic ManagementJournal (1991: forthcoming). in Peltzman, S., **Towards a More General Journal of Law and Economics, Vo1.19, Pryke, R., Performance Theory 1976. of Regulation**, The Nationalised Industries: Policies since 1968. Martin Robertson: London Stigler, G., of Economics **The Theory of Economic and Management Science, Regulation**, Vol.1, 1971. and (1981). Bell Journal Questions for Discussion 1. To what extent roots in economic does the theory? policy of privatisation have 2. Why did the Government consider it important to widen ? Was this economically ownership through privatisation sensible? 3. To what extent does the Government's retention the mechanism by which the capital share** inhibit supposed to raise efficiency? firm share of a **golden market is 4. Given that it does not appear from the evidence that privatising enterprises guarantees efficiency gains, how might coal and rail be best privatised? FIGURE 1: PRIVATISATION : A SCHEMA N A WATER / ELECTRICITY BRITISH * DISTRIBUTION -1 MONOPOLY GAS GENERATION BRITISH Al RPORTS BRITISH I ROLLS AUTHORITY AEROSPACE ROYCE . BRITISH ASSOCIATED JAGUAR NCF AIRWAYS BRITISH PORTS / ROVER / BRITISH STEEL ~ PERFECT COMPETITION PUBLIC / POLITICAL PRIVATE v S CAPITAL MARKET Figure 2 PRIVATISATION NEW ISSUES: PREMIUM AFTER FIRST DAY’S TRADING 100 80 60 : % m 1. 2: s 2 (P z 3 1984 - m 1. 2: s B -. i sQ 1987 - z= 0I Yz si iiiT 2 Z P < 0 cc c 5 s 63 - Fd b; cc1 -Z 1987 1990 5 1987 1989 m B % 1 0 G G, 5 % c z u3 1. 2: v, r G) L: 1991 1986 .I 5 m 3 z s 1. : 0-. 1989 1984 F-. Z!I VI r v, Figure 3 PRIVATISATION : IMPACT ON THE PUBLIC SECTOR BORROWING REQUIREMENT 7 6 5 4 3 2 1 0 -1 -2 -3 -4 79 - 80 81 - 82 83 - 84 85 - 86 87 - 88 89 - 90 91 - 92 Forecast Source: H.M. Treasury, 1991, Financial HMSO, London, p.67 Statement and Budget Report 1991 - 1992, THE ORGANISATIONS Date Tvpe I of Organisation change Movements within the public of change sector Royal Ordnance Factories Royal Mint HMSO July 1974 April 1975 April 1980 Post Office Postal Post Office Telecommunications April April (c) Public cokporation accountable to local government London Transport Janu;rry 1970 (d) Local government accountability to normal public corporation London Transport June 1984 (a) Private to public Rolls Royce British Aerospace February 1971 April 1977 (b) Public to private (privatisation) British Aerospace National Freight February 1981 February 1982 (c) Anticipating British 1980-1987 (a) Government department to tradingfund _ (b)~&vernment department to . .. .l..Ipublic . corporation StatUS 1969 1969 U: Ownership chanse privatisation Airways Figure 5 UK PRIVATISED MONOPOLIES: PRICE REGULATION Organisation Main Feature of Price Regulation Comment British Telecom (B-0 RPI-3% 1984-89 RPI-4.5% 1989-91 RPI-6.25% 1991- Initially applied to around one-half of turnover. Now extended to 80 per cent of turnover. British Gas RPI-2% RPI-5% Excludes input costs from North Sea which can be passed through to the consumer; applies to domestic market only. British Airports Authority (BAA) Maximum annual revenue per passenger Duty free shops franchised. Water RPI + k “k” varies for each company and reflects agreed future capital investment programmes, eg to improve water quality. Allowed to pass through costs of complying with new statutory obligations. Electricity Distribution RPI-X Allowed to pass through certain generation costs (the “y” factor). The initial value of X has been set at zero for all the regional electricity companies. Scottish Electricity Companies RPI-X 1986-92 1992- + y Generation, transmission and distribution have separate “X” factors. Table 1 MAJOR UK PRIVATISATIONS Sales of holdings British Petroleum National Enterprise Board investments British Aerospace Cable and Wireless Amersham International National Freight Corporation ' Britoil British Rail Hotels Associated British Ports British Leyland (Rover) British Telecom (BT) Enterprise Oil Sealink British Shipbuilders and . naval dockyards National Bus Company British Gas Rolls Royce British Airports Authority British Airways Royal Ordnance Factories British Steel Water Electricity distribution Electricity generation Note: * planned. Dates government's in various dates various dates various 1987 1980 to 1986 1981 & 1984 1981, 1983 & 1985 1982 1982 1982 & 1985 1983 1983 & 1984 1984 to 1982 dates 1984 & 1991 1984 1984 from from first 1979 to issue 1985 1986 1986 1987 1987 1987 1987 1988 & 1989 1989 & 1990 1990 1991 Table 2 PRIVATISATION (fbn.) PROCEEDS Proceeds Year 1979180 1980/81 1981182 1982/83 1983184 1984185 1985186 1986187 1987/88 1988189 1989/90 1990/91 1991192 Notes: * planned. Figures rounded to 0.4 0.2 0.5 0.5 1.1 2.1 2.7 4.5 5.1 7.1 4.2 5.3 5.5* ' one decimal Sources: Cmnd. 1021 (1990); and Budset Report, 1991-92, place. H.M. Treasury, Financial March 1991, HMSO, Table Statement 5.1. t ‘i: a- .- SO 2 w 4 @ CI e 2 3 2 E 2 52 0 2.= v= D -Q WE =#p: 02 -c2 z z 3 r; 5: ‘= .I q v 0 “. u-l 94 8 s m ri 9 G 8 22 z x * c E z! LW zg 22cd a* Table 4 PERFORMANCE Year Gross Trading Surplus fbn 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 OF NATIONALISED 1.1 1.5 2.1 2.7 2.7 3.1 3.9 4.5 %GDP 0.5 0.6 0.8 1.0 0.9 0.9 1.1 1.2 INDUSTRIES Labour Productivity (annual O/ochange) Nationalised Industries Whole Economy 0.1 -0.5 6.5 2.4 7.2 6.0 9.6 6.2 0.7 -3.8 3.5 4.0 4.0 2.9 1.1 3.6 Manufacturing 0.9 -5.3 6.9 6.4 8.3 4.8 2.4 4.8 Source: Treasury, Economic Propress ReDort, No. 193, December 1987, p 5. SUMMARY OF THE YORK RESEARCH Did Performance RESULTS Improve as Expected? Performance Measure Organisation Employment Function Labour Productivity Total Factor Productivity Financial Ratios Royal Mint Confirmed Confirmed Confirmed WA London Transport (1970 change) Not confirmed Not confirmed Confirmed Not confirmed London Transport (1984 change) Mainly confirmed Confirmed Confirmed Confirmed British Confirmed Confirmed Confirmed Confirmed British Aerospace (nationalisation) Mainly confirmed Confirmed Unclear Not confirmed British Aerospace (privatisation) Confirmed Confirmed Unclear Confirmed National Confirmed Confirmed Confirmed Confirmed Not confirmed Confirmed Unclear Confirmed Post Office Telecommunications Mainly confirmed Confirmed Unclear Unclear HMSO Confirmed Unclear Not confirmed Confirmed Royal Ordnance Factories Not confirmed Not confirmed Unclear Confirmed Rolls Royce Not confirmed Not confirmed Not confirmed Not confirmed Airways Freight Post Office Postal Notes: N/A = not available For financial ratios, “confirmed” applies to these cases where 40% or more of the results supported the central hypothesis. The research from which these results were derived was funded by the ESRC as part of its Management in Government Initiative (project number E09250006). For further details of the results see Parker and Hartley (1991) and Parker, Hartley and Martin, (1991). (1991), Hartley, Parker and Martin