Private Island: Why Britian Now Belongs to Someone Else

by James Meek

  The original background to Thatcher’s privatisation revolution was stagflation, a sense of national failure, and a widespread feeling, spreading even to some regular Labour voters, that the unions had become too powerful, and were holding the country back. Labour, and Thatcher’s centrist predecessors among the Conservatives, had tried to control inflation administratively, through various deals with unions and employers to hold down wages and prices; Labour had, under pressure from the IMF, cut spending. But Thatcher and her inner circle planned to go further, horrifying moderates in their party with the radicalism of their intentions.

  The late Alan Walters, her chief economic adviser, believed a key source of inflation and the weak economy was the amount of taxpayers’ money being poured into overmanned, old-fashioned, government-owned industry. Just as in the Soviet Union, he thought, Britain’s state industries concealed their subsidy-sucking inefficiency through opaque, idiosyncratic accounting techniques that took little account of how much time and effort were required to do and make things, or what people actually wanted to buy, or how much they were prepared to pay for it. As long as the subsidies kept coming, neither managers nor workers had much incentive to come up with smarter working methods or accept new technology, because that would mean fewer jobs, which would mean less power for the bosses and a smaller union. Yes, Walters knew, his protégée would slash spending on steel and coal and power and all the rest, yes, hundreds of thousands of workers would be sacked, but that wasn’t enough. As many state-owned companies as possible must be privatised – be divided up into shares and sold to the public. They’d no longer be subsidised; they’d have to borrow money like any private company, account meticulously to shareholders for every penny they spent or earned, and strive to make a profit. The bigger the profit, the more efficiently the firm would be doing its job, and the more management would be rewarded. Most importantly, they’d have to compete with other firms. If they fell behind their competitors, they’d risk bankruptcy. Managers would face incentives for success and penalties for failure. British industry would become more competitive internationally. It would serve citizens better. Government would save the taxpayer money. The sacked workers would get redundancy payments; they’d go off and start businesses, or find other, more useful jobs once the economy was working properly. Everyone would win, except the lazy, and Arthur Scargill.

  Millions did buy shares. Most Britons, bemused by the process, assumed the main reason for privatisation was to raise cash for a desperate government. Harold Macmillan, who before his death provided a snarky Wodehousian commentary from the wings on the work of the grocer’s daughter, observed in an often paraphrased line: ‘The sale of assets is common with individuals and states when they run into financial difficulties. First, all the Georgian silver goes, and then all that nice furniture that used to be in the saloon. Then the Canalettos go.’

  Another leal privatiser, Nigel Lawson, a minister in the Thatcher government from the beginning almost to the end, dismissed the idea that the government cared about the price it was getting for selling off the family silver. Having many ordinary people owning shares, he writes in his memoirs, was the point. ‘The prime motives for privatisation were not Exchequer gain,’ he declares, ‘but an ideological belief in free markets and a wider distribution of private ownership of property.’

  Neither Walters nor Lawson, nor other allies like Keith Joseph, the ex-communist Alfred Sherman or Nicholas Ridley, would have been able to implement their ideas without the prehubris Thatcher herself, her extraordinary sense of the way the political wind was blowing, her conviction of her own rectitude, and the stamina and persistence with which she was able to go on insisting on something until her opponents in government gave in. Hers was a different emphasis to Walters, who saw the curbing of ‘bloody-minded trades unions’ as a useful side effect of privatisation. For Thatcher, privatisation, in the beginning at least, was simply one of many weapons to use in her battle against the unions, which was, in turn, a single episode in her war to exterminate socialism, to be fought in one unbroken front from Orgreave Colliery to Andrei Sakharov’s place of exile in Gorky. Her great political inspiration, apart from her father, was the Austrian economist Friedrich Hayek’s 1944 book, The Road to Serfdom, written in Cambridge during the war. Hayek was regarded as an able economist; he eventually won a Nobel Prize for it. But The Road to Serfdom isn’t an economics book. It’s a book about society, the recent past and human nature that bears the same relation to sociology, history and psychology as Atlas Shrugged bears to literature. It is devoted to the idea that Winston Churchill later nodded to, catastrophically for him, in the 1945 election campaign, when he said Labour would have to fall back on ‘some form of Gestapo’ to implement its welfare and nationalisation programme. Churchill was thrown out of office, and Labour won a huge majority.

  The Road to Serfdom claims that socialism inevitably leads to communism, and that communism and Nazi-style fascism are one and the same. The tie that links Stalin’s USSR and Hitler’s Germany, in Hayek’s view, is the centrally planned economy – as he portrays it, the attempt by a single central bureaucracy to direct all human life, to determine all human needs in advance and organise provision, limiting each to their rationed dole and their allotted task. Such a bureaucracy will no more tolerate dissent and deviation than the engineers tending a vast production line will accept a pebble jamming the gears. Confusingly, Hayek denies he is a pure libertarian, and declares the free market must have rules; he also says it is acceptable for government to ‘provide an extensive system of social services’. Yet this is in contradiction to his main message, which is that there can be no mixture of state planning and free market competition. To him they are mutually exclusive. ‘By the time Hitler came to power, liberalism was dead in Germany,’ he writes. ‘And it was socialism that had killed it.’ Even to try to make socialism work, according to Hayek, is dangerous:

  in the democracies the majority of people still believe that socialism and freedom can be combined. They do not realize that democratic socialism, the great utopia of the last few generations, is not only unachievable, but that to strive for it produces something utterly different – the very destruction of freedom itself.

  Hayek was proven wrong. As in other western European countries, socialists came and went from power in Britain, introduced a welfare state and took control of large swathes of the economy without democracy and individual freedoms being threatened. The NHS was set up, council houses were built, social security was established, state education was expanded, coal, rail and steel nationalised, yet despite all the planning this required, millions of private businesses, small, medium and large, carried on merrily competing (or co-operating) with each other, flourishing or going to the wall as the market determined. Private doctors kept their clinics on Harley Street, young aristos still ruggered their way across the playing fields of Eton, the private shop windows of Harrods still blazed forth at Christmas time. Bankers and stockbrokers thronged the City, and the farmers owned their land. No one was forced by the government to live in a particular place or do a particular job. Indeed, by abolishing conscription and, albeit rather hypocritically from a male point of view, endorsing greater rights for women, Britain seemed to be coming up with new forms of individual freedom that hadn’t occurred to Hayek. There was an argument to be made about how much tax people and businesses paid, and how much of that money government would have been better letting them choose for themselves how to spend. The argument was made, and will always be made; in the end neither the Gestapo, nor the English Hitler, nor the English Politburo appeared, or looked like appearing.

  Hayek’s work, the work of a frightened refugee in wartime, in the blackouts and shortages of a besieged island, had been superseded by the 1970s. A better framework for understanding the Britain of the time would have been the American Daniel Bell’s masterful introduction to his 1976 book The Cultural Contradictions of Capitalism, where, though he spoke in general terms, he seem
ed to capture the actual contemporary problems of the UK:

  A system of state capitalism could easily be transformed into a corporate state … a cumbersome, bureaucratic monstrosity, wrenched in all directions by the clamour for subsidies and entitlements by various corporate and communal groups, yet gorging itself on increased governmental appropriations to become a Leviathan in its own right.

  Thatcher, however, never stopped seeing the world through a Hayekian prism. After she defeated the attempt by Britain’s coal miners to stave off mass redundancies and pit closures by downing tools, she wrote: ‘What the strike’s defeat established was that Britain could not be made ungovernable by the Fascist Left.’

  Putting together the words of Walters, Lawson and Thatcher, then, the ostensible aims of the programme to privatise Britain were diverse. Privatised companies, it was said, would be forced to do without subsidies, and wouldn’t be bailed out if they ran into trouble. Competing for business and profits with other firms in the marketplace, they’d be forced to cut superfluous workers, invest in new technology and try new ideas. Competition would bring new clarity to the finances and prices of the privatised companies, whose managers, set free from the shackles of political interference and union intransigence, would skip over tired, increasingly socialistic Europe and strut their tigerish entrepreneurial stuff in the wider world. Meanwhile the cuts in subsidies to the privatised firms would mean income tax could be cut, too, so ordinary British people would be better off. No longer would they be subject to the burgeoning control of state central planning, confining them to a faceless bureaucrat’s idea of how they should live. They’d select their preferences from the choices in the marketplace – a marketplace whose success they’d have a direct, personal stake in, since millions of them would be shareholders in the privatised firms. ‘Privatisation,’ wrote Thatcher, ‘was one of the central means of reversing the corrosive and corrupting effects of socialism … the state’s power is reduced and the power of the people enhanced … privatisation is at the centre of any programme of reclaiming territory for freedom.’

  About ten years ago, I began to investigate what happened after the early Thatcherite zeal took effect. I looked at four privatised industries, only one of which was completely sold off before Thatcher left office – rail, water, electricity and the Royal Mail – at the biggest privatisation of all, the sale of Britain’s council houses, and at an organisation that hasn’t been privatised, but has been structured in such a way that it could be, the National Health Service. My curiosity took me to the obscure realm of events that are too fresh for history, but too old for journalism; the murky gap of popular perception that covers the period from two years ago to about twenty-five years back, in which events are well remembered but patterns not easily perceived. It’s a period of time long enough for several democratically elected governments of opposing parties to be born and die, yet it’s also the shortest period of time in which the long-term effects of the policies of the first of those governments show, and can be seen for what they are.

  I was sceptical when I began my inquiries, but I was prepared to be convinced that privatisation in these half-dozen cases had been a success. I learned that it has not been, except, perhaps, in one way – but that way was not touted in advance.

  Privatisation failed to turn Britain into a nation of small shareholders. Before Thatcher came to power, almost 40 per cent of the shares in British companies were held by individuals. By 1981, it was less than 30 per cent. By the time she died in 2013, it had slumped to under 12 per cent. What is significant about this is not only that Thatcher and Lawson’s vision of a shareholding democracy failed to come to pass through privatisation, but that it undermines the justification for the way the companies were taken out of public ownership. As I saw in the extreme example of the imploding USSR, the problem with big state monopolies is not so much that they’re made to serve political ends as that they tend to be captured by their management and workforces, whose loyalties are, in different ways, to the preservation of the power and culture of the institution, in preserving or expanding jobs and winning the maximum financial support from government. There’s always cutthroat competition in an economy with a high degree of state ownership, but it’s between different branches of industry vying for a share of the government cake, not between different firms chasing the same clients. Having big industries as branches of government isn’t necessarily a good way of doing things. Technology does change, and it’s hard to justify paying people to do work that doesn’t need to be done, unless it is for artistic reasons. Councils no longer employ lamplighters, because there are no lamps to be lit; main-line railways no longer employ firemen, because locomotives have no coal for them to stoke. It’s true that the British army still has cavalrymen, even though they can’t charge the Taliban on horseback, but a column of Life Guards trotting by in harmless nineteenth-century gear is pleasing to the eye and soul. So is a steel foundry. But it is hard to see how a steel plant employing five thousand could ever have been run on heritage principles. It’s quite likely that the big nationalised industries of the 1970s were overmanned; and certainly the unions, quite rationally, were resistant to change that might threaten their members’ jobs. There’s no doubt that since privatisation the old nationalised industries have sacked colossal numbers of workers and brought in new technology. If efficiency is doing the same job or better with fewer workers, many of the privatised firms are more efficient.

  But this simply suggests some or all of the nationalised industries should have been commercialised – that is, had their subsidies shrunk and been removed from direct government control, obliging them to borrow money at commercial rates and operate in a world of market prices without making a loss. Apart from the failed attempt to encourage wider share ownership, there was no obvious reason to privatise them by floating them on the stock market and selling them to shareholders. There are many forms of private ownership. The department store chain John Lewis, an unsubsidised commercial firm in a fiercely competitive market, is owned by its employees. The Nationwide Building Society, an unsubsidised commercial firm in a fiercely competitive market, is owned by its members. The Guardian media group, an unsubsidised commercial firm in a fiercely competitive market, is owned by a trust set up to support its journalistic values and protect it from hostile takeover. And so on. None of the many alternatives to stock market flotation were put up for discussion by either side: it was either shareholder capitalism or the nationalised status quo.

  Privatisation failed to demonstrate the case made by the privatisers that private companies are always more competent than state-owned ones – that private bosses, chasing the carrot of bonuses and dodging the stick of bankruptcy, will always do better than their state-employed counterparts. Through euphemisms like ‘wealth creation’ and ‘enjoying the rewards of success’ Thatcher and her allies have promoted the notion that greed on the part of a private executive elite is the chief and sufficient engine of prosperity for all. The result has been thirty-five years of denigration of the concept of duty and public service and a squalid ideal of all work as something that shouldn’t be cared about for its own sake, but only for the money it brings. The magic dust of the market was of little use to the bosses of the newly privatised Railtrack in the mid-1990s. They thought they could sack people with impunity – not just signalling and maintenance staff but expert engineers and researchers – and carry out a massive line upgrade cheaply with the most advanced new technology. Unfortunately, as I describe in Chapter 2, the people who could have told them that the new technology didn’t exist were the people they’d sacked. As a result, the company went bust in 2002, and had to be renationalised.

  Privatisation failed to make firms compete or give customers more choice – said to be the canonical virtues of privatisation. Pretty hard, you’d think, to privatise water companies, when they’re all monopolies, with nobody to compete with, and can’t offer customers a choice – neither the choice of which supplier t
o use nor the choice of whether to take a service or not. And yet the English water companies were privatised, and in such a way, as I describe in Chapter 3, that customers have been overcharged ever since. The privatisers loved competition, but the actual privatised competitors hate it. As I show in Chapter 4, the competitive vision of those who designed Britain’s electricity privatisation – a rumbustious, referee-supervised free-for-all between sellers and makers of electricity old and new, large and small – has degenerated into an opaque oligopoly of a handful of giant players.

  Indeed, the electricity debacle shows how privatisation failed to empower individuals as it was supposed to. It fails to provide the most important thing essential to the functioning of free markets – information. The arcane, incomprehensible pricing systems of the old nationalised electricity industry have been replaced by the even less comprehensible pricing systems of the privatised electricity industry. Commercial secrecy is a less effective protection from public scrutiny for the electricity companies than the tyranny of complexity. When MPs and energy ministers can’t understand how pricing works, what chance do regular bill payers have of working out the best tariff and the best supplier, and whether even the cheapest firm is ripping them off?

  Reading Margaret Thatcher’s autobiography the impression grows that she believed the transformational effect of privatisation was such as to turn executives into self-consciously moral, patriotic, civically minded entrepreneurs like her father; as if a monopoly on water supply for several million people were a local grocery shop in a small English town in the 1940s. Privatisation, she claimed, was ‘the greatest shift of ownership and power away from the state to individuals and their families in any country outside the former communist bloc.’ The reality is that the faceless state bureaucrats of the old electricity boards have been replaced by the faceless (and better-paid) private bureaucrats of the electricity companies. Not only are the privatised utilities big, remote corporations; most of them are no longer British, and no longer owned by small shareholders. Indeed electricity and water privatisation could not have failed more absolutely to foster the emergence of world-beating, innovative British companies. Most of the electricity made and sold in England is now owned by dynamic, tech-savvy companies from western Europe, a region doomed, Thatcher thought, by creeping socialism. As a direct result of the way electricity was privatised, much of it has now been renationalised – but by France, not Britain. Of the nine big English water and sewerage firms, six have achieved the seemingly impossible feat of being privatised a second time, delisted from the stock market by East Asian conglomerates or by private equity consortia. Today much of England’s water industry is, it is true, in the hands of individuals and their families, but they don’t use English water; they’re millions of former civil servants in Canada, Australia and the Netherlands, investing, unwittingly, through their pension funds.