Privatisation is particularly identified with the Thatcher Government of the 1980s although similar policies were adopted and accepted in many countries throughout the world.

In many ways privatisation is simply another word for denationalisation, the removal of monopolies from government control. However, disparate from the denationalisation the previous Conservative governments had undertaken where assets were sold to industry at fixed prices the new privatised companies were responsible to shareholders. To Thatcher this had two major advantages. Firstly, because of their shareholder accountability the private companies were profit orientated and ought therefore to be more efficient. Secondly, privatisation was a way of spreading share-ownership widely among the population. The Conservative slogan of the 1950s was reintroduced and renewed their traditional aims of ‘a property-owning democracy.'

Shares in several large state monopolies were sold to institutions and members of the public with the government taking the profit from the shares. Special regulations were introduced to ensure that thousands of minor shareholders could afford to buy at least a few shares.

By the end of the Thatcher era people who would never even have thought of owning shares held anything from a few hundred to a few thousand shares in electricity, gas, water and telecommunications companies. This expansion of the shareholder base by the Conservative Party has made it almost impossible for the opposition to reverse the process should they gain power.

The biggest criticism of privatisation is that those industries that have been privatised have nearly all been natural monopolies, and it is therefore not clear whether the profit motivation from shareholders is any more in consumers’ interests than the previous system. While managerial efficiency may be achieved by these moves, the emphasis on market forces and profit maximisation introduces serious doubts as to whether these companies are operating in the public interest, although independent regulatory bodies have been set up to protect the consumer.

Different people see privatisation in different ways. Everyone should be able to see that it has its advantages and disadvantages.

Privatisation can be beneficial to a range of people, in different ways and to varying extents. Shareholders benefit from gains in capital and from dividends. The general public benefit from increased efficiency which leads to cheaper prices and better service. The government exchequer benefits from revenue gained from the sale of assets. Employees of privatised companies benefit from share options but could be more at risk of losing their jobs. The “fat cat” board directors get to choose their own salaries and often award themselves huge share options.

Through adopting a policy of privatisation the Conservative Party managed to undermine Labour who were committed to nationalisation by Clause Four, and also created a new breed of shareholding, owner-occupying Conservative voters. The Conservatives warned shareholders that Labour was after their shares. People were scared to vote Labour.

Producers, consumers and the government all benefit from privatisation as it has many advantages. Due to their accountability to shareholders, privatised companies are profit motivated and are therefore concerned with profit maximisation through maximum efficiency. Privatised industries make greater levels of profit so privatisation should therefore lead to increased efficiency that benefits both shareholders, who receive larger dividends, and consumers, who will receive discounts on their expenses, alike.

Companies are also encouraged to make the books balance because of their accountability to shareholders, and because the exchequer will not bail them out if they are faced with financial difficulties. A threat of bankruptcy, failure and redundancy has led to greater efficiency and more of an enterprise culture. This means that there are fewer liabilities for the tax payer, who would be paying extra taxes to account for the cost to the exchequer. Nationalised industries were liabilities not assets. They cost the taxpayer money. Privatisation gave the scope for tax cuts.

In fact the tax payer may be paying less tax thanks to privatisation because of the revenue it generates and because of the huge levels of corporation tax that the privatised companies pay on their profits. The increase in revenue obtained from corporation tax benefits the exchequer and the taxpayer. The exchequer also makes a large amount of profit from the sale of nationalised companies. Of the 50 significant privatisations between 1979 and 1996, the exchequer has drawn in £66,000 million. The public sell off generated £4.5 billion a year.

Increased efficiency is also derived through the introduction of competition. This is beneficial to the consumer not only because it leads to cheaper products but because it leads to greater choice and, in theory, better products and services.

More investment in technology and research should also occur under privatisation. This is because of the increased competition that makes the quality of service more important and also because the revenue that the companies make does not go to the exchequer. Increased profit margins also mean that companies have more money to invest.

The government will benefit because there should be less state interference and regulation. The government is not accountable for privatised industries and therefore is not responsible for the actions that are taken. The government does not have to interfere. For the government this is favourable because it cannot be blamed for any errors and it also means that the electorate does not put as much responsibility on the government.

In privatised industries there are fewer strikes because unions have less power. Union membership shrank with the declining work force. Union power was waning. This is good for the consumer because strike action causes working days to be lost forever as they cannot be returned. Days lost through strike action cause the country to operate less efficiently than is possible because it means that we are not making full use of all of our labour resources. Strike action can also be very costly financially.

The Conservatives have been heavily supportive of privatisation because it has undermined their political opponents, the Labour Party, who had a commitment to nationalisation through Clause Four. Since then, the Labour Party has shifted focus away from nationalisation because privatisation is popular. They have accepted competition albeit reluctantly. The Conservatives thought that if they could show how effective, and efficient, privatised industries were that they could make Labour look stupid to be committed to disagreeing with it.

A new breed of shareholding Conservative voters was also created through the extension of popular share ownership through privatisation. In 1982 there were 2 million shareholders. In 1988 that figure had increased to 9 million. A large proportion of these shareholders are expected to be supporters of the Conservative Party. Of course there may also be those who have lost out through privatisation. The taxpayer could suffer because public assets have been sold off. What was once in public hands is now in the hands of a privileged few. However, many see that widespread shareholdership has actually encouraged public ownership. People feel more like they own a stake in a company if they own a few hundred shares in it than they do if it is owned by the nation and they pay tax to sustain it because it is unprofitable and inefficient.

The work force suffers cutbacks and also has less union power. Because of their commitment to increasing efficiency privatised companies lay off workers. It may be argued that this is a good thing because it leads to increased efficiency and greater profitability, but in some cases the privatised industries are now under staffed with one person doing the work of what was originally three people’s work. This could lead to poorer levels of service.

Privatisation has weakened union power. The work force has declined and so has union membership. This is bad news for the workers because they are forced to accept pay freezes as they are less able to take action. They are also less protected from the possibility of dismissal and unemployment.

The redundancy of many workers employed in the ex-nationalised industries is also likely to have had an effect on the number of unemployed. This means that the welfare state has to support more people and is therefore more expensive. In most cases however, employees have decided for themselves to leave their employment earlier than usual because they have been given that opportunity, and have been enticed by large share options and redundancy payments. Many workers have also reached retirement age or have taken early retirement, and have simply not been replaced with new workers.

The consumer may lose out because companies are out to make a profit rather than to provide a service. There are also cutbacks in the quality of service and there can be a lack of provision to remote areas. If the postal service were privatised it could lead, for example, to less regular collections from remote rural areas, simply because it is not cost effective.

The Labour Party was undermined because of its commitment to Clause 4. There was also a new wave of ‘popular capitalism’ which created a new breed of Conservative voters. While this may be good news for the Conservative Party it is certainly not good news for the Labour Party which has been forced to change its policies to make itself more electable. Only by accepting the Conservative’s approach have they been able to make themselves more unobjectionable and electable in the eyes of the electorate.

Although companies have more accountability to shareholders they have less accountability to government and to consumers. Companies are motivated by profit as opposed to a requirement to provide a service.

The privatisation of natural monopolies could have lead to inflation of prices as the consumer has nowhere else to go, but regulatory bodies have actually forced the companies to keep their prices low. The introduction of competition has also lead to market forces keeping prices down, however we have yet to see what will eventually happen when the electricity suppliers are opened up to free market competition. The privatisation of BT shows that natural monopolies can be made into contestable markets with competing providers, high levels of service and low prices. In 1993 BT had a 90% share of the telecoms market in this country, but now it has only a share of 78% proving that competition is both effective and working. The telecommunication regulator, Oftel, has actually had to make BT keep their prices up rather than down because it was feared that BT could freeze its competitors out of the market.

Many people are also disgusted that the chief executives and board directors of the privatised industries have awarded themselves huge pay rises and share options worth millionsof pounds. Wages rose by 250% on average between 1979 and 1988. It seems distasteful to many that companies which were once owned by the nation are now owned by a small private niche, and that they should be profiting from it, when what should be happening to the money is that it is reinvested to provide a better service.

People are also nauseated by the way in which these companies have been sold off. Many see it as ‘selling the family silver,' to use the words of Harlod Macmillan, but others are just horrified that the original issues were so under priced. For example, the original offer price of BT was 50, yet their opening price on the first day of trading was 95. The BA offer was oversubscribed by 20 times and shares rose 80% on the first day of trading.

The Conservative Government has adopted a policy of privatisation to reduce the size of the public expenditure, the spending and investment by central government and local authorities, financed by taxation. In 1979 the state sector accounted for 11.5% of GDP. Since then three quarters of that has been moved to the private sector. The privatisation has reduced net lending to the nationalised industries and has provided a temporary boost to treasury funds.

The government believes that it has improved company performance by making public sector industry subject to market forces, and by breaking up state monopolies. They believe that their programme is working because most privatised companies are reporting increased turnover, investment and profitability.

They maintained the momentum of their privatisation programme in the late 1980s and early 1990s with the privatisation of gas, electricity, water and rail, but with the probable election victory of the Labour Party in the forthcoming general election the programme could see its end. Although, Tony Blair has been against privatisation in the past he is quoted as saying “Privatisation is a Conservative policy that we may be forced to take up”. Presumably the shadow chancellor has noticed that if Labour is to be able to sustain the high levels of public spending that it has promised then it may need the revenue from privatisation to be able to afford it.