The Great Divestiture: Evaluating the Welfare Impact of the British Privatizations 1979-1997 by Massimo Florio
MIT Press, £16.95
IN THIS excellent book, Massimo Florio, Professor of Public Economics at the University of Milan, carefully assesses the impact of Britain’s privatisation programme under the Conservative governments of Margaret Thatcher and John Major, the largest experiment of its kind in any capitalist country.
Previously, nationalised industries had achieved a net accumulation of capital: profit for the taxpayer was embodied in new infrastructure and other fixed assets yielding long term returns. Even as late as 1980, nationalised industries paid more into the exchequer than they received.
In 1979 GDP per head was 10 per cent higher than the OECD average; by 1996 it was 8 per cent lower. And the number of families on income support had doubled. Florio shows how the programme of privatisation contributed both to a loss of national wealth and to the less equal distribution of that wealth.
The government deliberately under priced the shares of the privatised companies, transferring £14 billion from the taxpayer to the new shareholders (another £3 billion went in costs to City firms.) A quarter of all the shares went to foreign investors. Fund managers, insurance companies, pension funds and other financial institutions all gained. So did shareholders from above average returns on capital after decades of public investment. But, of course, the proceeds from privatisation were not reinvested in industry.
Privatisation led to price rises but did not improve efficiency. It damaged the unions and cost a lot of jobs. The only clear employee gainers were top managers: the chairmen of ten privatised water companies raised their own pay by 166 per cent in the two and a half years after privatisation and paid themselves £180,000 in bonuses.
Florio concludes: “Privatisation was not the unconditional success it is commonly thought to have been.” He can say that again.
Will Podmore
