Private Island: Why Britian Now Belongs to Someone Else (3 page)

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work, the work of a frightened refugee in wartime, in the blackouts and shortages of a besieged island, had been superseded by the 1970s.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 seemed to capture the actual contemporary problems of the UK:

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 to 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.

The National Health Service, which I write about in
Chapter 5
, is a special case. It hasn't been privatised, and the political parties vie with each other to show that it's safest in their hands. Yet it has been commercialised and repeatedly reorganised, with competition introduced, in such a way as to create a kind of shadowing of an as-yet-unrealised private health insurance system. The story of the transformation of the NHS is part of the wider story of the inheritance of the Thatcher legacy by a Blairite Labour administration over-filled with politicians who struggled to separate their ambitions for Britain from their ambitions for their own and their families' ascent into the six-figure-income class. After their Sisyphean struggles with the Tories and the conservative socialists in their own party, New Labour in power yielded with all too apparent relief to the charms of the business world. It wasn't the creation of foundation trusts for hospitals – or academy schools, or support for housing associations – that was the mistake, rather a lack of awareness that without elaborate safeguards these structures might prove mere waypoints to the next set of privatisations.

What the story of the latter years of the NHS shows is that the most powerful market force eating away at the core of the welfare state is not so much capitalism as consumer capitalism – the convergence of desires between the users of a public service and the private companies providing it when the companies use the skills of marketing to give users a sense of dissatisfaction and peer disadvantage. ‘If consumption represents the psychological competition for status,' writes Daniel Bell, ‘then one can say that bourgeois society is the institutionalization of envy.' Hip replacement, a procedure invented within the NHS by John Charnley, began as a blessed relief from pain for which patients were, as Charnley said, pathetically grateful. It rapidly progressed to a rationed entitlement. It has now become a competitive market in which a company can design and hard-sell, as a lifestyle choice,
its own, defective variant of an existing artificial hip – an existing hip that does the same job perfectly well.

This points to a difficulty for anti-marketeers. Since 1945, even if privatisation had never happened, socialism would have struggled with the move from a world of unsatisfied needs to a more complex world of unsatisfied wants. Socialism can't uninvent artificial hips in order to recreate the benison of going from a world without hip replacements to a world with. It's the same with postwar council housing. Having provided all less well-off Britons with central heating and indoor bathrooms, socialists can't repeat the feat by reinstalling coal fires and back yard privies and replacing them again. Council housing went from something that was much better than tenants expected to something much worse than they hoped. The heirs of Adam Smith, writes Bell,