Ideological motivations of privatization in Great Britain versus developing countries.

• Author: Miller, Alan N.
• Position: Privatization: Political and Economic Challenges

Privatization is one of the most significant worldwide economic, social and political phenomena of this and the previous decade. It has become the new economic mantra and will continue to exert influence on the lives of people in countries throughout the world well into the next century.(1) Understanding what privatization is, how it works, its prevalence and the ideas and doctrines which underlie it is essential for politicians, government officials and their advisors who are considering adopting, or are currently managing, privatization programs.

This paper begins by tracing privatization's growth during the 1980s and 1990s and then reviews the history of nationalization, exploring its underlying ideology, as an antecedent to the initiation of privatization in the United Kingdom and developing countries. The discussion of nationalization in the United Kingdom and developing countries provides the context for why these nations adopted privatization as a key element of their economic reform programs. Finally, the paper explores the objectives, ideological motivations and results of the United Kingdom's privatization program and those of privatization programs in developing countries. This research should provide insight into why privatization has been so widely adopted by many types of governments throughout the world. It also may be valuable in providing fledgling privatization programs with useful information based on the experience of Great Britain and the developing countries.

The most important distinction between the privatization programs in the United Kingdom and the developing countries is ideological. The ideological motivations of the United Kingdom's privatization program are based primarily on the tenets of neoliberalism. In developing countries, privatization programs are based primarily on pragmatic considerations. This may help explain why the objectives, techniques and results of these privatization programs sometimes differ.

Privatization as a Global Phenomenon of the 1980s and 1990s

Although little-known before the British government popularized it in 1979, privatization is now ubiquitous. The widespread acceptance and use of privatization throughout the world is, in part, a function of the economic reform occurring in Asia, Eastern and Western Europe, Africa and Latin America. Countries in these regions are attempting to encourage entrepreneurial activity, promote the development of free-market economies and build sustainable economic growth.

In addition to economic reform considerations, other factors have contributed to privatization's widespread application, including: the generally held belief that privatized industries operate more efficiently and economically than their publicly owned counterparts and are more responsive to consumers; the desire of many elected officials and their constituents to reduce the size and scope of government and the reluctance of citizens to fund regular tax increases in order to support the operation of publicly -owned enterprises.

Before the government of Prime Minister Margaret Thatcher adopted privatization as a key element of its economic program, the practice was implemented only occasionally in the United Kingdom. For example, in 1951 the Conservative government privatized parts of the steel industry that had been nationalized by the previous Labor government.(2) In 1970, government-owned travel agencies, a brewery and several public houses (pubs) were sold by the government led by Conservative Prime Minister Edward Heath.(3) In 1977, the Labor government sold a small portion of British Petroleum in order to limit public spending reductions made necessary by the terms of the United Kingdom's 1976 International Monetary Fund loan.(4)

A limited number of privatizations also took place in other countries, including Chile, France, Ireland, Italy and West Germany during the 1960s and 1970s.(5) However, all of the sales of State Owned Enterprises (SOEs) that occurred during the 1950s and 1970s were small in comparison to the sales that began with the first Thatcher government in 1979 and spread throughout the world during the 1980s and 1990s. Furthermore, the sales of SOEs prior to 1979 did not constitute a generalized program of denationalization.

Since the Thatcher-led privatization program in the United Kingdom began in 1979, more than 100 developed and developing countries have initiated their own privatization programs. The World Bank reports that, during the 1980s, almost 7,000 SOEs were privatized, and the number of privatizations accelerated during the 1990s.(6) Today, privatization is being carried out by governments of all ideological types, including communist Cuba, Labor governments in Australia and New Zealand, populist and social-democratic governments in Argentina and Mexico, and capitalist democracies like the United States.(7)

The largest number of privatizations is occurring in the former Soviet Union and Eastern Europe.(8) According to the World Bank's International Finance Corporation (IFC), 75,000 small businesses and 14,000 medium and large firms have been sold in Russia since 1992. Some 40 million Russian citizens have become shareholders in newly privatized companies, and about 40 percent of Russia's industrial labor force now works in the private sector.(9) The IFC reports that tens of thousands of companies have now been privatized in the former communist countries of Eastern Europe.(10)

In the period 1979 to 1990, cumulative worldwide sales of SOEs were estimated to be about $250 billion.(11) Sales totaled more than $53 billion in 1991 and $70 billion in 1992.(12) In 1993 and 1994, sales from global privatizations increased to approximately $77 billion and $80 billion, respectively.(13) According to the World Bank, the sale of SOEs in developing countries raised $21 billion in 1994.(14) Through 1995, proceeds from the United Kingdom's privatization program totaled $95 billion.(15) The value of SOE sales has been significantly higher in Western industrial nations than in developing countries. During the period 1990 to 1992, the sale of SOEs equaled $73 billion in Western industrial countries and $48 billion in developing ones.(16) The sale of SOEs is expected to raise $150 billion in Western Europe by 1998 and $800 billion worldwide by 2000.(17)

While revenues from the sale of SOEs grow as more governments worldwide initiate and expand privatization programs, new forms and definitions of the term have emerged. Broadly defined, "privatization means relying less on government to meet people's needs for goods and services, and more on private institutions."(18) More specifically, privatization is "the transfer of a function, activity, or organization from the public to the private sector," with the intention of reducing the size, scope and influence of government.(19)

Nationalization in the United Kingdom

When the United Kingdom became industrialized in the nineteenth century, it was a champion of free trade and private enterprise. The government's policy toward private business was generally laissez-faire, and there were few state-run firms other than traditional ones like the post office. This situation changed when the United Kingdom entered the First World War. At that time, the government assumed ownership of several war-related industries and operated them so effectively that, after the war, Britain's Trades Union Congress and some segments of the British populace called for greater nationalization of private industries.

They were joined by the United Kingdom's Labour Party, whose 1918 constitution stated its commitment to the "common ownership of the means of production, distribution, and exchange."(20) The Labour Party believed that, because private capital is an important source of political and economic power, this power should be put in the hands of a popularly elected government in order to protect the country from having its policies dictated by large private-sector firms.(21) The Labour Party believed that government economic planning and control of the economy would stimulate economic growth, maintain full employment and create better living conditions for the United Kingdom's citizens. It also saw nationalization as an essential tool in moving the United Kingdom toward a socialist system.

Other proponents of nationalization argued that SOEs would provide...