Norman Stone - The Atlantic and Its Enemies

The money thereby let loose might well be directed towards assets held by the State — in most countries, many. Here, again, was one feature that made the Thatcher government stand out, abroad as well as at home — privatization. In the later nineteenth century, most enlightened people had wanted the essential pieces of the economy — water, railways, etc. — to be run by the State, especially if the companies running them were foreign, as was the case in, say, Russia. In old Austria, trains were stopped at the border because the company had not paid some debt or other. In England such private companies went on for longer than elsewhere, especially France, but in the course of the world wars the State moved in, and by 1979 the ‘commanding heights’ — ports, steel, aircraft, railways, etc. — had been taken over. It was now the State’s turn to experience criticism, and there were even attempts to explain theoretically (‘public choice’) why there was such truth in Nietzsche’s great line, ‘What the State has is theft; what the State says is lies.’ Why theorize? Anecdote existed, in mountains, to bear him out. Even the recipients of ‘benefit’ in Oxford went on a sort of reverse strike at the slipshod and inhuman ways in which they were paid their cash (1984). However, as any government had discovered when it came to privatization (Konrad Adenauer had tried it to a very limited extent), there were very severe difficulties. The arguments against privatization (it should really be called ‘re-privatization’) were considerable, and who would want to take over these tremendous loss-makers, with their in-built over-employment, incompetent or demoralized managers, huge debts and gigantic pensions commitments? As regards education or public health, there was also a very great political problem: the National Health Service in Great Britain, giving medical care at any level for nothing (at any rate in appearance), could hardly be reformed without patients’ having to pay something directly, as happened in, say, Spain or Sweden, but any government suggesting this would have lost the next election, or three. There was a possible halfway house, of introducing what was supposed to be ‘internal competition’, but Nigel Lawson, a chief privatizer, aptly quoted the saying that applying private sector discipline to the state sector was equivalent to painting stripes on a donkey and calling it a zebra. In time there was to be a cavalry charge of such donkeys in British higher education and the health service, but privatization, otherwise, went ahead in areas that greatly deserved it.

An element of luck supervened. The nationalized industries had no admirers, and the only arguments of substance concerned what had gone wrong: the nature of the beast? Unions? Management? Inflation? At any rate, privatization, to begin with, was just a way of raising money. Steel, coal and Leyland dominated the early agenda, as these cost taxpayers £300 each (in 1995 money). In 1982 a few small things were sold off, such as government shares in British Petroleum and the National Freight (lorry) company. Then, with Lawson as Chancellor in 1983, half of British Telecom was sold off: an enormous success, amounting to the largest equity offering in history. The shares were undervalued, and buyers had to be rationed, but they made windfall profits at the same time. One of the early charging donkeys was also a low-level loan scheme for students who would then pay low-level fees to their universities (less than their parents would have paid for a few weeks in a crèche). Bright undergraduates took the loan, bought the shares, sold them and paid off the loan at a profit. In 1984-5 assets such as railway hotels were sold off, with beneficial results, and the nationalized industries were told they might raise prices (and they even made a profit in 1989). By 1989 half of them had gone to shareholders, and 650,000 workers left state employment, nearly all with shares. As the journalist Simon Jenkins says, ‘the biggest transfer of assets out of state hands in the history of democracy’ was the sale of council housing — 1.25 million people were able to buy their dwellings from the local council, instead of paying ‘social’ rents which, though in themselves sometimes ridiculously low, represented a trap: immobility, no capital. In the ‘projects’ (the American equivalent) of a Liverpool or a Manchester, single mothers lived without cost, but also without hope. Selling off such housing was a creative step. Great Britain again became a pioneer, but again suffered for it, in that mistakes were inevitably made, which other countries, following, would know to avoid. Water, gas, Telecom, though prepared for privatization, were not groomed to expect competition — they would in effect be monopolies, and BT soon showed that it could fall behind others. Regulation was heavy-handed, and Ferdinand Mount correctly noted that the degree of regulation and public subsidy was such that what in Britain was called ‘private’ would probably have counted as ‘public’ on the Continent. The later privatization of the railways was near farcical (and Mrs Thatcher herself had always opposed the scheme, as too complicated): it would have made more sense just to concrete over the railways and substitute buses on the roads thereby acquired to a central terminal. Mobile telephones worked less well and more expensively in England than they were to do in Azerbaidjan. However, no-one really knew how privatizations should be executed; the Treasury was only interested in taking the money, and reducing the annual borrowing figure; the privatizations were rushed and the shares were undervalued. Rolls-Royce shares were nine times oversubscribed, ports thirty-four times, British Airways twenty-three times, at a cost of £25m to the taxpayer. However, this was uncharted territory, so mistakes would be made. At the least, regulation did become more open and there was an obvious gain in efficiency as against the old, dreadful, days. That managers’ salaries now reflected private sector ones of course created some adverse comment, but the overall degree of efficiency was noted later on. In the old days, nothing had worked and no-one had earned anything.

As the ‘high eighties’ went ahead, a great wave of money swept over the Atlantic world, and the outcome was a long boom — ninety-two months of growth, compared to fifty-eight in any earlier period (outside wartime, as with the Vietnam era). No recessions got in the way of the compounding of growth: 1984 was spectacular enough — almost 7 per cent growth — but the other years are remembered for the extraordinary prosperity of the Atlantic world. Geoffrey Owen, an expert on this dismal subject, shows how even the motor car industry was recovering. In 1984 Toyota and Nissan were adopted and invited, and Michael Edwardes could simply close the hopeless Merseyside plant. Jaguar was privatized, and some of the excessive manpower was at last shed, but the new models were still not much of a success (even in 1986 there were of course industrial-policy Conservatives arguing for continued support) and in the end the Japanese were brought into north-eastern England to show the way forward. Honda-Nissan insisted upon a single-union agreement, as did Toyota-Honda at Swindon. By 1997 output was 1.7 million cars and exports accounted for a million of them. The world of the sixties albatross had at last been overcome, but essentially through foreign management. By 1988 100,000 new firms were registered. As Bernard Connolly remarks, ‘the bullishness of the country’ became visible. Business investment rose by 20 per cent. The adaptation of advanced computers to financial transactions somehow catapulted London back to the centre of the world’s money, and as the bond market got under way, older divisions between deposit banks, operating on classic old-fashioned lines, and investment ones, involved in speculation, were elided. In October 1986 came an important moment, deregulation of the City, otherwise known as ‘Big Bang’, such that old-fashioned banks and stockbroking firms gave up their staid ways. Venerable (and well-run) establishments such as Lawrence, Prust were bought up by a Deutsche Bank anxious to escape from the stuffy confines of Frankfurt, where, it was said, there was a night-life, but she went to see her aunt on Tuesdays. In New York and London the money poured in, and in the British case Alan Walters himself called it a ‘miracle’, comparable with the earlier German one, for there had been steady growth since 1981, weekly earnings had risen by 14 per cent in real money between 1983 and 1987, and inflation had been held below 5 per cent.