Tuesday, March 13, 2018

UK Privatization



The privatization revolution was launched by Margaret Thatcher's government in the United Kingdom, which came to power in 1979. Prime Minister Thatcher popularized the word privatization, and her successful reforms were copied around the globe. She was determined to revive the stagnant British economy, and her government privatized dozens of major businesses, including British Airways, British Telecom, British Steel, and British Gas. Other nations followed the British lead because of a "disillusionment with the generally poor performance of state-owned enterprises and the desire to improve efficiency of bloated and often failing companies," noted a report on privatization by the Organization for Economic Co-operation and Development (OECD).

Privatization swept through other developed countries in the 1980s and 1990s, with major reforms in Australia, Canada, France, Italy, New Zealand, Portugal, Spain, Sweden, and other nations. A Labor government elected in New Zealand in 1984 privatized dozens of state-owned companies, including airports, banks, energy companies, forests, and the national airline and telecommunications companies. Australia privatized dozens of companies between the mid-1990s and mid-2000s, generating proceeds of more than $100 billion.

During the 1980s and 1990s, Canada privatized more than 50 major businesses, including electric utilities, a railway, an airline, and the air traffic control system. France sold 22 major companies in 1986 and 1987 under the conservative Chirac government. In the 1990s and 2000s, both conservative and socialist governments continued to privatize. The number of companies in which the French government holds a majority stake plunged from 3,000 in the early 1990s to about 1,500 mainly smaller companies today.

Privatization swept through many developing nations. In Latin America, Chile, Mexico, and Panama had particularly large and successful privatization programs. Mexico, for example, slashed the number of state-owned firms from 1,155 in the early 1980s to just 210 by the early 2000s. In Eastern Europe, huge privatizations were pursued after the fall of communism, and the government share of total economic output in that region fell from about three-quarters in 1990 to about one-quarter today.

Privatization has gained support from both the political right and left. Left-of-center governments in Australia, the United Kingdom, France, Canada, and New Zealand all pursued privatization. Privatization has attracted opposition from the public in many countries, but very rarely have reforms been reversed once put in place. Privatization works, and so the reforms have lasted.

Privatization has "massively increased the size and efficiency of the world's capital markets," one finance expert found.11 As of 2005, the 10 largest share offerings in world history were privatizations. By 2010, about half of the global stock market capitalization outside of the United States was from companies that had been privatized in recent years. Privatization has had a huge effect on the global economy.

Today, many countries have privatized the "lowest hanging fruit." But there is much left to sell, and global privatization is continuing at a robust pace. Over the past four years, governments worldwide have sold an average $203 billion of state-owned businesses annually. China is now the largest privatizer, but Western nations continue to pursue reforms. The British government, for example, sold a majority stake in Royal Mail in 2013 and then unloaded the final block of shares in 2015.

Privatization has been a very successful reform. An OECD report reviewed the research and found "overwhelming support for the notion that privatization brings about a significant increase in the profitability, real output and efficiency of privatized companies. And a review of academic studies in the Journal of Economic Literature concluded that privatization "appears to improve performance measured in many different ways, in many different countries.

Despite the success of privatization, reforms have largely bypassed our own federal government. President Ronald Reagan's administration explored selling the U.S. Postal Service, Amtrak, the Tennessee Valley Authority, the air traffic control system, and federal land, but those efforts stalled. President Bill Clinton had more success. His administration oversaw the privatization of the Alaska Power Administration, the Elk Hills Naval Petroleum Reserve, the U.S. Enrichment Corporation, and Intelsat.

Little action on federal privatization has been pursued since then, but there are many federal activities that should be turned over to the private sector. The United States has a government postal system, but European countries are privatizing their systems and opening them to competition. The United States has a government air traffic control system, but Canada and the United Kingdom have privatized their systems. Our federal government owns electric utilities and a passenger rail service, but other countries have privatized those businesses.

The first section of this study examines the path-breaking British privatizations of recent decades. The second section discusses 12 advantages of privatization. The third section describes six businesses and assets that federal policymakers should privatize: the U.S. Postal Service, Amtrak, the Tennessee Valley Authority, the air traffic control system, land, and buildings. That section also highlights other businesses and assets to sell.

This study mainly uses privatization in a narrow sense to mean fully moving ownership of businesses and assets to the private sector. The term is often used more broadly to include government contracting, public-private partnerships, vouchers, and other forms of partial privatization. Those are all worthy reforms, but they are not the focus here.

When the next president comes into office in 2017, the time will be ripe for privatization reforms. Privatization would help spur growth in our underperforming economy and modestly reduce rising budget deficits. Privatization would also create qualitative benefits, such as increasing transparency and improving environmental stewardship. After decades of privatization abroad, U.S. policymakers have a wealth of foreign experience to guide their reform efforts.


Norb Leahy, Dunwoody GA Tea Party Leader

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