From Socialist Review, No.216, February 1998.
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The Impact of Privatisation
Stephen Martin and Davide Parker
Privatisation has been one of the great capitalist crazes of the last decade. From Moscow to Milan, from London to Lima, from Bombay to Budapest, it has been the device which is meant to give new zest to stagnant economies.
That is why a trend which started with the most tentative steps by Thatcher in the early 1980s is now accepted as the only way forward by governments throughout the world. Yet the question, ‘What’s in it for the system?’ is not as easy to answer as it might seem.
After all, in the previous 50 years statification, not privatisation, was the trend throughout the world system. Governments as varied as Hitler’s and Mussolini’s, Baldwin’s and Peron’s, took major industries into state ownership. The trend continued right into the 1970s, with the state ownership of major industries in bastions of Western capitalism like South Korea, Taiwan and Christian Democrat run Italy.
Governments were recognising two important points. The crisis of the 1930s had shown that many capitalist firms needed the protection of the national state if they were to thrive in an anarchic world system populated by capitals more powerful than themselves. And there were many examples in the historical record of ruling classes who had been highly successful, not on the basis of individual private property but through collectively exploiting the mass of people via their hold over the state.
Tories like the former prime minister Harold Macmillan were recognising these facts when they argued in the mid 1980s against Thatcher’s privatisation drive.
Now the assorted enthusiasts for privatisation, whether veteran Thatcherites, born again Blairites or refugees from Stalinism, all claim privatisation is the answer because it introduces great efficiencies and cuts costs. State industries, they claim, are almost by definition ‘bloated’, ‘featherbedded’, ‘costly’ and ‘inefficient’.
Amazingly, however, few figures are ever produced to justify such claims. Perhaps this is because studies of privatisation do not in fact bear them out.
The most recent is a detailed study of 11 privatisations in Britain – all the major ones except for coal, electricity and rail. Published as a book entitled The Impact of Privatisation by Stephen Martin and David Parker, its conclusions are very detailed. But the overall picture it paints is that privatisation was rarely followed by any gains usually promised from it – except in terms of profitability – and even this was a short term and not a long term improvement.
Thus it argues that ‘neither private nor public sector production is inherently more efficient’ and there are ‘mixed results on productivity’.
It goes further and suggests that when there are big improvements in productivity and efficiency, they occur in the pre-privatisation period when managements prepare for sell offs (and aim to build up their own potential salaries and share options) by forcing through massive cuts in the workforce. There is evidence of this: ‘an initial shakeout effect, with relative value added growth improving following the announcement of an intention to privatise, was found in seven of the 11 firms.’ But after privatisation the picture is very mixed, so although in five of the 11 firms ‘relative value added growth increased in the four years immediately after privatisation’, in the other six it stagnated or fell. And privatisation certainly did not give new zest to the rest of industry, since ‘value added growth in seven of the 11 firms was less than in the economy as a whole’.
The big ‘gain’ was in terms of profitability, with ‘an increase in 28 of the 40 comparisons’ that can be made between the situation in various phases before and after privatisation. The hype about privatisation was – not surprisingly for readers of this Review – not about efficiency or dynamism, but about creating conditions in which workforces were culled and those remaining slogged harder for a smaller share of the cake.
But even this is not the end of the story. For, the study suggests, profits which were driven up in the run up to privatisation have not always endured, with ‘a number of companies suffering a deterioration in profitability’.
It seems that workers who were thrown on the defensive by the threat of privatisation have to various degrees learnt to assert themselves under the new regimes. ‘Most recent figures show wage relativities recovering in most companies’, except for Associated British Ports, although ‘the share of income going to labour has declined in all instances’.
In any case, privatisation certainly does not do more than slightly ameliorate the downward trend in profitability which Marx insisted was one of capitalism’s biggest headaches. But this leads us back to the question we started with: why the enthusiasm for a measure that has such little long term effect?
The answer lies in the ‘short termism’, which, far from being some peculiarity of British capitalism as people like Will Hutton would have us believe, has always been the response of ruling classes as they become engulfed by a long term crisis of their mode of production.
The fall in returns of private capital lead its bosses to look for quick takings from the former state owned sector. A host of Tory small businessmen and New Labour local authority managers and councillors see they can get in on the act. Big companies believe a fragmented workforce must be a weaker workforce. And governments see a magical way of getting the cash to balance their books as economic slowdown hits tax revenues – a modern equivalent of the desperate resort to tax farming that characterised European absolutism in its period of crisis.
Finally, drawing all these strands together is the question of ideology. No ruling class in history has ever been able to admit that its system is going nowhere. It always has to have some scapegoat to blame for what has gone wrong and some magic remedy to return it to its golden age.
Not only does privatisation provide the fat cats with cream. It also has the intoxicating effect of making them ignore symptoms of sickness in the system. But that, of course, can be disastrous for them.
Last updated on 21 December 2009