Privatisation is ideology-lite

This is my latest comment from Fund Strategy.

The likely global surge in the sale of state assets, with many countries desperate to reduce their fiscal deficits, raises the question of privatisation’s significance.

There is an immense amount of confusion about what it represents. Probably the biggest misconception is that it is driven by ideological motives. It is a myth propagated by both supporters and critics of capitalism.

In the first volume of Margaret Thatcher’s auto-biography, Downing Street Years (1993), she presented privatisation as part of a battle against socialism. Cutting back the frontiers of the state was, in this view, a desirable outcome.

But Thatcher’s account after the event was not the same as when in office. The Conservative party’s 1979 manifesto, the prelude to the first Thatcher government, stressed the need to limit state ownership rather than privatisation itself. In any case there were also small privatisation programmes under the 1970 Conservative government and the 1974 Labour government.

In reality privatisation took off in the 1980s as a desperate response to Britain’s fiscal problems. The government conveniently classified the revenue from privatisation as negative public spending to make its books appear healthier than they were. But in the longer term, despite privatisation programmes, state spending has proved remarkably resistant to cuts.

On the other side of the ideological divide Naomi Klein, a Canadian author and campaigner, is perhaps the best known opponent of privatisation. In her Shock Doctrine (2007) she wrote in crude conspiratorial terms of how even events such as the 2003 Iraq war could be seen as a way of privatising Iraqi assets. Like Thatcher she saw privatisations as politically motivated and like the former prime minister she seemed oblivious to the facts of state spending. The main difference was simply that Klein put a minus where Thatcher put a plus.

For that matter what is true of privatisation was also true of nationalisation. When the post-War Labour government nationalised many industries it was to save businesses that were more-or-less defunct. Similarly the part nationalisation of banks in 2008-09 was also driven by pragmatic motives: to maintain the stability of the banking system.

Globally too, practical concerns are the main motivation behind privatisation. A recent survey by Ernst & Young of senior figures involved in privatisation showed 69% seeing it as driven by the state’s requirement for extra revenue.

None of this is to suggest that privatisation is an unimportant trend. But to discuss it as if it is part of a politically motivated campaign only confuses matters.