Privatization: Lessons from the British experience

Abstract

P RWATIZATION’ IS NOT MERELY a domestic issue. It is an integral part of the strategic renaissance which is taking place in many Eastern and Western European countries and in countries on other continents as well.‘+ It has already had a profound impact on the social, political, macroeconomic, and managerial dimensions of governments, government owned enterprises, and newly privatized firms. This impact is certain to increase and become even more widespread as governments further their efforts in this area and as other governments join the privatization movement.7 Worldwide interest in privatization has increased recently for several reasons. These include: 1. the collapse of communism in the former Soviet Union and its Eastern European allies and the emerging governments’ determination to transform state owned enterprises into private sector entities ; 2. the desire of a growing number of political leaders and their constituents to reduce the size and scope of local and national government; 3. the problem of how governments can continue to provide adequate public services given the reluctance of many citizens to fund regular tax increases ; 4. the commitment of some governments to increase public enterprises’ efficiency, productivity, and responsiveness to customer needs; and 5. the desire of many nations to promote free market principles and to establish an enterprise culture. It is likely that other forces, including the need for governments to reduce their debt, promote competition in their nations’ key industries, and encourage entrepreneurial activity, will sustain the keen international interest in privatization through the turn of this century. The literature on privatization is extensive. Since 1986 over 1100 articles on the subject have appeared in journals from various fields. In addition, several books The privatization programme in the United Kingdom is the oldest and largest endeavour of its kind in the world. This article examines it in detail, beginning with a brief description of the background and criticisms of nationalized industries in the UK. The social, political, macro-economic and managerial reasons for and results of privatization’in the UK are then analysed. This analysis includes details of the major privatizations to date, special arrangements made to encourage employees and small investors to become shareholders, the performance of privatized firms, net proceeds received by the governmentfrom the sale of public corporations, and the effect privatization has had on encouraging wider share ownership among the general population. This article also notes the different methods of privatization used in the UK, including trade sales, private placements, public flotations, and employee and/or management buyouts. The typical steps in each stage of the privatization process are then explained. Finally, a model of the privatization process is developed from an examination of the British privatization experience. This model may be useful to governments and their advisors in transforming publicly owned enterprises into privately owned enterprises and to increase understanding of the strategic issues of privatization among academics, business practitioners, consultants, government officials, etc,