Public Ownership Versus Privatisation

Abstract

One of the most important, and certainly the most controversial, changes in British industry over the past decade has been the privatisation of many of the corporations that were once part of the public sector. Before the privatisation programme began with the first Thatcher administration in 1979 the public sector in Britain included all the great utilities - electricity, gas, postal services, telecommunications, rail and water. Over the post-War period up to the late 1970s public ownership was widely viewed as an appropriate regulatory device for dealing with the market failure associated with the natural monopoly status of these industries. Other industries had been brought into public ownership for a mixture of motives such as national security, industrial strategy or the rescue of ailing companies in the private sector. The nationalisation of coal in 1947 was inevitable once the Labour government had swept into power in 1945. The War-time government had already assumed full control of the industry in 1942, and the Reid Committee, reporting in 1945, drew attention to serious weaknesses resulting from decades of poor management and underinvestment. The Committee called for drastic overhaul and reconstruction, and fundamental changes in organisation and control. Like coal, the steel industry was regarded by Labour as one of the “commanding heights” of the economy and was thus a key element in industrial strategy. It had also been slow to invest in new technology and suffered from major structural weaknesses. The industry was nationalised in 1949, denationalised in the mid 1950s and re-nationalised in 1967. During the 1970s several major companies were rescued from public funds and were taken wholly or in part into public ownership. They included Rolls Royce (aero-engines), British Leyland (vehicles), Ferranti (electronics), ICL (computers) and Alfred Herbert (machine tools). Much of the rescue work was the responsibility of the National Enterprise Board, set up by the Labour government in 1975 to regenerate British industry.