The Lessons Learned from the British Privatization During the Rule of Margaret Thatcher
New Public Management emerged in the late 1970s as an attempt to revolutionize the previous bureaucratic models of public administration, while striving to bring managerial practices from the private sector to the public administration. Furthermore, it was followed by the introduction of performance indicators, with efficiency being the main objective. At the same time, Margaret Thatcher won her first parliamentary elections in the United Kingdom. Privatisation was one of the main economic policies under her rule between the years 1979 and 1990, when the ownership of dozens of state-owned companies was transferred to private investors. Both Margaret Thatcher and theorists of New Public Management believed in the superiority of the private sector over the public one and the importance of managerial methods based on efficiency in the public sector. The increasing role of the state in the economy during the past years, accompanied by the growing size of the public sector and the slow economic growth in many European countries, should serve as a reminder to policymakers to return to pro-market economic reforms. Hence, what lessons for today can be learned from the privatisation policies during the rule of the Prime Minister Margaret Thatcher (1979-1990), and the objectives of New Public Management?
The privatisation of previously state-owned companies in the United Kingdom achieved the objectives of New Public Management by allowing market forces and competition and thus forcing the privatised companies to operate more efficiently. The introduction of incentives and shifting organisations from the public to the private sector can be a remedy for the current situation in various European countries as well. The economic reforms based on market orientation, decentralization, the usage of key performance indicators, and managerialism was, according to New Public Management, a solution to widespread inefficiency and lack of accountability present in state-owned British companies back then and can also serve as an inspiration to the public sector in many European countries nowadays.
The governments of Margaret Thatcher privatised some of the largest state-owned enterprises, including British Petroleum, British Telecom, British Gas, Jaguar, and British Airways. The estimated revenue for the state from the privatization in the period of time between the years 1979 and 1990 is approximately 34 billion British pounds, which would amount to approximately 70 billion British pounds nowadays. Furthermore, until the year 1979, the state-owned companies were heavily indebted, and their annual losses and credits amounted to 3 billion British pounds. Thus, the government had to provide a non-negligible amount from the state budget for the indebted state-owned enterprises that were operating inefficiently. Additionally, the sale of state-owned companies brought the government tens of billions of pounds that could be subsequently used in the provision of public services to the citizens. Thus, from the macroeconomic perspective, this can serve as a lesson for many European governments nowadays. There are dozens of inefficient and often debt-creating state-owned companies all around Europe that can be sold to private investors, while the revenue could be used to provide better public services on which the state had a monopoly, such as education and healthcare.
From the microlevel perspective, the change in efficiency can be demonstrated through the following micro-level indicators of the performance: (1) changes in productivity, (2) prices of goods and services, (3) quality of the goods and services provided and (4) ecological impact on the environment.
- Productivity and Changes in Employment
The increase in productivity per worker in the United Kingdom in the time period between the years 1985 and 1996 was the highest among the G7 member countries, with the Organization for Economic Cooperation and Development (OECD) attributing this growth to the privatisation policies. The productivity in the gas and electricity industries increased by approximately 50% in the same time period. Furthermore, the productivity of steel production also gradually increased by introducing new production technologies that were incentivised by new private owners.
2. Prices of Goods and Services
The price of electricity declined for more than a decade after the privatisation of local electricity providers was conducted in the year 1990, with the drop in gas prices occurring as well. Furthermore, the prices of telecommunication services for both businesses and domestic users also declined after the privatisation as a direct consequence of the changes in regulations and increased competition on the domestic market. It is estimated that the telecommunication tariffs decreased by 50% after the privatisation, the price of industrial gas was reduced by 50%, the residential gas was cheaper by 25%, and electricity prices dropped by 25% as well.
3. Quality of the Goods and Services Provided
The report from Her Majesty´s Treasury suggests that the quality of services provided in privatised enterprises has improved. For example, the percentage of completed calls in the customer service of British Telecom increased by 60% within a decade after the privatisation was finished. Furthermore, the waiting lines for a new telephone set practically disappeared. British
Steel, after the privatisation, also introduced new technologies that increased the quality of produced steel. The quality of water provided after the privatisation also increased significantly.
4. Ecological Impact on the Environment
Privatisation caused an increase in efficiency in the energy sector and a major shift from fossil and nuclear fuels to more sustainable ones. The costs of fossil and nuclear fuels needed to produce one kilowatt-hour of electricity decreased significantly. The privatisation of local water suppliers in the year 1989 contributed to additional investment worth 160 billion British pounds. As mentioned earlier, the quality of water has improved, and the amount of water leakages has decreased by one-third. Approximately 66% of beaches in the United Kingdom are now in excellent shape, compared to only 25% in the mid-1990s.
There is no universal plan and recipe applicable to different countries and circumstances all around the world. However, the British case shows that the implementation of New Public Management methods can bring significant economic success from both the macroeconomic and microeconomic perspectives. The shift of ownership from the public to the private sector, accompanied by the introduction of the reforms based on market orientation, decentralization, the usage of key performance indicators, and managerialism, can be truly an inspiration also for policymakers in the European states. To conclude, a famous credo of Margaret Thatcher can serve as an inspiration to European policymakers in the current challenging times: “Where there is discord, may we bring harmony. Where there is error, may we bring truth. Where there is doubt, may we bring faith. And where there is despair, may we bring hope”.
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