The Miracle of Privatization
Privatization Increases Innovation, Decreases Corruption, and More
SEPTEMBER 01, 2000 by JOHN BLUNDELL
Filed Under : Price
When I was a small boy I used to bicycle in the hills of northwest England where Derbyshire and Cheshire meet. In the distance I could often see glimpses of water, but all roads to it were blocked by locked gates and signs reading “Public Property: Keep Out.”
Today, following the privatization of the water industry, the roads are open and the signs read “Private Property: Public Welcome.” Driving in now, one sees the wonderful views, the walks, the garden, the nature center, the restaurant, the large playground, the picnic sites, and the parking lots. There is also a regular bus service to neighboring towns.
What a transformation and what a symbol of the power of privatization!
When it was “public” it was very private. Indeed, it was totally captured by a small band of bureaucrats. Even members of Parliament struggled to find out what was going on. No proper accounts were produced, and with a complete lack of market signals, managers were clueless as to the correct course to take. The greatest casualty was a lack of long-term capital investment.
Now it is “private” and very public. Not just public in the sense of open, but also in the sense of accountable directly to its shareholders and customers. Copious reports and accounts are available and questioning citizens will find their concerns taken very seriously indeed.
Privatization has totally transformed the British economy. Ports, airports, coal, gas, BP, steel, sugar, telecomms, electricity, forests, shipbuilding, motorway restaurants, freight, nuclear power, Rolls Royce, Rover, Royal Ordnance, Short Bros., and water: all have been privatized to the long-term benefit of all concerned, be they customers, shareholders, taxpayers, or all three. And not just for British people. The leaders of these newly privatized industries have become so good at what they do so fast that they are now doing it all over the world.
So many books have been written on the privatization process and its benefits they fill a stack in the library. Indeed my own institute, the Institute of Economic Affairs, publishes an annual book of lectures on post-privatization utility regulation. But in general terms, let me set out Blundell’s Ten Laws of Privatization, that is to say, the ten most common effects of moving ownership and management from state hands to private hands.
Blundell’s Ten Laws of Privatization
1. Lower prices. Competition and the rooting out of bureaucratic practices inevitably lead to lower prices. Domestic gas consumers have, for example, seen their bills cut by £1 billion since competition was introduced.
2. Better quality. Anybody using a British phone today knows the connection is faster, clearer, and more reliable—as well as being cheaper.
3. More choice. The UK is now the only country in the world where even the smallest household consumer can choose between competing natural gas and electricity suppliers.
4. Less corruption. Twenty years ago there was a three-month waiting list for a phone and a 50-pound bribe (200 pounds or $350 at today’s price levels) was needed to get to the top of the list—today you choose the time when they come to serve you!
5. More investment. Once privatized, a long-term view could be taken rather than the annual trip to see the government minister. Telecomms in particular have benefited.
6. More innovation. We used to have two choices of phones: white or black! Now whole shops stocking an incredible variety of equipment are a common sight.
7. Better management. The electricity generators have halved their costs since privatization. There has been a real influx of private-sector management.
8. More openness. Accounts are published, journalists can investigate, citizens get their questions answered, and we all have a far greater knowledge of what is actually happening.
9. Better measures. Firms are now judged by the market, and the managers are free to set goals. In the past they were judged and manipulated by politicians, and the managers often found themselves setting political goals such as creating jobs in a marginal area.
10. Fewer strikes. These industries (particularly coal, electricity, and railways) were vulnerable to strikes, which have now all but disappeared. Indeed 80 percent of all days lost to strikes today occur in the Post Office, which was not privatized!
So, if you want more innovative, less corrupt, better managed firms that are more open, employ better measures, are less strike prone, and invest more for the future to bring you more choice and better quality at lower prices, then it’s easy: go for privatization. It works!