Topic 8

Privatization and Britain

By Alison Chiu

MAP
OF
EUROP
E

United Kingdom : General Statistics

United Kingdom : General Statistics

Britains Political & Economic History

in the 1900s
World War 1 (1914-1918)
Great Depression (1929-1938)
World War 2 (1939-1945)

Britain emerged from the 1939-1945 war

triumphant, but economically exhausted
Labour Government had an aggressive
plan to

Labour Governments Post War

Consensus

1. Commitment to maintain full employment by

Keynesian demand management
2. Encouragement of the role of the trade
unions.
3. Large role for state ownership of the utilities
(such as gas, electricity, coal, rail, etc) and
intervention and planning in the economy.
4. The welfare state.
National insurance system ,National Health
Service
5. There was a belief that government could
play a positive role in promoting greater
equality through social engineering, for

Britain in the 1970s :

However, figures on economic
performance showed that Britain was
losing out to other European countries. It
was having problems with trade union
strikes, productivity, inflation, economic
growth and living standards.
During the 1960s and 1970s, the main
parties competed to reverse Britains
relative economic decline.
Nearly all European countries had socalled 'economic miracles except Britain.
Britain was often described as the 'sick
man of Europe.

Britain in the 1970s : Sick Man of Europe

The reason for Britains dismal

performance was attributed to :
1) High and steep progressive tax rates
reduced the incentive to work
2) Social safety net under the post war
consensus on the welfare state also
reduced the incentive to work
3) Conservative poor management vs
unionized and militant workforce led to
confrontational industrial relations
4) Wasteful public sector investing in nonperforming industries

Britain in 1979 : 'Winter of Discontent'

Things escalated in 1979. In the 'Winter

of Discontent' damaging trade union
strikes in crucial public services against
the Labour governments income policies
seemed to show that the country was
ungovernable and that no government had
an answer to inflation.
It destroyed the governments reputation
for prudent economic management and its
ability to gain the cooperation of the
unions.
The Labour government lost the following
general election as a result and the

Britain in the 1970s

Winter of Discontent 1979 Rubbish in
London
http://www.youtube.com/watch?v=Je6
5Vw7ndro&feature=related
Or
Videos UK_Dustmens
Dispute Feb 1979

What is Thatcherism

Refers to the political and economic policies of

Margaret Thatcher when she was Britains
Prime Minister
Economic policies characterized
by :
decreased state intervention
via the free market economy
monetarist economic policy
privatization of state-owned
industries
lower direct taxation and
higher indirect taxation
opposition to trade unions,
and

What is Thatcherism

In short, Thatchers policies aimed at

transforming the British economy to a more
market oriented economy and emphasized
the need for less government intervention
She stressed the importance of enterprise
culture, the culture of taking risks, investing,
and wealth maximizing.
She claimed to have been influenced by the
works of Austrian economist Federich von
Hayek which advocates free markets and
less government intervention

Thatcher and the Miners Strike 19841985

The Miner' Strike was a major industrial
action affecting the British coal industry.
It was a defining moment in British industrial
relations, and its defeat significantly
weakened the British trades union movement.
It was also seen as a major political and
ideological victory for Margaret Thatcher and
the Conservative Party.
Commanding Heights
Episode 1
Ch 15, Ch 17, Ch 18

Privatization : 4 main dimensions

Transfer of ownership
From public sector to private sector through
issue of shares or sale of the corporation to
employees
Process of deregulation
The removal of government controls from an
industry or sector, to allow for a free and
efficient marketplace.
Franchising
Government grants the franchise of a public
company
to private companies. Private companies
have to compete for franchise, this
encourages competition

How Thatcherism reversed the

post war consensus
1.
Eg. requirement for pre-strike ballots; the
end of the 'closed shop' (union membership
as a precondition of employment in a
specific industry); and making unions liable
for damages incurred in illegal strikes.
Hardly consulted by the government,
influence waned because of the
abandonment of income policies and rising
unemployment.
2.
Gas, electricity, telephony, British Airways

How Thatcherism reversed the

post war consensus
3. The government abandoned its commitment
to full employment, stating this was the
responsibility of employers and employees,
and accorded priority instead to keeping
inflation low.
4.
as the government
introduced quasi-markets into education
and health services
5. Government insisted that it could no longer
be a universal provider. More should be left
to the market, the voluntary sector and selfhelp.

Thatcherisms Impact on the

British economy in the 1980s
Economic growth UK performance in the
80s improved in terms of GDP growth, labour
productivity, unemployment fell. On the
downside, income inequality also increased
Improved industrial relations less strikes
Improved incentive to work government
abandoned full-employment, employees
forced to look for jobs and keep themselves
employed,
Improved incentive for firms to be profitable
- employers forced to manage efficiently

Days Lost per 1,000 Employees

Selected Industrial Nations 19701993

1970- 1980 1985

1979 -89
1984
UK
570
480
180
US
Na
160
90
France 210
90
60
German 40
50
Na
y
Italy
1310 950
300

1989- 1997- 20021993 2001 2006

70
200
90
30

14
54
20
1

28
15
na
6

360

67

111

Source : Table 8.6.

Kennet,
Comparative
Economic Systems,

UK Income Tax Rates (%) on Earned

Income 1979-2010
197 198 198 199 199 200 200 200 201
9
0
5
0
5
0
5
8
0
Lowe 25
25
20
10
10
0
0
r
rate

Basic
rate

33

30

30

25

25

22

22

20

20

Top
Rate

83

60

60

40

40

40

40

40

40

Source : Kennett,
Table 8.5 and
http://www.ifs.org.uk

Lessons from Britains

privatization
1. Managerial culture, rather than ownership
determines productivity this may be achieved
with or without privatization
2. Laws that curb trade union power results in a
more flexible labour market. This leads to
lower unemployment but increased income
inequality
3. Regulation is required when privatized
industries become natural monopolies in order
to protect public interest
4. Substantial short term gain to public revenues

End of Thatcherism
Towards the end of the 1980s Margaret
Thatcher, became increasingly vocal in its
opposition towards Britain becoming part
of the European Union and this alarmed
her own Conservative Party who voted for
her removal
She was succeeded by John Major another
Conservative
In the 1990s, the Labour Party under Tony
Blair won the election

Britain in the 1990s : John Major

(Conservative Party)
Between 1990-1993, Britain entered into a
recession. Reasons were that Thatcher
government had allowed the economy to
expand too rapidly causing inflation.
Britain joined the European Exchange Rate
Mechanism which targeted at fixing the
British pound to the ERM.
Saw the end of the Conservative Party rule
and Tony Blair under the Labour Party was
elected Prime Minister

Britain in the 1990s :

Tony Blair (Labour Party)
Tony Blairs economic policy includes :
- Maintaining market-based reforms 1997-2007
Privatization continued. Under the Labour
government, state owned enterprises
continued to be privatized
- He made the Bank of England independent
- Introduced substantial market-based
reforms in the education and health;
introduced student tuition fees; sought to
reduce certain categories of welfare
payments
- At the same time, introduced supportive

Britain today

The UK, 3rd largest economy in Europe after

Germany and France.
Past two decades, the government greatly
reduced public ownership and controlled
social welfare programs.
Agriculture is intensive, highly mechanized,
producing about 60% of food needs
Services, particularly banking, insurance, and
business services, account by far for the
largest proportion of GDP while industry
continues to decline in importance.
From 1992-2007, Britain's economic growth
outdid Western Europe

Britain today

But by 2008, Britains economy was

hard hit by the global financial crisis
due to the importance of its
financial sector. Economy went into
recession late 2008
BROWN government implemented
measures like nationalizing parts of
the banking system, cutting taxes,
suspending public sector borrowing
rules, and moving forward public
spending on capital projects.
Gordon Brown lost in UKs 2010
elections to a coalition party of
Conservative and Liberal Democrats

Gordon
Brown
Labour
2007-2010

Britain today

Facing burgeoning public deficits and debt

levels, the CAMERON government in 2010
initiated a five-year austerity program, which
aims to lower London's budget deficit from over
10% of GDP in 2010 to nearly 1% by 2015.
Conservative Liberal
Democrats coalition

David
Cameron
Prime Minister
Conservative

Nick Clegg
Deputy Prime
Minister
Liberal

References
Books
Kennett, D. (2001) A New View of
Comparative Economic Systems (2ed)
Harcourt Publishers
Rosser, J.B. and Rosser, M.V. (1996),
Comparative Economics in a
Transforming World Economy
Websites
http://www.bbc.co.uk/history/british/mo
dern