All too often the state is tempted into activities to which it is either ill-suited or which are beyond its capabilities.
Perhaps the greatest of these temptations is government's desire to concentrate economic power in its own hands. It begins to believe that it knows how to manage business. But let me tell you, it doesn't as we discovered in Britain in the 1970s when nationalisation and prices and incomes policy together deprived management of the ability to manage. And when we came to privatise and deregulate in the 1980s it took some time before these skills returned.
A system of state control can't be made good merely because it is run by "clever" people who make the arrogant assertion that they "know best" and that they are serving the "public interest" interest which of course is determined by them. State control is fundamentally bad because it denies people the power to choose and the opportunity to bear responsibility for their own actions.
Conversely, privatisation shrinks the power of the state and free enterprise enlarges the power of the people.
The policies we introduced in the 1980s were fiercely opposed. Too many people and industries preferred to rely on easy subsidies rather than apply the financial discipline necessary to cut their costs and become competitive. Others preferred the captive customers that a monopoly can command or the secure job in an overmanned industry, rather than the strenuous life of liberty and enterprise.
But we understood that a system of free enterprise has a universal truth at its heart: to create a genuine market in a state you have to take the state out of the market.
For Britain, the 1970s was a decade of decline: even worse than that, our people seemed to accept it. Our nationalised industries were inefficient, overmanned, and weakened by restrictive practices. Government had no business being in business.
We tackled privatisation in the way which best suited us.
First, we had to put the balances of the industries we wanted to sell in good order. Where redundancies had to be made because of overmanning we were determined to ensure that those who lost their jobs would receive a capital sum related to the length of their service. For the first time in their lives this put capital into their hands and each industry helped them to find other jobs or to set up businesses of their own. Thus we made clear our concern to look after those who were losing their livelihoods as well as those who were staying on.
Second, I saw it as part of my purpose to have a policy which extended ownership of capital more widely. It is most people's ambition to have something to pass on to their children. In doing so, we link the generations and create a deep and abiding interest in the future. I have already outlined how we achieved this goal for those leaving an industry, but we also wanted those remaining in the newly privatised industries to have a greater stake. So we reserved a block of shares for employees which they could purchase at a discount.
Third, those companies which could not be floated on the stock market were sold to companies who were willing to buy them at the best possible price.
Fourth, some industries were so thoroughly outdated that they would have cost too much money to modernize. Others such as shipbuilding had lost their markets as business had moved to the Asia Pacific. The subsidies required by our shipyards each year were equal to their entire wage bill, and we were told that we could not stop them because people would lose their jobs. Clearly we could not go on that way. Some shipyards had to be closed, others were offered for "sale."
It was an unusual type of sale, buyers were not asked to pay anything for the land or for the plant. They were even offered substantial capital sums to cover the necessary redundancies and to help build a modern effective industry in the private sector. This recipe, also applied to other industries, offered a way forward in the worst cases.
We faced vociferous opposition, particularly when we came to privatise the public utilities, but the facts show that they too are much more efficient in private hands and that they have become some of our most successful businesses.
Altogether, through our programme, we demonstrated that we could rebuild an enterprise society and we showed that privatisation worked. It was better for the consumer, better for the taxpayer, and better for the health of an industrial and commercial country. Many others followed our example.
Indeed as the Economist put it:
Nationalisation, once all the rage, is out; privatisation is in. And the followers of the new fashion are of the left, the right and all hues in between.
Baroness Margaret Thatcher, LG, OM, PC, FRS was Prime Minister of the United Kingdom from 1979 to 1990. This article is an excerpt from Reason Foundation's Annual Privatization Report 2006, available online at www.reason.org/apr2006.
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