Privatisation: you ain't seen nothing yet

For Britain privatisation may be drawing towards its end, but for the rest of the world, the process has hardly begun. Because Britain in effect invented privatisation, we tend to see it through the prism of UK experience. That is a pity because in the future it is going to be much more important elsewhere than it will be here. Two recent reports, one in the OECD Economic Studies, the other in a Morgan Stanley market letter, highlight the extent to which privatisation is now a global phenomenon.

In Britain there is still a considerable amount of ideological hostility to the whole idea, but much less now that, say, 10 years ago. With some exceptions like the proposed sale of the Royal Mail last year, or to a lesser extent the sale of the nuclear power industry at the moment, the principle behind privatisation is generally accepted. Instead, the debate is about the detail: the terms and method of the actual sales, the implications for the structure of the industry (for example, the level of monopoly), and the regulation and taxation of the industries once they have been sold off. No future British government would contemplate a programme of renationalisation: for all practical purposes the idea that it is a proper role for the state to own commercial enterprises is dead.

It is dead elsewhere too. Hardly any government anywhere in the world is extending state ownership. Instead privatisation has extended beyond the developed countries which pioneered it to the developing world. As the graph on the left shows, nearly one-third of the privatisations taking place this year are in countries outside the developed countries' "club", the OECD: $25bn (pounds 16bn) out of a total of $85bn. Though the UK will this year be behind Germany in money raised from privatisation (middle graph), it still has the highest overall tally (right-hand graph). Since 1977, it has raised $97bn from that source.

If one looks at the process of privatisation from a global perspective rather than a British one, a number of big forward-looking questions spring out. Here are some. To what extent can privatisation transform the debt position of continental European governments? Will it make a material impact on global competitiveness and global living standards? And will the success of privatisation prompt a further rethinking of the appropriate boundaries of the state?

The European question is an obvious and immediate one. Think what would have happened to British public finances had we not had privatisation. You would not only have to add the $100bn-odd of receipts to the national debt; you would also have to add the additional interest on the debt and (if the French experience with banking and airlines is any guide) quite probably have to add on billions of nationalised industry losses too. Instead of having a public debt of around 56 per cent of GDP, it would be 80 per cent or more.

Both Germany and France have a similar-sized national debt to the UK, so they have the potential to make a corresponding reduction if (as they are now doing) they follow a policy of vigorous privatisation. It would be perfectly possible to recalculate French and German national debt to show that it is actually below 50 per cent of GDP. Across Europe, Morgan Stanley estimates that between now and the year 2000, total receipts from privatisation could total $250-300bn. Privatisation on its own will not solve the continental European budgetary problem. Countries like Belgium and Italy would still have very high debt-to-GDP ratios, the social-security budgets of virtually the whole of Europe would still have large unfunded liabilities, and the gap between voters' expectations of the state and the state's ability to deliver would remain. But privatisation would - indeed will, because it is going to happen - make a problem which appears almost unmanageable rather easier to manage.

It is harder to be certain of the potential impact on global efficiency. But since privatisation is concentrated on particular industries it is possible to make some sort of an assessment. The pie-chart on the right shows which industries have been most affected: telecommunications, oil and gas, electricity and banking being the leaders. The most important of these, not just in size, but in terms of impact on the world economy is surely telecommunications. Both the quality of service and the costs have been radically improved by privatisation - to such an extent that countries which have been slow to privatise have put themselves at a competitive disadvantage. The principal reason that Germany is at the top of this year's league table is the sale of shares in its telephone service Deutsche Telekom, a move driven largely by pressure from commercial and industrial users.

But the main impact of telecoms sell-offs will be felt outside the developed world, as developing countries, often located far away from their main markets, arguably have an even greater need for a liberal telecommunications environment than developed ones. Privatisation is not the only way of putting pressure on telephone charges - deregulation is just as important - but the plain fact remains that countries which privatised early have cheaper phone calls than those which have not.

The impact on other industries will turn on their relative importance to the countries concerned and the degree to which the state-owned industries have had to operate in a competitive market. I suspect the impact of further privatisations of oil and gas will be less than for electricity, for most oil and gas producers are forced into open competition with their commercial rivals, whereas electricity supply remains a state monopoly in most nations in both the developed and the developing world. Expect radical changes in the efficiency of electricity supply, but less in oil and gas.

Of the others, banking and airlines are areas where the record of state- owned companies is particularly bad, so expect a considerable impact here. Again, this is likely to be greater in less-developed countries, where both banks and airlines have lived in a more protected environment, than in the developed world. Insofar as developing countries have given themselves an unfair handicap by imposing state ownership in these areas, expect the comparative advantage of the developed world to narrow.

There is a bigger point here. One of the effects of the spread of privatisation to the non-OECD countries will be to narrow the gap between the developed and the developing world. Privatisations are not universally successful, of course. In some ways the managerial revolution which takes place in preparation for the sale may be as important as the change in ownership itself. But statistically they do deliver a significantly better performance. That, plus the side effect of stimulating savings and a local capital market, will tend to improve the performance of large parts of the world which have disappointed in the last 20 to 30 years.

If it is hard to make a more specific judgement than that on the impact on the world economy, it is even harder to guess where privatisation goes next. It is difficult to see Britain being the pioneer in this next stage, because most first-line assets have already been sold and the scale of change heaped on the nation seems to require some time for digestion and reassessment. It is possible that once the present bout of privatisation has run its course that a new plateau will be reached, a new understanding of the proper frontiers of the state.

But I think it more likely that somewhere else in the world the experiment will continue. The more successful privatisation is perceived to be worldwide, the more pressure there will be to press on. One form this will take will be more sub-contracting of state functions: expect more commercial companies to pitch to provide services on behalf of the state. Just as all large companies out-source more and more of their requirements, so too will governments.

That is easy. Much harder to see will be the extent to which privatisation will spread to, say, television stations. Will, a generation from now, state-ownership of the BBC be a distant memory? That would make many feel uncomfortable. But the gale which started here and swept across the world is still blowing harder than ever. On a world perspective privatisation is still in its early stages.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
i100
News
people
ebooks
ebooksA special investigation by Andy McSmith
Sport
Chelsea manager Jose Mourinho
footballThe more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
News
i100
News
business
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee