Privatisation and the rise of capitalism

Privatisation has a long history, starting with monarchs and rulers selling state assets and licences to private individuals. But more recently it was an idea that blossomed in the 1980s.

The UK’s Thatcher governments, between 1979 and 1990, embarked on selling state assets in mass public offerings of shares, swapping ongoing profit streams of nationalised industries for windfall revenues that were used to plug holes in fragile public finances.

In the process of marketing the equity, the UK government created an army of small shareholders.

This did not quite succeed in cementing capitalism into the hearts of the British public, but it certainly created a culture that respected the primacy of market forces in many areas previously thought to be the preserve of government.

Starting in 1979 with the sale of a tranche of BP, the oil producer, one after another of the commanding heights of the economy was sold. Telecoms, gas, electricity, the railways, the national airline, steelmaking, water and sewerage provision, coal mining and shipbuilding were all to follow.

This became a global phenomenon after the fall of the Berlin Wall in 1989 and the end of Soviet communism. Privatisation was seen as an essential tool in forcing inefficient and often corrupt state-owned enterprises to modernise in both former communist countries and market economies.

Over time, many studies showed it was not the change of ownership that most drove efficiencies but opening markets to competition. Where privatisation has been least successful, such as in the cronyism that accompanied Russia’s transition to capitalism, state monopolies were seized by small groups with vested interests but without the liberalising force of competition. Greater competition has transformed, for example, communications services around the world.

Many countries, including the UK, have few state-owned companies yet to privatise, apart from banks that the state was forced to nationalise in the financial crisis, but there is pressure for many crisis economies in the eurozone to sell government-owned assets to improve their efficiency and reduce gross public sector debt. In China, the world’s second largest economy, the process of attracting private capital to its large state-owned enterprises has a long way to go.

Chris Giles