Michael Hudson: Thatcher’s Legacy of Failed Privatizations

Yves here. Be warned this piece is long but very much worth your time, since it demolishes the myth of the attractiveness of privatizations by looking at its record in England, where it was first undertaken on a widespread basis.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “The Bubble and Beyond.” 

As in Chile, privatization in Britain was a victory for Chicago monetarism. This time it was implemented democratically. In fact, voters endorsed Margaret Thatcher’s selloff of public industries so strongly that by 1991, when she was replaced as prime minister by her own party’s John Major, only 35 percent of Britain’s voters supported the Labour Party – half the proportion registered in 1945. The Conservatives sold off public monopolies, used the proceeds to cut taxes, and put the privatized firms on a profit-making basis. Their stock prices rose sharply, making capital gains for investors whose ranks included millions of Britons who had been employees and/or customers of these enterprises.

Yet by 1997 the Conservatives were voted out of office by one of the largest margins in their history. What concerned voters were the results of privatization that Mrs. Thatcher had not warned them about. Prices did not decline proportionally to cost cuts and productivity gains. Many services were cut back, especially on the least utilized transport routes. The largest privatized bus company was charged with cut-throat monopoly practices. The water system broke down, while consumer charges leapt. Electricity prices were shifted against residential consumers in favor of large industrial users. Economic inequality widened as the industrial labor force shrunk by two million from 1979 to 1997, while wages stagnated in the face of soaring profits for the privatized companies. The tax cuts financed by their selloff turned out to benefit mainly the rich.