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Rail Privatisation
Privatisation - why?
Privatisation was developed by Mrs. Thatcher's government as a way to re-introduce the profit motive to many of the industries that had been nationalised in the past. The poor performance of the nationalised industries meant that they were a heavy drain on the public finances. The government were looking for a way to restore the profit motive and make them more efficient.
Privatisation - returning the companies to the private sector - was the method that was developed. The first major sale was British Telecom in 1984. The debate over privatisation raged for many years with the Labour party opposing every successive privatisation. The arguments often given for and against privatisation are as follows:
For privatisation:
- Restores the profit motive by creating a private company responsible to its shareholders.
- Improves efficiency by giving the company the incentive to cut costs to increase their profit margins.
- Widens share ownership and helps to generate more of an "enterprise culture".
- Creates a more competitive market structure with the benefits from that.
- Increases investment and gives the companies wider access to a variety of ways of raising the necessary investment funds.
- Raises revenue for the government.
- Avoids the government supporting loss-making industries. And in the case of the railways should reduce the subsidy required.
Against privatisation:
- Many companies are "natural monopolies" and so benefit from significant economies of scale. Creating competition will simply raise costs in this situation.
- Selling companies will only create a one-off source of revenue ("selling the family silver")
- Companies may not take account of any positive externalities arising from the service and so may cut valuable services if they are not profitable
- Many people who bought privatisation shares simply sold them to take the profits and there was no genuine increase in share ownership
- The efficiency gains could have been achieved in other ways without the government relinquishing ownership of the companies.
- Most of the loss-making companies were profitable before they were privatised and so didn't need to be sold to make them profitable.
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