Private Island by James Meek (Verso, £12.99)
Earlier this year, Dieter Helm, the Oxford economist, published a paper on the state of Britain’s energy market. The privatisation of the Central Electricity Generating Board (CEGB) in 1990, Helm wrote, was meant to usher in a “liberalised quasi-competitive market.” What we’ve ended up with, however, is something much closer to the “command and control” structure of the old nationalised energy industry. Today it is the Department of Energy and Climate Change (DECC) that is responsible for awarding energy contracts, rather as the CEGB used to engage private contractors to carry out investments on its behalf.
The energy industry is still in private hands. But, partly as a result of reforms introduced in the late 1990s, it is dominated by a handful of firms, the so-called “Big Six,” four of which are partially or wholly foreign-owned. The way the CEGB set prices before the 1990s might have been arcane and difficult to understand, but things are hardly any less opaque now. Indeed, in July, the Competition and Markets Authority began an investigation into allegations of “tacit coordination” on energy pricing by the Big Six after Ofgem, the industry regulator, raised the alarm.
Helm’s rather gloomy message was that we shouldn’t expect much from this latest inquiry into dysfunctional competition. The likely result will be yet more muddled intervention from DECC and another round in the unhelpfully polarised debate between partisans of increased state control and those who dream of a “more competitive landscape.”
According to the journalist James Meek, it was ever thus. “One of the oddest things about the privatisations of water, the railways, electricity and the rest,” he writes in his new book, “is that they were framed as binary possibilities: stay or go, stick or twist.” Beginning with the flotation of British Telecom on the stock exchange in 1984, either you were for “selling off the family silver,” as former Prime Minister Harold Macmillan put it in a speech attacking Margaret Thatcher’s privatisation policies, or for the continuation of state control.
This is a point Meek makes several times in Private Island, a history of 30 years of privatisation in Britain based on admirably thorough and vivid reporting. He looks at four privatised industries (rail, water, electricity and the Royal Mail), the sale of most of Britain’s council housing stock and the fate of the National Health Service, which, although it hasn’t been privatised, has undergone multiple reorganisations designed to submit it to market-like disciplines. The book inhabits, Meek says, the “obscure realm of events that are too fresh for history, but too old for journalism.” If journalism is the first draft of history, then maybe what he is doing here is writing the second draft—certainly, he’s able to take sufficient distance from the events he describes to discern patterns that often remain invisible to the journalistic eye.
Born in 1962, Meek is old enough not to be starry-eyed about the realities of public ownership. He acknowledges that, by the late 1970s, many of Britain’s nationalised industries were overmanned and underperforming. And any lingering illusions he might have harboured about it were extinguished for good by his experiences in Russia and Ukraine in 1991 as the Soviet Union began to unravel. Meek learned there, if he didn’t know it already, that state monopolies are always vulnerable to “capture” by their management and workforces.
The chaos of the early post-Soviet period, in which state assets were systematically expropriated, often at the barrel of a gun, also inoculated Meek against free-market triumphalism. Many of the western adventurers he met in Russia during this period—business people, financial advisors—seemed “to believe the myth that all that was good in the British and American economies had been constructed by the free market.”
At home, the effect of this kind of zeal and conviction was to create an atmosphere in which alternative forms of industrial organisation or private ownership were simply never on the agenda (“It was either shareholder capitalism or the nationalised status quo,” says Meek). Take the case of the water industry. The privatised water company Severn Trent pays out substantial dividends to shareholders each year. In 2007, for example, it paid out the equivalent of £38.65 per customer in dividends. That same year, the Mythe waterworks near Tewkesbury in Gloucestershire, for which Severn Trent was responsible, flooded, leaving 350,000 people without drinking water, and unable to flush toilets or run baths. It subsequently turned out that the company had decided not to spend £25m on extra flood defences for Mythe, on the grounds, Meek reports, that “funds for investment were limited.”
The customers of Severn Trent and other English water companies are stuck: “[They] have no choice of supplier, no choice but to take the water, and no choice but to pay for it.” At least in the energy market, customers have the dubious privilege of being able to switch, as Meek puts it, from “one oligopolistic supplier to another.”
It wasn’t meant to be like this. The early enthusiasts for privatisation—or “denationalisation” as it was known among the free-market cognoscenti in the late 1970s—imagined a glorious future in which handsome profits for privatised electricity companies, say, would encourage new competitors to enter the marketplace. Intensified competition would, in turn, increase choice and lower prices for customers. But, as Dieter Helm showed in the case of energy, the opposite has occurred. According to Meek, there was an uncomfortable truth that the theory of competition propounded by the early privatisers couldn’t accommodate: firms tend not to like competition very much and would prefer either to eliminate their rivals or else arrange an oligopolistic cartel with them.
As Meek suggests, privatisation—at least in water and electricity—failed to deliver greater competition and choice, nor did it achieve the massive expansion of popular share ownership that the most zealous advocates of “denationalisation” held to be its principal rationale. He quotes from the memoirs of Nigel Lawson, Thatcher’s Chancellor of the Exchequer during the first wave of privatisations in the mid-1980s. “The prime motives for privatisation were not Exchequer gain,” Lawson wrote, “but an ideological belief in free markets and a wider distribution of private ownership of property.”
The idea was that, by becoming small shareholders, ordinary people would acquire a direct financial stake in the companies that supplied them with essential services. However, by the time of Thatcher’s death in 2013, only 12 per cent of shares in British companies were held by individuals. In 1979, when Thatcher first entered 10 Downing Street, that figure was almost 40 per cent.
All of which is to say that privatisation has often been a failure in its own terms, not introducing the effective competition it was supposed to. This is certainly true in industries in which there is a natural monopoly, such as water or electricity. But there are other cases, that Meek does not examine, in which the picture looks rather different. Take telecommunications, where the privatisation of a state-owned company (BT) was followed by a liberalisation of the market which has delivered greater consumer choice, driving technological innovation in the process. The improved performance of British Airways and BP since privatisation might also be counted as successes. There is a global dimension to the story, too. Although Meek is rightly scathing about the way the sell-off of state-owned industries was handled in the former Soviet Union, he doesn’t acknowledge the sometimes beneficial effects in developing countries of taking public enterprises out of the hands of kleptocrats and self-enriching “extractive elites”.
Meek does say that he began his book “prepared to be convinced that privatisation… had been a success.” And he takes very seriously the range of possible alternatives to nationalisation. He mentions the “gas and water socialism” of the late 19th century, in which publicly-owned municipal utility companies were run as going commercial concerns. Then there is Glas Cymru, the Welsh water company, which doesn’t have any shareholders and is financed on the capital markets with no state support. The company returns any surpluses it generates to its customers and its average bills were lower, in real terms, in 2013 than they were in 2000.
In Meek’s view, however, this is an isolated case. As Britain sold off its nationalised industries in the 1980s and early 1990s, reasonable scepticism about the self-serving rhetoric of public service often hardened into dogmatic suspicion of all public servants. What happened with the railways in this country is perhaps the clearest illustration of this. And you don’t have to be blind to the inefficiencies of the old British Rail, or excessively sentimental about the public service ethos, to find the story Meek tells here genuinely shocking.
He describes how, once British Rail had been broken up and responsibility for signalling and track maintenance handed over to Railtrack, John Edmonds, the first Chief Executive of the new company, set about removing an entire layer of in-house experts and engineers, in the belief that all safety and engineering work could be contracted out. This was just as Railtrack faced the gargantuan task of upgrading the ancient and creaking West Coast Main Line, the busiest railway in the country. The consequences were predictably disastrous. After Railtrack was dissolved in 2002 and replaced by Network Rail, the task of finishing the West Coast job, over-time and over-budget, had to be farmed out to an American firm, Bechtel.
According to one former Virgin Trains executive whom Meek quotes, hardly a left-wing firebrand, what Railtrack did was to “take a really high-calibre engineering team on the BR [British Rail] system and destroy it.” As an epitaph for the worst excesses of privatisation, that cannot be bettered.
Earlier this year, Dieter Helm, the Oxford economist, published a paper on the state of Britain’s energy market. The privatisation of the Central Electricity Generating Board (CEGB) in 1990, Helm wrote, was meant to usher in a “liberalised quasi-competitive market.” What we’ve ended up with, however, is something much closer to the “command and control” structure of the old nationalised energy industry. Today it is the Department of Energy and Climate Change (DECC) that is responsible for awarding energy contracts, rather as the CEGB used to engage private contractors to carry out investments on its behalf.
The energy industry is still in private hands. But, partly as a result of reforms introduced in the late 1990s, it is dominated by a handful of firms, the so-called “Big Six,” four of which are partially or wholly foreign-owned. The way the CEGB set prices before the 1990s might have been arcane and difficult to understand, but things are hardly any less opaque now. Indeed, in July, the Competition and Markets Authority began an investigation into allegations of “tacit coordination” on energy pricing by the Big Six after Ofgem, the industry regulator, raised the alarm.
Helm’s rather gloomy message was that we shouldn’t expect much from this latest inquiry into dysfunctional competition. The likely result will be yet more muddled intervention from DECC and another round in the unhelpfully polarised debate between partisans of increased state control and those who dream of a “more competitive landscape.”
According to the journalist James Meek, it was ever thus. “One of the oddest things about the privatisations of water, the railways, electricity and the rest,” he writes in his new book, “is that they were framed as binary possibilities: stay or go, stick or twist.” Beginning with the flotation of British Telecom on the stock exchange in 1984, either you were for “selling off the family silver,” as former Prime Minister Harold Macmillan put it in a speech attacking Margaret Thatcher’s privatisation policies, or for the continuation of state control.
This is a point Meek makes several times in Private Island, a history of 30 years of privatisation in Britain based on admirably thorough and vivid reporting. He looks at four privatised industries (rail, water, electricity and the Royal Mail), the sale of most of Britain’s council housing stock and the fate of the National Health Service, which, although it hasn’t been privatised, has undergone multiple reorganisations designed to submit it to market-like disciplines. The book inhabits, Meek says, the “obscure realm of events that are too fresh for history, but too old for journalism.” If journalism is the first draft of history, then maybe what he is doing here is writing the second draft—certainly, he’s able to take sufficient distance from the events he describes to discern patterns that often remain invisible to the journalistic eye.
Born in 1962, Meek is old enough not to be starry-eyed about the realities of public ownership. He acknowledges that, by the late 1970s, many of Britain’s nationalised industries were overmanned and underperforming. And any lingering illusions he might have harboured about it were extinguished for good by his experiences in Russia and Ukraine in 1991 as the Soviet Union began to unravel. Meek learned there, if he didn’t know it already, that state monopolies are always vulnerable to “capture” by their management and workforces.
The chaos of the early post-Soviet period, in which state assets were systematically expropriated, often at the barrel of a gun, also inoculated Meek against free-market triumphalism. Many of the western adventurers he met in Russia during this period—business people, financial advisors—seemed “to believe the myth that all that was good in the British and American economies had been constructed by the free market.”
At home, the effect of this kind of zeal and conviction was to create an atmosphere in which alternative forms of industrial organisation or private ownership were simply never on the agenda (“It was either shareholder capitalism or the nationalised status quo,” says Meek). Take the case of the water industry. The privatised water company Severn Trent pays out substantial dividends to shareholders each year. In 2007, for example, it paid out the equivalent of £38.65 per customer in dividends. That same year, the Mythe waterworks near Tewkesbury in Gloucestershire, for which Severn Trent was responsible, flooded, leaving 350,000 people without drinking water, and unable to flush toilets or run baths. It subsequently turned out that the company had decided not to spend £25m on extra flood defences for Mythe, on the grounds, Meek reports, that “funds for investment were limited.”
The customers of Severn Trent and other English water companies are stuck: “[They] have no choice of supplier, no choice but to take the water, and no choice but to pay for it.” At least in the energy market, customers have the dubious privilege of being able to switch, as Meek puts it, from “one oligopolistic supplier to another.”
It wasn’t meant to be like this. The early enthusiasts for privatisation—or “denationalisation” as it was known among the free-market cognoscenti in the late 1970s—imagined a glorious future in which handsome profits for privatised electricity companies, say, would encourage new competitors to enter the marketplace. Intensified competition would, in turn, increase choice and lower prices for customers. But, as Dieter Helm showed in the case of energy, the opposite has occurred. According to Meek, there was an uncomfortable truth that the theory of competition propounded by the early privatisers couldn’t accommodate: firms tend not to like competition very much and would prefer either to eliminate their rivals or else arrange an oligopolistic cartel with them.
As Meek suggests, privatisation—at least in water and electricity—failed to deliver greater competition and choice, nor did it achieve the massive expansion of popular share ownership that the most zealous advocates of “denationalisation” held to be its principal rationale. He quotes from the memoirs of Nigel Lawson, Thatcher’s Chancellor of the Exchequer during the first wave of privatisations in the mid-1980s. “The prime motives for privatisation were not Exchequer gain,” Lawson wrote, “but an ideological belief in free markets and a wider distribution of private ownership of property.”
The idea was that, by becoming small shareholders, ordinary people would acquire a direct financial stake in the companies that supplied them with essential services. However, by the time of Thatcher’s death in 2013, only 12 per cent of shares in British companies were held by individuals. In 1979, when Thatcher first entered 10 Downing Street, that figure was almost 40 per cent.
All of which is to say that privatisation has often been a failure in its own terms, not introducing the effective competition it was supposed to. This is certainly true in industries in which there is a natural monopoly, such as water or electricity. But there are other cases, that Meek does not examine, in which the picture looks rather different. Take telecommunications, where the privatisation of a state-owned company (BT) was followed by a liberalisation of the market which has delivered greater consumer choice, driving technological innovation in the process. The improved performance of British Airways and BP since privatisation might also be counted as successes. There is a global dimension to the story, too. Although Meek is rightly scathing about the way the sell-off of state-owned industries was handled in the former Soviet Union, he doesn’t acknowledge the sometimes beneficial effects in developing countries of taking public enterprises out of the hands of kleptocrats and self-enriching “extractive elites”.
Meek does say that he began his book “prepared to be convinced that privatisation… had been a success.” And he takes very seriously the range of possible alternatives to nationalisation. He mentions the “gas and water socialism” of the late 19th century, in which publicly-owned municipal utility companies were run as going commercial concerns. Then there is Glas Cymru, the Welsh water company, which doesn’t have any shareholders and is financed on the capital markets with no state support. The company returns any surpluses it generates to its customers and its average bills were lower, in real terms, in 2013 than they were in 2000.
In Meek’s view, however, this is an isolated case. As Britain sold off its nationalised industries in the 1980s and early 1990s, reasonable scepticism about the self-serving rhetoric of public service often hardened into dogmatic suspicion of all public servants. What happened with the railways in this country is perhaps the clearest illustration of this. And you don’t have to be blind to the inefficiencies of the old British Rail, or excessively sentimental about the public service ethos, to find the story Meek tells here genuinely shocking.
He describes how, once British Rail had been broken up and responsibility for signalling and track maintenance handed over to Railtrack, John Edmonds, the first Chief Executive of the new company, set about removing an entire layer of in-house experts and engineers, in the belief that all safety and engineering work could be contracted out. This was just as Railtrack faced the gargantuan task of upgrading the ancient and creaking West Coast Main Line, the busiest railway in the country. The consequences were predictably disastrous. After Railtrack was dissolved in 2002 and replaced by Network Rail, the task of finishing the West Coast job, over-time and over-budget, had to be farmed out to an American firm, Bechtel.
According to one former Virgin Trains executive whom Meek quotes, hardly a left-wing firebrand, what Railtrack did was to “take a really high-calibre engineering team on the BR [British Rail] system and destroy it.” As an epitaph for the worst excesses of privatisation, that cannot be bettered.
