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Friedman’s End-Game: Should We Fear a Fully Privatised Britain?

 

Recent events in the UK have gestured toward an emerging debate over the ideas that will decide how we do capitalism in this country.Firstly, the opposition leader Ed Miliband stated that if elected in 2015 his government would freeze energy prices until the beginning of 2017 in order to tackle the problem of overcharging by private energy companies. Next we have last week’s Royal Mail sell-off in which a state-owned entity was put into the hands of the private sector, a pendulum swing away from Mr Miliband’s interventionist policy. In the same week we had an announcement from British Gas that it will be implementing a 10.4% rise in electricity prices and an 8.4% increase in the gas tariff from the 23rd November. This announcement has prompted considerable backlash to the tune of 16,000 complaints via Twitter within hours of it being issued and puts the pressure back on advocates of privatisation to justify the continuing wisdom of this approach. This week has seen the eyebrow-raising entry of former Prime Minister John Major (himself no great enemy of privatisation) to the fray, arguing for an energy windfall tax on the grounds that the status quo amounts to asking poor people to choose between heat and food. Thus, the aforementioned clash appears to be between  those that continue to see Britain’s future as one in which public services are increasingly given over to the market, this would be illustrative of the governing coalition’s approach, and those who believe there are limits to how much a state should hand cede control to market forces. So how strong is the argument for the superiority of the free-market over the state?  And does the recent history of privatisation prove this?

 

The ideas that inform the policy of privatisation do of course fall under the rubric of neoliberalism or neoclassical economics. The history of how these ideas came to the fore from a minority of advocates in the early to mid-20th century to almost global orthodoxy by that same century’s close is well established. However, it does serve to restate that the contemporary interpretation of the work of Chicago School luminaries such as Freidrich Hayek and Milton Friedman is the belief that the free market fundamentally offers a better guarantee of value, quality and efficiency than a model in which the state has a greater hand in running things. Furthermore, this belief is held to include the provision of public services. Indeed, in the case of Milton Friedman, a key horseman of the neoliberal crusade against ‘big government’, this view is taken to great lengths to include the privatisation of every facet of the structure of a nation with the exception of some roads and the army. Such deep faith in the power of the free market to ensure the smooth running of everything, from law courts to healthcare to car manufacturing, reasonably requires some justification. For Friedman and his wealth of supporters this is articulated in terms of staying faithful to liberal ideals of individual freedom and the right of such individuals to prosper via the market both as consumers and suppliers.

 

The idea goes that, if left free from government intervention, the power of the consumer to choose the products that offer the best value will ensure the emergence of a virtuous circle where competitive markets respond to the demands of people, thus acting as an incentive to offer greater value as well as driving innovation and economic growth. In this picture, we as consumers are masters of our own destiny. We do not require coddling by the cumbersome hand of the state to act in our interests; by forming the constituent elements of the market the people cannot fail to be the ultimate beneficiaries of this system. It is the faith in this narrative on the part of the Thatcher government that led Britain to embark on a radical program of transforming the structure of its economy and society from a state-run system to a market-run system, a program that continues to this day. The question we need to ask, 30 years in to this project, is: has this process lent support to the overall desirability of Freidman’s end-game of a totally market-run society?

 

Thatcher carried out mass UK privatisation at a time when the state was demonstrably struggling to fulfil its remit. The 1970s had seen Britain flirt with economic disaster, lurching from crisis to crisis and one can ponder, without hyperbole, the very real possibility of this nation falling far down the global pecking order to middle income territory.  As such, Thatcher’s radical program was an easier sell to the public than it might have been and many ventures including British Airways, British Aerospace, Jaguar and Rolls Royce fell under the auspices of the business community. As Andrew Rawnsley argued in his recent piece in the Observer[1] the record of this first wave of privatisation is fairly strong resulting in well-run services that are able to compete globally. However, it is when we encounter what Rawnsley terms the second wave of privatisation (water, gas, electricity and the railways) that the record of the free market becomes less positive. In brief, it is difficult to argue what exactly it is that the British public has gained in terms of value from the privatisation of these services. They are paying an eye-watering amount more money year on year for the same service, both as consumers (the average duel fuel bill has risen from £543 to £1340 since 2003) and, in the case of the railways, as taxpayers via subsidies.  Indeed, the railways remain the most difficult to square with the selling point that the free-market provides better value; if ticket prices are rising well above inflation and the cost of running the things, and the UK taxpayer is shelling out more in subsidies, then somebody somewhere must be doing very well but it cannot be the consumer. Today it is cheaper to fly to parts of the UK than to catch a train, a state of affairs that puts the UK out of step with most other European nations. Anecdotally, a Norwegian colleague of mine was so incensed by the price of his train ticket from London to Bristol it prompted something of a Damascene conversion from his (hitherto robust) belief in this approach to economics to the social democracy of his homeland. The question is: do these mixed results for market run enterprises hint at potential drawbacks of the deployment of a blanket approach to this policy and should this prompt similar soul-searching  (such as my colleague’s) for the rest of us?