Political and Economic Change in the United KingdomWHY PRIVATIZATION AND WHY IT WORKED

Post World War II1945-1979

Nationalized Industries1945-1977:

Socialist leaders in Labour party nationalized industries

• Public state bought out private corporations– Coal, Steel, Aerospace, Banks, Communication

• Protected worker rights and employment

ManagementIt is hard to attract good management

into nationalized industries

• Public sector does not pay well• Does not provide incentive schemes– Bonuses and shareholding

• Culture of public sector is service, not profit

Government InterferenceGovernment intervention led to

inefficient performance and diluted market interests

• Nationalized industries had to gain approval of government

• Good decisions may not be made because other industries took precedence on national priorities

The International MarketPolitical issues prevent a nationalized

industry to make international alliances

• Many industries cannot survive without international allies– British Telecom– British Airways

General Problems Regarding A Socialist Economy

• Industries did not have to run at a profit• Financial maintenance soared due to

increased government subsidies• Strong labor unions covered manual

workers under a collective bargaining agreement

Privatization: Moving Toward a Mixed Economy1979-PRESENT

UK Primary Objective: To introduce competition and market

forces whenever possible

• Fragmented the electricity industry• Fragmented Aero-space industry• Broke up National Freight Company• Attempting to break up British Telecom

and gas industries

UK Secondary Objective: To create a sense of ownership among

UK population

• Encouraged people to buy real estate• Increased stock market transactions• Ultimately increased shareholders

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100

0.5

1

1.5

2

2.5

3

3.5

4

Percentage Total Equity (Public Sector)

Cameron et al. 1999

Financial Management Initiative• Contract independent agencies to carry

out services once held by the government– Automobile licensing– Patents– Social security benefits

• Buy services from the private sector– Building toll bridges

***Government Multiplier in GDP

Money FlowGovernment Private

Sector

Suppliers

Labor

Luxuries

1920 1930 1940 1950 1960 1970 1980 1990 2000 20100

200000

400000

600000

800000

1000000

1200000

1400000

Gross Domestic Product (rGDP) In the United Kingdom

Year

Mill

ion

of P

ound

s St

erlin

g

ReferencesNATIONAL STATISTICS ONLINE. 2007 TIME SERIES DATA. DIRECT GOV. 23 SEPTEMBER 2007 <HTTP://WWW.STATISTICS.GOV.UK/STATBASE/TSDINTRO.ASP>

CAMERON, GAVIN. “WHY DID UK MANUFACTURING PRODUCTIVITY SLOW DOWN IN THE 1970S AND SPEED UP IN THE 1980S?” (1999) NUFIELD COLLEGE, OXFORD

POMEROY, BRIAN. “AN ASSESSMENT OF PRIVATIZATION IN THE UK.” (1991) CARNEGIE COUNCIL

ALMOND ET AL. “COMPARATIVE POLITICS TODAY.” SEVENTH EDITION (2003) LONGMAN

THEEN ET AL. “COMPARATIVE POLITICS” FOURTH EDITION (2001) PRENTICE HALL

J. H. CLAPHAM; AN ECONOMIC HISTORY OF MODERN BRITAIN: THE EARLY RAILWAY AGE, 1820-1850 CAMBRIDGE UNIVERSITY PRESS, 1926

G. C. PEDEN, BRITISH ECONOMIC AND SOCIAL POLICY: LLOYD GEORGE TO MARGARET THATCHER (1985)

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