UK: Privatisation - a matter of nerve.

UK: Privatisation - a matter of nerve. - Management Today comments:

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Last Updated: 31 Aug 2010

Management Today comments:

Bumper profits, monopoly power, directors' telephone number salary rises and customers paying through the nose - such recent banner headlines about the antics of recently privatised companies make the whole privatisation exercise stink. What was a Tory election winner in 1987 is set to be a Labour trump card in 1992. This would be a pity.

For all its warts, the privatisation programme has liberated managers in what were sleepy old industries to face up to economic realities. Who could have imagined the old Post Office (where British Telecommunications was but a department a decade ago) investing enormous sums in its digital network, powering into international markets and upgrading phone boxes et al. Or Thames Water turning itself from a sleepy appendage of local government into a dynamic cost-conscious business.

Managers who have escaped the dead hand of state control revel in the removal of the business-crippling role of the Treasury as an investment rationer which had nothing to do with business realities and everything to do with government's (usually crisis-driven) economic policy.

Should the Tories win their fourth term (by no means certain, because of their own economic incompetence), they will very likely wind up the privatisation programme with the last candidates on the privatisation agenda: coal, rail, The Post Office and various government services and functions. Selling coal and The Post Office should be relatively straightforward. Government services, national or local, will simply be open to competition; which leaves good old British Rail as the one great headache.

Malcolm Rifkind, the eighth Tory Transport Secretary since 1979 and perhaps the most sympathetic to rail, is cautiously moving in the right direction. He plans to open up BR to more competition from private operators in freight and passenger traffic.

The record of private operators on BR to date has been meticulous. Residents of west London daily see huge aggregate trains trundling in and out pulled by Foster Yeoman's privately owned locomotives. Each train saves the capital's streets from dozens of heavy lorries. The company has been experimenting with a mile-long train weighing over 12,000 tons. Such monster trains (the equivalent of 400 or more lorry loads) are possible because Foster Yeoman has the latest locomotive technology.

Given BR's present shortage of investment funds, does anyone seriously expect the sudden interest in transport to outlast an election campaign? The sale of the complete business is the only option. Rail plc does not need to be broken up, or indeed have its present businesses floated off as separate entities. Rail plc is no monopoly. It faces ruthless competition from car, lorry, coach, ferry and aircraft.

One of BR's major problems remains its need to motivate its staff to levels of customer care undreamt of since nationalisation in 1947. Here the Government could kill two birds with one stone: motivate the staff and enthuse them to privatisation. The method? The Government should simply take a tranche of Rail plc's shares, some three years before the intended privatisation (30% would do nicely), and give it to the staff on an annual basis, bit by bit. The motivating factor of a large share stake would actually enhance the value of the 70% to far more than the original 100% was worth.

The Government must not lose its nerve now. It would be ironic if, having led the way in freeing industry from state control, Britain were to revert to the bad old days just as the rest of the world, even a socialist "paradise" like Sweden, is discovering the joys of privatisation.

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