Problems with state ownership of enterprises

Only when public enterprises are privatised, do the deficiencies of state ownership and government management and control become apparent. The monograph, Privatisation: A UK Success Story, provides examples of the difficulties that were being experienced by nationalised industries in the UK.

Political Interference

Political involvement in the functions of monopoly state industries at various times led either to excessively low or high prices, and, inevitably, to delays in instituting desperately needed investment programmes because the government faced a whole variety of other political priorities.

Higher Prices

State monopolies, divorced from genuine customer accountability, are inclined to push prices beyond a level which customers would not otherwise accept. Between 1974 and 1979, UK domestic electricity prices rose by 2 per cent every six weeks.

Misdirected Investment

Delays in decision-making, caused by having to obtain government approval, interfere with the long-term strategic planning and budgeting of large state industries providing crucial services. How does government decide between the purchase of a new destroyer for the navy, the building of a hospital, and desperately needed investment capital for a state industry?

Management without Authority

Managers who are subject to political authority cannot inculcate management disciplines within their organisations. As they do not have management authority, they are not fully responsible for the activities of their state corporations.

Demotivated Workforce

State corporations are frequently over-staffed; the morale of the workforce is often low with a great deal of absenteeism and staff members showing a total lack of concern regarding the interests of customers.

Politicised Industrial Relations

Unions often resort to strike action in order to achieve some political objective and take advantage of periods of political uncertainty to extract the maximum benefit for their workforce.

AUTHOR Jasson Urbach is an economist with the Free Market Foundation. This article is an excerpt from the book Nationalisation published by the FMF and may be published without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Policy Bulletin / 24 April 2012