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The privatisation of large monopolistic publicly owned enterprises in the United Kingdom: A public choice perspective

Williams, John L. (2000) The privatisation of large monopolistic publicly owned enterprises in the United Kingdom: A public choice perspective. PhD thesis, Murdoch University.

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Previous studies have reported that the Conservative Government of Prime Minister Margaret Thatcher failed to promote competition in its privatisation of large monopolistic publicly owned enterprises in the United Kingdom during the 1980s. In consequence, it failed to maximise the welfare gains which were potentially available. This perceived failure in policymaking has been attributed to flaws in government decision making. The interests of public sector managers have also been identified as impediments to welfare maximisation. However, neither the flaws in government decision making, nor the role of enterprise management in the process of privatisation, have been systematically and thoroughly investigated. The normative perspective adopted in most previous studies did not facilitate investigation of why a government would implement privatisation policy which was not socially optimal.

An alternative - public choice - explanation of the process of privatisation of large monopolistic publicly owned enterprises in the United Kingdom is advanced in this study. A public choice explanation facilitates investigation of the inherently political process of enterprise privatisation, and permits explicit consideration of the influence of enterprise management in that process.

Specific predictions are made about the changes in the relationship between an enterprise and the state, and about the changes in market structures, that occurred during implementation of the Thatcher Government’s privatisation decisions. They are predictions about removal of the constraints of public ownership, restrictions on the entry of competitors into markets served by the privatised enterprises, retention of their horizontally and vertically integrated structures, restrictions on future price increases, maintaining service quality, the continuation of cross-subsidies, commitment of the Government and its successors to the redistribution of wealth effected, and the role of the regulator. Evidence supporting these predictions, and supporting the public choice explanation of this study, is presented.

Privatisation created new profit opportunities for the enterprises by removing the constraints of public ownership, and by restructuring the markets they served. It also made possible the provision of incentives, through the introduction of performance-related compensation, for senior management response to those opportunities. The study examines, and provides evidence in support of, expected changes in the level and form of senior management compensation occurring at the time of privatisation of the large monopolistic publicly owned enterprises in the United Kingdom, and immediately afterwards. Senior management could be expected to respond to new profit opportunities through redefining the scope of enterprise activities, and through changing the way in which resource use was coordinated and controlled. Predictions are made concerning the changes expected in the horizontal scope of the activities of the privatised enterprises, and in the extent to which their activities were vertically integrated. Evidence is presented supporting these predictions.

Not only does the evidence presented support the public choice explanation of this study. It also indicates that the public choice perspective which has been advanced is superior to the alternative, normative, perspective in terms of predictions made about the outcomes of the process through which large monopolistic publicly owned enterprises in the United Kingdom were privatised. The public choice perspective explains aspects of enterprise privatisation which are not easily explained from the normative perspective.

Publication Type: Thesis (PhD)
Murdoch Affiliation: Division of Business, Information Technology and Law
Supervisor(s): Harman, Frank
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