Britain's Socialist Sell-Off

By John S. DeMott

Unloading state-owned dinosaurs is proving hard to do

Bumbling inefficiency and weak management have long characterized British industry. The reason, charged Prime Minister Margaret Thatcher while running for office, was that nearly 40 years of state ownership had sapped the initiative of many of Britain's largest and best-known companies. So within months after coming to power in 1979, Thatcher and her Conservative Party took steps to sell the assets of numerous firms to private investors. About half of Britoil (1983 pretax profits: $762 million) is now in private hands, as is all of the Jaguar automobile division of BL, formerly British Leyland.

The push to "privatization," however, has been among the most controversial and difficult undertakings of the Thatcher government. Union leaders and members of the opposition Labor Party, which began the movement toward state-owned enterprises in 1946, howl that the sell-off is really a form of "piratization," which robs the British people of companies that rightfully belong to them. The critics have dubbed Norman Tebbit, Thatcher's Secretary for Trade and Industry and a key figure in the socialist selloff, the "principal gravedigger of British industry."

Selling the companies is proving trickier than the Conservatives had expected. Frequent squabbles have broken out within the government over such basic questions as which companies to privatize and when to do it. Simply bringing the companies' stock to market has often been a problem. Jaguar's initial offering of 178 million shares sold out quickly in July, prompting Labor charges that the price was too low and that British industry was being divested for far less than it was worth. At the other extreme was the stock of Britoil, which found few initial takers because it was offered just as energy prices fell.

Moreover, the government's notion of turning Britain into a nation of stockholders has not panned out. The biggest buyers of stock have been large institutional investors rather than ordinary Britons, many of whom are unaccustomed to the idea of stock ownership after decades of nationalized industry. A majority of the new offerings are in the hands of life insurance companies, pension funds and banks, and chunks of the rest have not been sold. Speculation in the issues has been rampant as shareholders bought in, held briefly, then sold for a quick profit. The fact that relatively few investors have participated in ownership of the companies worries Thatcher's Conservatives. Without millions of shareholders to contend with, a new Labor government might have an easier time shifting back to state control.

Now looming are sales of British Airways and Rolls-Royce, the enginemaker. The largest privatization move will come in the fall when 51% of British Telecom, the telecommunications monopoly, goes on the block in an anticipated $4 billion selloff. Union members have called the breakup of ownership "an act of economic vandalism," and some engineers staged a brief protest strike.

For all the problems it has created, privatization has produced many good results. Companies like Cable & Wireless and British Aerospace are far more profitable than they were under state control. The government, moreover, has gained substantially from the sales of state-owned assets. In Thatcher's first administration, which ended in 1983, the yield to the Treasury was more than $2 billion. That is expected to rise to $14 billion during her second term. But the most important byproduct of privatization should be a sharper and more productive British industrial system. --By John S. DeMott.

Reported by John Wright/London

With reporting by John Wright/London