NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENT

NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENTAuthor(s): ROBERT MARSHALLSource: Journal of the Royal Society of Arts, Vol. 131, No. 5317 (DECEMBER 1982), pp. 30-41Published by: Royal Society for the Encouragement of Arts, Manufactures and CommerceStable URL: http://www.jstor.org/stable/41373494 .

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NATIONALIZED INDUSTRIES

UNDER OUR SYSTEM

OF GOVERNMENT

I A paper by I

III SIR ROBERT MARSHALL, KCB, MB E I

Chairman , National Water Council ' given to the Society on Wednesday 2nd June 1982,

with Sir Peter Masefield, MA, С Eng, D Sc, D Tech, FRAeS, FCIT, a Vice-President of the Society, in the Chair

THE CHAIRMAN: This evening's lecturer, Sir Robert Marshall, is an old friend, currently Chairman of the Water Council and, also - highly relevant to this evening - the immediate past Chairman of the Nationalized Industries Chairmen's Group. Sir Robert has a very wide experience of government, industry, science and technology, all quite appropriately and properly, I think, upon a foundation of the humanities, because what is technology if it is not founded on humanities? This came about because, after Sherborne School, he went up to Corpus Christi College, Cam- bridge, where he read modern languages and then economics, which do not always go together, but in him have really had a perfect harmonization. Then he went into the Foreign Office during the War and served

after that in a very wide spread of government departments, including the Cabinet Office, the Ministry of Works, the Ministry of Aviation, the Ministry of Power, the Ministry of Technology and in the Department of T rade and Industry, in which he was a highly successful Secretary for Industry. To round off a remarkable Civil Service career, he was Second Per- manent Secretary in the Department of Industry. So Sir Robert has seen all sides of the business including since 1978 as Chairman of the National Water Coun- cil. His leisure interests include the countryside and gardening, music and the arts, travel and also his friends - who are legion. No one can speak with more insight and more knowledge upon the subject tonight.

The following paper was then given.

THIRTY Government nationalization

or more

of legislation

years

1945-50

after of controversy the the

Attlee major

THIRTY nationalization legislation of the Attlee Government of 1945-50 controversy

over the public sector of industry continues unabated. It started much earlier than that and has not yet run its course. The thoughts in this paper are not concerned with the increasingly harmful and arid debate on 'nationalization' and 'privatization' but with the constitutional, administrative and financial issues of national importance which affect so vitally the success of the public enterprises and their contribution to the economy. 30

But just because of the political heat generated by this subject I shall make clear my point of departure. In our age, under our system of parliamentary democracy and at this stage in the development of our economy and society I regard a mix of publicly owned and privately owned business as natural, inevitable and continuing. Neither the private nor the public sector of industry will disappear within the foreseeable future but the boundaries between the two should and will change as will the forms of association of public and private sector enterprises. Hope- fully this will happen in the natural course of the



DECEMBER 1982 NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENT evolution of industry and commerce rather than for doctrinal reasons.

The changes should arise from changing conditions and patterns of supply and demand; from developments in production, technology and management which determine industrial structure; and from the evolution of society which influences what customers expect by way of service and product. Of course these are political matters which Parliaments and Governments will interpret and judge differently but they comprise requirements of evolution and adapta- tion which are, in my opinion, more weighty and relevant in our economy and society than absolute and intransigent views that one form of ownership must be right, the other wrong. Once given sufficient weight they may moderate, perhaps even eliminate, the damaging reversals of policy which have beset this important sector of our affairs and of industry and bedevilled the relations of Governments and Boards and of the private and public sectors of the economy.

As I see it the task of all of us concerned with the conduct of industry and the success of the economy is to concentrate on the efficiency and progress of the public enterprises as an integral part of industry and to emphasize the mutual support and dependence of the public, private and mixed sectors of the economy. We should do so with the overriding objectives of improv- ing the performance of British industry as a whole in relation to our competitors, recognizing that as part of this process the ownership and structure of parts of industry will change along with much else.

Against that background I want to develop some thoughts, albeit in rather general terms, about the conditions in which the public sector of industry works and their bearing on the efficiency of the enterprises. To understand the nature of the problem it is crucial to take on board that the nationalized industries are not a homogeneous group but an extremely diverse clutch of industries operating in very different commercial and statutory circumstances. The point is readily made by mentioning two or three examples: steel and shipbuilding competing under great pressures, internationally and nationally; rail and coal competing fiercely for markets within the transport and energy sectors at home and also active in the international scene; the three historic utilities - gas, electricity and water - ranging from considerable market

exposure and competition through to monopoly. And all of them - public or private it makes no odds - competing for a share of total resources and total demand.

The group of industries in public ownership, diverse as it is, has a number of fundamental characteristics in common and these also need to be clearly understood:

all exercise great market power; all provide products or services important for the economy - in many cases indispensable; most are large concerns subject to the risks of impersonality and stiffness attendant on size, risks which call for special attention in the conduct of industries serving very large numbers of customers, domestic or business or both; none is subject to the fullest rigour of the market place but the extent of the exposure varies greatly and the distinction in this respect between public and private is not as clear cut as so often suggested; some of these businesses are deemed essential by society and Government but are of a kind which are seemingly incapable of profitability in the normal commercial sense in any modern economy; so they make a call on the tax-payer for part of their services, again neither uniquely nor in fact generally a charac- teristic of the public sector.

The nationalized industries have other characteristics which need to be understood:

all have been created by Act of Parliament and their statutes constitute their basic terms of reference; common to most of their statutes are the requirements to provide their products or services efficiently and at prices which main- tain solvency; all have boards appointed by ministers and these boards are specifically responsible for managing the industries within the terms laid on them by statute; all have responsibilities to ministers and ministers in their turn have specific duties and powers, typically in relation to the approval of capital programmes and other strategic matters; all are subject to certain basic financial rules laid down by statute such as the sources of their borrowing; some have important social obligations either explicit or implicit in their statutes and activities;

31



JOURNAL OF THE ROYAL SOCIETY OF ARTS all are important enough to be significant in public policy and therefore of concern to Government.

We are dealing then with a large and important sector of the economy, brought into public ownership for an assortment of reasons and constrained in their activities by the functions, powers and duties laid on them by Parliament. They are unmistakably industrial organizations characterized by many of the pressures which act on industry at large but differing in certain ways, most notably and universally by their links with Government and the restrictions this places on the complete responsibility of the boards for the conduct of their affairs. This is not, it should be noted yet again, uniquely applicable to the public sector: compare, for example, the computer and motor industries or aircraft and aerospace to mention but a few. And more generally, of course, all industry and commerce is constrained by laws affecting employ- ment conditions, pollution of the environment, consumer interests and so on.

From this outline of the essential characteristics of the public corporations emerge some intract- able but very important issues of constitution, management and politics. Those I want to present and discuss briefly are the relationship between Parliament, ministers and the boards; the means by which customers, tax-payers and Parliament can be satisfied that the businesses are being well run; and the restraints, notably financial, under which they have to operate by law or by practice. Under our system of parliamentary government these have not proved easy matters to resolve and I believe that we have not yet succeeded in finding satisfactory and durable solutions which meet the requirements and interests of customers, managements, Government and Parliament.

Since the early nationalization Acts of 1945-50 there has been remarkably little development and change in the basic constitution of the public sector corporations with the one notable exception that a number of major undertakings - Rolls Royce and British Leyland for example - have been saved from disaster or external threat by government and allowed to continue as limited liability companies wholly or partly owned by Government.* In general the basic pattern has remained that of the statutory corporation with the characteristics already described. This Morrisonian concept, as it is commonly 32

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called, assumed that it was possible within our system of government to define in a practical, workable and acceptable way the division of responsibility between Parliament, Govern- ment and the boards for the overall conduct of the corporations' affairs. Certain key duties were reserved to ministers and for these they were accountable to Parliament. The management of the corporations' affairs lay unequivocally with the boards; and the boards in turn were accountable to ministers, and directly or indirectly to Parliament, for managing the industries efficiently within their statutes.

There is little wrong in this as a blueprint for an acceptable division of responsibility and line of accountability and it would be quite wrong to suppose that it was wholly misconceived or has failed miserably. That is not the case. But it has given rise to some severe problems impeding the sustained progress and evolution of the industries and leading to a continuing current of criticism and disquiet. One of the most deep rooted difficul- ties lies in the relationship between Parliament, with its legitimate and laudable desire to see that the public is well served by corporations set up by Act of Parliament, and ministers, who have an indisputable interest or stake in the performance and efficiency of the boards which they appoint but who are not responsible for directing the industries' affairs. Inevitably this problem has been compounded by the political passion and prejudice which the public - private ownership debate has aroused and it has led to great pressure on ministers to intervene in the affairs of the industries to a degree which has strained relations with the boards, blurred responsibility and often distracted the attention of the boards from single-minded concentration on running their industries well. In saying this I am not pointing an accusing finger at any of the three interests concerned. Each in its own way has sought to do its job well within the statutory and other constraints. But the interplay is one of extraordinary difficulty because there is no neces- sary natural identity of interest between them in terms of priorities in time or in objectives or in the interplay between the wider requirements of *There have also been two important experiments in Government partnership with industry - the Industrial Reorganization Corpora- tion and the National Enterprise Board. Unhappily the IRC proved controversial. Both only lasted a few years; the NEB still survives though it has suffered major changes in its short existence. But the purpose behind both - to link public and private resources and enterprise in the business of advancing and strengthening British industry and complex business - is certain to survive and increase in importance.



DECEMBER 1982 NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENT

Government policy - whether economic, social or political - and those of a board concentrating on the successful management of its business.

Let me illustrate this by reference to the nationalized industries' financial framework and their investment planning and funding. Despite the efforts of successive Governments expressed in a series of White Papers, some of great signi- ficance, there remain fundamental technical and institutional shortcomings in the arrangements governing our financing and our financial performance. Ours is not a well-thought out, orderly and stable system but one that has developed piecemeal and has been subject to repeated and disconcerting change. Do not suppose that this is due to the attitudes of governments of one per- suasion rather than another. It has been a feature of most, though undoubtedly aggravated sharply by sharply opposing political views about the conduct and future of the industries.

The industries' needs and obligations can be simply stated:

(1) a financing system well suited to the industries' affairs and comparable for the different types of business to what private and foreign businesses enjoy; above all sufficient flexi- bility and freedom to meet changing needs at minimum cost;

(2) clarity about the distinction between revenue and capital requirements; and between straightforward business needs and the social obligations laid on the industries and often only capable of being met by subsidy or grant;

(3) investment controls which recognize the long planning horizons of all our businesses; which do not second-guess the judgements of the boards and managements running the business; but which do impose clear, relevant and stable disciplines in terms of return on the investment and performance achieved against performance forecast;

(4) financial objectives and borrowing limits which do not stultify investment plans and performance and which recognize unambig- uously the distinction between financing direct Government expenditures from taxa- tion and financing industrial activities which are as exposed in the public sector as they are in the private to changes of economic activity, of technical advance, and in many cases, of competition;

(5) acceptance that the pricing policies of the industries and their ability to finance an appropriate proportion of their investment from internal arisings are directly affected by the financial and other controls set by government as well as by their own efficiency in controlling costs.

We have nothing like this in practice and the various controls and criteria adopted, though often starting off as sensible steps forward, all too often fail through misuse, by being over- ridden for reasons of expediency or because they are not developed as a coherent inter-related whole. This will continue until governments make up their minds whether the public sector industries are there to be used as instruments of short-term economic adjustment for which they are totally inappropriate or whether they are businesses to be judged by their success in dis- charging their statutory duties and meeting the needs of their customers. This distinction is fundamental and I do not accept the contention that economic pressures and circumstances make it impossible for Government to observe it. Like all other major businesses the nationalized industries must be able to plan ahead on timetables consistent with the nature of their affairs and, if they are to serve the community well, they must operate within a framework which enables them to achieve those objectives in the most economic and efficient fashion. It is not in dispute that their long-term objectives should be agreed with the responsible ministers in terms of policy, priority and call on resources. Nor are any of the boards blind to the fact that if they are to operate profitably and efficiently adjustment of objectives and plans will be needed to take account of changing economic circumstances, advancing technologies and management tech- niques, and changing market conditions. What makes sustained efficient operation quite impossible in any major enterprise is constant altera- tion of long-term plans, objectives and control criteria in response to short-term pressures often bearing little relevance to the affairs of the industry itself. This has been one of the greatest weaknesses in the post-war history of the nationalized industries. It is capable of solution and it must be solved in the interests of the economy and of the customer. It is basically a matter of sound administration and political restraint on which successive governments, with the support of Parliament and the Corporations,

33



JOURNAL OF THE ROYAL SOCIETY OF ARTS should find it possible to reach a great measure of agreement and continuity.

More particularly, on methods of financing the public corporations, it can hardly be disputed that the constraints within which they work are restrictive and rigid and in no way con- ducive to high standards of performance and ini- tiative. Except when the Treasury wants to en- courage overseas borrowing, nearly all borrowing has to be from the National Loan Fund and until very recently on fixed maturities. Access to the market continues to be opposed on the grounds that such borrowing would compete unfairly with the requirements of private industry by carrying the implicit guarantee of the Exchequer: not a view shared by Governments of many other industrial economies or by a number of extremely authoritative bodies in this country which have joined in the argument. Finally it is hard to believe that a definition of the public sector borrowing requirement (PSBR) which lumps together the needs of central and local Government and the needs of public industry and which fails to differentiate between revenue and capital or subsidy and ordinary business borrowing can possibly provide a rational and efficient way of determining the appropriate limits of borrowing in the public sector of industry. To make any kind of sense these limits must be related to the agreed objectives of the industries and sharply differentiated from the quite distinct borrowing of Government for its own central and local services. Arguably the external financing requirements of the nationalized industries should not feature in PSBR at all except to the extent that they consist of grant or subsidy.

All these matters are under discussion between Government and the boards. Some modest progress has been made but the industries will not be able to play a fully effective part until restraints irrelevant to their affairs are removed and replaced by controls stimulating sustained efficiency and appropriate to the particular type of business. The argument is not about the need for a measure of control by Government but about its relevance, durability and consistency with the type of business and the requirements of the statutes.

To this should be added the fact that the time- table of assessing with Government the performance, objectives and financing requirements of the industries is determined by the Govern- ment's forward planning and budgetary decision 34

PROCEEDINGS

programme and fits very badly to the decision timetables of industrial undertakings both as to short-term capital and financing requirements and as to long-term planning and commitments. If the distinctive nature of this industrial part of the public sector were more clearly understood, this severe difficulty could be more easily resolved. And resolved it must be if the corporations are to do their job well.

Finally some thoughts on accountability which I am using in the simplest and most fundamental sense of how to satisfy our customers, our owner/bankers and the boards themselves that we are doing well the tasks set for us by Parliament, which in every case refer to the national interest, to paying our way and to efficient supply and service.

I outlined earlier why this is so important. Briefly:

great market power extending even to monopoly; the importance to customers and the economy of most of the services and products; the fact, by no means unique to public corporations, that the industries are not subject to the fullest rigours of commercial and market disciplines; bankruptcy is not a threat to the same degree as in most - not all - of the private sector; the duty to provide some services which are deemed essential but not capable of being provided profitably in Britain or elsewhere; the size of most of our enterprises and the inherent danger of remoteness and rigidity;

Let's look in two ways at how this can be tackled: are institutions needed to examine and approve or criticize our performance? Or can we make our actions speak for themselves by clearer demonstration of efficient performance? I start with the latter because to my mind it is all- important though never quite enough to allay all doubt in the exposed and equivocal position of publicly owned enterprises.

I list these things as basic to our reputation and to our achievements: (1) The boards must be well chosen and should

invariably include powerful and independent non-executive members. They should make it their business to be accessible to Parliament, their customers and the media as well as to Government.

(2) The Boards should be trusted and supported unless they show themselves unfit, in which



DECEMBER 1982 NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENT case they should be replaced. Their success or failure should be judged against accepted criteria clearly and openly displayed to Parliament and the public and accepted as reasonable and appropriate by ministers and the boards for the circumstances of the industries.

(3) The distinction between normal commercial operation and social or political obligations, where it exists, must be fairly and unambig- uously set out by government as well as by the industries to the satisfaction of Parliament and the public.

(4) Service to customers - private or corporate - should be exemplary, not just because the industries are publicly owned but because their services are so often indispensable. Complaints should be quickly examined and remedied or disposed of.

(5) The boards should never be seen or thought to take advantage of their market, economic and social power. This goes for prices; costs, including labour and other operating costs; attitude to change and advance; willingness to contemplate new organizational and ownership patterns when industrial logic and the customers' advantage point that way.

(6) Cost and profit centres and points of customer and employee identity should be as far devolved as possible so as to break the aura of remoteness which detracts from customer and employee satisfaction and overall efficiency in many large organizations.

(7) The industries should be at the forefront in management/employee relations - united in their aims and effort and seen to be wholly identified with the success of the business.

(8) They should be encouraged also to be leaders of industrial training, education and innovation - and that involves trust and determination.

You will see that there is plenty for those employed in the industries, from boardroom to shopfloor, to be striving for and our reputation lies largely in our own hands despite the way- wardness of politics and public opinion and many deficiencies in the framework within which we work. We should and do accept the fact that if we abuse our power - management in their approach to cost-efficiency, market needs and prices; trade unions and employees in their attitude to change, productivity and wage

demands - we shall attract and we shall deserve public criticism and distrust.

As to institutions I believe the nationalized industries have to accept some external body com- manding the respect of all interests, ours included, which will from time to time look searchingly at the whole or part of an industry's activities. I see no escape from this in a parliamentary democracy and no need to oppose it. Whatever body it is needs to consist of able and experienced people who know about industry and government and what makes for efficiency and consumer satisfaction. It needs to approach its task constructively and without political or other distraction. It must have and hold the respect of all main interests and its advice and comment should carry authority with Government and Parliament and with the industries. Arrangements which can meet such stringent requirements are likely to endure and provide the stable, objective source of judgement on performance which should be welcome to the industries and reassuring to customers and to Parliament. The Monopolies and Mergers Commission is the closest to it at present and has been chosen by the government as the principal instrument for the purpose. It has done, and I am sure it will continue to do, some distinguished and constructive work in the public sector. Time will show how effective it proves.

An alternative which I should prefer, would be a Select Committee of Parliament with the specific responsibility of keeping under con- sideration the affairs of the public sector of industry and reporting to Parliament on them. Select Committees are playing an increasingly important part in Parliament: a trend I welcome. They have the merit of being part of Parliament and therefore of the process of government but one in which political differ- ences tend to be subordinated to the assessment of the merits of the particular issues under examination. The erstwhile Select Committee on Nationalized Industries played an influential and beneficial rôle in the affairs of the industries and made valuable recommendations, some very far-reaching, such as those in the First Report of the Select Committee on Nationalized Industries (HC 371, Vol. 1, 1967-8) on the fundamental relationships between Parliament, Government and the nationalized industries to which I have referred. I see no reason why such a Committee should not also be specifically charged

35



JOURNAL OF THE ROYAL SOCIETY OF ARTS with examining the efficiency of the industries as well as these broader questions, making such call as it needed on expert staff and consultants. Because of the long and damaging debate about the place of the public sector enterprises in the economy and sometimes about the organization of particular industries (electricity supply to cite a notorious case) I should hope that the Select Committee would also be required to examine and advise Parliament on all structural and organizational matters affecting the public sector of industry as part of the statutory process.

I have suggested a special Select Committee on the nationalized industries or, more compre- hensively, on that part of industry in which the state has a large stake in one form or another. Manifestly there are other solutions based on the involvement of Parliament in assessing, judging and illuminating the performance of state-con- trolled and subsidized industry. One such which has been much debated is that the Public Accounts Committee should be empowered to extend into this sector its examination of whether public money (i.e. grant or subsidy) is used as Parliament intended and to good effect. Nationalized industry chairmen have expressed reservations about this, fearing that it might lead to undue and damaging restriction of their commercial freedom and confidentiality and hamper managerial efficiency. This is the reason for my advocacy of a special Select Committee to handle the affairs of the public sector of industry with terms of reference tailored to the nature of the assignment and the particular interests in it of Parliament. But it would in my opinion be wrong (and vain, since we do not have the last word) to oppose as a matter of principle an extension of the PAC's activities into our affairs. The crucial considerations are that any such extension should recognize specifically the different circumstances involved in running industries as distinct from controlling direct Government expenditure and that its purpose and terms of reference should acknowledge and be seen to be constructive in promoting managerial efficiency. I have felt that this was more likely to be achieved by a separate committee, drawing perhaps on the expertise and skills of the Comptroller and Auditor General's Department in its studies. But provided the objectives are clear and satisfy Parliament, the Government and the Boards, the precise form need not be a stumbling block to introducing Parliament into this crucial question of the 36

PROCEEDINGS

accountability of the nationalized industries and the framework within which they are required to manage their affairs.

In putting forward these ideas, I have not ignored their impact on a whole range of relationships, all of them important. First and foremost, the reintroduction of a Select Committee of Par- liament into the affairs of the public sector of industry would affect the balance between the legislature and the executive and thereby the relationship between Ministers, their Depart- ments and the industries. I believe all concerned would come to find this beneficial for understanding and confidence, for stability and for the efficiency of the public sector of industries. Second, a Committee with appropriate terms of reference would render unnecessary or exceptional the need for other external investigatory institutions, e.g. the Monopolies and Mergers Commis- sion. Though the public and MPs are prone to complain of lack of accountability and external scrutiny, the Boards of the industries assert with justice and with evidence a seemingly unending range of investigation, often overlapping and constantly changing and all calling on the time of top management. The last thing we should want would be an addition to their number, but that makes it the more important to hit on the right kind of body and then stick to it. Third, if it were accepted that legislative proposals affecting the industries should be referred to the Com- mittee as part of the legislative process, the politics of the public sector of industry would be influenced: again in a beneficial and stabilizing way in my opinion. Lastly, it would be a vain exercise unless the reports and recommendations of the Committee received the effective attention of Parliament, Ministers and the Boards, a matter not to be taken for granted to judge by past experience.

Finally, I should like to express one further thought about Government and the nationalized industries but widening it to embrace other bodies charged by statute with the management of affairs within the purview of Parliament and Government. Quite a lot of our problems derive from the increasing reluctance of the executive, as I see it, to respect the decisions of Parliament and of Government that the management of extensive sectors of the public sector should be entrusted to bodies appointed by Ministers or, in the case of Local Government, elected by ratepayers. In our increasingly complex and



DECEMBER 1982 NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENT

interdependent economy and society, it is not difficult to understand why this should happen but that does not make it any the less harmful. It may be argued that too much power and influence has been put into the hands of public authorities; that the power and responsibilities of local authorities have been too greatly extended. That is for Parliament to decide. But what seems to me incontrovertible is that having decided to delegate authority in various spheres to properly constituted bodies, both Parliament and Government should join in helping and sup- porting them in their tasks and should confine their involvement to those matters reserved to Government, including, as they increasingly do in the case of non-elected bodies, the appointment of well qualified people to run them in whom the Government can repose their trust. I regard this as extremely important in the development of Government administration in this country and I regret to say that it seems to me quite clear, both as a former civil servant and close adviser to Ministers and as Chairman of the National Water Council, that the tide has been running strongly in the opposite direction. We stand in great danger of becoming an over- centralized society and of losing the habit of mind and skill of delegation and devolution. This is not a plea for placing unbridled power in the hands of organizations which must, in the nature of our parliamentary democracy, be properly accountable. But it is a plea, and a most earnest one, for allowing those charged with the conduct of various aspects of our affairs, the

the chairman: Investment from nationalized industry is of course essential to the Private Sector just as the products of the Private Sector are essential to the nationalized industries, which must meet consumer requirements effectively, economically and efficiently in directions in which, on the whole, the Private Sector cannot tackle. One of the first nationalized industries in the modern sense of that word was set up just before the War when a Conservative Government started BOAC as a 'single chosen instrument' (those were the words) in a field in which private enterprise was scratching around. So I do not think that there is too much dogma in this, but I know that we were all extremely interested in Sir Robert's suggestions about a specialist Select Committee. I believe that clear objectives are vital; they are so often buried in a mass of other things that relevant criteria, such as those of output efficiency, are overlooked. A further point

freedom to do so in the most efficient way and in the knowledge that they can count on the support of Government in their endeavours and that their powers and responsibilities will be respected. Unless we do so it is vain to expect first-rate management of the wide range of public activities which, of necessity, has to be placed in the charge of people dependent on but outside Government. The nationalized industries are but one example of this problem.

I have not felt it appropriate in this talk either to praise or decry the nationalized industries. Like all other undertakings, private and public, they have their successes and failures, their good times and their bad. But like many others who have been involved in these affairs for any length of time I am profoundly concerned by the continuing failure to resolve a number of questions fundamental to their successful operation. For this the nationalized industry boards cannot be held wholly or even principally responsible; the responsibility lies in the end of the day with Government and Parliament though the boards have their part in it. As an avowed supporter of the mixed economy in our parliamentary democracy, I regard it as absolutely essential to find durable and publicly acceptable solutions to these problems so closely affecting the success of an important part of industry; solutions, further- more, which can serve and support evolution and change in our industrial structure, in our society and in Government. I hope my remarks will be considered in this light.

DISCUSSION

which Sir Robert just touched on: what about size? Too big cannot be efficient in management terms; too small is bad too. I think some of our nationalized industries are unnecessarily big and could be subdivided. I think Sir Robert summed up the three basic rules of management efficiency as clear ideas of responsibility, authority and accountability, all of which are indivisible and must have delegation to work effectively.

MR. GERALD VINTEN, MA, DPA, IPFA, MRSH, FRGS(Hon. Secretary at Toynbee Hall): Paradoxically, eighteen out of the twenty-two nationalized industries are members of the Confederation of British Industry, despite being part of the public sector, and they sit on the National Economic Development Council as in- dependents. I wonder what you believe to be the current balance of power between the Morrisonian view of internal managerial autonomy under firm political

37



JOURNAL OF THE ROYAL SOCIETY OF ARTS control and the nationalized industries acting as a political force in their own right? I wonder if also you could comment on the rôle of the Nationalized Indus- tries Chairmen's Group in this particular matter?

THE LECTURER: I am not in doubt that the nationalized industries, which were created by parliament, must be under firm parliamentary control, and that is exercised through ministers. I think that in outline the Morrisonian concept has a lot of elegance, and it should work in our system. In fact I think it has worked very waveringly; without wishing to point accusing fingers at one party or the other. Perhaps Herbert Morrison and the other ministers at the time did not realize that the inter- action of parliament and the executive through ministers and the boards themselves would be so important. It is a threefold thing, not just the executive and the boards. So firm control, yes. Now we are members of the CBI if we wish to be.

That is a matter for each corporation to decide, and not all have. It is very expensive in fact, but very worth- while most of us think, and by invitation and appointment by government generally we have one or two chairmen on Neddie. The appointment of one or two nationalized industries' chairmen to Neddie simply reflects that that particular industry's chairman is a very heavyweight industrialist and comes there in the same way as a leading trade unionist. Secondly, the industries they run and their knowledge of the public sector of industry are very important things to have in debate and in discussion in the Council. So I would just regard that as completing the Council. There is no right of nationalized industries to have it. It is the ministers who decide. In the CBI it is by evolution and custom that we become members. A number of us like this very much because we attach such importance to the interdependence of the public and private sector. It just happens that we have things called public industry and things called private industry, and all sorts of mixtures in between. Of course the Nationalized Industries Chairmen's

Group is a pressure group, but it should not be a political pressure group. It should pursue what is proper to itself, the observance and improvement of the rules of the game, to enable us to perform our duties. But our various policy papers and so forth eschew taking a political position, let us say on privatization, to use that word again. We do not have a view on it, except that the government should not do things that are going to damage the structures of these industries permanently, or for a very long time.

PROFESSOR G. w. JONES (Department of Govern- ment, London School of Economics): Would Sir Robert care to assess to what extent the problems that he has outlined through different governments of different parties are really the responsibility of his 38

PROCEEDINGS former colleagues, the British Civil Service? I have heard nationalized industry chairmen and board members express great dissatisfaction with the British Civil Serviced in its handling of nationalized industry problems: that, for instance, his former colleagues do not have experience of industry in the public or private sectors; that they do not really appreciate the problems they face; that they are not in a particular job for a long time but move on as mobile amateur generalists; above all, that they work in an organizational culture very different from that of nationalized industry, with different time perspectives, priorities and attitudes to politics. You have not really talked about the Civil Service in your set of relationships. I would like you to assess how far they are to blame.

THE LECTURER: I do not think that the Civil Service has been a major contributor to the kind of problems that I have been describing. Do Civil Servants know enough about the industry, do they understand how the industries should tick if they are going to do their jobs well? I think in certain sectors, yes. There may be disadvantages in having small government departments concentrating on one particular activity, be it agriculture, energy or whatever, but there are also advantages. Private sector industry and public sector industry and other client groups like local government have reason on their side when they say that there is too much change both organizationally and in the deployment of people in the Civil Service. I do not think my erstwhile colleagues, and I am sure I am to blame with them, identified themselves sufficiently with the client group with which they were dealing. There is a very difficult line to draw here, because your first duty as a Civil Servant is to your political masters, your minister. You have to observe and respect that, and it is a question of deciding how best you can do that. Now I hold (and it is not a universally held view) that you can best serve a minister by getting to know how the various organizations you are adminis- tering tick. What is the nature of their being? What is the nature of their function? The Civil Service must inevitably carry a big burden

of responsibility for the administrative procedures and time-tables for decision making. The industries have good reason to feel pretty bruised that their own decision-making processes are so lightly passed over in favour of government decision-making processes. Of course the government's major strategic decisions are more important than any particular industry's. But I do not believe that there is that kind of conflict. One could deal in a greater measure of generality and certainly a greater measure of stability for the particular client group without seriously damaging the micro economic or general industrial policy of government. The complications of government decision-making are immense, and Civil Servants are expected by their ministers to gather up all this material. This is how the



DECEMBER 1982 NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENT chain reacts. I like to think that there are Civil Servants who say, 'You may want this in Cabinet on a particular day, it may fit very well, but it is going to be very difficult indeed for those industries to give good advice and to be able to stick by it if you insist on that kind of programme.' I do not think that is done sufficiently. I do not think that there is any conflict between ministers and departments on the whole. One would expect there generally to be an identity. Too much is made of divisions between ministers and Civil Ser- vants. When dealing with specific client groups, Civil Servants must make it their business to understand and to convey that understanding to their ministers with great force.

MR. PETER BAYNES: Leaving aside Japan, which has managed things with a ruthlessless that Western Europe could not, I wonder if you could say anything about France, Germany or Holland - how they manage their industries, whether they are better or worse, or whether there is no comparison?

THE LECTURER: All of us in the public sector industries have to admit that we know too little about how corresponding industries, public or private, operate abroad. Indeed the Nationalized Industries Chairmen's Group is just commissioning a study about this. There has been a number of publications over a period of time, and what I think one can say as a broad generalization is that in any particular regime the constitutional position does tend to determine the type of solutions adopted. In certain countries the industries are literally part of the government machine. Take a comparison with the health service in this coun-

try. It is part of central government, directly funded by central government with one or two things to make it democratic. In some foreign countries you have absolutely autocratic management of industries. In general, and I say this with great reservations about being able to support it in detail, I should say that there is a looser rein financially on the industrial activities, the industrial borrowings for instance, of the public sector industries in other countries. It is very difficult to get sufficient detail and precision to know for certain. The Chairman of the Swedish Atomic Energy

Authority once told me that they had a wonderful system with central government, and they were totally free. They had a broad strategic plan laid down and approved, the number of Civil Servants dealing with it was minute, and they had none of the problems that he understood existed in Britain. I said, 'That is very interesting. What happens when a new power station is going to be built and somebody has to decide whether it is to be nuclear or coal or oil fired?' And I found exactly the same happened as happens in this - country. It is very difficult to get inside the appearances, but generally it seems to be a little more devolved than it is here.

DAME ELIZABETH ACKROYD, DBE: Does Sir Robert think that consumer advice bodies have any useful part to play? He did not mention them, and I wondered whether he thought that they were irrelevant to the kind of rather large industries he was talking about. The water industry, I think, does not have one, and I would welcome his views on the place he sees for these bodies.

THE LECTURER: From what I have seen and heard of them, more as a Civil Servant than as Chairman of the Water Council, I think that their usefulness has varied enormously. In one or two industries they are valued by the boards and greatly appreciated and have made quite evident contributions both to the performance of the board and to the satisfaction of consumers. In others I am bound to say that I have heard that they were a waste of time, and I think I know of one or two examples and have actually worked with them. I doubt whether we have got that quite right, and I do not see many signs in the recent Green Paper of any marked advance. In the water industry the advice that I and my col-

leagues have given to ministers is that we should like some more informal arrangement, taking the principal load of liaison and consumer expression down to what we call the district or divisional levels, in recognizable areas where you know whom you are talking to and where the responsibilty lies. We should like to see a duty laid on the boards to set up such arrangements to the satisfaction of parliament or the minister, but we do not want a great formal hierarchy of councils and this, that and the other. We have local authority members of our water authority at the present time and that in a sense should be the consumers' mouthpiece, though I have to say that its effectiveness has been much disputed.

MR. JOHN STANSBY: Apropos a previous remark about the nationalized industries abroad, certainly in France I think performance is more satisfactory if one simply judges it by the absence of parliamentary debate such as one has over here. I work here with a subsidiary company of a French nationalized industry, and one is not actually aware that it is a nationalized industry and I think that is the highest accolade. After all, the most obvious common denominator of the nationalized industries and their distinguishing feature from the Private Sector is the fact that they have one shareholder, the State. But this is not really of critical importance to what we expect from them and the way they should be managed. On the rôle of the Civil Service, there is a dominance

of financial planning over business planning and this tends to distract from the real purpose of the enterprise. I wonder whether Sir Robert would comment on

the ways open to nationalized industries to emphasize their business objectives and for us to measure their performance against those objectives and not simply in financial terms.

39



JOURNAL OF THE ROYAL SOCIETY OF ARTS THE LECTURER: I would go along with the drift of

that comment as must be evident from what I have been saying. There have been numerous attempts over a long period of time, very recently reaffirmed by this government, to get the emphasis placed on the objectives, and the plans and financial consequences that flow from them. This has been reaffirmed in the discussions about the CPRS report on the nationalized industries and most of the boards expect to discuss these objectives with ministers. I think the great shame is that 'plus ça change plus c'est la même chose'. Sir Henry Benson had a go at it in 1967 and produced a superb corporate system. At the time I talked to many of the large private companies in the country and they could not suggest anything better. It was practical and it tuned in with the government's wishes - the then government's and this present one's. The Benson procedures are still used in a number of industries. I do not wish to leave you with the impression of a

hopeless conflict between government and the nationalized industries. These are reconcilable things, and if we could concentrate on the essential working conditions and needs of the industries, as I said in the paper, and work from there, then I am sure we could find, with good will, a means of gearing that into the government machine. Of course the call on resources of some of these industries is very heavy indeed, and individually most of them are rather large and rather important for various reasons, but I would concentrate on the industrial side and I think everybody is trying to give it due emphasis. But it is no good doing it just in generalities. You have to be specific, clear, unambiguous, and you have to gear it down until it becomes so to speak an operating budget for the year.

VIRGINIA NOVARRA (Department of Industry): I should like to go back to the proposal of the 1 967-8 Selea Committee for the proposed Ministry of Nationalized Industries and ask the speaker if he would comment on this in a more committed way. It seems to me, from my observations of what goes on in that area, that the responses of departments which are supposed to represent the business interests of the nationalized industries are chronically (I use that word advisedly) weak and fragmented vis-à-vis the Treasury, and that to have a Ministry of Nationalized Industries might correct the imbalance.

THE LECTURER: I think you have put your finger on a key part of the argument for the Nationalized Industries Department in the Mikardo Report, though it is a long time since I read it. I am sure one of the key reasons why some people would dislike it is that a Minister for Nationalized Industries would be very powerful. The ideas, very brutally and simply, were that if a policy department, transport department 40

PROCEEDINGS or energy department, wanted something done which deviated from the corporate plan of the industry and forced it to break its normal efficient way forward, then it should be compensated as a matter of transport policy or energy policy or whatever. That is very attractive to nationalized industries. I myself always found it a little difficult to believe

that one could make this separation between looking after a function, a framework, and seeing that its efficiency was not impaired, and the conduct of the policy for which the various units involved were created. The electricity industry is there to produce electricity; it is not there primarily as a nationalized industry. I did feel sure that this form of organization would protect the nationalized industries and clear the way for a more efficient way forward. There were great problems; other people in other contexts have suggested compensation for, as an example, burning a more expensive fuel rather than a cheaper one in a power station. Some of us have worked out the most appalling sums and cost benefit analyses and everything else under the sun to test these things out. Then you have to judge whether you are going to compensate a board for it. It is appallingly complicated and gives rise to great argument and friction. In the end rather reluctantly I reverted to trying to make the present system work. I think the report should be looked at again.

VIRGINIA NOVARRA: Perhaps it could be used asa transitional device for five or seven years until the problems you were discussing have been resolved and new habits have been formed.

THE LECTURER: We change a lot. I think we rely a little too much on change and too little on becoming more efficient. I liked the earlier remarks about not being able to recognize the difference between the public and private sectors in some countries. Many Italian firms which are bywords in this country are publicly owned, but nobody has the faintest idea that they are.

DR. RICHARD GIBBS (CPRS, Cabinet Office): Sir Robert, I found particularly interesting your sugges- tion for a parliamentary Select Committee for the nationalized industries, which would have considerable powers to investigate and probe them. Might there not be problems of conflicting accountability, because the boards would, when faced with these investigatory powers, find themselves having to answer a lot of probing questions from the select committee whilst at the same time they have to account to their sponsor ministers for whether they are following the broadly agreed strategic objectives, whether their investment programmes are adequately based and other strategic matters? After all, the sponsor minister appoints the board: shouldn't they be entirely accountable to him?



DECEMBER 1982 NATIONALIZED INDUSTRIES UNDER OUR SYSTEM OF GOVERNMENT THE LECTURER: If we adopted this course there

would be conflict from time to time between the committee and ministers, or between the committee and the boards, or all three maybe. That is the way of things. But on the whole these committees have shown themselves remarkably good at addressing themselves to really serious matters, although there have been failures. Despite difficult interactions in the relationships I think this would be beneficial and stabilizing. I know of no better instrument for this than part of parliament, which has shown that it can detach itself from the immediate political arena and yet bring parliamentary opinions to bear in a shrewd and sensible way. I would not want you to think that I am advocating a stream of investigations; that would be nonsense. I would support an investigation every few years, or when some outrageous thing appears to have happened.

THE CHAIRMAN: Sir Robert, thank you very much indeed for your splendid lecture and for dealing so cogently and clearly with a wide variety of questions. Having one foot in each camp, the nationalized and the Private Sector, I found this a fascinating discussion. Every industry is very much a special case, and you cannot generalize too much about the Public Sector. Think of the difference between the service industries in the transport field, the production industries like coal, and the manufacturing industries like steel. There are five quite separate sides. First of all, ownership is enormously important and should always be kept separate from the consumer interests. Where ownership and the consumer are all mixed up together, objectives are very difficult to disentangle. Then there is management. Sir Robert has emphasized the importance of getting the right people to run the business from the boards downwards. Thirdly there is the staff. Then there are the trade unions. On the staff side, one of the things which I find sad, having been concerned with this for a great many years, is that in 1945 after the War when we had a new idealism towards nationalized industries, there was a belief that staff would try much harder because they worked for publicly-owned businesses and therefore every staff member partly owned them. To-day there is a certain cynicism about it, and staff, particularly trade unions, tend to look on nationalized industries as bodies with a bottomless purse.

In 1945 unions were keen to see that a deficit could be abolished and that we could produce a profit by tightening our belts a bit. T o-day they tend to say, 'Oh let us turn the screw a bit more, the money will be found somehow'. The fifth side is the problems of a nationalized

industry in taking risks. Wearing my Private Sector hat, I notice how much easier it is to spend one hun- dred million dollars on a risk project than it is to spend a similar sum in a State-owned industry when one is risking public money. This is both an advantage and a disadvantage to which there is no easy solution. I was interested in the discussion about the rôle of

the Department and the Minister and the importance of the chairman of a nationalized industry establishing an understanding with the minister concerned. Com- munications can make or break an industry, in the same way as can contacts with one's banker in the Private Sector. Sometimes we fail in that respect, but often we succeed. In spite of the TV programme 'Yes, Minister' and delightful things like that, a good minister, a good permanent secretary and a wise 'nationalized' chairman, all of whom get on together, can ease many of the difficult problems which Sir Robert has touched upon. As I think Mr. Stansby said, who owns the business does not matter, it is how the ownership is used. The requirements of the owner and of the customer ought to be distinct. 'What you cannot measure you cannot manage', and it is vital to measure what we are doing, and then see how we can do better. Sir Robert said don't dig up the roots every day and look at them, and of course the annual report and accounts offer an opportunity each year to see whether an industry is doing well, and whether it can be left to its own devices, under good management. Finally, it seems to me the critical issue, particularly

in so many monopoly areas, is to get prices right. How can one get the right price, assuming that the industry is efficient, when there is not a profit motive in operation? This is one of the great conundrums. I very much agree with Sir Robert's view that select committees can be helpful; I have been impressed with the contribution that they make. The great thing that comes out of this evening's discussion and Sir Robert's paper is that there is no complacency about this business. We can and must do better. Sir Robert, we all thank you very much indeed for

your most thoughtful paper and for the discussion it promoted.

41



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