The changing relationship between the private and public sectors: Privatisation and rural Britain

JournalofRuralStudies, Vol. 5, NO. 1, pp. I-15, 1989 Printed in Great Britain

0743-0167189 $3.00 + 0.00 Pergamon Press plc

The Changing Relationship Between the Private and Public Sectors: Privatisation

and Rural Britain

Philip Bell and Paul Cloke Department of Geography, St David’s University College, U.K.

Abstract - The late 1970s and 1980s have witnessed the rise to power of governments in developed nations who have tended to espouse broadly similar economic policies. Similarities between these policies have been collectively described as a ‘new right’ movement. New right economic policies involve a number of different strands, but include the concept of privatisation: a transfer of responsibilities for some production units and some services from the private sector to the public sector. The understanding of rural planning and policy-making has begun to be set in the context of the role of the state. Consequently the marked shift from state provision to market-oriented private sector provision should be an important topic for consideration by rural researchers. This paper investigates the concept of privatisation in its new right context and offers an initial analysis of the actual and potential impacts of privatisation in rural areas using the example of policies in Thatcher’s Britain.

Introduction

The universal appeal of privatisation lies in the fact that it is . . . an approach which recognises that regulation which the market imposes on economic activity is superior to any regulation which men can devise and operate by law (Adam Smith Institute, 1985, p. 3).

One of the most marked and important changes in the political economy of most western nations in the 198KJs has been the emergence of a new political orthodoxy which has generated a range of policies which in toto represent a significant realignment of state sector responsibilities. The term ‘new right’ has bean coined broadly to describe this new orthodoxy, and one of the main thrusts of new right policy development has been to shift responsibility for the management of various elements of production and consumption from the public sector to the private sector. These trends of privatisation and deregulation are having impacts in all types of locality, and researchers whose interests focus on rural areas should be ready to incorporate the influence of new right policies into their interpretations of rural change.

This paper seeks to explore the theoretical and ideological background of privatisation within its new right context. Taking the example of the Thatlcher government in Britain, it seeks to explain the formative influences to privatisation policies

and, in particular, warns against any holistic ideological explanation. The paper also traces the implementation of privatisation policies, with particular reference to rural Britain, and analyses various reactions to specific shifts towards the private sector. Finally, a series of themes are presented as an exploratory research agenda for studying the impacts of privatisation on rural local- ities.

The new right context for privatisation

The term ‘new right’ has been widely used in academic and mass media circles in recent years, and has become something of a catch-all phrase with diluted meaning. Dunleavy and O’Leary (1987), for example, point out that new right groups vary from libertarian philosophers to political reactionaries, and that new right policies range from drastic reductions in public expenditure and the welfare state to conservative moral crusades over issues such as religious fundamentalism and abortion. Their own definition is much more restrictive, describing:

a set of theorists whose intellectual origins lie in the mainstream of Western liberal and conservative philos- ophy, but who add novelty and vigour to these ideological positions by mounting a developed social- science-based critique of pluralism (p. 72).

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2 Philip Bell and Paul Cloke

For the uninitiated, this definition may seem obscure because of overburdening jargon, and it should be stressed that these terms are given full analysis by Dunleavy and O’Leary, and by others such as Green (1987) and King (1987). The purposes of this paper are served, however, by highlighting three themes which arise from the definition:

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(ii)

The political and economic theories of the new right are not new. Rather they have been brought to the centre stage in an era of economic difficulty. In theoretical terms, the new right is founded on a combination of liberal and conservative ideas, and an exploration of the tensions between these founding ideas may help the identification of contradictory objectives when attempting to convert ideology into policy into action.

(iii) The new right’s attack on pluralism highlights a political platform which is equally as involved with dismantling previous structures of participation and collectivism, as it is with develop- ing new emphases of individual rights and market-place predominance.

The first of these themes provides a sharp reminder that privatisation should be seen in its temporal context and as part of the response and counter- response of western governments to macro-economic issues and political pragmatics. Although being drawn from a ‘new right’ context, the particular form of privatisation policy and implementation by a particular government should not be viewed as a piece of rational decision-making beginning with a coherent set of objectives (Veljanovski, 1987). Rather, the policies emerging from this context were subject to changing public focus over time as they were enmeshed within different iterations of the response and counter-response of public policy (see Cloke, 1987a). It would therefore be foolish to expect homogeneous outcomes from privatisation policies merely because they share a common broad new right context. As Kay and Thompson (1986, p. 19) in their review of the British government’s privatisation policy insist

the reality behind the apparent multiplicity of objectives is not that the policy has a rather sophisticated rationale, but rather that it is lacking any clear analysis of purposes or effects, and hence any objective which seems achievable is seized as justification. The outcome is that no objectives are effectively attained, and in particular that economic efficiency - which is at once the most important of these and the most difficult to attain - has systematically been subordinated to other goals.

The second of the themes to emerge from a definition of the new right is that of the intriguing combination of liberal and conservative philos- ophies, and the potential tensions between them. The principal contributions from liberal theory to the new right of the 1980s have been two-fold: the primacy of the market mechanism as the engine of economic prosperity; and the limitation of state intervention in order to achieve maximum freedom for the individual [which, as King (1987, p. 19) points out is ‘usually understood as to be a healthy, employed, educated, white male’]. From these tenets a broad policy direction may be developed: permit market forces to operate as freely as possible; permit social order to be as self-regulating as possible; reduce the role of the state to that required to offset market failures or minimise market irregu- larities; permit the economy to be as self-regulating as possible by restricting the role of the state to a control of money supply through monetarist policies. Inherent in these policy directions is a critique of previous attempts by the state to intervene. As Ashford (1985), for example, argues:

when the reality of government failure is measured against the reality of market failure, the former is much worse (p. 44).

The logical policy implication of this theoretical context is to pursue a vigorous and rapid reversal of post-war trends of increased state sector intervention in the affairs of the private sector market. King (1987) raises two important issues relating to the ability of governments to pursue these policies: the degree to which a strong state is necessary to ensure that market forces predominate; and the relationships between the politics and economics of liberalism and conservative social values which are also a fundamental underpinning of the new right movement.

The conservative elements of social morality within the new right arise, at least in part, as a response to the impacts of the liberal economic policies. Market- place economics necessitates a reduction in the role of state benefits and regulations, for example of income. Conservative social theory suggests that the welfare state has detrimentally affected the status of the family which is held to be a crucial social institution. Therefore the welfare state is a natural target from both the liberal and conservative elements of the new right. The shift from public to private sector welfare provision is inextricably linked with the desire for a return to ‘Victorian’ values of private welfare, family support and self-help. This combination as found in Britain is graphically described by Hall (1983, p. 29):

Privatisation and Rural Britain 3

Thatcherite populism is a particularly rich mix. It combines the resonant themes of organic Toryism - tiation, family, duty, authority, standards, tradition- alism - with the aggressive themes of a revived neo- liberalism - self-interest, competitive individualism, anti-statism.

The contradictions between the liberal and conservative elements of this rich mix have been widely commented on (see, for example, Elliot, 1985; Gamble, 1985; Levitas 1985; Moore 1985). Of particular importance is a contradictory view of the role of the state, with conservative social theories requiring a strong state so as to maintain social order and regulate the required moral stance, whereas the libaralist free-market economics of the new right require limited government and deregulation of existing barriers to free enterprise. New right policies therefore dictate strong government but a reduced state. This apparent inconsistency has not yet led to the downfall of new right governments. Therefore any understanding of policies - such as those of privatisation - must account for the self- reinforcing nature of liberalism and conservatism in the pragmatic political arena of the new right. As Kinigl (1987, p. 27) concludes

Analytically, the New Right is best considered as a coalition whose force has not been undermined by the diversity of its bases of support, intellectual and political. Further, any adequate conception of the New Right must be capable of moving between ideology and political practice since both are essential to a full understanding of its potency.

The third emergent theme from the definition of the new right by Dunleavy and O’Leary is that of a dismantling of particular structures of participation and collectivism which had arisen over previous eras of economic prosperity. Marshall (1964) has called these citizenship rights - referring to civil, social and political rights which have been built up in the nineteenth and early twentieth centuries. Of these, sociial rights are reflected in the ability of the welfare state to ensure levels of educational and health care opportunity, income, and so on. The new right has sought to place individual civil and political rights on a pedestal whilst reducing social rights associated with the welfare state and collective political rights expressed, for example, in the trade union movement. Property ownership, for example, accords with the new right coalition and is therefore sancti- fied. The rights of women (equals anti-family) and trade unions (equals anti-freedom for capital) do not accord and are therefore exorcised wherever possible. Social impacts of new right policies such as that of pnivatisation will reflect these priorities and will theaefore be unevenly distributed amongst social and class groups.

These three aspects of the new right movement are of tremendous significance when assessing the specific policies which arise from this context. Each can ciearly be seen in the development of policies by the Thatcher government in Britain in the 1980s. Again, a great deal has already been written on this topic (see, for example, Hall and Jacques, 1983; Jackson, 1985; MacInnes, 1987) and for the purposes of this paper four major policy trends may be identified:

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(ii)

(iii)

(iv)

~oneturis~ - an attempt to control the money supply in order to reduce inflation and reduce market anomalies.

Reduction in public expenditure - so as to reduce the state’s role in the provision of health care and education and social services, thereby rolling back the welfare state.

The weakening of trade unions - so that wage levels are decided in the market-place without anachronistic ‘rigidities’.

Pr~vatisation - so as to shift various responsibilities into the market place and to increase the short-term revenues available to the state. This is the focus of the remainder of this paper.

Privatisation

The concept

Broadly, the concept of privatisation may be defined as reducing state sector involvement in a range of industries and in the provision of social services. There are, however, a variety of measures by which such objectives can be achieved and it is therefore useful to classify privatisation according to these differences of policy approach. Heald (1984) and Peacock (1984) suggest four such categories:

(ii)

(iii)

Privatisation of charging for a service which is still provided by the public sector, but where previous funding from taxation is replaced by user-pays methods.

Privatisation of the production of services which remain funded by the public sector, but are no longer provided by them (for example the contracting out of refuse collection and school meals).

Denationaiisation, perhaps the most immedi- ately characteristic and identifiable process, entailing the return or transfer of state-owned

Philip Bell and Paul Cloke 4

(iv)

industries into the private sector, often for substantial amounts of cash.

Liberalisationlderegulation, entailing the removal or reduction of constraints upon the operation of the free market, particularly affecting the free entry of competitors into areas previously controlled by monopolies or dominant firms and agencies.

This classification is a useful framework for discussion but by no means describes the entire range of current privatisation policies. For example many policies are hybrid to these categories. The legislative changes to public bus services in Britain entail cuts in subsidy, contracting out, privatisation of the National Bus Company and deregulation. Other policies might be regarded as preludes to further privatisation. In this case, higher direct charging might be used to boost the attractiveness of a production or service function for later privatisation, or particular segments of a nationalised industry might be privatised earlier than the overall organisation (for example, Girobank from the Post Office, and Travellers Fare - the catering wing of British

Rail).

Equally, the classification does not cope well with other forms of ‘halfway house’ privatisation such as the corporation revolution in New Zealand’s public service. In 1987 nine corporations were established as limited liability companies, to take over from six former governmental departments the administration and budgeting of major state owned production and service sectors. The new corporations - Forestcorp, Landcorp, Coalcorp, Electricity Corp., etc. - remained in state ownership but were to be run on private sector lines by Boards of Directors with private sector business backgrounds. M&inlay (1987, p. 56) suggests that corporatisation may be a transitory phase:

Once government and the public have become com- fortable with the operation of major trading enterprises in their state owned form, greater attention may focus on the benefits which would come from privatisation, particularly if, as seems likely, continuing government ownership is seen as a barrier to improved management performance.

Although not formalised, as in the New Zealand case, parallel policies of running state sector organisations on private sector lines have also been implemented in Britain, with the recent administration of water authorities being a case in point.

Heald’s four categories are therefore neither ex- haustive nor mutually exclusive. Indeed they are also not necessari!y complementary. While the

current British government attitude towards privatisation suggests a simultaneous advance towards private sector provision on all fronts, it is possible that severe internal tensions could lead to some strands of the privatisation programme being suppressed so as to boost other strands at a particular time. It is in this context that privatisation in Britain should be viewed.

The concept in Britain

At the outset of the Thatcher government there was little indication that the new right predilection for privatisation would become so dominant. The original 1979 Manifesto of the Conservative Party contained few definite commitments in this direction, and the unifying drive of the part focussed on monetarist policies. This emphasis quickly changed, however, as some tenets of monetarism were gradually eased into the background and privatisation initiatives were brought to the fore (Brittan, 1984; Keegan, 1984).

The drive towards privatisation has been justified by its exponents on the grounds of both liberal philos- ophy and practical expediency; the former represented by the supposed enhanced freedom and increased efficiencies to flow from privatisation (Moore, 1986), and the latter focussing on practical issues such as controlling public sector pay rates and lowering the public sector borrowing requirement (PSBR). The ideological support for the private sector over the public sector became such that Heald and Thompson (1986) described it as ‘privatisation as theology’.

This forceful pursuit of privatisation requires some further explanation. Although the new right context discussed above has clearly spawned the privatisation programme, no homogeneous explanation can be offered for a trend which is evident in so many arenas in so many western nations. Shackleton (1986), for example, proposes a series of additional explanations for the surge in privatisation:

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(ii)

The discrepancy between initial aims and actual practice within the nationalised sector, with

conflicting goals (profitability vs social responsibility), resultant lack of definite aims and the results of insulation from competition all playing a part. Public support for ‘their’ industries is therefore weak.

Regulatory failures, again linked to the apparent lethargy and stagnation within a protected, often monopolistic environment. However, newly privatised industries will still require a


fairly tough regulatory regime to prevent ex- ploitation, particularly if little is done to introduce greater competition to parallel such a transfer.

(iii) The growing crisis in funding the welfare state, where many of the original spending commitments were open-ended, and the increase in absolute and relative numbers of dependent groups (notably the elderly), coupled with generally rising expectations, was increasing overall demand. This problem was exacerbated by economic depression, which reduced the finance to fund such a demand. Asset sales can provide a significant, if temporary, injection of cash, whilst the shedding of loss-making enterprises reduces alternative calls on scarce funds. Even if such transfers are peripheral to the main funding problem (Kay and Thompson, 1986), such movement can be mistaken for action, masking relative failures to cut either taxation or public spending (Brittan, 1984).

(iv) Trade union weakness, as rising unempIo~ent and changing employment structures reduce their former ability to resist change that is damaging to them. This then becomes a self-re- enforcing process.

(v) The stake that interested parties have in the privatisation process once it is underway, rang- ing from council tenants who have purchased their own houses, to financial organisations and other firms who have gained entry into newly- deregulated markets, and not least agencies who have made considerable sums from the handling of assets sales themselves. Workers with shares in their newly-privatised companies may also have a more genuine commitment to the process than the massed ranks of small shareholders whose numbers have reduced rapidly after many sales.

The growing importance of privatisation has met with little effective resistance. It would be expected, for example, that public sector bureaucrats would seek to maximise. their agency’s budget allocations so as to maintain their own personal status. Such tendencies are more easily carried out under public sector conditions where control is often diffuse and pressures for increased spending more potent. The lack of opposition to privatisation from this quarter might be considered surprising. Dunleavy (1986) offers two possible explanations: either it was not as impossible to change the existing order as was previously thought, and governmental determi- nation coupled with greater public discontent has been able to effect a major transformation, or in

practice changes have been relatively marginal and there has been little incentive or need to mount major opposition.

The response to privatisation has therefore been more intellectual than practical, and has been bound up with the wider political reassessments being made by opposition parties during the Thatcher err;. Some fractions of the Left in Britain prefer a return to full- blown nationalisation, hoping to go beyond the past model in order to create more genuinely publicly- owned and responsive organisations to replace the current image of the impe~onal and unresponsive bureaucracy. Other fractions regard such a reversal as unpracticable and perhaps undesirable, and are seeking new models of state-private sector relations which emphasise consumer rather than producer interest groups and which represent forms of social- ism other than that of Morrisonian nationalisation and centralisation (Donnison, I984; Walker, 1984; Ward 1987).

Le Grand (1983; Le Grand and Robinson, 1984), for example, argues for greater discrimination between different forms of state sector intervention in socialist politics. He suggests that whereas state provision of necessary services is likely to be beneficial in many instances, the case for state subsidy or state regulation is not as strong and should not be inextricably linked in a suite of ‘anti-privatisation’ policies. Improved forms of direct state provision, perhaps through decentralisation are in his view central to the policies of a socialist government, and any proposals to reduce this sector should be vigorously resisted. Indeed, the expansion of state provision through the abolition of private sector medicine and education remains a definite goal State regulation and subsidy, however, are seen to be prone to impacts which are contrary to the desired outcomes. Regulatory bodies are viewed as prone to capture by elite interest groups, and subsidies are often not an effective mechanism for reaching the poorest groups in society, and indeed tend to disproportionately benefit the better-off. Tax incentives for private education and for share purchasing are regressive; subsidy for higher education benefits middle class rather than working class students, and other subsidies often do not reach their intended recipients because of low awareness, stigma or insufficient care in ~hannelling subsidies to those who need it most.

Clearly, then, the term privatisation when dissected covers a range of diverse goals and activities. The growth in privatisation can be attributed to a variety of factors; the people it affects (beneficially and detrimentally) are not always the same; and the success it achieves depends in large part on the


particular goals against which it is being evaluated.

It would be erroneous, therefore, to suggest either that privatisation in toto is universally beneficial (as some of its supporters are prone to claim) or that it is universally detrimental (given the democratic support for the Thatcher government and its policies). Equally, the impacts of privatisation are not random, with available evidence suggesting that the least wealthy are the least likely beneficiaries. Therefore any evaluation of the state sector to private sector shift requires a careful accounting both of the broad new right heritage of the privatisation programme and the specific considerations of a particular policy sector.

Privatisation in Britain and its rural impacts

So far, this paper has discussed the context and concept of privatisation, and examined some of the theoretical support and opposition to it. These discussions, however, are only relevant as a framework within which the progress and impact of actual privatisation policies may be analysed. There is a growing body of material on privatisation in Britain (see, for example, Ascher, 1987; Veljanovski, 1987) so the intention here is to summarise the various strands in the reduction of state involvement and control, and to explore the ramifications of these initiatives for rural areas. It should be stressed at the outset that most impacts of privatisatiorl will bear most heavily on social rather than 1ocat~onaZ group- ings, although there are some impacts which are particularly relevant to rural areas. The discussion is structured within Heald’s (1984) classification of different strands of privatisation (discussed above).

i . User-pays

An illustration of user-pays policies in Britain is given in Tabie 1. Charging for services instead of funding them from taxation appears to be regressive in distributional terms, although the impact on those least able to pay will vary according to the terms of payment for particular services. For example, some services which have been charged for (or subsidised) out of taxation are themselves regressive (for example, tax relief on high value mortgages) and it could be argued that fuller charging of actual costs in these cases could be represented as positive (see Le Grand, 1983; Le Grand and Robinson, 1984).

For most services, however, fuller charging on a user-pays basis will increase the pressure on the least affluent social groups, either by absorbing more of

Table 1. Examples of user-pays policies*

i. Direct user-pays policies Heahh

Other utilities

Suggested:

Prescription charges Opticians charges Dental charges

Electricity Gas Water (including metering) Post Telecommunications Museum and library charges

Burglar alarms Fire service calls

General local government finance, including housing and public transport

Subsidy reduction policies (raised charges to follow and/or possible closures) British Rail British Shipbuilders British Steel British Coal

Agricultural Sector

*These policies usually reflect increased charges rather than wholly new charges.

their income in order to ensure continued use of the service in question or by discouraging usage. Charges for visits to dentists and for medical prescriptions are examples of this user-pays concept, although in both cases dispensations are allowed for clients who are, for example, unemployed or elderly. Another example is that of raising council house rents to a more ‘economic’ level, which again has a distributional impact on the least wealthy tenants who will also be hardest hit by the repiace- ment of local rates tax (based on the nature of property) by a poll tax (based on the number of occupants in a household).

The denationalisation of public enterprises such as telecommunications, postal services and utilities will raise interesting user-pays questions. It might be expected that consumer costs for these services will rise when production is transferred to the market- oriented private sector, and it may even be that national standard charging levels will be replaced by user-pays concepts which more accurately reflect the real costs of providing a service in a particular area. If so, rural areas certainly represent high cost areas for the supply of water, gas, electricity and so on and might thereby incur disproportionate increases. Thus far, privatisation of the gas and telecommunications industries have not seen a breakdown of


standard charging levels, and the pricing of services has been overseen by regulatory watchdog agencies established by government to safeguard against unreasonable increases. The long-term nature of these agencies will be important for rural areas, but with the announcement of a reduced annual profit of only &850 million by the Central Electricity Generat- ing Board being accompanied by the clear signal that prices to consumers will obviously have to rise accordingly, the work of these regulatory agencies will conflict directly with the liberal economic theories of the new right.

Discussion of ‘appropriate’ charging for services is complex. For example, it can be argued that current national standards of charging involve cross-subsidy of rural residents by city dwellers. Thereby, the urban poor might be seen to be subsidising the rapidly-growing rural service classes. Equally, some state service sectors have been starved of sufficient central government subvention, and the opportunity to raise additional finance through increased user- pays charges will be welcomed by the managers of that service as a chance to raise overall standards. The use of additional revenue is crucial in these cases. Use for essential future investment will be viewed very differently from merely increasing profits, but these are often indistinguishable, and indeed interchangeable, according to what type of audience is being ‘convinced’ of the need for higher charges.

The issue of user-pays charging is particularly acute in current proposals for water metering (and con- sequent user-pays charging) of all consumers (Smith, 1987). There is certainly a case to be made for encouraging a greater appreciation of the real cost of water usage so as to avoid the need for expensive and controversial investment in new reservoirs. However, water conservation is not merely a matter of consumer over-use - other initiatives such as preventing leakage from pipes would also reduce wastage - and there is a real danger that less affluent people will be discouraged from usage because of these new charging proposals. The consequences of this could be a rise in disease from reduced hygiene, much like the hypothermia syn- drome linked with direct charging for electricity and gas. Despite these concerns, the driving force behind metering proposals is the abolition of the current water rates as the method for charging, and this wish is directly connected with making the water authorities attractive to potential investors in the run up to their much heralded but often delayed privatisation. Current charging methods do have some links with ability to pay, so again it seems likely that a moderately progressive system of financing is under threat from a privatisation programme.

ii. Contracting out

The process of contracting out the provision of services previously provided directly by the public sector again is likely to have more of a differential impact as regards social groups than particular locations. This form of boosting private sector involvement gained a great deal of initial attention from the Thatcher government. Local authority services, particularly refuse collection and street cleaning (Evans, 1985), were in the forefront of this change, and contracting out procedures were taken up enthusiastically by right wing councils such as Wandsworth (Hastings and Levie, 1983). Hospital services, especially cleaning, proved another fertile area for this form of privatisation. Proponents of contracting out argue that costs will fall, because union power is undermined and pay and conditions can be reduced, and because private enterprise will be inherently more efficient than state-sector provision (Forsyth, 1983; Butler, 198.5). From other viewpoints, the implementation of ideas headlined as the ending of restrictive practices and giving managers the freedom to manage led in practice to deteriorating working conditions for employees who are already working long hours for low pay. Further- more, there is also evidence that private sector contractors will deliberately undercut in-house workers to gain a contract on an artificially low bid, only to raise their prices when the in-house organisation has been disbanded accordingly. In these circumstances, local authorities and other agencies often have little choice but to agree to a new higher contract price (Labour Research Department, 1982, 1983, 1985). Recently, the Conservative-controlled Merton Borough Council have been accused of allowing initial competitive tendering to degenerate into private monopoly, by just renewing existing contracts without considering alternatives (Wintour, 1987a). Even where council employees have retained services, they have had to sacrifice conditions of employment, and managers may often welcome at least the threat of privatisation to strengthen their hand in internal negotiations.

For many agencies putting services out to tender, the often bitter experience of doing so has discouraged them from persisting in this approach (Hardingham, 1984). The government’s response has been to enact legislation to force more services to tender, and to remove the power to make more than minimal stipulations about their terms outside strict economic criteria (Wintour and Andrews, 1986). Some estimates suggest that 100,000 manual local authority employees are threatened by this legislation, and the ideological motivation behind these moves is illustrated by clauses in the legislation which strongly discourage the award of contracts to in-house direct


Table 2. Examples of contracting out policies

Health Service Cleaning and domestic services Catering Laundry Building maintenance Laboratory services Gardening Portering (suggested)

Local Authority services

Weakening of direct Iabour organisations

Refuse collection Street and building cleaning School and other catering Ground and vehicle maintenance Management of leisure facilities

Subsidised bus services

Archaeological excavations (suggested)

Other Security services Prison construction and operation Driving test organisation

(suggested)

labour groups even if they submit the lower tender. Many further disputes can be expected over this issue. To the extent that service costs are reduced, all tax and rate payers might be seen to benefit to some degree, though whether any savings go into improving other services or spending reductions will affect the degree to which particular groups gain. The pressure for savings may lead to initial, relatively painless changes as particular assets are utilized more effectively, but as efficiency drives have been proceeding in most of these areas for some years, it cannot be long before jobs are reduced or working conditions deteriorate. This will affect many workers in urban and rural areas alike, and will again be concentrated on those at the lower end of the scale. Further initiatives along these lines have been heralded, with proposals including the contracting out of driving tests, public sector leisure services and the genera1 medical practitioner’s right to practice. The impact of contracting out on the quality of many services is of vital importance to rural residents. The extension of these privatisation concepts into education and health services will have a major distributional impact on the rural deprived. Neither is it merely rural consumers which are threatened by radical moves in this direction. Many rural areas exhibit labour markets in which public sector service employment is a very significant factor (Cloke and Thrift, 1987). Any loss of public secor national wage rates and replacement by localiy bargained rates is likely to have detrimental impacts on the labour force since such rates in rural areas tend to be lower than their urban counterparts.

‘Producers’ in the service sector in rural areas are therefore also a potential impact group for the shifting emphasis towards streamlined private sector provision of services.

There are key issues to be understood here. Many proposals for contracting out services are accompanied by the strong political assertion that power is thereby being transferred from producers to consumers, with producers here being defined suf- ficiently widely to include trade unions and local authorities. While these latter two groups certainly have experienced a reduction in their influence in some spheres, the residual of power in these matters seems to be accruing towards central government rather than to service consumers. The nature of beneficiaries of the transfer of power in privatisation policies will be one important area of study for rural researchers. Related to this general issue and of particular importance to rural areas, is the move towards self-help. Here, the task of replacing the state as provider of particular functions falls upon rural communities rather than private companies, again a move supposed to reduce dependency and stimulate innovation. Again, such policies are in full accord with the new right context discussed above, but forcibly ‘contracting out’ (without payment} responsibility for certain services previously provided in the public sector without regard for ability to provide or to pay has obvious distributional impacts in rural communities.

iii. Denationalisation

The selling of industries with a strong, perhaps total, public ownership component to the private sector, is again intimately associated with the Thatcher administration and its new right context (see Table 3). This has undoubtedly proved highly popular with the new (if transitory) generation of shareholders, who have flocked to take advantage of the potential either for windfall gains or a profitable long term investment provided the markets do not collapse. The dominant beneficiaries, however, will be in- stitutional applicants (Buckland, 1987); large companies taking a new investment, higher management and the new shareholders. However, not only will the poorer inhabitants of rural areas miss out on these gains, they will often be subsidising the initial sale and then suffering as the profits from successful public enterprises are not available in future years to support the services provided by the welfare state on which they depend. Immediate proceeds from the sale may mitigate this a little, but not if their main use is to reduce taxation (especially at higher levels) or public borrowing.


Table 3. Examples of ~enational~sati~~ policies

British Aerospace 198111985 Cable & Wireless 1982wS Amersham International 1982 National Freight Corporation 1982 Britail 198215 Association British Ports 198314 International Aeradio 1983 British Rail Hotels 1983 British Gas Onshore Oil 1984 Enterprise Oil 1984 Sealink 1984 Jaguar 1984 British Telecom 1984 British Gas 1986 British Airways 1987 R&-Royce 1987 National Bus Company 1987 Royal Ordnance 1987 British Airparts Authority 1987 British Petroleum 1980/87 Austin Rover 1988 Central Electricity Generating Board Impending Regional Water Authorities Impending Girobank Impending Crown Suppliers Impending British Shipbuilders Impending British Steel Proposed British Rail Possible British Coal Possible

General

Disposal of local authority/agency land holdings Disposal of local authority housing stock (also new town assets)

Possibilities

Nature Reserves Country parks/&aches Forestry Commission

(After Veljanovski, 1987.)

Selling off unprofitable industries might reduce the drain on general taxation or borrowing, but obviously these industries will be most unlikely to attract private interest. Writing off debt is a pre- requisite, and again represents a public subvention to future private owners, as has happened in the sale of the Rover car group to Britain Aerospace, where the deal included hundreds of millions of pounds of tax written off as a sweetener to the purchaser. In fact Lhe Rover case is an interesting illustration of how the deregulatory wishes of the Thatcher government have been inconsistent with the regulatory requirements of international political agencies - in this case the E.E.C., which forced modifications to the tax concessions originally agreed between the British government and British Aerospace.

Many of the issues mentioned under the ‘contracting out heading arise here, in larger form, The extent

and beneficiaries of any saving, the degree to which the apparent benefits for consumers actually arise, and the implications, especially for Iow level workers, with regard to security and conditions of employment all resurface, particularly if the industry concerned was pursuing social goals as part of its previous public sector strategy (such as not causing further unemployment in areas where it is already a grave problem). Some issues relating to charging also arise here. The drive further to increase economic efficiency threatens the basic provision of, let alone the cost of, rural postal services, telecommunications and buses and railways. Fixed services (gas, electricity, water) are less likely to disappear once provided, but their extension to new territory becomes even more doubtful and differential pricing may result, putting increased strain on rural consumers. A highly variable picture of gains and losses thus emerges. Even some commentators who in general are favourably disposed to privatisation have expressed some unease. For example, Brittain (1984) has proposed the distribution of shares in nationalised industries to every adult on a PPD rata basis rather than just the select few, to give everyone a stake in their performance and profitability. This would, of course, dissipate the political capitai the government have been able to derive, even if it would be following through the supposed ideology of the process in a’ rather purer form. As such, the idea is therefore a most unlikely starter as a policy proposal.

With the accelerating pace of denationaiisation during_the second and third terms of the Thatcher administratian, researchers interested in the impacts in rural areas will need to take important note of the regulatory framework which is being erected as a partial replacement to state ownership and control (Heald, 1985). It is of interest here to note the view of a large securities house, that British Gas was a good buy, basically because it is now an ‘under- regulated monopolist’ (McRae, 1987). Obviously, the question as to the degree of deregulation and competition which goes alongside basic privatisation is a crucial one (Kay and Thompson, 1986).

Despite its dramatic implications, deregulation in practice has rarely amounted to the wholesale removal of pre-existing controls (see Table 4). It is much more usual for the legislative framework to be relaxed, sometimes significantly, but for some basic controls to remain. Deregulation may give great autonomy and freedom of action to pre-existing agencies, but its prime purpose seems to be to generate outside competition. In a similar way to


Table 4. Examples of deregulation policies

i. Deregulatory policies

Financial markets Bus and coach transport - express and tours

Local services Broadcasting (proposed) Town and country planning system Legal services Housing rents

ii. Measures to increase competition

Electricity Water TeIecommunications British Coal (removal of assured markets) British Steel (abolition of quotas - EEC)

contracting out, even if the same agency continues to provide the basic product or service, there will have been far greater pressure to ensure maximum efficiency in doing so.

It has already been noted how many of the earlier privatisation initiatives paid little heed to this aspect, preferring instead to seek the maximum possible price when companies were floated on the open market. British Airways provides a notable case, where its basic dominant position in the domestic arena was not challenged when it was privatised. This later gave it the ability to take over its leading competitor, British Caledonian. Some counter- reaction to this phenomenon has been in evidence, in that proposals for the forthcoming privatisation of the electricity and water utilities have combined to introduce an element of competition, if not really representing deregulation as such. Many advocates of privatisation have suggested that activity along these lines is essential if denationalisation is to succeed, avoiding the pure replacement of a public with a private monopoly.

Much evidence of the effect of deregulation, in its broad sense, is particularly tentative, as many proposals have not yet been implemented, whilst others are still in their early stages. The idea of an internal market within the NHS, with patients able to move between regional health authority areas to secure quicker operations, seems one of the more radical strands in the current reviews, whilst bar- risters seem set to lose their ‘closed shop’ in courtroom representation. These, and other proposals, are still to be implemented. Deregulation of broadcasting is also high on the current agenda and, along with the relaxation of licensing laws, fore- shadows a major collision between new right economic liberalism and social morality. Some initiatives have been in operation for a reasonable period, so

some judgement is possible. Mercury have made limited inroads against British Telecom (BT), but have been hampered by the need to complete an independent communications network to compete fully. At present, they seem to have found a specialised niche, sufficient to provide them with worthwhile business whilst not really challenging BT. The role of OFTEL, the regulatory agency involved, has been of greater significance to BT’s operations, and there must be a suspicion that the electricity industry will replicate this pattern.

The two most notable arenas for experiments in deregulation have been in the financial markets and in public transport. The Big Bang in the City of London involved a major opening up of the markets to free competition, including that from overseas. Initial responses were dramatic, although some retrenchment has taken place subsequently, and larger conglomerates have formed to gain greater leverage in the new expanded market. A financial boom has worked through to have major effects in other areas, notably in stimulating the redevelop- ment of Docklands. Apart from continuing questions over the self-regulatory framework, particularly over insider trading issues and the Guinness takeover of Distillers, the downside has been a weakening of government control over a basic area of the economy and an increasing tendency to seek short term returns rather than long term investment, particularly affecting manufacturing industry.

Public transport is of particular and direct significance to rural areas. Experience of the express coach sector, deregulated in 1980, showed that after an initial massive entry of private firms and the temporary formation of an alternative nationa network, National Express (the relevant arm of the National Bus Company) was able to fight back and evict most of the new entrants (Kilvington and Cross, 1986; Douglas, 1987). The main long term effect was the stimulation of competition with the railways. It is also significant that several smaller settlements disappeared from the network or suffered service losses whilst conditions improved on the major routes. Evidence from the first full year of deregulation in the former stage market also points to a major polarisation between more profitable urban areas and the less attractive rural zones. Com- petitors have emerged for the old NBC companies (now being privatised themselves), and the new arms-length municipal operations, but on the whole, these latter agencies have retained most of their market share. Some fares competition has taken place, although most innovation has resulted from vehicle changes, notably the increasing use of minibuses. In north and mid Wales (Bell and Cioke, 1988), the ex-NBC firm Crosville Wales has con-


centrated upon the more lucrative north coast area, defending its territory here aggressively. It has retained a substantial amount of rural work, although not appearing to undercut private firms to do so. Crosville Wales has also implemented a major internal restructuring, impinging on its operations and employee conditions. Private companies largely operate as before, with very few wishing to take on Crosville directly, and not at all in the rural hinterland. The contrast between the coast, where services have improved (mostly by the introduction of minibuses on a wide scale) and fares fell initially, and the rural areas where very few beneficial changes were apparent, emerges very strongly.

The market is not wholly deregulated, however. Quality measures remain, and county councils still have a major responsibility in maintaining a service network fn commercially unattractive areas via the issuing of tenders. Some of the councils have been highly innovatory. This issue of provision for the casuahties of a free market system is a critical one in assessing future effects of a deregulated system. Savings from tendering have been very limited in the Welsh example, and with pressure on council budgets expected to continue, their initial success in replacing the pre-existing network may not be sustainable in the longer term.

The question is therefore raised of the ability of the various planning systems to respond to such in- equalities. In town and country planning, as elsewhere, the ability to intervene against free market forces has been drastically reduced, although planning functions that support private enterprise have been retained, and even strengthened (Ambrose, 1986). Walker (1983) points out that not only have planning controls generally been relaxed (the widened use ctasses order, and more specific measures like enterprise zones being cases in point, the latter allowing the huge Canary Wharf scheme to proceed with little planning scrutiny), but non- elected bodies such as Urban Development Cor- porations have usurped local government functions. Use of consultants has also increased, making it quite feasible that all forward planning work will pass to these firms, leaving a (weakened) development control function to local government. Planning could change its form radically, but is unlikely to disappear, as significant elements amongst the Con- servatives, notably those represented by Michael Heseltine, have begun to preach for a more inter- ventionist approach to reduce overcrowding in the south-east in particular.

Deregulation then bids fair to widen the gap between basically profitable and unprofitable sectors and places, and between rich and poor. The extent

to which this occurs will depend on the legislative mechanisms left to redress the imbalance in some way, and the resources to put such mechanisms into operation. Retaining the benefits whiist avoiding severe repercussions elsewhere is a major challenge, which may be ignored, and the effects of deregulation and increased competition are likely to be highly diverse as a result.

Privatisation and rural research

It will be evident from the foregoing discussion that much of our current understanding of the impacts of privatisation in rural areas is at best speculative. Whereas some issues, such as the deregulatory impacts of the 1985 Transport Act, have been widely discussed, much of the remainder of the privatisation issue in rural areas is undeveloped in research terms. This is, at least in part, due to the rolling nature of the Thatcher government’s privatisation programme, such that some major elements have only recently been implemented while others are still at the proposal stage. Nevertheless it does appear that the current inexorable drive towards shifting public sector responsibilities into the private sector will prove to be a major change in the political context of rural policies.

There are at least four areas into which rural researchers might fruitfully direct their efforts, as follows.

i. Rural areas-as arenas of competition

By their very nature, rural areas are geographically spaced out and less densely populated than other parts of Britain’s settlement network. These very characteristics have underlaid the ‘problem’ of rural service provision which has become a standard component of understanding rural change (Cloke and Park, 1985; Pacione, 1984; Phillips and Williams, 1984), and it is these characteristics which may contribute a ‘rural’ (or non-urban) component to the impacts of various strands of privatisation policy. In essence, rural areas provide less healthy arenas for competition than their urban counterparts, although it should be stressed that a range of competitive environments will be found within ‘rural’ areas in Britain which are certainly not homogenous.

If the geography of rural areas affords them sub- optimal status as arenas of competition, then the political ideology which holds that opening various services out to competitive ownership and tendering so as to achieve greater efficiency of provision and


financing will always be beneficial, may not apply to rural areas in the same measure as elsewhere. Each of the different strands of privatisation policy en- counters this issue. User-pays policies are more likely to reflect true economic servicing costs than universal public sector charging. If standard rates of charge are replaced by differential charging, rural residents will receive much heavier bills for postal, telecommunications, gas, electricity and water services. If the differential user-pays ethic is extended to other services, such as health and education, then the impacts will be fundamental in the broader rolling back of the welfare state. There are already plans to extend user-pays to fire brigade call- outs if judged unnecessary, and to police response to burglar alarms. Loss of standard charges for existing user-pays services, and extension of user-pays charging to currently fully subsidised services will clearly add to the burden of the rural deprived. The economics and social impact of these existing and proposed policies require urgent research attention.

So far as deregulation policies are concerned, there is evidence again to suggest that rural areas have not proved to be particularly good competitive environments. For example the recent deregulation of public bus transport has stimulated significant competition between ex National Bus Company oper- ators and private sector firms. This has, at least in the short term, led to consumer benefits arising from vehicle innovation and fares battles, and also to cost savings by local authorities. In rural areas such as mid Wales, however (see Bell and Cloke, 1988), deregulation has not sparked off competition, because the least populated areas do not represent good profit for new investors in this sector. There- fore, the ‘benefits’ of deregulation are least in evidence in these marginal areas, and indeed there may well be disbenefits to the consumer in these areas once the initial changeover period with its government sweetener funds has been worked through.

Contracting out in rural areas is something of an unknown quantity. It certainly seems reasonable to suggest that some lower paid workers of the public sector labour force will have been detrimentally affected by the changes. Moreover, where services such as leisure centres are contracted out, the smaller rural clientele for these services make profitability a more difficult target for new private sector managers than for their urban counterparts. Higher user-pays charges may be the only answer here, and again these will discriminate against the more deprived sectors of rural society.

Rural areas have not been significant locations for denationahation. As the prime conservation land-

scapes in Britain are largely privately owned, there has been little opportunity to sell off crown land as part of the dentionalisation trend. There have, however, been proposals to privatise nature reserves which are currently owned by public sector agencies, and there are also areas of countryside management currently operated by organisations such as the Countryside Commission which could be targets for transfer to private sector management if the Thatcher administration maintains its privatisation momentum. This question of whether privatisation affecting rural services will be extended into pro- ductive sectors in rural areas is a crucial one for the understanding of future rural change. The scaling down of Forestry Commission activities in favour of private sector forestry interests is an important precursor here.

ii. Rural areas as arenas of production

Already one government of an advanced capitalist nation has turned its new right economic focus onto rural production in the agricultural sector. The Labour government of David Lange in New Zealand has implemented a radical programme of withdraw- ing agricultural subsidies and benefits (Willis, 1988) and initial evidence suggests that these deregulatory policies will certainly add to the problems faced by smaller less wealthy farmers, and other farmers who have become heavily endebted (Cloke, 1987b).

State regulation of agriculture in Britain has been fundamental to post-war farming policies, which have become even more complex and supportive with entry into the EEC. The agricultural sector contains obvious frictions to deregulation, due amongst other factors to power relations at the local, national and international scales in which agricultural capital has proved very powerful in dictating favourable policy terms. Yet the New Zealand case has demonstrated that agriculture is not immune to the favoured policy directions of the new right.

The influential Institute of Economic Affairs has already floated deregulatory ideas for the agricultural sector (Howarth, 1985). It is argued that farmers have not benefitted financially from state regulation since many of the profits accruing from price and output support have been swallowed up by higher land values, rents and interest payments. Howarth further contends that a free agricultural market would have been just as successful at providing food for Britain, but at a lower cost. He concludes that the government’s objective should be to achieve a freely competitive agriculture, without internal subsidies and without external protection. To achieve this objective, he urges the government


to do everything in its power to ensure the eventual demise of the Common Agricultural Policy.

Such ideas may be easier to espouse than to implement. The CAP has proved peculiarly resistant both to reform and to termination, despite wide- spread publicity and the huge expense of purchasing and storing excess food production. Nevertheless, the relationship of the Thatcher government (and indeed other new right administrations in Europe) with the EEC, particularly over the politics of the CAP needs to be viewed against this backcloth of ‘privatisation where possible’. For now, the contradiction between liberal and conservative political theories and the pragmatics of EEC membership have yet to be worked out.

iii. Protecting rural interests through continued regulation

One further arena for rural researchers interested in the effects of privatisation must surely be the work of the regulatory agencies which have been established to accompany privatisation in many of its forms. As Veljanovski (1987) has written in the context of denationalisation:

The key point is that privatisation and liberalisation have not meant the removal of the state from industrial activity. They have removed the state from its role as producer, and are transforming it into the ‘protective state’ whose main function is to ensure that businesses play by the agreed rules of the game (p. 170).

As with industry, so with services. Privatisation of gas, telecommunications and (according to current plans) electricity and water will involve the estab- lishment of watchdog regulatory agencies whose task is to ensure fair play for the consumer. These agencies are often pointed to as the overseers of misuse of power by the private sector in its takeover of previously public sector functions. In rural terms, the regulatory agency is the form for ensuring that British Telecom does not exceed its profit-oriented limits by, for example, removing uneconomic rural call-boxes.

It seems likely, however, that these agencies will be hamstrung in their duties by a change of goalposts in the purpose of the service providers concerned. Public sector service agencies had a social function relating to an agreed level of access at a standard charge. The private sector equivalents are respons- ible to markets and shareholders, and these social functions, although retained for good public image in the short term, are vulnerable to the profit motive in the longer term. Rural researchers will need to take a medium to long term view when evaluating

whether newly privatised service-providers actually keep their promises about the upkeep of rural provision and whether regulatory watchdogs have any teeth to dissuade the rationalisation of uneconomic rural services. Once again the basic contradiction between a strong regulating state and the liberation of market forces may be seen in these issues. The tension between these contradictory ideological inputs is not unchanging and requires careful monitoring by rural researchers.

iv. Rural areas as arenas of planning

A final consideration arising from privatisation issues of relevance to rural researchers concerns the role of public sector planning. It would be possible to view planning processes as a potential safeguard- ing mechanism against the impacts of market- oriented private sector development on marginal rural places and deprived rural people. Were the specific watchdog agencies to prove relatively powerless in the quest to protect consumers (and especially disadvantaged consumers) from the supremacy of profit-motives, then local authority planning might aim to ensure that service provision remained at acceptable levels in rural areas.

On the other hand, it would be expected from the above discussion of liberal theory as one foundation of current new right governments, that the idea of ‘more planning’ or even ‘strong planning’ to protect the interests of the market-disadvantaged would be anathema to the privatising state. Indeed, there is certainly evidence in Britain of a gradual deregulation of the post-war planning system. This has included (see Blowers, 1987): a reduced role for county-level strategic planning - with further reductions proposed in the current discussions on the future of development plans; reduced planning controls over development of agricultural land; reduced planning in special areas (as yet unspecified, but seemingly a rural equivalent of urban enterprise zones); and a reduced role for major planning inquiries, with major developments such as the Channel Tunnel being permitted without recourse to a full-scale inquiry.

Rural researchers will need to take careful note of the interactivities between the deregulation of planning and other strands of privatisation. Although there will be an obvious research focus on the role of relaxed planning restrictions in attempts to diversify agricultural enterprises, there are wider links to be made between what is happening to development planning and the broad front of privatisation as a major strand of state policy. Certainly, the analysis of change in rural areas will have to account for any


complimentarity or tension between planning and privatisation.

Conclusion

The policies of privatisation adopted by the Thatcher government in Britain may reasonably be placed in the context of new right politics, with the sometimes contradictory strands of liberal and conservative theory being brought together in a pragmatic political crusade to dismantle old collectivist structures and to build a new relationship between the state and the private sector. Nevertheless, a full understanding of the effects of privatisation will not be gained from a homogeneous interpretation of its parentage. Implementation of privatisation policies has been piecemeal and ad hoc. Jackson (1985, p. 34) has likened the policy programme to the driving of a revolutionary new car which is just in the early stages of its development:

As the driver crunches his(sic) way through the gears, periodically stalling the engine, he slowly learns about the internal workings of the engine along with what the car is capable of doing and what it cannot do without over straining the system. On a test run there should be no casualties . . . Carrying out experiments on an economy, however, is likely to produce casualties unless safety-nets are built in to protect them. In this case the unemployed and the poor have been the casualties of the ‘Thatcher experiment’.

It is against this complex background of ideology, pragmatism and experimentation that the impact of privatisation in rural areas should be evaluated. However, both in terms of ideology and in terms of pragmatics there does seem to be a strong case for arguing that rural areas are often a poor arena of competition and that the least affluent rural people will be disadvantaged by the excesses of nationwide policies of privatisation. What we need now, however, is empirical evidence to throw light on these issues.

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The changing relationship between the private and public sectors: Privatisation and rural Britain

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