Government must not stifle the success of the private sector

Before the new Government comes down too hard on the private sector, it should take a long hard look at its success. By George Pitcher. George Pitcher is chief executive of issue management consultancy Luther Pendragon

Being a privatised company is something of a schizophrenic experience at the moment. On one hand we have deputy prime minister John Prescott’s assurances that the Private Finance Initiative (PFI) will be beefed up. On the other, we have a punitive 5.2bn windfall tax on the privatised utilities and the first knockings of industrial action at British Airways, implying that the political climate may be swinging the unions’ way again.

In a period of middle-ground political uncertainty we shouldn’t lose touch with some eternal truths – one of which is that there are good examples of how privatisation has done for all stakeholders what the PFI could never match, and what the public sector couldn’t hold a candle to.

Airports operator BAA, hit like the rest by the windfall tax in last week’s Budget, is cited as exemplary in this context. Air travel is a growth industry, expanding at about two-and-a-half times gross domestic product, but that is not to undermine the scale of BAA’s achievement over the decade since it was privatised. Against the background of the shares having risen by 360 per cent, spending on airport infrastructure has trebled from less than 1bn in the decade before privatisation to more than 3bn in the decade since. It will be of the order of 4.5bn over the next decade if Heathrow’s fifth terminal goes ahead.

Competition evidently does exist; landing charges are among the world’s lowest. Numbers of employees have risen by more than six per cent – most of whom own shares – and the business contributes about 1.6bn to the Exchequer.

Quite apart from the notion that a Chancellor might have been advised to leave this enterprise alone, rather than kicking it while it’s up, the argument goes that other public sector, infrastructure businesses would benefit from the vigour of liberation in the private sector.

The obvious candidate is the Post Office, which is said to be the national grid for the forthcoming home-shopping revolution (until, presumably, the digital era gets a grip). Distribution businesses benefit from commercial efficiencies – the electricity companies distribute electricity, BAA distributes passengers (with a little downstream assistance from the airlines). The Post Office distributes mail and, once a regulatory regime is in place to ensure national coverage, would do so more efficiently with access to private sector capital and disciplines.

But I wonder whether it’s as simple as that. For a start, there is the cultural crevasse between the public and private sectors. Some of the crummier utilities have given their entire industries a bad name because of the workaday, unimaginative thinking of senior managers who have transferred from state-ownership in body but not in mind.

In this regard, the Post Office’s former guiding light Bill Cockburn should be the cause of some concern. I have long been a fan of Cockburn, for the dogged determination with which he brought efficiencies to bear on what has undoubtedly become the best postal service in the world. That’s why he was offered and accepted the task of sorting out WH Smith.

In practically all the public sector and a great deal of the private sector, executives are criticised for staying at the helm until well after the end of their useful lives. Cockburn is attracting censure for not staying long enough, having announced just 18 months into the implementation of his revival plan for WH Smith that he’s off to do something more fulfilling as managing director of BT’s UK operations.

I hope that there was not a consideration of the relative size of these operations and any comfort to be drawn by Cockburn in the prospect of a return to a monolith.

I have no idea whether Waterstone’s, the bookshop chain owned by WH Smith, decision to open a further 50 stores to expand its size by one-third results from a Cockburn initiative. But Waterstone’s is certainly the kind of enterprise that requires nerve and an entrepreneurial spirit (and also plays its part in a massive concern such as BAA – Waterstone’s most profitable shop is at Gatwick).

You get less of that in the great state-sold leviathans such as BT. Though terrific entrepreneurs, such as BT chief executive Sir Peter Bonfield, won’t admit it, the culture of quasi-monopolistic empires such as BT makes it very hard to expunge public sector mentalities. I very much hope that there is no part of Cockburn that thinks that he is going home.

Not that the likes of BA and BT are cushy numbers. BA this week looks as though it is about to enter a period of good old industrial dispute. It makes one feel quite nostalgic. And it’s not confined to former state-owned industries – Barclays is also squaring up to the unions.

There are, of course, no threats of strikes, as far as I am aware, among BT’s staff, but the political climate, for all the talk of “new partnership”, does suggest a new skip in the unions’ step.

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