Private Island: Why Britian Now Belongs to Someone Else (2 page)

Contempt for the planned economy, a new appreciation of the danger of printing excess money, gratitude to the entrepreneurs – there were times, in those early months in Kiev, that I asked myself whether I was becoming a Thatcherite. I can't pinpoint the moment when it soured for me. It might have been the sight of a solid rank of impoverished pensioners, some several hundred respectable old ladies, standing shoulder to shoulder in the freezing winter darkness outside Belarus Station in Moscow, each holding a single sausage for sale – the free market as desperation. Or a visit to the Arctic mining city of Vorkuta, where miners were being paid in sandwiches while their bosses pocketed the money from the coal they were earning free market prices for. Or meeting Roger Gale, head of the Moscow mission of the International Finance Corporation, a branch of the World Bank, where he'd been talking up Russia's programme to privatise businesses by issuing vouchers to all its citizens which they could use – and must only use – to buy shares. I left his office, went to a kiosk selling foreign chocolate, nuts and fizzy drinks, and, non-Russian that I was, bought a voucher for thirteen pounds cash, no ID required. One government estimate was that each supposedly one-off voucher was used, on average, between two and three times.

Or was it the time in 1995 I visited a privatised factory in Volgograd, the former Stalingrad, which once employed ten thousand, whose boss was in jail awaiting trial on embezzlement charges, where the few remaining workers hadn't been paid for several months? One of the plant's former party officials showed me round. I met her in her office, where the busts of revolutionary communist heroes and yellowing mountains of old Pravdas were thick with dust, and the complete works of Marx and Lenin
languished untouched in locked glass cabinets behind her. At one point I asked an old worker, who'd been waiting for a council flat for twenty years and got to second place in the queue when perestroika happened, why, if he wasn't being paid, he didn't go on strike. ‘If I'd known you were going to ask that kind of question,' the party woman, heir to Lenin, hissed at me, ‘I never would have let you come in here.'

In the first stages of disillusionment, it didn't seem obvious to me to make connections between the extremes of marketisation and privatisation in the former Soviet Union and the partial privatisation of a British economy which had always been mainly private anyway. I still assumed some fundamental distinction between two worlds. After all, where Britain had a series of regulators to set rules for the privatised industries – Ofcom, Ofwat and so on – the principal regulator of privatisation in Ukraine and Russia, at least in the early days, was murder. In Russia in particular, a small number of individuals quickly became fantastically rich when they took private control of state producers of petrochemicals and metals. They were grotesquely rewarded, or grotesquely undertaxed, and money which should have gone to rebuild roads or hospitals or schools went instead towards yachts, property in London and foreign football teams. But that had nothing in common with privatisation in Britain – did it?

I began to notice something odd about the British and American business people and financial advisers I met in Ukraine and Russia in the 1990s. It was no surprise, I suppose, that they cared more about businesses being overtaxed than undertaxed, more about protection of private property than about protection of pensioners; that they didn't care how weak and bullied the local trades unions were. Besides, their Russian interlocutors kept being assassinated. What was revealing was how many of these emissaries of the capitalist way seemed to believe the myth that all that was good in the British and American economies had been constructed by the free market. They seemed to believe, or talked, made speeches, wrote papers
as if they believed, that the entire structure of their own wealthy modern societies – the roads, the electricity grids, the railways, the water and sewage systems, the universal postal services, the telecoms networks, housing, education and health care – had been brought into being by individual entrepreneurs driven by desire for gain, with the occasional lump of charity thrown in, and that a bloated, parasitical state had come shambling onto the scene, seizing assets and demanding free stuff for its shirker buddies. I don't want to absolve the Russians or Ukrainians of responsibility for their handling of the aftermath of communism, but the template they were handed by the fraternity of the Washington Consensus was based on fake history. If this is what the triumphalists of Wall Street and the City of London told the Russians about the way of the capitalist world, I thought when I moved back to Britain in 1999, what have they been telling us? And what came of it?

When Margaret Thatcher's Conservatives came to power in Britain in 1979, much of the economy, and almost all its infrastructure, was in state hands. Exactly what gloss you put on ‘in state hands' depends on your political point of view. For traditional socialists, it meant ‘the people's hands'. For traditional Tories, it meant ‘in British hands'. For Thatcher and her allies, it meant ‘in the hands of meddling bureaucrats and selfish, greedy trades unionists'. How much of the economy? A third of all homes were rented from the state. The health service, most schools, the armed forces, prisons, roads, bridges and streets, water, sewers, the National Grid, power stations, the phone and postal system, gas supply, coal mines, the railways, refuse collection, the airports, many of the ports, local and long-distance buses, freight lorries, nuclear fuel reprocessing, air traffic control, much of the car-, ship- and aircraft-building industry, most of the steel factories, British Airways, oil companies, Cable & Wireless, the aircraft engine makers Rolls-Royce, the arms makers Royal Ordnance, the ferry company Sealink, the Trustee Savings Bank,
Girobank, technology companies Ferranti and Inmos, medical technology firm Amersham International and many others.

In the past thirty-five years, this commonly owned economy, this people's portion of the island, has to a greater or lesser degree become private. Millions of council houses have been sold to their owners or to housing associations. Most roads and streets are still under public control, but privatisation has reached deep into the NHS, state schools, the prison service and the military. The remainder was privatised by Thatcher and her successors. By the time she left office, she boasted, 60 per cent of the old state industries had private owners – and that was before the railways and electricity system went under the hammer.

The original background to Thatcher's privatisation revolution was stagflation, a sense of national failure, and a widespread feeling, spreading even to some regular Labour voters, that the unions had become too powerful, and were holding the country back. Labour, and Thatcher's centrist predecessors among the Conservatives, had tried to control inflation administratively, through various deals with unions and employers to hold down wages and prices; Labour had, under pressure from the IMF, cut spending. But Thatcher and her inner circle planned to go further, horrifying moderates in their party with the radicalism of their intentions.

The late Alan Walters, her chief economic adviser, believed a key source of inflation and the weak economy was the amount of taxpayers' money being poured into overmanned, old-fashioned, government-owned industry. Just as in the Soviet Union, he thought, Britain's state industries concealed their subsidy-sucking inefficiency through opaque, idiosyncratic accounting techniques that took little account of how much time and effort were required to do and make things, or what people actually wanted to buy, or how much they were prepared to pay for it. As long as the subsidies kept coming, neither managers nor workers had much incentive to come up with smarter working methods or accept new technology, because that would
mean fewer jobs, which would mean less power for the bosses and a smaller union. Yes, Walters knew, his protégée would slash spending on steel and coal and power and all the rest, yes, hundreds of thousands of workers would be sacked, but that wasn't enough. As many state-owned companies as possible must be privatised – be divided up into shares and sold to the public. They'd no longer be subsidised; they'd have to borrow money like any private company, account meticulously to shareholders for every penny they spent or earned, and strive to make a profit. The bigger the profit, the more efficiently the firm would be doing its job, and the more management would be rewarded. Most importantly, they'd have to compete with other firms. If they fell behind their competitors, they'd risk bankruptcy. Managers would face incentives for success and penalties for failure. British industry would become more competitive internationally. It would serve citizens better. Government would save the taxpayer money. The sacked workers would get redundancy payments; they'd go off and start businesses, or find other, more useful jobs once the economy was working properly. Everyone would win, except the lazy, and Arthur Scargill.

Millions did buy shares. Most Britons, bemused by the process, assumed the main reason for privatisation was to raise cash for a desperate government. Harold Macmillan, who before his death provided a snarky Wodehousian commentary from the wings on the work of the grocer's daughter, observed in an often paraphrased line: ‘The sale of assets is common with individuals and states when they run into financial difficulties. First, all the Georgian silver goes, and then all that nice furniture that used to be in the saloon. Then the Canalettos go.'

Another leal privatiser, Nigel Lawson, a minister in the Thatcher government from the beginning almost to the end, dismissed the idea that the government cared about the price it was getting for selling off the family silver. Having many ordinary people owning shares, he writes in his memoirs, was the point. ‘The prime motives for privatisation were not Exchequer gain,'
he declares, ‘but an ideological belief in free markets and a wider distribution of private ownership of property.'

Neither Walters nor Lawson, nor other allies like Keith Joseph, the ex-communist Alfred Sherman or Nicholas Ridley, would have been able to implement their ideas without the prehubris Thatcher herself, her extraordinary sense of the way the political wind was blowing, her conviction of her own rectitude, and the stamina and persistence with which she was able to go on insisting on something until her opponents in government gave in. Hers was a different emphasis to Walters, who saw the curbing of ‘bloody-minded trades unions' as a useful side effect of privatisation. For Thatcher, privatisation, in the beginning at least, was simply one of many weapons to use in her battle against the unions, which was, in turn, a single episode in her war to exterminate socialism, to be fought in one unbroken front from Orgreave Colliery to Andrei Sakharov's place of exile in Gorky. Her great political inspiration, apart from her father, was the Austrian economist Friedrich Hayek's 1944 book,
The Road to Serfdom
, written in Cambridge during the war. Hayek was regarded as an able economist; he eventually won a Nobel Prize for it. But
The Road to Serfdom
isn't an economics book. It's a book about society, the recent past and human nature that bears the same relation to sociology, history and psychology as
Atlas Shrugged
bears to literature. It is devoted to the idea that Winston Churchill later nodded to, catastrophically for him, in the 1945 election campaign, when he said Labour would have to fall back on ‘some form of Gestapo' to implement its welfare and nationalisation programme. Churchill was thrown out of office, and Labour won a huge majority.

The Road to Serfdom
claims that socialism inevitably leads to communism, and that communism and Nazi-style fascism are one and the same. The tie that links Stalin's USSR and Hitler's Germany, in Hayek's view, is the centrally planned economy – as he portrays it, the attempt by a single central bureaucracy to direct all human life, to determine all human needs in advance
and organise provision, limiting each to their rationed dole and their allotted task. Such a bureaucracy will no more tolerate dissent and deviation than the engineers tending a vast production line will accept a pebble jamming the gears. Confusingly, Hayek denies he is a pure libertarian, and declares the free market must have rules; he also says it is acceptable for government to ‘provide an extensive system of social services'. Yet this is in contradiction to his main message, which is that there can be no mixture of state planning and free market competition. To him they are mutually exclusive. ‘By the time Hitler came to power, liberalism was dead in Germany,' he writes. ‘And it was socialism that had killed it.' Even to
try
to make socialism work, according to Hayek, is dangerous:

Hayek was proven wrong. As in other western European countries, socialists came and went from power in Britain, introduced a welfare state and took control of large swathes of the economy without democracy and individual freedoms being threatened. The NHS was set up, council houses were built, social security was established, state education was expanded, coal, rail and steel nationalised, yet despite all the planning this required, millions of private businesses, small, medium and large, carried on merrily competing (or co-operating) with each other, flourishing or going to the wall as the market determined. Private doctors kept their clinics on Harley Street, young aristos still ruggered their way across the playing fields of Eton, the private shop windows of Harrods still blazed forth at Christmas time. Bankers and stockbrokers thronged the City, and the farmers owned their land. No one was forced by the government to live in a particular place or do a particular job. Indeed, by abolishing
conscription and, albeit rather hypocritically from a male point of view, endorsing greater rights for women, Britain seemed to be coming up with new forms of individual freedom that hadn't occurred to Hayek. There was an argument to be made about how much tax people and businesses paid, and how much of that money government would have been better letting them choose for themselves how to spend. The argument was made, and will always be made; in the end neither the Gestapo, nor the English Hitler, nor the English Politburo appeared, or looked like appearing.