Thatcher's privatisation legacy

How the promise of increased British competitiveness and greater prosperity has not materialised, and why I didn’t get to grow up in Hawaii.
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Cable & Wireless HKT's logo fades into history
<div style="text-align: left;"> Cable & Wireless HKT's logo fades into history </div>

I was 10 when the company my dad worked for became one of the first state-owned firms privatised under Margaret Thatcher.

Cable & Wireless was one of those venerable old bastions of empire, tracing its origins back to the dawn of the telegraph. In one form or another, the company had been operating a global communications business since 1860 — until it ceased to exist last year.

Of course, Cable & Wireless is just one example, but Thatcher herself repeatedly claimed to have diagnosed the ills of government planning through the lens of her father’s greengrocers in Lincolnshire. “There is no better course for understanding free-market economics than life in a corner shop,” she claimed.

That just about sums it up. At the core of Thatcher’s monetarist project was the parochial claim that the high inflation and low growth of the 1970s was entirely domestic in origin — the “British disease”. News of the oil crisis or the end of the gold standard or IMF-enforced austerity clearly didn’t make it to the Lincolnshire fruit-and-veg industry, and why would it?

My dad spent most of his career at Cable & Wireless, working as an engineer on the fleet of ships that strung thousands of miles of cables around the planet, connecting Britain to the far-flung corners of its former empire. Its assets included Hong Kong Telecom, as well as businesses in Japan, Singapore, South Africa and the Caribbean.

Thatcher came to power in 1979, having identified the solution to the country’s stagflation as public spending cuts and more austerity. Privatisation, she argued, would help to raise money for the public coffers and give managers the freedom to cut costs and re-invest the proceeds.

Brilliantly, she also managed to seduce workers into believing that it would hand the means of production to the people — a kind of “popular capitalism” that was so seductive it was adopted by governments around the world.

"It was taken as a matter of faith that financial gains would be invested in upgrading the enterprises once they were privatised, installing new machinery and hiring more labour to provide better service while increasing output at falling prices," writes Michael Hudson, a research professor of economics at University of Missouri, Kansas City, the home of modern monetary theory, in a long essay on British privatisation. "Workers were invited to think of themselves as finance-capitalists-in-miniature, earning dividends and capital gains by investing their savings in the shares in these companies."

The big public utilities were the most controversial targets, while companies such as Cable & Wireless were low-hanging fruit — its assets were mostly outside the UK, few people had ever heard of it and its various businesses around the world were a potential goldmine. Even the sceptics raised few objections to its sale.

By the time of my dad’s last posting in the mid-1990s, to a repair ship that spent most of its time idling at port in Victoria, on Canada’s Vancouver Island, the company was still one of the biggest in the industry and its shares were worth about £5 — a steady increase from the IPO price of £1.68 in 1983 (after an initially rapid increase due to the mis-pricing that characterised most privatisations).

Most of the early profits came easily. Before privatisation, for example, the company had paid for our family to follow my dad around the world, first class. We lived in Hawaii twice and briefly in Spain. Taxes and school fees were also taken care of.

Freed from the constraints of the public sector, management cut costs after privatisation, transferring such allowances from their employees to themselves, in the form of dividends and salaries that were among the highest in the industry. But employees also owned shares, so there was still a wealth effect, at least for a while (and I’m sure my dad didn’t mind travelling the world without four kids in tow).

In retirement, he watched as executives turned the company into a bubble stock, selling profitable assets to pay rich prices for flimsy investments.

In Hong Kong, in 2000, I had a ringside seat for the very worst of those trades: the sale of Cable & Wireless’s lucrative stake in the local phone operator to Li Ka-shing’s son, Richard, in exchange for shares in his 10-month old startup, Pacific Century CyberWorks, which was valued at an irrationally exuberant $26 billion — making it bigger than Amazon at the time.

The deal was an almost immediate disaster for both companies, as was abundantly obvious even before the ink was dry. Indeed, this is what Cable & Wireless HKT’s board had to say as they recommended the deal to shareholders:

“The financial risk profile of HKT will change from that of a company with substantial cash reserves, little debt and a history of regular dividend payments, to being part of a group with significant debt and which is unlikely to be able to pay dividends in the foreseeable future.”

It also had a share price that was heading south in a hurry. And, as a result, so did Cable & Wireless. After briefly reaching £15, the company’s shares finally slumped below the IPO price in 2002 and never really recovered — though management continued to pay themselves millions anyway.

Vodafone bought what was left of the business last year for about £1 billion, after the Caribbean assets were spun off in 2010 and now go by the name Lime.  

Her legacy will be debated for years to come, but one thing is sure: almost none of Thatcher’s promises came true. Workers did not become better off, unemployment never returned to the levels of the early 1970s, trade surpluses did not come to pass and utility bills did not get cheaper.

And I swapped life in Hawaii for the northeast of England. Thanks Maggie.

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