The Damaging World Wide Legacy of the Queen of Privatization...........Margaret Thatcher.....
The influence of Margaret Thatcher on not just the U.K., but on the modern world is something that you are unlikely to understand from following only the main stream media.
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The reason for this is because of the differences of opinion which the privatization of national industries provokes. Generally, the media seems to either support privatization, or gives the impression of being unsure. What the media can not ignore is the number of ordinary people who clearly oppose privatization. However, the people opposing privatization are the people who have gone out of their way to understand the real implications without being taken in by smoke screens created by politicians such as Margaret Thatcher back in the late 70's and 80's and David Cameron today. The majority of people do not have time to research the problems privatization creates and will shape their points of view from news programs and news papers which are run by large conglomerates or run by or influenced by a government.
The influence of Margaret Thatcher on not just the U.K., but on the modern world is something that you are unlikely to understand from following only the main stream media.
The reason for this is because of the differences of opinion which the privatization of national industries provokes. Generally, the media seems to either support privatization, or gives the impression of being unsure. What the media can not ignore is the number of ordinary people who clearly oppose privatization. However, the people opposing privatization are the people who have gone out of their way to understand the real implications without being taken in by smoke screens created by politicians such as Margaret Thatcher back in the late 70's and 80's and David Cameron today. The majority of people do not have time to research the problems privatization creates and will shape their points of view from news programs and news papers which are run by large conglomerates or run by or influenced by a government.
This is how Margaret Thatcher's privatization regime began.........
Amersham International £70 Million
National Freight Consortium (NFC) £100 Million
-Sold to management-Another way of saying the management borrowed to buy the company, meaning the company is immediately worse off due to debt and interest payments.
Floated on London Stock Exchange 7 years later. (Probably with a lot of the debt still intact which is usual for floatations on the stock market).
Success of NFC encouraged Margaret Thatcher further.......Rising unemployment was also an incentive to sell off more national companies for cash due to rising benefit costs.
The logic for selling shares of national enterprises was simple......As long as the shares were sold cheap enough, they could guarantee that the share holders could immediately make money due to increase in share prices due to demand. Therefore encouraging more investors for the next sell off.
The benefits to the government were obvious, though you will soon see these benefits are short term. Whether you currently support privatization and think it is justified, or not it would be easy to may be allow yourself to be misled as a member of parliament when you realize that the government is just cashing in on assets that tax payers had spent their lives paying for. To the government, it was a pile of cash there for the taking.................
Yet the benefits to the rest of us, which were at the very least, unproven logic, started to spread over sees and around the world. The United States and Russian governments followed the example set by Margaret Thatcher. I expect there was a degree of surprise that she was actually getting away with selling off of businesses which didn't belong to her . They belonged to us. But the thing is they could see that she was getting away with it. So why couldn't they do the same. And this they did with vigor.
Whether right or wrong, Margaret Thatcher was getting away with selling off businesses which did not belong to her, but was currently in temporarily control of them. Selling them off to individuals initially from the U.K. who apparently wanted a stake in British Business.......
Now we bring in the investment banks. When companies are privatized, an investment bank will value the company and if agreed with the owner will underwrite the sale of the company. This means the bank will buy the company and then sell it off as individual shares. This is good business for investment banks and the finance industry in general. But also influences the opinion of business and finance type journals and TV channels who are would negatively effect demand for shares of these companies, if the all the truths were to be broadcast on the potential failures and pitfalls of privatization. Ofcourse these pitfalls were rarely examined in any detail, clearly because press and media were encouraged not to.
Meanwhile, back to the Thatcher years, privatization is taking off in all those countries which we all know are renowned for their capitalism today such as the U.S. and Russia as well as many other modern and then developing countries. The city was receiving commission on privatization deals that were going on all over the world. As well as fees for underwriting the deals, they were also being paid interest when purchases of privatized businesses were refinanced when they changed ownership. ........If there had been a change of heart, on whether privatization was really the future, it would have been at great cost to the City of London financiers, who have been benefiting from the U.K. and oversees privatization industry ever since.
1984
British Telecom £4 Billion
1986
British Gas
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Electricity
-14 Regional public electricity suppliers
1987
British Airways
Rolls Royce (Aviation)
British Airports Authority
Water Industry
British Steel
British Rail
By 1990, 50 companies had been privatized by Margaret Thatcher. More than two-thirds of the industrial assets owned by the United Kingdom state in 1979.
Privatization wasn't her only influence on the finance industry (Due to the business privatization generated for the investment banks). When the benefits of privatization on the finance industry had become clear, she cleared the way of finance regulations in the city. Until 1979, U.K. companies could only invest up to £5 Million in oversees businesses without seeking permission from relevant authorities. The restriction was removed.
Also, institutions were allowed to invest in foreign denominated currencies and restrictions on foreign direct investment were removed.
-A whole department at the Bank of England employing 750 people and responsible for enforcing exchange controls was closed down !
The way was opened for cash to flow across borders and move in and out of the country without hindrance.
There was further deregulation in the Stock Markets in 1986 known as the 'Big Bang' Reforms. These too, gave further freedom to the movement of capital across international borders.
The following banks then opened up in the City of London, as a result of Margaret Thatcher's deregulation in finance;-
Chase Manhattan, Saloman Brothers, Morgan Stanley, Bear Stearns, Merrill Lynch, J.P. Morgan, Lehman Brothers, Goldman Sachs, Deutsche Bank, Dresdner Bank, Societe Generale, BNP Paribas and UBS.
London had headquarters for more investment banks than any city in the world, including New York's Wall Street.
There is no doubt that these decisions had a massive impact on the U.K.s financial industry. It meant the U.K. was the leader of the type of capitalism that is currently dominating the world. Only the U.S. has managed to compete and has managed to do so by lending more money for privatizations and corporate buyouts. As you can see from the list of investment banks that moved to London, it is clear that the rules in the U.K. encouraged business for investment banks. London gave United States investment banks unrestricted access to the world.......which they did not have while based in their own country. So do you think Margaret Thatcher influenced the financial crisis ? There is no doubt she did !
Privatization.........One illusion that is common is that;
Private companies can make more profit than a state run business.
This is because state run businesses are there to provide a service........whilst private businesses are primarily there to make money........
This is primarily where the misunderstanding between these two types of businesses lies.....
Politicians do a fairly good job of justifying privatization, but the reasoning is merely a creation to mislead the public. Take a look at the following points.
Point 1..
Often, before privatization a government will point out that a national enterprise does not make a profit.
The fact is, it is actually a more responsible way to run for example a utility service such as water, gas, electricity at a slight loss.
Put your self in the situation of being in charge of running a utility service. How difficult could it be to just charge the customers enough money to run the service? There is no rocket science here. Historically, care has been taken not to over charge the customer, hence occasionally a loss may be incurred. This loss would then have to be subsidized by the tax payer. This is no big deal. The difference would be paid by working people paying income tax. Pensioners, and people on low incomes would benefit from lower bills and be able to spend their money elsewhere in the economy.
Point 2..
Once a company goes private, it immediately has a responsibility to the share holders or owner of the company. This effectively means the company is constantly in debt. Costs of running the company including paying staff need to be covered and the funding of any expansion or improvements need to be financed along with other costs. But now, in addition share holders need to be paid a dividend every year. In other words, once a business is privatized the costs will rise substantially.
Point 3..
Privatized businesses often involve cost cutting, partly due to the extra costs that the share holders add to the business. Inevitably there will be job cuts. It would be a consolation if the redundancies led to lower prices to the customer. Unfortunately the reality is that the executives pay them selves higher salaries and bonuses, and the costs to the customer increase substantially ! Remaining staff needless to say are given an increased work load to cover that of their redundant colleagues.
Point 4..
Once these businesses become privatized, they are left in control of the executives. This generally means that they are run less responsibly. Often it will lead the executives to borrowing many millions of pounds from banks. Because the business no longer belongs to the state, it means banks can lend vast amounts of money against the assets of the company. Or to put it another way, a bank will remortgage part of the company. This money may be used to improve the business, but I am afraid to say that this access to credit is often abused by the executives. This cash could be used to increase executive pay, and is some times used to pay increased dividends to investors. If the company doesn't improve as a result of its new mortgage, it may increase charges to customers to cover the debt. At some stage it may need to be refinanced and take on yet more debt. Often regulators and company executives may blame economic conditions for rising prices, when there is actually a much more simple explanation ...........Irresponsible debt !
Just one thing needs to be clarified here. Its to do with how the accounts of these companies work.......A company can have a £Billion of debt added to it without it seriously affecting the company's profits ! The reason is that the profit within any year will only be affected by it's payments of debt during that year. The actual debt out standing does not affect the profit figure......You may be thinking...."Well I know that, it's common knowledge ." That may be the case, but when the press and media reports on these companies, they will talk about profits and remuneration and market share. But strangely, millions of pounds of debt doesn't get a mention. (If they mentioned this debt all the time as they should it would affect share values ). For an extreme version of this.......Companies issue bonds which may not have to be paid back for seven years. Only the interest is payable until the seven years is up ! Therefore a company could be heading for a cliff top, whilst the accounts in the years leading to the 'cliff top' could be showing good profits ! This is why, on the whole you or any one else are unlikely to know how irresponsible these businesses can be.
Point 5..
If you follow posts on X-ECONOMICS and ANTI-CRISIS ECONOMICS, you will be aware of the mountain of cash that is available for the buying and selling of companies. This cash may be found in the stock markets, hedge funds, pension funds, bank accounts, ISAs etc. Lots of this money is used in the buying and selling of big businesses in Private Equity Buyouts, Corporate Buyouts etc. Once companies are privatized the chances are they may be taken over by a private equity company, or bought by a competitor. The thing to note is that whenever this happens, the majority of the money is always borrowed..........The company immediately goes into debt (in addition to any current debts). The buyout business is controlled by the banking industry. The banking industry does not need a good reason to put a business into debt. It will burden a business with debt as long as the bank knows the company has assets to secure the debt against.
And this is what happens to many of these big companies. They effectively get remortgaged again, and again and again.
For this reason you should never support a government that supports privatization. Because if state businesses don't get privatized then they can avoid all of the above.
For a government that was short of cash, privatization seems an easy option as it put £billions straight into the pockets of the politicians. However when Margaret Thatcher entered power we also entered a U. K. 'oil boom'. There should have been no justifiable reason for the privatization of our national industries.
As I mentioned above, there are benefits to a government in selling off state industries. But they are short term. These businesses could have been better run in order to make a profit while in control of the state. A profit that could be helping to keep down the national debt. The reality is that once the businesses are sold off they can not be used to help run the country. These businesses have been sold off using much the same logic that a drug addict may sell off all their belongings off to fund their addiction. They feel it solves a problem. But this feeling will only last until the money from the sold assets runs out. Now all the money from the sold assets has run out. There is hardly any thing left to sell. This is why The NHS has become a target. But the selling off of the NHS is not going to solve any problems. It will just be a short term fix for the government's (Whether Labour or Condem)
addiction to cash.
Any business associated with any form of privatization seems to be badly run and irresponsibly financed. It is likely that many privatized services will have to be taken back by the state as soon as we have a government that is willing to put the people before any other capitalist motives that the politicians (and the finance industry which clearly has a big influence on these decisions) may have. It looks like many businesses whilst claiming to be investing for the future, probably can not be trusted to do this responsibly. It is difficult to see where the motivation would come from when you are aware that lots of these businesses change ownership every few years. -Current owners are unlikely to get a return on their current investment for the future.......if the company may be in new hands after a take over deal in years to come..............
......................The theories of privatization just do not stack up !...........
So lets now look towards a new government who can take responsibility and reverse the damage done. Many of the industries which have been privatized are heading into trouble. Firstly because of their irresponsible attitude to debt. This is one of the reasons why charges are constantly rising.Secondly, because they change ownership regularly which hinders any genuine long term strategies (This also encourages them to take on more debt, because when the business is sold, the debt changes hands with the business.).- They are more likely to make claims of planning for the future, but more likely to be more motivated to go for short term gains whilst bluffing their way past the regulators and their customers.........The NHS and the postal service are soon to be added to the list of shams that used to be the U.K. state run services. Unfortunately, in general we can not do without these services if they run themselves out of business or if they become to expensive for the public to be able to afford them. So we are likely to end up bailing them out one way or another in order to keep the services running. But when this happens we should bring them back under control of the state.............
Rest in Piece Margaret Thatcher............
Roman Abramovich made his fortune by buying up shares from a privatized Russian gas industry. Shares had been made available by the Russian government following Maggie Thatchers privatization regime. Many Russians have become rich by accumulating as many shares as possible. Russians and Europeans are paying increased costs for gas today as oligarchs increase the costs of their exuberant life styles which include buying football clubs and armoured boats. The funding for these luxuries comes from control of these industries and the price increases which the oligarchs pass onto the paying customers.
Now we bring in the investment banks. When companies are privatized, an investment bank will value the company and if agreed with the owner will underwrite the sale of the company. This means the bank will buy the company and then sell it off as individual shares. This is good business for investment banks and the finance industry in general. But also influences the opinion of business and finance type journals and TV channels who are would negatively effect demand for shares of these companies, if the all the truths were to be broadcast on the potential failures and pitfalls of privatization. Ofcourse these pitfalls were rarely examined in any detail, clearly because press and media were encouraged not to.
Meanwhile, back to the Thatcher years, privatization is taking off in all those countries which we all know are renowned for their capitalism today such as the U.S. and Russia as well as many other modern and then developing countries. The city was receiving commission on privatization deals that were going on all over the world. As well as fees for underwriting the deals, they were also being paid interest when purchases of privatized businesses were refinanced when they changed ownership. ........If there had been a change of heart, on whether privatization was really the future, it would have been at great cost to the City of London financiers, who have been benefiting from the U.K. and oversees privatization industry ever since.
1984
British Telecom £4 Billion
1986
British Gas
Electricity-14 Regional public electricity suppliers
1987
British Airways
Rolls Royce (Aviation)
British Airports Authority
Water Industry
British Steel
British Rail
By 1990, 50 companies had been privatized by Margaret Thatcher. More than two-thirds of the industrial assets owned by the United Kingdom state in 1979.
Privatization wasn't her only influence on the finance industry (Due to the business privatization generated for the investment banks). When the benefits of privatization on the finance industry had become clear, she cleared the way of finance regulations in the city. Until 1979, U.K. companies could only invest up to £5 Million in oversees businesses without seeking permission from relevant authorities. The restriction was removed.
Also, institutions were allowed to invest in foreign denominated currencies and restrictions on foreign direct investment were removed.
-A whole department at the Bank of England employing 750 people and responsible for enforcing exchange controls was closed down !
The way was opened for cash to flow across borders and move in and out of the country without hindrance.
There was further deregulation in the Stock Markets in 1986 known as the 'Big Bang' Reforms. These too, gave further freedom to the movement of capital across international borders.
The following banks then opened up in the City of London, as a result of Margaret Thatcher's deregulation in finance;-
Chase Manhattan, Saloman Brothers, Morgan Stanley, Bear Stearns, Merrill Lynch, J.P. Morgan, Lehman Brothers, Goldman Sachs, Deutsche Bank, Dresdner Bank, Societe Generale, BNP Paribas and UBS.
London had headquarters for more investment banks than any city in the world, including New York's Wall Street.
There is no doubt that these decisions had a massive impact on the U.K.s financial industry. It meant the U.K. was the leader of the type of capitalism that is currently dominating the world. Only the U.S. has managed to compete and has managed to do so by lending more money for privatizations and corporate buyouts. As you can see from the list of investment banks that moved to London, it is clear that the rules in the U.K. encouraged business for investment banks. London gave United States investment banks unrestricted access to the world.......which they did not have while based in their own country. So do you think Margaret Thatcher influenced the financial crisis ? There is no doubt she did !
Privatization.........One illusion that is common is that;
Private companies can make more profit than a state run business.
This is because state run businesses are there to provide a service........whilst private businesses are primarily there to make money........
This is primarily where the misunderstanding between these two types of businesses lies.....
Politicians do a fairly good job of justifying privatization, but the reasoning is merely a creation to mislead the public. Take a look at the following points.
Point 1..
Often, before privatization a government will point out that a national enterprise does not make a profit.
The fact is, it is actually a more responsible way to run for example a utility service such as water, gas, electricity at a slight loss.
Put your self in the situation of being in charge of running a utility service. How difficult could it be to just charge the customers enough money to run the service? There is no rocket science here. Historically, care has been taken not to over charge the customer, hence occasionally a loss may be incurred. This loss would then have to be subsidized by the tax payer. This is no big deal. The difference would be paid by working people paying income tax. Pensioners, and people on low incomes would benefit from lower bills and be able to spend their money elsewhere in the economy.
Point 2..
Once a company goes private, it immediately has a responsibility to the share holders or owner of the company. This effectively means the company is constantly in debt. Costs of running the company including paying staff need to be covered and the funding of any expansion or improvements need to be financed along with other costs. But now, in addition share holders need to be paid a dividend every year. In other words, once a business is privatized the costs will rise substantially.
Point 3..
Privatized businesses often involve cost cutting, partly due to the extra costs that the share holders add to the business. Inevitably there will be job cuts. It would be a consolation if the redundancies led to lower prices to the customer. Unfortunately the reality is that the executives pay them selves higher salaries and bonuses, and the costs to the customer increase substantially ! Remaining staff needless to say are given an increased work load to cover that of their redundant colleagues.
Point 4..
Once these businesses become privatized, they are left in control of the executives. This generally means that they are run less responsibly. Often it will lead the executives to borrowing many millions of pounds from banks. Because the business no longer belongs to the state, it means banks can lend vast amounts of money against the assets of the company. Or to put it another way, a bank will remortgage part of the company. This money may be used to improve the business, but I am afraid to say that this access to credit is often abused by the executives. This cash could be used to increase executive pay, and is some times used to pay increased dividends to investors. If the company doesn't improve as a result of its new mortgage, it may increase charges to customers to cover the debt. At some stage it may need to be refinanced and take on yet more debt. Often regulators and company executives may blame economic conditions for rising prices, when there is actually a much more simple explanation ...........Irresponsible debt !
Just one thing needs to be clarified here. Its to do with how the accounts of these companies work.......A company can have a £Billion of debt added to it without it seriously affecting the company's profits ! The reason is that the profit within any year will only be affected by it's payments of debt during that year. The actual debt out standing does not affect the profit figure......You may be thinking...."Well I know that, it's common knowledge ." That may be the case, but when the press and media reports on these companies, they will talk about profits and remuneration and market share. But strangely, millions of pounds of debt doesn't get a mention. (If they mentioned this debt all the time as they should it would affect share values ). For an extreme version of this.......Companies issue bonds which may not have to be paid back for seven years. Only the interest is payable until the seven years is up ! Therefore a company could be heading for a cliff top, whilst the accounts in the years leading to the 'cliff top' could be showing good profits ! This is why, on the whole you or any one else are unlikely to know how irresponsible these businesses can be.
Point 5..
If you follow posts on X-ECONOMICS and ANTI-CRISIS ECONOMICS, you will be aware of the mountain of cash that is available for the buying and selling of companies. This cash may be found in the stock markets, hedge funds, pension funds, bank accounts, ISAs etc. Lots of this money is used in the buying and selling of big businesses in Private Equity Buyouts, Corporate Buyouts etc. Once companies are privatized the chances are they may be taken over by a private equity company, or bought by a competitor. The thing to note is that whenever this happens, the majority of the money is always borrowed..........The company immediately goes into debt (in addition to any current debts). The buyout business is controlled by the banking industry. The banking industry does not need a good reason to put a business into debt. It will burden a business with debt as long as the bank knows the company has assets to secure the debt against.
And this is what happens to many of these big companies. They effectively get remortgaged again, and again and again.
For this reason you should never support a government that supports privatization. Because if state businesses don't get privatized then they can avoid all of the above.
For a government that was short of cash, privatization seems an easy option as it put £billions straight into the pockets of the politicians. However when Margaret Thatcher entered power we also entered a U. K. 'oil boom'. There should have been no justifiable reason for the privatization of our national industries.
As I mentioned above, there are benefits to a government in selling off state industries. But they are short term. These businesses could have been better run in order to make a profit while in control of the state. A profit that could be helping to keep down the national debt. The reality is that once the businesses are sold off they can not be used to help run the country. These businesses have been sold off using much the same logic that a drug addict may sell off all their belongings off to fund their addiction. They feel it solves a problem. But this feeling will only last until the money from the sold assets runs out. Now all the money from the sold assets has run out. There is hardly any thing left to sell. This is why The NHS has become a target. But the selling off of the NHS is not going to solve any problems. It will just be a short term fix for the government's (Whether Labour or Condem)
addiction to cash.
Any business associated with any form of privatization seems to be badly run and irresponsibly financed. It is likely that many privatized services will have to be taken back by the state as soon as we have a government that is willing to put the people before any other capitalist motives that the politicians (and the finance industry which clearly has a big influence on these decisions) may have. It looks like many businesses whilst claiming to be investing for the future, probably can not be trusted to do this responsibly. It is difficult to see where the motivation would come from when you are aware that lots of these businesses change ownership every few years. -Current owners are unlikely to get a return on their current investment for the future.......if the company may be in new hands after a take over deal in years to come..............
......................The theories of privatization just do not stack up !...........
So lets now look towards a new government who can take responsibility and reverse the damage done. Many of the industries which have been privatized are heading into trouble. Firstly because of their irresponsible attitude to debt. This is one of the reasons why charges are constantly rising.Secondly, because they change ownership regularly which hinders any genuine long term strategies (This also encourages them to take on more debt, because when the business is sold, the debt changes hands with the business.).- They are more likely to make claims of planning for the future, but more likely to be more motivated to go for short term gains whilst bluffing their way past the regulators and their customers.........The NHS and the postal service are soon to be added to the list of shams that used to be the U.K. state run services. Unfortunately, in general we can not do without these services if they run themselves out of business or if they become to expensive for the public to be able to afford them. So we are likely to end up bailing them out one way or another in order to keep the services running. But when this happens we should bring them back under control of the state.............
Rest in Piece Margaret Thatcher............
Roman Abramovich made his fortune by buying up shares from a privatized Russian gas industry. Shares had been made available by the Russian government following Maggie Thatchers privatization regime. Many Russians have become rich by accumulating as many shares as possible. Russians and Europeans are paying increased costs for gas today as oligarchs increase the costs of their exuberant life styles which include buying football clubs and armoured boats. The funding for these luxuries comes from control of these industries and the price increases which the oligarchs pass onto the paying customers.
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