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Margaret Thatcher

71 posts in this topic

OK, let's see if we can get some intelligent discussion going on this topic without personal attacks. This can be a Grand Experiment to see if we can discuss this kind of thing and remain civil to one another. We're big boys and I suspect that we can.

DISCLAIMER: Those of you who are UK residents are very likely much more conversant than I am on the details of Margaret Thatcher's domestic policies and economic measures. I know her more for her foreign policy, particularly the Falklands War and her partnership with the US and Ronald Reagan to trip up the Soviet Union. With respect to what she did domestically, I'm pretty much a babe in the woods other than to know that she was conservative and is famous for her quote, "The problem with socialism is that sooner or later you run out of other people's money.", which may not even have originated with her. Anyway, I make no claim of being very well read on the domestic situation in the Thatcher years.

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Let me pose a question as a "straw man", and see if you can instruct me on where I'm wrong, if I am. This question, based on my low level of information on the Iron Lady's economic policies, does not represent a strongly held opinion on my part - just a seemingly plausible leap to see if there's anything to it.

Is it not possible that Thatcher's conservative fiscal policies, which some of you say are continued to this day by the Torys (Tories?) when they are in power, may have contributed in some way to the fact that the UK is not as deep in the public debt whirlpool as some of the other countries of Europe that were more profligate with social welfare programs funded by borrowed money, i.e. government bonds? I recognize that your economy is not the model of fiscal health at this time but you are markedly better than a number of similar sized economies on the continent. Can any of the credit for that go to Maggie and her conservatism, and if not, why not?

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On another topic, selling off nationalized industries, someone complained earlier in the thread that she sold off industies that were bought and paid for by the citizens of the UK.

Which industries are those?

Were those industries built from scratch by the government, or seized or purchased at some point from private owners?

Did she not get a fair price for them from the private concerns to which she divested them?

Which industries do you think it right and proper for government to own and operate?

Given government's unparalleled capability to be a model of inefficiency and waste for most everything they set their hand to, why would it ever be better to have an industry nationalized, i.e. owned and operated as a monopoly by the government?

If a nationalized industry is not a monopoly, what business has government of being in competition with private businesses?

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Let the games begin...

John

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@ Kasper -

 

I am mildly surprised with the overall feelings concerning politicians. As a local (part time) politician I am still surprised with the barely concealed threats, sometimes overt agression and even hate we (politicians) are supposed to put up with. Believe it or not most of us are doing what we do out of conviction. I know that I don't make any net money for doing 16 hours a week of political work on top of my 40 h/week day job.

To address the low esteem in which politicians are held, at least here in the US, let me generalize.

One part of it flows from the fact that most politicians, at least at the State and National level here in America, are law school graduates, if not lawyers. I guess that's not entirely inappropriate for people whose profession is to make, execute and interpret laws. However, lawyers are almost universally mistrusted and maligned. It's the profession we love to hate, along with politicians. Some of that is due to the fact that lawyers are trained to be able to take either side of a case or issue and promote it as effectively as if they believed in it personally.

Of course our justice systems require that - if lawyers did not have that capability many accused would never be able to have an adequate defense, to which they are certainly entitled. Nonetheless, human nature is such that those who are able and willing to engage in that kind of professional behavior are not easily trusted - are they speaking for themselves or for whoever is paying the fees? In a word, it appears that their opinions and forensic skills can be bought. Of course we paint all politicians with the same brush, so even those who do not hold law degrees mostly have the same initial disadvantage in trust, however unfair that may be.

Secondly, once the holder of a law degree enters politics, it seems that they come under the ironclad sway of a new master, their political party. I think it is fair to say in the US that most politicians at the Federal level and a good many at the State and local levels, behave as if their first loyalty is neither to the country nor to their constituents, but rather to their party. They seem to operate on the premise that whatever is good for their party is, by definition, good for the country and for their constituents, whether said constituents are too unenlightened and backward to realize it or not. I don't contend that they all necessarily feel that way in their heart of hearts, but most certainly act as if they do.

I have a theory that when a newly elected Congressman or Senator arrives in Washington, there is very soon a come-to-Jesus meeting with someone in the party heirachy during which some things are explained to them, all with plausible deniability. I suspect that they are told in suitably unattributable and veiled terms how they are expected to behave and how they are to vote on legislation. They refuse at their peril - those who do not play along get a broom closet office down the hall from the boiler room, a parking spot in Arlington, no support for any constituent issues, no committee appointments, no positive publicity from the party or party leadership and the threat of no funding or support from the party for their re-election campaign. In addition, the party will seek and support primary opponents at their next election cycle, so they may not even depend on their party's nomination for their current seat next time around. That's the price of not playing. It's a rare politician who can resist that, unless he sees himself as an involuntarily disengaged one-termer who enjoys the wail of boiler feed pumps.

Additionally, the thing goverments seem to do best is to grow government. It's a rare administration at any level that does not seek to expand government oversight, regulation and "services", all of which argue for ever increasing government budgets and ever more government employees. Citizens do not much enjoy taxes and governments are unceasingly seeking a greater and greater share of their citizen's assets through overt and hidden taxes in exchange for... well, for whatever they are willing to provide, much of which is onerous to the taxed citizen anyway.

Finally, there is the matter of government benefits, pensions, perks, salaries and privileges for politicians. At the national level, they seem to be very well paid, very well treated and typically vote to exempt themselves from the most onerous of the measures they inflict on the citizenry. They extend to themselves benefits that the populace rarely enjoys. As a single for-instance, in the US, a Representative or Senator who serves any part of an elected term (2 years and 6 years, respectively) qualifies upon reaching retirement age, for a pension equal to 100% of his salary. That kind of thing does not endear them to the electorate, but it goes on and on and on.

Elections would seem to be the remedy for all this, however the parties seem to provide little in the way of alternatives, one candidate being much like another, differing only by degree and by whether they have been the subject of an ethics investigation yet or not. Once they have a place at the public trough, they seem to enjoy the feed and want more of it.

I apologize if this is harsh. I recognize that there are certainly exceptions to the above and that what I describe may not be at all accurate for other countries or specifically for your country and location within it. I'll assume that you are in fact an exception to the above. Nonetheless, it's my personal opinion that the vast majority of politicians of most of the parties in most countries behave as if what I have written above is pretty much true. Maybe I have it wrong, but from where I sit, it looks like a duck, walks like a duck and quacks like a duck - perhaps I can be forgiven for thinking that it does indeed have feathers around its butt.

I'm not anti-government, though the above might make it seem so. Our Constitution contains many checks and balances that mostly keep the abuses to tolerable levels and allows us to live reasonably happy lives, to enjoy liberty and to exercise the specific freedoms that are enshrined in it. Goverment is necessary and is infinitely preferable to a society that does not live under the rule of law. Abraham Lincoln's phrase, "...goverment of, by and for the people..." captured the essense of what it should be and what we strive for, but there are days it seems like we've strayed far from that, if indeed we ever had it. I'll end this with a favorite Churchiill quote - "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."

John

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On another topic, selling off nationalized industries, someone complained earlier in the thread that she sold off industies that were bought and paid for by the citizens of the UK.

Which industries are those?

 

It was one policy, that led to more than 50 companies being sold or privatised.

 

Thatcher was responsible, but much of the impetus came from her pal, Keith Joseph. A fan of the same economic theorist. Can't remember the guys name.

 

Just some of them...

 

British Petroleum October 1979

British Aerospace February 1981

Cable & Wireless October 1981

Amersham International February 1982

National Freight Corporation February 1982

Britoil November 1982

Associated British Ports February 1983

Enterprise Oil July 1984

Jaguar August 1984

British Telecommunications December 1984

British Shipbuilders 1985 onwards

British Gas December 1986

British Airways February 1987

Rolls-Royce May 1987

BAA July 1987

British Steel December 1988

Water December 1989

Electricity 1990

 

 

 

Privatisation can be both good and bad. Despite many of the thatcher privatised companies being part or fully owned by foreign companies, they have proved to be lucrative investments. However, there's the downside. The biggest Thatcher privatisation failure was that of British Rail. Since the privatisation, the amount of government subsidies to the rail industry has risen higher than it was in its state-run days. In 2011 rail travel was said to be a "rich man's toy".

 

The most damaging legacy though, has been job losses. In the decade after the miners strike, more than 200,000 jobs were lost as a result of coal privatisation, as well as creating the largest British industrial conflict of modern times. 100,000 jobs lost at BT. 15,000 at ICI. The government's couldn't care less attitude to the consequences of the changes, and the resulting sudden, mass unemployment led to the transformation of what was once a region booming from steel industry, to one of the most impoverished in the country. By the time it was privatised in 1988, British Steel had shed 20,000 jobs.

 

It would be fair to say that a degree of privatisation was necessary, so as to adapt to increasing foreign competition. But the devastating impact of communities is felt right up to today.

 

Personally, I have no issue with a degree of privatisation, but for Margaret Thatcher it was all or nothing, no balance. Privatize everything under the sun, whether you like it or not. Companies care about only one thing, profit. With that in mind, my opinion would be that vital industries, industries that if run unscrupulously, could be detrimental to the public, should remain state owned. 

 

I don't believe gas water and electricity should have been privatised. Thus transferring our national assets into private hands. The corporations that run them make multi-billion profits, while we all pay ridiculously high prices. And when the price of gas and oil goes down, we still don't see a drop in our energy bills. We are being ripped off.

 

 

The iron lady was an extremist, and extremism is never a good thing.

 

 

 

 

 

 

 

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Is it not possible that Thatcher's conservative fiscal policies, which some of you say are continued to this day by the Torys (Tories?) when they are in power, may have contributed in some way to the fact that the UK is not as deep in the public debt whirlpool as some of the other countries of Europe

 

I would say no. The causes of the present recession, unrestricted credit, deregulation and excessive financial speculation, date back to the early 80's, date back to Thatcher and Keith Joseph's policies. Both of them were influenced by the same economic theorist. Professor Patrick Minford's theories I believe.

 

The reforms in the City of London, courtesy of Thatcher, have been seen by some as an early contributory factor in the unsustainable expansion of the banking industry. The obsession with minimal regulation which prevailed prior 2008 was another legacy of Margaret Thatcher.

 

Taxes under Thatcher, on the rich and business were slashed, yet hiked for the rest of us.

 

 

Then of course we have... arming Saddam in Iraq and Suharto in Indonesia, resisting sanctions on apartheid in South Africa. Labelling Mandela “a terrorist”, and supporting fascist regimes like that of Pinochet in Chile.

 

 

 

 

 

 

 

 

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A bit more...

 

The selling off of council housing, accounts for today’s housing shortage which sees over 4.5 million in the UK, on housing waiting lists.

 

Rent controls were abolished – leaving millions paying over the odds, and all of us funding a £23 billion annual bill for housing benefit, while landlords got tax breaks!

 

Thatcher's government created mass unemployment and demonised those out of work.

 

 

 

 

 

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I hope you're taking notes, John. Martin's synopsis of Thatcherism is pretty accurate.

Thanks, Martin - your list of companies privatised includes many I'd overlooked.

Cheers - Dai.

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I hope you're taking notes, John. Martin's synopsis of Thatcherism is pretty accurate.

Thanks, Martin - your list of companies privatised includes many I'd overlooked.

Cheers - Dai.

 

 

What fascinates me, is how Thatcher was warned by a multitude of economists in the early 80's, that her polices would plunge the U.K. economy into a deep recession. She ignored them, and we were plunged into deep recession. Despite soaring unemployment and a stubbornly high deficit, she refused to admit that her policies had backfired, famously remarking, in 1981, “the lady’s not for turning.”

 

 

Today we have Cameron. Economists warned him not to cut too hard, too fast, or we would end up with a double dip recession. So what did he do? He ignored them. And we were plunged into a double dip recession. And we have just narrowly avoided a triple dip recession. And STILL he clings to a strategy that isn't working.

 

Olivier Blanchard, the chief economist of the International Monetary Fund, has warned Cameron, that by sticking with austerity policies in the face of prolonged economic weakness, he is playing with fire.

 

Interesting article...

 

http://www.newyorker.com/online/blogs/johncassidy/2013/04/margaret-thatcher-and-the-crumbling-case-for-austerity-economics.html

 

 

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I hope you're taking notes, John.

Well, I'm taking note, if not exactly taking notes.

His response suggests many questions, particularly about nationalized industries. It will probably be tonight before I can do any serious work on this.

John

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...policy, that led to more than 50 companies being sold or privatised.

Holy Cow!!! Do you mean to say that the British government owned and operated more than 50 companies? That sounds utterly fantastic to me for a Western, free market, nominally capitalist nation. I'm not sure Argentina has that many state-owned businesses, and they LOVE to nationalize businesses. I'm still trying to get my head around that concept.

What business does government have being in so many businesses? I can see the postal service, and possibly a national airline and a national railway system, though the latter two may not necessarily be a good idea. Anything much beyond that just seems a relatively absurd situation, particularly since governments are usually not very good at running anything efficiently or effectively or meeting the needs of their customers, never mind turning a profit.

I believe you, but I just find that an incredible situation. If I'd been her, I think I'd have been sorely tempted to do the same for the simple reason that, in my opinion, government has no business being in business. Government's charter is to see to the safety, defense and well-being of the nation and the populace (or ought to be), not to be a uni-national mega corporation or the employer of choice for the nation.

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The biggest Thatcher privatisation failure was that of British Rail. Since the privatisation, the amount of government subsidies to the rail industry has risen higher than it was in its state-run days.

I don't understand. If it was privatized, why is government subsidy involved. Privatization to me means that it is sold to a private company who will own and operate it as a business. If that's not what happened and if it's still being run with government money, was is really privatized?

In 2011 rail travel was said to be a "rich man's toy".

I don't understand that either. In what way is British Rail a toy of rich men. I don't think it means that only rich men use it, but can't work out the meaning of that.

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The most damaging legacy though, has been job losses. In the decade after the miners strike, more than 200,000 jobs were lost as a result of coal privatisation, as well as creating the largest British industrial conflict of modern times. 100,000 jobs lost at BT. 15,000 at ICI. The government's couldn't care less attitude to the consequences of the changes, and the resulting sudden, mass unemployment led to the transformation of what was once a region booming from steel industry, to one of the most impoverished in the country. By the time it was privatised in 1988, British Steel had shed 20,000 jobs.

It would be fair to say that a degree of privatisation was necessary, so as to adapt to increasing foreign competition. But the devastating impact of communities is felt right up to today.

It doesn't sound that much different from Pittsburgh, Pennsylvania and Gary, Indiana, and a good part of the region between them at about the same time. Those were the main centers of the steel industry in the United States. The industry simply collapsed in a fairly short time, mainly due to foreign competition - the US companies were not government owned or operated and most of them simply couldn't make a go of it. Tens of thousands of steelworkers and others in subordinate businesses lost their jobs. The region today is still referred to as the "Rust Belt" and is in bad shape.

The high wages and antiquated production facilities here could not compete economically with Japanese and other far-East steel. I remember a shipment of small size key stock arriving at the plant where I worked at about that time, banded to sticks of bamboo to prevent them bending in transit. Clearly the steel did not come from Pittsburgh.

Is it possible that the collapse of the industry and the fortunes of the workers were inevitable, the result of international market conditions and not so much from being privatized? That's a question, not an assertion. I'm in learning mode here.

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Privatize everything under the sun, whether you like it or not.

Is that literally true? Did she in fact privatize EVERY business that was owned by the government?

If not, were the things not privatized things she chose to keep under government operation, or simply government industries she could not find private buyers for?

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Companies care about only one thing, profit.

Agree - that's what they exist for and what they are supposed to do. Not only is that very likely inherent in their documents of incorporation for corporations, I suspect that there is a legally enforceable obligation on them to do that. Few corporations are privately held - most are publicly traded and so the shareholders are the owners and beneficiaries of any profit beyond that needed to maintain and grow the company (i.e retained earnings).

The Boards of Directors also have a legal obligation to oversee the operation and finances of the companies for which they are responsible, to assure that they are being legally and properly run and that the profit motive is properly served, as it should be. That's their job.

For companies operating in a free and competitive market, it's the natural course of things that both employees and customers also benefit from the success of well run companies. Competition, if not unfairly diddled with by government regulation, should assure that prices are fair without the government having to set or control prices directly - competitive forces will do that to the extent that fair competition exists. Government should enforce that, prevent monopolies, collusion, conspiracy and price-fixing, but should not do things to affect competition. Wages and benefits (the latter sometimes in the form of company stock) tend to be good or poor according to the business and financial fortunes of the companies they work for.

Workers deserve a fair wage, fair and equitable treatment and a safe workplace that is not a threat to their health or well-being - no more, no less. Companies cannot, nor should they, guarantee employment.

In my opinion, the biggest problem with corporations these days is not the profit motive nor the ROI, which is not unreasonably high for most companies operating in a competitive market, but rather the exorbitant salaries and benefits of corporate executives. More and more, the "fat cats" are not the owners of the companies, who are just a conglamoration of large and small stockholders, but the CEOs and upper tier executives, who typically enjoy shockingly large salaries, overly generous bonuses and stock options, and as often as not, a "golden parachute" that lets them leave having done well or poorly by the company, with millions that they very likely do not deserve.

With that [the profit motive of businesses] in mind, my opinion would be that vital industries, industries that if run unscrupulously, could be detrimental to the public, should remain state owned.

We differ on that. In my opinion, the proper role of government is not to run vital businesses but to regulate the business environment in a way that assures they are NOT "run unscrupulously". That is something that is well within the purview of government and something that they should be able to manage properly. It's not the same as running the business themselves, which for governments, typically makes a thinly disguised social welfare system for the employees out of the business and in the end does not serve the country or the taxpayers very well. I would go so far as to say that the primary beneficiaries of businesses owned and operated by governments tend to be mainly the employees, that is government employees, at all levels.

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I don't believe gas water and electricity should have been privatised. Thus transferring our national assets into private hands.

Again, we disagree. The enterprises you describe are pretty much what are recognized as public utilities. They are a mixed bag here. Local governments normally provide water services. Some municipalities provide electric and/or gas transmission and distribution within their jurisdictions but that is not universal. Private companies do it where the local government has not reserved that business for themselves.

Government entities do not drill for gas or oil in the US and for the most part are not in the electric generation business, though some are on a small scale and a very few on a state-wide scale. It is almost universally true here that where municipals generate rather than buy and distribute power, the customers get the short end of the stick because the small-scale municipal utilities cannot realize the benefits of scale that large utility companies can.

There are a very few state owned "power authorities" that do own and operate generating stations and long distance transmission and distribution networks within their state - New York comes to mind. Their prices are not on a par with privately owned utilities, but they are very nice companies to work for - pay and benefits and particularly retirement provisions are more than generous, and the ratepayers, who are really the taxpayers, pay through the nose for their state government to be in the power generation and T&D business.

Because of the inefficiencies of overlapping infrastructures, public utilities are best run as regulated monopolies. Those operate best if they are private businesses. They enjoy a government-granted monopoly in their service area because it would be madness to have two or more different power companies each stringing their own lines down everyone's streets. In exchange for the monopoly, they must operate under a strict regulatory environment that is quite different from that of competitive businesses. Typically rates and tariffs are subject to the approval of some sort of public service commission, government appointees who decide what is a fair rate of return on investment for the utilities and how much they can charge, as well as a host of other things.

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The corporations that run them make multi-billion profits, while we all pay ridiculously high prices. And when the price of gas and oil goes down, we still don't see a drop in our energy bills. We are being ripped off.

You have to separate gas and oil if you are referring to natural gas, i.e. heating and cooking gas. That is a public utility with a significant infrastructure requirement for distribution. It should be a regulated monopoly and prices should be closely controlled by government. The ROI of gas companies should be controlled by the government - it they aren't doing that, you are indeed being ripped off. On the other hand, gas production and distribution is very capital intensive. Companies that invest billions expect to make profits of millions or they won't be able to attract investors next year. A reasonable, as opposed to exorbitant, return on investment for a company that invests billions per year is not a rip-off. If they don't get that for long enough, they'll be out of business, or at least will require massive government subsidies. If those are required, guess who pays for them?

Oil is a separate matter. Oil companies operate in a competitive environment and have no large distribution infrastructure that cannot be efficiently duplicated by competing companies. That is quite different from electricity, water and heating gas, all of which require monopolistic "service areas" to avoid very costly overlapping infrastructure.

Market forces SHOULD control the price of oil, but what you describe is largely a correct observation. Prices are quick to rise and slow to fall, if ever they fall at all. I'm certainly not suggesting that oil companies are lily white, but some of what we see is explainable. Part of the reason for all that lies in the fact that much of the production is not domestic, in either of our countries, and foreign entities such as OPEC are ruthless and beyond the reach of our respective governments. If OPEC could ever agree and not cheat on one another with production quotas, we'd be in far worse shape than we are. In any case, government ownership of the oil companies is not likely to result in lower prices because they will be buying oil in the same market the oil companies are and will not have the benefit of also being involved in the production, as some multi-national oil companies are.

Another factor with oil is that governments, more and more, tax the price of it as high as they can get away with. They do this primarily for four reasons - - - A) It's a great source of revenue for government, B) keeping demand low by keeping the price to the consumer high positively affects the balance of trade by limiting the import of foreign oil, C) it promotes alternative energy sources by giving them a better chance to be economically competitive than if they were forced to compete head to head with oil on price alone, and D) it tends to keep automobiles small and lightweight and keeps their usage down, permitting the government to do less and spend less on the maintenance and expansion of streets and roads and such than they might otherwise have to if motor fuel were cheaper.

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Good discussion so far but would like to hear from others too.

That's more than enough for one night. I'll leave the Thatcher economics issue for another day.

John

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What business does government have being in so many businesses?

 

 

Indeed, as I said, there was without a doubt justification for a degree of privatization. But Thatcher went to the extreme, we are talking about extreme conservatism, extreme conservatism that many  conservatives would balk at. She also had no regard at all for the consequences.

 

I don't understand. If it was privatized, why is government subsidy involved. Privatization to me means that it is sold to a private company who will own and operate it as a business. If that's not what happened and if it's still being run with government money, was is really privatized?

 

A fair point. You could argue that the privatisation of the rail network was such a cock up, that ultimately, given the huge expense to the tax payer, it hasn't really been privatisation at all.

 

 

There were many in the Conservative party at the time that had doubts in regard to this. Not even Nicholas Ridley, the guy who had pushed through poll tax and the minister most ideologically convinced of the merits of private enterprise, supported rail privatization. He declared before he died, that it “would lead to fewer customers paying higher fares to ride on aged trains with only a stewardess handing out coffee during the long and unexplained delays.”

You ask why government subsidy is involved.

When it was British Rail - it was subsidized to the tune of a billion to a billion-and-a-half. However, today it's getting four billion pounds of taxpayers' money.

I believe Network Rail is in debt to the tune of £28bn. Without government subsidy, we would have no rail network.

 

I believe in the United States, and most of the world public transport is subsidized. So I’m not sure why you are surprised.

 

http://www.trainweb.org/moksrail/advocacy/resources/subsidies/transport.htm

 

I don't understand that either. In what way is British Rail a toy of rich men. I don't think it means that only rich men use it, but can't work out the meaning of that.

 

 

British railways are a "rich man's toy", Transport Secretary Philip Hammond has told MPs.

He was responding to a question about regulating fare prices on the planned high speed rail link so that it would be a "railway for everybody".

He said it was an "uncomfortable fact" that trains were already used by the better-off and said some fares were "eye-wateringly expensive".

http://www.bbc.co.uk/news/uk-politics-14904610

 

 

 

 

"It doesn't sound that much different from Pittsburgh, Pennsylvania and Gary, Indiana, and a good part of the region between them at about the same time. Those were the main centers of the steel industry in the United States. The industry simply collapsed in a fairly short time, mainly due to foreign competition"

 

No, it wasn’t foreign competition. Industries in Scotland and Wales were devastated by Thatcher’s policies.

 

Thatcher swept like a wrecking ball through the mines, the steel industry, the car factories, shipbuilding and engineering and oversaw the demise of the communities which had built their livelihoods around them.

 

Thatcherism brought the worst recession since the 1930s between 1981 and 1983, destroying one fifth of our industrial base and doubling unemployment – and that was before war was declared on the miners.

 

In essence, the Thatcher free market experiment wiped out much of the country’s industrial base, in favor of a deregulated financial sector. And let’s not forget, if it hadn’t been for North Sea oil and gas revenues, Thatcher’s economic policies would have undoubtedly required yet another huge loan from the IMF.

 

 

 

 

 

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As for the power industry, that can hardly be described as a success story for the general public. A success story for the companies concerned yes, they make billions. But as consumers in the UK, we have lost count of the number of times the energy ombudsman has had to step in due to excessive pricing.

 

In fact, it has recently been announced that MP’s are stepping in over allegations that energy companies have exploited their market dominance to rake in huge profits at the expense of consumers.

 

 

 

 

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Myth #1: Privatization saves money.

The Truth: Privatization often raises costs for the public and governments.

Proponents of privatization promise to fix budget woes by saving the government money. But numerous examples in a variety of sectors show that projected savings don’t always materialize. Cost overruns combined with hidden and indirect costs, such as contract monitoring and administration, can make privatization more expensive than in-house services for governments. In fact, the Government Finance Officers Association estimates that hidden and indirect costs can add up to 25% to the contract price.

The Government Accountability Office has found that methods by which agencies and privatization consultants conduct projections and report contract costs can make cost savings appear greater than they actually are. According to a 2007 survey by the International City/County Management Association, 52% of governments that brought services back in-house reported that the primary reason was insufficient cost savings.

Myth #2: Private companies do a better job than the public sector.

The Truth: Many examples show declines in service quality under private contractors.

Faith in the private sector to outperform government agencies is deeply ingrained in the American psyche. However, the facts disproving that belief are steadily mounting. In many cases, private contractors have failed to deliver, leaving communities without vital services and assets. Private companies naturally seek to maximize profits, which can incentivize cutting corners to reduce costs. This can greatly impair service quality and maintenance of vital assets. The most popular reason for in-sourcing, according to the International City/County Management Association survey mentioned above, was a decline in service quality. Over 60% of governments that brought functions back in-house reported this as their primary motivation.

Myth #3: Privatization allows governmental entities to better anticipate and control budgetary costs.

The Truth: Cost estimates are extremely unreliable and privatization can cause result in unforeseen budgetary consequences.

Some believe that privatization allows for more precise budgeting, since the inflow or outflow of money appears fixed once a contract with a private entity is signed. But hidden costs and cost overruns can significantly distort these figures, market circumstances can reverse the estimates, and ripple effects of privatization can increase unexpected areas of governmental budgets.

Governments cannot anticipate the cost of privatization failures, from the overtime expenses of sending city work crews to correct sloppy work by private road maintenance companies to the massive ordeal of rebuilding entire outsourced departments when a contractor’s costs, delays or service breakdowns become unsustainable.

Myth #4: Privatization allows governmental entities more administrative flexibility.

The Truth: Privatization requires substantial administrative resources for monitoring and oversight.

Substantial time and personnel are necessary to adequately monitor contracts, especially those involving essential governmental functions. If governments don’t dedicate sufficient personnel and time to monitoring contracts, they run a high risk of poor contractor performance and wasting large amounts of money.

Myth #5: The public still maintains control over a privatized asset or service and the government retains the ultimate ability to make related public policy decisions.

The Truth: Privatization can bind the hands of policymakers for years, allowing private companies significant control of a privatized asset or service and the ability to dictate important policy decisions.

Non-compete and “make-whole” clauses are just a few of the ways that private companies control privatized assets and dictate important public policy decisions. Non-compete clauses forbid competition and prohibit the government from making policy and planning decisions that may affect the contractor’s revenues. These contract terms have prevented numerous cities and states from improving public transportation or implementing other planning or environmental initiatives that may have threatened contractor revenues. Asset privatization contracts also frequently stipulate that the government must reimburse or “make whole” the contractor if an event, such as a parade or sudden natural disaster, occurs. Often the true ramifications of these types of provisions, which help reduce risk and guarantee profits for contractors, come as a surprise to policymakers.

Myth #6: If anything goes wrong, the government can easily fire the contractor or adjust the contract.

The Truth: Reversing privatization involves huge costs and service interruptions.

When governments turn over core services to private contractors, it can be very expensive and time-consuming to alter contract terms or cancel a contract. Taxpayers can be stuck with legal expenses when companies file lawsuits seeking greater payment. Additionally, contract cancellation can lead to service interruptions or loss of access to public assets during the transition period.

Myth #7: Companies are chosen for privatization contracts on the merits, not based on political or financial connections.

The Truth: Government for profit opens doors to unscrupulous behavior by politicians and businesses.

As many examples illustrate, the companies that receive lucrative contracts may not be the best company for the job, but instead may have the most insider connections.

 

 

http://www.occasionalplanet.org/2010/10/28/privatization-myths-debunked/

 

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There are a number of questions I asked that you didn't answer, Martin, but I guess we can move on.

It would be nice to see some others jump in here with their opinions too.

- - - RAILROADS - - -

I believe in the United States, and most of the world public transport is subsidized. So I’m not sure why you are surprised.

Yes, that's true if you're talking about passenger rail. Amtrak is the sole serious US passenger railroad, unless you count a few regional light rail systems in and around some of the major cities and a few niche "excursion" railroads.

Amtrak operates at a loss and gets wads of government money every year to remain in business, not unlike what you describe in the UK (and not unlike the Post Office). If you include freight railroads, there's been a great shaking out over the past 30 years or so and I think only three big ones remain. Those are relatively healthy, relatively competitive and are mostly run pretty efficiently and effectively. Those are CSX, Norfolk & Southern and Union Pacific. There are some other smaller freight railroads as well, some with multi-state service areas (e.g. Kansas City & Southern) and they mostly do OK too but are not in a league with the three mentioned above. To the best of my knowledge, the freight roads are not subsidized by the government. They pay their own way, are bought out or go under.

The US government tried to run a freight railroad, Conrail, many years ago and it was even more of a money sink that Amtrak and they soon got rid of it. They made the mistake of failing to first force the competing, privately owned freight railroads out of business. It soon became obvious that they couldn't begin to compete with businesses that were run like businesses. Government owned and operated businesses only seem to be plausible when they have a monopoly. If they must compete with real businesses, it soon becomes apparent that government is not very good at running a business.

Amtrak operates as a darling of government, mainly because it is seen as "green" under the assumption that it takes a certain number of automobiles off the roads and a certain number of airliners out of the skies. Government seems to think we "ought" to ride the trains more but the American public just hasn't seemed to grasp that yet, and they probably never will as long as they have a choice.

To the best of my knowledge, the Eastern seaboard corridor, say Washington, D.C. up to Boston, is the only one with any serious Amtrak ridership. Most of the other routes operate even though there is little demand for the service, but the trains run anyway, at a loss. Therein lies the difference between a government railroad and a business - the business would have abandoned the routes that don't pay.

Several times over the years, when planning vacations, I've looked at travelling by Amtrak as an alternative to driving or flying. Invariably, it only beats driving for a single person, and then not by much. If two or more fares are needed, driving is cheaper. Its cost is close to airline travel but you spend days instead of hours and the average Amtrak terminal is a scary and Spartan experience when compared to an airport terminal, even with the TSA doing its level best to ruin the experience. Passenger train travel in the US is certainly not much favored by "rich men".

If I had a few billion to invest and made a list of the 500 businesses I would consider starting up or buying into, pax railroads would not make the list. As a business prospect, it's not a hot ticket and hasn't been for decades in either the US or the UK. I recognize that things are a bit different on the Continent and in Japan (though those are subsidized too) and perhaps some other places where automobiles are discouraged by making them and their use prohibitively expensive (Europe) or where the crowding is such that they are not very practical (Japan), or where most of the public simply cannot hope to afford an automobile (e.g. India).

[sERIOUS QUESTION] Could if be that passenger railroads in the US and the UK are simply outmoded anachronisms and there is simply not enough demand for them to be operated profitably by either government or private industry?[/sERIOUS QUESTION]

- - - STEEL - - -

 

No, it wasn’t foreign competition. Industries in Scotland and Wales were devastated by Thatcher’s policies.

Thatcher swept like a wrecking ball through the mines, the steel industry, the car factories, shipbuilding and engineering and oversaw the demise of the communities which had built their livelihoods around them.

From "The British Iron and Steel Industry Since 1945" - Alasdair Blair - 1997:

"In 1967, under Labour Party control again, the industry was again nationalized. But by then twenty years of political manipulation had left companies such as British Steel with serious problems: a complacency with existing equipment, plants operating under capacity (low efficiency), poor quality assets, outdated technology, government price controls, higher coal and oil costs, lack of funds for capital improvement, and increasing world market competition. By the 1970s the Labour government had [as] its main goal to keep employment high in the declining industry. Since British Steel was a main employer [in] depressed regions, it had [to] keep many mills and facilities operating at a loss. In the 1980s, Conservative Prime Minister Margaret Thatcher re-privatized BSC as British Steel. Under private control the company has dramatically cut its work force and undergone a radical reorganization and massive capital investment to again become competitive in the world marketplace."

Note the part about the main goal of Labour being "...to keep employment high in the declining industry."

If accurate, that means that Thatcher's predecessor and her critics since, wished the nationalized steel industry (and others?) to be social welfare programs in the guise of industries, running at a loss simply to provide employment.

In the US, about the same time...

From "Iron and Steel Industry" - John Steele Gordon - 2013

"A major shakeout of the industry ensued. By 1975 American steel production had plunged by 37 percent to only 89 million tons. The industry, however, still employed 457,000 workers at very high wages. By 1988 production had rebounded to 102,700,000 tons, but the number of steelworkers had declined to 169,000. Annual steel production per worker had more than tripled in thirteen years."

Note that even though the US steel industry was not nationalized, it was overmanned and could not prosper, nor even survive for much longer. The same medicine that saved British Steel, a modernization and a drastic drawdown of the workforce, began to bring the industry back.

If government wishes to provide income to unneeded workers they should do so without pretending that they all are needed. That's what happens with nationalized industries. They become employment engines that require government subsidies to remain open because they cannot long continue to operate on what they can bring in. That is essentially socialism.

Digging a foundation for a large building in 3 months using a hundred men with shovels and wheelbarrows when the competitor can do it in two weeks with ten men and heavy equipment is not a recipe for financial success. Ninety men with shovels may think so, but a thousand taxpayers who are paying their wages may not.

In the British case, a decision had to be made whether to continue by providing many more jobs than necessary at the expense of the taxpayer or to sell off to private owners and stop the hemorrhaging of public funds. The old way may in fact have been sustainable even until today, but at what cost in government money.

In the US case, the industry was dying and saved itself, to a degree, by taking the same bitter medicine that the British did - far fewer jobs.

- - - BLAME - - -

Why are not the executives and managers of those industrial concerns who purchased the formerly nationalized industries from the British government the ones to be blamed for their performance after the purchase? Is it really Thatcher's fault that the steel industry could no longer provide 200,000 jobs in the absence of massive input of government money?

Is the pain and blame really because the industries were no longer owned and were operated by the nation, or is it because the levels of employment maintained under government operation were not continued by the private concerns? If the latter, this discussion becomes quite a different thing - more one of social welfare than nationalized industries.

Why is the politician who divested the country of businesses that it could not run efficiently, much less profitably, and which were costing the taxpayers ever more money each year to maintain, the one being blamed? Consider the alternative. If she hadn't and her predecessors hadn't, your government budget and the attendant level of public debt would today be much greater than it is. Very much more of that and you're Greece. Two months ago, Moody's downgraded UK debt from AAA to Aa1. Governments cannot indefinitely sustain growing debt unless GDP increases at the same pace or faster. At some point, it will become impossible to borrow enough more to cover the obligations of the government and the service of the geometrically increasing interest payments.

EDIT: The US is headed down the same road. I'm not suggesting that Britain is the only one susceptible to that situation. Many others are, mine included, and many are quite a bit further down that road.

JDA

No business or government can guarantee lifelong employment, as nice as that would be. Business conditions change. New technologies emerge. Industrial process become more efficient. Those with competitors must compete or founder. Welding displaced riveters. Diesel power caused may steamfitters and other railroad and maritime workers to seek other jobs, not to mention the firemen who formerly shoveled coal on the footplates. Luddites notwithstanding, sometimes businesses need fewer people.

Government can best help by fostering a climate where businesses can prosper and the displaced workers can find other work. Doling out the dole indefinitely, even in the guise of government jobs, is a declining financial spiral for the nation that does it.

- - - - - - - - - - - -

John

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@ Martin W - Re: Myth Post

That article seems to be written mainly from the perspective of the government as purchaser of the goods and services of the newly privatized industries. In the list of nationalized industries you provided in an earlier post, that doesn't seem to be the case for many of them - e.g mining , steel and power. If all three are privatized, the mines sell to the steel mills and power plants. The government may buy some of the steel and some of the power but is no longer managing mining contracts. The government should be able to buy kilowatt-hours of power and tons of steel for the same or less than the other customers of said commodities and should spend no more monitoring and managing those contracts than any other customer. If it costs them more it's because they are being inefficient.

If a customer has deep pockets he has deep influence with his vendors. If properly managed, said customer can make his vendors dance to his music. If government cannot leverage that to its advantage, it's probably just bulking up the head count of government employees by hiring armies of contract administrators, auditors and industry oversight inspectors - or bit-twiddlers.

The article seems pretty lightweight to me.

John

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Which questions haven't I given a response to? There was a lot there to get through.

I would gladly giver an opinion.

 

"In 1967, under Labour Party control again, the industry was again nationalized. But by then twenty years of political manipulation had left companies such as British Steel with serious problems: a complacency with existing equipment, plants operating under capacity (low efficiency), poor quality assets, outdated technology, government price controls, higher coal and oil costs, lack of funds for capital improvement, and increasing world market competition. By the 1970s the Labour government had [as] its main goal to keep employment high in the declining industry. Since British Steel was a main employer [in] depressed regions, it had [to] keep many mills and facilities operating at a loss. In the 1980s, Conservative Prime Minister Margaret Thatcher re-privatized BSC as British Steel. Under private control the company has dramatically cut its work force and undergone a radical reorganization and massive capital investment to again become competitive in the world marketplace."

Yes, I think most of us are aware of the above. I don't think anybody has denied that both the coal industry and the steel industry were less than healthy and that change was required.

But the point, is that Thatcher's policies were akin to a bull in a china shop.

With no regard for the devastating consequences. As I've said a number of times now, I have no issue with a degree of privatization, but I most definitely have an issue with rapid, thoughtless actions that result in utter devastation for entire communities.

That is the issue John, not that certain industries were privatized but that the alacrity with which her policies were employed, and the scale, resulted in extreme hardship that could have been avoided. Thus, Thatcher's single-minded, full-blown economic experiment was akin to knocking a nail in, not with a hammer, but with a nuclear bomb. The fact that we are all still paying the price is evidence enough.

Too much, too soon, whether it's austerity measures during a recession, resulting in a double dip recession, or Thatcherism, seems to be a malady that the Conservative party in this country, has historically suffered from. They never seem to learn, the same mistake repeated over and over and over.

Non of the criticisms of Thatcherism that you see here are new. We can both peruse the internet and cherry pick articles from 1967, the 80's or the 90's. We can both scan the internet for evidence that backs up our own political philosophies. But the human suffering that could have been avoided with a less extreme approach is the issue.

Thatcherism was positive in many ways, but the negative aspects were a price too high too pay.

 

Is it really Thatcher's fault that the steel industry could no longer provide 200,000 jobs in the absence of massive input of government money?

Yes, of course it is. It was her actions that were responsible. Common sense should have told her what the consequences would be. Subtlety, graduated change, were not concepts that Thatcher could grasp. It was all or nothing for her. it was the full-blown, all or nothing, sweeping through industry like a whirlwind madness that resulted in devastation. Communities had no time to adapt.

Consequently, the country ended up with ultra high unemployment, not seem since the great depression. Topping 3 million. Well done Thatcher no more dosh given to the steel industry... instead we had unemployment benefit to pay weekly to 3million people.

But what about the economy, did Thatcherism, despite it's severity, it's cruelty, actually help our economy? No, it didn't...

 

The performance of Britain’s economy in the 1980s was not miraculous, in fact it was below par, even if the deep recession of 1980's is ignored. Economic growth was higher and lasted longer in the 1950s and 1960s. And when the economy did pick up speed in the late 80s, it was because of a credit bubble that promptly burst and threw Britain back into recession.

What about tax... It’s said that Thatcher was a tax-cutter. She wasn’t. The overall tax burden rose from 39 percent in 1979 to 43 percent in 1989. It's true that Thatcher cut taxes massively for the rich, in fact the top rate of tax was 83 percent when Thatcher came to power, and it was 40 percent when she left. But VAT, which hits the poor harder than the rich, was just 8 percent before Thatcher, and was put up to 15 percent as soon as she gained power.

Back to privatisation...

It’s said that Thatcher’s greatest free market legacy is privatisation. It isn’t. Thatcher’s privatisations did not create competitive free markets. Instead, the government went for as much money as it could get by selling off public assets in big, monopolistic lumps. The cash came in handy for the chancellor, Nigel Lawson, who used it to claim he had balanced the budget in 1988. But the legacy is one of parasitic cartels, like in the energy sector, where a few big companies are free to bleed customers dry.

It’s said that Thatcher ‘rolled back the state’. But, with the exception of the economy, where the state did retreat, Thatcher’s government intervened in areas of British society like none before it. It imposed draconian laws on one particular type of voluntary organisation – trade unions. It attacked local government, cut its funding and restricted its powers. It intervened directly in schools, setting a national curriculum for the first time.

It’s said that Thatcher restored law and order. She didn’t. Crime increased by a staggering 79 percent under Thatcher. There were riots in Brixton and Toxteth at the start of her reign, and riots and civil disobedience against the poll tax at the end of it.

It’s said that Thatcher created a ‘property-owning democracy’ through the sale of council houses. But this led to a chronic shortage of social housing which has pushed up house prices. Today, home ownership is falling and the private rental market is booming. The taxpayer is still subsidising housing to the tune of billions through housing benefit, but now the money goes to rich private landlords.

It’s said that Thatcher changed the class and gender profile of the Tory party. She didn’t. She made a big deal of being an outsider: a middle-class woman in a party of aristocrats. But she was an individual, an exception to the rule. She made no attempt to change party structures to help others like her. Today, the Tory leadership is dominated by Etonians and there are only four women in the cabinet. Thatcher always forgot to mention that her political career was financed by her millionaire husband. She expressed disdain for feminism and embraced patriarchal, male values.

It’s said that Thatcher was an electoral phenomenon. She wasn’t. She won three elections, each with a lower percentage of the vote than all previous post-war Tory victories. She never gained the support of more than a third of eligible voters. She won her second and third elections because a section of the Labour Party split off to form the SDP and the two squabbled over second place.

Did you notice how, as soon as Thatcher got into power, she gave the rich massive tax breaks, and then hammered the poor? I don't think such an act, in any civilised country would be regarded as fair.

Can you not see from the above, why Thatcher was held in such disdain? We can twist and turn in our debate, find ways to justify her actions, and as a hard core conservative I know you will do that, but the failure of Thatcherism is clear from the above. Thatcherism, economically, just didn't work. Luckily for us we had North Sea oil and gas, otherwise our friends the IMF would have, once again, had to bail us out.

Something I almost forgot...

It is often said that we owe Thatcher our gratitude for dealing with excessively powerfull mining unions. That much is true, but what you don't hear of, is how economically irrational that particular battle was.

Her obsession with the miners, cost the tax payer £2.5 billion.

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[sERIOUS QUESTION] Could if be that passenger railroads in the US and the UK are simply outmoded anachronisms and there is simply not enough demand for them to be operated profitably by either government or private industry?[/sERIOUS QUESTION]

Well, demand for rail transport is high here. At peaks times the trains are usually packed. It's one of the largest networks in the world, and one of the densest. It's also one of the busiest in Europe. 1.33 billion journeys in 2010.

Rail travel has doubled over the last 10 years.

It's for the most part, an old network, that needs revitalising, but that costs money, and currently rail companies are struggling to meet demand.

And don't forget, petrol prices here are huge, a fraction of what you pay in the US. Plenty of incentive to use rail.

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Well, demand for rail transport is high here. At peaks times the trains are usually packed. It's one of the largest networks in the world, and one of the densest. It's also one of the busiest in Europe. 1.33 billion journeys in 2010.

 

I thought your railroads were only "...a rich man's toy...", priced so high only the rich could use them?

 

John
 

 

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Been a little busy lately so I will have to read to the long messages again to make sure I am not missing vital information, but here is my first response.

 

Concerning politicians:

First: I am glad you think of me as an exception ;)

Having said that: the situation in the US is indeed very different than that of the Netherlands (or the UK). In the Netherlands we do not have an over representation of lawyers in politics, nor is our society as focused on lawsuits.

Also the situation that you have two parties in power of different institutions that primarily seem to focus on making it impossible for the other party to govern is probably unique in the world.

In the Netherlands we have a tradition to talk to the opposition and work things out so that the things we all know are needed get done. Not adhering to these tradions tend to work out very bad at the polling stations.

In the UK the situation is different because most of the time you have one party ruling the country the Conservatives or Labour. The current coalition with the LibDems is fairly unique in the UK, as is a hung parliament.

So the situation in the US seems very different than either the UK or Holland.

Nevertheless the abuse politicians have to expect is more or less the same. And maybe even worse in Europe than in the US. I have not seen street parties in the US when either a republican or democratic former president gets burried..

We have always had left and right extremists that thought violence was justified against opposing politicians, it is just that this state of mind seems to be spreading to the general population.

In the Netherlands 39% of local politicians were intimidated, threatened with violence or the victim of physical violence in 2012 and these figures rise every year.

The idea that the lack of respect that can lead to this behaviour is normal is what surprises me.

 

Now concerning the Thatcher economics.

The privatization of UK companies did indeed occur, under the Thatcher government.

These companies like British Leyland (Jaguar), BAe, British Steel or British Motorcycle Company were the result of forced mergers and often nationalization aften WW2. Although these actions led to rapid growth in the early post war years, the writing was on the wall for everybody who was looking at US airplane makers, Japanese motorcycles or German cars - The British were rapidly falling behind instead of leading the way.

In the end these actions led to the disappreance of perfectly good companies and the forming of companies where all British knowhow was supposedly bundled. These companies were then placed under supervision of the state and forced to relocate to places where their traditional work force did not live.

Not surprising British industry went in a nose dive in the sixties and seventies and British products were held in very low esteem everywhere, including the UK itself.

Any motorist in the UK over 40 must surely know of the Prince of Darkness? (Lucas)

Now to be honest this was not all Labour doings, the Conservatives were doing the same thing with the same disastreous results.

The big difference came with the election of Thatcher in 1979. She had the guts to fight it out with the NUM (miners union) that held the UK in it's grip. Leading to the unrest in 1974 - 1975, severly crippeling the industry and economy and even leading to the three day week in order to conserve energy.

Now as I stated before I am not a fan of how Margret Thatcher solved the issues, but they needed to be solved and nobody in British politics had the guts to do it, except Thatcher.

 

As an example of what she could have done: when the Dutch coal mines had to close DSM (Dutch State Mines) diversified and it is now a major industrial player. This action guaranteed the local workforce would have a job and that the economy would not suffer very high unemployment rates. The government only financed the start up costs, including training for the former miners, it did not try to run DSM.

 

And my final point for now:

Privatizing vital public services is not always a good idea imho. Public transport, energy and water are in my opinion better handled by government than by business.

For example public transportation:

The way it works in the Netherlands is that (local) government has to hire a company to perform public transport. The company makes an offer and the company with the lowest offer wins. This will not always lead to the best service to the community, or even service at the level the government owned company was providing for the same amount of money.

 

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Well, demand for rail transport is high here. At peaks times the trains are usually packed. It's one of the largest networks in the world, and one of the densest. It's also one of the busiest in Europe. 1.33 billion journeys in 2010.

 

I thought your railroads were only "...a rich man's toy...", priced so high only the rich could use them?

 

John

Who said "only"?

Did you see the link I gave you.

http://www.bbc.co.uk/news/uk-politics-14904610

Philip Hammond was responding to a question about regulating fare prices on the planned high speed rail link so that it would be a "railway for everybody".

He went on to say...

"Uncomfortable fact number one is that the railway is already relatively a rich man's toy - the whole railway.

"People who use the railway on average have significantly higher incomes than the population as a whole - simple fact."

A lot of people using the railway, doesn't negate the fact that "on average" the railway is used by individuals with an above average income. Therefore, I don't see that his comment is invalid. Presumably he based it on the available data.

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Privatizing vital public services is not always a good idea imho. Public transport, energy and water are in my opinion better handled by government than by business.

Absolutely. In the UK, privatization of the power industry has left us with a cartel of a few big companies that are free to rip us off.

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@ Kasper - great response - thanks.

John

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