11

S W P 2 3 /9 2

N A T IO N A L IS A T IO N , S T A T U S W ITHIN IM P O R T A N C E

P R IV A T IS A T IO N , GOVERNMENT:

AND AGENCY FOR THE

T E S T IN G

O F O W N E R S H IP

12

r-

D A V ID P A R K E R Finance, A c c o u n tin g a n d E conomics G r o u p C r a u field S chool o f M a n a g e m e n t C r a n field Institu te o f Technology C r a n field B e d fo r d M K 4 3 O A L Unite d K i n g d o m (Tel: 0 2 3 4 - 7 5 1 1 2 2 ) (Fax: 0 2 3 4 - 7 5 1 8 0 6 )

Copyright: P a r k e r 1 9 9 2

INTRODUCTION

The word a decade, W estern

*L.

privatisation however, countries, Prague,

was not commonly not only was

used until part

the early

1980s.

W ithin in most

it an accepted it featured Moscow. both

of the language

more surpris ingly Budapest phenomenon communist in detail and even

in the headlines The policy

of newspapersin of privatisation capitalist countries by by a is

W arsaw,
-.

now and

a worldwide the former differ

affecting bloc alike.

the traditional The programmes they

introduced are all driven

governments belief that

and intensity; assets from

nevertheless public ownership

by transferring will improve. with

to private

ownership of a growing

efficiency disillusionment

The policy

of privatisation during

is the product period.

state production

the post-war

In Britain, disillusionment These Attlee

-)I

where

a large

privatisation of growing

programme critic ism been

was

pursued

in the

198Os,

took the shape industrial

of the nationalised mainly by the

industries. 1945-51 during the

giant

organisations but had proved once

had

created to manage state

Governments and public 1970s. support,

difficult selling

effectively

1960s
11

However, attention

enterprises c iv il health. Steps service

appeared and

to win to the

wide

also turned education its

to the and Next

difficult 1988

privatise
-

welfare

services,

notably

In April initiative from 550,000

Conservative eventually than to

Government to reduce (HMSO,

introduced

intended to less personnel on from more the

the s ize of the central 1988). agencies with

bureaucracy

100,000

This is to be achieved which new will senior run

by transferring former activities brought-in it considered by providing

quasi-governmental lines

commercial private

and perhaps

management what

sector. effect

The same Government of red tape

also tackled

to be the independent GPs

disincentive budgets and

in education

and health

for schools

and contracting hospitals. Just

for health as head

care between teachers could

fund-holding now

self-governing

be budget

holders

freed

from operate

total

dependence own along

on local

authority best

education care

departments, patients. in

so GPs could The Next education resources.

their

finances with

buying

for their

Steps

initiative, were

the sale of state to result in a more

industries efficient

and reforms

and health,

intended

use of scarce

Unfortunately, initiatives efficiency. restricted are often

however, is hampered Where

assessing by a lack studies have

the

value

of

privatisation of public their

and versus

agency private is often activities

of empirical been

study

undertaken

usefulness State

by the problem monopolies are surveys (eg. very

of making larger

like-with-like in scale where have

comparisons. than direct been their private

or much few

counterparts. can have and to be made. reported Schneider, ownership, regulation behaviour. of

Hence Moreover, mixed 1982; product

there

industries studies 1980; 1983). and the

comparison undertaken

of the

which

results Millward market

De Alessi, Parker,

Borcherding, In particular, degree factors

Pommerehne in addition state

and

competition

of continued determining

enterprises

are identified

as significant

managerial

Turning largely in one industry growth 197Os, there

specifically because such

to the

UK, there created of the

have

been

very

few Pryke

comparative

studies,

nationalisation comparison

monopolies. and

(197 1, 198 1) argues, sectors, 1960s much that state of the

private

nationalised 1950s and

outperformed in labour when

private factor was

industry

in the

in terms

and total

productivity third

but performed with

less well in the here and data from their better It is A more

performance

rate, though 1981, the p.257).

some

evidence recent

of first class standards (Table

(Pryke, that

However, industries

the Treasury performance than difficult the

1) suggests

nationalised

improved performed growth.

dramatically economy

in the mid-1980s in terms conclusion

and may have again of labour productivity from

in general general

to see what

can be drawn

this record.

3
..we_4 -

I*

-1

r e c e n t stu d y
la

o f th e early e ffects

o f th e 1 9 8 0 s

privatisations, m inisters,

by B ishop a n d Kay th e p o p u l a r press a n d programme in

( 1 9 8 8 1 , is e q u a l l y e n i g m a tic. many e c o n o m i s ts

W h ile g o v e r n m e n t

h a v e p r a i s e d th e success B ishop and Kay conclude:

o f th e

privatisation

-a

raising e fficiency,

me

T h e overall
-a

picture have

to e m e r g e ..... grown, margins

is o n e o f substantial have increased,

change. employment

O u tp u t has

and

p r o fits

declined.
II.

B u t th e relationship

o f th e s e c h a n g e s to th e fact o f privatization T h e privatized industries have

is n o t i m m e d i a tely te n d e d to b e faster

a p p a r e n t from th e d a ta . growing

a n d m o r e p r o fita b l e , a n d p r o fitability

b u t it s e e m s th a t th e r a th e r th a n

-j

c a u s a tio n
d

r u n s from g r o w th

to privatization,

th e o th e r w a y r o u n d . ( p p .4 0 - 4 1 )

*Is

( T a b l e 1 a r o u n d h e r e .)

There

is, th e r e fo r e ,

a clear

n e e d fo r m o r e results

e m p irical

stu d y

o f th e

e ffects

of

privatisation

a n d , equally,

th e

o f related

r e fo r m s

which

have

created

quasi-independent

a g e n c i e s to ta k e o v e r traditional

sta te activities.

The remainder a r g u m e n ts

o f this c h a p te r

is c o n c e r n e d ,

firstly,

with

assessing

th e a priori

fo r privatisation

a n d th e n , secondly, into o w n e r s h i p p e r fo r m a n c e

with r e p o r tin g

th e m a in results o f This r e s e a r c h

a recent research

programme

a n d p e r fo r m a n c e .

m e a s u r e d th e extent to w h i c h in th e U K w h i c h sta tu s change crossed within

c h a n g e d in a n u m b e r o f o r g a n i s a tio n s or underwent which a

between

th e public a n d private sectors In th e b e fo r e m a in 1982 only

g o v e r n m e n t. ownership changes

o r g a n i s a tio n s

experienced l o n g e r - te r m A irways
*-

relevant e ffects

were included (the e x c e p tio n

s o th a t th e is British

o f th e c h a n g e c o u l d b e a s s e s s e d later).

which

w a s i n c l u d e d fo r r e a s o n s e x p l a i n e d privatisations o f th e 1980s could

This m e a n t th a t while th e research

most

o f th e

n o t b e included,

avoided

the criticism Also,

that

it is still too soon these

to assess

the full effects

of recent the

privatisations. results Next

although

ownership

changes effects

are not included, of the privatisation, both in the

are still relevant Steps and other

to an assessment related

of the likely

government

programmes

UK and

elsewhere.

WI

as..

T H E C A S E F O R P R IV A T IS A T IO N
s*

T h e c a s e fo r privatisation
-.

cannot

b e safely private

made

sim p ly

o n th e provided

basis o f th e b y e m p irical

existing studies. reasoning th e o r i e s

knowledge

o f public

versus

e fficie n c y

Instead, th e m a in intellectual c e n tred o n public choice th r o u g h

fo r c e h a s c o m e from a priori o r d e d u c tive and p r o p e r ty rights theories. These pressure in

have been popularised

th e publications A ffairs

o f free m a r k e t

g r o u p s s u c h a s th e Institute th e U K a n d th e Pacific

of Economic

a n d th e A d a m S m ith Institute C a to Institute in th e

Research

Institute

a n d th e

USA. here.

H e n c e th e y a r e n o w well k n o w n a n d th e briefest o f s u m m a r i e s

will suffice

*I

Public

choice

th e o r y

is c o n c e r n e d

with

th e

n a tu r e

o f decision

ta k i n g

within

g o v e r n m e n t. d e m o c r a tic 1978; pursue

Rejecting decisions, 1988)

th e W e b e r i a n public choice

n o tio n theorists

o f disinterested ( e g . Niskanen, o fficials Drawing

o fficials

actioning

197 1; Buchanan, a s inclined to

M itchell, th e i r own

a r g u e th a t g o v e r n m e n t individuals. economic

a r e just from th e

e n d s a s o th e r maximising

neoclassical

m o d e l o f th e u tility

m a n , th e y th e u tility th e y

conclude

th a t g o v e r n m e n t e m p loyees

policy is likely to b e s h a p e d to m a x i m i s e r a th e r th a n th e public a t l a r g e . whose r o l e is to lay d o w n

o f public sector

Moreover,

fu r th e r

a r g u e th a t politicians, o f sta te o fficials, of

policy a n d m o n ito r

th e p e r fo r m a n c e

a r e also likely to p u r s u e th e i r o w n u tility re-election. In this e n v i r o n m e n t

in te r m s o f maximising of pressure

th e c h a n c e s

th e p o w e r

g r o u p s , s u c h a s public a r e r u n in th e th e public.

sector t r a d e u n i o n s , is i n c r e a s e d to th e p o i n t w h e r e public services interests o f th e e m p loyees a n d o th e r o r inefficient special interests r a th e r

th a n

T h e result is a n o v e r - b l o a t e d
.-

public sector.

P r o p e r ty rights th e o r y c o m p l e m e n ts
f-

public choice economics.

In this th e o r y th e o f p r o p e r ty in

source
all

o f inefficiency

in sta te

o r g a n i s a tio n s

lies in th e a tte n u a tio n

rights.

In th e a r c h e typ a l

capitalist

firm th e e n t r e p r e n e u r

h a s a direct interest

.-

the most residual companies, obvious

efficient after

use of the firm s are deducted

resources from

because production economies,

his or her income costs. property In joint rights

is the stock are less

revenues now

which

dominate and control

in capitalist

and ownership owned

of the business

are divorced.

The business is controlled by

is ultimately the directors. growth, income Alchian, shareholders sight of the

by the shareholders wealth,

but the use of resources both in terms may earn

The shareholders on profits, of fixed Furubotn their to while salaries. and shares

of dividends all or the rights that cannot high the

and capital bulk of their (eg of

depends in the form 1965;

managers

Nevertheless, 1974) that and

property argue

theorists ability

Pejovich, means

to trade need

managers pursue

afford

to lose Where shares make the

manage

efficiently

profits.

shareholders will be sold

are disappointed leading to a fall

by the performance in the share price.

of their This

management, in turn will

company

more vulnerable

to a takeover

bid by alternative

management.

This naive, reliable sector bid. equity

view but

of the it does

operation contain

of the a germ 1980;

private of truth

capital even

market if the 1984).

is simplistic, takeover Certainly threat

perhaps is not

(Grossman there

and Hart,

Lawriwsky, and there

in the public takeover or the

are no shares financing

to trade does not

is no threat an approach

of a hostile to the banks

In addition, market

require

through

a rights

issue.

The Exchequer,

and hence

the taxpayer,

underwrite

all debts

of state enterprises.

Although they activity (cost) sector where

the

public

choice

and property each public other. sector activity market

rights

theories they

have

different that

nuances, economic

obviously

complement in the than may prices

Together will

suggest with

undertaken efficiency activities market

be performed private (eg.

less productive Also, and as public health), sector or is

the same not charge

in the prices

sector. education

are set they are set by large monopolies,

the public

associated

with less a /lo c a tive

e fficiency.

S ta te e n terprises C o a l In d u s try

te n d to b e p r o tected

from c o m p e titio n . C o a l h a s rights

F o r e x a m p l e , u n d e r th e to m i n e coal in G r e a t

N a tionalisation

A c t British

Britain to th e exclusion i m p o r ts services o f coal w e r e b y th e 1 9 8 5 c o m p e titio n th e o r y

(save a s in this A c t p r o v i d e d ) restricted. S imilarly, A c t, b e fo r e

o f a n y o th e r p e r s o n a n d d e r e g u l a tio n o f local bus

Transport

public sector

b u s services

in Britain fa c e d

only lim ite d of economic monopoly. costs

from private b u s o p e r a tio n s .

It h a s b e e n a l e a d i n g te n e t

since A d a m S m ith th a t c o m p e titio n is g e n e r a l l y s u p e r i o r to . U n d e r c o m p e titio n prices a r e related m o r e closely to m a r g i n a l supply to allocative e fficie n c y a n d survival in th e c o m p e titive market

leading

r e q u i r e s p r o d u c tio n

costs to b e m inimised.

F r o m this i d e n tifie d
II

brief discussion in e c o n o m i c

it s h o u l d which

b e clear th a t th e r e lead to high

a r e two

broad

forces

th e o r y

allocative

and

p r o d u c tive o f this

e fficie n c y
II

- th e capital m a r k e t a n d th e p r o d u c t m a r k e t. concerned with p r o d u c tive

In th e r e m a i n d e r

c h a p te r w e a r e primarily two
t-

e fficiency.

In F i g u r e 1 th e s e axis a n d th e o f a firm

forces

a r e r e p r e s e n te d

b y th e capital axis.

m a r k e t o n th e horizontal

product which

market is directly

o n th e vertical c o n trolled

P o int A r e p r e s e n ts

th e position

by a government shares,

d e p a r tm e n t. hence we would

It is politically expect from th e P o int B

c o n trolled
.-

a n d th e r e a r e n o t r a d e a b l e a n d p r o p e r ty

public choice r e p r e s e n ts
(I-

rights th e o r i e s

th a t e fficie n c y

will b e low. which

a n activity

u n d e r ta k e n

by a government process.

agency

h a s s o m e , if

lim ite d , a u to n o m y

from th e political

E x a m p l e s i n c l u d e th e trading fu n d s Trading F u n d A c t a n d th e m o r e Public c o r p o r a tio n s

set u p with th e i r o w n fin a n c e s

,-

u n d e r th e 1 9 7 3

r e c e n t a g e n c i e s established ( n a tio n a l i s e d industries)

u n d e r th e Next S te p s initiative.

can be placed at point C. agencies and were designed

T h e y h a v e m o r e a u to n o m y in th e i m m e d i a te p o s t-war

th a n q u a s i - g o v e r n m e n tal
--

p e r i o d to act a t a r m s

l e n g th from g o v e r n m e n t.

Their chairman

may be drawn

from are

the private not civil in

sector,

commercial At the

style same and

accounts time,

are published

and employees ministers management the industry s

servants. long-term Also,

however, in

government day-to-day of

intervene decisions. finances.

strategy

sometimes as ultimate

government

acts

guarantor

(Figure

1 around

here)

Points

D, E and F correspond those funding private sector

to forms firms on state

of ownership which

in the private

sector. sector

Point because

D includes of state

are close to the public This might while

or a reliance Point where

contracts. stock

diminish point - notably

incentives F represents the owner-

to be efficient. private managed ownership firm.

E is the joint property rights

company;

are least attenuated

Turning from

to the monopoly

vertical towards

axis,

movements

upwards

correspond product

to a shift market a mapping drawn

away

competition

and hence Figure and and

greater

pressure of the from the for

to be efficient. expected theories convenience both relationship outlined

In summary, between earlier, points the and

therefore, ownership competition

1 provides performance, performance. been viewed

Although identified as

discrete and

on the horizontal product implies market the following:

axis have are best

A to F, continuous

ownership

dimensions.

The schema

changes control

in ownership towards will private

involving

movements but improved

away with no

from

political in

ownership, with

change

competition, change

be associated market;

efficiency

due to a

in the capital

i n c r e a s e d c o m p e titio n b e associated p r o d u c t m a r k e t; with

in th e a b s e n c e o f a c h a n g e in o w n e r s h i p improved e fficie n c y d u e to a c h a n g e

will

in th e

changes ownership

in o w n e r s h i p to w a r d s

involving public

a movement will

away be

from

private with

ownership

associated

r e d u c e d e fficie n c y

d u e to a c h a n g e in th e capital m a r k e t;

less c o m p e titio n , l e a d to a r e d u c tio n

e v e n w h e r e th e r e is n o c h a n g e in o w n e r s h i p , in e fficie n t ? .

will

In F i g u r e 1 th e s e m o v e m e n ts respectively. m o v e m e n ts c o m p e titio n ;
,-

a r e illustrated e fficie n c y th a t

a s X to Y , X to Z, Y to X a n d Z to X a r e likely private to b e associated and with more

The from X

largest to W,

gains

is to w a r d s

ownership political c o n trol in

while a m o v e m e n t is either likely way to lead

from W to X , involving to a significant

a n d less e fficiency. result

c o m p e titio n , M o v e m e n ts

d e terioration

between

positions

Z a n d Y imply

an ambiguous

b e c a u s e th e c h a n g e s in th e p r o d u c t a n d capital m a r k e t constraints
r-

on managerial

behaviour

c o n flict.

F r o m this discussion ownership

I-

th e fo l l o w i n g

c e n tral h y p o thesis

c a n b e derived: ownership, lead this 1980s to

c h a n g e s /i, especially appreciable view and which which

a w a y from political associated with

c o n trol increased

a n d to w a r d s private compe Won, will

when
*-

also

i m p r o v e m e n ts underpinned currently c o m p e titio n o f privatised

in e fficie n t 3 . th e policy

It is, o f course, in th e

precisely

o f privatisation

U K in th e

drives th e policy in e a s te r n also h a s implications public u tilitie s th a t

Europe.

The emphasis discussion

g i v e n to p r o m o tin g

fo r current 1989).

o f th e r o l e o f r e g u l a tio n rights will lead a n d public to some

(Parker,

T h e p r o p e r ty of monopolies

SM

choice

th e o r i e s

suggest

privatisation

10

efficiency prices), associated competition, to those

gains but the with

(though largest more

these

gains

may gains Where should

mean will

higher occur

profits where

rather

than

lower is

efficiency

privatisation prevents incentives efficient

competition. structure competition.

natural create

monopoly managerial

the regulatory exist under

similar

which

11

THE ORGANISATIONS

STUDIED

AND THE PERFORMANCE

MEASURES

USED

To test the central organisations public sector status). period were

hypothesis selected sector

that ownership covering a number

affects

economic

performance, moves between

ten the

of possible

and private (from Two studied,

(nationalisation department organisations

and privatisation) to trading two changes relevant 2. fund

and within or public

the public corporation in the The ten

government of the hence their

underwent status with the

ownership were dates,

changes studied. and the

twelve

relevant

organisations, effect

status

changes

predicted

on performance

are summarised

in Table

(Table

2 around

here)

Four nationalisation/privatisation Royce, Aerospace companies Dynamics) corporation 1971 British Airways and the

cases

were

included Freight

- British Corporation two Siddeley Four

Aerospace, (NFC). largest

Rolls British

National

was created - the - and was British the

on the nationalisation Aircraft Corporation, Aviation was

of the UK s Hawker in 1977. bought major was

aerospace and the

(Aviation years later

smaller

Scottish

privatisedP a financial

Rolls Royce crash engine. associated The

by the state cost

in February in the in 1987, to

following

with company

over-runs

development though privatise mainly Airways competitive II agreement because

of the

RB211

privatised

this event British because (British

came

too late to be included was made disputes along and later in 1980 in the with

in the study.

The decision until 1987,

Airways of legal Airways

but had to be postoned relating and TWA to the was

USA

collapse accused

of Lake of anti-

Pan Am

practices), which

because traffic aware

of the need to renegotiate vital Atlantic routes.

the Bermuda However, we might

regulates were

on the that

the management

privatisation

was imminent,

12

expect National

to find a large growth Freight Corporation and

in efficiency was established

between

1980

and 1987. holding

Lastly,

the

as a state in 1969.

company

for the in

nationalised February 1982

freight

related

undertakings worker

It was buy-out.

privatised

in a celebrated

and management

The movements Mint, the HMSO London Mint

within (the

the public government s

sector

which stationery

were

studied the

included Royal

the Royal Ordnance factories, government were trading

office), The Royal

Factories, the Royal departments, given fund remain financed greater when

Transport

and the Post Office. had for a long-time to making 1975 them

Ordnance

and the HMSO but with fund a view

been

run within more

operate

commercially Under

trading status,

status

in 1974,

and 1980

respectively.

management

are still accountable The organisation,

to the Minister

and the employees accounts provides than and is for a exists

civil servants. by trading degree activities

however,

has its own votes.

receipts

instead autonomy

of parliamentary and managerial

This

of financial are directly

independence

run by government

departments.

London

Transport,

which

manages

the capital s when of

bus and underground established ownership it was to the in 1933. though

services, In the it always to central Council

was one of Britain s post-war remained government which years London abolish years

first public

corporations history From

it had

a chequered

a public

corporation. it became

1963

responsible Greater

but in 1970 established and notably the 1984 Given

accountable earlier.

London

had been of periodic

five years

This change

resulted

in fourteen of to

extensive in relation

political

intervention policy. became were

in the Following

management the decision to operate

Transport, the GLC, in

to pricing once again

corporation and the its

accountable to

central more

government commercially. during

management of political expect

expected

extent

intervention

in London

Transport after

the GLC years,

we would

performance

to have

deteriorated

13

1970

and

improved

again

after

1984. were

Lastly,

the

Post

Office

postal

and moved again

telecommunications from with being a view

businesses

separately to public

studied. corporation

The Post Office status in 1969,

a government to raising

department efficiency.

Performance for using

changes different that

were measures

measured was might to

using

three for

sets of measures. measurement using one

The reason bias, ie the but not

check

possibility

performance (something found

have

improved

measure

using another

to be true for many

of the organisations

studied).

The three

sets of performance

measures

were:

Labour

and

total

factor and after effects. have there

productivity. the dates There improved might before

Four

year

averages

were

used for before lead and lag

of the status is always ahead

change the

to capture that

possibility

performance change or

might that

of the date a delay

of the status caused by

have

been

reorganisation periods were

costs not changes

performance because these to the

responded. might ownership caused have change.

Longer reflected To changes in the in

used

performance control

unrelated

for the effects

on performance notably

by general cycle, with changes

in the macro-economy, organisation s productivity public

the business were compared

productivity in the same

changes

periods and, in

for the whole the industry. case

of the UK economy, of manufacturing

corporations

organisations,

UK manufacturing

Labour weighted

productivity index

was

measured quantities

by the

relationship

between

a of

of physical

of output

and the volume

14

labour hours labour available,

input. worked, input.

In the

absence

of reliable

information was

on average used as the measure was

the average Where

number

of employees physical by deflating industry a test output

no adequate approximated

this was

the value deflator.

of output Using more of the

by price deflators, than results one price

including deflator

an own provided used.

of the

sensitivity

to the precise

deflator

Total

factor

productivity Weighted

was defined index

as: quantities index of output of input prices

of physical

TFP

= Total expenditure on inputs/Weighted

Again, output value

where was

there

was

an

absence

of

quantity price

data

physical to

approximated figures.

by applying

relevant

deflators

of output

Employment though

functions.

Various

employment function

functions usually

were

tried

the Ball and St Cyr (1966) advantage of

gave the best fit functions independent relationship is

and had the added relate variables expressed the amount and

of simplicity. to

Employment a series the of

employment

in the

Ball and form as:

St Cyr function

in general

N = f(q,tJQ

where

N is employment, is a lagged

q is output, dependent

t is a time

trend which

and Nt-1

variable

from

15
* -. .-..<.-..Lc

th e

speed

of

adjustment

of

employment

to

its is

o p tim a l

level c a n b e calculated. in n a tu r a l logarithms.

T h e e q u a tio n

expressed
C

By

introducing it was

binary possible e ffect

(dummy) to test

variable w h e th e r

fo r

th e

ownership had a The s o th a t

change, sta tistically

ownership relationship.

significant

o n th e e m p l o y m e n t

b i n a r y variable th e relationship

w a s a p p l i e d in b o th shift tested was:

a n d s l o p e fo r m s

Ni = a + b iV i+ c X V i + D + m i

w h e r e V i is a vector

o f variables,

n o tably variable,

o u tp u t,

th e tim e

t r e n d a n d th e l a g g e d d e p e n d e n t dummy intercept te r m . variable fo r sta tu s

X is a s l o p e shift to V , D is a n error

change

applied

shift d u m m y ,

a n d m i is th e u s u a l sto c h a s tic

Where employment dummy will

e fficie n c y

r o s e fo l l o w i n g s u g g e s tin g e fficie n c y o f th e

th e sta tu s

change

th e sign o n th e th e sign

variable will b e n e g a tive if e m p l o y m e n t

less e m p l o y m e n t fell. The

to o u tp u t;

b e positive p e r m i tte d changes by th e

use of an employment e ffects o f o r g a n i s a tio n a l and also o u tp u t p e r m i tte d th a n th e

fu n c tio n sta tu s provided

a n assessment on th e labour relationship

l o n g e r - te r m

between

employment It

p r o d u c tivity

calculations.

introduction

o f o th e r factors

w h i c h m ight h a v e i m p a c te d

o n th e relationship.

Financial calculated made series

R a tios.

series

o f sta n d a r d

fin a n c i a l

r a tio s

were were

fo r e a c h o r g a n i s a tio n . r e p o r te d tim e where a c c o u n tin g th e r e had

A p p r o p r i a te fig u r e s been

adjustments

to th e over

to create changes

a consistent in a c c o u n tin g

16

practice.

The following

ratios

were

calculated:

rate

of

return

before

interest

and

tax

on

net

assets

(profitabilityI

debts capital);

to turnover

and

stock

to turnover

(use

of working

sales to net fixed assets

(use of capital

stock);

labour s

share

in expenditure

and value

added

per employee

(use of labour).

Profitability the others

is usually contribute. when

taken

to be the key financial However, using

ratio

to which alone is

profitability which

unsatisfactory

considering in the public are often simply simply

organisations sector. considered in terms reflect

spent sector

some goals

or all of their time other than profitability

In the public as, or more,

important. on net

Performance assets could,

measured therefore,

of the rate of return changes in objectives.

The ratios after model

were

calculated change

using and were

four year averages tested using

for before

and

the status which

a simple

covariance

took the form:

Vit = a+bti+bXti+D+mi

where again

yt

is a vector

of financial X is a binary

ratios variable

and

once

t is a time trend,

in slope

17

fo r m a n d D in shift fo r m to c a p tu r e ownership p e r fo r m a n c e change. O th e r factors

th e e ffect a ffecting

o f th e

a r e r e flected

fin a n c i a l 1 in th e tim e trend, t.

R e tu r n i n g

to th e o r g a n i s a tio n s

stu d i e d , only th r e e - th e H M S O , British A e r o s p a c e (post-l 9 8 4 ) had appreciable o f th e sta tu s changes in

( n a tionalisation) th e i r
-

and London Transport environment

c o m p e titive

a t a r o u n d th e tim e

change

which of of

m ight h a v e i m p a c te d sta tio n e r y th r e e while

o n p e r fo r m a n c e .

In 1 9 8 2 th e H M S O lost its m o n o p o l y d e p a r tm e n ts. Aerospace 1984 te n d e r . T h e n a tionalisation reduced

a n d o th e r supplies to g o v e r n m e n t m a n u facturers case of London to create T r a n s p o r t,

airframe in th e

British from

c o m p e titio n ; number of

a n increasing

L o n d o n b u s r o u te s w e r e subjected

to c o m p e titive

I-

18

RESULTS

Space

precludes

the inclusion

of all of the statistical details 1991). tests;

results, see Parker Table

but the main and Hartley

ones 1991 a

are reported

in Tables

3, 4 and 5 (for fuller Parker and Martin, function

and 1991 b and Hartley, of results labour whole from

3 provides

a selection on

the employment factor public productivity corporations

Table

4 includes

the figures

and total economy,

adjusted

for changes

in productivity sector; while

in the Table 5

and the manufacturing tests

is a summary cases refers dates

of the results refer

of the significance year ends.

on the financial

ratios.

In all

to accounting

For example, 31 March 1977

for the HMSO to 31 March

1977-80 1980.

to the accounting

years year ending

(Tables

3, 4 and 5 around

here.)

Inevitably,

using

a number

of financial

ratios

meant

that not all of them to the overall the net total

pointed

in each An

the same direction. of the financial improvement ratios

To provide

a guide,

albeit

crude,

impact, column.

was weighted

equally a value means

to derive

in any ratio was given greater than zero

of one; where that more

it deteriorated ratios

a value improved in the of

of -1. A net total rather stocks change stocks mean than

financial total.

deteriorated; ratios with ratios

and vice

versa

for a negative with special

Changes

and debtors associated and debtors an inability

need to be treated an improvement may not always

care as the direction is not Too few certain. stocks

in performance be desirable. debtors could

Lower might

to meet new orders. where

Fewer future

result

from pestering view is of It is guide

_.

customers to interprete improved important

to pay to the point any change performance. to stress that

sales are lost. in whatever in Table

An alternative

in these

ratios,

direction,

as evidence

The final column either net total

4 adopts

this approach. illustrative

is merely

a crude

19 . .l-ll.ll-se.Te-c

implying interpreted already changes

an equal with explained

weighting

of the

ratios

and,

therefore,

the

figures

must though measuring

be as

care. It can be argued there is a problem

that profitability in using which profitability spent

is the key ratio, alone when

in performance sector.

for organisations

at least some

of their time

in the public profitability expectation)

Nevertheless,

it is interesting change

to note that in five of the cases for Rolls Royce contrary to

rose following

the status

(though

and for none of the organisations

did it decline.

In the

cases

of

British

Airways showed

and evidence

the

National

Freight The to have

Corporation anticipation had the In terms dummy

the of

performance privatisation effect. employment indicates became significant large reported effect months supportive any changes that

measures and actual The British

of improvement. seem

privatisation Airways for the

respectively are

desired of the

results NFC, the the

unambiguous. of a slope coefficient with was

equation before

inclusion output Along

on output but and a are

privatisation

insignificant negative with

significant shift

following dummy, this

privatisation. implies that

the expected was 4, three reflecting

privatisation In Table to 1983

associated time the

increase

in employment

efficiency. the period 1980

periods anticipation first

for the NFC with of impending in the private

privatisation sector.

in 1980/81 The financial

and the company s ratio results efficiency for the

nineteen

NFC are also that

of the view

that privatisation and debtors

improved ratios

if it is accepted change.

in the stocks

suggest

a performance

Turning poor

to British fit and

Aerospace, a function

the Ball and St Cyr employment based on the Treasury and Hartley,

function

provided function The

a is

instead

employment

reported dummies expectation

(for more proved

on this see Parker to be positive

1991 a, p.413).

shift to

as expected However, efficiency,

for nationalisation terms after

but contrary on output suggest

for privatisation. in employment

the interaction especially

an improvement

privatisation

in 198 1.

20

In other

words,

the coefficient implying increase

on output a greater in output. extent total during of

was somewhat increase This result factor the four private

higher

during was

the period needed to

of nationalisation produce for labour productivity the earlier any given

in employment

is also born out by the figures in Table 4. Labour than total in

and to a lesser growth or was

productivity years

worse periods

of nationalisation The

following

ownership. improvement

factor to the of

productivity performance nationalisation corporations

results

are more

mixed,

but the slight and

in relation during the

of public

corporations of the

UK manufacturing poor productivity Similarly, accounts after 1981. lowered upon

period of

is a feature and manufacturing productivity factor

very

record the sharp

public in

in these

years. 1980s

recovery

UK manufacturing in relative results, total however,

in the early

for the deterioration The financial performance the ratio and an

productivity

performance that nationalisation

do not confirm

assessment placed

of the effects

of privatisation in the stocks ratio.

depends

interpretation

on the deterioration

Owing

to lack

of reliable But in terms

data,

for the

Royal and total

Mint

financial

ratios

could growth

not

be the

calculated. Mint s to have formulation independent though dependent movement there transfer

of labour

factor

productivity

from government the the anticipated

department efficiency function, satisfactory

control gains. which

to trading

fund status

seems (1978) as an

produced of

A Peel and Walker includes real wages

employment proved evidence so the fund more

variable, was

than the Ball and St Cyr equation, between The output results and the suggest lagged that the

of multicollinearity latter status was omitted.

variable to trading

led to an improvement dummy, though implying

in efficiency partially efficiency

as reflected offset gain by an at the

in the negative increase

sign on the shift

this was a one-off

in the coefficient change.

on output,

time of the status

.~.

21
_-----.---

In the

case

of the growth and,

Royal seems with the

Ordnance to have exception

Factories, declined of the also was in the Factories was

contrary following

to expectation the granting with to have poor explain respectable of the

labour

productiv ity fund status

of trading in UK

comparison appears

trends

manufacturing, Again because

total the total of with the this

productiv ity mid-to factor Royal indice. late

growth 1970s

deteriorated. growth why in the when expected results, O n ly (Table

a period UK, this looks also no

of very may more s ign

manufacturing performance contrasted improvement where using 5).

productiv ity Ordnance There

in efficiency

as measured

by the is positive

employment rather than

function negative.

the coefficient the financial

of the shift dummy ratios could

a performance

improvement

be identified

Turning

to

the

HMSO,

immediately

after labour after

becoming and total 1982, labour

a factor

trading productiv ity when

fund

the seems

performance
-

in terms

of comparative Taking the period

to have faced
.*l*

worsened.

however, productiv ity factor there

the HMSO to have remained no evident on the

competition though

for government the performance W ith regard

contracts, in terms

seems

recovered
i-

of total ratios,

productiv ity was either depending

disappointing. change

to the financial

in performance placed

or a s lightly on the deterioration takes 1982

improved

performance ratio.

interpretation function
--

in the debtors as the date

The employment change and the

result

reported improved

of the status

result suggests

performance.

The

results

relating of British and

to

the

public

corporations has already businesses

were

also

mixed. The transfer

The of

nationalisation the
*L

Aerospace

been discussed. from government

postal

telecommunications corporation in 1969 improvement

department productiv ity ratios (though

control
-II,

to a public

led to improvements in terms

in labour

and perhaps

also to some

of the financial

22

once the

again, higher

for telecommunications debtors ratio), but the

this depends results the lagged using

on the interpretation the other measures

placed were

on

more

confused. provided which

For telecommunications, a poor fit, therefore the

Ball and St Cyr employment dependent variable was

function omitted, after in the

case

longer-term of public reservations). employment

employment corporation For the function

efficiency status postal was (but

did seem see Parker the

to improve and status Hartley, change

introduction p.413 variable for

1991a, dummy lOoh

service, statistically

in the

insignificant

at the

level or better.

At first Instead actually note, 1970s. and 3.7%

blush

perhaps

the

most

surprising

results

were following is used.

those

for Rolls

Royce. it to mid1.4O/6

of performance improved however, Between per annum

deteriorating

as expected measure

the state

takeover,

irrespective that labour

of which productivity,

It is interesting fell in the

in particular,

actually was

1975

and 1978,

for instance,

the decline measure financial

between

depending

on the precise that the 1971

used (Parker crash within acted a few

and Hartley, as a shortyears state

1991 a, p.410). term stimulus

This may mean to reorganise

and cut waste, deleterious

but that effect

ownership

was having

the expected

on performance.

Lastly, studied

London but was

Transport subjected 1970

remained to more

a public political

corporation intervention

throughout during

the

period under

its years

GLC control would suggests performance the transfer have that

between deteriorated the

and 1984. after 1970 and

The expectation improved control of total from

was that 1984. lead

performance Our study

establishment except control result Transport

of GLC in terms in may 1984 be

did not factor

to an immediate However, efficiency that political and

deterioration from GLC This in London

productivity. expected fact

CM lead explained

to the by the

improvements. intervention

by the

GLC intensified

in the late

1970s

23

CONCLUSIONS

mx

The
I --a

research

reported derived from

in this the status when

chapter public away also

was

concerned and property

with rights control increased

testing

a central that private market ten the

hypothesis changes
rr*

choice from

literatures towards product

in

ownership especially

political with This

ownership, competition,

associated

lead to improved which underwent

performance. twelve relevant between

was

tested

by studying either within sectors.

*m

organisations public sector

status the public

changes

or involving

movements

and private

11111

199

The results measure organisations central

were used.

mixed Table

and often 6 provides

varied

depending summary to which

on the precise of the the results

performance with the the

an overall

results

listed

according

to the extent

supported

hypothesis.

The following

are the main conclusions6

Three

cases

of privatisation British

were

studied The

involving results

British

Airways, Airways

the NFC and and the while

Aerospace. strongly British words,

for British

NFC were those for In other performance

supportive Aerospace privatisation

of the central were seems only

hypothesis, slightly less

supportive. expected

to have led to the

improvement.

The

results

for those were more

organisations confused. of the Royal

which

changed case

status of the

within trading the

government funds, HMSO were the

In the Mint and,

the performance improved, disappointing.

on the whole, Ordnance

but the results The granting in 1969 may

for the Royal of public

Factories status to in

corporation

Post

Office

have

led to some

improvement

25 ----

labour

productivity and ratios,

in perhaps

both

the

postal

and

telecommunication in terms of the

businesses, financial

a marginal of total

improvement factor

but in terms

productivity

the result

was unclear.

The

results

for the There of British not

nationalisation was some

cases evidence after 1977

were

perhaps

the

most in the

surprising. performance labour but

of a worsening in terms other state though Transport of political

Aerospace

of the use of performance ownership performance following a clearer control led

necessarily

in terms

of the initially

measures. to an

In the case of Rolls Royce, improvement later. of the objective, efficiency. in performance,

deteriorated the abolition

The experience GLC and the the

of London the view

imposition that

commercial reduces

supports

In three

cases,

the of

HMSO, British and an HMSO

London Aerospace apparent and

Transport there change London

after was in

1984 a

and the in

nationalisation ownership competition. competition, the

change market

status

product faced

The while

Transport

more within

the merger British

of three

aerospace

companies

UK to form

Aerospace in Figure in the

reduced

domestic

competition. of a change should broadly in

According ownership lead

to the schema with a change changes of the

1, the coupling competitive

environment and this HMSO s was

to significant in two more sector

in performance cases. after 1982 The when Transport 1984.

confirmed improved public

performance of

noticeably supplies

it lost its monopoly registered British

and

London after

a clear Aerospace

improvement

in performance

The

26
-~---I~--_ ..^.__ _I. .-

results evidence

were

less

obvious,

but

there

was

no

overwhelming however,

of a deterioration

in performance.

This might, worked

be explained heavily even

by the fact that the corporation on state there

in an industry so that the

dependent before 1977

aid and government

contracts

was only limited of British Aerospace.

competition

between

constituent

companies

It is always sample. improves political seem

dangerous However, performance

to draw the and results they

firm conclusions do not provide contradict some

from

what the view for

was

clearly

a small

that the

privatisation that They to as all or on

support

argument

intervention to bear out which

in an organisation s Stephen retain Littlechild s some

operations warning

damages some years that

efficiency. ago ..... hope in relation

organisations ultimate control

government

ownership,

as long to avoid fund effect

lies with (Littlechild, status outright

government, 1981, within privatisation

one cannot p. 14). government

realistically

the problems.... public corporation than

The introduction had a less

of trading reliable

performance

in the cases studied.

The scheme axis (public performance competition obvious

in Figure to private changes.

1 performed ownership) Also, seems

well.

Longer

movements

along with of This agency

the horizontal more noticeable market has within on-going there

did seem to be associated the independent been born effect out.

product conclusion status

on efficiency implications such for as the

to have

programmes Next of public Steps

which

introduce as well

government, debate about

initiative,

as for the especially

the merits state

and private

ownership,

where

is continuing

regulation.

27

FOOTNOTES

1.

The part

research of its

was

funded

by the

ESRC (Project

number

E 0925006) I would Professors provided like

as to

Management the Andrew

in Government of my

Initiative. co-researchers, statistical

acknowledge Hartley and

contribution Dunsire, Martin.

Keith by

and the

assistance

Bob Lavers are concerned,

and Stephen

As far as the contents applies.

of this chapter

the usual disclaimer

2.

This, scope chapter

of course, economies.

may

not

be true

where

there

are appreciable of the remainder

scale

or

However, us.

for the

purposes

of this

this need not detain

3.

Figure

1 and

the

reasoning the changes private in

on

which (eg

it is based D to F or

also F to this and

implies D) will chapter

that be is

movements associated concerned across

with/i, with only

sector efficiency. status

However, government

with

agency

within

movements

the public-private

boundary.

4.

Although 1981

the government

retained

48.4%

of the shares because

until

May

1985,

can be taken ceased

as the date of privatisation to intervene in the affairs

from that date the

government

of the company.

5.

Calculating different equity,

profitability types of financing. privatisation, charge

before

interest In particular,

charges public equity

removes sector

the activities

effect

of

have no reduces postresults

hence

by substituting post-interest

for loan stock,

the interest interest

and increases introduce

profitability.

Taking

figures

would

a bias in favour

of the profitability

28

after

privatisation

or before

nationalisation.

6.

In interpreting history explaining in other question. improved success in itself

the

results

it would and their cases This internal

be useful internal performance might permit

to know management changed answers

more with

about a view

the to but

of the organisations why cases it is in some it did not. are the

as expected to an important that lead

What efficiency? when

organisational what Clearly, something

changes are the critical

to for

In other

words,

factors

ownership

changes?

changing must

ownership change within

cannot the

change

performance, is it?.

organisation, 1992).

but what

This issue is addressed

elsewhere

(Parker,

111

lllli

II)

I-

II

,*I

29

NOTE

1. The ordinary least squares (OLS) method was adopted for the employment and fmancial ratio tests. In undertaking the statistical analysis, due attention was paid to the possibility that the results were unreliable because of the existence of
.w

multicollinearity, heteroscedasticity and autocorrelation.

em,

Multicollinearity leads to large standard errors of the regression coefficients, though

*m

given that in this study, the primary objective was to identify differences in organisational efficiency, collinearity was of limited importance provided it did not

.Ra

affect the dummy variables. Its existence was detected by the use of a correlation matrix, which picks up collinearity between pairs of variables (though it is less reliable
m

in detecting collinearity between three or more variables where no two alone exhibit
Ltl

high correlation).

In only two cases reported below was there evidence of high

collinearity impacting on the results (see Parker and Hartley, 1991a) and to overcome
-I(

it, one of the variables was removed. Heteroscedasticity makes the OLS estimators inefficient, ie. they no longer have

+I

II

minimum variance. This tends to be more of a problem, however, in cross-sectional studies rather than where time series data are used as in this study. Nevertheless, in an

2-m

effort to ensure that it was not a factor in the results, the residuals were plotted - no significant heteroscedasticity was discovered for the equations reported below. By

II))

contrast, autocorrelation among the disturbances is more common in time series data
*-

(though less so in annual data as used here).

If it exists, once again the OLS

estimators are no longer efficient so that the tests of significance are less powerful. A
*yB

standard method of detecting autocorrelation is the Durbin-Watson h statistic, however this cannot be used for autoregressive models. Thus it could be used for the financial ratio tests but not in the employment function study. The Durbin h statistic has been developed for use in autoregressive models but it is only asymptotically efficient and

*-

30

therefore should not be used for small samples. There appeared to be no readily accepted test for autocorrelation for small sample autoregressive functions, so detecting of first-order autocorrelation was undertaken by plotting the residuals. Where there was evidence of autocorrelation, a first-difference transformation was undertaken using the Cochrane-Orcutt iterative procedure.

31

s*

jtm

REFERENCES
-*I;

Alchian,

A .A .,

1965,

S o m e

Economics

of Property

Rights,

// ~ O /i~ k O ,

~ 0 1 .30, p p . 8 1 6-829. in British M a n u facturing

Ball, R.J. a n d S t Cyr, E .B .A ., 1 9 6 6 , Short-run E m p l o y m e n t Functions Industry, R e v i e w o f E c o n o m i c S tudies, ~ 0 1 .33, pp.1 79-207.

W o rk? Bishop, M . a n d Kay, J., 1 9 8 8 , D o e s P rivatization for Business S trategy, L o n d o n Business School, L o n d o n .

Lessons

fromthe

UK,

Centre

Borcherding, T., P o m m e r e h n e , W . a n d Schneider, F., 1 9 8 2 , C o m p a r i n g the E fficiency of Private Zeitschrift fur five countries, from evidence Production: the Public and N a tio n a l o k o n o m i e , ~ 0 1 .42, s u p p l e m e n t 2. B u c h a n a n , J.M., et.al., Readings, 18, L o n d o n . D e Alessi, L., 1 9 8 0 , 1978,

The Economics

o f Politics,
Rights: a Review

Institute

of E c o n o m i c

A ffairs

in L a w a n d E c o n o m i c s ,
Furubotn, Cambridge,
rll

T h e E c o n o m i c s of Property ~ 0 1 .2, pp.1 -47. Pejovich, S ., 1974,

of the E v i d e n c e ,

&sea& Ballinger, of and

E .G . a n d Mass..

Economics

of

P roperty

Rights,

G r o s s m a n , S .J. a n d Hart, O ., 1 9 8 0 , Take-over Bids, the F r e e Rider P r o b l e m Bell J o u r n a l o f E c o n o m i c s , vol.1 1, pp.42-64. Corporations, Hartley, K ., Productivity, HMSO, London. Lawriwsky, 1988, M .L., Parker, D. and Martin, S ., 1991, Organisational S tatus,

a n d the Theory Ownership

rl

Fiscal S tudies, vol.1 2, no.2, May, pp.46-60.

civil

Service

Management

R e fo r m :

th e

Next

steps,

Cmnd.

524,

-I

Managers
r*

1 9 8 4 , C o r p o r a te S tructure a n d P e r fo r m a n c e : a n d M a r k e ts, C r o o m Helm, L o n d o n .

th e R o l e o f O w n e r s ,

Behaviour and Millward, R. a n d Parker, D., 1 9 8 3 , Public a n d Private E n terprise: Comparative in R. Millward, D,Parker, L. Rosenthal, M .T. S u m n e r a n d N. T o p h a m , Relative E fficiency, P u b l i c S e c tor E c o n o m i c s , L o n g m a n , L o n d o n .
I

Mitchell, London.
r-m

W .C.,

1988, 1971,

Government Bureaucracy

a s /t k, Hobart P a p e r 109, Institute a n d R e p r e s e n ta tive

of E c o n o m i c

A ffairs,

Niskanen, W .A ., N e w York.
LilL

G o v e r n m e n t,

Aldine-Atherton,

Parker, D., 1 9 8 9 , Public Control of Natural M o n o p o l y in the U K : Is Regulation the A n s w e r ? , in M . Campbell, M . H a r d y a n d N. Healey (eds.), C O n trO V e r S y in A p p l i e d Economics, Harvester/Wheatsheaf, London. S tatus a n d Performance: Parker, D. a n d Hartley, I< ., 1 9 9 1 a, Organisational A p p l i e d E c o n o m i c s , ~ 0 1 .23, no.2, February, pp.403-416. E m p l o y m e n t , Parker, D. a n d Hartley, I< ., 1 9 9 1 b, D o C h a n g e s S trategic M a n a g e m e n t Journal, P e r f o r m a n c e ? , The E ffects on

SW

XI

in Organisational S tatus affect Financial vol. 12, no.8, N o v e m b e r , p p . 6 3 1 -641.

*ll

Parker, D., 1 9 9 2 , Ownership, Organisational C h a n g e s a n d P e r f o r m a n c e , in T. Clarke a n d C. Pitelis (eds.), T h e P o /itica/ E c o n o m y o f P rivatisation, Routledge, L o n d o n . Employment Functions, Peel, D.A. a n d Walker, I., 1 9 7 8 , Short-run S p e e d of Adjustment: a note, E c o n o m i c a , ~ 0 1 .45, pp.1 95-202. Excess Supply a n d the

.*l

Pryke, Pryke,

R., 1971, R., 1981,

Pub/k

Enterprise

in Practice, industries,

MacGibbon Martin

and Kee, London. Oxford.

The Nationalised

Robertson,

FIGURE

1 MAPPING

FOR EFFICIENCY

IMPROVEMENTS

A Competition

c .G >r

0 5 .-

Public Sector

Private Sector

Monopoly

C Capital Efficiency

D Market Gain

TABLE

1:

PERFORMANCE

OF NATIONALISED

INDUSTRIES

Labour Productivity (annual % change) Nationalised Industries

1979/80

Whole Economy 0.7 -3.8 3.5 4.0 4.0 2.9 1.1 3.6

Manufacturing
0.9

198018 1 1981182 1982183 1983184 1984185 1985186 1986187 Source:

0.1 -0.5 6.5 2.4 7.2 6.0 9.6 6.2 Treasury, Economic 1987, p5.

-5.3 6.9 6.4 8.3 4.8 2.4 4.8

Progress

Report,

No

193,

December

TABLE 2: ORGANISATIONAL

STATUS

CHANGES

Type of change

Organisation

Date

Prediction from central hypothesis of change in PM-= Improvcmcnt ImprovcIncnt Improvuncnt Improvement Improvcmmt
DCtCIiOratiOIl

Govcmmcnt department to trading fund . Government dqmmcnt to public corporation

Royal Ordnance Factories Royal Mint HMSO Post office

POStal

July 1974 April 1975 April 1980 April 1969 April 1969 Jan 1970 June 1984

Post office TCltcommlllliCNiOllS

Public coqmation to (local) govcmmcnt deprwn=p Localgolmnmcnt department to publiccorpomim . change ofowncrship: (i) Public limital company to public ownership (b) Public aqkation to public limited
compllll)r (c)Alakipaoncpublic~on

London Transport London Transport Rolls-Royce British Aaospace BlitiSll National Freight British Airways

Improvcmcnt

Fcb 1971 April 1977 Feb 1981 Fcb 1982 MO-87

Dctuioration Deterioration
Improvement Improvement Improvcnlmt

to public limited Compgll)r

TABLE

THE EMPLOYMENT

FUNCTION

RESULTS

a HMSO Royal Mint Royal Ordnance Factories PO Postal PO Telecom London Transport 6.22* (2.29) 3.44x (1.82) 1.91# (1.82) 7.04* (3.50) 10.76** (46.03) -2.04 (1.72) 4.65 (3.23) 6.65 (3.36) 21.48* (4.41) 0.91 (0.71) *

log Q
+0.20# (2.08) +0.21+ (2.42) +0.18* (2.78) +O.lO* (2.15) +0.74* (3.69) -0.38** (4.33) +0.12* (2.20) +0.80* (2.79) -0.25 (1.03) +0.79** (5.38) *

Nt-1

Dl -0.19** (3.95) -3.25 * (2.32) +O.ll** (3.61) -0.01 (0.55) -0.12** (3.12) -0.01 (0.50) -0.13** (4.32) +4.73 (2.16) -7.46* (3.27) -0.07# (2.14) *

D2

Xl

x2

R2 0.99

+0.36# (2.16)

-o.o2x (1.59) +O.Ol (0.24)

-0.41+ (2.17)

+0.43* (2.30)

0.69 0.87 0.72 0.78

+0.88** (8.20) +0.35* (1.97)

-0.02 * * (4.94) +O.Ol* (2.23) -0.05 * (2.76)

+1.38* (13.59) +0.51*+ (4.20)

-0.01 (0.87) +O.Ol (0.03) -0.02* (2.50)

-0.04# (1.86)

0.96 0.92

Rolls Royce British National British Aerospace Freight Airways

+5.19* (2.36)

-0.66# (2.15) +1.46** (3.24)

-0.71* (2.32)

0.53 0.99 0.97

-0.26 (1.22) +0.51* (4.85) *

-0.09 * * (4.12) -0.03 * * (3.95)

ID1

m.a

TABLE 3

N o te s

-dl

(1)
It(

* * indicates significant a t th e 1 O h level, * a t R 2 is a d j u s t e d fo r d e g r e e s o f f r e e d o m ; th e 5 O r 6 level, # a t th e 1 O /6 level u s i n g 2 tail tests, x indicates significant a t th e 1 O h There was no F i g u r e s in brackets a r e t r a tios. level u s i n g a 1 tail test only. e v i d e n c e o f significant first o r d e r a u tocorrelation. t = tim e trend; D = b i n a r y variable; 0 = o u tp u t; N t- 1 = l a g g e d e m p l o y m e n t; = D 1 x l o g 0 e x c e p t fo r R M w h e r e = r e a l w a g e s ; X 2 = 9 x Io g Q . F o r H M S O th e d u m m y variable is l a g g e d to 1 9 8 2 . S e e discussion in text. X1

(2)
xl)

(3)
PI

Source:

P a r k e r a n d H a r tley,

1991 a, Table 3, p 412.

-31

.-

=-

/-

ll

e-

TABLE

4:

THE LABOUR

AND TOTAL

FACTOR

PRODUCTIVITY

RESULTS

Organisation

Whole economy LP TFP

Public corporations LP

UK
manufacturing

LP

Trading finds HMSO 1977-80 1981434 1982-85 Royal Mint 1972-75 197679 Royal Ordnance Factories 1971-74 1975-78 Public corporations Post Office Postal 1966-69 1970-73 Post Office Telecommunications 196649 197&73 London Transport 196669 197&73 1980-83 1984-87 Ownership changes Rolls-Royce 1967-70 1971-74 British Aerospace 1973-76 1977-80 1981-84 National Freight COllSOdllTl 1977-80 1980-83 1983-86 British Airways 197679 1980-83 1981-U

0.5 0.2 7.1 -6.3 6.2 9.6 6.3 4.0 -1.5 2.2 8.6 -0.6 a.1 a.5 7.2

-2.4 -5.0 -3.5 -3.6 1.7 2.5 1.2

-1.3 -3.3 3.8 -8.5 2.3 8.9 3.4

-0.8 -1.0 -3.2

-6.9

1.1 -2.8 4.1 -8.1 6.6 7.6 6.6

2.5
-9.4

-7.7 -7.0 5.7 -1.2 4.5

4.2 1.8 1.3

-4.4 -4.8 a.4 -1.0 -1.5 -4.4 4.9 4.8

-8.1 -0.4 -2.0 9.7 -3.8 -1.3 -5.7 +

-5.6 -3.6 -1.6 0.2 -2.7 -3.2 -3.8

n.a.

n.a.

n.a. n.a.

n.a. n.a

-10.4 10.6 4.0 -1.2 4.0 -0.7 5.0 5.8 3.7 5.7 5.3

-5.6 2.5 0.1 -3.0 -1.8 -0.6 0.3 0.4 1.0 3.6 1.1

-13.6 9.9 -0.9 4.0 0.5 -3.5 -0.2 02 -0.3 0.5 1.8

-6.9

1.8 -3.2 -1.3 2.2 1.0 1.4 1.2 3.5 4.7 5.1

-11.1 8.6 2.4 0.1 0.9 n.a

4.0 -1.2 -2.0 1.9 A.2 n.a

n.a

n.a

Source: Hartley, Parker and Martin, 1991, Table 3, p 56.

TABLE
*

4:

Notes:

Privatisation distorts public corporation figures in this period, therefore results not reported. Figures show difference, in percentage points, between an organisation s average annual productivity growth and the corresponding national average figure (organisation - UK). LP = average annual growth in labour productivity (%). TFP = average annual growth in total factor productivity (76). Figures based upon output deflated by each organisation s deflator or a physical output series where available. 1983-85 only. not applicable, service industry. nearest own price

(1)
(2) (3
a n.a

TABLE

5:

SUMMARY

OF THE FINANCIAL

RATIO

TESTS

Organization London London HMSO National Freight Post Office (telecommunications) Post Office (postal) British Airways Rolls Royce Royal British British Ordnance Aerospace Aerospace Transport Transport

Date of status change 1970 lY84 1980 1982 lY6Y 1969 1980 1971 lY74 1977 1981

Fixed Stocks ratio Improved improved Improved Dctcrioratcd n/a Improved lmprovcd improved lmprovcd No change Dctcrioratcd Debtors ratio No change Detcrioratcd Deteriorated No change Dcterioratcd n/a No change lmprovcd nla n/a No change
Wages assets

ratio No change No change Dctcrioratcd lmprovcd lmprovcd lmprovcd No change lmprovcd No change lmprovcd No change

ratio No change Improved No change Detcrioratcd No change Dctcriorated No change No change lmprovcd No change No change

Profitability ratio No change No change lmprovcd Improved No change No change lmprovcd lmprovcd lmprovcd No change No change

Value added ratio No change No change n/a No change No change No change lmprovcd lmprovcd lmprovcd No change No change

Net total 1 1 0 0

NCI total trcatmg any. change in the stocks Bnd debtors ratios as improvements 1 3 2 2 2 1 3 5 4 I 1

0
1 3 5 4 1 -I

n/a: not available

Source:

Parker

and Hartley,

1991 b, Table

5, p 640.

-t

-.I

1 t

TABLE

6 OWNERSHIP STATUS I AND PERFORMANCE - DID PERFORMANCE CHANGE AS EXPECTED?

Organisation

Labour Productivity Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No

Total Factor Productivity Yes Yes Yes Yes Yes? No Unclear Unclear Unclear No? Yes No

Employment Function Yes Yes Yes Yes? Yes? Yes Yes? No Yes? No No No

Financial Ratios Yes Yes Yes? N/A Yes? Yes? Yes? Yes No

British

Airways

London Transport (1984 change) NFC Royal Mint British Aerospace (privatisation) HMSO Post Office Telecommunications Post Off ice Postal British Aerospace Nationalisation Royal Ordnance Factories London Transport (1970 change) Rolls Royce

Yes
No No

Iranfield

School

of Management

Iranfield Institute of Technology ranfield Bedford MK43 OAL England. elephone National Bedford (0234) 75 I 122 International +44 234 75 I 122 Flex 826559 CITMAN G zlefax (02341 75 1806

W Cranfield

be Cranfield School of Management Working Papers Series has been running since 1987, with pproximately 300 papers so far coming from the seven major academic subject areas of the School: kterprise and Small Business Development in the UK and overseas; Finance, Accounting and Economics; Iuman Resources and Management Development; Information Systems Management; Marketing and ngistics; operations and Project Management; and Strategic Management. In 1991, the School merged with he Cranfield School of Policy Studies, resulting in two new subject areas, the Social Policy faculty being rebrmed into the new Public Sector Management Group, and a Centre for Logistics and Transport Studies. +om 1992, papers from all groups will be included in the Series. From 1992, papers are reviewed by senior nembers of faculty before acceptance into the Series. :or copies of papers (up to three free, then f2 per copy, cheques to be made payable to the Cranfield If Management), please contact Mrs Val Singh, Research Administrator, at the above address. e bruary 1992 School

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SWP 8/90 Sue Davison Cultural Mapping - What is it, and How does it relate to Previous Research? SWP 9/90 Andrew Myers, Ian Gram, Michael Sweeney, Alan Warr Managing Learning the Need to Change Some General Findings from a Study of Applying Information Technology to Aid Learning in a Business School - Is SWP lo/90 David Parker The Importance of ownership SWP 1 l/90 John Hailey Financing Small Enterprise Ministates

List No 4,1!HO
SWP l/90 Sue Birley, David Norbum, Kingsley Manning Developing a New Ventures Strategy

SWP 21% Sue Birley The Small and Medium-s&d there a European Dimension?

Enterprise

SWP 3/90 David Ballantyne Management of the Diagnostic Review Process in Service Quality Management: Bank - A C&e Outline SWP 4190 David Ballantyne Turning the.Wbeel Continuously

in Developing

AN2

of Quality

Improvement

SWP 12190 Malcolm Harper & John Hailey Management Development for Enterprise Promotion: NGOs and the Development of Income Generating Enterprise SWP 13190 John Grierson Sustainability, Self-Sufficiency Management Simplicity

SWP 5190 Bob Spink Overtime: The Problem

that won t go away.

and

SWP 6190 Sue Birley & Paul Westhead Growth and Performance Contrasts between Types of Small Firms SWP 7/90 David Parker The 1988 Local Government Act and Compulsory Competitive Tendering

SWP 14/90 Sue Birley & Paul We&head Private Business Sales Environments UK

in the

SWP 15/90 Malcolm McDonald & Hugh Wilson State of the Art Developments in Expert Systems and Strategic Marketing Planning

irector of School

Professor

L G Murray

SWP 16190 Yochanan Altman The Organisational Culture of the Armed Forces: The Case of the Israeli Army SWP 17/90 Paul Burns Managing a Partnership

SWP 30/90 Andy Bytheway Electronic Data Interchange and Advanced Information Processing - The Way Ahead SWP 31/90 Andy Bytheway ED1 Standards and the Single EuroMarket SWP 32DO Andy Bytheway The Effects of ED1 on the Financial SWP 33190 Mike Sweeney & S Carter JIT (Just in time) Manufxturing what cost?

II

for Business Success

--

SWP 18/90 Sue Birley & Paul Westhd Spatial Variations in Private Advertised in the UK, 1983-1988 SWP 19190 Keith Ward, Sri Srikanthan, Strategic Brand Accounting SWP 2oM Yochanan Altman The Relocations of Companies: Resources Perspective SWP 21/90 Sue Birley & Kingsley Public Sector Venturing

Sales

Sector

Richard Neal

- But at

The Human

SWP 34190 Mike Sweeney CIM (Computer Integrated Manufacture) Buy Now or Pay Later SWP 35/90 Paul Westhead Managing the Construction of a Manufacturing Establishment Data-Bank SWP36/90 YochananAItman The Role of Personal Social Support Networks in Soviet Type Centralised Command Economies: Social Networks at Work in Soviet Georgia

_ 1

Manning

I-

SWP 22190 Malcolm McDonald Marketing Technique Interrelationships and the Pursuit of Relevance in Marketing Theory SWP 23190 Sue Birley, Stan Cromie & Andrew Myers The Relationships between Incubator Experience Entrepreneurial Networks in Northern Ireland - Some initial findings. SWP 24190 Sue Birley, Stan Cromie, & Andrew MY= Entrepreneurial Networks: Their Creation and Development in Different Countries SWP 25/90 Sue Birley & Paul Westhead Discriminating Factors in the Strategic Profile Large Small Firms 1 of. Small and SWP 26190 Andy Bytheway , Electronic Data Interchange: The Longer Term Effects on International Trade - A Selected Glossary of ED1 Terms and Acronyms , SWP 27190 Andy Bytheway Electronic Data Interchange: Technical Gpporhmity or Business Necessity? SWP 28190 Andy Bytheway & Chris BarringtonBrown Survey of Electronic Data - Interchange and Service Providers in the UK SWP 29190 Andy Bytheway An Update Report from the ED1 1989 Conference in London

SWP 37190 David Parker, Keith Hartley, & Stephen Martin Organisational Status, Ownership and Productivity SWP 38190 Mike Sweeney Breakthrough to World Class Manufacturing A Strategy for the Transformation SWP 39190 Colin Armistead & Graham Clark After Sales Support Strategy SWP 40/90 Colin Amlistead Competitive Service Strategy and the Service Operations Task SWP 4 l/90 Susan Segal-Horn & Heather Davison Global Markets, The Global Consumer and International Retailing SWP 42190 John Mcgee & Susan Segal-horn Strategic Space and Industry Dynamics

Users

SWP 43190 David Parker, Keith Hartley, & Stephen Martin Do Changes in Organisational Status Affect Financial Performance?

S W P 4 4 / 9 0 Keith W a r d , Sri Srikanthan, F & h a d N e a l Life-Cycle Costing in the Financial Evaluation a n d Control of Products a n d Brands SW 4 5 1 9 0 A d r i a n Payne, D e b o r a h Walters & G o r d o n Foxall A S tudy of the Cognitive S tyles of Australian Managers

S C H O O L W O R K ING P A P E R S L IS T N O $ 1 9 9 1
S W P l/91 Colin B a r r o w H o w G r e e n a r e S m a l l C o m p a n i e s ? A Survey by Cranfield S c h o o l of M a n a g e m e n t S W P 2 1 9 1 G r a h a m Clark S trategies for Product a n d Customer S u p p o r t - A R e s e a r c h Report S W P 3 1 9 1 David Parker Tackling Tax Evasion in the U K S W P 4191 John McGee and Susan Segal-Horn S trategic S p a c e a n d Industry Dynamics: T h e Implications for International Marketing S trategy S W P 5 1 9 1 Chris Brewster Culture: T h e International D i m e n s i o n S W P 6 1 9 1 Chris Brewster a n d H e l e n P e c k M a n a g e m e n t C h a n g e s in C h i n a a n d Eastern E u r o p e : D u b i o u s Parallels S W P 7 1 9 1 Keith W a r d , Sri Srikanthan, Richard N e a l Marketing Investment Analysis: T h e Critical Success Factors for Financially Evaluation a n d E ffectively Controlling Marketing Investment Decisions. S W P 8 1 9 1 A n d y Bytheway a n d B e r n a r d Dyer Electronic Data Interchange: P e r s u a d i n g S e n i o r M a n a g e m e n t S W P 9 1 9 1 A l a n warr S trategic Opportunities a n d Information Systems M a n a g e m e n t S W P 1 0 1 9 1 A l a n warr Bridging the G a p - Im p l e m e n t i n g Information Systems S trategies S W P 11191 Alan war7 M a p p i n g the Applications Portfolio onto the Projects Portfolio S W P 12191 Siobhan Alderson & Andrew Kakabadse T h e T o p Executive C o m p e te&es Survey - A Literature Review S W P 1 3 1 9 1 Mike S w e e n e y Determining a T e c h n o l o g y S trategy for C o m p e titive A d v a n t a g e

S W P 4 6 / 9 0 G r a h a m Elkin Grganisational Behaviour: People, G r o u p s a n d Grganisations at W o r k

Ir

ilLI

S W P 4 7 1 9 0 G r a h a m Elkin Physiud T h e r a p y a n d M a n a g e n w r t consulting S W P 4 8 1 9 0 G r a h a m Elkin Executive Challenge: Using the G u tdoors to D e v e l o p the P e r s o n a l Action Skills of M B A S tUdeOtS S W P 4 9 1 9 0 G r a h a m Elkin C a r e e r - A C h a n g i n g Concept S W P 5 0 / 9 0 G r a h a m Elkin C o m p e tency B a s e d H u m a n R e s o u r c e D e v e l o p m e n t - M a k i n g S e n s e of the Ideas S W P 5 1 / 9 0 G r a h a m Elkin T h e Admission of M a ture Adult S tudents to Executive M B A P r o g r a m m e s S W P 5 2 1 9 0 G r a h a m Elkin Exploring the Environment, Discovering L e a r n i n g Resources a n d Creating L o w Cost Training & D e v e l o p m e n t - Part 1 S W P 5 3 1 9 0 G r a h a m Elkin Exploring the Environment, Discovering L e a r n i n g Resources a n d Creating L o w Cost Training & D e v e l o p m e n t - Part 2 S W P 54190 Rim James & Donna Lucas M a n a g i n g L e a r n i n g in a n Organisation that Understands T e a c h i n g S W P 5 5 1 9 0 G r a h a m Elkin Eldercare: A G r o w i n g Issue for E m p l o y e e and Employer S W P 5 6 1 9 0 Robert B r o w n & A n d y Burnett G r a d u a t e E n terprise P r o g r a m m e IV , 1 9 9 0 Recruitment a n d Selection Report, East Midlands R e g i o n

l)L

,-

a-

..-

*-

*-

-LI

ta

SWP 14/91 Len Holden and Helen P&k Bulgaria, Perestroika, Glasnost and Management SWP 15/91 Robert Brown & Andy Burnett Do we need Enterprising Grad-? SWP 16191 Ian Oram & Ciare Tagg Using an IS Strategic Model to give a Strategy for Teaching IS SWP 17/91 Len Holden Employee Communications

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Use

SWP 36/91 Robert Brown, Andrew Norton & Bill O Rourke Case Study - Beverley plc SWP 37191 Malcolm Harper & John Hailey Management Development for Enterprise Promotion: Non-Gove mmental Organisations and the Development of Income Generating Enterprise SWP 38/91 Shaun Tyson & Noeleen Doherty The Redundant Executive: Personality the Job Change Experience

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SWP 39/91 Yochanan Altman On Managing Volunteers - Absence of Monetary Compensation and its Implication on Managing Voluntary Organisations: The Issues of Motivation, Control and Organisational structure. SWP 40191 David Parker Privatisation Ten Years On: A Critical Analysis of its Rationale and Results.

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SWP 58191 Colin Armistead & John Mapes Supply Networks and the Changing Operations Managers SWP 59191 Brett Collins & Adrian Payne Intemal Services Marketing

Role of

.-

SWP 60191 Andrew Myers, Mairi Boyce & Andrew Kakabadse Business Success and 1992: The Need for Effective Top Teams SWP 61191 Malcolm McDonald Strategic Marketing Planning: Art Review SWP 62191 Malcolm McDonald Excellent Selling can Seriously Company s Health

A State of the

Damage a

SWP 63191 Graham Clark & Colin Armistead After Sales Support Strategy: A Research Agenda * SWP 64191 Graham Clark & Colin Armistead Barriers to Service Quality: The Capacity, Quality, Productivity Balance SWP 65191 Ariane Hegewisch European Comparisons in Rewards Policies: The Findings of the First Price Waterhouse/Cranfield Survey SWP 66191 Andy Bailey & Gerry Johnson Perspectives of the Process of Strategic Decision-Making SWP 67191 Collin Randlesome East German Managers - From Karl Marx to Adam Smith? SWP 68191 Paul Burns & Christine Choisne High Performance SMEs: A Two Country Study

SWP 69191 David Parker Gwnership, Managerial Performance

Changes and

SWP 70/9 1 Graham Elkin (Visiting Fellow) Socialisation and Executive MBA Programmes SWP 71191 Shai Vyakamam The New Europe from the Third World SWP 72/91 John Hailey Small Business Development in the Developing World: An Overview of Contemporary Issues in Enterprise Development SWP 73191 Paul Burns Training Within

SWP 8192 Susan Baker, Dr Simon Knox and Dr Leslie de Chematony Product Attributes and Personal Values: A Review of Means-End Theory and Consumer Behaviour SWP 9192 Mark Jenkins Making Sense of Markets: A Proposed Research Agenda SWP 10192 Michael T Sweeney and Ian Oram Information Technology for Management Education: The Benefits and Barriers SWP 1 l/92 Keith E Thompson (Silsoe College) International Competitiveness and British Industry post-1992. With Special Reference to the Food Industry SWP 12192 Keith Thompson (Silsoe College) The Response of British Supermarket Companies to the Internationalisation of the Retail Grocery Industry SWP 13J92 Richard Kay The Metaphors of the Voluntary/Non-Profit Sector Organising SWP 14/92 Robert Brown and Philip Poh An&o Jewellers Private Limited - Case Study and Teaching Notes SWP 15192 Mark Jenkins and Gerry Johnson Representing Managerial Cognition: Case for an Integrated Approach

Small Firms

SWP 74/91 Paul Burns & Christine Choisne High Performance SMEs in Britain and France: Strategies and Structures SWP 75191 Robert Brown et al UK Tax Implications for the Small Business

SCHOOL WORKING PAPERS LISI NO 6,1992

SWP l/92 Mike Sweeney How to perform simultaneous engineering pm

The

SWP 2192 Paul Burns The Management

of General Practice

SWP 3/92 Paul Bums Management in General Practice: A Selection of Articles SWP 4/92 Simon Knox & David Walker Consumer involvement with grocery brands SWP 5192 Deborah Helman and Adrian Payne Internal marketing: myth versus reality? SWP 6192 Simon Knox & Leslie de Cbematony Brand price recall and the implications pricing research SWP 7192 Shai Vyakamam Social Responsibility Companies

SWP 16192 Paul Burns Training across Europe: A Survey of Small and Medium-Sized Companies in Five European Countries SWP 17192 Chris Brewster and Hem-& Holt Larsen Human Resource Management in Europe Evidence from Ten Countries SWP 18/92 Lawrence Cummings Customer Demand for Total Logistics Management - Myth or Reality? SWP 19192 Ariane Hegewisch and Irene Bruegel Flexibilisation and Part-time Work in Europe SWP 20192 Kevin Daniels and Andrew Guppy Control, Information Seeking Preference, Occupational Stressors and Psychological Well-being

for

in the UK Top 100

SWP 21/92 Kevin Daniels and Andrew Guppy Stress and Well-Being in British University Staff SWP 22/92 Colin Armistead and Graham Clark The Value Chain in Service Operations Strategy SWP 23192 David Parker Nationalisation, Privatisation, and Agency Status within Gove mment: Testing for the ImpoItance of ownership SWP 24192 John Ward Assessing and Managing
l.LWestments

the Risks of IS/IT

SWP 25192 Robert Brown Stapleford Park: Case Study and Teaching Notes SWP 26192 Paul Bums 8c Jean Ha&on Management in General Practice - 2 SWP 27192 Paul Bums & Jean Harrison Management in General Practice - 3 SWP 28/92 Kevin Daniels, L.&e de Chernatony & Gerry Johnson Tlxmetical and Methodological Issues concerning Managers Mental Models of Competitive Industry Structures