Another disappointing performance by UK Business Secretary, Vince Cable, on the radio this morning. He was not sure what to make of the idea from LibDem MP Stephen Williams, that the government should re-privatise the Royal Bank of Scotland by simply dividing up its shares and giving each member of the UK electorate a wodge of them. Let me help out. It’s a silly idea, made obsolete by decades of thought and experience.
Around thirty-five years ago, nobody knew how to privatise companies – not even the great economist Milton Friedman. At an ASI event, we asked him what he would do to ‘denationalise’ firms like British Steel. He suggested simply mailing people share certificates. It sounded attractive, a quick way to do the job (well, not so quick, given the Royal Mail’s record). But as we, and insiders in Margaret Thatcher’s incoming government, started to think about the idea, we all realised it just wouldn’t do. Russia later tried something like that with its voucher privatisation: many people, with no interest in the businesses, sold their shares for a bottle of vodka and various oligarchs got rich.
To get a privatised company effectively managed, you need interested owners. Sure, you want to engage the public, but only a few people (and I am probably not one of them) have the time and energy to worry about how the RBS, or for that matter the privatised gas, telephone, and electricity companies, should be run. That is why the first big privatisation, British Telecom, was done by selling shares to the public. The shares were cheap enough, but it still needed some commitment from people. That’s what is needed for RBS too.