Privatization: a public good


Lord Mandleson, true to form, has upset Labour backbenchers by backing the partial privatization of Royal Mail. In an interview with the Financial Times, Mandleson has claimed that: "if I had not been forced to resign, it would have happened".

In Privatization: Reviving the Momentum – which we published earlier this year – Nigel Hawkins argues that the value of the public floatation could be in excess of £4 billion: tempting for a cash-strapped government. However, as Hawkins expounds in the same paper, Royal Mail will need to restructure its finances to reduce its long-standing pension fund deficit before the company is publicly floated.

Before action is taken we will have to wait for the soon-to-be-published review by Richard Hooper, the former communications regulator. Let’s hope he recommends the government push ahead with privatization. Of course, the privatization will necessarily result in some job loses, especially with the need to promote greater efficiencies in the sorting process. However, given that the Royal Mail is currently running at a loss, such efficiency savings (and resulting job losses) would have had to be introduced at some point anyway. The difference with privatization is that opening up of competition will enable Germany’s Deutsche Post and Holland’s TNT to step into the marketplace, which will raise standards and create jobs in the process. Staff will also benefit in their likely eligibility for Royal Mail shares.

Given the poor state of public finances, privatizations now appear increasingly attractive to the government (just as they did in the early 80s). It is a cost benefit analysis for the Labour Party: the undoubted gains to the exchequer could come at costs to the already precarious finances of the party. The Communications Workers’ Union this summer threatened to cut off funding to Labour if Royal Mail did not remain in public ownership. With tough times ahead, let’s hope Labour can prioritize the public good over their private benefit.