Britain's nationalized industry drains new oil wealth
The good news: Britain will earn $:4.1 billion ($9.8 billion) from North Sea oil this year. The bad news: It will spend nearly three-quarters of that amount -- $:2.9 billion ($7 billion) -- simply propping up its ailing nationalized industries.
As the government agonizes over ways to hold down public spending, the 17 state- owned industries, which do everything from generating electricity to running barge canals, are coming under its long and frosty stare.
Prime Minister Margaret Thatcher, who brought these two figures together in stark contrast when she spoke with union leaders in October, is said by those close to her to be appalled by the demands being made by the nationalized industries.
And although her contrast is slightly misleading -- in that oil money does not flow pound by pound into the state-owned industries -- the figures graphically illustrate her point: that these industries are unfairly sheltered from market forces, are largely uncompetitive, and are consuming the nation's future wealth at an alarming pace.
The nationalized industries, from the four major lossmakers (steel, shipbuilding, railroads, and coal) to the three modest profitmakers (gas, docks, and the British National Oil Corporation) are financed under so-called external financing limits (EFLs). Each industry's EFL is the amount of funding -- both in direct grants and borrowing -- that the industry must raise in addition to its own resources to stay afloat each year.
Some are quite modest. The British Airports Authority needs only $:20 million ($48 million) in subsidy -- although the airlines, dismayed by what they consider excessive landing charges at airports like Heathrow, think the government should do more.
But other EFLs are massive -- like the $:1 billion ($2.4 billion) which, according to the prime minister, the British Steel Corporation will need this year, or the $:834 million ($2 billion) for the National Coal Board.
And some EFLs are not even counted in Mrs. Thatcher's $:2.9 billion figure -- like the $:1 billion ($2.4 billion) subsidy probably needed by the carmaker BL (British Leyland), which by a quirk of definition is not called a nationalized industry although it is heavily state-owned.
In theory, government financing allows the firms to invest in future moneymaking operations. Optimistic treasury tables, based on each industry's forecasts, show the total external financing deficit shrinking to only $:200 million ($480 million) by 1983 and turning into a $:400 million ($960 million) profit by 1984.
But in practice much of the nation's heavy industry is working with outdated plants and machinery, as a ride on some railroads here demonstrates.And a good deal of the capital requirement goes toward depreciation.
Another chunk, in shrinking industries like steel, goes for "redundancy" (severance) payments to employees being laid off. Only about 20 percent of the financing, on average, goes toward productive investment.
But the survival of these industries is a sensitive political issue. In a period of high and rising unemployment, they employ some 8 percent of the nation's work force -- about 2 million people -- and make business for countless supporting industries in the private sector.
So in spite of the Cabinet's well-known tightfistedness, decisions like the Nov. 13 announcement to raise the labor-intensive British shipbuilding industry's EFL from $:120 to $:185 million ($288 to $444 million) comes as no surprise. Already this year the limits for British Rail and BSC have been raised.
Mrs. Thatcher's government believes high wage settlements, in both private and public sectors, are the curse of Britain's economy and the cause of high inflation. Hence the jawboning with union officials in mid-October. Hence, too , the more recent and highly controversial slapping of a 6 percent limit on the pay increases that local authorities (such as city and county governments) can awards their employees.
This 6 percent limit is widely interpreted as a guideline for other wage settlements in the public sector -- including the nationalized industries.
But the government shrinks from calling it an incomes policy -- a taboo term since the 1979 "winter of discontent," when an unworkable incomes policy helped bring down the previous government.
Some of the industries, like British Rail, have mounted publicity campaigns to show that, in comparison with their European counterparts, they are underfunded. And many here recognize the case for subsidized rail service, since few customers could afford to travel by train if ticket prices reflected total operating costs.
But the government is chary of increasing the limits, largely because they fear that any increase will leak out into excessive wage settlements.