The Great Divestiture

The Great Divestiture

Evaluating the Welfare Impact of the British Privatizations, 1979-1997

By Massimo Florio





The privatization carried out under the Thatcher and Major governments in Britain has been widely (although not universally) considered a success, and has greatly influenced the privatization of state industries in the transition economies of Eastern Europe. Massimo Florio's systematic analysis is the first comprehensive treatment of the overall welfare impact of this broad national policy of divestiture. Using the tools of social cost-benefit analysis, Florio assesses the effect of privatization on consumers, taxpayers, firms, shareholders, and workers. His conclusion may be surprising to some; his findings suggest that the changeover to private ownership per se had little effect on long-term trends in prices and productivity in Britain and contributed to regressive redistribution.

After historical and theoretical overviews of privatization and a look at macroeconomic trends in the Thatcher-Major era, Florio considers in detail the microeconomic effects of British privatization on several key groups. In successive chapters, he examines firms and productivity changes; shareholders' windfall gains and evidence of underpricing and outperformance in privatized companies; workers, management, and changes in industrial relations; consumers and the quantity and quality of goods after the change to public ownership; and taxpayers and the interplay between privatization and tax reform. He follows these chapters with a case study of British Telecom—significant not only because it was the largest divestiture of the period but also because of its influence on subsequent telecommunications privatization elsewhere. The final chapter considers the overall quantitative impact of the Thatcher-Major privatization on all sectors and its relationship with regulation and liberalization. The Great Divestiture not only offers an exhaustive analysis of the effects of the British process of privatization but also illustrates a method of inquiry and a testable research approach that could prove to be useful in similar studies of other countries.


Out of Print ISBN: 9780262062404 392 pp. | 6 in x 9 in 51 illus.


$30.00 X ISBN: 9780262562225 392 pp. | 6 in x 9 in 51 illus.


  • A view has developed that the privatization process formed a watershed in U.K. economic and political development. This book gathers an impressive range of evidence to test the economic reality behind this perspective. The stripping bare of the political rhetoric with clinical economic analysis makes for fascinating reading, and the book's conclusions have much to contribute to ongoing policy debates. Very highly recommended.

    Gareth D. Myles

    Professor and Head, Department of Economics, University of Exeter

  • Massimo Florio has produced the most thorough quantitative analysis to date of how British privatizations affected investors, consumers, employees and government finances. His results are persuasive and in many ways surprising. Anyone with an interest in past or future privatizations should take notice.

    Martin Cave

    Warwick University

  • In the current climate, when the World Bank is totally committed to privatization and the European Union to liberalization of markets, a critical, in-depth evaluation of the British privatization program is long overdue. Florio's book is impressive in its analytical foundations and empirical content. Some major features of British privatizations are brought out clearly: the underpricing of assets, the huge decline in the public net worth, the large rise in management salaries in a context of very little management turnover. An important message is that privatization (as opposed to deregulation) made little difference to long-term trends in productivity and prices. These are controversial findings that will be of great interest to all students of privatization.

    Robert Millward

    Professor of Economic History, University of Manchester