Politics, Finance and the Role of Economics

An Essay on the Control of Public Enterprise

C. D. Foster

• Publisher: Taylor & Francis
• Year: 2019
• Print ISBN: 9780367173296
• eBook ISBN: 9780429509209
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Originally published in 1971, when nationalized industries employed about 7 per cent of the national labour force, created about 10 per cent of the gross domestic product and had annual investment programmes which were equal to those of all private manufacturing put together. Even this understates the scope of public enterprise at the time, since there were many other organizations, ranging from the BBC to the Public Trustee, which were semi-autonomous public enterprises, but not nationalized industries. Moreover, the public enterprise sector continued to grow, even under Conservative governments, and there were many reasons for thinking that no government would succeed in reversing this trend, for it was felt unlikely that, as government became more complex, it would disgorge many new activities which would be given a semi-autonomous, that is, public enterprise status.

The author, drawing on personal experience, shows that the facts of ministerial and parliamentary control were very different from what the public and Parliament thought at the time. He describes the very great practical independence of the Boards and also how much Ministers had come to rely on persuasion (which not only can impose serious waste of time and money on both Boards and Government but is also inefficient). Ministers have least power where the aims of public enterprise are social rather than commercial.

If there were no changes, the growth of public enterprise to achieve social purposes would mean an important decline in the power of Parliament and Ministers. This book explores solutions to this problem and concludes that the government must build up a cadre and capacity for financial control which at the time were lacking to it.

Part I

THE POWERS OF BOARDS AND MINISTERS

Chapter 1

A DIVIDING LINE

It would be a facile view of nationalization which saw it only as a process by which what was private was expropriated and absorbed into the state. Statutorily, nationalized industries are the creations, the creatures, of Parliament and they are responsible ultimately to it. But for most part Parliament does not exercise this responsibility directly. It delegates a number of powers and duties to Ministers who therefore undertake the responsibility for it. However, the powers of Ministers are far from absolute. The Boards of the nationalized industries have always been meant to have a considerable independence. Thus the relationship is triangular. The Boards have received powers and duties from Parliament and these constitute a (qualified) independence. The relevant Ministers have also been given powers and duties in relation to the Boards which are what qualify the Boards’ independence. The most important day-to-day relation becomes that between a Minister and a Board. The old and difficult question is to determine where the authority of the Minister ends and the independence of the Boards begins. The statutes are not clear on this.

The question has a wider relevance. There are other semi-independent public corporations and agencies, whose number seems to grow whatever Government is in power. This trend looks as if it will continue as social life, and therefore Government becomes more complicated. As a result of the Heath Government’s declared intentions, they will grow in number as similar bodies are moulded within Government and pushed out, yet not so far as to become wholly private. Generally these other bodies are less commercially directed than the nationalized industries, but the same difficulty of deciding the dividing line between a Minister’s powers and the autonomy of these statutory bodies will often occur.¹ Perhaps an even wider relevance can be claimed for the discussion of this difficulty. Essentially the same problem may arise within Government departments. We usually think of the divisions of a department and the many other agencies which are formally part of it, as being under the orders of its Permanent Secretary and Minister. Yet this is a slippery concept. Juniors have their pride and, necessarily, some independence. Even if they wished to be authoritarian, it is less easy for senior officials to control closely what is going on below them as departments get larger. More independence has to be delegated, and, if the increasing complexity of social life and Government makes it true that a Permanent Secretary and his senior officials cannot run a department as if it were a coterie, this is still more true for Ministers. The time they have to know what is going on in detail is severely limited. They have to take more on trust. It is not surprising that recently the Civil Service and, still more recently, the Conservative Government have got interested in the possibility of adapting more formal methods of control that have been developed by business. Despite their differences, these management systems work on the principle that managers should be set objectives; that their accountability should be set in relation to these. They will not have a free hand in how they will reach their objectives. There are means to their ends which they will not be allowed to use. Even so it is a purpose of these systems to define, more closely than is traditional, the area within which a person has freedom of decision. Of course, there is a strong difference between internal management documents which define powers and duties and something laid down in statute. The first can be both more flexible and, as we shall see, more precise. But there is the similarity too.

¹ There is no definitive list of public enterprises, partly because there is no single legal form but an almost infinite gradation, and partly because the bodies vary from the almost completely commercial to bodies administering grants voted by Parliament. But to give some notion of the number and scope of bodies which are semi-autonomous and which present the same problem of finding a dividing line between autonomy and public accountability, here is a list of relevant public enterprises drawn from two of the most knowledgeable authorities, W. A. Robson, Nationalized Industry and Public Ownership (Allen and Unwin, 1962) and W. Thornhill, The Nationalized Industries; An Introduction (Nelson, 1968). In chronological order they are: Trinity House (1514), the General Post Office (1656), the Public Record Office (1838), the Charity Commissioners (1853), the Mersey Docks and Harbour Board (1857), the Prison Commissioners (1877), the Public Trustee (1906), the Port of London Authority (1909), the Forestry Commission (1919), the State Management District for Liquor Control in Carlisle (1921), the Central Electricity Board and the British Broadcasting Corporation (1926), the Commissioners for Crown Lands (1927), the Medical Research Council and the Racecourse Betting Control Board (1928), the London Passenger Transport Board (1933), the Air Registration Board and the Title Redemption Board (1936), BOAC (1939), the British Council (1940), the Arts Council, the Bank of England and BEA (1946), as well as the new Towns Act enabling the setting up of new town development corporations, the National Coal Board and the British Transport Corporation (1947), the Colonial Development Corporation and the Overseas Food Corporation (1948), the Gas Boards and the Iron and Steel Corporation (1949), the White Fish Authority (1951), the Atomic Energy Authority and the Independent Television Authority (1954), the Air Transport Licensing Board (1960), as well as many municipal public enterprises, the regional hospital boards and many mixed enterprises. Many of those listed above have, of course, been reorganized subsequently, but relatively few have disappeared from the public sector.

It seems to me that the question of how there can be effective political control over what matters – indeed the decision as to what does matter – combined with effective delimited freedom for the subordinate bodies, remains one of the most important in public life. It could be discussed in any or all of the three contexts mentioned: the nationalized industries, other public corporations and statutory agencies, or as it operates within the formal of structure of Government itself. But there are great advantages in arguing the issues as they affect the first. There has been more public understanding of these issues as they affect nationalized industries and also a long history of discussion. Both in legislation and elsewhere there have been more rigorous attempts to define the relationships. That the purposes of nationalized industries have been regarded as mainly commercial has made it easier to think clearly. (I am far from thinking that, in either statute or practice, the dividing line has been sharp, only that it has been easier to see how a clear distinction between the authority of Ministers – and Parliament -and the freedom of nationalized industries could have been described.) The techniques – cost-benefit analysis and its derivatives like programme budgeting – which make it possible to sharpen the functions of less commercially motivated bodies, have only recently been developed. They make it possible to talk of social purposes with a rigour which was rarely possible in the past for the non-commercially directed bodies, both those which are statutorily separate and those which are within Government. Without these techniques one could not begin to talk about their functions rigorously. Yet, even though the reliance of these last on the new techniques would have to be greater, if one were to wish to clarify the limits of their autonomy and the powers of Ministers over them, the problem is essentially the same. Though they have hardly begun to be used except for the isolated project, these new approaches ought to be important for the nationalized industries in relation to their social policies and obligations. If we can say anything useful about this problem, for them the problems of adapting a solution to the rest would not be so formidable.

But there is another reason for the focus of this essay. In their report on Ministerial Control, the Select Committee of the House of Commons on Nationalized Industries¹ attempt a frontal assault on the whole question. In coming to an opinion they interviewed Ministers and their civil servants, Chairmen of the Boards of several nationalized industries and some of their officials, as well as independent experts. Since nationalized industries are the creations of Parliament, how the Select Committee believes the triangular relationships should be interpreted is of the first importance. Moreover, it is of high quality in detail. It is thoughtful and reasoned. It is unlikely that the subject will get as thorough a working out for many years; and yet it seems to me that the resolution of the old difficulty they have come up with – which is the expression of an attitude they have been developing in a series of reports over more than fifteen years – is logically fallacious and practically dangerous. Because it blurs the argument at crucial points its tendency should be opposed, not only in relation to the nationalized industries, but elsewhere, wherever in Government there is a need to define a relation between a higher and a lower body.

¹ Select Committee on the Nationalized Industries, First Report, Session 1967/8, Ministerial Control of the Nationalized Industries, 3 vols, HMSO, 1968. We will want to refer to this often. References to paragraphs in the Report (vol. 1) will be shown by bracketed numbers in the text. References to the numbered questions in the Minutes of Evidence (vol. 2) are shown as bracketed numbers preceded by ‘Q’.

Chapter 2

THE SELECT COMMITTEE ON THE NATIONALIZED INDUSTRIES

In their report on Ministerial Control, the Select Committee plainly saw the issue as we have described it in the last chapter: how to fix the limits of ministerial control and of Board freedom. Their interest was not academic. Board Chairmen told them that over the years Ministers and civil servants had increasingly interfered in nationalized industry affairs to a point that one Chairman, Sir Ronald Edwards, said ‘has not gone beyond the degree which I would regard as tolerable’ (Q. 248), while falling no great distance short of it. Another, Lord Robens, spoke more strongly: Government intervention was already ‘intolerable’ (Q. 503). The Committee’s disposition was to agree with the Chairmen. Ministerial intervention ought to be reduced. Thus they looked for principles which would confine the Minister’s function to what they frequently called ‘strategic’ control, relinquishing to the nationalized industries the ‘tactical command’ (75–8, 147–9).

There is an old canard people often fall into of saying that something is true in theory but false in practice. In a logical moment no one would say such a thing, for if the facts do not support a theory something is wrong with the theory. The Select Committee fell into a similar trap. They were not the first, and it would have been merely pedantic to object if it had not been the cornerstone of their argument. In trying to resolve the limits of ministerial (and parliamentary) control they rested largely on a distinction between policy-making and implementing policy: ‘… in the opinion of the Committee … it was the intention of Parliament that Ministers should be primarily concerned with laying down policies … which would guide the operations of the individual industries and should not intervene in the management of the industries in implementing those policies’ (876). This was to determine the difference between strategic and tactical command.

Now it can easily be shown that this distinction is a chasm. Take one of the most definite and well understood policies a body could be required to follow: profit maximization. One could attempt (as a Minister) to lay down a policy of profit maximization and to leave it to a Board to implement that policy. The difficulty is that the Minister or anyone else is not in a position to have an opinion on whether the policy the Board took did maximize profits unless he knows the alternatives the Board rejected; in short, unless he has the facts on which the Board took its decision. The same is true of far, far simpler policies. Suppose that the policy laid down for an Immigration Office is that it is to allow in all except undesirable aliens. Then, logically, a Minister does not know whether the policy is observed unless he too is in possession of the relevant facts, that is, the passports and whatever are the files which say if a particular alien is undesirable. Of course what is lurking here is the question of trust. If Ministers – and Parliament – either did not care how well the policies they laid down were executed, or if they had such perfect trust in the Boards that they did not question their policies would be followed, a dividing line between policy-making and implementation could be made to work. (The first would be rather like formulating a theory but not minding how well it fitted the facts; the second like theorizing, and assuming that the truth and meaning of whatever one had thought up was agreed by everyone.)

But Ministers and Parliament are not as laissez-faire as either dividing line would imply. A common reason for relying on the distinction is a wish to shed responsibility and delegate choice. Take the situation where an administrator believes that too much of his time is being taken up trying to settle a class of issues. He may look first for a formula to help him out by generalizing the principles on which the cases are to be decided. But if he cannot find one, he may decide it simply is not worth his time going on trying to decide these cases, each on its own merits; so he delegates the decision to a lower level, making some general statement of ‘policy’ but not such as to affect the practical freedom of the lower level in coming to a decision. (If he could, then it would mean he had found a workable formula.) But the Select Committee is not saying that on all important issues Boards may be left to interpret policy as they please because the content of what they do is not important enough to be put before Ministers given the other claims on ministerial time. Neither is it saying that one should trust the Boards to the extent of assuming they will interpret Parliament’s and the Minister’s wishes without any control. The Select Committee itself recognizes that there are two major concerns of a Minister on behalf of Parliament: the first is that a Board should pursue certain social and national ends; the second is that a Minister should have ‘oversight’ over the efficiency with which Boards pursue the policies laid down for them. Thus the simple distinction between the Minister’s job of laying down policies and the Board’s of implementing them, collapses. The question then becomes one of trying to settle how far a Minister may go to see that his own and Parliament’s policies are being carried out efficiently.

The Select Committee recognizes that circumstances may need something more than laying down policies, in their sense: ‘Where necessary (Ministers) must have in reserve the means of seeking to improve the efficiency of management. But they must not do managers’ jobs for them. Control should be exercised in five ways First, Ministers should select, appoint and, if necessary, not reappoint members of Boards. Secondly, Ministers must have the ultimate right to information … that touches on their efficiency, revenue or expenditure. But … information should not be sought simply because of its inherent interest, or to discover whether everything is being done properly…. Thirdly, Ministers and their officials must have opportunities for discussing with their industries, on the basis of the information given them, questions of efficiency which cause them concern. Fourthly, Ministers should oversee the execution of pricing and investment policies, as far as possible by agreeing proper techniques and appraisal criteria and not by detailed and specific intervention. Lastly, Ministers should have the power to carry out occasional special efficiency studies so as to judge the efficiency with which policies have been, or are being executed.’ (142)

The point about this is that it goes far indeed in countenancing intervention by Ministers. If the Minister thinks the situation warrants it – and he is the judge of this, not the industry – he can intervene much more than any Minister does now. From past experience the Boards would regard the exercise of powers in this form as intolerable. Short of actually taking over the management itself, no merchant bank could wish for more power if it felt it had to analyse the situation of an unsatisfactory client to whom it had lent money. Later I will argue that, practically, the right of appointment to the Boards is less potent than it may at first seem. But the right to all information relevant to any revenue or expenditure (investment) decision, if the Minister has reason to think that a wrong decision has been made, is strong medicine.¹ (In the terms of the argument of the last chapter it makes it possible for him to take an opinion on whether his policies have in fact been implemented. If it were relevant he could see every last passport.) So is the right to put the consultants in.

¹ Lord Robens told the Committee he had refused his Ministry some information because he felt it time-consuming and pointless (QQ. 524, 525); and his is not the only Board which has felt its Ministry has no absolute right to information. One can see the point: while it costs nothing to ask for information, it does to give it.

If this was all there were to the Select Committee’s views there would have been no point in writing this book...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Dedication
• Preface
• Contents
• Part I. The Powers of Boards and Ministers
• Part II. The Persuasiveness of Ministers
• Part III. Alternative Developments
• Part IV. Strengthening Ministerial Control
• Index