Why Sid could never win

The vision was of a popular share-owning democracy underpinning permanent Tory rule. But though the punters came and bought, many then sold their slices of the capitalist cake. They became a nuisance to the directors running the privatised utilities. In short, the plan failed. David Walker examines the myth of popular capitalism

Yesterday shareholders in British Gas suffered a paper loss of about 27 pence for every share they owned. One of the most brilliant advertising campaigns of the Eighties gave us "Tell Sid" and hence today's headlines: "Sid's screwed".

Sid the neighbourhood capitalist has turned out no more than a copywriter's dream. Many more people own shares today than in 1979. But mass share ownership to match the rise of home ownership was never going to happen. Popular capitalism, the idea that the socialist aim of common ownership was realisable through the markets, has turned out to be a hollow promise.

But Sid the punter lives on. Some 2 million names have been registered for the Railtrack sale. But these punters are people with ready cash to spare. Once the bids are weighed for multiple applications from the same affluent households, the higher income social classes A, B and C1 will predominate.

For Sid, forking out pounds 1,000 for Railtrack shares is a more expensive version of popping round to the newsagent on Saturday for lottery tickets, except that it is a lot less of a gamble. Railtrack is a shoe-in - provided you hold the shares only until the guaranteed dividend is paid in the autumn and then, market conditions permitting, sell fast. It beats roulette.

But Sid the popular capitalist was always meant to be more than this. The point of popular capitalism was to spread ownership far and wide, but also deep. By owning shares people would change the way they thought about themselves. They would not longer simply be workers or consumers, they would start to think like capitalists. The idea was at its most fashionable in the early Eighties, in Thatcherism's bright early days. The then Chancellor of the Exchequer Nigel Lawson dusted off old Bow Group pamphlets he had written about the French Loi Monory promoting the growth of private shareholding by "little people". Lord Young of Graffham, businessman turned Thatcher adviser, extolled the enterprise society in which the public did not only see the benefits of private capitalism as a system but they started to love it, because it belonged to them.

Out of this political background came Sid and his cousins the dancing milk floats, which advertised the sale of the regional water authorities in 1989. Older Tories, going back at least to Harold Macmillan, had had notions of a shareholder democracy, sibling of homeowner democracy. Now privatisation, together with the sale of council homes, offered the chance to make the ambition real.

The political significance of this popularisation of private property was spelt out by Peter Walker the then energy secretary: a million new shareholders could mean 20,000 Tory voters in each of 500 constituencies, he said. Popular capitalism could underpin permanent Tory rule.

Why did Sid never reach the political maturity envisioned for him?

Even before the big privatisations began in 1984 the Treasury was backtracking. Giveaways and huge discounts to attract small investors gave way to cooler calculations. City institutions took on a larger role. Peter Walker had once toyed with the idea of a free distribution of shares in nationalised industry - proof, if it were needed, that the "stakeholder society" has as many godparents on the right as the left. Lack of imagination and fiscal conservatism killed that prospect.

Still, people flocked to buy shares. On flotation British Telecom was shared among 1.4 million different owners. But for many the privatisation issues were all the shares they ever bought. Over a half of all personal shareholders own stock in only one company; the average value of shareholdings is around pounds 1,000. Generally (BT is the exception) large numbers of the shareholders recruited at launch have sold up. In early 1987 British Gas had 4.4 million shareholders. Now that figure is just over 1.7 million and falling.

Popular capitalism never put down roots in the sense of giving the majority a direct stake in corporate ownership. They came, they sold, they put the proceeds back into the building society. Peter Walker's political calculation turned out wrong - there is no evidence from polls that Sid is any more likely to vote Tory. Many Railtrack applicants will pocket the proceeds, vote Labour and expect Clare Short to be nice to them.

Some innovations from the Eighties survive and prosper, among them PEPs and personal pensions. But they have not made people players in the equity markets. The institutional and affective distance between people and capital has, if anything, increased. Downsizing in the name of delivering value to hungry shareholders has brought a sense of trepidation to the property- owning middle classes. It turns out that the Conservative attempt to reconcile our identities as shareholders and workers has not worked; their interests are too frequently in conflict.

Sid's demise was inevitable. The system for raising capital is moving in favour of the big - and global - battalions. In January this year the Stock Exchange announced new measures that would further squeeze small shareholders when companies are floated. Trading in equities is less and less a personal decision, more a matter decided by complex technology.

A recent Green Paper from the Department of Trade and Industry aiming to strengthen the arm of small shareholders at company meetings flies in the face of recent experience, as directors and big institutional shareholders have flaunted their strength in company after company. Richard Giordano, chairman of British Gas, put his foot in his mouth a couple of months ago in saying he wanted to ease "Aunt Maude" off his list of shareholders on the grounds she was a costly pest. Popular capitalists have become minor irritants.

The Government has also done its part in emasculating Sid. Read the 1986 prospectus for British Gas: not many Sids did. Was the name of Ms Clare Spottiswoode, the Ofgas regulator, mentioned? Of course not, yet the personality and predilections of this woman have come to matter a greatly over how much money British Gas makes and how much its shares will be worth. Did theprospectus warn Sid that within a decade the company could be torn apart not through takeover but as an act of government policy?

Sid does not deserve too many tears. He has enjoyed 10 reasonably good years. As of yesterday shares floated at 135 pence were still worth about 200 pence and the dividends have been good. However, a pension fund investment would have performed better over the long run.

Sid's demise is a "salutary lesson" says Stuart Valentine of the share ownership advocacy group ProShare. But lesson in what? The regulator's actions will have the effect of confirming that modern economies will not permit popular participation. We will have to find other ways of coping with the tensions arising when employees and consumers and shareholders are so distant and often alienated from the corporations that employ them and which, in theory, they partly own.