The N word – the great economic debate

Chris Davison says that the arguments around nationalisation have become dogmatic and polarised, and Labour should consider a third way, using state-owned providers to balance the economy in the interests of the people.

 

Nationalisation is a hot topic in Labour circles, with some wanting to nationalise everything and anything, while others see it as a taboo that should be consigned to the history books. In my view both of these positions are based on lazy assumptions; on the one hand that either the state can always do things better or should run industries as a matter of dogmatism, and on the other hand that the state should not get directly involved in industry because a regulated market knows best.  The world isn’t as simple as either position would suppose.

As an example of the ‘nationalisation is the answer’ school of thought, Owen Jones – that purveyor of all things trendy leftie – has written articles on the subject with headlines including “British Banks cannot be trusted, let’s nationalise them” or “The railways are a disgrace, let’s nationalise them.” Asides from the hyperbole, the attitude that a damaged or broken industry means that the state should run it is simplistic in the extreme.

At a time when budgets are tight and deficits are high, how is it a good use of government capital to be nationalising industries? It isn’t. If we want a good education system, fair welfare and a strong NHS our resources should be focused more on those areas of social policy rather than buying up industries wholesale.

Why does Owen think that the state could run these industries any better than the private sector? Well, I would argue partly because of dogma and partly because when you put short term profit/greed ahead of service the consumer suffers.  On the latter point I agree, but I don’t agree entirely with Owen’s proposed remedy.

In terms of Labour policy, John McDonnell has set out clearly that he prioritises nationalisation of the rail, water and energy industries, which echoes largely the argument put forward by Owen Jones. The consumers are getting a bad deal, the markets are broken and the official Labour answer apparently is nationalisation.

TFL and East Coast Rail are held up as examples of how nationalisation can work. But what the supporters of industry nationalisation fail to point out is that these “nationalised” companies compete in the market. Whereas the historic examples of a monopolistic, bureaucratic and backward British Rail are ignored.

On the opposite side of the party, the most centrist of New Labour types are shaking their heads and exclaiming that this is a return to the policies of the 1970s and that private industry drives innovation, improvement, investment in a way a state-run monopoly cannot. To an extent they are correct, but nobody, to my knowledge, has offered a viable alternative to that proposed by McDonnell and Jones. Furthermore, privatisation has left the UK vulnerable with certain UK strategic industries, such as energy and steel, in foreign ownership, or with significantly reduced capacity. The markets are clearly not working effectively for our nation and regulation alone has not fully protected consumers from corporate excesses.

So, what is the answer?

Our economy is complex, it does need reform and Labour does need to be radical, but we also need to have a proper debate in our movement about what is right for our country rather than distilling the arguments down to a binary choice between nationalisation or markets. Many voices and open minds in this debate will make for better policy.

For my part, like a good social democrat, I propose a third way, which will use state-run bodies to drive up standards for consumers, force the private sector to improve, deal with market failure and protect strategic industries. In short, I believe that we should have an activist state. Rather than use the Treasury’s coffers to nationalise whole industries, the next Labour government should establish a UK Infrastructure body, which will create challenger service providers in key sectors.

For example:

  • A UK Rail company could be established to compete for franchises based on value for money service and reinvestment in stock and the customer experience.
  • A UK Natural Resources company could be established to protect the UK steel, water and oil & gas industries.
  • A UK Energy company, focused on renewables, could be established to challenge the big 6 energy companies and promote and reinvest in the UK’s renewable sector.
  • A National Development Bank, with regional off-shoots (as already proposed by Labour) could ensure proper infrastructure investment across the UK.

Government should be interventionist when it needs to be, rather than on the basis of dogma.

History has shown us that neither private sector nor state-run monopolies, outside of a few strategic industries, work well for consumers.  History has also shown that market economies have a serious flaw: they do help to drive innovation, improvement and investment, but the pursuit of short term profit is often at the expense of service quality and strategic and consumer benefit. This is why Labour should consider this third way and why we should not be afraid to use state-owned service providers as part of a balanced and fair economy that works for the many, not the few.

Whether you agree with me or not, we should all take part in this vitally important debate.

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7 thoughts on “The N word – the great economic debate

  1. What many who call for the nationalisation of Rail dont realise is just how much Government control there is the Rail industry. Indeed, the rail system has much more control by Government than it ever did under BR. In fact, many of the supposed failings of the industry could be resolved now, if there was the political will to instruct it to do so, and also to pay for it.

    In terms of fares, they are currently capped in a way that they never were under BR, which used increasing fares well above inflation, and charging extra when routes received modernisation to control demand and help justify investment. Fares now are effectively set by Government, and while they have risen by more than inflation in the last several years, there is no reason why they could not be frozen – or even reduced.

    However, we need to look further back when Government in the 40s and 50s restricted BR’s ability to raise fares and goods rates. Often decisions as to whether to increase fares took many months and were limited for political reasons – imagine the pressure Ministers would be under today to do so. The result, however was increased financial deficits on the Railways, which ultimately caused a desire to cut the rail network down in size.

    We also need to reflect that the current arrangements have meant that no service has been completely closed. Under BR, even before and after the infamous Beeching report, BR closed lines and reduced services due to financial pressures. Even as late as 1989 there were proposals for substantial cuts across the network by BR to reduce costs. Privatisation has meant that services are set in contracts, and closure is not possible.

    Does that mean that the privatised model is working well? Of course not. But that a lot of people are going to be very disappointed when nationalisation doesnt solve all the perceived problems of the rail network. The biggest problem which nationalisation could fix is the fragmentation of the rail network. This has driven up costs, not just of operation, but in the delivery of upgrades. Network Rail finds it expensive to simply shut down a line for weeks to have complete control to deliver upgrades such as electrification, as this would incur substantial penalties. So instead things are attempted in the few hours between the close of service at night and the restarting of them the following morning.

    Within the current system, there are success stories – London Overground being a major one. While many people might think this is just like the rube network, run by Transport for London, it is in fact, a concession operated by a private operator. TfL specify everything, and the private operator has delivered a service that meets passengers expectations, is seamlessly integrated to the rest of the London Transport system and has produced massive growth in passenger numbers.

    1. On this note, I see this evening that some of our comrades are pointing to a series of delays and cancellations by Scotrail and on the basis of that criticism demanding it be brought into public ownership. Unfortunately the delays were due to an infrastructure problem, not the responsibility of Scotrail but actually of Network Rail which is… already publicly owned.

      It’s so important that we have a more intelligent conversation about this stuff.

  2. “Natural monopolies” should a socially owned asset, both to protect consumers from exploitative pricing, and to utilise that asset in a way that maximises sound exploitation and utilisation of that asset. The rest, as far as I can see, should be in a competitive (though with an enforced level playing field)environment. That way encourages economic and entrepreneurial growth, and research into new and better product/engineering/ecological design.
    The difference I see between Davison and myself, is one of geography and politics. He sees these industries as UK-owned, where I would see the natural area of ownership as Scottish. We had UK assets owned by “us” and Labour and Tory government sold them off( to our huge disadvantage), due to changes in perceived political culture. I see Scotland as more “possessive” and a more left leaning country.
    It would also give Holyrood a better and more mature grasp of the economic reality of a modern society. Win, win!

  3. We only have privatisation at all because its a Westminster Blue and Red Tory ideology. The ONLY solution is clearly to remove any authority and power the Westminster Red and Blue Tories have over Scotland to impose said privatisation in the first place.
    If Labour in Scotland wants to sell nationalisation to the people of Scotland what happens when Labour in England and Wales disagree?
    Labour in Scotland don’t actually decide on UK Labour policy that’s done in London. Take London authority out of the equation then and only then can Labour in Scotland promote the idea of Nationalisation to the people of Scotland.

  4. I agree that there’s no silver bullet and I think you’re right adding publicly owned / not for profit competition could help things immensely. The biggest issue I have with the trains at the moment is the amount of subsidies the companies currently receive. I’ve heard they get more now, than what was spent before privatisation – I can’t verify that fact though. It doesn’t seem right that public money is effectively getting funneled directly into shareholders pockets. If these train companies can’t need state help, they shouldn’t be producing a profit.

  5. On a side note, I think state owned assets should only be sold if the people agree to it in a referendum – they’re our assets after all. It might even stop the government of the day selling things at cut down prices – whether that’s the likes of Royal Mail or gold reserves

  6. It might be more helpful to talk about public ownership rather than nationalisation. Nationalisation has connotations of the state ownership of the fifties, sixties and seventies. The arguments have moved on and when even Jeremy Corbyn, in his speech to the Centenary Conference of the Co-operative Party looks more towards co-operative solutions than old-style state ownership, we in the Co-operative movement have turned a corner. The Co-operative Party, third largest in the House of Commons with 38 MPs, has public ownership solutions for all aspects of the economy.

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