Nationalisation is always a disaster: another truism in need of challenge?

Corbynmaina has gone a little quiet recently centrally due to repetition. Personally I am still unsure whether he will win or not. However, after having looked at some of the potentially questionable truisms regarding the unelectability of Labour in 1983 and the disaster which was the 1970s, I thought, to take our minds off the current excitement of UUP politics, a look at another truism would be reasonable.

Another supposed suicidal policy of Corbyn’s is nationalisation: he has specifically mentioned the railways and the power industry but some seem to suspect him of desiring a return to the middle decades of the 20th century when large parts of British industry were publicly owned and, so the theory goes, disastrously unsuccessful until privatised.

The BBC has a very interesting set of discussions on nationalisation here and much of this piece is based on it.

One of the first nationalisations was of the Post Office Telegraph service. This created a state monopoly which was successful though may have delayed the development of the telephone system.

Actually there is another private company taken over at the same time which was more significant: The East India Company. People tend to forget that the imperial take over of India was not initially by the English or British crown but by a private company – the East India Company which ran vast areas until India was taken over as the Raj by the government after the Indian Mutiny. Later in the 19th century the Cecil Rhodes’ British South Africa Company took over large areas of southern Africa which again were nationalised in 1923 by the British government assuming control over these colonies.

Keeping to industries, however, which is much more relevant to the current debate, people tend to think about the mass nationalisation which took place at the end of the Second World War. After the war the Labour government nationalised the Bank of England, civil aviation, coal, and cables and wireless, the railways, canals, road haulage and trucking, electricity, and gas and iron and steel industries: altogether about one fifth of the British economy.

Although very radical, this needs to be seen in context. During the war although many of these companies, organisations etc. were in private ownership they were very heavily controlled by the state. Indeed Churchill’s wartime administration was arguably (though in special circumstances) an even more socialist, state controlling government than Attlee’s post war government.

In addition a number of these industries especially mining and the railways had had decades of financial troubles and poor industrial relations in the case of mining.

The phasing out of steam may have been slower in GB than elsewhere but other railways on the continent were also nationalized (often still are). Beeching was clearly a disaster in some ways for the railways but it is debatable to what extent they would have done better in private ownership. Therein lies much of the problem: Nationalisation itself is arguably not the problem but rather what is done with the industry post nationalisation and in general there have been problems with investment and long term decision making in the public sector: though again with hindsight similar strategic errors can be seen in much of private British industry during the post war period.

Another of the great problems was that industries which were going bankrupt were often nationalised to try to save them. The British car industry was nationalised in 1975 as British Leyland – having previously been formed in the private sector. The motor industry had a series of problems with internal rivalries between the different brands resulting in companies producing not merely competing products (as does VAG the Volkswagen / Skoda / Audi / Seat / Porsche / Lamborghini conglomerate) but also producing competing engines etc. making rationalisation of the supply chain problematic.

Criticism of British Leyland is very fashionable and some of their models were poor. However, it is only fair to note that some were ground breaking and although often derided now that is done unfairly. The Allegro, Maxi and Rover SD1 were not materially worse than the Viva, Cavalier and Carlton or their Ford equivalents. By today’s standards almost all cars of the 1970s and 1980s are woeful. The problem was again that poor international market penetration meant fewer sales and less money to invest in improvements. BL was tormented by poor industrial relations but so were the other big car firms.

In actual fact BL ended up being sold to British Aerospace and broken up. Although MG Rover did go bankrupt some of the parts of it which were sold on have done remarkably well. Mini under BMW’s ownership has been extremely successful. Jaguar Land Rover was bought by Ford who did not do especially well with it and sold it to Tata Steel where it has again been extremely successful.

It is not as if nationalising a failing business is always a bad idea and rather it should be broken up by the market. In 1971 Rolls Royce went bankrupt largely due to the costs of the new range of commercial jet engines it was building. Rather than let it fail Heath’s Conservative government nationalised Rolls Royce which went on to become one of the most successful engine manufacturing companies in the world (being privitaised in 1987 by the Thatcher government).

Furthermore privatising companies has also not always been a stunning success. Rail privatisation has led to much higher fares in the UK and one of the lines, the East Coast Mainline, has twice failed in private ownership despite making a profit in public ownership.

Furthermore the privitisation of the energy sector has not necessarily led to cheaper bills but at times impossibly complex tarrifs that almost no one can understand. In addition of the so called Big Six energy suppliers one, EDF, is actually largely owned by the French state.

The story of privitisation and nationalisation then is clearly complex. There have been a series of disastrous nationalisations over the years and there have been some successful ones just as there have been successful privatisations and disastrous ones.

One of the problems is probably that traditionally nationalisation was used to save industries (and hence jobs) which had become largely untenable. Then there was political pressure not to restructure if that meant large numbers of job losses. This then resulted in lame duck industries remaining in public ownership costing large sums of money. Equally though the example of Rolls Royce shows that sometimes such insolvency is temporary. This strategy can also fail to make the state money. The US government acquired more than half of General Motors in 2009 and lost $10 billion when it was sold back into the private sector. That was, however, deemed politically and economically necessary.

An even better example is that in 2008 the Labour government effectively nationalised most of the UK banking sector with the firm support at the time of David Cameron’s Conservatives. This, the most expensive nationalisation in British history is never mentioned in discussions of nationalisation; nor do the opponents of nationalisation suggest that the banks should have been allowed to fail. They may argue they should never have grown so big but to a large extent that is an argument in favour of additional state control. Reduced banking regulation was the mantra of both the main parties in the 1990s and early 2000s.

Whether or not Jeremy Corbyn’s plans are viable remains to be seen: indeed whetehr or not he even gets to propose them as Labour leader. However, simply asserting that nationalisation is a bad idea is a position held to by many in the UK political mainstream without necessarily conclusive evidence. Like so many of the truisms we have had over the past few months this one is an oversimplification.

, , , ,

  • notimetoshine

    It’s interesting that nationalisation although considered a,trope of the left can as easily be ascribed to the right as well. There is a certain brand of protectionist nationalistic right wing thought that sees nationalisation as beneficial and indeed necessary

    A really interesting post and its great to read one that tries to go beyond the usual ideological stereotypes.

    I think the era of nationalisation of heavy industry is long past. However essential services such as utlities and transport could easily and quite beneficially nationalised. They are services that don’t easily lend themselves to competition, they are essential services that modern life can’t do without and they require intensive long term capital investment. Ideal for some form of state or national interest ownership. Market driven competition hasn’t improved energy services or indeed pricing because competition especially in energy markets is very hard to achieve.

    Having worked for a major energy supplier on the coal face with customers, complex tariffs rarely save much money but are just repackaging the same service provided by all suppliers. In order to attract new custom and to make some deals viable, energy companies exploit less mobile, more vulnerable customer groupings.

    Of course state owned enterprises are a new and increasing trend within business especially in the far East. They bring benefits and drawbacks and could be the source of the next bubble and bust especially in China.

    There is a great special report in state capitalism in the economist, (the link is below)which you might find pertinent and relevant to your post.
    http://www.economist.com/printedition/2012-01-21

  • the rich get richer

    Excellent thread Turgon.

    Its all far more complex that the narrative that has been fed to the public by the neocon consensus since Thatcher.

    In my own view the most important services should have lets say 20% in public ownership at all times.

    This should be done to have a comparison between public and private and that the public should then also have the knowledge and ability to if necessary re-nationalise other sections of that service in the event of “emergencies”

  • David Crookes

    A really tremendous piece of writing, Turgon. Many thanks.

    In my heart I often yearn for the 1950s. The gullies were emptied and disinfected every week, so serious flooding did not follow every incidence of heavy rain. We had the GNR and the LMS. Above all, that infernal instrument called the telephone knew its place. The idea of providing a service actually existed in many spheres of life.

    Now every time you go to buy a tin of paint, or a rose-bush, you are beset at the store’s entrance by a group of importunate leafleteers who want you to change from one electricity company to another.

    Thatcher killed continuity in several areas of British life. Today’s petrol station becomes tomorrow’s housing development.

    Gaaahhh! In the 1950s, you knew where you were. Nowadays we have grinning boobies telling us with apparent approval (even from church pulpits) that change has been institutionalized. The next time I hear some booby articulating this anti-human doctrine, I shall feel like emptying a revolver into him.

    Strong nationalized industries belong in a world which values rational certainty. Such a world will have an element of what used to be called ‘Butskellism’ in its character.

  • Virginia

    Well done in the details and well written post.

    Questions remain, how can Corbyn stave off the West Coast, San Jose, Silicon Valley? Nationalization existed in a time and era in which people could not move easily, where the winners and losers of public service were not so easily defined by apps which monitor service on a minute be minute basis.

  • T.E.Lawrence

    “After the war the Labour Government nationalised altogether about one fifth of the British Economy” This appears to have been the correct strategy at the time to create/maintain jobs for a young and growing population of the country and to grow GDP.
    It is interesting that the young fledgling countries of the Gulf States adopted a similar model as the UK Post war Nationalisation for the same reasons as I mention above. 40 years later and these middle east countries are now progressing down the line of economic privatisation, but not full blooded privatisation but partnership arrangements between government/private sector.
    The Jury is still out on this model at the moment but both sides seem to be happy with the arrangements and results at present – The Private Partner makes a Profit and the Government maintains a control and shares the financial risk.

  • Am Ghobsmacht

    I’m glad this topic and the previous truism blog have been brought up.
    In my mind it was always a given that all these points were bad, only recently did I begin to question them and these blogs have given more food for thought.

  • Kevin Breslin

    Nationalization happened when Banks were bailed out by the state … how could Blair and Brown stave off Wall Street, Hong Kong and Singapore.

    Of course when it comes to the development of West Coast, San Jose and Silicon Valley … how much cash injection did these projects get from either the US Department of Defence or universities the likes of CalTech?

  • Reader

    David Crookes: Above all, that infernal instrument called the telephone knew its place.
    Yes – on the hall table in about 20% of households. Then, once the family decided that it had the resources to get connected, wait 6 months for a line.

  • David Crookes

    The good side of that was that you didn’t get four different phones going off during a thirty-minute funeral service. Nowadays you can’t even go on the dodgems without seeing at least 20% of your fellow-travellers gabbling nonsense into mobile phones.

    Bring back the 1950s. Today I dread the thought of travelling anywhere by train or by bus, because I often get stuck beside some loud-mouthed garrulous imbecile.

    The lunatic proliferation of phones is helping to create a squalid culture of self-importance.

    When I was a boy the buses in Belfast had upholstered leather seats. Such a degree of comfort is impossible in the age of positive self-esteem to which the hellish ‘educationists’ have led us.

    A lot of the modern world is very good, and a lot of it stinks.

  • Starviking

    Of course, even with the old Conservatives, it wasn’t actually a free market they wanted. There was a definite command economy feeling in some sectors of the economy, especially aviation. Manufacturers, rather than being allowed to sink or swim, were forced to merge. Those who resisted, like Handley Page, were starved of orders, under both Conservative and Labour administrations, and pushed to the wall.

    Coming back to the present day, there is talk of re-narionalization needed for the nuclear power sector, as costs will be lower, and the liberalzation edicts from Brussels could be ignored.