What is Nationalisation and can it work?

The last 40 years have seen the privatisation of some of the last (and some would argue, great) state-run industries of Britain, from the sale of the steel mills to the closing of mines, the loss of British Telecom and most recently the Royal Mail. It seems in many ways Nationalisation has become a dirty word among the British political elite. It’s had moments of course — the nationalisation of the banks during the Great Recession, and even more recently calls for the rail to be entirely nationalised (again). But broadly speaking, most governments do all they can to avoid taking businesses into state ownership, much less an entire industry. Even Labour, while now flirting ever more with the idea, has been more or less opposed to taking on such a burden. But why?

Nationalised industry has come to be viewed as a liability, rather than an asset from most government’s perspectives. The main reason for this, as far as we can work out, is the legacy of previously state-run industries and how they essentially collapsed under their own weight. It could easily be argued that the reason Britain has little left of a car manufacturing industry is because of the collapse of the state-run behemoth, British Leyland. Its collapse, mainly due to an inability to keep up with outside competition, virtually ended the industry in this country, such that car manufacturers in Britain are now foreign owned (think JLR) companies that assemble, rather than craft cars.

That said, we have nationalised companies and organisations that have been extremely effective, and it would be unfair to say it’s always a mistake to nationalise a company, or even an industry. There are two real perspectives in this country of nationalised industry.

Those who advocate nationalisation believe that state ownership can ensure a service runs for the public good. This is exemplified by the NHS. It doesn’t matter about the expense — this service needs to run in order for society to survive, and without it society cannot function effectively. Expanded outside of the NHS (where the fundamental ambition is to save lives and help people), this was applied to the the coal and steel industry (the state should provide jobs and protect critical industry) and broadcasting (the state should inform and educate its people). Some of these nationalisations have proven really successful; the BBC is the envy of the world and, while not perfect, the NHS provides a good level of care to anyone who needs it.

In summary, advocates of nationalisation believe the state can run critical industries with little regard for commercial implications in order to safeguard the level of service, provision to the widest number of people, and do so in a way private companies are not normally motivated to do.

Others see this as a little naive. They argue that while it might be altruistic to envision a service run for the good of the people at the cost of the state with no regard for commercial concerns, the reality is that commercial concerns always play a role. One only needs to look at the NHS; entirely State funded, and now buckling under the pressure of an aging population and rising healthcare demands from various problems. The model, they say, is unsustainable. Worse, the commercial pressures that ensure private companies compete for customers (by improving products and services they offer) simply are not there in national companies.

This was borne out with car manufacturer British Leyland, the mining sector and the coal and steel industry. Whenever something is nationalised, it becomes uncompetitive simply because it does not have to respond to normal competitive pressures of a proper market economy. The government supports it whatever happens and so there is no incentive to improve. Further, the more bloated they get, the more resources are diverted away from the provision of the service.

Both arguments seem a little flawed. While there may be some truth in the idea that without market forces, services don’t stay competitive and improve, private companies have no incentive to help people; they’re motivated by profit. Bus companies don’t try to make sure isolated individuals have access to a bus unless they can make money out of it. And in some areas, like public transport (we’re thinking trains), a real competitive market can’t be achieved when the government owns the infrastructure and essentially sells a monopoly for five years.

That said, unsustainable services that don’t improve can’t work — they eventually buckle under the pressure of competition to which they cannot respond, or worse become a public liability which is so entrenched that it can’t be solved. And the services can never just become a way to provide employment for people.

Nationalised industry, while tricky to sort out, could work beautifully, but only when a middle road between the two extremes is taken. Some nationalised industries, like the BBC and the NHS, can become institutions of international renown and national pride.  Others, like old British Leyland, can soon become a liability because they are sheltered from competition for too long.  Above all, nationalised industries should be there to serve the public, rather than to simply provide jobs.  The NHS is there to heal the sick. The Royal Mail is there to deliver post as quickly as possible. The rail should be there to transport people as efficiently, and cheaply as possible — and the East Coast line shows how effectively a nationalised rail service can work.  However, nationalised or not, these services should be there to make Britain a better place to live, rather than to provide jobs for the sake of jobs, or to simply fill the coffers of private companies.  Perhaps it’s time politicians dropped their ideologies in favour of a more pragmatic, people-centred approach… for the good of the nation.

 

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