A different model of nationalisation
In the past few years, the topic of nationalisation has come up more and more often as a potential way of running public services. Predictably, arguments have been employed both for and against the idea of state ownership of specific industries. Rail is a good example, as well as utilities like energy and water. Proponents will argue that current systems are poorly run and do not offer value to the customer. Worse, they essentially constitute a state subsidised monopoly in a few cases, which compounds the issue and defeats the very object of privatising these industries in the first place, namely that competition should drive up standards.
Opponents argue that nationalisation has been tried and resulted in shocking standards of service, delivered inefficiently at cost to the taxpayer. They will highlight the nightmares of what was British Rail, and the collapse of British car manufacturing through British Leyland’s death. These arguments are quite stale now, so allow me to introduce a new idea into the mix that might at the very least stop the same tired ideas clashing with each other.
Why do you need to nationalise an entire industry? Why not just one company instead?
Previously, whenever an industry has been nationalised, that’s exactly what’s happened: entire British industries were put under the control of the state. Different rationales were put for this (ownership of the means of production, economies of scale and others). But instead, why not nationalise or set up one company within the industry? It would operate as a private enterprise, essentially seeking to make a profit in a competitive market by competing against private companies in the sector. The key difference would be that the state is the main shareholder and controlling interest of the company. Profits and dividends would revert to the state, strictly to be reinvested in the company. You could, perhaps, also allow outside investment if you wished, but only as long as the government retained majority control to ensure the profits were not paid out as dividends to shareholders instead of funding improvements to the company’s service to its customers. In this way, the state would also have a say in the salaries of top executives at the nominally state-owned company, as well as some influence (though importantly, not direct control) over the company’s direction. This is key, as the company would thus still be responsive to market conditions.
To my mind, this gives us a few key things that satisfy a number of goals of the competing arguments for and against nationalisation which may achieve the goals you might have for going through full-fat nationalisation. You would give the government of the day levers of influence over key industries, but in such a way that is much less heavy-handed, and still ensures (and perhaps promotes) competition. This competition should, all being well, raise standards for customers and value for money for taxpayers (if standards improve over the industry in response to competition in the market provided by the state, everyone wins). And, through this method, the government builds up public assets through its investment in public services, without taking full control and forcing out private players which in the past have been more successful drivers of innovation. Plus, depending on how you do this (fully state-owned company vs. the state as an investor in a company with conditions on that investment), this could be viewed as an investment of taxpayers money in the long-term that is self-supporting, or allows the state to act as an investor that receives dividend that it can then reinvest as it sees fit.
Nationalisation without the pitfalls
This model therefore avoids some of the key pitfalls of nationalisation. It would also keep competition within the market, by keeping more than one company operating, and in what you might call stagnant markets provides a bulwark against anti-consumer behaviour. In addition, by ensuring that these companies are independent and seek to operate at a profit (either to support themselves or answer to investors, the main one being the state) these companies would remain responsive to the market and thus be more sustainable and agile, which historically has been a big issue for nationalised industries. And finally, it looks like it might be a bit less expensive, with more of a possibility of providing a better return to reinvest in these services.
Wholesale nationalisation has some key benefits which can’t be overlooked. They ensure industries are run for the benefit of customers, not just shareholders, and allow the state to have significant influence over key industries. There are enough drawbacks, however, that on balance it’s arguable whether it’s sustainable. We have plenty of examples of nationalised industries which were failing, went private, and then turned around. Rail is actually a good example. It has a tonne of problems to be sure, not least of which is rising ticket prices which gouge customers beyond belief. But I doubt anyone who witnessed the last days of British Rail would ever go back. Plus, the number of passengers since the privatisation of the railway has doubled – in what industry would that statistic demonstrate failure? The key problem with it is that it is operated by private companies in a market with no competition, thus essentially acting as a state-subsidised monopoly.
The approach I’ve outlined could give us the best of both worlds: the state gains influence in key industries by promoting competition, can lead the way in terms of practice and drive down prices by operating at profits deemed reasonable by the state itself, doesn’t take over whole industries and builds sustainable assets in the process. Plus, it’s less expensive. What’s not to like?
Bristol Energy: the model in practice
A good example of this model in practice might be Bristol Energy. It’s an energy company that was set up in 2015 by Bristol City Council. It operates at a profit while charging as little as possible to maintain it, and reinvests whatever profits it makes into Bristol itself, through local community initiatives, projects and other things. It’s widely regarded as a good energy supplier, with customers reporting lower bills and good service. The company still operates in a market, which should keep it competitive, and makes money which it puts back into Bristol.
I am sure there are problems with this that I’ve missed, so, dear reader, have at it – tear this argument to pieces. At the very least, this is another way of looking at the issue of nationalisation, rather than just seeing it as one of only two options.
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Adam works in the higher education sector and commentates on policy and current affairs.