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.
- 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.