Nationalisation has reared its head again in the UK. A Corbyn Labour government will, it seems, pursue a policy of public ownership of certain sectors of the economy. Moreover, the stated intention reads like ‘expropriation’. There appears to be no plan to compensate the shareholders for the full value of the assets. This creates something of a conundrum. The announcement and prospect have already impacted share prices of target sector companies. The advent of a Labour government will reduce share prices further. By the time nationalization comes about the share prices will already severely undervalue the assets. A Labour government could pay the prevailing market price and still ‘expropriate’.
The Corbyn ideology is marxist and such ideology does imply expropriation. One stated concern is to stop such enterprises from paying ‘excessive’ dividends, especially to foreign companies. This has populist appeal. Evil foreign capital is exploiting our domestic assets. Of course, UK capital does the same in other nation states. The corollary is that UK capital should only be deployed at home and UK foreign direct investment will also be banned. Corbyn is promoting autarky at least with respect to capital. This fits with the populist ‘jobs at home’ mantra. This will create additional complications as many of the companies to be nationalized have substantial foreign investments.
The dividends do not of course go exclusively to evil foreign capitalists. Every UK insurance company, fund manager, and pension fund owns shares in the target enterprises. Union funds own these assets! These enetrprises manage money for UK citizens, such as pensioners and ISA equity investors. Anyone that owns a passive UK equity index in their ISA or pension plan has suffered some loss of market value and will be expropriated. Once again populism, as with Brexit, is leading people to act against their own self-interest. It was Sid that bought the privatized stock. It is Sid that is being expropriated. Marxism cares not for such niceties. The end justifies the means. Private property ownership is theft and so savings which build up wealth constitute theft. So Sid is fair game. In the mind of Corbyn his demographic has few savings. He may be surprised how many do so if they ever grasp what he is up to.
It makes sense to nationalize some assets. Even ‘capitalist’ economics can grasp this. Natural monopolies and monopsonies are good cases. Any activity which would involve a duplication of infrastructure is a good case. We only need one channel of gas pipes, electric cable, railway tract, broadband cable etc. Perhaps even wireless provision with its proliferation of antennae is also a case for rationalization and hence nationalization. A national mail and parcel service might also be appropriate. Such entities can ensure a more even distribution of services through internal cross-subsidization. The price of acquisition is the only point at issue in this respect.
There is also the matter of the efficiency of profit-driven versus state-run enterprises. Profit-driven enterprises are more efficient (on one definition of efficiency) but have two disadvantages. First, the benefits of the efficiency accrue to shareholders and not all stakeholders. Second, unprofitable services may not be provided at all even if there are good social justice reasons for doing so. The present regulated system tries to ensure profits are not excessive and that consumers are protected. It is not working that well according to some but it is obviously possible to make it work better without full nationalization. Corbyn’s Labour is not exploring these options because, of course, the motivation is ideological. What could a Labour party not driven by ideology achieve without nationalization?
There are a number of positive steps it could take. It could convert NS&I into a bank whilst retaining the government guarantee on deposits. All it needs to do is offer current accounts. This involves linking to the faster payments system, introducing a direct debit facility, and a debit card. The taxpayer would then own a bank with the cheapest deposit base. It could use this deposit base (which would grow if it became a bank) to fund public sector ‘commercial’ activity. For example, instead of nationalizing companies such as SSE it could set up a national energy company and run it on a non-profit basis in order to keep energy costs low. It establishes a low-cost competitor and basically forces the other companies to compete or quit the business. This competitive model could apply in a number of areas. The NS&I bank could help fund this.
Another key area that could use some competition, and NS&I funding, is the housing market. I have argued for a national housing association in an earlier blog and a Corbyn Labour government could establish such an organisation in competition with private provision. The objective could be to ensure provision of low-cost accommodation wherever it is needed across the country. It would be non-profit making (which just means no shareholders get dividends).
The populist criticism of many enterprises amounts to the Yosser Hughes plea ‘gives us a job, I can do that’. Low pay and high-end prices are blamed on greedy shareholders (who typically are workers and consumers as well). So set up a competitive enterprise and show us how it is done Mr Corbyn! Compete with the target industries and pay higher wages and offer lower prices. Do it with the advantage of a taxpayer guarantee and the cheap funding that a taxpayer guarantee can provide. If it is so easy the competition will fade and the state enterprise will dominate and set the standards.
There may be some areas in which nationalization is still preferable. The water companies come to mind as does National Grid. However, the regulatory model has not been fully exploited in these areas and still has scope for improvement. A Corbyn Labour government could tighten this screw first and then stand ready to pick up the assets if the present owners feel it is no longer worthwhile.
The problem with the Corbyn expropriation model is that it expropriates the savings of citizens that have worked hard and saved and made provision for their old age. He may have an ideological aversion to rentiers but the demise of the state pension and direct benefit pension scheme has made us all rentiers of necessity. Expropriation is being justified on outcomes. Some have accumulated savings but some have not. The reasons are diverse. To declare it socially unjust that savings outcomes are unequal is spurious logic. It creates new injustices and resentment and is not conducive to a healthy society. There are alternative ways of moving forward.