Yesterday the Tory peer Danny Finkelstein asked for a reading list explaining why Labour’s new proposals on public ownership are different to old-style nationalisation.
It’s a reading list that some of the BBC’s presenters could do with reading, since they seem determined to witter on about ‘British Rail sandwiches’ every time Labour’s nationalisation plans are mentioned.
For the time-challenged, I’m devoting this week’s column to a bullet-point summary of the answer.
- The first problem we’re trying to solve is that many privatised services do not work. It was a privatised management body at Grenfell that saw the tower block go up in flames. It is a privatised rail franchise on Southern that has overseen a dramatic collapse in service quality. The private rail franchise on the East Coast Main Line has collapsed.
- The second problem is privatisation has become a giveaway from the taxpayer to private companies which exhibit zero innovation, zero entrepreneurship and simply milk the state for profits. That’s what happened with Carillion, which collapsed, and with Capita, Interserve, G4S and the rest.
- The third problem is that to make outsourced public services profitable, the contracts have to be rigged in favour of the bosses – always putting pressure on wages, encouraging anti-union practices, and forcing the state to underwrite pension funds that are starved of employer contributions.
All these problems arise from the central project of neoliberalism: the coercive injection of market mechanisms where they don’t need to exist, in order to revive – and in some cases create – a private sector that could not make a profit without the state.
What’s the solution?
When Labour’s John McDonnell says he’s against a return to top-down state-run industries this is not some sudden conversion. The left, during the era of Keynesian economics (1945-1979), always said there was nothing socialist about bureaucratic, nationalised industries – especially when, as in their final form, they had been turned into public corporations, run on profit-and-loss principles, always rigged to generate a loss.
In addition, because of the technological revolution, it is logical for some hi-tech businesses that were nurtured as state-owned companies to exist as competitive private businesses – as long (and this is a big caveat) as they don’t rely on a monopoly position.
The left that McDonnell and Jeremy Corbyn originate from always wanted more workers’ control of state-run industries, advocated worker co-ops in factories that had to be nationalised, and understood you don’t achieve socialism through centralised planning but via a market heavily structured by state intervention.
On top of these old problems we now have the new challenges of automation and climate change. The social goal of a state-owned energy sector in the 1950s was to produce cheap energy and ensure access to heating and lighting for all. Today its goal would also include reducing carbon emissions, plus – for reasons we will come to – trying to promote small-scale local control.
So, what are the solutions? There is no single solution.
The beginning of a big opportunity.
With rail privatisation, things have substantially failed already. Railway track had to be nationalised; numerous rail franchises would be nationalised if the Tories stopped applying over-generous rule changes to their mates in the private rail industry. So Labour will simply take the rail franchises back into public ownership when they run out.
My strong hunch is that as soon as a Labour transport secretary applied the franchising rules fairly – ie to the passenger not just the billionaire – the franchises would be handed back anyway.
With water, the idea is to buy the water companies back from their shareholders using bonds. This means the state borrowing money to do so and using the profits of the water providers to service the interest on those bonds. As the government can borrow cheaper than anyone else in the market – and this will create a steady income for anyone who wants to hold water bonds – it is simply a reversion to a classic form of public-private capitalism.
But it has triggered an outburst of sudden economic illiteracy from all the Tory think-tanks. It’s cufflinks at dawn for them, as they scramble to place bigger and bigger price tags on the ‘real cost’ of water nationalisation. But the real cost is zero. Yes, zero. If a business or government borrows money to buy something, that thing goes on the balance sheet as an asset, while the loan goes on as debt.
The public ownership and control of rail and water, however, is just the beginning of a big opportunity – because Corbyn’s Labour understands that democratic, local control and user involvement are the vital replacement for the blunt instrument of ‘competition’. Competition does not work for either water or rail because they are local monopolies. There are few really competitive rail journeys and no competitive sewers.
What should drive innovation is the involvement of rail passengers, water users, the workers who provide the service and – in a bond-holding structure – the institutions holding the bonds.
On top of trying to drive new models for owning big public services, Labour is also committed to doubling the size of the co-operative sector. There are numerous workers’ co-ops in Britain but they are small and face regulatory barriers designed to suppress their growth.
Remember: just as Wikipedia means there can’t be a profit-seeking encyclopaedia business, every co-operative bakery, coffee-shop or nursery is seen as a factor limiting the ability of banks to create franchised private business chains in these areas.
One of the biggest changes Labour will bring in is to stop suppressing co-ops and actually promote them. There will be £250bn investment programme overseen by a state investment bank and, while much of this will go towards spending on big projects, some of it could clearly go towards the creation of small, innovative worker-owned non-profits.
Ensuring the future of public services.
But the final bit of the new philosophy is driven by what is coming down the line. Automation could destroy up to half of all job functions, and few economists believe there will be enough new high-paid jobs created to replace them.
One of the most important tasks for government, if we want to drive technological progress and productivity, is to ensure that public services are provided as cheaply as possible – and in some cases for free.
If you’re an Uber driver or a security guard or an Amazon fulfilment centre worker, a five or ten percent pay rise is less important than a transport system that is cheap and gets you to work on time. And above all, housing, energy and water bills you can afford.
The UCL Institute for Global Prosperity calls this concept ‘universal basic services’. They estimated it would cost £42bn a year to provide basic amounts of “free housing, food, transport and IT” – on the same lines as the NHS.
While that is not Labour’s short-term aim, the party understands that the challenge of automation means the strategy behind public ownership has to move in this direction.
So here’s how Labour’s public ownership plans could work together.
- They could create a new social safety net, which means nobody can starve or go homeless, giving millions of people the confidence to approach the challenges and disruptions of a high-tech economy.
- They could make the big monopoly public services – rail, water and the energy grid – work for consumers instead of rip-off merchant private owners.
- They could create a newly expanded co-operative sector, where workers would have the opportunity to manage their own work, priorities and innovation – creating a new atmosphere of experimentation and new options for low-paid workers beyond the militarised, exhausting management practices of the private bosses.
Where’s the downside? The downside is for a certain kind of capitalist who gets rich from state-handouts disguised as ‘competitive’ private contracts – and for the banks who’ve encouraged the creation and expansion of such businesses.
In short, Labour’s public ownership plans are a way of taking back control over some of the most vital services we rely on, making them cheaper to use, and preparing society for the big transition towards the low-work, highly-automated future we all know is coming.
Are they guaranteed to work? No. It will take skill and joined-up thinking, not just in government but at the level of local communities.
But the current system does not work. It leaves tens of thousands of passengers stranded. It destroys pension funds. It burns people alive. It needs radical change and that’s what I hope Labour will embrace.