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A Future For Public Ownership

As jobs tumble and prices rise in privatised water and electricity utilities John Grieve Smith questions the view that private means cheaper and better.

Public ownership was once believed to be the cornerstone of the kind of society that Socialist or Social Democratic parties wanted to achieve. But when they came to power in the postwar years, left wing parties soon realised that 100 per cent public ownership was impractical and settled for a mixed economy. Conversely, their right wing opponents accepted that there was an essential role for public ownership in such fields as the public utilities. The conflict between parties was over where the line should be drawn between the public and private sectors, rather than simply for or against nationalisation.

Following the Thatcherite revolution in the 1980s, however, privatisation became the vogue, and the right recognised little legitimate role for public ownership. Initially Labour hotly contested this trend, but eventually came to accept it. Clause 4 was drastically amended to omit any reference to ‘common ownership’. When New Labour came to power, they did not reverse any of the previous privatisations, but have been vigorously enlarging the role of privately owned companies in such fields as education and health. The question now is whether there is any future for public ownership, or has it become outdated and irrelevant?

We need to start by asking what were the fundamental reasons for wanting public ownership in the first place. Marx and others saw socialism, in the sense of a publicly owned economy, as a way of achieving a more egalitarian world and breaking the overriding power of the capitalist class. Not only would vast differentials in wealth be abolished, but workers would have more power and better treatment in the workplace. As Harold Laski argued, political equality, ‘one man one vote’ (sic), would then be correspondingly reflected in greater economic equality. (Indeed, the distinction ‘democratic’ socialist should never have been necessary.

The emergence of Communist dictatorship in Russia and elsewhere might have discredited such an approach altogether were it not for the Great Slump and the emergence of heavy unemployment in the 1930s. The apparent success of the Communist planned economies in these years and, later, the association of wartime planning in the UK with full employment and greater equality, provided a favourable background for post-war nationalisation of industries, the solution to whose problems had been under debate for two decades.

Conversely when the inflationary crises of the 1970s appeared to have discredited the post-war Keynesian consensus, the stage was set for the Thatcherite revolution. Tory antipathy towards the public sector led to the ‘private is best’ syndrome - a point of view now adopted by New Labour. Although this is generally presented as an expression of the view that private management is inherently more efficient than public management, the underlying belief is more about the desirability of public or private enterprise than efficiency per se.

Before getting down to the basic arguments about the relative ‘efficiency’ of the public and private sectors, there is one spurious factor that must be dealt with – that is that farming out projects, like new hospitals, to the private sector under pfi schemes saves public money. All it does is get the debt off the Exchequer’s balance sheet. The annual cost to the taxpayer is liable to be higher because it costs companies more to borrow the necessary finance than the government. There is no intrinsic reason to assume that private firms can manage investment projects more efficiently than public bodies. After all, they employ the same contractor.

Efficiency must be judged in terms of success and cost in achieving agreed objectives. The fundamental objective of company directors and management is to maximise profits. Other potential objectives are expendable in the process, as long as the public is kept reasonably happy. There are, however, fields where this is clearly not appropriate, such as health and education, or public utilities like water, gas and electricity. In the latter case, the bodies concerned, whether private or public, may be expected to break even, but their most important objectives should be, for example, to maintain a safe and adequate supply of water. But as we have seen recently, a private water company may well calculate that it is more profitable to accept a high level of leakage and keep down the annual budget for repairing mains.

Two factors in particular have traditionally made public utilities, such as water or electricity, a subject for public ownership. The first is that their suppliers are generally monopolies. It would be totally uneconomic to have multiple supply systems for water or electricity. Hence the public need protection against exploitation, and there must be a statutory obligation on suppliers to meet their needs. Another factor in the utility field is that efficient supply may require coordinated action on a national scale. As long ago as 1926 the Central Electricity Board was established to run a national grid. The apparent competition now introduced in the distribution of gas or electricity to the final consumer is almost entirely about prices, rather than different sources of supply or distribution networks.

The latest application of the ‘private is best’ syndrome has been in the provision of services in health and education, where the services are not sold direct to the final consumer, but supplied free of charge. Under recent government initiatives, the NHS and local education authorities are increasingly becoming commissioning bodies which purchase services from the private sector, rather than directly supplying them themselves. This is hardly a case of small is beautiful, as the private suppliers tend to be large firms. Rather, it displays a general prejudice against management in the public services. Ironically, it is the government itself which has been partly responsible for fouling things up in the health service by its continual interference. In education, the government’s approach shows little recognition of the part played by local councillors, both on education committees and school boards, in representing parents.

It is difficult to see the recent predilection for private, rather than public, providers of health and education as more than a temporary aberration, which all political parties will eventually abandon. The issue of the role of public ownership in industry is fundamentally more contentious, although in the past some Conservatives, such as Harold Macmillan have supported the nationalisation of certain problem industries, such as coal. Having worked in British Steel, I am particularly aware of the role of steel nationalisation in achieving the rationalisation of the industry which the private sector had been trying to achieve for years . By bringing the 14 major steel companies under one management it became possible to replace over 30 out of date open hearth steel plants with five large scale oxygen steelmaking plants. This was all done in close consultation with the unions.

One important aspect of steel nationalisation was the appointment of worker directors, first at Divisional, and later at Board level. This was in my experience a very positive experiment. Industrial relations in the steel industry had always been good, but the direct representation of workers in the management process ensured that human relations factors were fully taken into account, in what was often a painful process of rationalisation. It also helped to ensure a long term view was taken of the industry’s future. It is tragic that the whole subject of worker directors appears to have been abandoned in trade union circles, as well as in wider political discussion.

A new factor in the discussion is the increase in foreign ownership of British companies. (We are used to the reverse situation, but now we are getting a taste of our own medicine!) Even though home owned companies are not under government control, they are more likely to take into account local interests than foreign owned ones. It seems particularly perverse for vital services, such as airports or water supply to be run by foreign companies. Safeguarding the public interest requires public ownership. Maybe in the future when European political integration has gone further, public ownership on a European basis will be a possibility, but at present it means nationalisation. Trouble with foreign owned companies in these fields may well stimulate a surge of feeling for re-nationalisation.

The case for the public provision of education and health services seems overwhelming, as does the public ownership of public utilities. On the other hand, the case for private ownership of small businesses also seems largely acceptable - with scope for co-partnership and municipal ownership in certain cases. The more difficult area lies in the broad field in between. Here we need to concentrate for the moment on achieving greater equality irrespective of ownership. Immediate issues are trade union rights and union representation on remuneration committees to limit ‘fat cat’ salaries – something which would be almost universally popular! But we should be open to public ownership in particular cases, whether it be to preserve or rationalise existing industries or pioneer new ones. A mixed economy should be the common ground. Private is not always best.

John Grieve Smith is the author of There Is A Better Way: A New Economic Agenda For Labour