Wednesday, 16 October 2019

Nationalisation is about more than price

Two days ago, the CBI warned us that Labour’s nationalisation plans would cost taxpayers around £200bn, as well as ongoing costs for such things as maintenance and development of the infrastructure.  Labour’s response, accusing the CBI of "incoherent scaremongering" was, I thought, being rather too kind on the CBI; one would really expect those at the top of UK industry to have a rather better grasp of economics than this.  Richard Murphy has explained very well why the CBI’s statement is utter nonsense – buying assets doesn’t increase total net debt and borrowing money to purchase revenue-producing assets can actually reduce net debt charges.
It’s not often that I agree with the Institute for Fiscal Studies, but their comment that "Economically what matters is whether these assets would be better managed by the public or the private sector" seems to me to hit the nail on the head.  And the real problem with Labour’s proposals is that the history of nationalised industries in the UK has not been a happy one.  Interference and micro-management from Whitehall have often meant that potentially profitable industries have ended up making losses and become a drain on public finance rather than a contributor to them, and their productivity record has often been poor.  The record of ministers and civil servants when it comes to running businesses leaves, shall we say, a lot to be desired.  Things don’t have to be that way, however.  Nationalised industries can be and often are successful elsewhere; the UK’s past experience isn’t an inevitable determinant of future prospects.
There are also some non-economic arguments about whether certain industries – particularly those which one might regard as ‘natural monopolies’ – should be run as public services for the benefit of all, or as private enterprises for the benefit of shareholders.  Apparently ‘profitable’ rail services are only ‘profitable’ because they receive public subsidy – in essence, those subsidies end up paying dividends to shareholders.  It is entirely reasonable to question whether that is the best way of spending the public money which goes into the railway network.
The real cost with Labour’s nationalisation proposals isn’t the cost of purchase itself, it is any additional costs incurred after nationalisation as a result of introducing a different business model.  Sticking with the railways as an example, a political decision to prioritise increasing capacity and reducing prices to encourage passengers to shift from road to rail would lead undoubtedly to a net increase in ongoing government expenditure.  Whether (or rather, to what extent) that would be matched by corresponding savings elsewhere (for instance on roads), or less easily quantifiable benefits such as environmental improvements, is a difficult question to answer.  It is not, though, primarily an economic debate at all – it is a political debate about priorities and the sort of society in which we wish to live.  The CBI’s headline about an “eye-watering” price is a diversion from the entirely proper debate about alternative approaches, as well as being incoherent in its own terms.

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