Renationalisation – when self-promoted genius becomes plain lame

There are times when so-called progressives outdo themselves with their (usually self-styled) ‘genius solutions’ to the ravages of neoliberalism. They come up with elaborate ‘solutions’ that people on the Left get feverishly excited about yet fail to see how obviously ridiculous these strategies are when all the options are allowed. They, in fact, step further into the mirky neoliberal world by trying to be progressive because they fail to see what the basic issue is. One recent example of this was the proposal by Britain’s Big Innovation Centre to divert the private sector into doing good for society in general. Apparently, the British government could resume control of the failing (privatised) essential services without laying out a single penny. This would apparently allow them to avoid running foul of Treasury borrowing limits yet satisfy the overwhelming desire by the British public for a restoration of quality services. It is clear that the British public are sick to death of the privatised services and are ready for a large revival of public sector activity. In that environment, why would the government, with such a powerful mandate and plenty of political cover, maintain the economic myths that were advanced to justify the (unjustifiable) sell-offs of public enterprises? Once we cut through these economic myths, it becomes apparent how lame these ‘solutions’, which perpetuate profit-seeking, corporate ownership of the essential services in Britain, really are.

British citizens want an end to neoliberalism

Motivating the ideas that follow was a recent report from the British Legatum Institute (released October 2017) – Public opinion in the post-Brexit era: Economic attitudes in modern Britain.

The Report provides a very recent snapshot of public sentiment in Britain and the summary results are striking:

1. “on almost every issue, the public tends to favour non-free market ideals rather than those of the free market”.

2. “Instead of an unregulated economy, the public favours regulation.”

3. “Instead of companies striving for profit above all else, they want businesses to make less profit and be more socially responsible.”

4. “Instead of privatised water, electricity, gas and railway sectors, they want public ownership.”

5. “They favour CEO wage caps, workers at senior executive and board level and for government to reign in big business.”

6. “They want zero hours contracts to be abolished.”

That litany looks like a categorical rejections of the major policy manifestations of neoliberalism.

Capitalism (the neoliberal version) is seen as “greedy, selfish and corrupt” and that sentiment spans the age-divide.

When asked to opine about the “public sector vs the private sector”, which goes to the heart of any proposals to reverse privatisation, the Report concluded that:

More than three quarters of the public say that water, electricity, gas and railways should be in the hands of the public sector …

Jeremy Corbyn’s pledge to nationalise railways has broad appeal across age groups and even among Conservative voters … This pattern is replicated for water, gas and electricity.

A categorical rejection of the privatisation agenda.

The following graphic summarised the results (Figure 3.2a in the Report).

The juxtaposition between “the free market vs the state” produced the following insights:

Regulation is deemed necessary, support for increased NHS funding is strong, zero hours contracts should be abolished and people’s obligation to pay taxes is deemed more important than rewarding them for working hard by allowing them to keep more of what they earn. Moreover, the public tends to favour increased taxation, bigger government and more spending as opposed to lower taxes, smaller government and less spending …

… even those who voted for the Conservative Party in 2017 tend to favour certain non-free market ideas.

The results are strongly anti-neoliberal across age groups, gender and political leaning. I will leave it to you to explore them in more detail – there is a lot of interesting data in the Report that I have not commented on for space reasons.

Whichever major utility you choose, the research evidence is that the privatisation in the UK has been disastrous.

For example, research from the University of Essex provides a damning picture of railway performance.

This summary article (July 8, 2016) – Chaos on Southern trains a symptom of Britain’s rotten privatised railway industry – documents the “interminable delays, last-minute cancellations and gross over-crowding of services” on the privatised Southern Railways service.

The operator responded to criticism with a new ‘solution’ – to “cancel 341 daily train journeys, representing 15% of its services”, apparently, to “provide their passengers … [with] … more certainty”.

We learn that the promises that were used to justify the privatisation of British railways in the 1990s at “bargain basement prices” (“better value for money”) have not been achieved.

Instead, “state subsidies have soared”:

… total government support to the industry soared from £2.68 billion in 1994/5 to £4.79 billion in 2014/15. Passengers are now enduring fare levels rising far faster than inflation.

Further, there is evidence that the Government’s “franchise model” is failing and the Government has been forced “as the operator of last resort” to “take over services” once the private operator has abandoned their role.

The basic conclusion is that the privatised system is “highly fragmented and inefficient” with losses rife and inflated fares for consumers.

On December 8, 2014, Corporate Watch published a report on the impact of privatisation in energy, rail and water – Energy, rail and water privatisation costs UK households £250 a year.

The title says it all:

– Households across the UK could save £250 each on their electricity, gas and water bills and train fares if the services were publicly financed.

– Private electricity, gas, water and rail companies pay out £12bn a year to investors and shareholders in interest and dividends.

– In total, cheaper government borrowing rates could save the UK public £6.5bn: £4.2bn on energy, £2bn on water and £352m on rail.

The Report concluded that:

To satisfy investor expectations, the bills and fares charged by the privatised companies continually outstrip inflation. Between 2007 and 2013, household gas and electricity bills rose in real terms by 41% and 20% respectively. In real terms, water bills have increased by 50% since privatisation, while rail fares are 23% higher than they were in 1995.

While advocating nationalisation, groups like Corporate Watch fall into the neoliberal trap by talking about the need for:

… government … to raise an equivalent amount of money to that currently invested in the companies …. raising taxes, cutting public spending in other areas, selling of other public assets … but most comparable to how the companies are currently financed would be borrowing from international markets.

They quote Financial Times economics journalist Martin Wolf as saying that government has “the ability to borrow cheaply”.

They then analyse the “impact on the public sector debt” but while rising, the utilities would pay for themselves and so the “extra debt taken on to bring the utilities into public ownership should not add to the deficit”.

Alarm bells ringing all over Britain! So-called progressives leading the neoliberal charge in perpetuating the standard economic myths about the capacities of the currency-issuing government.

Then genius becomes lame

Enter the ‘Big Innovation Centre’ which “convened the Purposeful Company Task Force in 2015” (overloaded with corporate heads, financial market players, business school academics and business consultants).

The UK Guardian journalist Will Hutton co-chaired the group and on May , 2016 it released its Interim Report – The Purposeful Company: Policy Report.

Their concept of the ‘Purposeful Company’ is a profit-seeking firm that where “Purpose informs its existence, determines its goals, values, and strategy, and is embedded in its culture and practice.”

Apparently:

… purposeful companies contribute meaningfully to human betterment and create long-term value for all their stakeholders.

Think hype and you won’t stray to far from understanding what this “Big Innovation” stuff is all about.

The problem with all this ‘innovation’ and so-called progressive way forward hype is that they are embedded in a mainstream economics mindset which erroneously claims there are intrinsic financial constraints that the currency-issuing British government must obey.

Once this thought regression enters the picture the degree of ‘progression’ in the ideas quickly vanishes.

As an example, the recent UK Guardian article (January 9, 2018) by Will Hutton – We can undo privatisation. And it won’t cost us a penny – unsurprisingly embraces the ‘Big Innovation’ idea with some fervour.

In his enthusiastic embrace of the ‘Big Innovation’ plan, Hutton also failed to see the obvious. They were playing into the neoliberal myths about currency-issuing governments and thus failing to offer a truly progressive solution.

Hutton recognises the message from the survey data that I summarised above. He thinks the results are “astonishing” and that “Jeremy Corbyn’s commitment to renationalisation surprised everyone with its popularity”.

One suspects if he think these results are “astonishing” and surprising then he has probably been spending too much time mixing with his corporate ‘task force’ which was clearly dominated by many of those who have benefitted the most from the privatisation.

So it is clear that the British public overwhelmingly want the utilities (rail, water, energy, etc) serving the public interest rather than generating “profit targets”.

But Hutton says that the problem with “renationalisation” is that it is:

… expensive: at least £170bn on most estimates. Of course the proposed increase in public debt by around 10% of GDP will be matched by the state owning assets of 10% of GDP, but British public accounting is not so rational. The emphasis will be on the debt, not the assets, and in any case there are better causes – infrastructure spending – for which to raise public debt levels.

And once owned publicly, the newly nationalised industries will once again be subject to the Treasury’s borrowing limits. If there are spending cuts, their capital investment programmes will be cut. What voters want is the best of both worlds. Public services run as public services, but with all the dynamism and autonomy of being in the private sector, not least being able to borrow for vital investment.

And there is the rub.

Hutton reframes the overwhelming sentiment against neoliberalism expressed in the Legatum Institute survey within a neoliberal frame, which, of course, then takes the argument down a non-progressive path.

Further, he not only invokes erroneous macroeconomic propositions but also perpetuates the basic myths of privatisation that private ownership is full of “dynamism and autonomy” whereas public ownership is not.

The extensive research evidence over the last 30 years of so demonstrates categorically that the privatised enterprises are anything but ‘dynamic’ or ‘autonomous’.

How can he suggest that the privatised British rail is autonomous when the extent of public subsidy has risen dramatically just to keep the franchises afloat?

Further, consumers are rorted with price rises well in excess of inflation, services have deteriorated, and the inefficiency is the norm rather than the opposite.

Of course, Hutton has a motivation for combining these two myths. After all, he chaired the ‘Big Innovation’ task force that is pro-corporate.

Which is behind his apparently ingenious plan to improve the public services “without spending any money”.

This is straight ‘Big Innovation’ stuff.

Apparently, the genius is to “create a new category of company”:

… the public benefit company (PBC) – which would write into its constitution that its purpose is the delivery of public benefit to which profit-making is subordinate. For instance, a water company’s purpose would be to deliver the best water as cheaply as possible and not siphon off excessive dividends through a tax haven. The next step would be to take a foundation share in each privatised utility as a condition of its licence to operate, requiring the utility to reincorporate as a public-benefit company.

The claim is that “Because the companies would remain owned by private shareholders, their borrowing would not be classed as public debt.”

Smart eh?

No payouts would be required because the “existing shareholders in the utility would remain shareholders, and their rights to votes and dividends would remain unimpaired”.

Brainwave!

Government would have no say in the “operational running of the industries”.

Autonomous!

Although the government could resume ownership if performance faltered.

In other words, no risk of enterprise is transferred from public to private sector.

The problem is that most of the research is pointing to the fact that these privatised franchises are struggling to make money independent of heavy government subsidies and massive fare and charge escalation.

And, into the bargain, the service performance of these privatised entities has been abysmal. Improving services to anything near to acceptable would add costs and/or eat into profits. Shareholders would revolt if dividends were cut.

How does that square with the creation of corporate entities that subjugate profits in favour of better service? Answer: it doesn’t.

There are many similar issues that arise from this ‘plan’.

But the essential problem with these ‘solutions’, which is also present in the Corporate Watch report (noted above), is even more basic.

The self-promoted ingenious solution by the likes of ‘Big Innovation’ – better service to the public without any increase in public spending – is predicated on false notions of the capacities of the currency-issuing British government.

Once we abandon those false notions, the ‘ingenious’ solution doesn’t look so smart at all. It looks plain stupid.

Consider the situation. The public is now overwhelmingly swinging away from the basic precepts that underpinned the dominance of neoliberalism.

The average citizen has learned the hard way how deeply flawed neoliberalism is. They have endured elevated levels of labour underutilisation, flat wages growth, declining real wages, increased precariousness of their employment, deteriorating public services in areas that really matter – water, power, transport, health, education – inflating charges for the same, bank collapses, and more.

They have come to ‘know’ through experience what a dud neoliberalism is.

They now favour a return of a larger public sector taking renewed control of the essential utilities. They also want labour markets reregulated to eliminate obscenities like ‘zero hour contracts’.

A government elected within that milieu will have a very strong mandate to reverse many of these neoliberal ravages.

It doesn’t take too much imagination to then realise that the public will be receptive to new economic ideas, which expose the fiscal myths that were used to justify a lot of these flunky privatisations in the first place.

Why should the public reject the basic precepts of neoliberalism yet hang on doggedly to the dodgy financial myths?

There is tremendous scope for a newly elected government in this environment where anti-neoliberal reforms are elevated to priorities to reframe the whole ‘public finance’ debate.

In the same way that such a government would have the political cover and legislative power to renationalise the privatised essential services, it could use that capacity to ditch stupid (and meaningless) constraints such as the Treasury borrowing limits, which have starved public enterprises in the UK

For example, such a government could immediately repeal the – Budget Responsibility and National Audit Act 2011 – which imposes unnecessary fiscal rules on the government.

In its place it should introduce a new fiscal charter – which might be called “The Full Employment, Social Equity, and Environmental Sustainability Act” – and would require it to use fiscal policy to advance those essential aspects of well-being.

In doing so it would eschew any notion of ‘fiscal deficit targets’ or ‘debt targets’ but reeducate the public into understanding that the fiscal outcome was not a sensible policy target and the fiscal outcome would be whatever was required to satisfy the objectives of the new ‘Act’.

Ideally, such a government would introduce new rules for the Bank of England, which would require it to take instructions from the Government on its spending priorities and facilitate the same with appropriate credits to relevant bank accounts.

Such a government would close the – UK Debt Management Office – as it would become redundant in this new era of progressive government and policy making.

Owners of previously privatised companies would be compensated in return for the resumption of public ownership, but the value of the companies would be discounted by the net present value of the public subsidies that the companies had received over the course of its operations.

In other words, this era would reverse the neoliberal rule where returns are privatised and losses socialised.

Once you realise all that is possible, then these elaborate manoeuvres to keep these essential services in the hands of private, profit-seeking corporations – specially constituted or otherwise – look pretty lame and just apologist.

Conclusion

Privatisation has failed.

The people know it.

The environment is changing. People are moving back to a more sensible view that public activity will serve their interests better than these sham companies that are parasites on the public purse while pocketing large profits for their owners.

In that situation, it is just a small step to further expose the economic myths that were expounded to justify these failed privatisations.

That is what my new book with Thomas Fazi (published September 20, 2017) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – is partly about.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.