Thursday, September 28, 2017

Just what will Corbyn nationalise?

Corbyn's call in his Leader's speech at the Labour conference for the nationalisation of utilities raises all sorts of questions about how, if at all, this is going to be financed but also begs the question of which utilities would be brought into public ownership. The simplistic claim that life will be so wonderful if companies providing public services were nationalised is not something I support. And nationalisation itself will be hugely complicated. It is not simply a case of returning to state ownership a privatised monopoly. The old monolithic giants have been broken up and their markets opened up to competitors. When Corbyn talks of renationalising, for example, the electricity industry, there are now a multitude of generators and retailers.

When he talks of public control returning to the postal delivery business, the Royal Mail now operates in a competitive market, especially in the area of sorting letters. Does a "socialist" Labour government nationalise the competitors as well, companies that have never been in the public sector previously? If renationalisation is carries out for ideological reasons, which seems to be the case with Corbyn, there seems little point in nationalising one player in the market while letting the others operate in competition. It would seem therefore that a Corbyn government would have to nationalise all the operators in the industry.

In the electricity generating sector, therefore, what happens with small generators such as small scale wind farms or, in the case of Gateshead, the Council's electricity generating plant which was set up to supply, at a profit, electricity and hot water to residents and businesses? And what happens to all those with solar panels on domestic roofs pumping green electricity into the National Grid?

And then there is the question of how all this is paid for. The 2017 Labour manifesto was unclear on this. Corbyn is unclear on it. If public ownership is not sufficiently financed, there is a danger of compulsory nationalisation with insufficient or even no compensation. Given that many companies providing public and utility services are foreign owned, no compensation could lead to retaliation by foreign governments and it would certainly mean a dramatic run on the pound. And as businesses would fear nationalisation, there would be little incentive for either domestic or foreign investment in them.

I've also heard Labour attack the concept of customers' bills being pushed higher to pay for profits to shareholders while these businesses are in the private sector. Don't forget that the biggest shareholders will be pension funds, and the profits pay for the pensions of millions of people, including those in the public sector. Labour suggest that public ownership of, for example, the water companies, will allow bills to come down as the element that is profit is abolished. This may be appealing but it also means that there is no profit to reinvest in the business. The only source of investment (the water industry drinks needs vast amounts of capital) would be the government as the water company, as a publicly owned body, would no longer be able to raise funds on the private capital markets or through share issues.

Labour's current policy of nationalisation may have been a workable response in the early 1980s to the privatisations but the world has moved on massively since then. The problem however is that Labour have not moved on at all.

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