U.K. Experience of Nationalization - Essay Example

EXAMINE THE U.K EXPERIENCE OF NATIONALIZATION BETWEEN 1946 AND 1986 AND INDICATE WHAT FACTORS MIGHT BE CONSIDERED AS RELEVANT WHEN MAKING A DECISION TO NATIONALIZE Introduction The genesis of nationalisation in the UK can be traced to the post World War II politics that witnessed the Labour Party coming into power in July of 1945. (Francis, 1987) The Labour Party had adopted a constitution in 1918 which inter alia contained a provision for the “common ownership of the means of production, distribution, and exchange”. (quoted by Yergin and Stanislaw, 1998 p.25) This ideological provision (famously called Clause IV) however did not find a systematic implementation till Labour’s advent to power in 1945 and its subsequent adoption of a programme aimed at nationalising key sectors of the economy. (Cairncross, 1986) The fragmented coal industries were nationalised and so were the railway, steel and telecommunication industries. Utilities were also nationalised by the Labour government. (Tomlinson, 1982; Durbin, 1985) The Ideological Basis for Nationalisation The ideological basis for nationalisation in 1946 U.K. could be summed up in Attlee’s words: “a mixed economy developing toward socialism.... The doctrines of abundance, of full employment, and of social security require the transfer to public ownership of certain major economic forces and the planned control in the public interest of many other economic activities.” (quoted by Yergin and Stanislaw, 1998 p.27) Tomlinson (n.d.) on the other hand views the ideological basis for nationalisation in the UK as reflective of two different epochs – the 1930s-1940s reflecting the socialist planned economy paradigm, and the 1950s-1970s reflecting a social democratic economic paradigm. Thus, Attlee’s vision of nationalisation in the UK could be categorised under Tomlinson’s 1930s-1940s socialist ideological era. Apart from the ideological underpinnings that informed nationalisation in the UK, other justifications were adduced for the nationalisation programme which include the following. It was held that the fragmented nature of privately owned industries (like the coal industry which then provided about 90 per cent of the UK’s energy needs) were inefficient, had experienced under-investment, and lacked scale. (Hannah, 2004) Nationalisation was thus seen as a medium for pulling together resources and implementation of new technologies on a national scale for the functioning of industries. This, it was envisaged, would result in efficient running of industries culminating in the “achievement of the national objectives of economic development and growth, full employment, and justice and equality”. (Yergin and Stanislaw, 1998 p. 25; Robson, 1962) Nationalisation was thus also a means for salvaging a non-performing and failing private sector so as to harness resources for economic development. It can be argued that nationalisation became a convenient practice within the post-war planned economy. It is worth mentioning Tomlinson’s (n.d.) observation that there was no single agreed set of objectives for nationalisation even among the socialists of the Labour Party. Ashworth (1991) however sums up the core main objectives of the nationalisation project as – being foundational for the establishment of a system of national economic planning; as a component of other strategies for improvement of productivity; as a medium for achieving improved wage and conditions of service for workers; as a medium of redistribution; and as an instrument to manage the national economy especially in areas like prices and wages. Nationalisation in Practice The actual practice of nationalisation could be established under two main models – ‘the post office’ model and the public corporation (or state owned corporation) model. Under the ‘post office’ model, the nationalised industry is put under government ministries as departments or adjuncts. This model was not employed in the UK’s experience of nationalisation. The public corporation model which was adopted, operated through government appointed boards of directors that were responsible for the governing of the corporations. The public corporation had a distinct legal entity like a company, with its own operating capital. A government ministry (or ministries) had oversight of the public corporation. The Erosion of the Ideological Basis of Nationalisation The socialist ethos of nationalisation of industries for egalitarian objectives of redistribution through common ownership of the means of production, distribution, and exchange began to wane with time and by the 1960s government control of nationalised industries was minimal. (Tomlinson, n.d.) This could be partly attributed to the coming into power of the Conservative Party in the 1950s and their implementation of decentralisation and commercialisation of nationalised industries. Consequently, nationalisation as a feature of a planned economy envisaged in the 1940s, was not what it had turned out to be by the 1960s and 1970s. Tomlinson (n.d.) thus observes that nationalisation became part of what “can best be described as one of national economic management rather than national economic planning, where the instruments of economic control were much less direct, and focused on fiscal and monetary instruments and other macroeconomic, demand side, policies …”. (p.15) The lofty ideals of nationalisation for the purpose of ensuring efficiency, better production, and economic growth as advanced in the 1940s by the Labour government have thus been viewed by some as intensifying “the problem of relative British economic decline”. (Hannah, 2004 p.102) Some have also viewed the nationalisation project as a failed economic project thus adding credence to the privatisation project of the Thatcher regime in the 1980s which was continued by Thatcher’s successor, John Major, and which New Labour under Tony Blair did not reverse. Consequently, the issue of private or public ownership of industries has ceased to be a distinguishing feature of the major divides in politics in the UK. (Tomlinson, n.d.) The virtual triumph of neo-liberal free market economics (advocated by luminaries like von Hayek and Friedman) over Keynesian models of planning in contemporary times (Demsetz, 2002) has thus signalled the undisputed demise of nationalisation, at least in the UK. The Nationalisation of Northern Rock in a ‘Privatised’ Era It is against the background of an almost universally accepted consensus in favour of privatisation in the UK that Chancellor Alistair Darling announced on February 17 2008 that the beleaguered British bank, Northern Rock, is to be nationalised. The nationalisation of Northern Rock thus presents an opportunity for a re-analysis of the objectives for the nationalisation project in the post World War II era. Tomlinson (n.d.) has for instance argued that instead of viewing the nationalisation project as a failed experiment, it should be analysed in its historical context and within the exigencies of the immediate post-war era when the nationalisation project was undertaken. (see also Tomlinson, 1996) A close scrutiny of the present Labour government’s decision to privatise Northern Rock reveals that it is totally devoid of the egalitarian objectives of redistributive justice through public ownership, an objective that was a notable feature of the 1940s nationalisation project. As the Chancellor argued in defence of the decision to temporarily nationalise the beleaguered bank - “At the end of the day the biggest issue is the safeguarding of taxpayers’ money. If nationalisation saves that money, that has to be the correct step in the long term.” (quoted in The Guardian, http://www.guardian.co.uk/business/2008/feb/18/northernrock.banking3) Tomlinson’s description of nationalisation in the 1970s as a form of ‘national economic management rather than national economic planning’ appears to be a description that is more reflective of the present case of nationalisation of Northern Rock. However, whereas nationalisation in the UK, whether in the 1940s or the 1970s was a systematic national programme, the same cannot be said of the nationalisation of Northern Rock. This perhaps underlies the Labour Government’s assertion that: “All comparisons with the 1970s are absurd”. (quoted in The Guardian, http://www.guardian.co.uk/business/2008/feb/18/northernrock.banking3) Conclusion The justification of nationalisation in the post-war era as an instrument for salvaging a failing, inefficient, and unproductive private sector may strike a note of semblance with the Northern Rock episode. It thus appear that even in the era of neo-liberal economics where state planning is eschewed, state intervention for the public good is not anathema. (von Hayek, 1944; Stiglitz, 2002) If privatisation of Northern Rock is considered a higher risk to the tax payer’s £55 billion guarantee to the bank, and state intervention can have the advantage of stemming any contagion instability in the financial sector, then nationalisation could be said to be a justifiable option. It is however important to contrast the nationalisation of Northern Rock with the historical experience of the UK with regards to nationalisation from 1946 to 1986. In spite of any similarity to be drawn between the Northern Rock episode and the historical nationalisation project, the over-riding objective in the nationalisation of Northern Rock is a short-term state intervention to return the bank to profitability in the private sector. As Mr Darling has further argued: “It is better for the Government to hold on to Northern Rock for a temporary period and as and when market conditions improve, the value of Northern Rock will grow and therefore the taxpayer will gain. The long-term ownership of this bank must lie in the private sector.” (quoted in The Independent, February 18, 2008 http://www.independent.co.uk/news/uk/politics/northern-rock-owned-by-uk-ltd-7835) References Ashworth, W. (1991). The State in Business: 1945 to the Mid 1980s, Basingstoke: Macmillan Demsetz H., (2002) Toward a Theory of Property Rights II: The Competition Between Private and Collective Ownership, Journal of Legal Studies, Vol. 31(2), pp. 653- 672 Durbin, E. (1985). New Jerusalem: The Labour Party and the Economics of Democratic Socialism, London: Routledge Cairncross, A. (1986). Years of Recovery: British Economic Policy, 1945-51, London: Methuen Francis, M. (1987). Ideas and Policies Under Labour, 1945-1951, Manchester: Manchester University Press Hannah, L. (2004). ‘A Failed Experiment: The State Ownership of Industry’, in Floud, R. and Johnson P., eds., The Cambridge Economic History of Modern Britain, vol.3, Cambridge: Cambridge University Press Inman, P., Elliott, L., and Hencke, D. (2008) ‘Darling under fire as Northern Rock is nationalised’ The Guardian, February 18 2008, http://www.guardian.co.uk/business/2008/feb/18/northernrock.banking3 Morris, N. (2008) Northern Rock, Owned by UK Ltd, The Independent, February 18, 2008, http://www.independent.co.uk/news/uk/politics/northern-rock-owned-by-uk-ltd-7835 (accessed on 29/04/08) Robson, W. (1962). Nationalized Industry and Public Ownership, 2nd ed., London: Allen and Unwin Stiglitz, J. E. (2002). Globalization and Its Discontents. London: Penguin Books Tomlinson, J. (n.d.) ‘A Failed Experiment? Public Ownership and the Narratives of Post War Britain’, www.dundee.ac.uk/history/research/Tomlinsonpublicownershipapril2007.pdf (accessed on 29/04/08) Tomlinson, J. (1982). 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