Renationalisation: How to get there from here

by John Quiggin on January 29, 2018

My latest Guardian article is headlined https://www.theguardian.com/commentisfree/2018/jan/29/privatisation-is-deeply-unpopular-with-voters-heres-how-to-end-it. The core of the argument is that, to make a success of renationalisation, we need to do more than buy back privatised enterprises, and run them as publicly owned corporations. We need a different model. A starting point would be the statutory authority model used in Australia with great success, before the Hawke-Keating government adopted the corporatised model as a step towards privatisation.

{ 14 comments }

1

Matt 01.29.18 at 12:00 pm

John, I’m no expert, but my impression is that much of the grounds for privatization was that state-owned enterprises, in pretty much every “western” country, were both not making money (and so, not able to service debt) but also were doing pretty bad jobs of serving the public interest. Perhaps Australia was an outlier here. (I really don’t know.) But, this seems to have been the case in the UK, Canada, and much of Western Europe. Furthermore, there seems to be pretty serious problems in the way of good management here. (I am here very heavily influenced by the work of Joseph Heath and Wayne Norman, in particular their excellent co-authored paper, “Stakeholder Theory, Corporate Governance, and Public Management.”) If this is so, why think that renationalization, even if politically possible, would lead to good outcomes? Why would publicly owned enterprises do better this time around than they did in the 60s and 70s?
(Note, of course, that saying this doesn’t mean that we shouldn’t seek alternatives to the status quo, or that state ownership is never the right choice, but at least in this brief piece, I don’t see the real problems that existed being addressed at all, or any reason to think that they wouldn’t just show up again. Why would things be different, and better, this time? A real, not rhetorical, question.)

2

bill tilles 01.29.18 at 2:13 pm

please see our recent article on wolfsteet blog re British re-nationaluzation.

3

Tim Worstall 01.29.18 at 2:28 pm

” as long as the earnings of a government enterprise are sufficient to service the debt needed to acquire or create it (which will be true if public ownership is more efficient than the private sector alternative), there is no additional requirement for taxation.”

That’s a fairly big assumption in there. Possibly even one we could test. Given that we’re talking about the UK and utilities – are the water companies worth more now than they were when privatised originally? This would tell us what about the relative efficiency of the two forms of ownership?

4

Jestyn 01.29.18 at 4:31 pm

Replying to Matt, a couple of thoughts, inspired by the Swiss railways. One, you can run a publicly owned service well – Swiss railways are the envy of the world and score highly for safety and customer experience. Two, you get what you pay for – Swiss railways are highly subsidized… More here https://www.bcg.com/en-ch/publications/2017/transportation-travel-tourism-2017-european-railway-performance-index.aspx

5

J-D 01.29.18 at 4:52 pm

Advocates of privatisation often ask, rhetorically, whether their opponents would support reversing past renationalisation.

You did/do not mean ‘reversing past renationalisation’, obviously, so how is it that nobody at the Guardian spotted this? …

Since no major party would advocate renationalisation, the question remained unanswered until Labour’s 2016 election campaign in the UK.

… and does nobody at the Guardian remember when the most recent UK general election was?

6

Neel Krishnaswami 01.30.18 at 12:07 am

Tim Worstall wrote:

Given that we’re talking about the UK and utilities – are the water companies worth more now than they were when privatised originally? This would tell us what about the relative efficiency of the two forms of ownership?

Of course it wouldn’t.

Utilities like water don’t face meaningful competition, as no one runs the plumbing twice or more to each house. As a result, the market cap of a water company is pretty much the number of customers in the region they serve times the net present value of the price that Ofwat lets them charge, minus the net present value of their operating costs. This means that the market cap of a water company is pretty much entirely the result of (a) the interest rate, and (b) the political environment determining what price are allowed — and interest rates are currently very, very low.

(This is not even the only way your argument is bizarre! For example, lower prices would increase consumer welfare, but would obviously also reduce the market capitalization.)

7

Tim Dymond 01.30.18 at 1:08 am

I can’t help feeling there is a missing step here. How do the privatised enterprises actually get transformed into the statutory authorities? I understand government ‘buys them back’ – but are there any studies of how that would work, what steps are needed etc?

8

Tim Worstall 01.30.18 at 2:07 pm

“Utilities like water don’t face meaningful competition, as no one runs the plumbing twice or more to each house. As a result, the market cap of a water company is pretty much the number of customers in the region they serve times the net present value of the price that Ofwat lets them charge, minus the net present value of their operating costs.”

Well, yes, and those operating costs differ under state and private ownership. Or at least they might. And the manner in which the UK privatised utilities laid off staff suggest they did.

9

Bill Murray 01.31.18 at 12:38 am

much of the grounds for privatization was that state-owned enterprises, in pretty much every “western” country, were both not making money (and so, not able to service debt) but also were doing pretty bad jobs of serving the public interest.

While this might have been the reason put forward, bu since the public utilities were run for the benefit of the public they weren’t run to make money and it’s not clear how bringing in an entity not responsive to the public was likely to do a better job of serving the public interest. A more likely explanation to me is that an opportunity to make loads of money was seen and acted upon with sympathetic “thinkers” throwing a bunch of possible reasons to privatize at the wall and keep what was best believed

10

Ben Philliskirk 01.31.18 at 9:12 pm

Bill @ 9

Quite right. An opportunity to loot the public sector was undoubtedly a major motivation in the privatisation campaigns, and we should also recognise that in many cases turning public services over to private ownership or operation helps to depoliticise them and insulates collective provision from public opinion and popular control.

11

Moz of Yarramulla 01.31.18 at 9:34 pm

Tim@7: the story of TranzRail in NZ might be informative. It was sold to a trucking company and ran at a decent “profit excluding maintenance” for a while. Then it collapsed because it turned out that the money the government didn’t want to put into the operation was necessary after all.

Here’s a summary article: https://www.reuters.com/article/newzealand-economy-rail/update-1-new-zealand-buys-back-rail-network-from-toll-idUKWEL31710020080505

12

Alphonse 02.01.18 at 10:50 am

Since it’s now widely understood that currency issuers need revenue not for solvency and provisioning but to prevent demand-led inflation, and that “borrowing” is just a circulating to and fro between M1 and Mx, substitutable by helicopter money, is too much being made (where the federal government is concerned) of a need for “earnings of a government enterprise [to be] sufficient to service the debt needed to acquire or create it”? What about externalities? What about the net non-financial benefits of renationalisations in terms of physical, organisational, institutional and human resources?

Where the states are concerned, more federal funding could go their way for renationisations. Something smarter than a procyclical slice of federal currency creation calibrated against a measurement of GST currency redemption (aka “revenue”) would be useful.

Also, the states are not under constitutional requirements to compensate for compulsory acquisition on “just terms” as is the commonwealth. They could legislate to define “just terms” to be just that.

13

Anspen 02.01.18 at 12:05 pm

I would argue that there are three (underlying) reasons why state-owned enterprises can be or are less efficient the private ones:
1) A lack of competition. Whereas private companies generally have competitors and the possibility of losing market share which can force them to improve, state run organisations are usually monopolies.
2) Political machinations, as in the use of state companies to buy favour by hiring certain people or people from specific geographic areas even if they are not needed or even competent. Or by having the companies do things that would not pass an objective test of efficiency (say building a bridge that is not needed, or making long distance trains stop at a town which doesn’t have the population but does have the political influence).
3) Less power over employees. For historical and anti-authoritarian reasons civil servant have enjoyed a heightened degree of protection against arbitrary dismissal. In some countries this goes/went so far as to make firing almost impossible. This makes
greater difficulty of firing employees that are incompetent and unable or unwilling to improve. A lot of these protections have been reduced or removed in the last few decades.
4) A different brief. State run companies have different goals than private ones (i.e. not just making a profit). A private bus company might decide not to have a stop in a small town or at a certain time or day because it is not profitable, a private one will do so because access to transportation is viewed as a basic right of the citizenry.

I would argue that 1) and 2) can apply just as well to private companies, even more so in the areas (re) nationalisation and privatization are usually discussed. Loads of large companies have gone hill very rapidly even when competitors did well and quite often managements make choices that are clearly not based on sensible analysis but on their own preferences.

Meanwhile the role of 3) is increasingly less of a problem (The Netherlands for example removed the legal differentiation between civil servants and private employees last year) . Especially since the threat of firing is hardly the only or best way to increase employee efficiency generally shining examples of efficient management .

I feel that 4) is where the real crux of the matter is. The privatization wave of the last few decades has result in far less general utility or increasing prices (generally more borne by the lower 50% than by the top 1%), while keeping the blame away from the governments of the day. This moving the cost from high income to low while reducing the overall benefit seems like an important feature of the privatization system, not a bug.

14

DavidtheK 02.01.18 at 1:01 pm

Thank you Alphonse, great comment! Also important would be legislation establishing a right for citizens to be provided with these services (particularly water and something like NHS) and an obligation for the state to provide it. This would set a hard floor on the minimum service that should be provided and maximum ceiling on citizen cost so that no one can be denied.

Comments on this entry are closed.