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Europe shows that nationalised industries don’t have to be 1970s-style disasters

If you want to go “back to the Seventies” you don’t need to hope Jeremy Corbyn enters Downing Street on 9 June and hoists the red flag over the black door of No 10.

If you want to experience public ownership of industries you might try sending a letter in Norway, where Posten Norge (Norway Post) is a state-owned company. You might ride on a train in Switzerland, where the Schweizerische Bundesbahnen (Swiss Federal Railways) is a corporation whose shares are wholly in the hands of the Swiss cantons.

You might try boiling a kettle in Paris, with energy supplied by the state-owned Électricité de France. Or maybe do the same in Hamburg, where the energy grid is in the process of being reacquired by the city government. While you’re in Germany, you might like to open an account at one of the country’s hundreds of local government-owned Sparkassen, or savings banks.

It may surprise you to learn, given the hysterical reception being given to the leaked Labour manifesto and its proposals for a partial renationalisation of various British industries, that none of those above experiences in continental Europe will be a Soviet-style nightmare.

Indeed, one will find that many of those industries provide a superior service in countries with a strong element of public ownership, compared to their counterparts do here in Britain where such things are “left to the market”. There are probably few Southern Rail commuters who wouldn’t trade their experience with those Germans who enjoy services operated by the state-owned Deutsche Bahn.

But of course, we don’t leave everything to the market here in Britain either. When you board a train here in Britain, you will step on to a privately-owned piece of rolling stock operated by a private franchise. But the tracks over which you travel are owned by the publicly-owned Network Rail, founded after the collapse of the privately-owned Railtrack. And that private rail franchise may well be part of a larger European state-owned group. Arriva is an outpost of Deutsche Bahn. The Essex-operator C2c is part of Trenitalia, the Italian state rail company.

Similarly, if you’re getting domestic energy supplied by EDF, it’s that same group that powers the Parisian kettle. As many have noted, we do have public ownership in UK rail and energy markets. It’s just that the government ownership is by foreign governments.

The question of national versus private ownership is less important than many people imagine. What really matters is the structure of the wider industry, the incentives for managers, the quality of regulation and the political and social context in which firms operate.

The privatisations of British Airways, British Telecom and British Steel were a success not because high quality private managers were brought in to replace low-grade state bureaucrats. The management teams were often the same before and after privatisation. What changed was the introduction of competitive pressures and the imposition of credible budget constraints, forcing these same managements to compete, cut costs, work more productively, invest and innovate.

But it’s harder, if not impossible, to inject competitive pressure into natural monopolies such as rail and energy generation, and utilities such as water, through privatisation. And because they are natural monopolies (with unsurmountable barriers to market entry by potential competitors) they are always going to be tightly regulated, even when they are in private ownership. It would be a brave politician who proposed to let a private water company charge households in its area whatever the market would bear.

The issue of the cost of renationalisation is also something of a red herring. When the state privatises an industry, presuming it sells the business to private investors for what it is actually worth, the state does not register a profit in a comprehensive accounting sense. What it gains in sale receipts it loses in future profits. The same is true in reverse. Assuming it doesn’t overpay, the cost to the state of buying back, for instance, the Royal Mail or the National Grid will be balanced by the flow of future net revenues from those businesses.

The key question, from a public policy perspective, is whether the business assets are likely to be run more efficiently in the interests of the public in one form of ownership than the other. Will the absence of the risk of bankruptcy result in budget indiscipline from public managements? Will public managers be more attuned to the whims of ministers and employees rather than the needs of customers? Or, on the other hand, will private managers under invest to increase dividends to shareholders? How likely are civil servants to draw up franchising contracts that will provide good value for taxpayers?

These ought to be empirical questions, informed by analysis, evidence (including from abroad) and judgement. Yet for much of the British media and political classes it is, alas, a matter of ideology.


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