Dominic McCarron lays out criteria for when industries should be nationalised, and how this will help Labour to own the narrative over nationalisation.
The Attlee Government is historically remembered for their introduction of wide-ranging welfare reforms, and the ‘jewel in the crown’ of these was the National Health Service. The nationalisation of the health service has been a resounding success for over 75 years and is a staple of Labour politics and a national treasure.
Mass nationalisation as a constitutional Labour policy was removed in 1995 by Blair’s refinement of Clause IV. However, nationalisation as an economic strategy can still reap massive benefits by keeping prices down, offering better quality services and providing better conditions for workers. Critics say nationalisation is an overreach of government responsibility, inefficient and a liability for the public purse.
Nationalisation was a staple of the post-war economic recovery invoked by the Labour Government of the day, and parallels can be drawn between this and our current economic recovery from the pandemic. Offering the country a better alternative is clearly paramount for election success, but this vision needs to be economically viable and logical; the public often believe nationalisation is not. This is not to suggest a return to state-owned hotels, removal companies and Land Rovers - only certain sectors of the economy should be nationalised. Providing the public with the grounds for nationalisation to be debated on helps convince the public of the view that there is still a place for it in today’s economy.
An industry must meet three conditions to be nationalised. The first is the essentiality of the industry for consumers. If consumers do not have an option in buying a product or service this distorts markets and allows firms to artificially raise prices as consumers cannot opt-out of buying. The American healthcare system is an example of disruptions in the market by private firms taking advantage of the fact consumers have no choice in purchasing insulin. Costs per vial are around $170-$300 while the estimated manufacturing cost is $5. When consumers rely on a product, the market abuses them - nationalisation of the healthcare system deters this in the UK.
Essentiality is not enough on its own to justify government intervention. The second condition states there must be high entry fees in the industry. An essential service with low entry fees can still function in a market given artificially high prices can be countered by smaller firms undercutting those with power. Smaller energy firms have gone bust recently, and the high entry fees for new competitors allows larger firms to hike prices without being challenged. The result is the inflation of prices for consumers. While there are many other complex factors contributing to the energy crisis, it is obvious that more competitors would cut prices drastically.
The final condition states that the industry must primarily provide an overall service, rather than solely a product. However, a product may be involved in providing this service. For example: education. While educating children is generally a service, goods such as pencils, notebooks, and whiteboards, are goods involved in this process and therefore the government should take responsibility for paying for these. Conversely, the housing sector largely provides houses as a good rather than a service. While the market is currently dysfunctional, regulation would be enough to fix the issue rather than nationalisation.
There should be open and honest debate as to what industries reach this standard. For each of these nationalised industries the simultaneous existence of private firms should be promoted allowing competition to thrive and innovation to occur. Current industries controlled by the state that are universally agreed upon to be nationalised and clearly meet this test include education and healthcare. There should be deliberation as to other industries that could meet this test where a state option is not available such as energy, public transport, and broadband.
This test for nationalisation is not to suggest that industries that do not fulfil these requirements are to be deregulated, it is to suggest there should not be a state alternative. Regulation is still required in the vast majority of industries and should be championed by Labour. Legislating for standards, prices and procedures is a vital part of governance. It can help vitalise the market, make sure goods and services are of high quality for consumers and erode exploitation – the concurrence of regulation alongside nationalisation is paramount for a better Britain and a successful economic future.
On a national scale, framing the debate for nationalisation around this provides voters with a discernible threshold for state ownership and emphasises the benefits of this. It helps the Labour Party stick to our roots and evolve into a party that adopts a modern view understanding the role of the private sector in the economy. Within the Labour Party, people will read this with disgust, shivering at the thought of the inclusion of the private sector in the Labour Party’s economic promises and encouraging a return to the commitment of mass nationalisation. This test is not useless for those with this view. It may still be used as a means to prioritise industries which should be nationalised, even if in the end you believe they all should be.
The intention of the formulation of this test, and this article, is to provoke debate. It can be proven wrong, but it is a good basis to start questioning the role nationalisation may have in the future of our economy. To nationalise an industry should require a high threshold, and in my view, this is it. State ownership of industries that reach this standard provides the best services for the British public subject to government efficiency and investment, while painting the Labour Party as economically competent by informing the public of the thought process behind the decisions. Nationalisation can work, and it is best done in sectors of the economy that are essential, have high entry fees and provide a service.
There should be an honest reflection on what works best for the country and a forensic calculation of where nationalisation benefits us – and equally, a brave appreciation of when it does not.
Dominic McCarron is a Law Student at the University of Glasgow and is currently involved in the Erasmus Programme, studying at Bocconi University in Milan. He tweets at @DominicMcCarron.