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Waschke, Hildegard

Article — Digitized Version The development and impact of nationalisation in Britain

Intereconomics

Suggested Citation: Waschke, Hildegard (1977) : The development and impact of nationalisation in Britain, Intereconomics, ISSN 0020-5346, Verlag Weltarchiv, Hamburg, Vol. 12, Iss. 5/6, pp. 153-157, http://dx.doi.org/10.1007/BF02928713

This Version is available at: http://hdl.handle.net/10419/139470

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by Hildegard Waschke, K61n *

The relationship between and economy, the best obtainable pattern of public and private sectors in economies, is an issue of constant interest for economists and politicians of the Western world. Can nationalisation of industries, . e. the alteration or termination of control or owner- ship of private by the state, improve the economic situation of a country and its workers and consumers? Here is a survey on the more than thirty years' development and impact of nationalisation in Great Britain.

ainly five factors led to the mid-twentieth- [] The ideas of workers' control (on the Conti- M century political situation which shaped in- nent known as ) were advocated in dustrial nationalisation in Britain i: in the form of guild , i.e. a sys- [] The rise of consumers' since the tem whereby each industry was owned and con- middle of the nineteenth century. However, trolled by a workers' guild. Direction would have though the consumers could have small been in the hands of elected workers' represen- holdings, their control over the management of tatives and of Government nominees charged these societies derived entirely from the fact of with protecting the consumers. Although guild membership. With the twentieth century the limi- socialism as such faded quickly after tations of this approach became apparent. It was (due to its impracticable institutional proposals), predominantly based on retailing. The system the ideas of workers' control or participation per- could make no impact on the basic industries or sisted among some trade unionists. on the risky expanding manufacturing . [] The need for national by [] The foundation of the Labour Party by a group authorities (as distinct from piecemeal of trade unions and socialist societies in 1900 Government intervention) was derived from the aimed at securing representation of the workers publication of J. M. Keynes' "General Theory in Parliament. Clause IV (4) of the 1918 party con- of , Interest and Money" (1936). The stitution (as last revised in 1974) states as the Socialists believed that Keynesian planning rein- Party objects "to secure for the workers by hand forced their case for public in in- or brain the full fruits of their industry and the dustry. most equitable distribution thereof that may be [] Even important Non-Socialists advocated na- possible upon the basis of the common owner- tionalisation of particular industries or services. ship of the , distribution and Gladstone nationalised telegraphs as early as exchange and the best obtainable system of pop- 1869, Joseph Chamberlain promoted municipal ular administration and control of each industry enterprise in , and or service". The Labour Party's election pro- declared in 1918 the nationalisation of railways gramme of 1918, "Labour and the new Social as his Government's policy. Order", already contained far-reaching proposals for public ownership: land was to be taken into Although in 1924 and 1929 the Labour Party suc- gradually; coal, railways and ceeded in forming , it could not electricity were to be nationalised; industrial and secure a large majority in the House of Corn- life insurance were to be taken over, monopoly * Institut der deutschen Wirtschaft. industries were to be nationalised when con- 1 Leonard T ivey, Nationalisation in British Industry, venient. 1966, pp. 18 ff,

INTERECONOMICS, No. 5/6, 1977 153 U.K. mons and, therefore, at that time, was not in a po- industry had been progressive and efficient, its sition to implement its nationalisation plans. The labour relations were good, and there had been situation changed when after World War II in 1945 no official inquiry (as in coalmining) recommend- a took office for the first time ing reorganisation. The main argument by the with a parliamentary majority. The first branches Labour Government in this case was that public to be nationalised in 1946 were civil aviation (Bri- ownership was necessary to compel the industry tish European Airways and British Overseas Air- to follow a policy in interest 3 ways) and the . In the industrial sector the most significant step was the national- In 1953 the Conservatives passed an Iron and isation of the coalmining industry in January, Steel Act providing for the denationalisation of 1947. There had been a long history of bad la- the iron and steel industry. But after it had re- bour relations, and much of the industry was turned to office in 1964, the Labour Party pre- out-of-date, so that public opinion was in favour pared new nationalisation which was carried of nationalisation. The Labour Party, therefore, through by the Iron and Steel Act, 1967. When in regarded coalmining as an experiment for demon- 1970 the Conservatives again formed the Govern- strating the advantages of nationalisation. Be- ment, this time only parts of the industry (stain- tween 1946 and 1951 coal output, indeed, in- less steel, steel construction, some smaller steel creased from 181 million tons to 212 million tons. works) were denationalised, the steel producing However, in 1939 the coal output by private own- industry remained under public ownership. ers had been still higher (231 million tons) 2. Moreover, after ten years of nationalisation the Organisational Structure overall deficit of coalmining was just as high as before (23 million s The nationalisation of industries raises questions In June 1947 Cable and Wireless was taken over, of legal status and organisational structure. In and the Transport Act, 1947 (effective January postwar-Britain nationalisation of an industry 1948) nationalised the transport of persons and usually did not mean its takeover by a govern- goods by road, rail and canal. The gigantic Bri- ment department and its civil servants. Rather a tish Transport Commission with its six Executives single general organisation was set up for each (Railways Executive, Road Haulage Executive, industry. The special form given to most of the Road Passenger Executive, Docks and Inland British nationalised industries was that of a public Waterways Executive, Hotels Executive and Lon- . Such a corporation has no shares don Transport Executive) launched a vast and and no shareholders, either public or private. It novel experiment in trying to bring about the inte- is normally created by a special law defining its gration of the country's transport by minimising powers, prescribing its form of management and competition between the different forms of trans- specifying its relationships with governmental port (particularly between road haulage and the authorities. The public corporation is responsible railways) - and by 1950 had already incurred a to the relevant Minister who as administrative deficit of 40 million s In 1951 a reorganisation body in charge of affairs appoints a Board, some- brought about a balanced financial situation, times called Commission, Council or Authority. road haulage had to make up for the losses of The appointment of their members by the Minis- obsolete railways. ter on the advice of the Government indicates the political foundations of the boards' authority and After denationalisation of long-distance road provides important means of government control. haulage by the Conservatives in 1953/54, the aver- The chairmen and deputy-chairmen, too, are ap- age annual deficit of the British Transport Com- pointed by the Minister and not by their fellow- mission in the next four years amounted to about members on the boards. There are some statutory 100 million s The Conservatives, therefore, qualifications for membership, which, however, (though retaining public ownership except for a normally are very wide. For the National Coal part of road haulage) by the , Board, for instance, the Minister may appoint reintroduced the idea of competition and abolish- "persons appearing to him to be qualified as ed the central British Transport Commission. having had experience of, and having shown capacity in, industrial, commercial or financial Labour nationalised electricity in April 1948 and matters, applied science, administration or the gas in May 1949 on technical and organisational organisation of workers"4. Similar formulas are grounds. Nationalisation here proved successful and economic. 2 Ernest D a i e e, Problems of Public Ownership, London 1952, p. 35. In February 1951, by the end of the first Labour 3 R. Kelf-Cohen, Nationalisation in Britain, Second Edi- tion, London 1961, p. 145. Government the iron and steel industry was na- 4 Coal Industry Nationalisation Act, 1946, 9 and 10 Gew. 6 Chap. tionalised for clearly ideological reasons, for this 59, Selection 2 (3).

154 INTERECONOMICS, No. 5/6, 1977 U.K. applied to the other nationalised industries. The siderations involved in making prices cover costs term "organisation of workers" emphasises the (or of keeping costs of production within the right of trade unionists to serve on the boards limits set by prices) may be overlaid by political (although the unions as such cannot claim to have and social considerations or by the more com- particular persons put on the boards). Appoint- plicated problems of "fitting industry to the ments are made for a limited period (usually strait-jacket of economic planning" 7 5 years). Although reappointments are possible, the insecurity of board posts (especially in the Political, not economic aspects are decisive for case of disagreement with the Minister) was often priorities and pricing policy. Large criticized. The relevant Minister can often exer- investment programmes and borrowings for fi- cise an informal influence on the board's deci- nancing investment as well as changes in price sions that exceeds the scope of his formal levels require approval by the Government. The powers. inability of the nationalised industries to finance themselves, i.e. the frequently incurred deficits, The question of the proper salaries for board are a major problem of government finance. members was fairly difficult, too, because the "Whether the money is raised by taxation or by are both public services and indus- borrowing", an expert stated, "it has to be funded trial concerns and because there is usually con- from the which has to provide a siderable disparity of salaries between these two sufficient surplus from which the can be activities. Although a Labour Party publication raised or a su'rplus of savings from which the in 1957 s stated that "the salaries paid should loans can be made" 6. not be markedly less than those for similar jobs in private business", they clearly were not of this New Approach to NationalisaUon order in general, and it was consequently often difficult to recruit high-quality persons especially As the failure to win elections in 1951, 1955 and for the boards' chairmen. 1959 was largely due to voters' disappointment concerning the nationalisation experiments 9 (in Financial Problems view of their organisational and financial prob- lems and their insufficient consideration of con- As to the financial affairs of the nationalised in- sumer interests) the Labour Party in dustries, it should be borne in mind, that there periods published a series of programmatic pa- are special rules about financial behaviours. Al- pers concerning nationalisation aspects and pro- though the public corporation is financed by cedures. The left wing of the Party, in the fifties treasury appropriations, treasury loans or trea- inspired by , was pressing for radi- sury-guaranteed fixed interest securities (as dis- cal politics, i.e. extended nationalisation of entire tinct from the shares in private industry) it meets industries, whereas the right, revisionist wing its current costs from the sale of its goods and around advocated a mixed econ- services, makes normal commercial provision for omy with public ownership only when necessary depreciation and reserves, and may be author- in the interest of the general public. Gradually, ized to reinvest its profits. Its budget, however, instead of nationalising further entire industries, is separate from the state budget. the takeover (into public ownership) of individual firms and public shareholding in private com- When the surpluses or losses of nationalised in- panies was advocated. dustries are considered, the method of calcula- tion should be taken into consideration. Compen- In 1957 Labour's policy statement "Industry and sation stocks are a statutory charge on the cor- Society" stressed the need for a variety of forms porations, and the cost of capital borrowing is a of public ownership. It required (p. 57) that public regular fixed charge on earnings (whereas in pri- ownership might be extended "in any industry vate industry dividends are usually distributed or part of industry which, after thorough enquiry, from profits, i.e. are a residual reward and not is found to be seriously failing the nation. This considered as costs). will not necessarily mean taking over an entire industry; it may be that the solution will lie in the The sums required for compensation payments acquisition for the of one or a number were considerable: transport s 1,217 mn, elec- of firms". The State should also participate in tricity s 540 mn, coal s 388 ran, gas s 265 mn, expansion and development by providing equity iron and steel s 244 mn 6. Moreover, the balanc- ing of the revenue account in a nationalised in- 6 R. K a I f- C o h e n, Twenty years of Nationalisation. The Bri- tish Experience, London 1969, p. 197. dustry is not simply a problem of equating re- 7 W. Thornhill, The Nationalised Industries, London 1968, p. 116. venue with costs. The normal commercial con- 8 R. Kelf-Cohen, op. eit., p. 214. 9 cf. Mark Abrams, Why Labour Lost Elections. Public 5 Public Enterprise, Labour's Review of the Nationalised Indus- Ownership. Socialist Commentary and , London, June tries, London, July 1957, p. 27. 1960, pp. 8 ff.

INTERECONOMICS, No. 5/6, 1977 155 U.K. capital, i.e. by making that receive holdings such as BP, Rolls-Royce, and Short a share of profits (instead of only providing fixed- Brothers and a substantial addition of companies interest loans) for new or existing enterprises. from the private sector. "In this way", this policy statement said (p. 58), "the fruits of any enterprise would be shared by The February 1974 12 Labour Party manifesto "Let the community through an extension of public Us Work Together, Labour's Way out of the Cri- ownership." sis" on the whole repeated the nationalisation aims stated in the long-term programme, how- In 1960 (after the election defeat of 1959) the La- ever stated the decision in the field of banking, bour Party stated that "it is convinced that its insurance and building societies as "still under social and economic objectives can be achieved consideration". When Labour surprisingly won a only through an expansion of common ownership majority but not an absolute one, 's substantial enough to give the community power refrained from directly pro- over of the economy. claiming nationalisation aims. The August 1974 Common ownership takes varying forms, includ- White Paper "The Regeneration of British Indus- ing state-owned industries and firms, producer try" stressed the necessity of both an efficient and consumer cooperation, municipal ownership and a vigorous, alert, responsible and public participation in private concerns. Rec- and profitable private sector of industry. National- ognising that both public and private enterprise isation was proposed for docks, aircraft and ship- have a place in the economy it believes that fur- building, an extension of public ownership for ther extension of common ownership should be road haulage and building. For important enter- decided from time to time in the light of these prises in key sectors of the metal working indus- objectives and according to circumstances, with tries planning agreements and a National Enter- due regard for the views of the workers and con- prise Board with power to inject cash into private sumers concerned" lo industry in exchange for a share in the equ'ity and Labour's programme for the 1964 election (in thus a say in the management. Eventual compu|- which the party gained a majority of 4 seats in sory nationalisation should require a decision by the House of Commons), "The New Britain", did Parliament, the criteria for compulsory national- not contain the concepts of nationalisation or isations being the impending danger of a foreign socialisation. It only mentioned that the public control, the necessity of stimulating competition sector would make a vital contribution to the or the necessary reorganisation of a company in national plan. Apart from the renationalisation regions of a high degree of . of steel, additional full public ownership was only After the Labour Party had gained an absolute claimed for the water supply industry. Labour's majority in the October 1974 elections, the election manifesto 1966, "Time for Decision" planned Industry Act was passed in November (which resulted in a majority of 97 seats in the 1975. It established a system of voluntary "plan- House of Commons), again did not proclaim fur- ning agreements", by which companies which ther nationalisations. Thus, during the Labour submit to a degree of Government direction will Government period 1964-1970 only steel was re- receive guarantees about future levels of regional nationalised. aid. Moreover, the proposed National Enterprise Future Aims Board was set up to buy its way into some of the profitable and expanding areas of private enter- In June 1973 (when Labour after its election de- prise. Thus Labour is beginning a new road to feat of 1970 was in opposition) the Labour Party the "commanding heights" of British industry. published a comprehensive long-term policy doc- ument called "Labour's Programme for Britain" In 1975 the Labour Government also passed a which aims at a fundamental shift in the balance Community Land Act under which the authorities of power and wealth in an attempt to establish are empowered to acquire land for "relevant" de- "a new social order". According to this document velopment by agreement or by compulsion. Labour's "prime candidates for nationalisation" are (apart from renationalisation of road haulage) The 1976/77 Situation the docks, North Sea gas and oil, the aircraft in- dustry, ship building and ship repairing, pharma- In March 1976 the National Enterprise Board ceuticals, banks and insurance companies. An (NEB) was put on par with private industry when Industry Act should entitle a future Labour Gov- the Department of Industry published guide- ernment to form a state-owned National Enter- lines 13 for this state holding company. These prise Board 11 with a base in existing state share- 12 The Conservative Prime Minister, Edward , aspiring a majority for his anti- policy, had called for premature lo Labour's Aims, London, March 1960, section j. elections. 11 An idea already contained in the 1957 "industry and Society" 13 Full text in the , London, March 2, 1976, and the 1961 "Signposts for the Sixties" Labour publications. pp. 21 ff.

156 INTERECONOMICS, No. 5/6, 1977 U.K. guidelines insist that the NEB companies be run nationalisation of the biggest banks and insur- on purely commercial lines, i.e. will have the ance companies. same opportunities and obligations as private Since nationalisation each industry has had its sector companies and fairly compete with them. own special problems. In some these were cre- The NEB can be directed to help a company in ated by strongly increasing demand, while in financial difficulties for reasons of employment others - e.g. coal and the railways - the problem or industrial Government policy. It will then be was falling demand 14. But, as mentioned before, reimbursed by the Government which means that there were also common problems associated in the end the taxpayer has to bear the burden. with the role of the industries in the economy Thus several ailing firms were taken over by the and their relations with the Government and Par- NEB at high costs (e.g. British Leyland s 1.4 bn, liament. Dissatisfaction with the conduct of the Ferranti s 15 mn, Alfred Herbert s 26 mn, Inter- industries caused investigations by a Select Com- national Computers s 9 mn). Moreover, according mittee in the 1950s and several White Papers - to the guidelines deriving its main strength from and following reorganisations - in the . The the extension of public ownership into profitable financial performance of the industries improved manufacturing industry, the NEB is entitled to somewhat during the late sixties, but conflicts take a holding in any company - even without with national economic policy led to a deteriora- the agreement of that company's directors. Be- tion at the end of the decade. In mid-1974 the fore acquiring more than 10 p.c. of a publicly Government tried to reduce the losses of the quoted company's shares, the NEB must inform nationalised industries by permitting some large the Secretary of State what size of holding it ulti- increases in prices. Consequently (though at the mately requires. Moreover, ministerial approval expense of the public), in 1976 the large national- is required for each purchasing transaction of ised industries (with the exception of steel which more than s 10 mn or where the acquisition would incurred a deficit of s 246 mn) were suddenly give the NEB 30 p.c. or more of the voting rights beginning to make a profit. of a company. However, the NEB will be em- powered by a statutory general authority to be Conclusion issued by the Secretary of State for Industry to In November 1976 the National Economic Devel- take over more than 30 p.c. of a company's share opment Office published a study of the UK na- capital as long as the company agrees and the tionalised industries (not including the state hold- cost of the total shareholding does not exceed ing company NEB) is. It stated that the net output s 500,000. of the nationalised industries in 1975 made up The NEB chief, Lord Ryder, mentioned foundries 11 p.c. of the gross domestic product. They were and process engineering as sectors of British in- responsible for 19 p.c. of all fixed investment and dustry where there should be NEB intervention. 24 p.c. of industrial investment and they employ Finally, the Secretary of State for Industry can 8 p.c. of the workforce. In the 1970s (unlike the prohibit the acquisition of a British firm by for- 1960s and except for the Conservative Govern- eigners and may order its takeover if he deems ment period 1972-1974) wages in these indus- it necessary in the national interest. tries have risen faster than in the private sector. Increased militancy in the public sector caused There are at present nine large nationalised in- numerous strikes in the coal and steel industries, dustries in Britain: British Airways, , but except for these two, the British Railways Board, British Steel Corporation, record of the nationalised industries is somewhat Electricity (England and ), National Coal better than the average for manufacturing. Board, Post Office, National Bus Company, Na- tional Freight Corporation. More than a dozen On the whole the British experiments show that smaller boards run airports, state hotels, road the nationalisation of industries is no means for haulage, waterways, hydro-electricity in , solving financial, economic or social problems etc. The newest recruit to the nationalised sector nor can it guarantee jobs. It does not alter the is the British National Oil Corporation, which is conflict of interest between labour, management busy negotiating for state participation in the and consumers in spite of consumer councils holdings of the North Sea oil exploration com- and some labour representatives in some of the panies. Moreover, there are Bills for the national- Boards. The conflict between economic require- isation of aircraft and shipbuilding (Parliament ments and social obligations again and again decided to remove ship repairing from the na- creates new problems which paralyse the deci- tionalisation Bill). At the 1976 Labour Party Con- sion making process. However, national economic ference a resolution was passed calling for the difficulties have brought a sense of realism and moderation in dealing with and planning exten- "14 The Economy, published by the National sion of nationalisation in Britain. Institute of Economic and Social Research, Second Edition, London 1976, pp. 72 ff. ]s Summarized in , November 27, 1976, pp. 15 ff.

INTERECONOMICS, No. 5/6, 1977 157