Thursday, 22 May 2014

The economics of privatisation and public ownership

Below is the written-up version of my speaking notes from the Brighton Festival Fringe event 'Is It Time to Re-Nationalise UK plc?', organised by Sussex LRC, that I spoke at on Tuesday 20 May 

Tony Benn said "democracy transferred power from the wallet to the ballot, from the marketplace to the polling station. What people couldn't afford to buy for themselves they could vote for instead".

And if you look at the consensus set out by the Attlee government, that was delivered - the NHS, comprehensive education, the welfare state, council housing, etc.

But that went into reverse under the Thatcher government and since.  

'Privatisation is a key driver of inequality' 

Privatisation is a key driver of inequality: assets that have been funded by us all collectively are transferred to private owners.

Profits for a few, so a few at the top get super-rich - the big shareholders and the overpaid directors of these privatised companies.

A few at the top get rich. But what happens to the workers? Well, part of how a few at the top get rich is by exploiting their own staff: cutting wages, scrapping or diluting the benefits of pension schemes, cutting jobs.

Take the example of Qinetiq: In 2007, the 10 most senior managers gained £107.5m on a total investment of £540,000 in the company’s shares. The return of 19,990% on their investment was described as “excessive” by the National Audit Office. In 2009, Qinetiq offered its staff a pay freeze.

In the Thatcher era alone, so before the railways or Royal Mail was privatised, nearly a million workers were transferred from the public sector to the private sector.

And it's not just workers that are exploited: consumers are too. Look at water, rail, electricity and gas. In each of those industries prices have risen above the rate of inflation post-privatisation.

But privatisation, we were told in the 1980s, was about building 'popular capitalism' and a 'shareholder democracy'.

In 1997, after 18 years of Conservative rule, UK individuals owned 16.5% of UK company shares. In 1975, UK individuals had held more than double that: 37.5%. 

Economic desperation 

But privatisation isn't only an ideological project, it's often an act of pragmatic desperation. When governments are trashing the economy, they privatise.

Thatcher's government yes was ideological, but it also was trashing the economy. The revenue from privatisations helped her government balance the books.

By 1992, two-thirds of all the state-owned industries in 1979 had been sold off. In the year following Thatcher's departure, the government was running a growing deficit - though privatisation revenues reduced this by a third.

As her long-serving Chancellor Nigel Lawson said, "proceeds from privatisation - and for that matter council house sales - were bound to dry up once all the saleable assets had been realised."

This was asset-stripping. It's like paying your rent in a furnished flat by selling off the furniture - totally unsustainable and likely to come back to haunt you. Harold MacMillan, Tory prime minister form 1957-63 called it "selling off the family silver".

But it wasn't just the Thatcher and Major governments that turned to privatisation out of economic desperation.  When the financial crisis hit, New Labour proposed in 2009 to privatise Royal Mail, the Tote, the Royal Mint, the Ordnance Survey, the Student Loan Book and the Channel Tunnel Rail Link - a list the coalition government is currently working its way through. 

Public ownership 

The Attlee Government came to power in 1945 with national debt over 200% of GDP (about four times what Osborne inherited in 2010). Yet they nationalised coal, steel, rail, gas, electricity, water, road haulage, civil aviation and more. How? They gave the former owners Treasury bonds in exchange for shares.

Today there should be a simple test: if it's too important to fail, it should be in public ownership. If the government would have to bail it out if it collapsed then it's ours.

But we should go further to extend public ownership and collective ownership in all its forms.

We should give workers the right to co-operativise their companies. A simple majority in a ballot and the company is transferred from private to co-operative ownership.

And the right to buy-out. So if a company is put up for sale, or a takeover attempted, then workers' have the first option to buy it out.

We need to transfer power back from the marketplace, from the wallet - into the hands of the many not the few.

No comments: