The great nationalisation debate has dominated recent days. Labour is promising a number of state takeovers, including broadband, and has accused the Tories of wanting to sell off the NHS.
So, what does privatisation and nationalisation really mean?
Our societies are dominated by organisations, large and small, that provide us with stuff – mainly goods and services. The majority of these organisations are owned privately. Over 80% of the UK labour force works for them — many for the likes of giants, such as Amazon, the John Lewis Partnership and Arcadia.
A minority (currently about 17%) is employed by state-owned organisations, like the NHS, schools and the armed forces.
In the immediate years after 1945, many governments in Western countries nationalised private organisations. These included everything from steel-making to car production, telecoms to airlines and utilities, like gas, water and electricity. Since then, the pendulum has swung back.
The merits of moving an organisation from one kind of ownership to another is essentially what the debate is all about.
Why do governments take ownership?
In some cases, it is for political reasons. Socialist or Social Democratic governments believe in more public ownership as a way of making society more egalitarian.
In others, it is for more pragmatic motives: to safeguard what are seen as strategically important services, or to control things that are natural monopolies. Even Liberal and Conservative governments have nationalised some services.
When and why did nationalisation go out of fashion?
By the 1970s, nationalised industries were becoming far less popular. They were often seen as inefficient, unresponsive to customers, and too influenced by politics. A programme of privatisation, in which governments sold shares in state-owned industries, began in the 1980s.
In the UK, privatised industries included British Telecom (BT), sold in 1984. This is now the subject of controversy in the election as Labour proposes to renationalise Openreach, the part of BT responsible for installing telephone and broadband connections and maintaining the national telecoms network.
Why are some of the privatised services heavily regulated?
Some of the utilities privatised in the 1980s and 90s are what are called natural monopolies. For example, it would be ridiculous to have two or more competing sets of water pipes going into every home.
So, where these monopoly conditions exist, governments tend to impose strict regulation to protect consumers, ensure proper investment and prevent excessive profits and competition.
For electricity, we only have one set of wires going into homes, but consumers can choose their suppliers. The competition is really at the other end of the system, amongst those producing electricity to feed into the grid.
Selling whole organisations is not the only form of privatisation of public services. There are many other ways of contracting out — sometimes just partially — the supply of public services to private organisations.
If things have been privatised for three or four decades, why has it become an issue now?
Privatisation was seen by many as a success at the time, and a good number of industries and services did well in the private sector — especially where they were fully competitive, like the privatised British Airways.
Some of the more monopolistic, regulated, services have proved less popular as the years have gone by. Utility companies – especially gas, water and electricity – have been criticised for high prices and poor service. The railways, which have gone through several different privatisation arrangements, have also been criticised for high prices and poor service.
And the Labour party, under the socialist leadership of Jeremy Corbyn and John McDonnell, has moved back to wanting to nationalise a number of utilities and services, including Openreach, the main national broadband provider. Labour has also promised to renationalise rail, water, energy and Royal Mail.
These policies seem to be popular, but they would also be very expensive in the short-term. It is worth remembering that the original privatisations of these sectors took place over decades, not all at once. Renationalising them would not be quick, or easy to organise.
Are nationalisation and privatisation the only alternatives?
No, despite the heated debates over public versus private, there are other ways to organise things.
Some of these are called public interest corporations – like the BBC and most of the UK’s 160 universities.
No one owns them or, rather, they effectively own themselves. They are not controlled by government, but instead their founding legislation makes them into organisations with a public, social, purpose.
But they tend to get ignored in political debates.
This briefing is produced by The Day in association with ENGAGE Public Policy.
- Should broadband services be provided free, like our roads, by the Government?
- Make a list of seven services that you think all governments should own, in order of priority with the most important at the top.
- Pendulum has swung back
- A metaphor for the changing times and going back to how things were.
- More fair and equal.
- Practical, realistic.
- Natural monopolies
- This happens when an industry has very high costs and needs a very large-scale infrastructure (like national roads, railways lines or pipelines) to start up and operate. So, it is more efficient for one or just a few businesses to provide a particular service. The Government might allow several companies to share some infrastructures to compete in that industry. But when there isn’t much competition for a good or service that the public really needs (like gas and electricity), natural monopolies can have too much power, making their products too costly, so they have to be regulated by the Government to protect the public.
- Royal Mail
- In 2015, after 499 years of state ownership, the UK Government privatised the postal service.