Social Ownership: What Plans for Labour?
The inspirational Labour Party Manifesto, For the Many, Not the Few, was actually quite cautious about extending public ownership.
· “We will bring private rail companies back into public ownership as their franchises expire.”
Fair enough. We all have bitter experience of the privatised rail shambles. The advantage of taking over the train operating companies as their franchises expire is that it will not cost a penny. The disadvantage is that it will take ages for all the franchises to expire.
Secondly what we need is an integrated system of trains and track infrastructure, maintenance and passenger services to regain all the advantages of a real national railway system.
· We will “regain control of energy supply networks through the alteration of operator license conditions, and transition to a publicly owned, decentralised energy system.”
Again this was not a promise to take over the greedy monopolists on day one of a future Labour government.
· We will “replace our dysfunctional water system with a network of regional publicly-owned water companies.”
It’s bound to be better that way, but it’s really just returning us to what we had before the privatisation disaster.
· We will “reverse the privatisation of Royal Mail at the earliest opportunity.”
That’s it. All the industries above are described in the Manifesto as ‘utilities’. In fact they are natural monopolies. With the exception of the railways they were all set up as public services by local or national government and could not have existed otherwise. These services were set up by politicians like Joseph Chamberlain who fully supported the capitalist system and realised it needed to be underpinned. There were some things that capitalism needed but capitalist greed could not provide. This was called ‘gas and water socialism’.
For instance the water and sewage system that underpins any great city is essential to prevent epidemics and maintain the health of the people, but how can capitalists make money out of it? Likewise, whoever sends you the bill, there is only one gas pipe connecting your house to the system and one electricity cable. How could it be otherwise? Would it be practicable for hundreds or thousands of competing capitalists to be digging up the roads to supply energy to their favoured customers? And what would modern capitalism look like without publicly provided water and energy?
If I travel from London to Liverpool, I go by Virgin West Coast. I have no choice in the matter. If I want to go to Newcastle I ‘choose’ Virgin East Coast. There is no alternative. Would it help if competing train operating companies were racing one another along the track? I use Thames Water because that is the monopoly supplier in the area where I live. Competition, the basic argument for privatising the services, is actually impossible.
What happens when infrastructure, necessarily set up by the state, is privatised? We now know all too well. Basically the monopoly profits, a natural and inevitable outcome of a monopoly position, rather than being returned to the public, are looted by private capitalists. What will Labour do to correct the privatisation car crash?
Fortunately Labour under Corbyn has promised to sharpen up the 2017 Manifesto on public ownership. That is necessary. To promote further discussion on this issue it has published a document entitled Alternative Models of Social Ownership. This document is more of a ‘thought piece’ than a programme for action but it should be considered and discussed seriously by Labour supporters.
Alternative Models of Social Ownership divides these forms into three categories: local (such as co-operatives), municipal and locally-led, and national.
The problem with co-operatives, as the document explains, “is that worker owned firms are intrinsically limited in their ability to attract finance, as capital providers (either via capital markets or banks) are unlikely to provide long term funding to firms over which they have no control. As a result, worker owned firms may under-invest relative to capitalist firms.” So there are natural limitations to their growth.
This is basically the same limitation to worker co-ops that Marx explained to the First International 150 years ago, that “Restricted, however, to the dwarfish forms in which individual wage slaves can elaborate it by their private efforts, the co-operative system will never transform capitalistic society.” In short capitalists have the money (giving them access to resources) and we don’t.
Likewise with municipal initiatives – there are limits to their growth. Those limits are imposed by the dominant capitalist economy. In so far as publicly owned enterprises have succeeded they have relied upon an arm of the state to support them, such as the Greater London Council, abolished by the Tories. The document Alternative Models lists examples such as community businesses, community owned enterprises, community shops, community supported agriculture, co-operatives, development trusts, farmers’ markets and social enterprises. Despite laudable initiatives such as the Preston local plan none of these have made much of a dent in the domination of capitalism, despite all its failures, in our economy.
The reason is not far to seek. Isolated ‘socialist’ enterprises come up against the power of the capitalist class in the form of their ownership of the means of production (so they’ve got the money) and their domination of the state. For that reason we have to take national action to wrest control of the state from them and change the rules of the game.
That is why we have to take these firms over if we want fundamental change. As Alternative Models explains, how we organise them afterwards will be up to us. Even after a Labour government takes over rail energy, water and Royal Mail, Britain would remain a capitalist country. After all they were all publicly owned in the past.
We can support this takeover unconditionally. But why should we stop there? There are other industries that are ripe for takeover. In order to plan the economy and turn it round from its present record of capitalist failure we need levers of change. The banks could provide finance to firms and knit them into a plan of production. For this they have to be publicly owned and accountable. The Fire Brigades Union has proposed that we take them over. See:
Despite Tory derision state owned enterprises are a demonstrable success. According to Alternative Models, “The proportion of State Owned Enterprises amongst the Fortune Global 500 grew from 9% in 2005 to 23% in 2015.”
Nationalisation in the past has not always tapped into and used the enthusiasm and energy of their workforce and the wider public to give them a say in how their workplace and the wider economy work. As the document states:
“Older forms of national state ownership in the UK have tended to be highly centralised, top-down and run at ‘arms-length from various stakeholder groups, notably employees, users and the tax-paying public that ultimately funds them. The post 1945 nationalisation programme set the trend here with what has been termed the ‘Morrisonian Model’
It didn’t have to be that way. “In the French nationalisation programme in the 1940s – in contrast to the British experience – where for the newly nationalised electricity and gas corporations, the 12 person board was made up of four appointees from the state, four from technical and expert groups (including two to represent the consumer interest) and four trade union representatives.“ This was achieved under the right wing De Gaulle government.
Correctly warning that “there is no one size fits all model that can be applied everywhere” in the running of social enterprises the document gives examples:
“In the railways, for example, a new national corporation...could have a board structure that provided representation for both employee and passenger groups while also having managerial and government appointees with sector experience. Local, regional and commuting services could have more decentralized ownership structures that devolved power to the devolved parliaments and local government.”
And again: “In the energy sector, national state ownership of the grid and infrastructure of electricity and gas sectors could be combined with local, regional and community ownership. Board representation could be split between state appointees, local and devolved government nominees, consumer, and employee representatives.”
So far, this is interesting and imaginative but also speculative. The Alternative Models document doesn’t come up with a concrete programme for social ownership of the industries Labour is targeting. Ordinary Labour Party members should be thinking hard now as to how we can make this a reality and pressing the Party to spell out a programme we can campaign on. In the meantime we must campaign to take over these utilities in the public interest.
Where will the money come from?
This is the age-old complaint from the Tories. John McDonnell has a crisp and clear answer. It won’t cost a penny. "It would be cost free. You borrow to buy an asset and when that asset is producing profits like the water industry does, that will cover your borrowing cost," he said.
The idea is that the existing shares of these utilities would be swapped for government bonds of the same value – gilts as they are known. This procedure is not spelled out in the Alternative Models document but McDonnell has mentioned it in keynote speeches.
The Social Market Foundation (SMF) has criticised McDonnell’s programme, claiming it would cost £90bn just to take over the water companies alone. They have completely ignored the nub of his proposal, assuming that he as Chancellor would just lob wads of taxpayers’ cash at the water companies, while he has flatly denied it.
The SMF, founded in 1989, has been described as “John Major’s favourite think tank.” Originally close to the Tories, it later snuggled up to New Labour. Its latest report states, “This study makes no comment whether the policy of water nationalisation is a good or bad idea,” having made it abundantly clear that in their view it would be a catastrophic waste of money.
Why did the SMF investigate the proposal? As it admits, “the report was commissioned by a group of water companies: United Utilities, Anglian Water, Severn Trent and South West Water. Clearly whoever pays the piper calls the tune.
What is the record of the water companies since privatisation? Some of the material below is from an article by Ken Livingstone in the Morning Star on February 24th.
“Since privatisation, household bills have risen by over 40% in real terms and just in the years since 2010 these companies have paid out over £13.5 billion in dividend payments — almost the entire amount that these firms made in pre-tax profits.”
Anglian Water and South West Water are two of the management teams that paid out more in dividends in 2017 than they made in pre-tax profits – sucking the firms dry. All the same they found enough dosh to get the SMF to write their ridiculous report.
Ken continues: “If this wasn’t bad enough, in 2017, these same water companies received £253 million more in tax credits than they contributed in taxes, while increasing the amount they passed on in dividend payments by £324,800.”
The privateers were up to their usual tricks. Once they took over, the water companies were laden with debt. Since debt is a charge on a company’s accounts (while shares are counted as an asset) the private companies could claim tax credits and pay virtually no tax. Meanwhile they looted the assets of the privatised water companies by paying out enormous dividends.
This was purely a short term tactic. They undertook none of the much-needed real investment. On the contrary. 22% of the water Thames Water is responsible for handling is subject to leakages. In Oxfordshire and Buckinghamshire the firm was responsible for allowing a ‘clapped out’ treatment plant to leak raw sewage into a stream for months, killing all the local wildlife as well as risking poisoning the people they ‘serve’. A judge fined the company £380,000.
This is the old, old story. Carillion – now collapsed – accumulated £217m in debts from 2012-16, according to the Financial Times. Over the same period it paid out £376m in dividends, despite only generating £159m in cash from net operations.
In fact the policy of the privatisers was to grab the money and run. These people are utterly unfit to administer these important infrastructural enterprises. Some of us think they should be run out of town. John McDonnell’s proposal to buy them off with government bonds to get them off our backs actually seems remarkably generous.
The private owners of our public utilities have failed completely. Alternative Models opens up prospects but offers no firm programme for the future. What the document suggests is that, since the utilities should be run in the interests of the public, how about asking the public – consumers, workers in the industry - to have a say in the running? Hold that thought.
The next stage in the development of our programme is to draw up concrete proposals, based on these suggstions, for truly democratic public ownership. Then we can all go out and campaign for real socialist change.