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The Return of Public Ownership

Thomas Hanna

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Public ownership is back. In fact, outside the UK, it never really went away. Democratised and decentralised forms of public ownership should be central to the left’s vision for a new economic settlement.

Ten years ago this past February, Northern Rock, then the fourth biggest bank in the United Kingdom, became one of the earliest casualties of the global financial crisis that was beginning to radiate out from the housing market in the United States to infect the banking sector around the world. With its origins dating back to the 1850s, for decades the cooperatively owned building society had been a relatively stable provider of home mortgages and other financial services to northern communities. However, deregulation and market liberalisation in the 1980s led many building societies to take advantage of a 1986 law allowing them to demutualise and convert to publicly limited, shareholder owned corporations.1 This included Northern Rock in 1997.

Over the next ten years, the bank jumped headfirst into the world of speculative international finance, growing rapidly as a result in the world of musical chairs known as the shadow banking sector. Then, in late 2007, the music suddenly stopped. The collapse of the housing bubble and the start of the US financial crisis limited Northern Rock’s access to credit, triggering the first run on a British bank since the 1860s as depositors rushed to withdraw their savings.2 In a sign of things to come on both sides of the Atlantic, the Labour government of Prime Minister Gordon Brown and Chancellor Alistair Darling stepped in with their ‘least favourable option’ and took Northern Rock into ‘temporary’ public ownership.3 Subsequently, under Conservative Chancellor George Osborne, the bank was partitioned and its ‘good assets’ sold to Richard Branson’s company Virgin Money, while the ‘bad assets’ were absorbed by the state.4

Northern Rock’s progression – from decades of stable cooperative ownership, to a short-lived burst of profit-maximising private ownership, to rescue via nationalisation – in many ways epitomises the neoliberal era. Alongside market liberalisation, deregulation, austerity, and globalisation, one of the hallmarks of this era has been the unwavering faith that private ownership is inherently superior to public, cooperative, or other collective ownership forms.5 This myth – along with many other tenets of neoliberalism – was embraced by New Labour under Tony Blair and Gordon Brown. Two years before Northern Rock demutualised, Blair and Brown had succeeded in amending Clause Four of the Labour Party constitution as part of their ‘modernisation’ project. The old Clause Four famously committed Labour to ‘common ownership of the means of production, distribution, and exchange’.6 In 2007 and 2008, as a highly-leveraged and imploding financial sector threatened to bring down the entire global economy, the myth was laid bare before an audience of billions. Around the world governments hurriedly stepped in with various nationalisation schemes to ward off disaster – usually accompanied, like Northern Rock, by piously hypocritical pronouncements of their ‘temporary’ nature – further deepening popular awareness and distrust of the cronyism and corruption at the heart of contemporary neoliberal capitalism.

This awareness that the economic system is rigged in favour of wealth extraction by elites has been reinforced by both the bankruptcy of Carillion and the recurring travails of the East Coast railway line. In the former, the giant construction company’s implosion amply demonstrated the folly of private finance initiative (PFI) schemes – forms of which are known elsewhere in the world as public-private partnerships (PPPs) – whereby the government contracts with private companies to build infrastructure and provide services. While enabling government to trim up-front costs, over the longer-term PFIs and PPPs often result in exorbitant mark-ups as the public absorbs the extraction of high rates of return for private shareholders. One recent report found that, in the UK, PFI projects can be up to 40 per cent more expensive than in-house delivery.7

Although started by the Conservative government in 1992, PFIs fit perfectly with New Labour’s neoliberal world view, and by the mid-2000s around sixty new PFI contracts were being signed each year.8 In the latter, the East Coast Mainline was renationalised in 2009 after the private operator walked away from the franchise. Public ownership of the line improved service dramatically and began returning profits back to the Treasury, totalling around £1 billion between 2009 and 2014.9 Despite this success, or perhaps because of it, Prime Minister David Cameron re-privatised the service in 2015. And yet, just three years later, the East Coast Mainline is in trouble once again. In late 2017 it was announced that private operators Stagecoach and Virgin would be walking away from the franchise in 2020, three years earlier than anticipated, and on 16 May 2018, Transport Secretary Chris Grayling announced that in fact, the East Coast service would be temporarily renationalised, and rebranded as the London and North Eastern Railway, from 24 June, after it became clear the operators could no longer meet the promised payments in the £3.3 billion contract.10

In all this, policymakers may only be catching up to where the British public has been all along. Broad majorities continue to reject the idea that private ownership is the only option in a modern economy. An October 2017 poll released by the Legatum Institute, a free enterprise think tank, found, to their horror, that 83 per cent of respondents favoured nationalising the water sector, followed by 77 per cent for gas and electricity, 76 per cent for trains, 66 per cent for defence and aerospace, and 50 per cent for banks. Almost a quarter were even in favour of nationalising travel agents.11 This sentiment can also be seen in the recent evolution of Labour Party policy. When Brown and Blair nationalised Northern Rock (and then, effectively, RBS, Lloyds TSB, HBOS, and Bradford & Bingley) it was, in essence, an admission that, at least when it came to ownership, New Labour had gambled and failed. Subsequently the Labour Party lost ninety-one seats in the 2010 General Election and Brown was replaced as Prime Minister by David Cameron at the head of the Coalition government. Another defeat in 2015 threatened to exile Labour to the political wilderness, with Cameron and the Conservatives forming a majority government.

Fast-forward two years, to late September 2017, and the political debate on public ownership in the UK had been transformed. When Jeremy Corbyn took to the stage in front of a packed hall at the annual Labour Party Conference, he declared to a standing ovation that the centre of political gravity had shifted, and that a new popular consensus was forming in favour of ‘something different and better’.12 The breathtaking pace of political events in recent years makes it hard to disagree. One of a small band of Labour leftists isolated by but surviving the long decades of neoliberalism under both Thatcher and New Labour, as leader Corbyn survived a coup attempt and forced leadership contest and went on to pull off a remarkable comeback in the snap General Election of June 2017. His supposedly ‘unelectable’ party was supposed to have been annihilated, but Corbyn simply would not keep to the script, producing a vote share increase for Labour greater than any achieved since 1945.13

In the run-up to this stunning turnaround of electoral fortunes, the Party put out two documents that illustrate how profoundly the pendulum has swung when it comes to public ownership. The first was the widely-praised 2017 manifesto, For the Many Not the Few. Among other policies, it unapologetically called for renationalisation of the railways, the energy system, the water system, and Royal Mail, as well as the establishment of a publicly owned National Investment Bank, a network of regional public development banks, and new local publicly owned banks (perhaps through the breakup of RBS, which was nationalised following the financial crisis and is still in state hands).14 The second was an internal party report, commissioned by Shadow Chancellor John McDonnell and Shadow Secretary of State for Business, Energy and Industrial Strategy Rebecca Long-Bailey, entitled Alternative Models of Ownership – a remarkable document that lays out the case for increasing public and worker ownership as a way to combat inequality, political disenfranchisement, and underinvestment.15

Neglected by the die-hards on the Labour right who still resist Corbyn’s leadership and policies, this ideological and political shift in the UK is in fact reflective of changes happening all around the world, as public ownership – alongside various forms of cooperative and collective enterprise – has re-emerged as a viable strategic option for communities and political leaders in the wake of the financial crisis and Great Recession. ‘The state,’ as Joshua Kurlantzick recently put it, ‘is back in business’.16 Given current economic conditions, and the likelihood of continuing social, ecological, and other challenges, it is reasonable to expect that public ownership will only continue to grow in importance, both as a vital element in our existing political economy and a pathway to something radically different.

Public ownership around the world

Despite more than four decades of pressure for privatisation, public ownership in practice remains incredibly common – and popular – on the ground throughout the developed and developing world. In many countries people interact with a variety of publicly owned enterprises on a daily basis, often without realising it. These include advanced high-speed rail systems in various European and Asian countries and telecommunications companies that provide fast and widely available internet access among other services. Across Europe, more than 200 public and semi-public banks, along with another eighty-plus plus funding agencies, account for around a fifth of all bank assets.17 In Germany, there are around 400 publicly owned municipal savings banks (Sparkassen) with more than €1.1 trillion in assets and around 225,000 employees.18 And, of course, in many countries gas, electric, water, and public transportation systems remain publicly-owned – often at the local or regional level.

In recent years, the re-municipalisation of public services has been gaining support, often as a way to address pressing economic and ecological concerns while establishing local democratic control over the economy. In a 2017 study, the Amsterdam-based Transnational Institute (TNI) identified 835 municipalisations and re-municipalisations involving some 1,600 cities in forty-five countries.19 While re-municipalisations were most prevalent in the energy and water sectors, they have also occurred in transport, education, housing, and health, amongst others. ‘These (re)municipalizations generally succeeded in bringing down costs and tariffs, improving conditions for workers and boosting service quality, while ensuring greater transparency and accountability’, the report found. 20 Since 2007 in Germany, more than seventy new municipal-level publicly owned electric utilities have been established and hundreds of service concessions have been acquired by public entities from private operators – reversing the privatisation wave that swept the sector in the 1990s.21 This process of Rekommunalisierung (‘re-communalisation’) is part of a larger effort to comprehensively transition the country’s energy sources from coal and nuclear to renewable sources called Energiewende (‘energy transition’).22 In September 2013, voters in Hamburg – Germany’s second largest city, with 1.8 million residents – voted in favour of re-municipalisation in a referendum backed by a coalition of more than fifty consumer, religious, and environmental groups – and despite the opposition of the business community, the city mayor, and the major political parties.23

The United Kingdom has long been at the forefront of privatisation, but one of the great ironies of the privatisation wave that swept the country in the 1980s is that in several high-profile cases newly privatised industries didn’t remain in private hands for very long. They were subsequently bought up by large, international, state owned enterprises from other countries that were entering the world market as part of a globalisation. The classic example is Britain’s electricity system – a strong, centralised, publicly owned system for most of the twentieth century, sold off to investors in the Thatcher era. ‘Beginning with the takeover of London Electricity in 1998, exploiting the Thatcherites’ open-door market structures and their decision to split the electricity industry into small, easy-to-swallow chunks,’ James Meek notes, ‘France in effect renationalised the industry its neighbour had so painstakingly privatised. Renationalised it, that is, for France’.24

By virtue of its geography, the UK is particularly suited to dramatically expanding its renewable energy generation through wind power. Here too, however, foreign publicly owned enterprises are dominating development. A September 2017 report published by the Labour Energy Forum revealed that more than half (51.16 per cent) of all offshore wind capacity was owned by foreign, publicly owned companies. Under 8 per cent was owned by British companies as a whole, and just 0.07 percent by British publicly owned companies – a single 7 MW turbine owned by the Offshore Renewable Energy Catapult as a demonstration project.25 In essence, other than enriching a small handful of politically connected elites, the principal achievement of the privatisation of Britain’s electricity system was to shift the benefits of public ownership, particularly the revenues, from the local communities where those assets are produced or consumed to the public sector in other countries. While this need not be a negative in and of itself, especially were it to occur in the context of movement towards greater genuine international cooperation, there are serious implications for local economic stability, democratic control, participation, and transparency – especially when those international institutions and frameworks are built around economic models that are financially extractive.

The signs are that the British electricity sector may be ripe for fundamental change. Under Corbyn and McDonnell, Labour has vowed to take utilities back into public ownership and ‘transition to a publicly owned, decentralised energy system’.26 On the ground, local municipalities are taking the lead by forming publicly owned electric companies to compete with the traditional, large, for-profit suppliers. According to recent reports, such companies now exist (or are close to existing) in Islington (the first such publicly owned company in London in more than a century), Doncaster, Portsmouth, Nottingham, Bristol, Liverpool, Derby, Leeds, and Sussex (where several municipalities are joining together).27 In London, Labour Mayor Sadiq Khan has committed to a publicly owned company called Energy for Londoners, although it is still unclear what form this might take.28 The movement is being driven by a desire to lower costs for consumers (millions are struggling to pay their utility bills in what is often referred to as ‘fuel poverty’), generate new revenues in a time of crippling austerity at the local council level, and provide a way to interface with local constituents.

Still, unlike in other countries, these municipal electric companies by and large do not, as of yet, own much in the way of transmission infrastructure or generation facilities. In many cases they purchase much of their energy from wholesalers and sell it on to customers regardless of geography (although local residents usually receive lower rates). This structure has the advantage that start-up costs are relatively modest, especially when compared to the cost of municipalising a vertically integrated, monopoly electric utility in the United States. However, by having to compete in a market and not having complete control over either transmission or generation, the margin for both economic viability and social benefit is low. Much of the discussion in the UK is now moving on to questions of competition, as well as discussion of bringing the grid and generation facilities back into public ownership. Should there even be a competitive market in the energy sector?

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