Kiss goodbye to nationalisation if we stay in the Single Market

Danny Nicol

4 October 2017

In an article here on the Renewal blog entitled ‘EU law is no barrier to Labour’s economic programme’ Andy Tarrant and Andrea Biondi put forward a provocative redefinition of British socialism.  Singing the praises of the European single market, they concede that ‘in certain sectors EU rules prevent Member States from granting national monopolies’. Controversially, they then proceed to present this prohibition as a jolly good thing, something which should be welcomed for those who wish to steer Britain to the Left.

The social market nightmare

I would argue that Tarrant and Biondi are dressing up neoliberalism as social democracy. The authors, of course, will have none of this. For them the EU is not neoliberal. Rather it promotes the kind of ‘social market we have in Germany, the Netherlands, and the Scandinavian countries’.

This characterisation raises questions. Is it compatible with political democracy for a supranational entity like the European Single Market to be based on a specific ideology? If so, do we really wish to model our vision of socialism on a capitalist country so happy with itself that it now has 94 members of the Alternative für Deutschland strutting around the Bundestag? Most fundamentally, perhaps, what on earth does a ‘social market’ actually mean anyway? The very term is based on a contradiction. One can choose to emphasise the word ‘social’ or the word ‘market’, thereby providing ammunition both to those who favour a market orientation and those who prefer greater governmental intervention. In other words the phrase ‘social market’ is in fact completely meaningless – and, as such, perfectly able to accommodate neoliberalism.

Tony Blair rules from the political grave

With this in mind, let us focus on the EU Single Market prohibition on national monopolies in key sectors. The turn of the century witnessed a wave of liberalisation directives obliging the opening up of national markets in gas, electricity, postal services, telecommunications, and (more recently) railways. It should be noted that most of these directives hail from the days when New Labour, which should have been abolishing Thatcherism, was seeking to supercharge it instead. They are manifestations of Tony Blair’s neoliberalism, cocooned from easy repeal by supranationalism.

The EU liberalisation directives commit Member States to open up access in those key utilities sectors to third parties. Crucially this access must be on a non-discriminatory basis. A requirement of non-discrimination makes perfect sense within the neoliberal logic of these directives. What would be the point of inviting firms to compete against a public service provider if the government is going to lavish funding on the latter alone? But the principle sits unhappily with social democracy and democratic socialism.

1945 would have been illegal under EU law

Tarrant and Biondi place insufficient emphasis on the British context when they heap praise upon the regime established by the liberalisation directives. In 1945, Labour won a landslide and, galvanised by the strength of support for socialism at the time along with the wartime spirit of state intervention, they proceeded to nationalise 20 per cent of the British economy. In particular, they nationalised key public utility sectors. Nationalisation meant public monopoly. Gas was entirely the province of British Gas, rail travel was the exclusive bailiwick of British Rail, and so on. The private sector was not allowed to operate in these sectors of the economy. This system provided a fundamental building block of British social democracy until the Thatcher revolution.

Where the 1945-51 government shied away from public monopoly – for instance in permitting lawful private-sector health business alongside the new National Health Service – this proved in the long term to be against the interests of public sector provision.  It hived off a section of the British upper and middle classes from the NHS towards private companies like Bupa, thereby depriving the NHS of the power of their class assertiveness as sticklers for world-class standards.

The crucial point, however, is that under the liberalisation directives most of the 1945 nationalisations would be struck down by the courts. Their public monopoly would be incompatible with the European Single Market.  How outrageous to argue that such a system is somehow compatible with social democracy!

British exceptionalism: the ratchet effect

The EU is part and parcel of globalisation. Although globalisation has a strong tendency to push countries towards uniformity, each country expresses globalisation uniquely. British globalisation has been heavily linked to neoliberalism through the Thatcher governments and the way in which New Labour reinforced and extended the neoliberal, marketising trends of the Thatcher period. The liberalisation directives therefore have a different effect in Britain than elsewhere. Here, privatisation of public services was extremely thoroughgoing: no public service provider was allowed to survive. Companies such as British Gas and British Telecom simply became private firms, and gradually lost their special appeal among consumers as it became clear that their priority, like that of any other private company, was profit-making. By contrast, in some continental Member States (France, for example), there was a more widespread resistance to the legitimacy of the market as the dominant force in the economy. There remained public sector providers to which consumers clung regardless of liberalisation. 

Tarrant and Biondi choose to ignore the uniqueness of the British context. Yet the contextual difference is rather fundamental. The constitutional effect of liberalisation legislation in Britain is to constitutionalise the pre-existing high level of liberalisation and privatisation. Indeed, in the British context any ‘public ownership’, to be lawful, would have to take the form of establishing a new company with no tradition of consumer loyalty attached to it.  This is not nationalisation in any way, shape, or form.

By contrast, in some continental countries the same liberalisation directives would have a quite different effect, merely providing a right for firms to pit themselves against a dominant public sector provider.  Either way, the liberalisation directives act as a ratchet, permitting motion in one way only – in a pro-privatisation direction. In that regard, they bind domestic policy for the future.

Tarrant and Biondi’s ‘social democracy’

Tarrant and Biondi actively bang the drum for the EU’s limits on public ownership. Public monopoly, they maintain, is a bad thing. This is because ‘in many cases … there is a clear public interest in opening up access to public utilities networks’.  The whole point of the liberalisation directives, however, is not that they allow opening up of access to public utilities networks but that they compel governments to open them up. But why should it be compulsory? If there are indeed exceptional areas which merit open access then that should be a matter of contestable policy on which the Labour Party and next Labour government should make up their own mind.

For the most part, however, the vision of Tarrant and Biondi of a socialism of open markets in which public sector companies are merely allowed to compete alongside private firms (and indeed the public sector companies of other countries) should be immensely unattractive to social democrats and socialists alike.  In a capitalist market in which discrimination in favour of a public sector provider is forbidden, there is so much that a government cannot do. These restrictions relate to investment, salaries, conditions, and pension provisions, as well as furthering consumer interests, not least fashioning an appropriate balance between taxpayer contributions and costs for consumers. These decisions will be constantly hampered by, on the one hand, the difficulties of operating within a capitalist market system and, on the other hand, the legitimate aim of not wishing to gift state funds to the balance sheets of private companies.

It seems not to enter the reckoning of Tarrant and Biondi that it is actually relentless privatisation, not the lack of market access to private firms, which has been the disaster for Britain’s have-nots. For that reason, any system of law which places privatisation on a more secure footing should be rejected.

Of course, Tarrant and Biondi’s vision of the limits of public monopoly will not go down badly in all quarters. In all likelihood, it would have met with the approval of Professor Friedrich von Hayek, father of neoliberalism and Margaret Thatcher’s hero and inspiration.  There is a myth that Hayek supported laissez-faire capitalism. In fact he repeatedly insisted that the State had a positive role to play in designing and continuously adjusting systems of competition. He welcomed the planning required to create such competitive systems; he was critical only of planning that was intended to be a substitute for such competition. Again, contrary to myth, he would probably have had no great objection to publicly owned companies vying with private firms so long as a system of competition was ruthlessly enforced with no favouring of the public sector. He had the sense to realise which ethos would prevail.

Capitalism along these lines has helped fashion our present world, with the super-rich co-existing with the food banks, the ‘debourgeoisfication’ of the middle class, and the relentless rise of precarity. The EU’s war against public monopoly is part of this trend, not a rejection of it. 

Danny Nicol is Professor of Public Law at the University of Westminster. He is the author of The Constitutional Protection of Capitalism (Hart, 2010).

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