BBC NEWS | Business | The lessons of nationalisation (original) (raw)

Analysis
By Steve Schifferes
Economics reporter, BBC News

The National Coal Board was created in 1947

Miners cheered when the National Coal Board was created in 1947

Nationalisation, once the central dividing line between Labour and the Conservatives, is now out of fashion, after Tony Blair's campaign to modernise Labour in the 1990s.

Under Mrs Thatcher, most government-owned firms, including gas, electricity, telecoms, coal, steel, airlines, and cars, were privatised and sold off.

But nationalisation has actually been used by governments of all political orientations in the UK for different objectives, both long and short term.

In the past, government has often used nationalisation to provide infrastructure, such as transport or communications, that support enterprise, as well as bailing out failing firms.

Among the key lessons of previous nationalisations are:

Nationalisations of failing firms have been less successful than nationalisation to provide infrastructure
The cost of nationalisation has varied considerably
A key problem for nationalised firms is the scale of investment and innovation
Nationalisation's effect on the economy often depends on whether it has inhibited competition.

NETWORK RAIL, 2002

The last privatisation by the Conservative government in 1996 created a complex system of companies to run the railways.

Rail passengers await coaches at Rugby

Network Rail has not been the solution some hoped for

Among them was Railtrack, whose job it was to maintain the track and stations, and receive payments from the train operating companies for their services.

But the model broke down when costs over-ran and Railtrack was unable to get enough revenue from the train companies to make a profit. In 2002, Labour's then Transport Secretary Stephen Byers announced that he was replacing Railtrack, which was put into administration, with a not-for-profit organisation, Network Rail, underwritten by the Treasury.

The government denied this was nationalisation, but Railtrack shareholders sued for compensation and eventually received most of the value of their shares at the time it stopped trading.

JOHNSON MATTHEY BANK 1984

In the 1960s chemical firm Johnson Matthey, which specialised in gold and other precious metals, set up a banking business in the City.

Gold bars

Temptation to speculate on the gold price is always strong

By the 1980s much of the firm's income was derived from speculative activities by its bank related to the gold price and high-risk loans.

In 1983 these loans began to go bad and in September 1984, the Bank of England organised a rescue package which included purchasing the insolvent bank for �1.

This short-term intervention did not cause any problems for the Conservative government.

Johnson Matthey has continued to trade as a profitable firm, with revenues of �6.1bn in 2006 and profits of �205m, and has even joined the FTSE-100 group of top UK companies.

ROLLS-ROYCE, 1971

Aircraft engine maker Rolls-Royce was nationalised by Edward Heath's Conservative government in 1971 after it hit difficulties over the development of its RB211 engine as development costs over-ran.

Rolls-Royce Trent 500

Rolls has been winging its way to further profits growth

The car division was separated in 1973, and the company was privatised again under Mrs Thatcher in 1987.

Rolls-Royce has gone on to become one of the UK's most successful international companies, the second-largest supplier of aircraft engines in the world after GE in the US, and has diversified its range.

It also has production facilities around the world, including Germany, the US and China.

The aircraft industry has always been heavily subsidised - directly or indirectly - by governments in its initial development phase, as the continuing disputes between Boeing and Airbus attest.

BRITISH LEYLAND, 1968/1975

The creation of British Leyland, amalgamating all British car brands in a single company, is one of the biggest disasters in the history of nationalisation.

The UK's car industry lagged far behind its competitors

The company was first created in the private sector, at the urging of the Labour government in 1968. It soon became clear that the sprawling firm lacked the resources to modernise in order to compete with international car companies like Ford and Vauxhall.

In 1975 the government nationalised the firm, eventually spinning off Austin-Morris and Jaguar-Rover-Triumph into separate parts, as well as bus, truck and refrigeration divisions.

But plagued by poor industrial relations and unimaginative designs, the company's market share fell sharply.

The company was initially sold to aircraft manufacturer BAE.

Eventually some parts of the company were sold off, ultimately ending up in the hands of foreign investors, with BMW acquiring Rover and Mini, Ford buying Jaguar and Land Rover, and the Chinese acquiring MG.

Currently the UK is undergoing something of a revival of car production, but it is all under foreign ownership.

BRITISH RAIL and NATIONAL COAL BOARD, 1947/1948

The nationalisation of the mines and railways by the Attlee Labour government in the 1940s initially provoked little controversy.

Modernising the railways after nationalisation went slowly

The mining industry had been in deep financial difficulties for decades, with many small, unprofitable mines closing and continual industrial troubles.

Both industries had been nationalised and run successfully by the government during World War II.

The rail network had also been heavily bombed.

But attempts at modernisation, including the phasing out of steam and closing of redundant lines, went slowly amid much public opposition.

Mining also received limited investment after nationalisation, and was rapidly run down by the Conservative government in the lead-up to the 1984 Miners Strike.

LONDON TRANSPORT, 1933

The control of all public transport in the London region except railways passed to the London Passenger Transport Board in 1933 - although the bill was first proposed by Herbert Morrison, the Labour government's transport minister, in 1931.

London Transport buses in 1930s

London Transport unified the bus and tube network in 1933

London Transport brought together a welter of 92 competing bus and tube lines, most of them in economic difficulties, in an attempt to rationalise and plan the regional transport system.

It began a period of rapid expansion in the 1930s, as tube lines reached out to "Metroland" through extensions of the Bakerloo, Central, Northern and Metropolitan routes to the suburbs and the creation of linking bus routes.

Growth slowed in the recent post-war years, with only the Victoria and Jubilee lines introduced, and funds for modernisation began to lag behind.

However, compared to other UK cities, London Transport was undoubtedly a success, with a higher proportion of journeys by public transport than anywhere else.

POST OFFICE TELEGRAPH, 1869

The Liberal government had no compunction about nationalising the private telegraph companies and granting a UK monopoly to the Post Office in 1869.

Post Office Telegraph offices spread throughout the UK

The reason was that the Post Office was expected to be more efficient, and that competition between domestic telegraph services was seen as inefficient and expensive.

The government bought out the private companies, and created a mass market telegraph service which had 2,800 offices and sent 6 million telegrams in its first year.

According to historian Paul Starr, the UK's post office telegraph service was cheaper and more widely used than the private monopoly in the US, Western Union.

However, he points out that its very success may have made the Post Office more reluctant to develop and expand telephone services in the early 20th century.

UK private companies such as Cable and Wireless also dominated the international telegraph network which flowed through London to the Empire.