Thursday, 2 May 2013


A nationalised industry is an industry owned by the state that produces a marketable, priced output. Over the course of 40 years from the 1940s to the 80s there was a lot of action in the field of nationalisation. Post World War 2 saw a lot of industries brought under state control: coal, gas, buses and the Bank of England to name but a few. Between the 50s and the 70s there was some backtracking and indecision from the government. Road haulage and steel were denationalised, but then steel was nationalised again in 1967. Further nationalisation took place after 1970 when shipbuilding, aerospace, Rolls Royce, British Leyland and water were all brought by the government. By 1980, 8% of the workforce were in public industries and they produced 11% of Britain's GDP.

The aim behind this process was to achieve a fairer society. This was what Labour wanted. They were also attempting to improve economic performance - for example coal was performing poorly under private sector control and the energy and transport industries had plenty of scope for coordination. The problem was that a lot of other countries in Europe had high levels of public ownership in this era also but there is no evidence to suggest that nationalisation had any positive effect on economic performance. Of course the vast range of sectors made overall performance very hard to measure, may I add.

The policy had its supporters... and its critics. Milward shows that public sector productivity growth, as a whole, is better from 1951-1985. Hannah, another historian, shows that on a global scale Britain's utilities and airline sectors had poor productivity. The consensus seemed to be that nationalisation didn't have any transformative effect on economic performance.

So, what were the problems with nationalisation? In summary, you could say the problem was that the task was too big. The initial organisational challenges were huge - some firms needed to be combined to improve efficiency which was no easy feat. To oversee the whole operation expert managers were needed, but managers that were good enough were in very short supply.

As stated earlier, the process of nationalisation had an aim of improving economic performance. Efficiency needed to be promoted - but how did public firms differ from private firms in order to create this change? A series of nationalisation White Papers were released (1961, 1967, 1978) detailing the responsibilities of public corporations. It outlined the following:
·         Investment projects had to be subjected to a series of accountancy tests that would be used in the private sector to ensure a worthwhile rate of return.
·         The firms marginal cost would be used to determine output.
·         Cross subsidisation was discouraged.
·         Firms should be aiming to break even over a planned period of time.

But, as with most things - this didn't quite work out as intended. Each point mentioned above seemed to encounter a difficulty. Forecasting the rates of return was difficult because the markets were constantly changing. With such complex outputs, measuring the corporations marginal cost was a challenge. It was virtually impossible to define conditions for loss making activities and any loss makers weren't penalised, nor firms that exceeded targets rewarded. The government was using the nationalised industries to achieve short term goals and this was undermining the White Papers.

The three main short-term goals the government was trying to achieve with these industries was technological nationalism, macroeconomic stability and social rescue. By technological nationalism we mean nationalised firms being forced to buy British products as opposed to those from abroad to try and push the firms and make them more attractive to exports. The problem with this is British products, such as planes, tended to be more costly than those from abroad, and pretty frankly they were rubbish. The macroeconomic stability was controlled by using nationalised firms investment programmes in line with the 'Stop-Go' cycle. Finally, they attempted to achieve social rescue by    keeping jobs in declining industries in unemployment black spots to stop the unemployment levels from rising and creating depressed regions, despite these declining industries essentially holding the economy back.

To conclude, nationalisation wasn't really a massive failure or a success. The thought was that bringing these firms under state control would be beneficial, but in reality they still shared the same problems they faced under the private sector. The use of these industries to meet short term goals potentially hindered the success of the program.  

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