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4 Reasons to Nationalise Some Industries

Dr. Thomas Swan studied cognition and culture at Queen's University Belfast. He enjoys exploring the interplay between politics and culture.

Left-wing politicians are usually more in favour of nationalisation.

Left-wing politicians are usually more in favour of nationalisation.

Forget the ideological waffling of your favourite orator, or the political dogma drummed into you by your parents. Most people will admit some things should be nationalised (e.g. education) while other things should be in private hands (e.g. food production). Unfortunately, most have no idea why this division exists; they instead rely on their political persuasion as a shortcut to answering questions on the matter. Far fewer people support their opinions with sound economics and political philosophy.

The point of this article is to help people abandon ideological commitments by developing a deeper understanding of the arguments for and against nationalisation.

1. Social Responsibility

Whether we like it or not, some challenges require a social effort. During wartime, for example, industries have been nationalised to ensure all resources go into the war effort. Other challenges, such as climate change, last much longer than wars. Climate change requires that we move from fossil fuels to renewable sources of energy before the consequences become too severe or too permanent. However, as the past two decades have shown, energy providers cannot be trusted to develop and invest in renewable energies if such an investment is likely to dent their profits. They continue to produce and sell fossil fuels because that is what makes them the most money.

Energy companies lack “social responsibility” because they threaten our collective future for their short-term gain. What’s more, their short-term gain will likely insulate them from the initial consequences of climate change, while billions of poorer people suffer them fully.

Other industries have social responsibilities too. For example, banks are responsible for protecting people’s savings, a transport network (safe roads and rails) is necessary for keeping the economy moving and waste collection is needed to ensure public health.

Global Temperature, 1880-2014. Does climate change require nationalisation of energy?

Global Temperature, 1880-2014. Does climate change require nationalisation of energy?

2. Individual Rights

Libertarians are very protective of individual rights. The only problem is they don’t think we have many of them! Their opposition to nationalisation means they don’t think people are entitled to the public services that many countries take for granted.

Europeans commonly believe everyone has a right to education, healthcare, employment prospects, and social mobility. In more libertarian nations, such as the USA, these rights are held in less regard. As a result, people born in underprivileged areas tend to suffer from a poor education, no healthcare, and minimal chance of a satisfying career.

Most would say there’s no justice in letting wealth determine one's prospect of having a good life. Unfortunately, far fewer people are willing to take a stand against it. Thus, the level of nationalisation depends on the rights that people think they’re entitled to, but also on whether those rights are deemed worth fighting for.

Socialist Sanders vs Libertarian Paul

3. Guaranteed Demand

Most products are sold because a consumer chooses to purchase them. Consequently, if the price of bread quadrupled, many people would choose to stop buying it. Capitalism ensures a competitive, innovative, and largely fair market for products of this kind.

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Unfortunately, there are products that don't fit into this model. Consumption of electricity, gas, and water isn’t a choice that people make; it’s a necessity. This means that companies offering these products have “guaranteed demand”, making it impossible for them to fail. If they quadrupled their prices, people would be forced to pay. The only reason they don’t is that they’d lose money from those who couldn’t afford it, and because the state would be forced to nationalise the industry to stop millions freezing to death. Nevertheless, having people over a barrel means they can push up prices as much as is profitable, which usually means letting only the poorest and most vulnerable freeze to death.

If an industry has guaranteed demand, it doesn’t fit into a capitalist system. It becomes a public service rather than a business, and to extract profit from a public service is immoral because there’s no risk attached. In essence, it’s a gravy train for those with the wealth to enter the industry.

Although utility companies clearly enjoy guaranteed demand, and this is a good argument for nationalising them, most other industries don’t. For example, people don’t have to invest in banks, use a landline phone, or ride public transport. Healthcare may be different because people are guaranteed to have injuries and diseases that require treatment. Furthermore, some are born or grow up with disorders and diseases through no fault of their own. Guaranteed demand is thus a good reason to nationalise healthcare.

Should people born with healthcare needs have to spend their lives paying for it?

Should people born with healthcare needs have to spend their lives paying for it?

4. Preventing Oligopolies

An oligopoly occurs when a small number of companies dominate a particular market. For example, six utility companies share 95% of the UK electricity market, while four airlines operate the majority of US flights. This can result in a lack of competition, price collusion, restriction of production, and aggressive tactics to prevent new companies entering the market.

Sometimes, governments contribute to the creation of an oligopoly by making it difficult for new companies to obtain a government license. However, industries with guaranteed demand are also more likely to result in oligopolies because of their capacity for interdependence. They may have the same suppliers, together with perfect knowledge of each other’s costs, market share, and likely market actions. Thus, reducing costs is avoided as it might encourage a needless price war, while increasing costs can be seen as safe if the other companies do the same. Furthermore, as demand is consistent, there is limited opportunity for new companies to enter the market and limited capacity for existing companies to fail.

As each company wants to maximise profit, competition is avoided in an oligopoly, effectively turning the industry into a quasi-nationalised entity with the unwelcome caveat that profits are extracted for personal gain. One of the main arguments against nationalisation is that competition between private companies drives innovation and low prices. Non-competitive oligopolies remove these benefits. Thus, if an industry moves towards becoming an oligopoly because it has guaranteed demand and not because of government interference, then it makes sense to nationalise it to ensure all profits are reinvested.

Which Industries Should Be Nationalised? Examples:

  • The Energy Sector should be nationalised. It’s neglecting its social responsibility to produce clean energy, and it’s enjoying guaranteed demand that has resulted in the formation of non-competitive oligopolies in most developed nations.
  • Healthcare should probably be nationalised. If the public consider healthcare a right for every human being, the argument is clear. Furthermore, healthcare has guaranteed demand that has resulted in some non-competitive oligopolies.
  • Transport is a difficult example. Providers could be allowed to fail. Guaranteed demand isn’t certain, and people could conceivably find other means to travel (e.g. cycling, taxis, purchasing a car, carpooling, or car rental). However, this would adversely affect the poorest in society who rely more on public transport; so there may be a level of social responsibility that sways the argument in favour of nationalisation. Conversely, the creation of oligopolies in some areas of transport may be more to do with equipment costs and the conditions for obtaining and retaining a government license.
  • While transport companies could conceivably remain in private hands, the transport network could not. The economy would fail if roads and rail lines were not properly maintained.
  • Banks have a social responsibility to protect people’s savings. However, they don’t have a responsibility to be risk-free; only a responsibility to be honest. In other words, banks should inform savers of the risks involved when investing with them, and risk-taking banks should be clearly labelled so as to differentiate them from safe-havens. People should also have a choice to place their savings in publicly owned banks that adhere to even stricter regulations.
  • It follows that if a bank misrepresents itself and loses money it’s not permitted to lose, it should be bought by the public at below the market value (i.e. its value minus a large fine) so that future adherence to regulation is guaranteed. Furthermore, if a bank takes part in illegal schemes, such as manipulating the Forex market, or money laundering for drugs cartels, then they’re making savers complicit in this activity and should have to endure nationalisation.

Jeremy Corbyn on Nationalising Energy

Moving Away From Ideology

Ideology is a way to remove thought from politics. When a subject is saturated with ideology, the specific reasons for a policy position become lost in the crossfire. Unfortunately, ideological commitments have defined the approaches of the `left’ and `right’ to nationalisation for decades (left is for; right is against), damaging our ability to see the pros and cons of each position in each context.

This article has sought to use political philosophy and economic arguments that can be understood, interpreted, and applied in an unbiased way to describe why some industries should or shouldn't be nationalised. It’s hoped that governments will choose to address these arguments when considering nationalisation or privatisation, rather than subjecting citizens to their particular brand of ideology.

This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.

© 2015 Thomas Swan

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