Our common future

How do the Labour party’s five missions fit with ‘common ownership’, and how should they? The Labour party constitution’s original clause IV, written by Fabian and LSE co-founder Sidney Webb, made a straightforward demand for ‘common ownership of the means of production, distribution and exchange’. In 1995, it was revised to remove this commitment, although the new clause IV did establish the goal of (among other things) ‘a community in which power, wealth and opportunity are in the hands of the many, not the few’. Nearly thirty years on, we have still not resolved the proper dividing line between public and private ownership. What should we nationalise, localise, privatise or cooperatively own? And whoever owns them, how should our enterprises be governed? For most of history, redistributing power, not just ownership, was seen as essential to democratic, socialist and labour parties around the world, and in the next two years we will make decisive choices.

Currently, Labour policy centres on missions for growth, clean energy, an NHS fit for the future, safer streets and creating opportunity for young people. Keir Starmer’s pledges during the leadership election were for ‘common ownership’ of ‘rail, mail, energy and water’, removing university fees and ending outsourcing in the NHS. Can these two agendas fit together, and if so, what exactly should common ownership mean? We can see how badly many privatisations failed. Yet most agree that “nationalising everything” is not the best way forward, and top-down Whitehall control over nationalised industries’ governance did not make British Rail, or the CEGB, beloved before. Labour’s best path is to develop its plans early, to build and share the narrative with voters, and be pragmatic. The empirical case for common ownership is strong, yet there is no ‘one size fits all’ approach. We should guide ourselves with long-standing principles and human rights.

Who should own the stakes in enterprise, and share in power?

Adam Smith wrote in The Wealth of Nations that public ownership and control worked well for banking, insurance, canals, and water, as well as public works ‘necessary for facilitating Commerce in general’, including roads, harbours, the post, and defence. Forgotten now by many, this argument was made before electricity, rail, modern health care and universal education. Smith did not provide much of a theoretical underpinning, but he castigated big corporations and stressed that labour was always in an unequal position because unequal distribution of property meant employers could ‘hold out’ longer in any negotiation. In 1848, John Stuart Mill went further, arguing that anything a big corporation could do, a government could do better. Government conduct was subject to ‘greater publicity’, while corporation members often had difficulty in taking collective action to remove underperforming directors.

The Fabian co-founders, Beatrice and Sidney Webb, built on this liberal tradition: they argued that shareholders were inherently reckless, particularly uncaring for workers, and advocated progressive public ownership of enterprise. They did not clearly state where (if at all) this should end. They identified three main stakeholders: the investor (which, for them, needed to progressively become the state), the worker, and the consumer. Initially, they said less about governance, but belatedly came to favour workers on boards, pointing to the example of success at Swiss Railways. It was Karl Kautsky, a member of Germany’s Commission on Socialisation, who first wrote that in public enterprises the investor, worker and consumer should have voice in governance, and that where possible, local should be preferred to national ownership. However, in the UK, it was the arguments of Herbert Morrison that became the most influential in the mid-20th century. There could be consultation with workers or consumers, he argued, but they should not have voting rights, because directors had to be ‘experts’. Apparently, the relevant minister – someone like, say, Herbert Morrison ­– was uniquely qualified to choose these experts. This became Britain’s postwar pattern, with a few exceptions, notably in education and health. It did little to solve the problem posed by none other than Albert Einstein in his essay ‘Why Socialism?’: within a socialist part of the economy, how could we ‘prevent bureaucracy from becoming all-powerful and overweening’, and secure the ‘rights of the individual’?

As public ownership spread worldwide, there were two main shifts from the mid-20th century. First, the Universal Declaration of Human Rights 1948 enshrined rights to fair pay, social security, education, food and water, medical care, and the ‘right to the benefits of scientific progress’. This ‘Magna Carta of all’, as Eleanor Roosevelt described it, was ratified in two international treaties. Human rights gave us a destination, but not the map to reach it. Second, economists argued that markets (that is private property, corporate law, and ordinary contract and tort law) usually worked, but sometimes failed. They identified ‘failures of competition’ including natural monopolies (when it is cheaper for one firm to conduct the service than many, for instance if the sector is a network); externalities (e.g. from polluters who do not pay); systematic imbalances of information; goods or services being under-produced because sellers cannot capture revenues (so called ‘public’ goods); or rampant unemployment, inflation or macro-economic ‘disequilibrium’. To this we must add both behavioural irrationality and the unequal bargaining power from maldistribution of property that animated Smith, Mill and the Webbs. But just seeing ‘market failures’ does not tell us the right policy response. Is it common ownership, a regulator with price fixing powers, different legal rights, or a mix?

Now in the 21st century, we have unparalleled data, and historical experience across many countries, which gives us better, more evidence-based theory. Instead of asking ‘when do markets fail’, we may ask ‘when does competitive private or cooperative enterprise work’? The essential condition (and the flip side of natural monopoly, network effects and unequal power) appears to be that assets and finance for production are broadly equally distributed, so that people may start up competing enterprises. In other words, when this condition is not fulfilled, the enterprise will function at lower cost, with better quality, using a common (public or local) ownership option. This is a key public finance principle. We may look at the richest, and most equal countries around the world, which nearly always have public ownership of the same sectors to a high degree. Britain, as we know, is a radical outlier because of its ideological (and ultimately damaging) commitment to privatisation, and we have worse results in our services as a result: declining education standards, falling NHS standards since 2012, less electrified transport, dirtier energy, rivers full of sewage, and so on. The following table shows countries and sectors with significant public ownership (✓), a marginal or underfunded public option (-), or no significant public ownership (x). In short, richer countries tend to have more public enterprises in these key sectors.

Informed by international data, human rights, and historical experience, we can apply this principle of public finance to our attempts to rebuild the British economy and our view of common ownership. We must also be mindful that Britain is among the minority of poorer OECD and European countries that has no general law for workers to vote for members of the board of directors, even in large companies. Most such countries guarantee the right of workers to elect one-third to one-half of their board. If the US Democrats could legislate, it would be the norm there too; supporters include Elizabeth Warren, Bernie Sanders, Kamala Harris and Barack Obama. There must also be standards for shareholding institutions such as BlackRock or Legal & General, that manage other people’s money in pension or mutual funds, to follow the voting instructions of elected representatives. We already have a minimal law for one-third representation, elected by beneficiaries, in most pension funds, and a minister can raise this threshold to one-half and close loopholes such as for USS and NEST. This, and the legal right to instruct how shareholder votes are cast, are key to ensuring that all of our capital funds, which are owned in common, are democratic. And in public services, where competition fails, and consumers cannot truly ‘vote with their feet’, service-users too need votes for real. Worker and service-user voice is a key public governance principle.

So how should these principles apply in rail, mail, energy, water, universities, and the NHS?

1. Rail

Rail is a classic natural monopoly where it makes little sense to have competing tracks and trains. Countries with public rail usually have more electrified track, a sign of investment instead of pocketed shareholder profits. The current Labour policy is to restore rail to public ownership as train operating company franchises expire. The Railways Act 1993 currently enables every government in the world to own our trains, except UK and English governments. Removing the absurd ban on British rail ownership is a start (and the similar limit on public buses imposed by the Bus Services Act 2017). This will cost £0 and zero pence, and has huge public support, as do common rules for timetables and fares like those found under the Greater London Authority Act 1999.

Workers need to have the right to vote for representatives on train company boards (ideally one-half) and so do passengers (ideally one-quarter), with the balance best chosen by the Department for Transport, consulting the Transport Committee. A leading cause of strikes in Britain is the absence of workplace democracy to resolve issues before they break out into industrial conflict. In other countries, workers typically have a personal right to vote, and in larger enterprises this may be delegated to their union by default. This complements good faith sector-wide collective bargaining and fair pay agreements. Passengers’ interests are best strengthened by elected representation on the board, for instance via a council for which all passengers get votes with their tickets.

2. Mail

Mail is the second most common sector in rich countries to be publicly owned. Mail is a strongly networked industry: the value of a postal service grows the more people send post through it. In the UK, the Post Office remains public, while what was Royal Mail is now ‘International Distributions plc’. In February 2023 market prices, the latter would cost £2.2bn to buy, and in March 2023 its management announced that it was close to insolvent. The February price is roughly the same as the £2bn spent on shareholder dividends since privatisation in 2013, not to mention days lost to strikes. Workers currently hold 8 per cent of shares, most given out through the attempt to buy off opposition to privatisation (a common ploy). Despite the share scheme, workers have no actual representation on their board of directors. The Post Office briefly had 7 worker representatives out of 19 directors on its board, before Thatcher axed them, despite the clearly positive evidence. Under public ownership, representation for service-users of the post would also bring welcome public involvement and accountability.

3. Energy

The energy sector is central to the universal right to ‘share in scientific advancement and its benefits’ as established by the Universal Declaration of Human Rights, and has three main parts: the generation of energy (including oil and gas drilling), high-voltage transmission through the National Grid, and retail distribution, typically from British Gas, EDF, E.ON, SSE, or Scottish Power (the ‘big five’ that also undertake generation). Labour’s current proposal for GB Energy focuses on generation, with a commitment to 100 per cent clean energy. With proper funding and governance, it will likely outcompete existing fossil fuels polluters. This is smarter and cheaper than nationalising the big retailers, especially since their gas, wood and coal fired power plants must be shut to clean our air and end greenhouse gas emissions. Bill-payers may switch to providers who buy from GB Energy because they like the policy, but many are likely to do so simply because they will be able to offer cheaper rates.

We must still consider the status of the big oil polluters, especially BP and Shell. BP was part-nationalised by Churchill in 1918 but sold by Thatcher in 1979. Shell recently shifted its headquarters from Amsterdam to London, after the Hague District Court ruled it must cut emissions by 45 per cent by 2030 to abide by the IPCC targets. One option is for BP and Shell to be taxed and regulated towards an orderly phase-out. The current Oil and Gas Authority’s astonishing mandate is ‘maximising the economic recovery of UK petroleum’ (inserted into the Petroleum Act 1998 in 2015). This contradicts the Paris Agreement, and so a new OGA task should be to phase out oil and gas, with exceptions for national security. A second option is for the UK government to create a ‘golden share’ (which gives specific control rights) in each oil company to ensure a rapid clean transition, with all revenues going to renewable infrastructure. The Danish energy company Ørsted (of which the Danish government owns half the shares) did this in about 10 years. This golden share would cost £0 to establish, but could invite legal challenges, for instance under the Energy Charter Treaty. The EU is set to denounce this, and so should the UK. A third option, that also pre-empts litigation, is law reform to make oil polluters pay for the climate damage they cause, including punitive damages if they deliberately set out to make a profit from wrongdoing. Share prices of BP plc (now with a market capitalisation of £102bn) and Shell plc (£174bn) would drop towards zero. A common myth is that this would harm pension funds: this is largely false, because properly diversified portfolios will capture the upside of renewables’ rise.

Then there is National Grid plc a giant multinational energy company priced at around £38bn. The electric grid provides only a small share of this value; the company also owns 40 per cent of the gas network. The Conservative government has already proposed a ‘Future System Operator’ to take over an (undefined) part of the electric grid on the basis that, since public investment is needed, the fruits of the investment should be publicly owned. Other National Grid plc businesses using fossil fuels could fall under a new duty to convert all supplies now.

4. Water

Water is a universal right, and its supply, like rail and mail, is a natural monopoly. The outcomes of privatisation are sewage filled bathing waters, bog standard drinking water quality, and leaks around the country. There are several options. First, enforcement of water quality duties, effective and dissuasive penalties, and restriction of all dividends until pipes stop leaking would impact share prices enough to generate a response. Without political intervention, share prices reflect future expected dividend streams, but do not account for pollution and waste. Second, the companies could at this point be brought into public ownership at a fair market price. Third, the water companies could simply be compulsorily purchased without compensation, if it is reasoned that significant investments are needed that outweigh market value. The European Convention on Human Rights requires that compensation for compulsory purchase is paid to reflect a fair value in the public interest, because it recognises that market prices can include gross distortions. New public water companies, like others, will benefit enormously if workers elect half, and bill-payer groups elect a quarter of the directors. A useful model is Eau de Paris, recently taken into local government ownership.

5. Universities

The right to free education is a core part of international law, and includes the ‘progressive introduction of free’ higher education: see article 13 of the International Covenant on Economic, Social and Cultural Rights 1966. Currently, UK universities have inflated fees and international student numbers; yet paradoxically, investment in teaching has plummeted, leading to a 30 per cent real-terms pay cut for an early-career lecturer since 2010. An analogy may be made with the ‘resource curse’ that can afflict resource-rich developing countries, where the discovery of oil often triggers a descent into authoritarianism as elites capture the resulting wealth and use it to augment their power. With unaccountable university governing bodies, the revenue raised from the tripling of home student fees from £3,000 to £9,250, and international undergraduate fees standing at around £25,000, has seemingly vanished into managerial bureaucracy and fancy buildings rather than being used for teaching or research.

A first step, mirroring most rich countries, would be public funding for home students from fair tax, not forced fees and permanent debt. A second step would be to make international agreements with other countries that charge no fees for their own students and open fee-free study for British students. A deal could be made to settle any imbalance if more students come from such countries to Britain or vice versa. Removing fees removes the indirect discriminatory impact that wealth barriers have, including based on race. This is exemplified by the fact that, once at university, non-fee-paying school students tend to outperform those who attended fee-charging schools. The fees of 1.5 million home undergraduate students total £14bn a year. More is wasted on administering these fees and 47 per cent of student debt is projected to not be repaid anyway. In the US’s extreme system of wealth-based access, parental income and college access correlates exactly. The UK will benefit from doing the opposite.

Third, there must be reform to university governance and funding councils. Cambridge and Oxford have majority-staff elected governing bodies, plus representation for students, typically from the student union. But in other universities, a majority of members of governing bodies appoint their own successors, under the charade of being ‘independent’ members. They have zero accountability to staff, students or the public. Two other interesting models are that of Harvard University, where the president is approved by the alumni-elected Board of Overseers, and the Higher Education Governance (Scotland) Act 2016, which requires at least four representatives of workers and unions, and two from students, on each governing body. Yet most UK universities have a haphazard patchwork of Royal Charters, Acts of Parliament, and company constitutions, with no consistent rights. Governing bodies are best to be at least one-half elected by staff, and then up to a quarter voted in by alumni and students.

6. NHS

The universal right to health and care is better provided through the NHS than a privatised service or an insurance system when Labour is in power. It is deeply vulnerable whenever the Conservatives gain office, and their privatisation schemes have starved NHS resources in three main ways. First, there was the rise in the private work that NHS hospital trusts were allowed to undertake in 2012 from 2 per cent to 49.9 per cent. Second, the Tories established relentless outsourcing and subcontracting to private corporations of health, data management and other functions. Third, they continued the use of the deeply problematic Private Finance Initiatives introduced by John Major’s government and perpetuated by New Labour. Since 2012, life expectancy has stagnated, and the NHS has cost ever more for worse outcomes. Put simply, a public NHS as Beveridge intended is cheaper and better. The alternative systems that do well are NHS systems, or public health insurance systems that prevent private profit among hospitals or doctors.

Like universities for alumni or students, the NHS has patient and public representation as well as votes for staff. This is chiefly seen in NHS hospital trusts, which have elected staff representatives plus some local authority and university delegates in their governing boards. The new Integrated Care Boards, though, which now oversee regional spending, do not yet make this provision. Best practice would be one-half representation for staff, up to a quarter for patient groups or local authorities, with the balance of directors determined by the Department for Health and Social Care.

7. Other sectors

There are several further, notable sectors where common ownership, rather than private, competitive enterprise, works best among rich countries. For example, we have a publicly owned central bank, but no significant public retail or investment bank to hold down market rates. Or consider that, at a time when our telecoms networks require huge spending to shift from copper to fibre-optic cables, the main infrastructure company, Openreach, remains part of BT Group. Free Wi-Fi from local councils could replace private contracts at low cost with high speeds, and generally countries or towns with public internet (such as Singapore, Romania, or Chattanooga in Tennessee) have faster internet. Third, the BBC and now Channel 4 seem secure, but social media and big tech still present big problems for the integrity of news and information. Fourth, local governments need stable funding to restore all manner of services, such as child, disabled, and elder care. Roughly one-third more local council funding could come from requiring supermarkets and top waste-creators, such as Amazon, to pay councils for waste collection because they (not council tax payers) generate it. We may expect that the waste-creators will suddenly find fast ways to cut the plastic and cardboard that they now pretend is essential. Finally, the justice system needs to have legal aid restored, and all court staff treated as employees with respect.

The most corrosive idea of the Conservatives is that government cannot do anything. They probably believe that because whenever they are in government, they fail. Long-term, we also must think about how to dismantle the power bases of the ideology which has caused this mess. Three of these are wealth discrimination in education, unaccountable banks and boardrooms, and the toxic fossil fuel polluters. With common ownership and democratic power, we can go a long way towards solving these problems and expanding our imaginations for what a good society can be.

Image credit: Kevin Prince, CC BY-SA 2.0 via Wikimedia Commons

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