Renationalisation: fairness, efficiency or ideological capture?

The UK’s opposition Labour Party wants to bring key utilities back into public ownership—a marked policy shift from the free market model of almost four decades.

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Feb 19, 2018
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The implications for senior executives are significant on many levels. For some, it is a simple issue of whether private-finance-initiatives (PFI) remains an effective way to manage utilities, such as water. To others, these are ideological waters—a siren call towards uncharted dangers. How business executives choose to analyse the implications goes to the heart of their understanding of the risks ahead. Two FT articles help to frame this discussion.

In his article, John McDonnell is right: Britain can easily nationalise water, Jonathan Ford, the FT’s City editor, considers whether renationalisation would be ‘cost free’ as the Shadow Chancellor (finance minister) states, or whether it would ‘dynamite the public finances.’ He writes: ‘The real issue is not whether Das Kapital could supplant private capital, but rather whether it would make sense. It is about what might work better for the public as both consumer and taxpayer.’

According to economist Dieter Helm, ‘governance issues posed by private capital dissolve if you replace self-interested financiers with public spirited bureaucrats. This ignores old problems such as union capture and the politicisation of pricing.’ But Ford warns that ‘private companies cannot simply dismiss nationalisation as impracticable.’

Another perspective is presented by FT’s Chief Political Correspondent, Jim Pickard, who suggests that ‘some investors in private finance initiatives might not receive any compensation if contracts are renationalised under a future Labour government.’ According to one of McDonnell’s PFI adviser, the issue of compensation would depend on the ‘balance of political forces’ at the time of nationalisation. Comparing the PFI industry to the 19th century slave trade, she explained that when ‘the slaves were freed, the slave owners got nothing. Why? Because they were in no political position to get anything.’

Go to the profile of Paul Lewis

Paul Lewis

Editorial director, Headspring

Paul Lewis is a writer and editor, specialising in business, management, economics and politics.