All for a good lost clause

The Political Economy of Nationalisation in Britain, 1920-50 - Public and Private Ownership of British Industry, 1820-1990
May 26, 1995

By 1995, clause four was a policy which dare not speak its name. How different the world was in 1945, for by the time Clement Attlee left office in 1951 industries employing 10 per cent of the workforce and controlling about 20 per cent of all capital expenditure had been nationalised. Not surprisingly, Joseph Schumpeter in 1947 foresaw an unstoppable "march into socialism", as workers by hand and brain advanced to secure the full fruits of their labours. He was, of course, wrong: not only did the advance turn into retreat, but it was never clear that clause four was the marching song on the route to a new social order. Rather than a single-minded ideological pursuit of socialism, it appears from these two books that the mixed economy was the product of contingency and pragmatism, a response to previous policy failures and institutional rigidities. The great virtue of nationalisation was simply that it offered an escape from existing difficulties, rather than an end in itself.

Such an interpretation will not come as a great surprise, but the two books provide a depth of analysis which is not available elsewhere. The more original but less accessible is James Foreman-Peck and Robert Millward's monograph on the "network" industries of railways, gas, water, telecommunications, electricity and broadcasting which require a capital-intensive distribution system to channel services to consumers. The book is somewhat misleadingly titled, for its starting point is the need to redress the bias of economic historians who have spent more time on manufacturing than on the infrastructure, whose capital stock was greater and which provided crucial inputs both for manufacturing and for urbanisation. The interest of Foreman-Peck and Millward in public ownership arises largely from the problem of funding and regulating capital intensive natural monopolies, which had the potentiality for exploiting consumers or neglecting social costs for public health. Should the state attempt to sponsor competition, as it did up to the 1860s; should it shift to regulation and municipal ownership, as between the 1860s and 1914; should it sponsor rationalisation of both public and private undertakings, as in the 1920s and 1930s; should it opt for outright nationalisation, as after the second world war; or embark on privatisation, as from the 1980s?

Foreman-Peck and Millward provide quantitative estimates of the performance of these institutional arrangements, by comparing public and private utilities within Britain and with other countries. The statistical data are new and important, and raise major issues of interpretation both of the expansion of public ownership and of the performance of network industries. The results will not provide comfort to ideologues on the new right, for the performance of private and public firms was similar in gas and electricity in the early 20th century, and the private British railway system performed less well than its nationalised counterparts in Continental Europe. The productivity gap between the British and American electricity industries was narrowed by the publicly-owned Central Electricity Board; and the productivity record of the nationalised industries after 1945 matched both manufacturing in Britain and similar industries in the US. But the old left should not rush to these statistics for succour, for it also emerges that nationalisation of telecommunications under the deadhand of the Post Office was not a great success.

Unfortunately, the results are not always explained in lucid prose or developed into a sustained analysis, and they are best read alongside the lucid case studies of major episodes of nationalisation (and failure to nationalise) in Millward and Singleton. The coverage is wider, extending beyond the network industries to coal, cotton, steel, armaments and motor vehicles. An interesting general interpretation may be teased out of the two volumes, which can be integrated with changes in social policy in order to create a general account of the changing boundaries of the state in 19th and 20th-century Britain. After all, there was a similar renegotiation of the boundaries between the private market, non-profit organisations, local government and the central state in the provision of health care or pensions, and a comprehensive political economy of modern Britain needs to integrate them into a single account. One of the greatest measures of nationalisation was the expropriation of the voluntary infirmaries, and the movement of public hospitals from the local to central state.

Nationalisation was part of a drive for efficiency, a proposition which seems puzzling in retrospect. This expectation rested on confidence (sometimes misplaced) in economies of scale which could not be achieved either by the market or by arms-length government regulation. The initial attempt to protect consumers by sponsoring competition between private utilities failed in the early 19th century, with the emergence of cartels and ineffective regulation. In the case of railways, the outcome was that expensive plant built during the competitive era meant over-capitalisation and low profitability, compounded by regulations which reduced freedom of action. In the case of gas and water undertakings, one response was municipal ownership which had the advantage of supplementing local taxation; another was to enforce stricter controls by regulating prices and granting fixed-term franchises. These solutions were soon to impose their own problems, for the scale of concerns was too small for technical efficiency by the 20th century. The story is one of unintended consequences: a means of public intervention might appear sensible at the time, but created institutional rigidities which could not cope with changes in technology.

What needs to be explained is not only public ownership and nationalisation, but the form it took; after all, clause four was not prescriptive and simply referred to as the "best means".

There was the "Post Office" model (which was adopted for telecommunications) of direct control through a government department. This, had seemed a model of efficiency in operating the Penny Post but there was serious criticism of its management of telecommunications. Armaments were produced within state-owned and operated plants such as the Royal Ordnance Factories and Royal Dockyards, through government-owned factories which were operated by private concerns, and through purchases from contractors who might be supplied with capital, with a marked difference of policy between the three service ministries. Clearly, there was nothing pre-ordained about the national public corporation which came to dominate, and it was also compatible with a regional structure, as in the case of London Transport. Why were gas, electricity distribution, coal and railways not run by regional boards? Coal and railways needed massive investment which involved major policy decisions; and the unions were not keen on the possibilities of competition on prices and wages. Perhaps, as Foreman- Peck and Millward argue, Labour's concern for planning was another constraint, for it required national controls over investment.

But it is also necessary to think more generally about the nature of the British state. Similar problems arose in the case of health care, where the Labour Party's interest in regional control gave way to the nationalisation of hospitals. There was a failure to resolve the problems of local government structure and finance which might have created democratically accountable regional bodies. The problem with regional boards was that there was no elected body to which they were answerable; parliament was too distant, and local authorities too fragmented. The attempt to create larger local bodies was delayed until the reforms of Heath and Walker, by which time responsibilities had passed to the centre. Neither was there an adequate local fiscal base. Lloyd George spectactularly failed to find an answer with his land campaign, and Thatcher's poll tax was, of course, no more successful. Whether privatisation will prove a more enduring triumph is not clear. The irony is that nationalisation broke through institutional rigidities and fragmentation in order to create large concerns, so that the state achieved what the market had failed to deliver.

Subsequently, it proved possible to return the industries to the private sector when political circumstances changed, with less concern to maintain employment and more concern to reduce the Public Sector Borrowing Requirement through the sale of assets.

But is there any sign that the problems of regulating the network industries have been resolved any more successfully in the 1980s and 1990s than at any time since the 1820s? clause four is dead; the problems of regulating network industries are not.

Martin Daunton is Astor professor of British history, University College, London.

The Political Economy of Nationalisation in Britain, 1920-50

Editor - Robert Millward and John Singleton
ISBN - 0 19 820359 4
Publisher - Cambridge University Press
Price - £35.00
Pages - 325

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