tag:theconversation.com,2011:/id/topics/renationalisation-20438/articlesrenationalisation – The Conversation2023-07-03T13:08:38Ztag:theconversation.com,2011:article/2088802023-07-03T13:08:38Z2023-07-03T13:08:38ZRenationalising Thames Water would be a gamble – but there is another way to help clean up the industry<figure><img src="https://images.theconversation.com/files/535083/original/file-20230630-25-eu19au.jpg?ixlib=rb-1.1.0&rect=196%2C98%2C7999%2C4325&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/water-glass-66977497">Krakenimages.com/Shutterstock</a></span></figcaption></figure><p>The <a href="https://www.theguardian.com/commentisfree/2022/aug/16/i-worked-on-privatisation-england-water-1989-failed-regime">privatisation</a> of water companies in England and Wales was supposed to bring efficiency and investment to a vital sector that had been starved of public funding. But since 1989, the industry has <a href="https://www.ft.com/content/86ac79f2-1169-4c2e-b28c-b18ff74aac10">failed to invest sufficiently</a> in replacing antiquated pipes and sewage treatment systems. </p>
<p>Rivers and seas have become increasingly <a href="https://www.bbc.co.uk/news/science-environment-65099906">polluted with raw sewage</a>. Meanwhile, dividend payments, funded by water companies loading up on corporate debt, <a href="https://www.theguardian.com/business/2023/jun/30/in-charts-how-privatisation-drained-thames-waters-coffers">have soared</a>. </p>
<p>The largest of those companies, <a href="https://www.thameswater.co.uk/about-us/who-we-are">Thames Water</a>, has debts of almost <a href="https://www.thameswater.co.uk/media-library/home/about-us/investors/our-results/interim-2022-23/FY23-TWUL-Interim-Report.pdf">£14 billion</a> – roughly 80% of the value of the assets of the business. Rising inflation and interest rates mean this debt is increasingly expensive to service, let alone reduce.</p>
<p>If Thames Water collapses, the UK government is <a href="https://www.telegraph.co.uk/business/2023/06/28/government-preps-nationalisation-thames-water-near-collapse/">likely to step in</a> and manage the company through a special form of business administration to ensure 15 million customers continue to receive their water and sewerage services. But state involvement would probably be temporary, with the aim of an eventual return to the private sector. </p>
<p>Many would see this as a missed opportunity to do things differently. There are already groups calling for Thames Water <a href="https://www.oxfordmail.co.uk/news/17756511.thames-water-campaign-calls-renationalised-water/">to be renationalised</a> and brought into public ownership to remove the company’s profit motive and the pressure of paying dividends to shareholders. Instead, the theory goes that, as a local <a href="https://www.investopedia.com/terms/n/natural_monopoly.asp">natural monopoly</a>, Thames Water ought to be run as a publicly owned utility fully focused on providing a public service. </p>
<p>But doing this would be far from straightforward. To begin with, it would involve the transfer of corporate debt onto the government’s own balance sheet, which could dramatically constrain spending on other public services, such as the NHS and education. </p>
<p>Another complication comes from the fact that an administration process usually involves attempts to raise funds from the sale of company assets to pay off debts. But in the case of a water company, those assets are part of an integrated and complex infrastructure. It would not be practical to break up those assets if any new company was to go on providing water and sewage services to the public. </p>
<p>Renationalising Thames Water would therefore require the government to buy the assets. But the cost of doing so could be enormous, and the current shareholders would need to be adequately compensated. These include investors like <a href="https://www.researchprofessionalnews.com/rr-news-uk-universities-2023-6-uss-is-heavily-invested-in-under-pressure-thames-water/">pension funds</a>, which the government would find politically hard to ignore. </p>
<p>And even though governments can generally borrow more cheaply than private sector companies (or even <a href="https://www.investopedia.com/articles/investing/032516/how-central-banks-monetize-government-debt.asp">deal with its own debts</a> by printing money), these options are not attractive. They could be inflationary, and would risk a negative <a href="https://theconversation.com/mini-budget-2022-experts-react-to-the-new-uk-governments-spending-and-tax-cut-plans-191274">response from the financial markets</a>. Renationalistation could end up being seen as an expensive acquisition that brings no new money to improve the water industry. </p>
<p>An alternative would be to sell the assets to a new private company or investor. But existing water companies are unlikely to be considered suitable buyers on competition grounds (and many <a href="https://www.theguardian.com/environment/2022/dec/01/water-companies-debts-since-privatisation-ofwat-refuses-impose-limits">already face similar problems</a> as Thames Water). Demands for significant future investment to meet tighter environmental standards are also likely to deter other investors. </p>
<p>A more attractive option might be to create a new kind of water provider – a bit like an unusual one that already <a href="https://corporate.dwrcymru.com/en/about-us">exists in Wales</a>. </p>
<h2>Not for profit</h2>
<p>Welsh Water has a unique corporate structure, with no shareholders and is run solely for the benefit of its customers. It is commercially run, with professional managers held to account by 62 independent trustees. While not perfect, its performance in recent years <a href="https://www.ofwat.gov.uk/wp-content/uploads/2021/11/Service-Delivery-Report-2020-2021.pdf">compares favourably</a> with that of the <a href="https://www.ofwat.gov.uk/wp-content/uploads/2022/12/WCPR_2021-22.pdf">other privatised water companies</a>. </p>
<figure class="align-center ">
<img alt="A reservoir surrounded by hills." src="https://images.theconversation.com/files/535088/original/file-20230630-42965-7iub59.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/535088/original/file-20230630-42965-7iub59.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535088/original/file-20230630-42965-7iub59.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535088/original/file-20230630-42965-7iub59.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535088/original/file-20230630-42965-7iub59.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535088/original/file-20230630-42965-7iub59.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535088/original/file-20230630-42965-7iub59.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Welsh water.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/carreg-ddu-viaduct-reservoir-elan-valley-631481765">Billy Stock/Shutterstock</a></span>
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</figure>
<p>Welsh Water’s decisions are made not in the interest of profit-seeking shareholders but in the interests of broader society. Any profits made are either reinvested or returned to its 3 million customers in the form of cheaper services.</p>
<p>Creating such an organisation would not be easy. But there is a precedent in the case of <a href="https://www.networkrail.co.uk/who-we-are/">Network Rail</a>, a similar trustee-governed organisation, which was created when its commercial predecessor <a href="http://news.bbc.co.uk/1/hi/business/1586389.stm">Railtrack</a> went bust. Railtrack’s debts were subsumed into Network Rail, which were underwritten by the government (while initially staying off the public sector balance sheet). This change in ownership structure led to significant improvements on Railtrack’s <a href="http://news.bbc.co.uk/1/hi/uk/232283.stm#:%7E:text=The%20number%20of%20collisions%20and,in%201996%2D97%20to%2048.">atrocious safety record</a> and reduced the cost of rail operations too. </p>
<p>A move towards the Welsh Water model would be in line with <a href="https://www.bbc.co.uk/news/uk-politics-66043763">recent calls</a> to turn all water firms into democratically run companies focused on public benefit. If renationalisation is considered to be too tricky politically and not viable economically, other solutions are available.</p>
<p>And while it is true that these public-interest companies are funded by debt, a government debt guarantee helps keep the costs of servicing this debt down (while costing the government very little). By not renationalising, the UK economy would avoid many considerable challenges – and a hefty water bill.</p><img src="https://counter.theconversation.com/content/208880/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>J. Robert Branston has received funding from Bloomberg Philanthropies and several other health related charitable organisations.
He is a non-active member of the Liberal Democrats.</span></em></p><p class="fine-print"><em><span>Phil Tomlinson receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for Made Smarter Innovation: Centre for People-Led Digitalisation, and the Economic and Social Research Council (ESRC) for an Interact project on UK co-working spaces and manufacturing.</span></em></p>Not all UK water companies are run in the same way.J. Robert Branston, Senior Lecturer (Associate Professor) in Business Economics, University of BathPhil Tomlinson, Professor of Industrial Strategy, Co-Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1691862021-10-12T10:57:49Z2021-10-12T10:57:49ZA publicly owned energy industry could help tackle energy poverty and increase renewables<figure><img src="https://images.theconversation.com/files/425891/original/file-20211012-23-vjx5tc.jpg?ixlib=rb-1.1.0&rect=1%2C3%2C1276%2C802&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Renewable energy is a fast-growing industry.</span> <span class="attribution"><a class="source" href="https://pixabay.com/photos/windmills-clouds-fog-wind-power-1048981/">Oimheidi/Pixabay</a></span></figcaption></figure><p>Recent queues at petrol stations across the UK point to significant issues with fuel <a href="https://www.cnbc.com/2021/09/29/petrol-crisis-why-brits-are-panic-buying-gasoline.html">supply chains</a> in the wake of Brexit. But a lack of fuel where it is needed has been causing problems in the UK for years.</p>
<p>Before the pandemic, an estimated <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/966509/Annual_Fuel_Poverty_Statistics_LILEE_Report_2021__2019_data_.pdf">13.4%</a> of households – that’s 3.18 million people – lived in fuel poverty in England. According to research by fuel poverty charity National Energy Action, insufficiently heated homes kill nearly <a href="https://www.theguardian.com/commentisfree/2020/feb/27/dying-cold-europe-fuel-poverty-energy-spending">10,000</a> people every year in the UK.</p>
<p>Now, we’re also facing the problem of sharp rises in gas prices. This hits especially hard in countries such as the UK, where gas is the <a href="https://www.statista.com/statistics/426988/united-kingdom-uk-heating-methods/">major fuel</a> used to heat households.</p>
<p>These problems reflect the ongoing “<a href="https://www.carbonbrief.org/climate-rhetoric-whats-an-energy-trilemma">energy trilemma</a>”: how to provide households and businesses with stable, low-carbon and affordable energy. By itself, nationalising energy systems wouldn’t solve all these problems.</p>
<p>Increasing public ownership of energy systems is one, more reasonable option. The growing threat of climate change, outside influences such as Brexit, and market pressures driving price increases would still exist. But publicly owned systems do have key advantages over their private counterparts.</p>
<p>Evidence suggests public ownership of gas and electricity grids alone would deliver huge savings to UK consumers compared with the current system. Instead of paying out rewards to private company shareholders, publicly owned and controlled transmission systems would ensure any financial surplus is either reinvested to improve the service or used to reduce energy prices.</p>
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<img alt="Electricity pylons at sunset" src="https://images.theconversation.com/files/424984/original/file-20211006-25-ec4wnh.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424984/original/file-20211006-25-ec4wnh.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424984/original/file-20211006-25-ec4wnh.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424984/original/file-20211006-25-ec4wnh.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424984/original/file-20211006-25-ec4wnh.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424984/original/file-20211006-25-ec4wnh.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424984/original/file-20211006-25-ec4wnh.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The UK’s energy system is largely privatised.</span>
<span class="attribution"><a class="source" href="https://pixabay.com/photos/electricity-pylon-electrical-grid-3916956/">AshrafChemban/Pixabay</a></span>
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<p>Private UK grid companies make good money supplying our energy needs. National Grid shareholders earned <a href="https://www.nationalgrid.com/document/141786/download">£1.4bn</a> from the company’s profits in both 2020 and 2021 and a record <a href="https://www.nationalgrid.com/document/138471/download">£3.2bn</a> in 2017, thanks to the National Grid’s decision to <a href="https://energyandcarbon.com/why-national-gly-significant/">sell stakes</a> in its grid to new <a href="https://www.theguardian.com/business/2016/dec/08/national-grid-stake-gas-macquarie-bank">private owners</a>. </p>
<p>Meanwhile, dozens of studies comparing public and private energy systems worldwide have found no significant differences in their <a href="https://rwer.wordpress.com/2018/06/21/rwer-no-84-special-issue/">efficiency</a>, although public systems are consistently associated with <a href="https://www.sciencedirect.com/science/article/pii/S0140988313000911?via%3Dihub">lower prices</a> for consumers in western Europe. </p>
<p>A <a href="https://www.sciencedirect.com/science/article/pii/S0140988313000911?via%3Dihub">study</a> comparing electricity costs across the whole of Europe found that public system ownership is associated with prices 20%-30% lower than private ownership. In the UK, <a href="https://gala.gre.ac.uk/id/eprint/25938/">we’ve calculated</a> that eliminating private energy ownership would be equivalent to a 25% reduction in energy prices: saving about £142 per household per year.</p>
<h2>Transparency</h2>
<p>Beyond just grid ownership, publicly owned systems for generating electricity could also restore and expand the capacity for democratic control of a sector that provides a vital public benefit. After all, the job of the public sector is to serve public interest, so taxpayers’ money doesn’t get diverted to benefit private shareholders. </p>
<p>In France, for example, energy networks are operated by the EDF group, which is mostly owned by the government. EDF’s values have always included the principle of “<a href="https://iea.blob.core.windows.net/assets/3753e3e8-5f8b-42dd-a65d-e98e3351d5f0/EnergyPoliciesofIEACountriesFrance2000.pdf"><em>peréquation</em></a>”, which means that the varying costs of different types of fuel are shared, making all energy equally affordable.</p>
<figure class="align-center ">
<img alt="A warmly dressed person looks out of a window" src="https://images.theconversation.com/files/424986/original/file-20211006-27-1ab0gb9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424986/original/file-20211006-27-1ab0gb9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424986/original/file-20211006-27-1ab0gb9.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424986/original/file-20211006-27-1ab0gb9.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424986/original/file-20211006-27-1ab0gb9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424986/original/file-20211006-27-1ab0gb9.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424986/original/file-20211006-27-1ab0gb9.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Thousands of people die each year in the UK due to cold housing.</span>
<span class="attribution"><a class="source" href="https://pixabay.com/photos/windowsill-a-person-window-wall-3265259/">Pasja1000/Pixabay</a></span>
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</figure>
<p>Giving the government greater ability to intervene in energy prices if they begin to rise sharply would also enable them to do more to protect their most <a href="https://theconversation.com/die-of-cold-or-die-of-stress-social-housing-is-frequently-colder-than-global-health-guidelines-164598">vulnerable</a> citizens.</p>
<p>Across the EU, 13 countries currently regulate electricity prices, mostly to protect consumers from high energy bills. But <a href="https://www.epsu.org/sites/default/files/article/files/Going%20Public_EPSU-PSIRU%20Report%202019%20-%20EN.pdf">our research</a> has shown that increasing liberalisation of energy systems – meaning more competitive markets and higher private energy ownership – could exacerbate Europe’s rising levels of <a href="https://ec.europa.eu/energy/eu-buildings-factsheets-topics-tree/energy-poverty_en">energy poverty</a>, creating situations where more people can’t afford to adequately heat their homes.</p>
<h2>Sustainability</h2>
<p>The uptake of renewable energy and the physical infrastructure used to deliver electricity are closely intertwined. Since there is only one set of pipes, pylons and cables that can bring electricity to users, it would be pointless to increase production of renewable energy if it cannot be fed into that grid. </p>
<p>Yet <a href="https://iea.blob.core.windows.net/assets/4452f4ea-59d0-497b-8736-069b4cb39851/REPOWERINGMARKETS.pdf">private providers</a> have been <a href="https://iea.blob.core.windows.net/assets/4452f4ea-59d0-497b-8736-069b4cb39851/REPOWERINGMARKETS.pdf">slow to invest</a> into making the grid fit for renewables. <a href="https://www.epsu.org/sites/default/files/article/files/Going%20Public_EPSU-PSIRU%20Report%202019%20-%20EN.pdf">Our research</a> has shown that the rise of renewable energy in Europe was only possible thanks to public sector subsidies. Private energy companies simply didn’t have enough incentive to drive decarbonisation.</p>
<p>Apart from Portugal – which was forced to privatise its grid by the International Monetary Fund and the European Commission as part of its <a href="https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/financial-assistance-eu/which-eu-countries-have-received-assistance/financial-assistance-portugal_en">2011 bailout</a> following a financial crisis – the UK is the only country on the European continent that has fully privatised its transmission grid. </p>
<figure class="align-center ">
<img alt="A wind turbine at sea" src="https://images.theconversation.com/files/424983/original/file-20211006-16-cukmw2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424983/original/file-20211006-16-cukmw2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=366&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424983/original/file-20211006-16-cukmw2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=366&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424983/original/file-20211006-16-cukmw2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=366&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424983/original/file-20211006-16-cukmw2.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=460&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424983/original/file-20211006-16-cukmw2.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=460&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424983/original/file-20211006-16-cukmw2.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=460&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Wind turbines in the UK are almost all privately owned.</span>
<span class="attribution"><a class="source" href="https://pixabay.com/photos/wind-turbine-energy-power-sea-6588031/">TheOtherKev/Pixabay</a></span>
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<p>Across the rest of Europe, grids are <a href="https://www.epsu.org/sites/default/files/article/files/Going%20Public_EPSU-PSIRU%20Report%202019%20-%20EN.pdf">split</a> between public and private ownership. In Germany, the process of privatising energy systems has actually been in the process of being <a href="https://www.tni.org/files/publication-downloads/chapter_8_reclaiming_public_services_2908.pdf">reversed</a> since 2005, largely due to social demand for increased renewable power. </p>
<p>Public ownership of power generation has also worked widely in Europe. In several cities in Germany, two-thirds of all electricity is bought from publicly owned energy companies known as “<a href="https://www.cleanenergywire.org/factsheets/small-powerful-germanys-municipal-utilities"><em>Stadtwerke</em></a>”. <a href="https://www.swm.de/english/company">Munich</a>’s <em>Stadtwerke</em>, for example, have been supplying enough renewable energy for the needs of every household in the city since 2016, and are on track to supply enough for all local industries by 2025.</p>
<p>This shows how the <a href="https://theconversation.com/this-small-german-town-took-back-the-power-and-went-fully-renewable-126294">transition</a> from private to public ownership might improve not just the health of our bank accounts but of our planet too.</p><img src="https://counter.theconversation.com/content/169186/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span> Vera Weghmann works for the Public Services International Research Unit (PSIRU), which receives funding from Public Services International and the European Public Sector Union for commissioned research. </span></em></p><p class="fine-print"><em><span>David Hall's research over 30 years has been partly funded by grants from the EU research programme, various foundations including OSF, commissions from government institutions such as the European Commission, social charities such as Oxfam, and international union federations including Public Services International (PSI). He is a board member of We Own It, which campaigns on public services in the UK.</span></em></p>Problems with affordable, accessible energy could be mitigated by making more energy providers publicly owned.Vera Weghmann, Research Fellow in Public Services, University of GreenwichDavid Hall, Visiting Professor in Public Services, University of GreenwichLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1276622019-12-02T13:03:44Z2019-12-02T13:03:44ZLabour’s nationalisation plans could have costly legal consequences<figure><img src="https://images.theconversation.com/files/304435/original/file-20191129-95242-ipj152.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">PA</span> </figcaption></figure><p>The Labour manifesto caused a furore of discussion about the <a href="https://theconversation.com/why-labours-plans-to-renationalise-certain-public-services-make-economic-sense-126814">merits of public ownership</a> and the potential of state control to deliver better and cheaper services to a population fatigued by <a href="https://theconversation.com/end-of-austerity-dont-believe-conservative-claims-so-quickly-127404">years of austerity</a>. Beyond the <a href="https://theconversation.com/why-labours-plans-to-renationalise-certain-public-services-make-economic-sense-126814">economics of re-nationalisation</a>, however, there is the significant issue of the legality of government intervention in privately-run businesses.</p>
<p>Labour <a href="https://labour.org.uk/wp-content/uploads/2019/11/Real-Change-Labour-Manifesto-2019.pdf">promises</a> to bring rail, mail, water and energy into public ownership, to secure control over nationally strategic infrastructure and provide collective stewardship for key natural resources. It plans to achieve this by nationalising the supply arms of the Big Six energy companies. And it plans to allow councils to take public ownership of bus networks and bring the railways back under state control. </p>
<p>In addition, it pledges to nationalise Royal Mail and create a publicly-owned Post Bank, as well as provide free internet by <a href="https://theconversation.com/economics-of-labours-plan-to-nationalise-broadband-20-billion-cost-is-unrealistic-127256">nationalising parts of BT</a>. To top it all, large companies will be required to set up Inclusive Ownership Funds (IOFs) where up to 10% of their shares will be transferred to employees, with dividend payments distributed equally among all.</p>
<h2>Call your lawyers</h2>
<p>It is not clear at this stage how a future Corbyn-led government would acquire all these assets. The manifesto gives the impression that the consent of current owners and investors will not be required. What is clear, however, is that if investors in these private companies suffer losses from this, they are likely to perceive it as an <a href="https://www.investopedia.com/terms/e/expropriation.asp">expropriation of their property rights</a>. As a result, they will be on the phone to their lawyers to enquire about legal protections.</p>
<p>Assuming that all this is happening while the UK is still part of the EU, their lawyers will likely start by looking to the <a href="https://ec.europa.eu/info/aid-development-cooperation-fundamental-rights/your-rights-eu/eu-charter-fundamental-rights_en">EU’s Charter of Fundamental Rights</a>, which protects the right to property. Article 17 specifies that no one may be deprived of his or her possessions, except in the public interest and in cases - and under the conditions - provided for by law, subject to fair compensation being paid in good time for their loss. This is consistent with the <a href="https://www.equalityhumanrights.com/en/human-rights-act/article-1-first-protocol-protection-property">Human Rights Act</a>.</p>
<p>But would a “less free market” set of economic policies be necessarily interpreted as property violations? Defining expropriation depends a lot on what has been historically defined as property. For example, market access (something that a lot of businesses would lose in Labour’s nationalisation plans) was <a href="http://www.worldcourts.com/pcij/eng/decisions/1934.12.12_oscar_chinn.htm">held</a> by international courts not to amount to property. Vested contractual rights, on the other hand, have been regarded as property which is capable of being expropriated. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/304471/original/file-20191129-95242-ccl95d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/304471/original/file-20191129-95242-ccl95d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/304471/original/file-20191129-95242-ccl95d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/304471/original/file-20191129-95242-ccl95d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/304471/original/file-20191129-95242-ccl95d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/304471/original/file-20191129-95242-ccl95d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/304471/original/file-20191129-95242-ccl95d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Lawyering up.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>The general principles that will be applied when determining whether or not there has been a property violation are set out in a <a href="http://hudoc.echr.coe.int/eng?i=001-57507">1986 British human rights case</a>. Here four British citizens sued the UK government over the compulsory transfer of their property under the Leasehold Reform Act of 1967, arguing that this constituted a violation of their property rights.</p>
<p>This case shows that the first key issue to consider is whether nationalisation is in the “public interest”. If it is (as it was in the 1986 case), nationalisation will be respected. The second issue is whether the losses caused by nationalisation are deemed proportional to its aims. Nationalisation must strike a “fair” balance between the general interests of the community and protecting the rights of those individuals that will lose out from it. Crucially, this means that taking property without paying for its market value would break the law. So the key issue is compensation.</p>
<h2>Compensating foreign investors</h2>
<p>Any dispute between an investor and the host government is not just a matter for domestic courts. When the investor is foreign, it could lead to an international investment tribunal. These are the same tribunals that <a href="http://jids.oxfordjournals.org/content/5/3/475">Greece and Argentina</a> have faced, battling claims for compensation by investors who lost because of debt defaults in those countries. </p>
<p>Things could become more complicated for the UK if Brexit does take place. As <a href="https://academic.oup.com/icsidreview/article-abstract/33/2/380/5004350">I’ve found in my research</a>, investors could sue the government for compensation for the disruption caused by Brexit. If those protesting expropriations join them, this could cause the government a real headache. Investor rights <a href="https://theconversation.com/how-eastern-europe-is-best-placed-to-hit-the-ground-running-after-a-hard-brexit-70451">stem from international agreements</a> known as Bilateral Investment Treaties, which offer protections to foreign nationals and corporations, especially in cases such as expropriations and nationalisations. </p>
<p>These protections include the fair and equitable treatment of businesses investing in the UK, freedom from discrimination, full protection and security. Crucially, the treaties guarantee that foreign investors are treated the same as UK nationals and often result in compensation – it’s mostly a question of how much.</p>
<h2>How much will it all cost?</h2>
<p>International investment agreements, in principle, require prompt, adequate and effective compensation equal to the fair market value of the lost investment. It is notable that international tribunals make limited reference to the public interest, to regulatory autonomy or to host state sovereignty when calculating compensation.</p>
<p>The result is that a nationalisation measure could be legal, but still require the payment of compensation to be compliant with human rights and international rules. Fair market value is the usual standard employed and allows the investor to receive appropriate compensation, while respecting state policy autonomy. </p>
<p>This could become very expensive for the UK. To take just one aspect of Labour pledges as an example, the FTSE has a total market <a href="https://www.fxcm.com/uk/insights/ftse-all-share-index/">capitalisation</a> of £2 trillion. So setting up Inclusive Ownership Funds that transfer 10% of shares to employees would cost £200 billion. And that’s just one part of the manifesto plans.</p>
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<img alt="" src="https://images.theconversation.com/files/300094/original/file-20191104-88372-xpdf2e.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/300094/original/file-20191104-88372-xpdf2e.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=140&fit=crop&dpr=1 600w, https://images.theconversation.com/files/300094/original/file-20191104-88372-xpdf2e.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=140&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/300094/original/file-20191104-88372-xpdf2e.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=140&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/300094/original/file-20191104-88372-xpdf2e.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=176&fit=crop&dpr=1 754w, https://images.theconversation.com/files/300094/original/file-20191104-88372-xpdf2e.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=176&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/300094/original/file-20191104-88372-xpdf2e.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=176&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><a href="https://theconversation.com/uk/newsletters/the-daily-newsletter-2?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKGE2019&utm_content=GEBannerA">Click here to subscribe to our newsletter if you believe this election should be all about the facts.</a></em></p><img src="https://counter.theconversation.com/content/127662/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ioannis Glinavos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Investors in the private companies that Labour plans to nationalise are likely to seek compensation for their losses.Ioannis Glinavos, Senior Lecturer in Law, University of WestminsterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1272582019-11-26T10:33:29Z2019-11-26T10:33:29ZLabour plan to renationalise the UK energy networks is a bad idea – business economist<figure><img src="https://images.theconversation.com/files/302914/original/file-20191121-502-16bovzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/electricity-lines-carrying-power-across-countryside-329685146">Shutterstock</a></span></figcaption></figure><p>Along with rail, mail, water and broadband, the UK Labour Party has announced plans <a href="https://labour.org.uk/wp-content/uploads/2019/11/Real-Change-Labour-Manifesto-2019.pdf">to bring energy back into public ownership</a> in its election manifesto. Labour has big plans to reduce the UK’s carbon emissions by also investing in more renewable energy and it believes public ownership is the best way to do this. </p>
<p>But the evidence suggests the opposite. If we look at the plans in detail and the realities of the energy sector, re-nationalising the UK’s energy networks is a bad idea.</p>
<p>The details in the manifesto are relatively scant. But they nod to the more detailed plans that the party published in May with the document <a href="https://www.labour.org.uk/wp-content/uploads/2019/03/Bringing-Energy-Home-2019.pdf">Bringing Energy Home</a> and the vote at the 2019 Labour Party conference to nationalise the big six energy suppliers. </p>
<h2>What is proposed?</h2>
<p>The party proposes nationalising the wires that transmit electricity and pipes that feed the country’s gas supplies. Altogether there are ten firms in the UK, including the National Grid, UK Power Networks and Cadent, which would return to public control. Six companies distribute electricity, three distribute gas and one transmits both electricity and gas. As well as nationalising these, Labour proposes significantly reorganising them. </p>
<p>It says it will create new regional energy agencies – combining gas and electricity – to manage distribution to houses and businesses. New municipal energy agencies and local energy community firms would be able to take control of local networks and enter energy supply and generation. There would be a National Energy Agency to maintain the grid and infrastructure, acting as an independent public body.</p>
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Read more:
<a href="https://theconversation.com/nationalising-britains-energy-networks-could-be-one-way-to-end-consumer-rip-off-heres-why-126958">Nationalising Britain’s energy networks could be one way to end consumer rip-off – here’s why</a>
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<p>This would be a substantial reorganisation. Two large FTSE 100 companies – SSE and National Grid – would lose significant amounts of their existing assets and be vulnerable to takeover. UK grids were 40% or more of both <a href="https://sse.com/investors/reportsandresults/media/0zva4vg0/sse-31464-annual-report-2019-web.pdf">SSE</a> and <a href="https://investors.nationalgrid.com/news-and-reports/reports/2018-19/plc">National Grid</a> operating profit in 2018. </p>
<p>The impact on existing energy investment would also be significant, affecting some major global investors in the UK. This includes the Hong Kong-based CK Group, which <a href="https://www.ukpowernetworks.co.uk/internet/en/about-us/UKPN%20AR%202018-19.pdf">owns the largest electricity distribution company in the UK</a>. </p>
<p>Gas distribution would be completely reorganised within electricity distribution areas as regional energy agencies. There would be greater workforce and community involvement. And all the current senior executives and directors would have to reapply for their jobs, be subject to salary capping and new diversity targets – boards comprising at least 50% women – for their successor teams.</p>
<h2>What is the intention?</h2>
<p>The proposals aim to provide better value, accelerate and coordinate investment, provide democratic control and ensure that decentralisation occurs fairly.</p>
<p>A key issue is whether such a large reorganisation during a time of rapid decarbonisation on the path to net zero emissions is sensible. The answer to this must surely be no. </p>
<p>The current company boundaries have come about as a result of a long process of consolidation. They encapsulate existing economies of scale and scope, which differ in electricity and gas. </p>
<p>Forcing the two sectors to both fragment and then be reconfigured would almost certainly involve both significant reorganisation costs (independent of the costs of repurchasing the assets from their existing owners) and higher ongoing costs from the increased layers of bureaucracy that are being created. This is in addition to the exodus of talent and experience that will inevitably result from the forced removal of existing executives.</p>
<p>This reveals a central problem with the nationalisation proposals, which is that they are not primarily about energy policy. This is actually a multi-objective policy which has control of strategic assets and distribution at its heart rather than the traditional energy focus of low cost, high reliability and limited environmental impact. </p>
<p>The operations will not be run on a commercial basis. Local authorities will be able to claim the assets (presumably without paying for them) from the central government and workers will be given increased say in the running of the company. A Labour government also intends to purchase the assets at a substantial discount to the current price.</p>
<h2>A better way</h2>
<p>Evidence <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-6451.00049">from</a> <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-5890.2001.tb00036.x">the UK</a> and around <a href="https://www.aeaweb.org/articles?id=10.1257/jel.39.2.321">the world</a> suggests private ownership results in more efficient companies and more investment in the long run. Among EU countries, more competitive energy markets are associated with <a href="http://www.sciencedirect.com/science/article/pii/S0301421519300187">higher amounts of renewables</a>. Electricity and gas workers in the UK work fewer hours and are already paid significantly more than the average for the whole economy. </p>
<p>History is not on the side of energy nationalisation (from 1948 to 1990), with historians agreeing that the nationalised energy industry had a sorry record of high operational costs <a href="https://www.amazon.co.uk/Nationalised-Industries-Policies-Performance-since/dp/0855202424">and misdirected investment</a>. Energy firms owned by local governments are primarily vehicles for social capital building rather than serious instruments for achieving high level national and international energy policy objectives. </p>
<p>There are better ways to improve the UK’s energy supplies. Tighter regulation of existing companies by regulator Ofgem would deliver the same benefits with more certainty and no disruption costs. </p>
<p>Less radical intervention, such as the creation of a not-for-profit national energy system operator, could give greater government influence over a low carbon agenda. This would come at a fraction of the cost of completely nationalising the energy network. Meanwhile, a better approach to exploring the coordination benefits of operating electricity and gas networks in one company would be with one regional experiment.</p>
<p>Overall, there is little evidence that what is proposed would help with the UK’s energy and climate goals. They seem more like a recipe for distraction and delay. A truly radical plan to achieve the UK’s net zero target is not helped by an ideologically motivated – rather than evidence based – ownership change. </p>
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<img alt="" src="https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=140&fit=crop&dpr=1 600w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=140&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=140&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=176&fit=crop&dpr=1 754w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=176&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/300097/original/file-20191104-88382-xr3pj3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=176&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><a href="https://theconversation.com/uk/newsletters/the-daily-newsletter-2?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKGE2019&utm_content=GEBannerC">Click here to subscribe to our newsletter if you believe this election should be all about the facts.</a></em></p><img src="https://counter.theconversation.com/content/127258/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Pollitt is an Assistant Director of the Energy Policy Research Group, whose sponsors include National Grid, UKPN and Ofgem. Much of his work on the impact of privatisation has been supported by the ESRC.</span></em></p>Evidence from the UK and around the world suggests private ownership results in more efficient companies, more investment and more renewable energy.Michael Pollitt, Professor of Business Economics, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1268142019-11-20T16:59:37Z2019-11-20T16:59:37ZWhy Labour’s plans to renationalise certain public services make economic sense<figure><img src="https://images.theconversation.com/files/302659/original/file-20191120-479-64tmsi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-august-6-red-pillar-box-150281414">Julie Clopper / Shutterstock</a></span></figcaption></figure><p>The UK Labour Party says it intends to nationalise a number of key public services. The full plans are not yet released but there has been talk of taking <a href="https://theconversation.com/economics-of-labours-plan-to-nationalise-broadband-20-billion-cost-is-unrealistic-127256">BT’s Openreach broadband network</a>, the railways, the Royal Mail and water and energy companies <a href="https://www.bbc.co.uk/news/business-50046329">back into public ownership</a> – all of which were sold or contracted off by previous governments.</p>
<p>Politically, this nationalisation strategy is in line with public opinion. Polls suggest 65%, 60%, 59% and 53% support public ownership of <a href="https://yougov.co.uk/topics/politics/articles-reports/2017/05/19/nationalisation-vs-privatisation-public-view">Royal Mail, railways, water and energy companies respectively</a>. The CBI business lobby has criticised these plans on financial grounds, <a href="https://www.theguardian.com/business/nils-pratley-on-finance/2019/oct/17/cbi-boss-on-wrong-track-if-she-cant-say-sorry-about-labours-rail-plans">estimating the cost of such a buy-back to be £182bn</a>. But the exact figures are hard to calculate and, depending how these services are run, they could end up benefiting the public overall.</p>
<p>Economists have long debated the merits of nationalisation. To understand the UK’s current debate, it’s important to know the theory behind nationalisation and privatisation as well as what has happened in practice.</p>
<h2>In theory …</h2>
<p>Free-market economist Milton Friedman argued that private business <a href="https://web.archive.org/web/20060207060807/https:/www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html">ought to operate solely to increase returns to shareholders</a>. It is government, not business, Friedman argued, to which the public ought to look <a href="https://docs.google.com/file/d/0BxgMqtna1BWDdDlnTENYaHNBYnc/edit?pli=1">if the market does not deliver adequate social goods</a>. This implied a case for public ownership of certain industries. </p>
<p>Other <a href="http://j-bradford-delong.net/pdf_files/Henry_Simons.pdf">liberal</a> or <a href="https://www.cis.org.au/app/uploads/2015/07/op114.pdf">neoliberal</a> economists – though not all, of course – have similarly argued that market forces will be insufficient to deliver socially efficient results in the case of utilities and infrastructure monopolies. It follows that there is no consistent theoretical case these industries should be privately run. </p>
<p>This does not mean, of course, every industry should be nationalised – nor does Labour argue they ought to be. There is no intention to nationalise formerly <a href="https://en.wikipedia.org/wiki/List_of_privatizations_by_country%23United_Kingdom">state-owned companies</a> operating in markets where there is adequate competition, such as British Airways, Rolls-Royce or BP.</p>
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<img alt="" src="https://images.theconversation.com/files/302652/original/file-20191120-491-1qiic7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/302652/original/file-20191120-491-1qiic7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/302652/original/file-20191120-491-1qiic7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/302652/original/file-20191120-491-1qiic7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/302652/original/file-20191120-491-1qiic7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/302652/original/file-20191120-491-1qiic7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/302652/original/file-20191120-491-1qiic7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">British Airways was privatised in the 1980s.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:British_Airways_aircraft_at_LHR_T1_1980s_Kennaugh.jpg">Andy Kennaugh via Wikimedia</a></span>
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<p>In short, there may be an economic case for democratic governments to organise and run utilities and public infrastructure for the benefit of citizens, as Labour suggests.</p>
<p>By the 1970s, many of the UK’s productive assets, including transport infrastructure and utilities were in public hands. However, although the <a href="https://www.margaretthatcher.org/document/110858">1979 Conservative party manifesto</a> barely mentioned privatising these assets, <a href="https://www.ft.com/content/51ccaa1c-20c2-11e1-816d-00144feabdc0">their sale was a policy that defined the Thatcher era</a>. </p>
<p>There were <a href="http://researchbriefings.files.parliament.uk/documents/RP14-61/RP14-61.pdf">three basic motivations given for privatisation</a>: to raise funds to <a href="https://www.bbc.co.uk/news/uk-politics-22070491">boost the economy in a time of recession</a>; to promote more efficient UK business; and ultimately to help create a capital-owning democracy, effectively making citizens both stakeholders and shareholders in the UK. </p>
<p>Privatisation was also, of course, pursued for ideological reasons. Some politicians and business leaders are of the opinion the public sector should not own or operate productive assets. </p>
<h2>In practice …</h2>
<p>In terms of raising funds, privatisation was a limited success. The government of the day managed to raise more than <a href="https://www.wto.org/english/tratop_e/serv_e/symp_mar02_uk_treasury_priv_guide_e.pdf">US$80 billion</a> through the sale of public assets. But <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-8292.2004.00257.x">these were often offered at a discount</a> and so more money could have been made. </p>
<p>Privatisation generally failed to meet its other objectives. There is <a href="http://highpaycentre.org/pubs/winners-and-losers-the-great-privatisation-game">scant evidence of benefit to the customer</a> (UK citizens) from privatisation. And the policy was a clear failure in facilitating a capital owning democracy – <a href="https://www.independent.co.uk/news/business/news/revealed-how-the-world-gets-rich-from-privatising-british-public-services-9874048.html">the ownership of privatised industries largely passed into foreign hands</a>. In fact, privatisation led to the UK becoming an increasingly foreign-owned democracy, rather than a capital-owning one.</p>
<h2>Back to the future</h2>
<p>In some cases, what we call “privatisation” is public contracting. For example the UK’s railway network is owned by the UK government but franchised to private <a href="https://www.gov.uk/government/collections/public-register-of-rail-passenger-franchise-agreements">train operating companies</a>. In these cases, ownership will pass back to the public by default when contracts expire. </p>
<p>In others, the cost of renationalisation is relatively small. It has been estimated that nationalising Royal Mail <a href="https://www.theguardian.com/business/2019/oct/17/cbi-tells-labour-to-publish-details-of-plans-for-rail-and-utilities">would cost £2.6 billion</a>. As <a href="https://www.thisismoney.co.uk/money/markets/article-3270365/Royal-Mail-fully-privatised-time-500-year-history-Government-divests-final-14-cent-stake.html">the government raised £3.3 billion from its sale</a>, a £700 million profit would be made on renationalising it.</p>
<p>But there seems no strong case for renationalising industries where the problem of excessive market power can be addressed through market forces. If central or local government were to provide one or more publicly-run utilities companies – offering fair and transparent tariffs – citizens could transfer their custom if they felt private operators were not offering a good deal.</p>
<p>New Zealand, for example, has adopted this approach and <a href="https://www.mbie.govt.nz/assets/2ba6419674/chronology-of-nz-electricity-reform.pdf">operates publicly-owned utilities companies</a> – and even a <a href="https://www.kiwibank.co.nz/">bank</a>. This is to ensure private operators do not accrue too much (potentially socially damaging) market power, and also to prevent the economic exclusion of smaller communities. There is no reason why such an approach might not also extend to the provision of high-speed broadband, given that access to this service <a href="https://theconversation.com/free-broadband-internet-access-is-now-a-human-right-no-matter-who-pays-the-bills-127267">is increasingly necessary</a>.</p>
<p>There is evidence that privatisation of public infrastructure and utilities was a failed and unpopular policy – but it may be too costly to undo all the consequences. While there is a strong case for public ownership to prevent the private accumulation of market power, or where the market will neglect particular communities as “unprofitable”, establishing new public industries may be a more effective way to achieve this than renationalisation.</p>
<p>Notwithstanding, the success of nationalisation depends on whether or not it is possible to develop a means by which UK citizens can ensure they retain ownership of valuable public assets. There is no point in spending taxpayer money on nationalisation if the resulting enterprise can simply be re-sold in future – whether to access short-term funding or for ideological reasons. Selling assets cheaply and buying them back dearly is no way to run either a business or a nation.</p>
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<p><em><a href="https://theconversation.com/uk/newsletters/the-daily-newsletter-2?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKGE2019&utm_content=GEBannerA">Click here to subscribe to the UK edition of The Conversation newsletter if you believe this election should be all about facts.</a></em></p><img src="https://counter.theconversation.com/content/126814/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Albertson is a member of the Labour Party and a Fellow of the RSA.</span></em></p>A look at the theory behind nationalising key public services, as well as what has happened in practice.Kevin Albertson, Professor of Economics, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/885912018-01-16T16:09:19Z2018-01-16T16:09:19ZNationalising Britain’s railways is the only way to fix chronic problems – here’s why<figure><img src="https://images.theconversation.com/files/202089/original/file-20180116-53314-q6mrol.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/dmH3NWhYTHQ">Photo by Michal Parzuchowski on Unsplash</a></span></figcaption></figure><p>Just who exactly supports the UK’s privatised railway industry? It’s certainly not passengers, taxpayers, railway employees or increasingly many politicians. </p>
<p>The state-owned British Rail was privatised over several years <a href="http://www.railwaysarchive.co.uk/docsummary.php?docID=11">starting in 1995</a>. Prime Minister Margaret Thatcher was politically astute enough to avoid privatising this industry. But her successor, John Major, had no such doubts – he was convinced privatisation <a href="http://www.railwaysarchive.co.uk/docsummary.php?docID=11">would ensure</a> “greater responsiveness to the customer, and a higher quality of service and better value for money”. He couldn’t have been more wrong. It’s now time to call a halt on this misconceived and misguided experiment – it just isn’t working. It’s time to renationalise the whole industry.</p>
<p>The benefits of privatisation forecast by politicians never materialised. Fares are now <a href="https://dataportal.orr.gov.uk/displayreport/html/html/920430f4-6a8d-4bb8-9762-2bf89259e346">much higher</a>, infrastructure failures <a href="https://www.which.co.uk/reviews/trains/article/best-and-worst-uk-train-companies/best-and-worst-trains-for-delays">and train delays increasing</a>, the train franchising system <a href="http://www.tandfonline.com/doi/abs/10.1080/09540962.2013.817119">is floundering</a> and passenger dissatisfaction <a href="http://www.telegraph.co.uk/news/2017/01/24/rail-passenger-satisfaction-lowest-level-decade/">is high</a>.</p>
<p>British Rail, the former nationalised industry, was a fully vertically integrated industry. This meant that BR owned and was responsible for virtually every aspect of the railway business. One researcher <a href="http://www.tandfonline.com/doi/abs/10.1111/j.1467-9302.2004.00390.x">found it to be</a> “perhaps the most financially successful railway in Europe”. Government subsidy was only 15% of revenue in 1994, making British Rail the least subsidised railway system in Europe at the time.</p>
<p>Privatisation saw the industry broken up into over 100 separate companies. This fragmentation has led to a complex contractual web of operational transactions between different industry players – with a profit mark up <a href="http://hummedia.manchester.ac.uk/institutes/cresc/sites/default/files/GTR%20Report%20final%205%20June%202013.pdf">being extracted at every stage</a>. Renationalisating the railways would put an end to the operational and structural absurdity of the industry – and be substantially less costly.</p>
<h2>Dysfunctional franchise model</h2>
<p>Passenger train operating companies are awarded on a franchised basis. Normally, the operators bid to pay the highest premium to the government to win the right to operate train services on specified routes. This is based on the revenue each bidding company considers they can extract from passengers after paying their premium. </p>
<p>Renationalisation would lead to abolition of the costly and dysfunctional <a href="https://www.nao.org.uk/report/reform-of-the-rail-franchising-programme/link">method of awarding these franchises</a>. It would abolish the convoluted gaming by operating companies, who frequently overbid on the most optimistic assumptions in order to win a franchise. </p>
<p>Take the example of the failing East Coast franchise. <a href="https://www.northumberlandgazette.co.uk/news/sorry-story-of-franchise-1-8921854">GNER</a> and <a href="https://www.theguardian.com/politics/2009/nov/06/national-express-east-coast-nationalised">National Express</a> have both already walked away from their East Coast commitments and Virgin East Coast is currently <a href="https://www.theguardian.com/uk-news/2017/nov/29/east-coast-rail-franchise-terminated-three-years-early-virgin-trains">renegotiating its franchise</a>. They can do this because the penalties for failing to deliver are too low.</p>
<p>What’s more, the whole costly and time-consuming refranchising process is repeated every seven or eight years. Renationalisation would bring a swift halt to this disruptive and costly process – and permit better long-term planning.</p>
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<h2>Fares through the roof</h2>
<p>Certainly, the passenger hasn’t benefited by lower fares since privatisation. Only about 36% of fare revenue <a href="http://orr.gov.uk/__data/assets/pdf_file/0020/24149/uk-rail-industry-financial-information-2015-16.pdf">is regulated</a> by the government and, even then, fare increases are related to the higher retail price index (RPI) measure of inflation (<a href="https://moneyweek.com/merryns-blog/the-difference-between-cpi-and-rpi-and-why-it-matters-55018/">and not the lower consumer price index</a>). For unregulated fares, the train operators have not been slow to increase fare revenue well in excess of RPI. For example, across all operators, standard class unregulated fares have increased <a href="http://orr.gov.uk/__data/assets/pdf_file/0020/24149/uk-rail-industry-financial-information-2015-16.pdf">by nearly 30% in real terms</a> since privatisation.</p>
<p>Whenever the train operators have the freedom to raise fares they rarely fail to increase them to whatever the market can bear. The Trades Union Congress <a href="https://www.tuc.org.uk/news/national/uk-commuters-spend-5-times-much-their-salary-rail-fares-other-europeans-finds-tuc">recently highlighted</a> that British commuters are now “spending up to five times as much of their salary on season tickets” than their continental counterparts. A commuter season ticket in the UK costing £381 a month will cost the equivalent of £66 in France or £118 in Germany.</p>
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<h2>Neglected and costly infrastructure</h2>
<p>Another key aspect of the privatised industry is the infrastructure company that owns the railway tracks, stations and signalling. The first infrastructure company, Railtrack plc, was a publicly listed company that had a short life. Within less than five years of floatation the came the fatal Hatfield rail crash, when an express train came off the track. An inquiry found that the disaster was directly related to Railtrack’s <a href="http://www.railwaysarchive.co.uk/docsummary.php?docID=188">neglect of the infrastructure</a>. </p>
<p>Railtrack’s successor, Network Rail, ultimately became a public sector body of the Department for Transport. But Network Rail has been hampered by Railtrack’s former neglect of its assets and higher costs resulting from the fragmented nature of the industry. Indeed, these issues meant that the <a href="http://orr.gov.uk/__data/assets/pdf_file/0017/1709/rail-vfm-detailed-report-may11.pdf">McNulty report in 2011</a>, commissioned by the then transport secretary, found the privatised rail industry had a high cost base and the costs per passenger-km would have to be reduced by 40% to match railways in France, Netherlands, Sweden and Switzerland.</p>
<h2>Misguided support</h2>
<p>Even the taxpayer would benefit from renationalisation. Under privatisation, state subsidies have <a href="http://www.sciencedirect.com/science/article/pii/S0155998215000113">nearly doubled in real terms</a>. Direct government support has also previously been given to private sector train operators <a href="http://neweconomics.org/2017/01/railways-failed-next/">if their revenues fall below expectations</a>. More recent franchisees can now receive these corporate state welfare “top-up” payments where, for example, there is fall in GDP or a slowdown in the London jobs market. Conventional private sector companies carry these business risks themselves – not so for the train companies. Renationalisation could reduce subsidies and have major financial gains for the tax payer.</p>
<p>Industry players frequently justify the success of privatisation by pointing to the growth in passenger traffic (passenger journeys have grown <a href="https://dataportal.orr.gov.uk/displayreport/report/html/02136399-b0c5-4d91-a85e-c01f8a48e07e#">from 800m in 1996-97 to 1,729m in 2016-17</a>). But this growth is despite privatisation; not because of it. Economic studies suggest this is down to other factors, such as employment levels, growth in GDP, property prices, leisure travel and road congestion – but not to privatisation.</p>
<p>Overall, railway privatisation has failed to achieve its original objectives. Fares and state subsidies remain high, passengers are failing to obtain better value for money and industry unit costs remain stubbornly high. No other country has fully adopted the UK model of railway privatisation. And for good reason – it hasn’t worked.</p><img src="https://counter.theconversation.com/content/88591/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Stittle does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>No other country has fully adopted the UK model of railway privatisation. And for good reason.John Stittle, Senior Lecturer in Accounting, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/801992017-07-09T19:55:28Z2017-07-09T19:55:28ZMarket-driven compaction is no way to build an ecocity<p><em>This is the first of a <a href="https://theconversation.com/au/topics/ecocity-summit-40496">series</a> of articles to coincide with the 2017 <a href="https://www.ecocity2017.com/">World Ecocity Summit</a> in Melbourne.</em></p>
<hr>
<p>As Melbourne hosts the <a href="https://www.ecocity2017.com/">Ecocity World Summit</a> this week, we might ponder the progress of Australia, a “nation of cities”, toward achieving sustainable urbanism.</p>
<p>Australian metropolitan planning has long subscribed to what urban geographer Clive Forster called the “<a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1745-5871.2006.00374.x/full">compact city consensus</a>”. This is a commitment to consolidated, well-designed, low-energy cities with high usage of public and active transport. But after decades of halting pursuit, we seem no closer to this ideal.</p>
<p>The 2016 <a href="https://soe.environment.gov.au/theme/built-environment">State of the Environment</a> report makes critical findings on metropolitan development. It casts these trends, at least in part, as market-driven compaction rather than planned consolidation. Leanne Hodyl’s much-reported <a href="https://www.churchilltrust.com.au/media/fellows/Hodyl_L_2014_Social_outcomes_in_hyper-dense_high-rise_residential_environments_1.pdf">2014 study</a> showed that:</p>
<blockquote>
<p>High-rise apartment towers are being built in central Melbourne at four times the maximum densities allowed in Hong Kong, New York and Tokyo – some of the highest-density cities in the world.</p>
</blockquote>
<p>She concludes that Australian regulation of high-rise development is uniquely weak.</p>
<h2>Market prevails over planning</h2>
<p>The compact city vision that has guided Australian metropolitan strategy for at least three decades was intended to realise sustainability in a form that departed from the extensive, car-dependent monocentrism of the post-war metropolis.</p>
<p>Yet planning has not been the principal directional force for urbanisation during this period. Instead, it has been dominated by a far more powerful political consensus, neoliberalism. </p>
<p>Whatever one thinks of the compact city ideal – and it is <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1745-5871.2011.00728.x/full">contested among urbanists</a> – its realisation required a commitment to planned urbanisation. But that was never likely during an era of relentless hollowing-out of state capacities, including those needed to manage cities.</p>
<p>Instead, other forces have shaped the course of urban change. These include national policies (especially immigration, taxation and financing), technological innovation, cultural shifts, political economy (notably neoliberal governance) and increasingly unrestrained market power. This set of transformational “furies” can be grouped under the rubrics of intensification and pluralisation.</p>
<p>These forces have undeniably produced many welcome and stimulating changes in our cities. However, our current course, if left uncorrected, will potentially drive Australian cities further away from the ideal of sustainable urbanism. </p>
<p>The increases in “bad pluralities” – notably social polarisation and poverty – betray this ideal as much as physical failings do. Rising social ills, especially the ice plague and family violence, are markers of this betrayal.</p>
<h2>‘Urban fracking’ undermines the city</h2>
<p>Market-driven intensification has in many places permitted a fracturing and ransacking of urban value and amenity, and of human wellbeing, by development capital that has worn the thin robe of legitimacy provided by the compact city ideal. </p>
<p>We might summarise this as “urban fracking”: a new means of blasting through accumulated layers of material and symbolic value to extract profit. </p>
<p>Miles Lewis <a href="https://books.google.com.au/books/about/Suburban_Backlash.html?id=lUHcAAAACAAJ">observed in 1999</a> that much redevelopment in Melbourne’s middle-ring neighbourhoods was parasitic. That is, it draws on (and thus depletes) existing amenity without adding to it. </p>
<p>More generally, this dispossession of urban value, from public (or communal) to private, takes myriad forms: amenity and infrastructure mining through overdevelopment, transfer of public housing stock <a href="https://theconversation.com/why-should-the-state-wriggle-out-of-providing-public-housing-79581">to private investors</a> in redevelopment, the continued non-taxation of <a href="https://theconversation.com/tax-on-unearned-gains-is-the-missing-piece-of-the-affordable-housing-puzzle-77010">unearned land value increments</a>, privatisation of assets and services, and fast-tracked and favourable development approvals.</p>
<h2>Ill-prepared for climate change</h2>
<p>These various plunderings and injuries also potentially reduce the sustainability and resilience of our cities at a time of clear threat, especially the “climate emergency”. </p>
<p>Reducing green space and open space ratios in redevelopment areas raises particular risks for rapidly rising inner-city populations. </p>
<p>Consider that Melbourne City Council has <a href="http://www.theage.com.au/victoria/plans-to-use-mcg-as-shelter-for-melbournes-heatwave-refugees-20150213-13em74.html">prepared a Heatwave Response Plan</a>, which will evacuate city residents to the Melbourne Cricket Ground, Etihad Stadium and the Convention and Exhibition Centre. The council recognises that 82% of residents now live in buildings “without passive ventilation”. That’s code for the air-conditioned towers that have done little for the cause of sustainability. </p>
<p>New modelling reveals that <a href="https://theconversation.com/contributions-to-sea-level-rise-have-increased-by-half-since-1993-largely-because-of-greenlands-ice-79175">sea-level rise</a> is <a href="http://www.abc.net.au/news/2017-05-23/coastal-areas-at-risk-new-climate-study-reveals/8549934">likely to flood</a> many inner-city high-rise redevelopment areas in Australian cities. This includes the zones identified for evacuation in Melbourne’s Heatwave Response Plan.</p>
<h2>Governance must be restored</h2>
<p>As the <a href="https://theconversation.com/au/topics/census-2016-29877">2016 Census</a> confirms, our rapidly growing core metro regions are evolving into ever more complex landscapes, which defy simple description. It could be tempting to conclude that the sources of their problems resist identification. But this is not true. At the core of our urban failing is governance in all of its necessary forms – economic, social and spatial.</p>
<p>Our cities appear increasingly unsustainable, chaotic and frankly ungovernable only because we allow this to happen. Long historical stretches of firm urban governance, notably in Brisbane and Melbourne, produced much more balanced and agreeable patterns of urbanisation than we are now experiencing.</p>
<p>The ever-mounting costs and failures of the “long night” of neoliberal governance are resonating ever more strongly within national politics. Economist John Quiggin believes this is feeding a new, if nascent, <a href="https://www.theguardian.com/commentisfree/2017/jul/05/governments-are-buying-up-where-the-market-has-failed-is-this-the-end-of-privatisation">appetite for public intervention and ownership</a>. </p>
<p>We must hope this desire for restoration of state capacities extends to the cities whose rapidly deteriorating development trajectories threaten national wellbeing. </p>
<p>The first necessity is to reinstate capacities for public economic governance. The need is especially great in the areas of infrastructure and urban services, which powerfully shape the general course of urbanisation.</p>
<p>After decades of relentless privatisation and deregulation, however, there is little to govern and little to govern with. </p>
<p>To improve metropolitan functioning, there will be no escaping the necessity of what the late ANU academic Peter Self described as “<a href="https://www.amazon.com/Rolling-Back-Market-Economic-Political/dp/0312226527">rolling back the market</a>”. This will require nationalisation of key assets, especially infrastructure, and stronger regulation of urban amenities, especially energy, transport and hydraulic services.</p>
<p>This is the first, urgent step towards resetting our urban course for sustainability. State governments could do so without delay. </p>
<p>Unfortunately, most cannot yet conceive of a true break from neoliberal urbanism. The New South Wales government recently <a href="https://theconversation.com/what-are-the-implications-of-privatising-land-title-offices-60099">privatised its land registry</a>. South Australia and Victoria <a href="https://theconversation.com/torrens-our-land-title-pioneer-might-have-approved-of-privatised-registries-78327">plan to do the same</a>. </p>
<p>If this mindset can be changed, the next imperative is to establish strong planning governance for our metropolitan regions so our freewheeling development furies can be steered towards more sustainable ends. Renewal of governance is the key to surviving let alone thriving in the urban age.</p>
<hr>
<p><em>The <a href="https://www.ecocity2017.com/">Ecocity World Summit</a> is being hosted by the University of Melbourne, Western Sydney University, the Victorian government and the City of Melbourne in Melbourne from July 12-14.</em></p><img src="https://counter.theconversation.com/content/80199/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brendan Gleeson receives funding from the UK Economic and Social Research Council and is a co-convenor of the Ecocity World Summit 2017. </span></em></p>Achieving the goal of sustainable cities depends on rolling back the market after decades of privatisation and deregulation.Brendan Gleeson, Director, Melbourne Sustainable Society Institute, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/540942016-02-12T11:16:53Z2016-02-12T11:16:53ZHow did Britain fall out of love with privatisation?<figure><img src="https://images.theconversation.com/files/111141/original/image-20160211-28676-qcu7i2.jpg?ixlib=rb-1.1.0&rect=0%2C104%2C1024%2C590&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The public are increasingly keen to trespass on corporate land.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/shelleygibb/2700442833/in/photolist-57Ctzc-47n3as-6dvY2S-5XB8hR-L9M3Z-XosUS-4pXQhU-bhkqc4-5HAYcJ-67EToF-4hSWzK-8riN6B-8zzwXH-7BnYkF-9jDA6a-3wuRSx-3wuL8a-e5jSWe-yFx8a-89crWV-7kj7A7-6PhTQk-bkcH1D-4wnDfX-6nbV8d-5rZAFL-4tdCvm-3UN759-i52YUL-CPfgZy-tEsAP-64mSVE-8UCreo-JxswB-2D2sP-83zxqq-81JzLb-cBao6u-4Z4qSW-5ksrBo-475Xvf-KMvo4-9NX7GB-59B8tS-89csXn-iMPKXx-64j4Nt-5nE2j1-8oFFpj-3cjrwC">MollyBob/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>When Labour party leader Jeremy Corbyn flagged up the potential re-nationalisation of British railways, and later made similar comments about the energy industry, his ideas were dismissed as a <a href="http://www.thesun.co.uk/sol/homepage/news/politics/6597971/Nightmare-of-red-Jez-UK.html">return to the past</a>. But the evidence is that the public has bought into it. <a href="https://yougov.co.uk/news/2013/11/04/nationalise-energy-and-rail-companies-say-public/">YouGov polls show</a> that a majority of British people now support the nationalisation of the railways (66%) and energy sector (68%). </p>
<p>From the end of the 1970s, the British electorate voted four times in a row to give the Conservative Party a mandate to implement an extensive privatisation programme. So why has public opinion turned around so sharply? </p>
<h2>Ideological views</h2>
<p>Privatisation, in many cases, was an ideological programme which promoted solutions driven by the private sector and financial markets. It was a simplistic rationale: self interest and competition would bring about the much desired outcome of efficiency. This has been promoted as sensible economic policy by both Conservative and New Labour governments. </p>
<p>In the background, there was the financial <a href="http://www.theguardian.com/environment/2011/mar/03/1970s-oil-price-shock">downturn of the 1970s and 1980s</a> that had knock-on effects on public services and utilities, which implied poor financial performance and created the ideal conditions for arguments in favour of privatisation. </p>
<p>The emerging view was that public enterprises only helped self-interested bureaucrats, inhibited cost cutting and innovation and distorted the allocation of resources. Privatisation was supposed to reduce the burden on the taxpayer and force these sectors to become more competitive, efficient and deliver better value for “customers”. </p>
<p>As early as 1984, at the Conservative Party conference, Margaret Thatcher <a href="http://www.margaretthatcher.org/document/105763">proudly announced</a>: </p>
<blockquote>
<p>… again and again, denationalisation has brought greater motivation to managers and workforce, higher profits and rising investment, and what is more, many in industry now have a share in the firm for which they work.</p>
</blockquote>
<h2>Building evidence</h2>
<p>The ideological basis of neoliberal views around privatisation has gradually become clearer with the arrival of more and more evidence in the last two decades. Research <a href="https://mitpress.mit.edu/books/great-divestiture">has laid bare</a> the myth that privatisation is somehow a panacea for improving public services and utilities.</p>
<p>Britain did see short-term improvements in some cases <a href="http://bit.ly/1QtQwEk">such as energy</a>. But over the long term, it has become clear that private services do not deliver good value. Charges have remained high and service quality is often dismissed as poor or indifferent. Research <a href="https://www.tuc.org.uk/industrial-issues/transport-policy/uk-commuters-spend-six-times-much-their-salary-rail-fares-other?render=overlay">commissioned by the TUC</a>, a federation of trade unions, looked at the £358 monthly rail ticket for the 35-minute journey from Chelmsford, Essex, to London and compared it to the cost of similar European examples. The results were startling: £37 in Italy, £56 in Spain, £95 in Germany, and £234 in France. In these countries a large majority of railways remain under public control. </p>
<p>Moreover, meeting the investment needs (which is where the real risks lie) to ensure safe, regular and high-quality service has been a challenge. Where there were failures as <a href="https://www.nao.org.uk/wp-content/uploads/2009/06/0809512es.pdf">in the case of Metronet</a>, the public sector was forced to pick up the pieces. It can appear that private companies acquire the benefits, without fully taking on the risks.</p>
<p>In the energy sector, average UK domestic electricity prices outstrip the average of OECD countries, as shown in the chart below. In an ongoing investigation of the UK’s six large energy companies, one of the initial conclusions of the Competition and Market Authority was that the companies used their unilateral market power to <a href="https://assets.digital.cabinet-office.gov.uk/media/559ad883e5274a155c00001b/EMI_PFs_Summary.pdf">overcharge domestic customers</a> to the tune of £1.2 billion a year between 2009-2013. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110808/original/image-20160209-12610-1hdap33.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">IEA</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Health check</h2>
<p>There are clear failures then in both rail and energy privatisation – enough to drive the sharp turnaround in public opinion. This is only reinforced by the role of the private sector in the National Health Service. </p>
<p><a href="https://www.nao.org.uk/wp-content/uploads/2015/12/Sustainability-and-financial-performance-acute-hospital-trusts.pdf">The National Audit Office found that</a> the use of Private Finance Initiatives (PFIs) was one of the major reasons for deficits at hospitals that provide acute healthcare services. PFI deals with private firms reduce the investment cost for the public sector in the short term, but they introduce an annual unitary charge (a sort of debt repayment) which has to be paid over a long period of time. </p>
<p>The <a href="https://data.gov.uk/dataset/private-finance-initiative-pfi-data">most recent data</a> show that for Department of Health projects which delivered over £11 billion of capital investment, the undiscounted cost of the unitary charges to be paid until the end of these projects was around £80 billion.</p>
<p>It’s not just about the headline numbers. <a href="https://www.nao.org.uk/report/lessons-from-pfi-and-other-projects/">PFIs may involve</a> considerable differences between projected and actual outcomes, and can be beset by cost overruns and delays. And skills are often not in place to negotiate and administer PFI contracts successfully. And so we end up with disagreements about contract terms, price reviews which rarely lead to price reductions, limited use of penalties for poor performance and a failure to share future savings or efficiency gains.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/111143/original/image-20160211-28676-32ewm7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Tapping the market. Water as a social resource.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/iucnweb/6788528430/in/photolist-bkSYZC-epjHo-JjzVm-a63vrU-9xDg8Q-zLyXZ-x5xeC-xV2eYP-9xF1Gg-7kNVDp-7zowpY-omU8eu-sWsy-orK8ar-4yTmeX-dnsw11-8b2vFy-7dyzuT-4J5d6y-5cSpo8-cchGgb-5iJFuZ-vUqoS-8MYZQf-dsG3wd-e1gpum-9gzdGB-6HTmP-75CnzW-MfHdG-oE77b-oCxid-5EuXD1-3uumi-HEGA8-CcFNv9-5KtoBZ-536QKt-e1UknG-5dPFdn-Q2TL-NpFN-5njkrD-39KhHa-sFaTB-e1Um83-2EEMrh-eNDjmC-nr8QBJ-9nmmNY">IUCNweb</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>And it’s not just a UK problem. A wide range of research shows similar results in other parts of the world and <a href="http://bit.ly/1O4m95D">our own research</a> at the University of Hertfordshire Business School has confirmed these findings for the water and sanitation sector in developing countries. High profile examples include Argentina cancelling a large number of contracts with multinational water companies after a major economic crisis in 2001. It is still <a href="http://tinyurl.com/has5rp5">counting the cost</a>. </p>
<p>Sectors such as health, education, energy, transport and water provide essential services where there are social and developmental consequences to ownership. Access to and affordability of these services cannot be treated as secondary to efficiency objectives and profitability. The private sector usually has no inherent motivation to achieve these social goals unless they are incentivised by measures which often dump the cost on taxpayers or users.</p>
<p>In fact, the surprise shouldn’t be that the public appear to have rejected the rationale for private ownership in these sectors, but that they ever voted for it in the first place.</p><img src="https://counter.theconversation.com/content/54094/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hulya Dagdeviren does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The UK spent much of the late 20th century voting to sell off public services – but now support is growing for a renationalisation programme.Hulya Dagdeviren, Professor of Economic Development, University of HertfordshireLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/476522015-09-25T11:14:17Z2015-09-25T11:14:17ZCorbyn public ownership push reflects what is happening all round the world<p>Jeremy Corbyn’s Labour leadership victory has helped to push state ownership back to the forefront of public policy debate in the UK. <a href="http://news.efinancialcareers.com/uk-en/220948/what-jeremy-corbyn-and-john-mcdonnell-mean-for-banking-jobs-in-london/">His belief</a> in public ownership in the banking sector has stoked the question of whether it could play a vital role in funding infrastructure projects and innovation in the manufacturing sector. </p>
<p>Corbyn is part of a <a href="http://www.thetimes.co.uk/tto/news/politics/article4531341.ece">growing clamour</a> to renationalise Britain’s privatised rail companies, while opinion polls <a href="http://www.independent.co.uk/environment/should-the-big-six-be-nationalised-8981112.html">show</a> majority support for taking the energy and water sectors back into public hands. </p>
<p>Yet in his first few days in office, Corbyn <a href="http://www.telegraph.co.uk/finance/economics/11867259/What-Jeremy-Corbyn-doesnt-get-is-that-the-government-causes-most-of-the-problems.html">has been pilloried</a> for promoting renationalisation. Britain remains a country where much of the political elite set its face against any notion of public ownership, remaining in thrall to market-based and private solutions as the panacea for all of society’s ills.</p>
<p>Elsewhere it is a very different story. Much of the rest of the world is turning its back on privatisation and developing innovative new and hybrid models of public ownership. As I wrote in a <a href="http://classonline.org.uk/pubs/item/renewing-public-ownership">report for</a> the Centre for Labour and Social Studies think tank last year, this could represent the emergence of a new and more democratic form of economy. </p>
<h2>The public comeback</h2>
<p>Since 2000, 86 major cities around the world have taken back their water systems from private contractors. This started in Latin America with <a href="http://democracyctr.org/bolivia/investigations/bolivia-investigations-the-water-revolt/">violent uprisings</a> in 2000 against massive hikes in water prices in the city of Cochabamba in Bolivia but then spread to La Paz and other cities and regions throughout the continent. Subsequently cities as diverse as <a href="http://www.nytimes.com/2003/02/10/us/as-cities-move-to-privatize-water-atlanta-steps-back.html">Atlanta</a>, <a href="http://www.stopcorporateabuse.org/sites/default/files/resources/troubledwaters_webres.pdf">Houston</a>, <a href="http://www.waterworld.com/articles/2001/07/city-of-indianapolis-to-buy-nisource-water-assets-for-5225-million.html">Indianapolis</a>, <a href="http://in.reuters.com/article/2014/07/08/water-utilities-paris-idINL6N0PE57220140708">Paris</a>, <a href="http://in.reuters.com/article/2014/07/08/water-utilities-paris-idINL6N0PE57220140708">Bordeaux</a>, <a href="http://in.reuters.com/article/2014/07/08/water-utilities-paris-idINL6N0PE57220140708">Toulouse</a> and <a href="https://www.tni.org/en/article/remunicipalisation-in-berlin-after-the-buy-back">Berlin</a> have followed suit. In <a href="http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8415">Uruguay</a> and <a href="https://ejatlas.org/conflict/mali-water-privatisation-mali">Mali</a>, national water services have also been returned to public hands after failed privatisation experiments. </p>
<p>Denmark’s remarkable leap forward <a href="http://insideenergy.org/2015/06/24/on-denmarks-road-to-renewable-power/">to become</a> a world leader in renewable energy has been based primarily on local forms of municipal and co-operative ownership of wind turbines and combined heat-and-power systems. The country has also witnessed new hybrid forms of ownership such as the <a href="http://www.4coffshore.com/windfarms/middelgrunden-denmark-dk08.html">Mittelgrunden offshore windfarm</a> off the coast of Copenhagen, which is part-owned by a consumer cooperative and part-owned by the city council. </p>
<p>Similar hybrid models are being created in water, gas and energy sectors around the world, from <a href="http://www.globalelectricity.org/upload/File/argentina_patagonia_re_projects_-_final.pdf">Argentina</a> to <a href="http://energytransition.de/2013/10/citizens-own-half-of-german-renewables/">Germany</a>. Jeremy Corbyn <a href="http://www.desmog.uk/2015/09/09/four-reasons-jeremy-corbyn-s-innovative-energy-policy-no-80s-throwback">has extolled</a> the virtues of Germany as the model for energy renationalisation in the UK. <a href="http://wupperinst.org/en/info/details/wi/a/s/ad/3049/">Beyond Berlin</a>, more than 100 city and regional electricity distribution networks have come back under public ownership since 2007, while 44 new local public energy companies called stadtwerke have been established, charged with producing their own renewable energy supplies. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=322&fit=crop&dpr=1 600w, https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=322&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=322&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=404&fit=crop&dpr=1 754w, https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=404&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/95039/original/image-20150916-6287-kquw07.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=404&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Stadtwerke bus in action in Dachau, southern Germany.</span>
<span class="attribution"><a class="source" href="https://www.google.co.uk/search?client=safari&channel=mac_bm&hl=en&authuser=0&site=imghp&tbm=isch&source=hp&biw=1250&bih=645&q=stadtwerke&oq=stadtwerke&gs_l=img.3..0l3j0i30l7.1139.1139.0.1823.1.1.0.0.0.0.69.69.1.1.0....0...1ac.1.64.img..0.1.69.0BND3YJ2jW8#q=stadtwerke&channel=mac_bm&hl=en&authuser=0&tbm=isch&tbs=sur:fc&imgrc=-B-y_3Zf1Uvo9M%3A">Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>What lies behind</h2>
<p>There are several unifying factors driving this dramatic turnaround. The first is dissatisfaction with the consequences of privatisation. With the exception of telecoms – where the performance is mixed – the <a href="http://zedbooks.co.uk/node/20951">evidence suggests</a> that privatised utilities have not delivered on the promise of greater efficiencies, management innovation and modernisation of networks and services. Instead they have turned into lucrative cash cows that, because they are essential public services and usually natural monopolies, can yield high returns for private capital. Some UK electricity distribution companies have made 30% profits in recent years, according to <a href="http://reidfoundation.org/wp-content/uploads/2013/10/Repossessing.pdf">one estimate</a>.</p>
<p>A second factor is the hard economics of public finances. Cash-strapped cities and regions are rediscovering that public utilities can provide profitable and sustainable revenue streams to cross-subsidise other services in times of austerity and budget cutbacks by national governments. In Frankfurt, as in many other German cities, the local stadtwerke finances local swimming pools, parks, libraries and other public services.</p>
<p>Then there is what might be termed the growing infrastructure crisis. Rather than privatisation leading to new and more efficient management, or modernising ageing plant and infrastructure, it has resulted in public assets being sweated for private gain. The UK is perhaps the most extreme example. Three decades of energy privatisation have left the country with the <a href="http://www.telegraph.co.uk/finance/newsbysector/utilities/11589712/New-government-faces-potential-energy-crisis-warns-expert.html">real threat of</a> “the lights going out” because the sector has not invested in new capacity and much of its existing power generation capacity from coal and nuclear is reaching the end of its life. </p>
<p>Elsewhere we see less dramatic versions of the same problem. In Germany, the <a href="http://www.theguardian.com/sustainable-business/nuclear-power-germany-renewable-energy">political decision</a> to end nuclear power has left it dependent on its old and polluting coal-fired power stations. The big three utilities have thus far shown little appetite for delivering the <a href="http://www.carbonbrief.org/blog/2014/12/analysis-germany-climate-action-plan-to-save-emissions-reduction-goal/">country’s commitments</a> to a renewable and a carbon-free future, when they can make vast profits from their existing carbon sources of power.</p>
<h2>New normal?</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1134&fit=crop&dpr=1 754w, https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1134&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/95040/original/image-20150916-6299-4dl8u2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1134&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Global surprise.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/s/chinese+capitalism/search.html?page=2&thumb_size=mosaic&inline=1156869">ChristineGonsalves</a></span>
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<p>Politicians everywhere are discovering that with privatised regimes, vested interests set the broader economic agenda and short-term profit-making is trumping the likes of climate-change priorities and delivering cheap and secure supplies to consumers. The most successful countries in the 21st century are likely to be those where forms of state ownership play a leading and even expanding role. This is already evident with Chinese capitalism and its many national and local layers of state enterprise – and in the role its sovereign-wealth funds are playing internationally. </p>
<p>A different model of decentralisation is behind Germany’s advances in this area, with federal state-owned banks (länder) financing much of the drive by the stadwerke to grow renewable energy capacity. Nowhere is this <a href="https://www.swm.de/dam/jcr:f7bf1d9b-c855-42bd-82dc-1b40d15b59ec/projects-renewable-energies-expansion-campaign.pdf">more evident than</a> in Munich, where the city’s publicly owned energy company has since 2008 spent €9bn (£6.5bn) on its mission to supply 100% of the city’s electricity from renewables by 2025.</p>
<p>Britain too is not immune to the new mood for localised public ownership. In England, cities as diverse as <a href="http://www.greenpeace.org.uk/MultimediaFiles/Live/FullReport/7468.pdf">Woking</a>, <a href="http://www.districtenergy.org/blog/2013/12/09/gateshead-council-gives-green-light-to-north-east-uk%E2%80%99s-first-district-heating-scheme/">Gateshead</a> and <a href="http://www.mea.org.uk/news/other/nottingham-launches-groundbreaking-2020-sustainabl-energy">Nottingham</a> have set up their own publicly owned energy and heating systems. I understand that Bristol has been keen to learn from the “<a href="http://www.bloomberg.com/news/2012-11-20/germany-s-clean-energy-transforms-industrial-city-of-hamburg.html">Hamburg model</a>”, where a local public energy company created in 2009 already has more than 100,000 customers. Meanwhile Aberdeen City Council <a href="http://www.aberdeenheatandpower.co.uk">already has</a> its own award-winning heat and power company.</p>
<p>It’s about time we stopped attacking the likes of Jeremy Corbyn and learned from what is happening both on our doorsteps and around the world.</p><img src="https://counter.theconversation.com/content/47652/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew has just received funding from the ESRC Transformative Research scheme for a new project entitled "Transforming Public Policy through Economic Democracy” </span></em></p>The new Labour leader has been pilloried for extolling public ownership. In fact, he’s bang on trend.Andrew Cumbers, Professor in Management, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.