The Finances of Nationalisation

A problem that will increasingly worry the Labour Government is that many of the workers who support nationalisation do so for quite baseless reasons, reasons that the leaders either never believed or have learned by experience to recognise as fallacious. Perhaps the leaders were in a muddle about it themselves or perhaps they chose to gloss over all the awkward facts when they were trying to popularise nationalisation. Whichever way it happened many workers expect great benefits from nationalisation and are in for a rude awakening. They believe that when industry is nationalised profit is eliminated and there are vast sums of money that are freed and can be used to pay higher wages. This is quite without foundation as can be shown both in the old nationalised concerns like the Post Office and the new industries nationalised since the Labour Government came to power.

The Post Office is financed on money provided by the Government, money that the Government raises from investors as part of the national debt. The Post Office is run like any other capitalist institution, on strictly commercial profit-making lines. Some 60 years ago a Select Committee of the House of Commons laid it down that the Post Office “is most likely to be conducted satisfactorily if it should also continue to be conducted with a view to profit, as one of the Revenue-yielding Departments of the State.” The Labour Government has carried on this policy without the slightest change and indeed the leaders of the Party, at least in recent years, did not intend otherwise. Mr, Hugh Dalton, for example, in Where Stands Socialism Today? (published by Rich and Cowan, 1933, p.76) wrote:

“Our socialised sector . . . must be so organised as to be both revenue-yielding and, to some extent, self-financing. Our socialised sector must be prepared, and must be able, increasingly to contribute revenue to the general pool.”

Workers who had not realised how this was done in the Post Office are now discovering with a shock that it is the basis on which coal, railways, electricity, etc. are going to be run. Annual Reports called “Post Office Commercial Accounts,” show how successful the Post Office has been as a profit maker. Except during one or two years after the last war when charges did not keep pace with rising costs, it always shows a surplus after interest has already been charged on the capital provided by the Government. In 1938-9, after charging £6,764,000 interest on capital, there was a net surplus of £10,255,000. During the war the surplus rose enormously. In a period of 35 years since 1912 the interest charges have totalled about £150 millions and the net surplus about £400 millions.

Post Office workers who may have imagined that the profits ought to be used to raise wages know what answer they get, from the Government. Now the same principle is applied to the nationalised Railways, Bank of England and the Gas and Electricity industries. The Railway shareholders have been compensated by receiving in place of their shares about £1,100,000,000 of Government Transport Stock paying interest of 3 per cent., so that there is a permanent charge on the industry or the Government of £33 million a year to meet these interest payments. The annual payment to gas company shareholders will be about £6 million, to electricity shareholders £11 million, and to Bank of England shareholders £1,700,000. Former Coal Royalty owners receive about £2,000,000 a year.

It makes no practical difference whether the owners are compensated by stock bearing annual interest or are given a lump sum in cash; in the latter event it would simply be re-invested either in non-nationalised concerns or in government loans. The shareholders in coal mines will receive £165 million compensation and in certain cases payment is in cash which can be so re-invested.

The fact that the compensation to the coal mine shareholders is not a direct charge on the nationalised coal industry but is directly a charge on the government itself makes no real difference. The charge has to be met and the National Coal Board has to pay interest to the Government on capital placed at its disposal by them or has to pay direct to investors if it, raises new capital directly from investors.

Behind all of the nationalisation schemes, and overshadowing them, is the fact that the government is paying over £500 million a year to the investors who have lent the £25,000 millions that makes up the national debt. All that nationalisation does is to increase the amount of interest that goes to investors in government stocks, etc. and decrease the amount that goes in the form of interest on company debentures or dividends on company shares. Even now, however, nationalised industries and transport account for only about one-fifth of the total. Private capitalism still accounts for about four-fifths.

Some Labour supporters, admitting most of what is said above, still maintain that the total payment to the former shareholders is less than they were receiving before nationalisation and also that it is open to the Labour Government to reduce the compensation payments in various ways in the future. The first point is certain to prove illusory. It is true that the railway shareholders were receiving about £43 million a year during the war and are now to get only about three-quarters of that amount. But this overlooks the fact that the war years were exceptionally good years. In a bad year like 1932 they got about £27 million, which is less than they get now as compensation.

A still more striking example is the year 1947, the last year before nationalisation. According to the accounts published by the government the main line railways and London Transport together made a net loss of £10,000,000 in the year ended 31st December, 1947. Actually this loss did not fall on the railway shareholders because under a war-time agreement the government took all railway revenues and guaranteed to the railways and London Transport a payment for dividends of £43½ millions a year. For the year 1947 the government therefore had to meet a deficit of £10 millions in addition to the payment of £43½ millions. As from 1st January, 1948, whether the railways make a profit or a loss the former shareholders will be assured of their £33 millions a year. It is obvious that the government will demand of the Boards of all the nationalised industries that they try to make a profit al least equal to the compensation payments. In times of bad trade there will be the inevitable effort to cut expenditure by standing off redundant workers. Mr. Alfred Edwards, M.P., just before his expulsion from the Labour Party, made the same point about the steel industry in the event of its being nationalised. “If the government bought a steel works for a million pounds the owner would still be getting his three per cent. interest on that million if a depression came – but the workers would be walking the streets.” (People, 9/5/48)

In the mining industry, under private ownership, if a mine goes bankrupt the shareholders lost all or part of their investment ; under nationalisation when the Coal Board closes a non-paying mine the compensation to the former owners is not affected.

Although in most industries the shareholders are glad to be compensated by receiving a somewhat smaller annual income with, however, the advantage of being hacked by the government and therefore being safe against loss, there is one exception, the shareholders in the Bank of England. Their shareholdings always were just as safe as if backed by the government so their compensation gives them precisely the same guaranteed dividend under nationalisation as they received as Bank shareholder’s for the past 20 years.

The second point (that a Labour Government could reduce the compensation payment) looks more plausible on paper, but is equally fallacious. Mr. Hugh Dalton in his Practical Socialism for Britain (Routledge, 1935, p.170) quotes from a Labour Party Report which argued that the interest payments to former shareholders would not go on for ever but could he ended by various devices. If this were to be done merely by the government raising a new loan to pay off the former shareholders in a lump sum, it obviously makes no difference whatsoever. To be effective any such device would need to be in some measure directly “confiscatory,” i.e. actually reducing the property and income of the investors; to which Mr. Dalton himself supplies the real answer. He repudiates confiscation in principle because “a state of mind would be created among property-holders, both large and small, which would prevent the government from raising loans, either for ordinary government finance or for national development and employment. The conduct of all industry and trade still left in private hands would be seriously disturbed, additional unemployment created, and all new development checked.” (p.168) We have seen this demonstrated this year when Sir Stafford Cripps in his budget made a relatively small capital levy on the, biggest property-owners, lie had to give a solemn pledge on behalf of the government that it was a “once-for-all” levy and would not he repeated. And when Mr. Dalton spoke about the need to repeat it Cripps emphatically repeated his pledge and by so doing officially repudiated Mr. Dalton.

The Labour Government may serve the interests of the capitalist class as a whole by nationalising certain industries and thus keeping the prices of their products lower than they otherwise would be – though the higher charges for coal, rail transport, and electricity, together with the present big deficit on coal and railways, make it look like a future hope rather than a present reality – but the fact remains that nationalisation or state capitalism solves no problem for the working class. As the nationalised industries get over their initial difficulties the workers in them will find themselves up against the same old drive and pressure to get more work and cheapen costs. The industries will be called upon to prove themselves a “success” in the same old capitalist way, that of producing profit. The capitalist class will he little affected except that some of them will have exchanged uncertain and fluctuating profits dependent on good and bad trade, for possibly a smaller sum, but one guaranteed by the government.