Industrial Strategy

In his letter to the Galatians, St Paul gives a clear instruction that God’s people are to ‘serve one another humbly in love’ (Galatians 5:13). Jesus himself underlined that ‘even the Son of Man did not come to be served, but to serve’ (Mark 10:45). These and other verses are unequivocal that service is a key theme in the Bible.

Service is something we should aspire to do in our own lives; however, it is also a task which society as a whole should discharge. If we are to live in a society which is inclusive and which works for all, it is essential to have strong public services, paid for out of taxation and available to everyone. These must operate and be funded in a way that is fair to all and which ensures the public interest is honoured. At present, most of our public services are provided by some kind of market. This has benefits but has also led to many disadvantages.

Markets work because of incentives: by each doing what is in their best interest, both buyers and sellers of goods benefit. Competition is generally a good thing because it forces a company to provide either better quality (innovation) or lower prices (efficiency). If it does not, it will lose business to rivals.

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However, in a few industries, the efficiency and innovation of a competitive market are outweighed by the disadvantages. Private companies exist to maximise profit, and, when the market fails to provide competition, this can lead them to exploit their market position by charging customers high prices for a poor service. By contrast, a large firm may benefit from economies of scale: by spreading high initial or fixed costs over a larger output, their average costs fall, meaning they can afford to charge a lower price. Therefore, in uncompetitive markets it is preferable for customers to be served by a single large firm rather than a fragmented array of small firms.

Utility industries are unique because they involve an expansive and expensive distribution network. Duplication of this would be extremely inefficient, meaning that it is only feasible for there to be a single network. This means it is very difficult for there to be viable competition, even if there are multiple operators. For example, each train operating company is typically given exclusive rights to operate a small part of the national network, meaning they face no competition on their routes.

Industries such as rail, energy and water are examples of what economists term a ‘natural monopoly’: it is most efficient for there to be a single firm operating the entire network and passing economies of scale on to consumers in the form of lower prices. It is obvious that a private monopoly will try and exploit its power to maximise profits, so consumes will be much better protected if this monopoly firm is under public ownership. This gives democratic oversight and means that the company is run (at least theoretically) as a public service.

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The case for nationalisation is strongest in the case of the railways. The years since privatisation have seen little improvement in standards and huge increases in fares. The government spends more on rail than it did when rail was under public ownership. In the period 1985-1990 (before privatisation), government support for the railways averaged the equivalent of £1.552bn per year; in the period 2011-2016 the average was £4.932bn per year[1]. Government subsidies have more than tripled (in real terms) due to privatisation, despite rail fares increasing 21.8% (in real terms) between 1995 and 2017[2]. Rather than investing in our railways and providing a good service, train operating companies pay shareholders huge dividends and exploit passengers who depend on their services. It is clear that privatisation has failed: it has not improved outcomes, it has not made the railways more accessible and it has not saved the taxpayer money.

Nationalisation would not be a cure-all. There were serious inefficiencies and failings in the old British Rail. The absence of shareholders must be compensated for by proper scrutiny and accountability. However, the privatisation experiment has failed and it is time to try another way.

Labour is the only party with a credible programme that includes bringing the railways back into public ownership. And Labour’s proposals do not stop with the railways: there are also plans to bring other vital services, including post, energy and water, back into public ownership, ending exploitation and ensuring public services truly do serve the interests of the public.

Nationalisation of vital industries will be the cornerstone of a Labour government’s industrial strategy. The long-term decline in some industries has posed problems, and it is time we had an industrial strategy able to deal with the consequences of this by investing in businesses and people.

Tata-plant.jpgUnfortunately, the present government’s industrial strategy, which has been criticised by a cross-party select committee as lacking in long-term planning and vision[3], is not fit for purpose. It has allowed the steel industry to fail, with the loss of jobs and security for thousands of workers. Rather than investing in the infrastructure and skills that benefit all British companies, it has focussed its industrial strategy on mysterious sweetheart deals for powerful corporations such as Nissan and Google. It is clear that we need a step change in industrial strategy to benefit all industries and firms in the UK economy.

As well as nationalising crucial industries, Labour will create a National Investment Bank to underwrite £250bn of investment in industry, infrastructure and skills. This much-needed investment will be for the long term, ensuring that all regions of Britain have the research expertise, networks and enterprise that we need to build a successful society that works for the many into the twenty-first century. This is a bold vision, but one which can and will become a reality given sufficient investment, confidence and belief.

If we are to live as God’s children, it is essential that we heed the command to serve one another. Often, society is best served when the government provides services. Public services should be run in the public interest. A thriving economy needs investment. Let us aspire to a vision for the future of our country in which important public services are accessible and affordable to all.

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