The macroeconomic imperative of nationalisation

In Britain as in the US, governments are tackling the corona virus by undertaking actions that force the closure or collapse of companies large and small. To compensate, they are stepping in with subsidies and bailouts.

Because millions of livelihoods are at stake these interventions are welcome and necessary. But we must demand more: not just greater transparency and accountability for these socialised losses; but also state ownership and tough conditions in return for taxpayer-backed largesse.

Today the British government announced the ending of railway franchise agreements and the effective nationalisation of losses made by privately run railway companies –  for only the next six months. The companies have not been nationalised. Only companies that  “refused the emergency measures agreements would have (their) franchise nationalised” the Financial Times reported today.

The economic reasoning for state ownership is straightforward: if the state acquires ownership of the bailed-out asset, its value will then be recognised on the state’s balance sheet. Adding assets to the state’s balance sheet will help the Treasury manage and stabilise the government’s growing liabilities.  

In other words, this action is not just necessary to be fair to taxpayers who will ultimately shoulder the bill, but for macroeconomic reasons too.

The government is rightly beginning to act as spender-of-last-resort.  The extraordinary circumstances brought on by this lethal virus means the private sector cannot spend. That is why HM Treasury must intervene. The economic reasoning is well known: one woman’s spending is another woman’s income. Given the collapse of almost all private sector spending, government spending is necessary for the population to have income. And income is necessary to keep people alive, fed and housed.

By borrowing and spending during a depression when tax revenues plummet, the government will invariably build up liabilities.  For that reason the state should take a sizeable, and in many cases a 100%  stake in the companies bailed out.

Nationalisation will mean that shareholder payouts, company buy-backs and lucrative bonuses must end. The taxpayer-backed company’s activities must be subordinated to the interests of HM government.

As importantly, and after this pandemic is over, the company’s activities must be subordinated to the interests and sustainability of the ecosystem.  And nationalised companies must, for the duration of both this and the unfolding environmental crisis, undertake activity the state deems a priority, including moving towards zero carbon emissions and maintaining employment.

One of the most important reasons for nationalisation is a macroeconomic one highlighted by John McDonnell during the election campaign. By nationalising bailed-out corporations the government will acquire assets that in future will generate vital revenues for the state. These revenues will help ensure that over a relatively short time the government’s books can once again be restored to health and the public finances stabilised.

The most fruitful way of generating future revenues would be for state-owned companies to  create decent, secure, well-paid employment for the millions of people rendered unemployed by this pandemic. As we all know from our own experience, employment generates income, not just for individuals and households, but also for the state in the form of tax revenues.

In the aftermath of the pandemic much will have to be done to repair the economy, and to repair financial imbalances – both private and public. The government’s ownership of, and stake in, companies will enable it to ensure – again for macroeconomic reasons - that corporations prioritise job-creation with security and decent levels of income. Job creation that must take precedence over handouts to risk-averse shareholders.

Britain has elected an extreme, laissez faire Conservative government committed to protecting the interests of the globalised wealthy and shareholders in big corporations. Today’s news of the government’s decision to spend what the Financial Times describes as “several billion pounds”  to transfer all cost risk away from foreign-owned, commercially run companies and their shareholders, and instead pile the risk on British taxpayers, is evidence of that.

Furthermore it is a government that has granted almost unlimited powers to government ministers; powers unprecedented in peace time.

Given these are extraordinary times, Britain’s opposition parties should, therefore, call for the establishment of a credible, all-party, national government that will have as a priority protection of the nation’s health; but in addition will also protect the interests of taxpayers – in other words, society as a whole – and not just the 1%.

A government that in these dark days will have to work to earn the confidence and trust of all the British people.

End.