Opinion: The real issue – nationalisation

 

The leaders debate last week brought some, but not much comment on the most important, but least talked about, issue affecting the UK. This is the fact that over the last 30 years the government, of both colour ties, has sold off the family silver in order to provide return and profit to shareholders and their friends in the city.

Nationalised companies can’t fail

The UK’s utilities network, of just gas and electricity alone, consists of multiple companies running small cut up sections of the country. How could we cut the whole of the Midlands (say) off gas if a company folds? The railway network is confusing, with the tracks owned by Network Rail, formerly Railtrack, privatised in 1996. Railtrack made massive losses following a horrible crash, then approached the government for emergency funding. The government, of course, HAD to bail Railtrack out – we can’t not have a railway network! Anyway, they immediately paid a £137m dividend to the shareholders out of the public gift.

Intrinsically conflicting goals

How can we meaningfully privatise a public service? It just doesn’t make sense. Private companies, created to return financial profit to shareholders (and there’s nothing morally wrong with this, of course!) cannot provide services for public benefit – these two goals intrinsically conflict. On the one hand, utilities companies make a big deal about how they’re trying to reduce prices, and on the other hand, they advertise good returns for shareholders.

Utilities companies, rail companies, bus companies and other companies that run public services make massive profits, but have no risk. National Grid, British Gas, Scottish and Southern Electricity will all have to be bailed out, because the product they provide is intrinsically necessary for the functioning of our modern society.

Unethical behaviour

Privatised companies, with a desire to make returns for shareholders (and as a desire, I’m not objecting to the making of profit at all, only to profit being made on services which should be run for the country) have – in some instances it seems – no desire to treat their customers like human beings.

When the water networks were privatised, they started cutting off customers for non-payment. We had moved to a system whereby in 1998 there were people in homes in our country without access to clean drinking water. Just recently EON was fined £8m for overcharging customers. They’d been charged previously for doing the exact same thing.

Public services should be run for the benefit of the people, not shareholders

Large companies typically provide a financial return of about 5% for what is generally considered a medium-low risk investment. The government can currently borrow at less than a single percentage point. The Liberal Democrats need to make the case for Nationalisation and investment – we need to borrow at half a percent to generate a return ten times larger than that. What’s the point in having six companies needlessly administering the gas networks? Do I get a lot better Electricity from EDF than I do from British Gas? Are the prices all pretty much the same, for exactly the same gas, produced thousands of miles away? Does it all come through the same pipes anyway?

By renationalising public services, such as the water, gas and electricity networks, administration of utilities services, rail tracks, running the train services and bus services the “profit” that massive corporations make will no longer exist. Prices for public services will fall significantly and we can run the whole thing more efficiently, for the benefit of the people, not for the tiny percentage of rich people who own the shares at the top. The Liberal Democrats should be fighting this cause.

* Andreas Christodoulou is the Treasurer of the Northampton Liberal Democrats, works as an auditor in Leicester, and writes here in a purely personal capacity

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43 Comments

  • Robin Wilde 6th Apr '15 - 2:24pm

    Come on in and join us in the Labour Party, the water’s lovely!

  • Tony Greaves 6th Apr '15 - 2:38pm

    Anyone who thinks the Labour Party will renationalise anything, except in a very great emergency (when any other party would do the same), is living in cloud cuckoo land.

    Tony

  • Alex Sabine 6th Apr '15 - 2:47pm

    Actually, many sensible people in the Labour Party realised that nationalisation was not “the real issue” even before the end of the Attlee government. They realised it had done next to nothing to promote the goals of greater worker participation or greater accountability, and still less to create or even redistribute wealth – although it had landed taxpayers with the costs of compensating (on generous terms) the erstwhile private owners. The sheer irrelevance of nationalisation to the achievement of progressive goals was one of the key themes of Anthony Crosland’s 1956 revisionist tract The Future of Socialism. It would be ironic and depressing if it were to be exhumed by the Liberal Democrats.

  • Labour = PFI scandal.

  • Andrew Suffield 6th Apr '15 - 3:08pm

    we can run the whole thing more efficiently

    How? I cannot think of single service run by the UK government that could plausibly be described as “efficient”. What exactly is your proposal here?

  • Nonconformistradical 6th Apr '15 - 3:10pm

    “Prices for public services will fall significantly and we can run the whole thing more efficiently, for the benefit of the people, not for the tiny percentage of rich people who own the shares at the top. The Liberal Democrats should be fighting this cause.”

    Andreas – from your photo you appear to be quite young – and not around when these services were being run by the state in times past.

    Fair enough to raise the issue of whether or not the profit motive is appropriate for public services.

    What gives you the idea that the state could run these services more effectively – both from the service quality and cost angles – than private enterprise? Past experience wouldn’t necessarily suggest that. Ongoing experience of government-controlled failures such as defence budget overruns and government IT catastrophes wouldn’t necessarily suggest that.

    In theory the profit motive should provide private enterprise with the motive to run these services on an efficient and cost-effective basis. The state has no such motivation – it can just take more tax to cover the cost overruns.

    The trouble with the present system is at least twofold – (a) grossly inadequate regulation and (b) the issue that in many of these services there isn’t proper competition e.g. a company running a train franchise on a line where it is the sole provider has an effective monopoly on the service for the length of its contract. If I wanted to travel on the line I have to use the current franchise holder – I can’t go to a competitor. But then again – I couldn’t go to a competitor when British Rail was running the service – and their services were definitely nothing to write home about.

  • Samuel Griffiths 6th Apr '15 - 3:18pm

    The Labour party are as right wing on economics as the Tories. They may talk a big game about public services, but it’s more to appease their grass roots. It’s ironic, I voted for the LibDems as a party left of Labour, but it seems those days are gone. I really do wish you well in promoting your thoughts, Andreas, but forgive me if I don’t believe much can be changed now. It would take a far more drastic reform of our democracy before politicians are forced to put people before profits.

  • Philip Thomas 6th Apr '15 - 3:34pm

    There are some small differences between current party policy positions on the size of the state (disguised as how to cut the deficit). Labour’s borrowing policy amounts to a bigger expansion of the state than raising the money through tax rises- because the borrowing creates more public spending in interest, thus eventually meaning higher taxes than if you’d just raised taxes in the first place.

    But, yes, the economic policy gap is small compared to that for most of the 20th century.

  • Simon McGrath 6th Apr '15 - 3:42pm

    Presumably you would apply the same logic to the provision of food – just as much a’ public service’ as power?

  • Nonconformistradical 6th Apr '15 - 3:46pm

    @James

    “it’s not to say that local authorities could not own and run essential services such as water, for example, much more efficiently than these profiteering private utility companies.”

    What makes you think that LAs could run such a service much more efficiently than private enterprise? Can we have some evidence please.

    I would have no problem with the concept of LAs being involved in the regulation of privately run services.

  • George Potter 6th Apr '15 - 4:03pm

    I should point out that much of our utilities and our railways are run by nationalised industries – they’re just foreign nationalised industries like Energie De France and DeutschBahn (owner of Arriva which runs railways and buses in the UK).

    I think there are plenty of European examples which show how state owned utilities can be a success and in Germany recent moves towards local government taking ownership of utility companies and utility infrastructure offer a good example for us to follow.

  • “The government can currently borrow at less than a single percentage point”

    Not for long-term loans it cant – that’s more like 4%. And no one in their right mind would suggest that the govt borrow the kind of money needed for nationalisations on 12-month loans. Seriously.

  • “…Prices for public services will fall significantly and we can run the whole thing more efficiently, for the benefit of the people, not for the tiny percentage of rich people who own the shares at the top. The Liberal Democrats should be fighting this cause.”

    I congratulate Andreas Christodoulou for a forward looking amd rational argument to overthrow the sacred cows of privatisation.

    For too long people have been hoodwinked by rich and powerful vested interests into swallowing a lot of guff about privatisation being the answer to our prayers.

    Nationalisation may not be the answer to every question either, but it should not be ruled out before any rational consideration of how best to run a service or a business.

    In the UK the political discussion of the subject has been confused by the adversarial system of two-party politics.
    For most of the 20th century nationalisation was seen as Labour, the alternative as Conservative.

    Other countries were luckier because they had a variety of parties many of which were as keen on nationalised industries as any socialist or social democratic party.

    So it is refreshing to read an article which looks at the subject from the standpoint of “what will work best for the benefit of all”.

  • Alex Sabine 6th Apr '15 - 4:14pm

    There are also different ways of measuring the scale of the differences between parties on economic policy – different dimensions to it.

    For example, for much of the postwar period (1945 to 1979) there were significant differences between the two big parties on public v private ownership of industry (although not as great in reality as the rhetoric implied), but only minor differences when it came to macro management (fiscal and monetary policy). The differences on both grew in the 1980s, before narrowing again as Labour decided to leave the boundaries of ownership more or less where they had been drawn by the Thatcher & Major governments (note that this was true pre-Blair, it was not just a Blairite conversion) and sought to demonstrate their fiscal and monetary orthodoxy (most strikingly by making the Bank of England operationally independent).

    The differences on the size of the state have tended to be smaller than some of the other dimensions. To take just a few examples by way of illustration, spending was 35.8% of GDP under the Tories in 1957-58 and 35.9% under Labour in 1999-2000. It climbed as high as 48.9% under Labour in 1975-76 and 46.9% under the Tories in 1982-83. It was 40.2% when Labour left office in 1951 and 38.2% after the long period of Tory government that ended in 1964.

    The figures for taxation are generally lower because British governments have tended to run deficits in good times and bad – but the pattern is similar. If you looked down the historical series and didn’t know which party was in government you would not easily be able to tell. One clear exception was the 1960s Wilson government, which hiked taxation substantially (from 35.5% to 43.1%), although sterling and balance of payments crises forced it to pare back spending in its last couple of years. By and large, though, tax as a percentage of GDP has fluctuated by only a few percentage points within the 35%-40% range (the contribution of North Sea oil revenues in the 1980s temporarily boosted receipts above this level but they have not exceeded it since 1986-87).

  • George Potter – the German economy has a very different approach to lending

  • The lesson seems to be that the big nationalised industries get too bureaucratic. The snag is that complete privatisation is also a problem: the incentive then is to make the biggest profit, not do what is in the national interest. My guess is that we need to revisit this one rather more creatively, using subsidies, fines and borrowing facilities involving the state, so that the interests of rail companies and utility providers align more with the national interest.

    An extreme example is how transport costs look if you add in the premium people to pay to live close to where they work. The transport companies’ calculation is “what ticket prices give the best profit?”, but it might well be in the national interest to subsidise travel to reduce the premium people pay to reduce the journey to work.

  • Andrew Suffield 6th Apr '15 - 4:51pm

    My guess is that we need to revisit this one rather more creatively, using subsidies, fines and borrowing facilities involving the state, so that the interests of rail companies and utility providers align more with the national interest.

    This sounds more like a direction in which a reasonable and effective proposal might be found, and I would like to read that proposal, if anybody should write it.

  • Nonconformistradical 6th Apr '15 - 5:08pm

    ” My guess is that we need to revisit this one rather more creatively, using subsidies, fines and borrowing facilities involving the state, so that the interests of rail companies and utility providers align more with the national interest.

    This sounds more like a direction in which a reasonable and effective proposal might be found, and I would like to read that proposal, if anybody should write it.”

    Likewise

  • George Potter is quite right when he points out that our privatised utilities are now owned by foreign governments. James Meek’s recent book “Private Island” demonstrates this with respect to electricity in particular. We do not live in a world which is sufficiently secure for it to make sense that our national infrastructure is owned by companies or governments with which we could find ourselves in conflict at some point in the future. I am old enough to remember nationalised industries: some, like British Rail, were dinosaurs but could probably have been shaken up by some degree of worker/community co-ownership. Others, like the gas, electricity and water industries seemed to me to do the job perfectly efficiently. And if nationalised industry is really so terrible why aren’t all the people decrying it on here also demanding the privatisation of the biggest industry of all – the NHS?

  • There is no Utopia here. Most of the economy is better off in the private sector. The private sector is flawed in that it is often the case that companies that follow the Alan Sugar school of management that believes in an authoritarian top down management style to run companies, pay employees the least amount you can get away with a syphon the profits for your own personal self aggrandisement. Under this management style it is of no interest to be concerned with questions around morality about how you make a profit. Damage the environment? Tough. Exploit the workers? Tough. Rip off consumers? Tough (but make sure you are not found out). Lobby the government to make it easier to do these things? Go right ahead.
    That is a high price to pay, and thankfully not all companies are run that way.
    There is also some truth in the critique of monopolies – whether in the private of public sector. Lack of competition can lead to no motivation to do things better.
    However the only advantage the private sector can offer is that competition does lead to more and better choice for consumers. But only if choice makes sense. Private railways do not compete against each other and it does not make sense they are in the private sector. The same applies to many other public utilities as the article outlines. The only reason not to nationalise is that it is unaffordable.
    The main general point to consider is that not all parts of the economy are the same. Choosing a cup of coffee is not the same as choosing your energy supplier. Personally I choose Better Energy for my gas and electricity. I like it that they are green and do not donate to the Labour party as Ecotricity does, or to the Tories as maybe the other energy companies do. But I would prefer my energy supplier to be green anyway, and of course not donate to the government.
    My inclination is to support devolved federal government and that they have the powers to nationalise the utilities. I am not sure how practical that is, it may be this has to be done on a national level.

  • Matt (Bristol) 6th Apr '15 - 9:04pm

    I am definitely in favour of reconsidering whether almost everything has to be held in private hands and exploited for profit. But that does not have to mean ‘nationalisation’. Alternatives to ‘classic’, Atlee-era nationalisation (where the company is ‘owned’ directly by central, national government are:

    – the asset(s) or business are managed not for profit by a charity, public trust or corporation with national scope (eg Network Rail, Trinity House the National Trust or the BBC), wherever possible not directly intervened in by government. Such bodies can be set up by government or by private enterprise, but are usually unsellable, and often protected by legislation.
    – The same, but the body has local or regional scope (the Merchant (Ad)venturers Guilds in York and Bristol are exampled)
    – Attlee-style governance and ownership, but by a local authority (eg Hull’s Kingston telecom before 1999)

    I daresay there are others.

    The point is, we do not have to confuse keeping assets within the public realm with either public ownership or with national, central control. But we do need to consider what is the public realm, how we keep it public and accountable, and whether we need to restore things to it. Not everything is for sale, but neither should everything belong to Whitehall.

  • This has to be a first where the comments from the left, right and centre of this party and others make more sense than the original post. There is a reason why no mainstream political parties in the developed world support nationalisation of all “public services” and that’s that it has been shown that a mixed model of private ownership, state regulation and alternate forms of ownership (e.g. collectives, charities, state-owned private, partnerships..) is much more effective.

    I’m also not sure about the relevance of cutting off water for non-payers. Firstly it would be the same if water was re-nationalised and secondly cutting off residential water supplies is illegal nowadays anyways.

  • Andreas Christodoulou 6th Apr '15 - 11:51pm

    Looking at energy generation and supply alone, the big six energy companies make EBIT (earnings before interest and tax – can be considered effectively profit) of £2.8bn in 2013. [https://www.ofgem.gov.uk/ofgem-publications/90701/css2013summarydocument.pdf]

    A trivial calculation based on an assumption on an average pay of (say) £22k means that the profits generated by the big six alone could employ 125,000 people a year. This ignores the lack of synergy between the companies. If all six were to merge, you could save five payroll departments, five legal departments, and people from other shared services. Naturally one could argue that employment is preferable to laying off an eighth of a million workers, and I agree. But you can’t keep paying people to not be productive, you have to solve the problem, which admittedly means you also have to solve any problems that your solutions just created – but the alternative is just shoving your head in the sand about the issue .

    I believe that (independent of my belief in socialism) we also have to accept that mechanisation and computerisation of the workforce has led to a situation whereby we, as a society, simply generate work for people to do. We have another question, as to how long we’re going to pretend that everyone on the planet working a five day week is somehow necessary (certainly in the west) or whether we need to phase in a four-and-a-half or four-day week and look at other, more radical solutions.

    Of course, I’m also supportive of quite a number of other options here (such as for example a non-profit company, limited by guarantee, owned by the Government) – if it solves the not-failing, conflicting goals, ethical problems and principle of running services for the public benefit I like it.

    I am interested – to those who have expressed that the private sector currently runs public services better than a nationalised system could – why are we not arguing for a privatised American-style NHS?

  • matt (Bristol) 7th Apr '15 - 10:58am

    Andreas, I too would actively like there to be an alternative to ‘the market, only the market’ for the running of all services and I think Peter (above) is over-egging it when he suggests that your views have no home at all , on the left, right or centre of the party.

    (Obviously, we all need to recognise that the current party leadership is more inclined to see the role of the state as a regulator of the economy in the public interest, and not so much as the steward of the public realm – and for all you orange-bookers out there, I’m not quesitoning that this line of though has a home in the Liberal traidion, but it’s just not the sum total of it.)

    But in your thinking you need to address regionality and democratic accountability and avoid a one-size-fits-all model and I don’t see you doing this – you are simply saying over again ‘this technocratically right, to me – let’s do it’.

    For me as a democrat, even if a policy is ‘right’ (and I cannot entirely see how government owenrship – if that is what you mean by ‘nationalisation’ – is automatically right for everything) it has to have genuine consensual democratic buy-in to be ‘really right’.

    Anyway, let’s start first by challenging and querying the process to the sell-off of existing public lands and buildings (including commons) which all local authorities are engaging in the the rush to realise assets, before we start proposing wholesale renationalisation.

    But it is true that there may have been many missed opportunities during this compromise government to rebuild a mixed economy – the fire-sale approach to the banks and the post office is just the start. Whether that was anything other than inevitable with a Tory PM is probably academic.

    But for those who say, ‘come and join the Labour Party’ to people like me, I say, where was the Labour Party’s vision of a mixed economy with protection for public services and public ownership when the building societies were demutuallised? Where was the Labour Party when railway franchises came up for renewal?

  • Tony Rowan-Wicks 7th Apr '15 - 12:54pm

    Whitehall has a poor record on company involvement but it has a role in implementing controls as Mark Argent, Andrew Suffield and others are suggesting. A LibDem policy would obviously be different to Labour’s but the article has opened an interest which many LDs share.

  • “Private companies, created to return financial profit to shareholders […] cannot provide services for public benefit – these two goals intrinsically conflict.”

    Utter nonsense, my local corner shop exists to make a profit, it does this by offering me a service I choose to make use of. There are plenty of discussions to be had about the provision of services but a sensible position won’t come from such a logically flawed premise.

    “Utilities companies, rail companies, bus companies and other companies that run public services make massive profits, but have no risk.”

    Really? Are you sure about that? Government doesn’t have to bail out companies, it can allow the insolvency process to take effect and direct the usage of assets after. So the investing companies will lose their investment but service will continue. I assume as an auditor you understand the insolvency process.

    “Prices for public services will fall significantly”

    Evidence? Perhaps you mean, taxation will pay more of the costs and therefore more of the costs will be hidden.

    Mark Argent

    “The lesson seems to be that the big nationalised industries get too bureaucratic.”

    It is not the only lesson, you also have to remember the conflit of interest if the owner of the system is also the person responsible for setting the rules around hot it should work. If the government were to implement a higher safety standard on a government owned enterprise which would require more investment than it could afford at that point, then the incentive is to avoid the issue by delaying a potentially improving safety.
    Also if a new technology makes an existing industry significantly redundant the incentive on the Government is to hobble the implementation of the new technology to delay the costs of the restructuring of the nationalised industry.
    Also in running an organisation requires regular hard choices, a government running nationalised industries has the incentives to maximise avoidance of these for electoral advantage, making the nationalised service ever more in efficient.

    Geoffrey Payne

    “The private sector is flawed in that it is often the case that companies that follow the Alan Sugar school of management that believes in an authoritarian top down management style”

    That applies to public sector employers too, it is a case of bad management not who owns it.

  • Matt (Bristol)

    “I am definitely in favour of reconsidering whether almost everything has to be held in private hands and exploited for profit. But that does not have to mean ‘nationalisation’.”

    Which is what a “Market” is. It is often confused with “Capitalism” which is an approach to ownership and forms a large part of most markets.

    You cite the National Trust, who’s market is a good example, the leisure market has many players NT (a charity), Theme parks (“capitalist” enterprises), English Heritage (a government agency), private landmarks (“capitalist” enterprises), “go ape” centres (“capitalist” enterprises), along with a whole range of other activities (including charity, local government and other capitalist enterprises).
    It is notable that for many years one of the worst providers was English Heritage (government agency) which was very unimaginative, particularly in comparison with the National Trust (EH have caught up in recent years by copying NT).

    One of the problems a “mixed market” faces is the obsession of governments with big examples of their preference, see Nick Clegg’s constant referencing of John Lewis (at a time when it was losing it’s edge) or the Labour Party celebrating the mergers of the smaller Co-ops in to the “super Co-Op” which is nothing to write home about (the Bank being a good example).

    In fairness to British Rail, I understand that by passenger mile the service was one of the lowest cost anywhere. This was the target set for it by the government, but it resulted in a terrible service to the users. The private franchises are not perfect but they have been a lot better than what went before. Nationalised industries suffer horribly from political interference, in particular access to investment financing. There is always a claim of “but my way wouldn’t suffer from that” which is easy to claim but impossible to deliver.

  • Andreas Christodoulou
    “Looking at energy generation and supply alone, the big six energy companies make EBIT (earnings before interest and tax – can be considered effectively profit) of £2.8bn in 2013.”
    Errr, not if you plan on financing the investment via borrowing you can’t. Interest is very much an important cost of long-term projects and you have to consider that in normal interest rate environments over the life of the investment not some high risk funding via treasury bills.

    “A trivial calculation based on an assumption on an average pay of (say) £22k means that the profits generated by the big six alone could employ 125,000 people a year.”

    Well you are allowing £400 per person for Employers NI, and work space, training, Insurance, associated costs. I think you need to revisit your numbers.

    As for the rest of that point I couldn’t make it out, you started sounding like a return to 1960’s discussions around economic argument for non-jobs then sounded like you were pushing in the opposite direction.

    Perhaps you could clarify your point?

  • David Warren 7th Apr '15 - 5:17pm

    Last time I checked Labour wasn’t committed to any renationalisation.

    In fact Left wing Labour MP John McDonnell is quoted as saying New Labour privatised more than Thatcher.

    We need a wide ranging debate around the future of monopolies that are now in the private sector but I don’t see it happening in this election.

  • Alex Sabine 7th Apr '15 - 5:42pm

    Very good points Psi

  • Good article, and good points by George Potter. If state-owned companies are guaranteed to be a disaster, someone explain to me how EDF managed to make a 3.7 billion euro profit last year for the French tax-payers who own most of it. £650m of that profit came from hapless UK energy customers. And we all know about the billions headed EDF’s way in the future as they build the future generating capacity which our domestic private energy industry (or what’s left of it) is apparently unable to build itself.

    Those who dismiss the whole idea of state-owned enterprises out of hand might also like to reflect on what’s been happening in Singapore, where SOEs account for about 37% of the stock market value – and have massively out-performed the non-state-owned sector in recent years :-

    http://bschool.nus.edu/Portals/0/docs/FinalReport_SOE_1July2014.pdf

    Or a more brief version:

    http://bschool.nus.edu/Portals/0/docs/Singapore-GLC-ST-steen-slides.pdf

    Fact: the Singapore economy is not doing badly. (This is a considerable understatement.)

    This should at least cause us to consider the possibility that there is an alternative way of doing things.

  • Stephen Campbell 7th Apr '15 - 9:13pm

    Anyone who (wrongly) believes the all economic planning is doomed to failure and that the private sector is always more efficient and successful than the public sector needs to read the book “23 Things They Don’t Tell You About Capitalism” by the excellent Cambridge professor Ha-Joon Chang.

    The Thatcherist illusion of “private good, public bad” and the idea that giving more money to the already rich will make us all richer is just that: an illusion propagated by the right-wing media and their fellow travelers (in which I include the Clegg Claque) for the past 30 years.

  • Alex Sabine 8th Apr '15 - 1:12am

    Stuart – There is no question Singapore has been a remarkable success story: under the 31-year rule of its founder Lee Kuan Yew, an impoverished swamp with no natural resource wealth was transformed into a thriving ultra-modern economy that boasts higher living standards and better schools and hospitals than its former colonial master the UK. Growth has averaged nearly 7% for four decades. Although a (crowded) city-state of just 5.2 million inhabitants, it punches way above its weight: it can lay a strong claim to being the prototype of an ‘Asian model’ for development and has attracted envious attention from places as diverse as Dubai, Rwanda and – most significantly – China.

    You point to the role played by state-owned enterprises, and it is true that the Singaporean model of capitalism has been state-directed, in that the government has taken what you might call a ‘strategic’ role in promoting economic development. It has chivied businesses up the ‘value chain’ – betting first on manufacturing, then on services, and now on the knowledge economy. It owns shares in the island’s biggest companies like Singapore Airlines and Singapore Telecommunications. It does not run SOEs on anything like the basis nationalised industries were run in the UK: they are run explicitly to make profits (the Singapore government has no time for what it sees as wishy-washy laments about ‘putting profit before people’), their management teams are selected on an unashamedly elitist basis and there is almost a revolving door for high-fliers between the Civil Service College and Singapore’s big companies (this latter feature being similar to the role of the enarques in France).

    Moreover, while the state is interventionist, there are few places in the world where it is easier for a big multinational to locate, where tariff barriers are lower and where taxes are less onerous. The state is lean and extremely small by western standards. Public spending accounts for 17% of GDP compared to 30%-50% in most western countries. Singapore’s world-class education system consumes only 3.3% of GDP.

    The welfare state is based on a social insurance model rather than the predominantly (means-tested) social assistance model we are familiar with in the UK: 90% of what you get from the Central Provident Fund is tied to what you put in, with a small safety net to cover the very poor and the very sick. This contributions-based model provides for housing, pensions, health care and tertiary education. Free universal benefits are seen as the product of bloated western welfare states. In Lee’s view, “westerners have abandoned an ethical basis for society… in the East, we start with self-reliance. In the West today, it is the opposite.” By contrast the traditional ‘core’ functions of this nightwatchman state are not neglected: defence spending takes up fully 20% of the total government budget.

  • Alex Sabine 8th Apr '15 - 1:21am

    The most striking difference between Singapore and western liberal democracies, though – and the most uncomfortable one for those of us who are inclined to believe that there is a connection between freedom and prosperity – is the authoritarianism and uninterrupted one-party rule. ‘We decide what is right,’ Lee said in 1987. ‘Never mind what the people think.’

    His vision – and it has survived his retirement as prime minister – was of government by a cadre of far-sighted experts, the brightest and the best, insulated as far as possible from the vagaries of public opinion. The current PM, Lee’s son, claims this is what enables the government to think strategically and take tough long-term decisions that might be at the cost of short-term popularity.

    Overall, I don’t think you can isolate the performance of the SOEs from the other striking features of Singapore’s economy and system of government: the strong export orientation, the low taxes and pro-business policies, the small state and emphasis on personal responsibility for welfare provision, the highly meritocratic education system (with merit pay and ubiquitous testing), the high quality administrative elite and the calibre of public administration at all ranks, the one-party rule and social authoritarianism.

    Whether this singular model will long survive those who set it up it is an open question. In 2011 the People’s Action Party won ‘only’ 60% of the vote (albeit 93% of the seats), its worst performance yet in a general election! But it does emphasise the point that, from a western standpoint, Singapore is very much sui generis. It is hard to imagine the same conditions for state-led economic development obtaining in the UK – and that is leaving aside the unattractive features of state capitalism from a liberal and democratic perspective, in terms of the concentration of power that it inevitably entails. It is certainly a fascinating case study, but one could just as easily draw very different conclusions from the ones that those trying to rehabilitate an expansive role for the state like to suggest.

  • In other words, as long as we measure “success” by the rewards offered to big businesses, we can count as a “success” a state which shoves its poor and needy off to the side and runs the state entirely on behalf of the wealthiest corporations.

  • David-1

    I think you misunderstood the point of those posts.

  • Alex Sabine 8th Apr '15 - 4:35pm

    David-1:  Observation is not endorsement. I am not suggesting that Singapore is a model for us to copy. For all their faults, I much prefer liberal democracy and free markets to authoritarianism and state-directed (albeit vigorously competitive) capitalism.

    As I made clear, I find state capitalism unattractive even where it brings results – and in many places it doesn’t – because it involves a concentration of powerful interests working towards a single, corporate purpose. It blurs the crucial distinction between the state on the one hand and private interests and civil society on the other. Thus it turns the state into what the philosopher Michael Oakeshott termed an ‘enterprise association’ pursuing a common over-arching purpose, as opposed to a ‘civil association’ in which the role of the state is primarily to create a legal framework in which individuals, businesses, voluntary organisations, communities etc can pursue their own diverse goals and interests in their own ways.

    But whatever my own preferences, it is undeniable that Singapore has been a remarkable economic “success story”, as Stuart pointed out and on which I elaborated. How else would you describe the transformation of a poverty-ridden island with no natural resource wealth to one of the world’s most prosperous states, whose citizens enjoy some of the highest living standards and best public services anywhere?

    It is not just the “wealthiest corporations” (sic) that have benefited but the vast majority of the population who have been lifted out of abject poverty to a position where they have higher average incomes than the citizens of almost any other country. Of course there are still some “poor and needy”, as there are in all developed western economies; there are just an awful lot fewer of them than there were 20, 30, 40 years ago and an awful lot fewer than in the majority of developing countries that have not pursued such successful policies.

    Indeed, you could argue that while Lee Kuan Yew preached self-reliance and foreswore large western-style welfare states, he pursued policies that were more ruthlessly focused on eradicating poverty than the ‘bleeding-heart’ governments of western democracies. That is what 7% per annum growth sustained over four decades will do for you.

    As Stuart says, this does indicate that there is “an alternative way of doing things”. I pointed out that there is more to this success story than state-owned enterprises, although I don’t deny that the nature of state intervention in Singapore (which is fundamentally different from our experience of it) has played a part. As I said, given the nature of the regime in Singapore, there are aspects of its success that are troubling from a liberal and democratic perspective and challenge our notions of a standard recipe for material development and prosperity.

    I certainly wouldn’t like us to adopt the Singapore “model”. I do think there are lessons in their approach to public administration and the long-termist approach of government to public policy questions. I am less convinced that their successful SOEs are something we should seek to – or would be able to – reproduce, but it is an interesting part of their distinctive policy mix. I suspect that in the coming years they will have to expand certain aspects of public provision and liberalise their politics somewhat, indeed they are taking tentative steps in this direction at the moment. But it’s pretty clear they don’t see European welfare states as an example to follow: their view seems to be that they are symptoms of bloated and overstretched governments in a region in long-term relative decline.

  • If you have a high proportion of extremely wealthy residents then of course that will artificially increase the mean income. But the fact is that there is a massive inequality between rich and poor in Singapore, with a lower class living on stagnant incomes in one of the most expensive cities in the world. The government of Singapore reacts to the problem by pretending it doesn’t exist, refusing even to define a poverty line; other researchers, however, suggest that more than one in four Singaporeans lives below the poverty line.

    This is not only an unattractive political model, it is also an economic model for misery. Unfortunately we seem to be surrounded by ‘economists’ who are dazzled by high-rises and glittery infrastructure projects and who simply don’t care about the well-being of ordinary people.

  • David-1

    I think you are shadow boxing and I would suggest Alex doesn’t engage, he has stated that he doesn’t favour the Sigapore model you appear to want to argue with someone who does, you need to look elsewhere.

  • Alex Sabine 8th Apr '15 - 7:06pm

    David-1: The point is that most of Singapore’s citizens are “wealthy” by international standards, and unimaginably wealthy compared to their forebears. The unemployment rate is 1.9%. Average life expectancy is 84 years (82 for men, 86 for women). The infant mortality rate is lower than that in the US, UK, France, Germany, Spain, Sweden, Finland… There is a high rate of adult literacy.

    You refer to “a high proportion of extremely wealthy residents”. The proportion would have to be very high indeed for it to drag per capita GDP up to $60,000, which is what it was in 2011 (the most recent year for which I have figures). This is the fifth highest income per head in the world. The USA also has a “high proportion of extremely wealthy residents”, yet this is not enough to lift per capita GDP to Singaporean levels. The figure for the US in 2011 was $48,000. The UK’s was $35,900, Germany’s $37,900. Try comparing Singapore’s per capita GDP with countries that were similarly categorised as ‘Third World’ 50 years ago. The difference is astonishing, and cannot remotely be explained away by a wealthy minority at the top. Median household income from work was $8,290 per month in 2014 (and as I noted aove, the unemployment rate is extremely low).

    Most of these figures compare very favourably with the most prosperous and stable western democracies, let alone with societies that were in a comparable condition to Singapore a few decades ago (often with much greater natural advantages).

    None of this means we should follow Singapore’s example. But it does show its model has been phenomenally successful in development terms. If, say, India had been half as successful, poverty would not still be the typical condition of its people, whose average income is about $4,000 despite the existence of plenty of wealthy tycoons who drag up the mean figure. (Life expectancy in India is 67 years and unemployment 9%.) They might even have been blessed with clean drinking water by now…

  • Alex Sabine 8th Apr '15 - 7:17pm

    You are right though Psi. I wanted to put the record straight on the stats because they don’t conform to the picture David-1 is painting. But as I said, while the Singapore experience is worth examining and learning from, we shouldn’t throw the baby out with the bathwater. I would rather stick with liberal democracy, personal freedom and a less dirigiste approach to economic development. Other approaches can work but we can choose to take a different route more in keeping with our values.

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