1922 Encyclopædia Britannica/Nationalization

NATIONALIZATION. The fact that &ldquo;Nationalization&rdquo; had become in 1916-21 one of the burning political questions of the day is unfortunate as regards arriving at a clear appraisal of its principles, for, from the outset, it is difficult for a writer to avoid a certain bias in approaching its discussion. Yet Nationalization of some services and industries has been an accomplished fact for many years, without giving rise to any political controversy. In its narrow sense, Nationalization means taking over the ownership and control of an industry or service by the community, as opposed to ownership and control for the benefit of a person or a certain number of persons, be it in their individual capacity, or in corporate form in the shape of a company. The most familiar example of such a nationalized service in Great Britain and, indeed, practically every country is the Post Office.

The word Nationalization is, however, generally used to denote the principle of Public Ownership (to employ the much better term used throughout N. America) as opposed to that of private enterprise. For instance, in 1908, the three separate dock companies (one of them already an amalgamation of several companies) which owned and operated those undertakings in and around London were bought out, and ownership and management vested in a composite body known as the Port of London Authority, the Board of which is constituted as follows: seventeen members are elected by the payers of the dock dues; one by the wharfingers; four are selected by the Government (one representing Labour); two by the Corporation of the City of London, and two by the London County Council (one of them representing Labour). Strictly speaking, it would not be correct to say the Docks of London were &ldquo;nationalized,&rdquo; for the taxpayers and ratepayers of Northumberland, for instance, are not in any way directly concerned with the undertaking, but the exploitation or the carrying on of the enterprise of the Docks of London has been converted from a number of private undertakings directed to the earning of profits for a certain number of proprietors, into a public undertaking the primary function of which is to render to the town of London, and the region dependent thereon, services connected with the provision of dock accommodation and of the things accessory thereto. This is not really Nationalization, but it embodies the principle meant by ninety-nine people out of every hundred who use the word, viz.: Public Ownership, be such ownership vested in a national authority, a municipal body or an ad hoc authority like the Mersey Docks and Harbour Board or the Metropolitan Water Board. It is, therefore, with this interpretation of Nationalization that we shall deal in this article.

Relation to Socialism.—A word must be said as to the relationship of Nationalization to Socialism. The two are by no means identical and although the nationalization of the means of production, distribution and exchange has long been a Socialist shibboleth, many modern Socialists oppose Nationalization as being merely &ldquo;State Capitalism,&rdquo; a form of industry, they say, in which the workers might still be exploited for the benefit of those who control the national machine—probably the same governing classes as we now possess. The truth of the matter is that, although Nationalization is not Socialism, it is the most suitable economic machine whereby the aims of Socialism can be carried out, because, by eliminating the private entrepreneur and converting him into a rentier in receipt of fixed interest instead of being a participator in the profits, it removes one of the conflicting factors in industry, namely the owner, and reduces these factors to two, viz. the community in its dual capacity of owner and consumer, and all the workers in that industry.

It is the elimination of this private profit-making incentive which, in the minds of the advocates of Nationalization, is one of the principal arguments in its favour, and, in the minds of its opponents, is the chief argument against it. Nationalize industry, say the latter, and you do away with the desire of personal gain which is the dominant human motive leading to improvement, invention and efficiency; you stereotype existing conditions, you do away with competition and all the benefits arising therefrom, and you get wasteful management from a horde of Government officials who ride on the backs of the tax-payers.

Against this, the advocates of Nationalization urge that private enterprise, precisely because its dominant motive is personal gain, often fails to render the service that is its ostensible justification; it leads to adulteration, misdescription, and all sorts of chicanery, and while competition has its undoubted value as a stimulus to invention and new methods, our present system of industry does, of itself, run to amalgamations, absorptions and price agreements resulting in the abolition of real competition with its attendant advantages, so that we arrive at much the same result as if we had Nationalization, in the shape of monopoly, open or concealed, but with the profits arising from the elimination of real competition and the economies resulting from monopoly and unification going into the pockets of a small section of the community instead of being spread over the whole nation,

either in the shape of a better or cheaper service, or both; and that, even if our present imperfect Governments result in too many officials, it is no worse for the community that a certain number of persons (officials) with their families should be enjoying a decent livelihood out of the industry than that a number of other persons (entrepreneurs and large shareholders) should derive fortunes from the same industry. Further, they allege that no system of private enterprise combined with Government regulation (the usual suggestion for meeting a tendency towards monopoly) will be satisfactory, as it results in just that multiplicity of officials of the most uneconomic nature, in that they do not produce anything, that is the bugbear of State control.

It is not for us to determine here which view is right; and the former, the anti-nationalization view, is certainly that expressed most frequently in the columns of the Press. Be this as it may, it is an undoubted fact that throughout the whole world—in the United Kingdom as well as elsewhere—the principle of public ownership, unpopular as it appeared to be in many quarters, was in 1921 steadily gaining ground, and it may be useful if we consider some of the developments in this direction and endeavour to find some guiding principles which account for its growth.

Factors making for Public Ownership.—Prominent among these is the fear of combination among suppliers of services leading up to a monopoly, open or concealed, which, &ldquo;human nature being what it is,&rdquo; inevitably results, sooner or later, in excessive prices being charged to the consumer. When this occurs, or tends to occur, in the case of a service vital to most sections of the community, a Government, however hostile its individual members may be to further extensions of public ownership, finds itself compelled to make a public service of it. It may itself assume a monopoly of such service, as in the case of Italy and Uruguay, both of which countries, early in the present century, had nationalized life insurance and made of it a national monopoly; more frequently, however, a Government in such circumstances starts a State-owned and operated service in competition with existing services, with the view of setting a standard of services and conditions and preventing prices from mounting beyond a reasonable basis. Coming under this head are the Commonwealth of Australia shipping line, the New Zealand and Queensland State Insurance Departments, the hundreds of publicly owned grain elevators that are to be found throughout Canada, and, in the United Kingdom, the Imperial Cable Service.

The Commonwealth Government line of steamers (see also ) was started by the purchase in 1919 by the Australian Prime Minister (Mr. Hughes) of the Strath Line of 13 steamships, and some other vessels. The Australian Government gave it to be understood that it established the line as a means to a special end, viz. the protection of the Australian shippers and public from possible adverse results of recent amalgamations of private shipping interests, and not with any idea of driving the shipping companies out of the field. One of the abuses against which the institution of a State-owned mercantile fleet was aimed was the rebate system adopted by some of the big shipping lines, whereby shippers who forwarded goods by any line outside the combine had to pay higher freights, these being charged in the first instance and a rebate allowed only, provided that the said line received all their cargo. In an official circular issued by the Manager of the Commonwealth Government line of steamers appeared the following passages:&mdash;

The Commonwealth Government actively continued the development of its shipping business, by the construction of 18 new steamers, with the result that in 1921 it had a fleet aggregating 444,000 tons.

The point that the principal aim of a State-owned competitive undertaking was to protect the public from overcharge, was brought out by the Lieutenant-Governor of Queensland at the opening of the Queensland Parliament in August 1920 when, referring to the State Insurance Department, he said:&mdash;

In the case of the Imperial cable which links the United Kingdom with Canada, West Indies and Australasia, the chief factor in building up a State-owned system was the value for political and defensive purposes of having a cable wholly under British control, and in its advertisements the Post Office boasted that &ldquo;the Imperial Cable is Government owned and is the only Atlantic cable under purely British control.&rdquo; While the rates charged for ordinary telegrams were the same as for those sent by other Atlantic routes, the official advertisements stated:&mdash;

Here we have the case of a nationalized service affording more facilities than its privately owned competitor.

Another motive for the provision by the State of a service hitherto performed by private enterprise is that of protecting persons against the dishonesty of individuals in the shape of malversation of trust funds. As in many similar directions, New Zealand was the pioneer in appointing a public trustee, but in 1908, despite active hostility on the part of the legal profession, such an office was opened in the United Kingdom.

Its purpose was described in the official pamphlet published by the Public Trustee Office as follows:&mdash;

Extensive use was made of this nationalized service, which exists in competition with professional people and companies performing the same functions (see ).

Yet another circumstance which drives State or municipal authorities into public ownership is the fact that certain public needs exist which are not filled by private enterprise on account of their not fulfilling the first condition of private enterprise, viz. profit. It is this incentive, rather than those already referred to as governing Australia's action in acquiring shipping, that caused Britain, the United States and Canada during the war to build and operate State-owned merchant fleets. With the disappearance of the emergency created by the war, the British Government rapidly disposed of its merchant ships to private owners, and its action in this respect was in 1921 apparently being followed by the United States Government.

For the same reason as that already mentioned, viz. the failure of private enterprise to supply the need, the national authority has in many countries had to arrange for the construction of houses and to let them at uneconomic rents.

Sometimes a Government finds itself compelled to nationalize an undertaking by reason of the fact that a privately owned concern of public utility fails financially and, if the State did not take it over, would become derelict. From this cause the Canadian Government has of late years found itself constrained to become the owner of the greater part of the railroads in the Dominion, the only other railroad owner of importance (but of very great

importance) being the Canadian Pacific Railway Company. It requires no great stretch of imagination to picture the same development with the railways of the United Kingdom.

A perhaps less meritorious motive that causes many Governments to nationalize a service or industry is that of acquiring revenue thereby. When this occurs, the State undertaking is invariably made a monopoly, and is as much a means of indirect taxation as it is a business undertaking. Nationalized services of this description have hitherto been much rarer in the United Kingdom, as compared with other countries, although they are common enough in India and the British Crown Colonies. In India the working and sale of salt, in the Straits Settlements the sale of tin, and in many countries the manufacture and sale of tobacco in every shape and form are State monopolies, from which large profits are made or derived.

Services having to do primarily with the health and wellbeing of the whole community show a decided tendency towards public ownership. The sewerage systems of most countries are in the hands of public authorities, and in several departments of activity relating to the health and wellbeing of the community, one can see in operation throughout the world the transition stage from private to public ownership, both systems working side by side, but with an invariable tendency on the part of the publicly owned service to grow, not merely by the establishment of additional institutions, but by the absorption of privately owned undertakings. This process is steadily in operation in England in connexion with such services as asylums, hospitals, cemeteries and water-works, whilst education is rapidly being transformed from a private into a publicly owned industry. The growth of these public services is not confined in England to the provision of services imposed upon municipal authorities by law; for example, municipally owned lunatic asylums now make provision for private paying patients, and are made use of to an increasing extent, so that the private asylum is gradually dying out.

Another class of undertaking which is becoming more and more publicly owned is the service which is essential to the whole community or at least to most sections thereof. First and foremost comes the transmission of correspondence through the post-office, the most familiar form of nationalized undertaking. When one bears in mind the fact that the nationalized British post-office is the largest multiple shop concern in that country, having a branch in every village, it can readily be seen that such a network of Government shops lends itself most easily to an extension of duties. How convenient such a network of Government shops may be to meet a sudden emergency is shown by the duties placed upon the post-office at short or no notice during the war. When it was decided to collect from the nation magazines and books for distribution to the troops at the various fronts, it sufficed merely to notify the public that it could hand such publications over the counter at any post-office. In their capacity of Government shops, the post-offices of the United Kingdom, within 1908-21, had taken on additional work involved by the following new services:&mdash;

Nor are these new services all side-lines of small account; in hundreds of offices the actual sale of health and unemployment insurance stamps exceed the sale of postage stamps. With the increased tendency towards social legislation, there is little doubt that the services performed by means of the comprehensive post-office organization in every country will inevitably be extended still further. In the United Kingdom the Union of Post Office Workers had for some time before 1921 been carrying on an agitation for the provision of new facilities for the public which are in operation in other countries, such as the introduction of the postal cheque and transfer system, dispatch of parcels on the cash-on-delivery system, the collection of bills and subscriptions, etc. This agitation is worth noting by students of

Nationalization, as indicative of fields of activity for trade unions composed of workers in a nationalized undertaking, additional to those concerned merely with their own betterment.

There are, however, other services which, being essential to all or most sections of the community, are gradually coming to be recognized as due to be transferred from the realm of private profit-making to that of public service. In most countries railway and canal transport are regarded as naturally falling within this category, and not a year passes without numerous water, gas and electricity undertakings in all parts of the world being transferred from companies to municipal bodies.

In the working out of the problem that has for some time been engaging the attention of engineers, of the most economical large-scale production and distribution of energy or power, the trend has been inevitably towards public ownership. The largest generator and distributor of hydro-electric power in the world was, in 1921, the Hydro-Electric Power Commission of Ontario, a publicly owned body formed on a coöperative basis by city and rural municipalities, through which the province of Ontario generated through hydro-electric energy over 95% of the total consumption of power within its borders from all sources. The Australian Government Morwell Power scheme will supply electricity to the greater part of Victoria, and in Sweden and Switzerland the respective Governments are developing electricity from water-power on a very large scale. In fact, throughout the world, almost all the great developments in this direction were in 1921 being carried out by, or on behalf of, Governments or municipal authorities, or combinations of both.

At first sight it might appear possible to draw a line of demarcation between these services which naturally fall within the sphere of public ownership and those which belong to the realm of private enterprise; but this is not so simple as it looks. It is easy to say that the community should carry on non-profit-making undertakings like the roads, sewers and public conveniences, leaving all other services, out of which profits can be made, to private enterprise, which, with the aforesaid profit-making incentive, is likely to give more facilities and be more receptive to new ideas. But it is only custom which makes us regard the provision of a drainage system, the collection of refuse, etc., as a non-profit-making service. In Rosario, the second most populous city in the Argentine Republic, and in Valparaiso, the second largest city of Chile, the drains belong to, and are operated by, the Rosario Drainage Company, and the Valparaiso (Chile) Drainage Company, respectively, both English companies. In Paris and Brussels limited companies make the business of supplying public conveniences pay handsomely.

Another argument might be that, as water, gas, electricity and tramway services cannot be carried on without disturbance to the publicly owned roads and bridges, it is natural that these undertakings should be owned by the same authority as is responsible for the roads. This might explain the fact that, gradually, such undertakings are becoming nationalized or municipalized, but one is constrained to ask why the roads and bridges themselves should be publicly owned; they were not always so, and practically every municipality now makes a monetary loss on bridges which at one time, under private enterprise, produced good profits to their owners.

Many people would agree that services directly connected with the health of the community should be carried on as public undertakings without regard to profit, e.g. isolation and general hospitals, ambulance services, sewers, extinction of fires and saving of lives in connection therewith. But here again it is difficult to draw a definite line of demarcation. If sewers are vital to the health of a city, so also is a supply of pure milk; and the extension of public ownership along this direction is shown by the fact that the town of Sheffield, since November 1918, has municipalized its milk supply, and its example was in 1921 likely to be followed by other British cities.

State Leases.—There is an intermediate form of Nationalization or public ownership which to a considerable extent bridges the gulf between those who consider that all services and industries vital to the community should be carried on by the community.

and those who consider that Nationalization or public ownership leads to wasteful and bureaucratic methods and the disappearance of enterprise. This via media lies in the direction of the State or municipality owning an undertaking, but leasing it to a company under a concession for a fixed term of years, on a profit-sharing basis. The State or municipality, as representing the community, has control or a deciding voice in matters of principle, conditions of labour, etc., whilst the concessionaire company has the customary incentive to commercial efficiency. At the end of the concession the State or municipality is free to take over a complete service that has been organized on a commercial basis, or to grant a fresh concession. This system is becoming increasingly popular throughout the world, and appears preferable to the composite bodies, composed of municipalities and joint-stock companies, hitherto favoured in England.

Nationalization of Industries.—Detailed nationalization schemes for three separate industries in Great Britain had already been published by 1921, covering mines, railways and land respectively. That for mines was prepared in 1919 on behalf of the Miners' Federation of Great Britain, that for railways was prepared on behalf of the Railway Nationalization Society, and that for land was based upon an original draft made by the present writer for the Land Nationalization Society. The three schemes approximate more nearly to one another than might have been anticipated, having regard to the difference between the three services of coal mining, railway transport, and land ownership. Each provides for administration by a national council, appointed as to part by the Government and part by the workers engaged in the industry, with a Cabinet Minister at the head.

The miners' nationalization scheme (which covers coal and ironstone, shale, fire clay and limestone, but excludes sandstone, granite, slate, chalk, building clay, gravel and sand) provides for a National Mining Council consisting of a President and 20 members, 10 of whom are to be appointed by the Government, and 10 by the Miners' Federation.

The railway scheme provides for a National Transport Council consisting of the Minister for Transport, 3 persons nominated respectively by the Minister for Transport, the Board of Trade and the Treasury, and 3 representatives of the railway workers selected by the Transport Ministry from a panel of not less than 12 persons nominated annually for that purpose by the several committees of the 20 principal trade unions of which the membership is drawn wholly or in great part from persons engaged in the services of transport. This more complex method of providing for representatives of the workers in a nationalized transport system is due to the fact that, whilst practically all the workers in and about coal-mines are members of units making up the Miners' Federation of Great Britain, workers on the railways alone, apart from other branches of transport, are spread over a large number of trade unions. It will be further noticed that while the miners' scheme imposes upon the Minister for Mines ten members of the council definitely selected by the Miners' Federation, the railway scheme gives the Transport Minister some latitude of choice, by giving him powers of selection from a panel. This scheme not merely overcomes the difficulty of having to deal with a number of trade unions, but also enables the Minister to select as colleagues those on the panel with whom he considers he can best work, or who seem the most suitable.

In the case of land ownership—a totally distinct matter from the working of the land—there is no large body of workers which may justly claim representation on the management, and here representation of the various sectional interests has been aimed at by providing that the National Land Council should consist of the Minister for Lands; three members appointed by him, the Ministry of Health and the Ministry of Food respectively; one appointed by the Minister for Lands from a panel of not less than three persons nominated for the purpose by representatives of Farmers' Unions and Chambers of Agriculture; one appointed by the Minister from a panel of not less than three persons nominated by Associations of Smallholders and Allotment holders; and one appointed by the Minister from a panel of not less than three persons nominated by Agricultural Labourers' Unions.

In all three schemes provision is made for local or district councils, to which the National Council may delegate such powers as it thinks fit. The constitution of these district councils is analogous to that of the national councils, the proportion of workers' representation being the same, and in the case of the mines, provision is made also for the formation of councils for the separate pits. Members of all the councils are to receive such remuneration as the National Council, with the consent of the Treasury, may determine. The miners' scheme allows for the formation of a council to represent the interests of consumers, but such council has no executive powers and is purely advisory. In the case of the transport and land schemes no such provision is made, it being assumed that the members of the council nominated by the Government do, ipso facto, represent the general community, which in this case constitutes the consumer.

Another nationalization scheme for the coal industry was sketched by Mr. Justice Sankey, the Chairman of the Coal Industries Commission, 1919. This scheme provides for national ownership and, like the miners' scheme, aims at avoiding too bureaucratic a management by handing over the administration to district councils. While, however, the miners' scheme makes the National Mining Council of which the Minister of Mines is a member, the supreme authority, the Sankey scheme leaves the Minister of Mines in supreme control, with the obligation to consult the. standing committee of the Mining Council on certain questions. Whereas the composition of the joint bodies in the miners' scheme is dual, representation being divided between the Government and the miners, in the Sankey scheme, it is tripartite, one-third representing the workers, one-third the consumers and one-third the technical and commercial side of the industry; the Government is not represented at all on this body, but, as stated, the Minister of Mines is not obliged to carry out recommendations of the National Mining Council, although that body is to meet regularly &ldquo;for the purpose of superintending the operation of District Mining Councils.&rdquo;

All three schemes provide for compensation to the owners for the properties to be nationalized, and for payment to be made in Government stock bearing the rate of interest current at the time on that existing Government stock which most nearly approximates in length of time and conditions to the stock con- templated under the scheme. That is to say, if British Government 5% War Loan is quoted at a price at which it yields 5½%, the stock issued in payment of the properties taken by the State is to be on the basis of 5½% at par, it being immaterial from this point of view, whether in payment of a property worth £100, the owner receives £100 of 5½% stock or £110 of 5% stock. In deciding the amount to be paid for each property acquired, there arises the thorny question of the basis of value and compensation. The miners' scheme provides for the appointment of ten commissioners for this special purpose, three of them to be nominated by the Miners' Federation and three of them by the owners' organization, the Mining Association. If a majority of commissioners cannot agree as to the purchase price of any property, the chairman (appointed by the Government) shall have power to determine the value. A coal-mine is to be valued on the average actual annual number of tons actually raised during the five years prior to August 4 1914, due regard being paid to the actual gross and net profits during that period and to the amount set aside for depreciation, renewals or development, to the probable life of the mine, and to the condition in which it is. Where a mine has not been fully developed, the amount which would be raised under full development without any increase of capital expenditure is to be taken as the average annual number of tons. The scheme, however, fixes a maximum purchase price, viz.:&mdash;

In the case of the railway nationalization scheme, the purchase price is to be a sum equal to the mean between the highest and lowest officially quoted price of each stock during the first 12 of the 18 months preceding the introduction of the bill, the idea of a buffer of six months being to prevent prices being forced up on the basis of stock quotations being made known.

In a Railway Nationalization bill issued in 1921 by two of the trade unions representing the railway workers, and sponsored by the Labour party, the price to be paid differs from that contemplated in the Railway Nationalization Society's scheme, on which the Labour party bill was largely based, in that the mean quotation of each stock during the year 1913 shall be taken as the basis, but shall be &ldquo;subject to a reduction relative to the amount by which securities generally have depreciated in value in consequence of the war.&rdquo; This agrees with the policy under which the three Government Committees appointed to report upon State control of the Drink Trade unanimously recommended state purchase on the following basis:&mdash;

The draft railway nationalization bill referred to suggests that this reduction on the 1913 stock exchange value should be in the neighbourhood of 30%, even that being less than the fall that has occurred on other investment stocks of the same description.

The land nationalization scheme puts forward two alternative bases for purchase, viz.:&mdash;

In the case of the land being let on lease, the compensation is to be divided between the landowner and the leaseholder in proportions determined by an ad hoc tribunal.

The Government stocks to be issued in payment of the properties nationalized are all redeemable at par in the case of the railway and land schemes by means of a sinking fund of .5%, sufficient to redeem the entire loan within approximately 50 years, while in the case of the miners' scheme, no statutory sinking fund is provided, but net profits are to be applied to that purpose. Each scheme provides for the drawing up of separate accounts, showing fully the results of the year's operations, to be submitted annually to Parliament and there discussed.

Management.—There is no doubt that the principal problem in connection with Nationalization or Public Ownership lies in the direction of efficient management. The traditions of British Government Departments, which have been concerned primarily with the administration of legislative enactments and not with the management of trading concerns, is not conducive to efficiency as the business man understands it. This, however, applies more to national than to local government officials, the latter being in closer contact with the people for whom they act, and being more accustomed to act in an executive capacity. Mr. Justice Sankey in his Coal Industry Commission Report (Cmd 210), dated June 20 1919, wrote:&mdash;

The need for a wider training and the creation of a new type of Government official to carry on publicly owned undertakings is now fully realized, and the newer universities and such institutions as the London School of Economics are turning out men and women suitably equipped in a technical sense to carry on such services as will be taken over by the community. Moreover, as each service is taken over, so is the existing staff who, themselves, naturally carry on to a great extent the traditions of the service whilst under ordinary commercial management.

In conclusion, it may be said that the immediate future trend of Nationalization or Public Ownership would appear to be in the direction of internal services of public utility or health, rather than industries calling for trading abroad, and while all prophecy is dangerous, a survey of world tendencies leads to the conclusion that those industries which will gradually come to be publicly owned, be it nationally or municipally, will be found among the following: transport, insurance, banking, coal and oil, electricity and power generally, housing, liquor trade, tobacco. Where such a service or industry has a large foreign trade, e.g. coal, it may well be that the State will grant a concession to a company to carry on that particular department of the industry on a profit-sharing basis. Of the continued growth of the principle of public ownership there can be little doubt.

(A. E. D.)