This isn’t a very public humiliation

Feb 27 2008 by Karen Dent, The Journal

PRIME Minister Gordon Brown and his Chancellor Alistair Darling referred to it as “temporary public ownership”, Conservative leader David Cameron called it a “disaster” and the general public is a little jittery at the very mention of it.

Nationalisation is a dirty word in Brown’s Britain and the process to bring Northern Rock under public control is viewed with suspicion in many quarters.

But the nationalisation of Northern Rock is very different to the decisions by previous British governments to bring vital industries under state control, according to Richard Slack, principal lecturer in accountancy at Northumbria University.

He said: “In the past, nationalisation has been for the long term. For a very important industry, such as telecoms, water, gas, the best way for it to be protected was to be in Government ownership.

“In the Northern Rock context, it’s designed as being a short term strategy, until the market has settled down, then it will be sold to private owners.”

Nationalisation, he says, has an image problem. Rather than remembering the long, calm periods where nothing much happened and

industries trundled uneventfully along, people recall the very good and the very bad times: “With British Gas, they remember the way the buyers got rich overnight but the break-up of national industry in the UK, such as British Steel, went hand in hand with massive job cuts.”

Inefficiency is another spectre which haunts state-controlled industries in the UK. Previously, nationalised sectors were “allowed” to be inefficient, but Mr Slack says Northern Rock “can’t afford not to be efficient”.

Past governments have tended to take struggling industries into public ownership to prevent them from collapsing.

Durham University’s Dr Lawrence Black, who specialises in modern British political and social history, says there is obviously a parallel to Northern Rock.

Rather than when Clement Attlee brought key industries into public ownership immediately after the Second World War and created the National Health Service, Northern Rock’s situation, he says, is more comparable to the wave of nationalisations of the 1970s, such as Rolls-Royce and British Leyland.

“It’s a rescue package,” he said. “But they still faced significant private sector competition. While it seems like a more social democratic organisation of industry, in reality very little changed. The same management remained in place and there was no sense that this felt different for the workers. The public sector is insulated from market incentives.”

Kevin Rowan, the regional secretary of the TUC, agrees. “There was a lack of dynamic edge,” he said. “The railways, steel and car manufacturers were incredibly inefficient and people associated that with the fact they were nationalised industries.”

Other countries, however, such as Spain, France and Holland, tend to view publicly-owned industries differently. “There is a lot of state support for these industries – rail, steel, shipbuilding – they’re heavily subsidised industries but they have a private sector ethos,” Mr Rowan said. “It’s cultural – both in the views of the people and the Government. There is a reluctance in the UK to give state support. We don’t even spend to the maximum we are allowed to under state aid rules.”

Indeed, petrochemicals giant SABIC – the Saudi Arabian Basic Industries Corporation, which paid £372m for part of Huntsman’s Teesside operations in 2006 – is the biggest publicly-owned company in the Middle East and employs more than 800 people in this region. It is one of the world’s leading businesses in its sectors, with more than 16,000 staff spread across Asia, Europe and the US.

Dr Stan Higgins, chief executive of the North East Process Industries Cluster, said SABIC plans to invest £1.5bn in the next five years on Teesside. “It has a massive influence over the whole of industry in the North East of England. It underpins 58% of the petrochemical industry of the whole country,” he said.

Similarly, UK collaborations using Government and private sector money under the Public Private Partnership initiatives do not tend to excite much negativity. Hospitals, schools and libraries are funded this way, such as the current redevelopment of Newcastle Central Library.

Although parallels exist between Northern Rock’s situation today and British nationalisations in the past, the Prime Minister has asserted that this is a temporary measure for the bank. Indeed, the legislation paving the way for the move – The Banking (Special Provisions) Bill – specifies this.

Kevin Rowan said: “For Northern Rock, people within this sector will be concerned because this could be seen as a nationalisation to protect taxpayers’ money – will the assets book of Northern Rock be used primarily to repay the Treasury? Our aspirations would be to protect it while the market recovers and then sell it on. Hopefully this is a new model.”

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Not everyone is ashamed to nationalise

BRITAIN may be paranoid about nationalisation after the dark days of the 1970s, but the concept works well in other countries across a number of sectors.

While Margaret Thatcher swept away nationalisation in the UK, in many of our EU partners, publicly-owned industries coexist comfortably with the private sector.

European governments are strong in the railway sector. France’s state-owned SNCF is widely recognised as one of the most efficient services in the world, while Germany’s Deutsche Bahn is Europe’s largest train operator. NS, the Netherlands’ rail operator, is also publicly-owned, as is its Swedish counterpart, Statens Järnvägar.

Sweden’s postal service remains in public hands, as does French broadcaster France Televisions. Spain’s government owns the national airline Iberia and the steel, petrochemicals and mining industries.

Nationalised industries are not confined to Europe. Canadian utility company Hydro-Québec provides electricity to the province of Quebec and parts of the US.

The New Zealand government stepped in to rescue Air New Zealand in 2001 in return for an 80% stake in the company.

And more than 75% of the total assets in the Indian banking system are entrusted to publicly-owned banks. The Indian government holds stakes in almost 30 banks, which are widely considered to have strong and transparent balance sheets compared to other financial institutions in comparable economies.