Mutuality Versus Banking – which to prefer?

In this article the City Editor of the FT, no less, says that Labour is right “Britain’s private utility model is broken.”

Here is a riddle that is not so difficult to unpick. Between their privatisation in 1989 and last year, English water companies were permitted by their regulator to generate operating cash flows totalling £159bn in 2017-18 money; easily more than the £123bn they spent on fixed assets such as new pipes and infrastructure. Yet at the end of this same period they had somehow built up £51bn in debt (from zero at privatisation); a staggering sum that customers will have to service and pay off over many years. How come? ….

Dividends are usually seen as a return for equity investors bearing risk, but the risk in these natural monopolies was minimal. Not only do customers have to buy the product; the regulator also has a duty not simply to set prices to protect the public but also to ensure the businesses are financeable. That in turn is why they were able to borrow so much. Indeed this created a vicious spiral that sucked in financial engineers whose main objective was draining value from these firms. Now few would argue that private owners should be able to extract such outsize returns from private monopolies.

So here we are: Natural Monopolies are just that, and should be owned by us all – not treated as nice, little  – in fact enormous – earners by their owners.

The editor goes on to suggest the subcontracting principle – get these same companies to contract to undertake various aspects of water provision for a contracted time and get all of the current operators to compete. This is to get around ‘shareholder capture’ and  ‘union capture’.

Perhaps.

But this is really the Transport for London (TfL) model. Buses are run by PLCs and on the basis of the lowest quote for the TfL prescribed route (of course, outside London, there are precious few bus companies remaining under municipal ownership, able to prescribe anything) and we get a bus service (here we have to emphasise the word service)! There is still a lack of a service ethic because ownership is in the bus owners’ shareholders.

Service, I think we can conclude, lies either in very small companies – perhaps a dozen employees or less – where delivery has of its nature to be co-operative. Or it has to be based on a joint ownership company, where everyone has an implicit interest in delivery.

The trouble with the TfL model is that there is no real and obvious ownership – and it still remains unnecessarily complex (compare, for example, Network Rail).

So whilst it is admirable that the City Editor of the FT realises there is a problem I’m not sure he has entirely and properly understood what it actually is.

We currently have shareholder and banking capture on a major scale and surely ownership is the key to altering this.

Indeed Labour thinking seems, in their supportive Common Wealth think tank, to be well on the way to agreeing that ownership is of fundamental importance.

State owned ‘top down’ is all very well but mutuality is really of the essence.

 

 

Comments

  1. Andrew Dickie -

    Peter, as you might expect, I couldn’t agree with you more on this point.

    Just now Richard Murphy has on his Tax Research Blog a recent post entitled “Nationalisation is not necessary to deliver a Green New Deal” (see https://www.taxresearch.org.uk/Blog/2019/05/16/nationalisation-is-not-necessary-to-deliver-a-green-new-deal/), which I haven’t yet had time to read, for personal health reasons, but with which I expect largely to agree, except on the issue of ownership.

    For ownership is essential, in my opinion , as those who own an industry are able to extract resources of capital and labour. Who can doubt, for example, that a French-run nuclear power station will see expertise being exported from the UK to France, as the key management and research positions migrate from the UK to France? It’s hard to believe that the UK had the first nuclear power stations in Europe, maybe even in the world, though I’m open to correction on that, as we now occupy the position of suppliants to other nuclear powers.

    But to return to the ownership isse, at the time of Blair’s successful campaign against the Old Clause lV (replaced, I might say by an A4+ sized piece of waffle, containing the sweetener that the Labour Party is a “democratic Socialist Party” = substance replaced by appearance.

    For the old Clause lV ran:

    “To secure for workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of poopular administration and control of each industry or service”

    In my CLP discussion in 1994 I argued for the replacement – well, probably, had I been more on the ball at the time, the amendment – of Clause lV, not on the usual grounds that it was old-fashioned, and needed to be dumped, but on that grounds that it was fatally compromised, as it stood, in confusing means (“common ownership”) with ends (“popular administration and control”), In a word, it concentrated on means, with the ends thrown in as a vague afterthought, and capable of almost infinite interpretation.

    The weakness of this afterthought became glaringly obvious with the Attlee Government’s nationalisations, where one set of suited “capitalist” Board members of the National Coal Board, for example, were replaced by another set of allegedly “Socialist”, and equally suited, Board members, with no input on control from, or by, the workforce. Potentially (actually?) the last scene in “Animal Farm”, where it’s impossible to tell the humans from the pigs?

    Over a decade later this matter was re-run in the Christian Socialist Movement (CSM), on whose National Executive Committee I served as a Regional Rep. when there was a great consultation on the Aims and Objectives of CSM. This was 2006, and there was a Blairite nervousness about nationalisation, in the wake of the Clause lV change (incidentally, CSM became so nervous about its name in an era of “Third Way” triangulation, that it changed its name to “Christians on the Left” about 7 years ago).

    Consequently, there was “nervousness” about one of CSM’s Objectives:

    “The common ownership and democratic control of the productive resources of the earth.”

    This was helpfully backed up by the final Objective “The proper use of the earth’s resources to sustain the integrity of God’s creation”

    At the 2006 AGM I tried to argue for an amendment to the proposed replacement for this “common ownership” Objective – which ran (and runs still, I believe) as follows::

    “The sustainable use of the Earth’s resources for the benefit of all people, both current and future generations”

    I wanted read into that words to the effect that the Earth’s resources would be held in common, so that Objective would read:

    “The sustainable use of the Earth’s resources, HELD ON THE BASIS OF COMMONHOLD AND UNDER DEMOCRATIC CONTROL, for the benefit of all people, both current and future generations”

    Alas, “commonhold” was too elusive an idea, and should have been simply “common ownership”, so my amendment was defeated, especially as my opponents could pray in support the fact that CSM’s final Objective was :

    “co-operation, including the creation of co-operative organisations” (which to me suffered from the same fault I had highlighted in the old Clause lV – concentration on means, not ends.

    I resigned from CSM after this AGM, and will only return if they change their thinking on this. Because if ownership, and what that means, is not spelled out, then you have bandits like Un-President Bolsanaro of Brazil (only in office because the legal President, Dilma Roussef was levered out in a constitutional coup, and because the person most Brazilians wanted as President. Lula da Silva, was illegally imprisoned on trumped-up charges, so he couldn’t stand) is able to march into swathes of the Amazon, take it over, boot out the indigenous poeple, and cut it down, to enrich his chums, and impoverish and endanger the world.

    So, ownership MATTERS, but so does DEMOCRATIC control.

    I should, then, have argued for an amendment to the old Clause lV to read along the following lines:

    “To secure for workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the MONOPOLY OR NEAR MONOPOLY means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service,SUCH SYSTEM OF POPULAR ADMINISTRATION TO BE DEMOCRATIC, DERIVING FROM COMMON OWNERSHIP ON THE BASIS OF MUTUALITY, AND PROVIDING FOR DIRECT MEMBER REPRESENTATION AT ALL LEVELS OF ADMINISTRATION”

    So, I FULLY agree with your last sentence

    (Reading: “State owned ‘top down’ is all very well but mutuality is really of the essence.”)

    and sincerely hope your penultimate sentence:

    (Reading “Indeed Labour thinking seems, in their supportive Common Wealth think tank, to be well on the way to agreeing that ownership is of fundamental importance”)

    will be borne out by the facts and in practice for your ante-penultimate sentence

    (Reading: “We currently have shareholder and banking capture on a major scale and surely ownership is the key to altering this.”)

    is lamentably true in its first half, and demonstrably true in its second.

    1. Andrew Dickie -

      Peter, it’s worth observing that Christians on the Left’s current objective leaves them only the option of wringing their hands and wagging their fingers at Bolsanaro, where the old CSM objective would have allowed them to charge him with the crime of “theft of the commons”, which The Diggers and The Levellers brought against the 17th century Establishment.

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