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Can Britain Afford to Nationalise?

19/08/2015 14:06 BST | Updated 18/08/2016 10:59 BST

According to recent YouGov research, 47% of Brits support public ownership of the utilities, compared to 30% that prefer private ownership. Furthermore, 52% support public ownership of the railways, compared to 27% that prefer private ownership. Small-scale nationalisation is therefore popular. Critics argue, however, that it is simply unaffordable.

Labour leadership frontrunner Jeremy Corbyn has nonetheless committed to the renationalisation of the railways and the energy industry. This begs the obvious question: Can we afford to nationalise these industries? To answer this question, we need to address the railways and the energy industry independently.

The renationalisation of the railways is a simple - and inexpensive - affair. It does, however, require patience. The current privatised system operates under time-limited franchises - some of which are owned by France, Germany and the Netherlands. The government is able to take over these franchises when their contracts eventually run out. These contracts, unfortunately, end at different times. Therefore, Britain needs to adopt a gradual form of nationalisation. Using this patient method, the railways could operate as a benevolent monopoly by 2030 with minimal public expenditure.

The nationalisation of the energy industry is a more complicated affair. It would cost an estimated £185 billion to bring the energy industry back under public control through the traditional method of nationalisation - buying the industry at market price. This is, quite simply, unaffordable. There are, however, other ways to nationalise.

There is expropriation, for example, in the style of the Bolsheviks. This is the cheapest option, but in reality amounts to little more than theft. Such a move would contradict the basic rule of law and drive out private investment on a massive scale. I only mention expropriation because historically it is the method favoured by hard-line socialists. Jeremy Corbyn is not, despite what the press might chant, such a hard-line socialist.

A lighter method that Corbyn supports is nationalisation through quantitative easing. During the previous general election, Dave Nellist, leader of TUSC, had a similar idea. He suggested that the Bank of England's programme of quantitative easing - raising £375 billion - could have paid to nationalise the banks. In theory, Corbyn could use quantitative easing to create another £375 billion to buy out the energy industry and still have £190 billion left to spend on beard trimmers and hats.

It is, of course, not that simple. Quantitative easing is dangerous: it can substantially force down interest rates, increase inflation and depreciate our currency. I agree with Corbyn's sentiment that if we are to use quantitative easing, we shouldn't simply push money back into the banking system. Nonetheless, a large level of quantitive easing is economically undesirable regardless of its use. Buying out the entire energy industry through a mass programme of quantitive easing, therefore, is theoretically possible, but it would inexorably result in larger issues. After all, if printing money solved our problems, we wouldn't have any problems.

The only affordable way to nationalise the energy industry is to start small. In 1975, Harold Wilson created the National Enterprise Board (NEB). The objective of the NEB was to extend public ownership of industry. Essentially, the Labour Party decided to buy into companies and create new firms to increase public ownership without nationalising entire industries. It was a good idea. It was, however, relatively unsuccessful. Eventually, the NEB was simply used to prop up failing industries with little attempt to create sustainable alternatives.

Nonetheless, the NEB had a certain promise. Wilson's government sought to increase public ownership without nationalising entire industries. The best way to nationalise part of the energy industry - and minimise expenditure - is to create separate entities that can compete with other companies.

This method could be successful for various reasons. Firstly, it is far cheaper, and far less dangerous, than the aforementioned options. Secondly, it could create competition among the pre-existing energy companies and drive down the price of services. And finally, it could reduce the market price of other companies, thus making traditional forms of nationalisation possible in the future. This approach could create competition in the marketplace, break up oligopolised industries and allow for greater public ownership further down the line.

Nationalisation is possible and will not bankrupt the country. The railways require patience. The energy industry requires competition. The route to ensuring small-scale nationalisation is not to rely on the traditional method of wholesale purchase at market price. It is far too costly. Gradual nationalisation - through overtaking franchises and competing with the private sphere - seems to be the only economically affordable route.