The Advantages of Public Ownership

Public ownership is when things are owned by the Government or by a local government such as a council. There are many different kinds of things that can be publicly owned, including industries (such as the railways), services (such as the National Health Service) and assets (such as land).

One of the alternatives to public ownership is private ownership, which is when something is owned by an individual, or a group of people, or a private company.

Another way of saying that something is publicly owned is to say that it is ‘nationalised’. The process of transferring something from private ownership to public ownership is called ‘nationalisation’. Transferring something the other way (from public to private ownership) is called ‘privatisation’.

One of the Labour Party’s policies is that if they win the upcoming election they will nationalise the railways, the water supply, the energy supply and the Royal Mail. There are several reasons why taking these things into public ownership would be a good idea.

We can use public ownership to provide for our needs

Private companies generally do whatever they think will bring in the most profits. In fact, if a company is owned by shareholders, as most big companies are, then the managers of the company have a legal duty to try to maximise the profits for the shareholders.

Smaller companies usually do not have shareholders and are often owned and run by the person or family who set them up. So in theory, they don’t have to just do whatever will maximise profits. But the reality is that if they don’t focus on making a profit then the company will run out of money and have to close down.

So most of the time, private companies are going to do whatever is most profitable, rather than what is best for the general public. When I say this, I am not trying to say that private companies are evil, I am just saying that the nature of a private company is that it will generally prioritise profits over anything else.

Of course, there are many situations where this profit-seeking behaviour causes private companies to provide people with useful goods and services. For example, there are many different shops within a short walk of my flat that I can go to and buy food. This is very convenient for me, because it means I can quickly and easily get all kinds of different foods that I might want.

These shops haven’t created this convenient situation because they want to help me and make my life better. They just know that there are people in this area who have money and want food, so they know that they can get some of that money by selling food.

However, while the profit motive does cause companies to provide some people with some of the things we need, there are many needs that won’t be met by private companies, because providing for these needs is not profitable.

In fact, food is a good example of this. There are lots of people living in poverty in the UK who don’t have enough money to buy enough food. This means that there are millions of people who are going hungry. Private companies aren’t going to solve that problem. Not because they are evil, but because they will only do what is profitable, and giving away free food is not profitable.

There are certain things that we think are important for everyone to have, even if it isn’t profitable to provide them. Another example would be education. In the UK, we get a free education at least until we are 18.

Providing a free education is important for two reasons. Firstly, education is such an important thing for a person’s life that most of us feel that everyone is entitled to it even if they cannot afford to pay for it. Secondly, having a high level of education in our society benefits us all. In other words, you don’t just benefit from your own education, you also benefit from the educations of all the people around you. For example, all of the scientists who discover new technologies that make our lives easier, the writers who create our favourite TV shows, and the medical professionals who care for us are able to do so because of their educations.

Providing a free education to every child in the country is not a profitable activity – in fact it costs a lot of money. Imagine if it was left to private companies to provide education. The only schools would be private schools and only a small percentage of people would be able to afford to go to them. This would have devastating consequences for all the people who couldn’t go to school and also for our society as a whole.

A similar example is healthcare. Most of us feel that anybody who needs medical treatment should receive it, regardless of how much money they have. Also, having a healthy population has wider benefits beyond just the individual (we all benefit from other people’s healthcare, just as we all benefit from other people’s educations). If there was only private healthcare then many people would not be able to afford it, and many people who got sick would end up either going without treatment or taking on massive debt in order to pay for it. In other words, it would be like the current situation in the USA.

Unfortunately, this is not some distant thought-experiment. The Conservative Government have been privatising parts of the NHS for several years now and if they win the election in December they will continue to do so.

Not everything that is publicly owned is provided to people for free. For example, if the Labour Party win the election and nationalise the train services, the Royal Mail, the energy companies and the water companies, we will still have to pay for train tickets, postage stamps, electricity, gas and water. In fact, some of these services would actually be profitable for the Government. However, public ownership means that even when a service is profitable, profits don’t have to be the only priority.

For example, let’s think about the way prices are set. When a private company is providing a service, the only factor they take into account when deciding on their prices is how much profit they will make. Therefore, if there are enough people who can afford a higher price then they will increase the price even if this means some people will no longer be able to afford the service and will have to go without. When a service is publicly owned, the goal of making a profit can be balanced with the goal of providing for everyone’s needs.

In other words, with public ownership, prices can be set at affordable levels even if this means lower profits or even making a loss. Private companies cannot do this because they have to maximise profits.

Of course, it is good if the Government can make a profit from providing a service because that money can be spent on other public services. However, making a loss isn’t necessarily a bad thing, it just means that the Government is spending money on providing an important service (like we already do with education and healthcare).

Public ownership allows us to protect the environment and workers’ rights

As well as ensuring that prices are affordable for everyone, public ownership also allows us to run services in ways that prioritise other important things, like the environment and workers’ rights.

Rather than just doing whatever will bring in the highest profits for the owners of a company, public ownership means that services can be run in a way that takes into account all of the different things that we think are important.

Public ownership gives us more democratic control

We are told that we live in a democracy, and yet so many aspects of our lives are controlled by private companies that we have no say in.

Public ownership means that services are run by the Government or by local councils. And while we may not have as much of a say in these institutions as we should, we still have some ability to influence them, which is more than can be said for private companies.

Your local MP and your local councillors rely on you and your neighbours to vote for them. This means that if you aren’t happy with a service they are providing you can put pressure on them to improve it. Or you can try to elect different people who will make the improvements.

Public ownership leaves the Government with more money

We have seen that some publicly owned services will bring in a profit for the Government, while others will cost the Government money (which is fine if we think that the service is important enough that we should be spending public money to make sure everyone can access it).

However, regardless of whether or not the service is profitable, public ownership will always leave the Government financially better off than privatisation.

If the service is profitable then obviously public ownership is good for the Government’s finances because it means that the profits go to the Government rather than private companies. Owning profitable services is a good additional source of money for the Government (alongside taxation and borrowing), which means that there is more money for the Government to spend on other services.

But even when the service is not profitable, public ownership is still the better option financially. As we have already seen, private companies will not start providing a service unless it is profitable for them to do so. If the service is not publicly owned then the Government has to pay private companies to provide the service. This then makes it profitable for the company which means they will do it.

This is more expensive than public ownership because when the Government pays a company to provide a service, not all of the money is spent on providing the service. Some of it goes to the owners of the company. If the service was publicly owned then all of the money would be going on providing the service, which would make it cheaper.

This is shown in the diagram below:

With public ownership, all of the money is spent on the service.  With private ownership, some of the money goes to the owners of the company.

Privatisation in this situation is clearly inefficient as money that could be spent on providing public services is instead being drained away into the bank accounts of the owners of the companies. Of course, some of those owners are the people who vote for and donate money to the Conservative party, which might help to explain why the Conservatives are in favour of wasting public money in this way.

Public ownership is especially useful when there is no competition

The public generally benefit when companies have to compete with each other. For example, imagine a busy town centre with lots of restaurants. If customers don’t like the food in one restaurant, or the service is bad, or they don’t think it is good value, then they can choose to go to one of the other restaurants instead. This means that the restaurants have to compete with each other to provide high quality food and service at a reasonable price.

Imagine instead if there was only one restaurant. Since there is nowhere else for customers to go, there is much less pressure on the restaurant to provide quality and value. They could start to cut corners, buying cheaper ingredients, and hiring fewer staff so the service is slow. And they could start increasing their prices. As long as the quality and value were just good enough that people would still come, then there would be no motive for them to improve.

Of course, many restaurants are small businesses whose owners take pride in their work and who would strive to provide quality and value even if there was no competition. But if the restaurant was run by a large corporation owned by shareholders, then without competition, quality would decline and prices would rise.

There are some services where it is not really possible to have more than one provider. Trains are a good example of this. Because it is so expensive to build train tracks, it wouldn’t make sense to have lots of different companies running trains alongside each other between the same places. Therefore it only makes sense to have one provider on any particular route.

This is called a ‘natural monopoly’. Another example is the water supply. It wouldn’t make sense to have lots of different companies digging up the same roads to lay water pipes between the same places so that they could compete to supply water. Therefore each area has just one water supplier.

Letting a private company run something that is a natural monopoly is bad for consumers because there is no competition to pressure the company to improve. This means that the company (who will always do whatever is most profitable) will provide poor quality at expensive prices, knowing that their customers have no other options.

In situations where there is a natural monopoly, it makes sense for the service to be taken into public ownership so that the Government or a local council can run it in the interests of the people.

An example of the problems with natural monopolies is Southern Rail. In 2014, the 7:29am Southern Rail service from Brighton to London was late every single day for the whole year. Surely anyone would have agree that a train service not managing to run on time even once in an entire year is pretty terrible. Especially when each of the commuters who took that train paid thousands of pounds for their season ticket.

But because rail is a natural monopoly, those commuters had no other choice. If you lived in Brighton and worked in London in 2014, then you had to use Southern Rail to get to work, and you had to pay thousands of pounds for that year’s season ticket. Even though you knew the train was going to be late every day and the price was a rip off, you had no other choice.

David Scorey, the managing director of Southern Rail at the time, said, “I don’t think we’re delivering the level of performance customers expect”. This is of course a pretty hilarious quote, and it would be easy to blame the failures of Southern Rail on the individual people who run it. However, it is important to look at the bigger picture and see that failures such as these are an inevitable consequence of privatising an industry that is a natural monopoly.

Just as the commuters have no choice to use a different train service, the directors of large, shareholder-owned corporations have no choice to do anything other than maximise profits. Firstly, they are legally required to do so, and secondly, if they don’t they will be replaced by someone who will. When there are no other companies competing with you then the best way to maximise profits is to charge higher prices and spend less money on providing a good service.

If Southern Rail had invested money to improve their service, they would not have gained a single extra customer because everyone who needed to do those journeys already had to use them. Investing in this way would have just cut their profits.

These problems can’t be solved by finding better companies to run the service, because with a natural monopoly the outcomes will always be more or less the same. The only good answer is public ownership.

Fortunately, as we have seen, public ownership is actually a very good answer. It allows us to provide for the country’s needs at affordable prices, in a way that respects workers and the environment, gives us more of a say, and leaves the Government with more money.

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