It’s essential the public has a say in our new bank’s priorities

It has been commonplace since the days of Mrs Thatcher. It runs thus: public ownership is wasteful and inefficient compared to private ownership. Nationalised industry invests in the wrong things, because civil servants can’t pick winners. And when things go wrong, the government always has to borrow or raise taxes to bail out the failed public companies.

So Labour’s “bolt from the blue” proposal to nationalise BT’s Openreach broadband unit and make access to the internet a free public good has caused instant apoplexy in the financial markets, business press and Tory ranks. BT shares immediately lost value – although recovered because, as the pro-market commentariat was swift to point out, the electorate could not be so silly as to back Corbyn’s proposal to turn the UK into a version of Venezuela.

The obvious reason why there is a more open debate now about the merits of nationalised industry is the comprehensive global cock-up in the past decade resulting from private corporate greed and incompetence. The 2008 banking crash nearly brought the entire world economy to its knees as a result of financial malfeasance and managerial incompetence on a truly epic scale.

But it is not just the private banks and corrupt accounting firms that have failed catastrophically. Last year Carillion plc went into liquidation with debts of nearly £7 billion, the largest bankruptcy in UK history. Carillion existed to supply franchised public services, supposedly cheaper than the state sector could itself. But like all such mega service companies, Carillion underbid to steal public contracts, then cross-subsidised like crazy between jobs while trying to squeeze a profit. The franchise model is a comprehensive disaster which has only led to massive under-investment in public services.

The chief Tory cheerleader for “private enterprise” is John Redwood, the long-time Brexiteer MP for Wokingham whose blog is entitled “Speaking for England”. Over the weekend, Redwood was in virtual orgasm tweeting and blogging in opposition to Labour’s BT Openreach nationalisation plan. Redwood is a fan of the private sector because he makes a mint moonlighting as an investment adviser. His latest register of interests says he earns £46,818 per quarter plus bonuses give such advice.

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Curiously, Redwood’s latest investment advice reports have been lauding China as a place to put your cash. There’s a wee problem here: most of Chinese industry is publicly owned. In fact, state-directed investment has transformed China is a single generation from a poor country into world’s second-largest economy after the USA. Absolutely everything John Redwood attacks about the British public sector exists on steroids in China. But then, hypocrisy is a Tory virtue.

How did British nationalised firms get such a bad reputation? Once upon a time, the opposite was true. In both world wars, private manufacturing was either nationalised or taken under direct public direction because it was too fragmented and badly managed to produce sufficient output to defend the nation. In the peacetime 1960s and 1970s, large parts of industry (cars, aircraft, computers) were again brought into state control because they were too inefficient and too under-capitalised to compete with European and American multinationals.

Enter Tory prime minister Edward Heath. With global inflation running rampant as a result of America’s reckless war in Vietnam, Heath ordered UK nationalised firms to freeze their prices. It was this political interference that caused many public companies to post losses, not their supposed inefficiency. But these losses served as a handy excuse a decade later to let Mrs Thatcher flog off state assets to her friends in the City.

Edward Heath

This is where we come to BT, or British Telecom as it was before privatisation in 1984. In private hands, the first move of BT’s independent management was to try to merge with MCI, a US giant Telecoms firm. For “merge” read US takeover. But BT’s new shareholders revolted, and the project collapsed, with the chair and CEO fired. The next management then ran up company debts worth £30bn in overbidding for 3G mobile licences, causing the share price to plummet by 60%. Result: BT had to sell off all its lucrative foreign assets, turning it into a modest British player.

Then BT had a bit of luck. The internet had arrived by the start of the new millennium and customers needed broadband connection. As it happened, BT still had a monopoly of the old copper wires running into people’s homes – the information “pipelines” that supplied the ever-increasing demand for data. BT ruthlessly exploited this monopoly. It did so by excluding other service providers from accessing its network – or overcharging them for the privilege. It is this monopoly, and BT’s determination to milk it, that has led to the UK’s poor uptake of new fast broadband technology.

In particular, BT has been reluctant to replace its existing (and antediluvian) copper wire system with fibre optics.

True to form, BT management now pissed these monopoly profits up the proverbial wall. BT decided to become a television company, supplying unique content down the wire. Much of the cash BT should have spent investing in broadband infrastructure was wasted in over-bidding for the rights to show sporting events, in a competitive war with Murdoch’s Sky TV. Meanwhile, US entertainment giants (such as Netflix) and tech monsters (such as Amazon) have invaded the on-demand market. No wonder BT shares have crashed by a quarter in the past year – even before the Labour nationalisation proposals.

There is a moral to this sad tale. It is not that public ownership affords sounder decision-making than private enterprise, although UK history might make you think that. Nor can we attribute the endless failure of British commercial management simply to greed, although we appear to have the greediest, most grasping capitalists on the planet. No, the core problem lies in the working of the market mechanism itself – in anarchic market competition, or what Dr Marx called the law of value.

Competition – the wasteful pitting of vast resources in economic battles – inevitably ends in the ruin of one or several contenders, destroying investment value and jobs. It also encourages short-term thinking, as investors hasten to get their money back as fast as possible, before the predictable crash arrives.

The alternative is to impose democratic direction on the priorities the economic system should serve - and allocate scarce resources accordingly via public fiat. If we, the associated producers and consumers, decide we want fast broadband, that should be the case and investment prioritised to achieve it.

The trick, of course, is to design some democratic agency that can set planning priorities, rather than have faceless bureaucrats do the deciding. Fortunately, that might be a mite easier to do in a small community like Scotland after independence.

In fact, with its inadequate broadband supplied by BT.

Which is why we need to start by insisting that the strategic investment priorities of our new National Investment Bank, with Willie Watt as its new chair, are subject to a public debate rather than determined by the sort of private managers and bankers whose egregious incompetence has served us so badly in recent decades.