Remember the EU referendum? The City thought the British public would see the economic benefits of EU membership and not wish to loosen ties with our closest trading partners. Turns out the City was wrong and had misread the mood of the nation. The current discussion around nationalisation has some worrying similarities, so is the City making the same mistake again?
Is the City underestimating nationalisation risk?
Ask any economist about the merits of nationalisation and they will give an answer very similar to Martin Wolf’s in the FT: ‘Does this [nationalisation] make sense? In a word, no.’ He argues that the UK’s experience is one of chronically over-staffed, heavily politicised companies that either underinvested or made poor investment decisions and treated users with indifference.
But don’t take his word for it, Megginson and Netter’s academic work shows that the empirical lesson of the 1980s and 1990s is that privatised firms almost always become more efficient, more profitable, financially healthier and increase their capital investment. A look across to China shows a current example of the same pattern of privately owned firms outperforming state-owned enterprises across many metrics.
'Britons have had enough of experts' - Michael Gove
Michael Gove said ‘Britons have had enough of experts’. He was widely criticised for this statement, but arguably he was merely stating a fact. Institutional degradation is one of the phenomena we highlighted in our new political paradigm theme. Just because economists think nationalisation would be a bad idea doesn’t mean the rest of the population will agree; quite possibly the opposite. And the rest of the population tends to have greater influence on policies than economists.
This is why I thought the chart below was fascinating. It shows the UK population’s attitude towards nationalisation of various industries, based on a Legatum poll. I would have expected the ranking, that more people would support the nationalisation of utilities than car manufacturing. But I was surprised by the absolute level of support for nationalisation across the board. It seems that nationalising large parts of the UK economy is a pretty popular proposition. A quarter of Britons would even support nationalising travel agents!
And it’s not just more idealistic younger voters. The Legatum poll showed that support for nationalising trains and utilities was the same all the way from teenagers to pensioners. There was also relatively little difference between Conservative and Labour voters. 76% of Conservative voters supported nationalising water.
So, arguably nationalisation is another topic where it’s important not to get blinded by an overwhelming City consensus that it’s just bad economics and therefore won’t happen. Markets can easily underestimate how many people outside the City bubble would support such policies and therefore underestimate the probability of some form of nationalisation. Let’s not underestimate the power of the people again!
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