As someone who moves in moderate circles, I have cause to talk to people on both the Left and Right of the political spectrum. With Brexit dominating the political sphere, I’ve already made several discussions of Brexit from a wide range of perspectives, but I was reminded the other day that plenty on the economic Left – an area I’ve not really stopped to think about – are deeply Eurosceptic.
Recently, I was presented with the following question by one of my more left-leaning colleagues on an internet forum:
“Can we or can we not renationalise industries while in the EU?”
The answer, of course, is ‘yes’. The full answer I gave is as follows:
Yes, nationalisation is allowed – just look at the French. However, nationalised or not, an EU member state can’t favour their own businesses because of State Aid rules.
To be clear, this isn’t necessarily an issue. The design of state aid rules is not intended to promote neo-liberalism, but the kind of ‘social market’ economy associated in particular with Germany, the Netherlands and Scandinavian countries. Developments in EU state aid law in the last few years have made it much clearer what national governments can do in terms of subsidizing domestic economic restructuring.
Of the economic measures set out in Labour’s manifesto at the 2017 Election, most do not even potentially fall within the scope of the State Aid rules. Of those that could, many are likely to fall within block exemptions: for example, infrastructure spending is not counted as an aid at all unless it directly competes with already existing privately funded infrastructure, and, in most cases, there is unlikely to be any such infrastructure. This leaves only two measures which would even have to be notified: the state investment bank/regional bank proposition and the state-funded regional energy suppliers. It is likely that both could be re/structured to be cleared.
This assessment is, of course, provisional – the analysis depends on the precise content of Labour’s plans (which can’t really be explored outside of government). Nonetheless, the remit of existing legislation suggests that Labour has plenty of scope to act in these areas without any impediment from state aid rules. In this context, it is worth noting that the UK would also have to more than triple the amount it spends on state aid to even match the proportion of GDP which Germany spends on aid.
Dr Andy Tarrant and Dr Andrea Biondi wrote a report for “Renewal” about this last year, with a verdict of “on balance, it’s a good system” – basically because state aid rules oblige Member States to direct scarce aid resources to impoverished regions or innovation. Without this, they argue, spending would likely be even more skewed to big corporations and favoured regions. Multinationals would tour national capitals demanding greater subsidies.
Having given that answer, I was showered with a barrage of counterstatements from ardent Lexiteers telling me just how wrong I am. One chap, in particular, got quite enthusiastic about disagreeing with me, and I thought I’d share the content of our discussion…
Railing Against Privatisation: The Fourth Rail Package
The crux of his counterargument was a piece of legislation commonly referred to as the Fourth Rail Package; his primary concern being that it makes numerous references to competition, liberalisation, and marketisation. In fact, the chap in question cited the recent unrest in France as an example of EU meddling – claiming that Macron is only following the EU’s directives by moving to privatize the rail.
Here’s what I said:
The changes to EU rail regulation, known as the fourth railway package, don’t require member states to privatise any aspect of their rail networks. Neither do they require any member to break up its national operator. There was an initial proposal for rail infrastructure and services to be split into separate organisations, which would have meant breaking up national operators, but the German chancellor, Angela Merkel, directly intervened and it was dropped.
What the package does do is to open up each country’s rail network to competition and ultimately create a single European market in rail services. The three main components of the changes are that each member state liberalises passenger services, develops common operating standards for both trains and the workforce, and has an independent infrastructure manager (even while ownership of infrastructure and services can be under the same company).
When it comes to liberalising passenger services, the word “liberalise” is open to interpretation. However, the most common result on the continent is that state-owned passenger rail service companies – which still exist in all member states except the UK – have to compete to retain the routes they currently run, largely through competitive tenders. This is not a million miles away from the current situation in Britain, where subsidiaries of the German and Dutch state rail companies both run franchises.
In other words, it’s not a neoliberal call to privatisation, but an insistence on a social market model with a clear and well-protected place for state companies. State-Owned Enterprises can still exist, but they can’t automatically be given contracts – they have to put in a bid for them just like any other company, with the lowest bid usually receiving the contract as per the rules of competitive tender.
Macron’s decision to push for privatisation of the French railways is not, therefore, a result of EU legislation, but as a result of his own professed political leanings as an economic neoliberal.
Naturally, this reasoned response was largely ignored, with the chap in question repeating the erroneous claim that (I quote directly) “actually, you’re wrong, it opens up to competition – or, in other words, liberalisation and privatisation”
You see, now we’re getting to the crux of the matter…
Some on the left think ‘nationalisation’ is the same as ‘state monopoly’, and, conversely, that ‘competition’ means ‘privatisation’. Neither of these equivocations are true. The first one, in particular, is really quite dangerous.
‘Competition’ is not synonymous with ‘privatisation’ in the parlance of any other national economy but ours. What the package proposes is a social market (IE a competitively-oriented EU-wide single market for rail services), but, as stated above, this does not require the dissolution of SOEs. If it did, Germany would no longer be part of it, as it has not dismantled Deutsche Bahn.
What it DOES require of them is that they must bid for contracts in the same way as private companies and the SOEs of other nations, with the right to run a route automatically going to the lowest bidder (IE the most cost-effective company, whether private or public).
Again, my salient argument was largely glossed over, with my Lexiteer acquaintance repeating the assertion that the fourth rail package is “a carbon copy of the UK rail setup” and failing to notice that many European nations have national operators.
I began to get frustrated. So, I took a different tack. Remember that comment I made about nationalisation and state monopoly being a false equivalence? Read on:
Once again, ‘competition’ is not the same as ‘neoliberalism’.
Yes, State Aid rules like the Fourth Rail Package means a government can’t legislate against other (read: private) companies from running businesses in the same field as an SOE (IE it can’t legally enforce a state monopoly), but, let’s be honest, if you can’t out-compete a private industry with a nationalised one, you’re doing it wrong.
I mean, look at the NHS – it doesn’t have a legal monopoly, yet it outcompetes the private sector healthcare in this country with ease. Or, indeed, for a more rail-related example, look at Deutsche Bahn in Germany – it doesn’t have a monopoly on rail routes, but it consistently outcompetes its private competitors in Germany’s social market.
All this legislation does, in reality, is use competition through social marketisation as a backstop to prevent the occasion of “bad nationalisation” – that is, it means that a government can’t lock its citizens into using services that it’s unable or unwilling to maintain (as the communist governments in the old Eastern Bloc countries did, to the detriment of their citizens).
This legislation puts the pragmatic concerns of the citizens’ quality of life above purely ideological concerns like ultimate ownership, while still allowing for SOEs to exist – and, indeed, to thrive (again, I point to Deutsche Bahn, or any of the French and Dutch SOEs running our rail lines at the moment).
He didn’t respond.
I’m a bit disappointed really. I thought we were getting somewhere…