JOHN HUGHES lectures on econom1cs and industrial 
relations at Ruskin College, Oxford. He has written 
extensively on steel nationalisation, including Plan for 
Steel Re-nationalisation (Fabian Research Series 198), 
and is on the editorial board of New Left R eview 

FABIAN TRACT 328 

THE FABIAN SOCIETY 

11 Dartmouth Street, London , S.W. I 


Note.-This pamphlet, like all publications of the 
FABIAN SOCIETY, represents not the collective 
view of the Society but only the view of the indiFidual 
who prepared it. The responsibility of the 
Society is limited to approving the publications 
which it issues as worthy of consideration within the 
Labour Movement. 

October, 1960 


/ ?#'? 

I. The I m pact of the Private -Secfo-;7 
T
T
HE approach adopted in this study is a socialist one. The analysis and 
criticism of nationalised industries as they function today is a 
continuation of a line of ideas going back at any rate over the past fifty 
years within British socialist thought. I put in an appendix some extracts 
from guild socialist writers to illustrate the point. At the same time, 
running through all that is said and proposed about public industry is a 
critique of the organisation and behaviour of large scale capitalist industry. 

Current criticism of the system of capitalist industry in this country 
can be read elsewhere,1 and here I shall do no more than indicate the 
bare bones of what must be borne in mind. The critics' main targets are 
the distribution of economic wealth and power that emerges from such a 
system, the purchasing power priorities it gives rise to, and the values it 
inculcates. There is a two-fold criticism of the irresponsibility of the 
decision-takers: firstly, in the sense that they are not adequately accountable 
to the community (or even to the people most directly involved in 
their decisions) although largely determining its development and well-being 
(or lack of both); secondly, in the sense that many big-business decisions 
are directly harmful to the community. This is true particularly as to the 
timing, location, and content of investment programmes. It is even more 
true of pricing policies-'administered' prices-with sharp increases in 
profits per unit of output each time the economy moves towards full 
capacity. For some industries it is true of their neglect of the balance of 
payments effects of the policies pursued. For others it is true of their 
exploitation of massed capital resources to manufacture public opinion, 
a descent into the political arena using the techniques of non-rational 
suasion developed by the ad. men, in order to buttress their irresponsible 
power. 

Concern as to the operation of the nationalised industries in the mixed 
economy is therefore related to the impact upon them of the predominant 
capitalist sector. This study does not attempt to give an assessment of the 
achievements of publicly owned industries. It seeks primarily to explore 
a relationship, the connections between the nationalised sector and the 
'private sector', together with the pressures exerted by governmental 
action primarily concerned with the strengthening and stabilising of a 
capitalist economy. ( We are not likely to understand the place of the [ 
nationalised industries in the mixed economy if attention is concentrated 
on their characteristics, as if they operated in a social and economic vacuum, 
or even as if relations with the state and capitalist business were marginal.) 
Th~elationship is found to be one of s.ubordina.tioH--to the short run needs 
and interests of capitalist industry. I attempt to explore the origins of 
ilils posttlon, and also its consequences for the nationalised industries, for 
instance the special problems of fin~ing that arise. 

Cf. Professor Titmuss's Fabian pamphlet, The Irresponsible Society, and 
my Tribune pamphlet, Socialism for the 1960s. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

It is not only the analysis of economic policy in the light of this relationship 
that needs undertaking. The socialist must necessarily be interested 
also in the institutional effects, the steady assimilation of the public 
corporation in type to large scale commercial concerns.1 We seem to have 
come full circle. Socialists thought of creating a challenge to capitalist 
industry, both in the democratisation of the internal operation of industry 
and in its external accountability; but increasingly, the nationalised indus


' tries are expected to behave as would a commercial concern, except in 

I 
I
one respect which would strike at the interests of capitalist industry. At 
the same time a number of special problems of industrial relations are 
thrown up by nationalised industry. 
On the whole, socialist thought has been more effective in its cnttque 
than in its constructive proposals, perhaps inevitably since one cannot 
delineate the context within which future change in a socialist direction 
may become possible. However, I have attemped to explore an alternative 
role for the nationalised industries on the assumption that a socialist cannot 
accept either the predominance of capitalist firms and commercial criteria 
in the mixed economy, or the general subordination of public sector organisation 
and policy to the needs of their commanding heights. Suggestions 
for an alternative approach to the nationalised industries can only be 
fragmentary, since it is not possible to separate this question from that 
of the frontier of public ownership; nor is it possible to separate the 
question of nationalised industry policy from that of the extent and character 
of public controls over business behaviour in the private sector. 

For instance the Fleck report on the National Coal Board declared: 'There 
is nothing in the legislation which created the N.C.B. that prevents it beingmanaged in accordance with the best commercial practice. Nor is there anyconflict between a commercial approach on the Board's part and the Board'G 
being a good emp oyer' fp. /). We must, of course, expect from J.C.l. the 
philosophy of very big business. It is not that of socialists. but it is the point 
of departure for management in the nationalised industries today. 

The Herbert Report on Electricity Supply echoed the same ideas: 'It should 
be conducted as a commercial concern . . . . We could see nothing in the Act 
which required inoustry fo . . . conduct itself in such a way that it would 
have to face higher costs than a private business would face in similar 
circumstances' (p. 7). 

Again, in the British Transport Commission's Proposals for the Railways we 
read : 'Today the B.T.C. much more resembles in organisation, purpose and 
status a large-scale commercial corporation. The Government are satisfied that 
this kind of structure is the right one' (p. 4). The Conservative governmentwa , then. satisfied. but are socialists satisfied? Since Proposals for the Railways. 
the Government has become so uncertain whether the railways are sufficiently 
mirror-images of large-scale commercial undertakings that it has et up an 
Advisory Group. to look at the organisation. consisting of a director each from 
l.C.I.. Courtaulds and Tube Investments. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

2. 
Subordinating the Public Sector: 
Pricing Policy 
T
T
HE origins of the special characteristics and problems of nationalised 
industry price, investment, and output policy, can be sought in two 
rather different spheres. On the one band they arise out of the confusion\ 
of thought within the Labour movement on the economic objectives to "' 
be pursued, particularly the accepted concept of 'public service'. On the 
other, they stem from a combination of short-run anti-inflationary, stabilisation 
emphasis in government determination of nationalised industry 
pricing policy (and investment), and equally short-term business views on 
what nationalised industry economic policies are appropriate for them. 
These latter pressures have coincided with the cruder views within the 
Labour movement on 'public service' pricing, to produce minimum break-
even pricing. By this I mean prices that are the minimum compatible 
with any construction of the obligation imposed by the Acts at least to 
'break even'. 

It is useful to look at each of these strands in turn, before going on 
to examine the economic sense, if any, and consequences of such an 
outcome. 

The confusion in the thinking of the Labour movement turns upon the 
equating of public service with current consumer satisfaction; this, in a 
situation where the economy remains predominantly capitalist and the 
main consumers of nationalised industry goods and services are none 
other than capitalist industry and commerce. The choice of the Morrisonian / 
'business efficiency' and 'consumer service' model for the public corporation 
made this confusion of thought central to the organisation and policies 
of the nationalised industries. 

It should be said that when Morrison wrote Socialisation and Transport 
his attention was concentrated on the organisation of London passenger 
transport, and consequently the emphasis on consumer service did not 
directly raise the question of potential transfers of income to industrial 
and commercial users of nationalised industry goods and services. But the 
implications of such a yardstick in a predominantly capitalist economy do 
not seem to have been faced subsequently. Indeed, when that standard 
tome, Problems of Nationalised Industry, was published in 1952, its editor 
saw the 'conversion of nationalisation to socialisation' almost entirely 
(except for mentioning 'the principle of joint consultation') in terms which ?.. 
equate 'public interest' with the crudest view of short-run consumer interest : 

'There will be, throughout the undertaking, full recognition of the consumer's 
right to the most ample service or supplies at the lowest possible price.' (p. 347) 

There was to be 'full recognition' of that, but apparently no recognition, 
in the context of our mixed economy, of the implications of such an 
attitude and such policies. These I examine subsequently. 


4 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

Again, to be fair to Morrison, in the views be originally developed on 
the public corporation be envisaged surplus earnings being used for capital 
development: 

'The burden of interest is objectionable from the Socialist point of view; 
it is, therefore, desirable that the Board should not needlessly borrow for 
new capital expenditure'. (Socialisation and Transport, p. 278) 

But the subsequent emphasis has been one that denies that nationalised 
industries should make a surplus on their operations. Arthur Lewis was 
only putting forward orthodox views when he wrote in Problems of 
Nationalised Industry: 

'The sort of price policy that a public corporation ought to follow can be 
stated simply . . . it should make neither a loss nor a profit after meeting 
all capital charges.' (p. 181)1 

Yet it is hardly evident that a refusal to make surpluses is what distinguishes 
socialist from capitalist enterprise. The point is not difficult to make to a 
co-operator. It is the motivation of the organisation, and its use of tts 
surpluse~. which may more appropriately distinguish one from the other. 

The Break-Even Rule 

It should be emphasised that the Nationalisation Acts themselves did 
not prescribe the break-even rule, in the sense of requiring the nationalised 
industries to balance revenue and outgoings without a surplus. The general 
wording is that revenue should be 'not less than sufficient' to meet 'outgoings 
properly chargeable to revenue account, taking one year with 
another'.?' The restriction is on the accumulation of deficits, not of surpluses. 
Yet so overwhelming has been the emphasis on revenue equalling 
outgoings that even bodies such as the N.C.B.'s Advisory Committee on 
Organisation assumed this to be a requirement. For instance, they wrote: 

'The Board cannot make a profit in the sense of building up a surplus from 
which to distribute dividends . . . . Given that the Board cannot make profits 
in the normally accepted sense, but must seek to balance their revenues and 
their outgoings ...' (Report, p. 7)8 

Was 'break-even', then, the line of least resistance? Was it useful in 
begging the question of what should be the objectives and characteristics 
of economic policy for nationalised industries in a mixed economy? 
Political expediency played its part in whittling down the concept of public 
service to that of minimum current prices to consumers (even though. 
as will be seen, this involved higher future prices). D. N. Chester summed 
up neatly the attitudes that predominated during the passing of the Acts : 

1 

, It is interesting to note that one reason Lewis advances for this dictum is 

'~· 
that 'to do otherwise is to contribute to inflation or to deflation . .. any deficit 
is inflationary'. Lewis was thinking of inflation solely in demand-pull terms. 
By contrast, the Government-thinking in cost-push terms-held prices down 
and created deficits to offset inflationary pressure! On this, see subsequently. 
2 There is one exception which enshrines the pure doctrine of break-even 
pricing. The requirement for the North of Scotland Hydro-Electric Board is 
that price determination should lead to revenues 'equal over a term of years' 
to expenditure on revenue account. 
s The Herbert Report does not make the same mistake: 'We can find no 
statutory prohibition against building up a surplus over the years'. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 5 

'During the discussion on the various Bills it emerged that everybody was ""' 
concerned with securing greater supplies at much lower prices-more and 
cheaper was clearly the slogan . .. .' (The Nationalised Industries, p. 66). 

But if one has to explain the elevation of break-even pricing to the 
StatiiSof a principle, the accepted norm of nationa tseaindustries' operation, 
it must be stressed too that it has coincided with the immediate interests of 
business, minimising the cost of inputs to companies, and also with the 
persistent emphasis of government intervention. 

Business attitudes are delineated in an amusing and instructive way by 
the F.B.I. pamphlet, Report on Nationalisation. With many of the long 
term consequences of break-even pricing becoming obvious even to the 
F.B.I., the pamphlet appears as if about to criticise: 

'Failure to cover costs has to some degree been due either to a mistaken 
belief that the national interest is served by low prices of essential services 
irrespective of cost, or to insistence by the Government of the day on postponement 
of price increases' (p. 16). 

But still the F.B.I. cannot bring themselves to advocate surpluses-at the 
expense of member firms-nor even price increases to remove deficits: 
'Prices should fully cover costs. This does not mean that past increases 
in nationalised industries' prices were all justified; still less that a further 

increase is now to be advocated' (p. 18). 
To write thus at a time when large deficits were being made by nationalised ( 
industries indicates well enough the main emphasis of business thinking 
on this subject; in this sphere it transpires that the F .B.I. does not believe 
in the profit motive! -


Government Intervention in Pricing 

Governme inteC!::e_ntion in nationalised industry policies, particularly 
in pricing, has been dominated by short-run considerations. On occasion 
these ave been primarily, and sordidly, political. For instance, under the 
'Gentleman's Agreement' on coal prices, the N.C.B. submitted to the 
Minister a proposal for price increases averaging 11 per cent to apply 
in March 1955. The Minister delayed these until after the general election 
and as a result the increases (which dated from 18th July, 1955) had to 
be considerably larger, in fact 18 per cenP But, in general, governmental 
pressures have stemmed largely from concern over inflation, and have been 
directed at diminishing the pressures of cost-push inflation.2 

What government pricing policy has reflected is the following reality: 
the overnment exercises very little control over price-fixing in the private 
sector; the norma market situation is one of oligopoly or institutional

-

1 Report of Select Committee on Nationalised Industries, HC 187-1, 1958,

Appendix 3. 

2 It is worthy of note that in the period 1955 to 1957 when the Treasury and 

the Cohen Committee (on Prices and Productivity) were assuring us our ills 

stemmed from demand inflation (i.e. from current effective demand exceeding

supply at current prices), government intervention to hold down nationalised 

industry prices implied a diametrically opposed analysis. In holding down prices 

the government directly increased the 'demand gap', if there was one. Left 

hand, right hand? 


6 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

monopoly (e.g. Trade Association price fixing, and collusive 'price leadership'). 
Under such conditions, an increase in a basic industry's supply 
price would be used as a signal for an increase in prices throughout the 
economy (which might be disproportionately large). Nationalised industry 
prices would then be used as a fig-leaf to cover the increases in the private 
sector. These effects would be especially far-reaching when the economy 
was operating near full capacity, for, on each occasion the economy has 
moved , up to full capacity operatiOn (1950-51; 1954-55; 1959-60), there 
has been a sharp increase in profits per unit of output in the company 
sector.1 In the absence, not only of effective controls, but even of influence 
and persuasion over private sector pricing, the government has relied on 

Jf exerting disproportionate pressure on the nationalised industries in an 
1effort to stabilise the price level. 
The admirable work of the Select Committee on Nationalised Industries 
has enabled us to see the way such interventio.JY has operated in the past, 
and the rationalisation offered for such actions."--t transpired that, although 
the government paid lip-service to the N.C.B.'s view that it should be 
able to build up some reserve fund, it never granted permission for any 
increases to make this possibfe>In the early 1950s, when British coal was 
some 25 per cent below Eur6'pean coal prices, the Minister refused even 
a modest increase to liquidate the accumulated deficit. When the Permanent 
Secretary of the Ministry of Power was questioned as to the government's 
evaluation of 'where the national interest should be deemed to lie in 
relation to such proposals'2' for price increases of coal, he said: 

'What will be the effect on the steel industry, the Ministry of Agriculture and 
so on, on the Cost of Living Jr.jex . . . one also does take into account, 
from the point of view of timing, what is the Government's view of . . . 
inflation, and what steps the Government think are in the national interest 
to curb that.'a 

Among the matters he did not mention as influencing governmental 
decisions were the possibility of using the price mechanism to influence 
the efficiency of coal use (through most of the post-war period much 
inefficient coal burning apparatus was in use), and the financial consequences 
to the N.C.B. 

1 Cf. article by Alexander and Hughes, Cartel, October 1959. 
2 The wording is that of the Gentleman's Agreement, on which see HC 187-1, 
1958. The implications of this arrangement for the idea of accountability are 
considered later. Under the arrangement, price increases desired by the N.C.B. 
are submitted to the Minister and subject to his determination in amount and 
timing.
3 Op. cit. Question 272. Later the Chairman of the Select Committee quoted 
to Sir John Maud a sentence from an N.C.B. memo: 'It is also the Board's 
view that it would not help to avoid inflation if production costs were financed 
out of borrowing instead of out of prices currently paid by the consumer'. Sir 
John's reply was, 'I would rather not express a view on that'. (Qu. 289-291). 

Curiously, also, the same Ministry in the same years supported the Iron and 
Steel Board in repeated steel price increases as an inducement to the denationalised 
industry to build additional capacity. Under this regime profits in 
steel, 1955 to 1957, advanced more rapidly than in any other major industry. 
Left hand, right hand? 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 7 

he most widespread and prolonged intervention to hold down nationalised 
industry prices, even where this led towards deficits, occurred in 
1956/ 57) For instance, the Transport Commission, in February 1956, 
applied for an increase in freight charges. The Government cut the proposed 
yield in half, despite the fact that the Transport Tribunal supported 
the full application. It was understood that charges would be reconsidered 
about six months later. Before this period expired the Commission were / 
persuaded to forego any increase in charges until after the end of the 
year,1 The Financial Times commented: 

'It is said to be an independent decision of the Commission. Independence

is an ambiguous word. There is indirect pressure and there is direct pressure 

.... the Government has employed both.' 

Similarly, the electricity boards were asked in mid-1956 not to raise tariffs 
during the year. Select Committee questioning of the Chairman of the 
North of Scotland Hydro-Electric Board threw an interesting light on the 
process: 

(Mr. Johnston) 'Not only we but all the Boards . . . were all asked-I 

think the word "asked" is not too strong-to do all we could to stabilise 

tariffs for a peri'od of time . . . . ' 

(Sir James Hutcbinson) 'Has (the Secretary of State) a power to refuse you 

a rise in tariffs? I have not beard the answer?'


(Mr. Jobnston) 'I do not know' .... 

(Mr. Ernest Davies) 'Are you free to fix your tariffs or do they have to be 

agreed with the responsible Minister?'-'I do not think we have to agree, ' 

but I think it would be very unwise of us to go in for a struggle with 

the Government in a matter of that kind.'2 

The process, motives, and features of state intervention are not in any /' 
doubt. What are the effects of 'minimum break-even pricing'? 

The Consequences of Pricing Policy 

In unravelling the financial effects and the effects on distribution of 
income of the nationalised industries' price policies, a vivid illustration of 
the transfers involved may help. Many steel companies used to own 
collieries, to ensure that in times of boom coal would not only be avail-1 
able to them at inflated prices; they did not want to be subjected themselves I1 
to profit-taking. They were compensated for these pits (about £35 million). / 
However, subsequently they received coal at prices lower than cost of 
production (if allowance for replacement-cost depreciation is made); at 
the same time they were relieved of the need to provide additional capital 
to maintain and expand the capacity of 'their' pits. UJey are thus, economically, 
considerably better off than when they owned the pits. Nevertheless 
they were compensated for the 'loss' of these pits. Sale of this 
compensation stock was an important source of capital for the finance of 

1 I follow here the account in the N. U.R.'s very useful pamphlet PlanninR 
Transport for You, pp. 42-43. The full evidence on this secured by the Select 
Committee on Nationalised Industries (Report on British Railways) is not yetpublished but their Report gives a similar account. 

2 HC 304, 1957. Qu. 293-296. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

steel development,! The rate of profit on capital in the steel industry was 
15 per cent p.a. before the 1958 I 59 recession, and some of this is earned 
in supplying steel products to the coal industry. The reader can work out 
for himself the 'reasonableness' of this combination of full compensation, 
minimum 'break-even' selling prices, and capitalist profit-taking. 

Replacing Assets from Revenue 

It is not merely that the nationalised industries have failed to secure out 
of revenue any contribution to net capital formation. Revenue has fallen 
far short of what was required even to cover depreciation on a replacement 
cost basis. The National Income Blue Book provides for pubiic 
corporations, as a sector, estimates of capital consumption (i.e. depreciation 
of capital assets estimated on a current replacement cost basis).2 Using 
these, it transpires that in the decade 1949-1958 the public corporations 
failed even to provide for capital consumption, and revenue fell £1,295 
million short of what would have been needed to do so. Moreover, the 
deficits tended to grow. Between 1949 and 1953, revenue fell £491 million 
short of what was needed to provide for capital consumption; between 1954 
and 1958 it fell short by £804 million. Only £115 million of the ten year 
total was financed by capital transfers, the rest (£1 ,180 million) had to oe 
financed by borrowing and represented, in a strict sense, so much dead-
weight debt burdening these industries. In consequence, the public corporations 
not merely had to borrow to finance all their net capital formation 
and all their stockbuilding, but also two-fifths of their estimated capital 
consumption in the last decade. 

Of course, any estimate of depreciation is an arbitrary one, and this 
is as true of the National Income estimates of capital consumption as of 
any others. However, there is not much doubt as to the general magnitudes 
involved. What is even more instructive is to compare the overall financial 
position of the public corporations with that of the company sector. I 
attempt to indicate this comparison in the following Table which shows 
the position of the company sector and of the public corporations in 1949 
(as a convenient year soon after nationalisation begins) and 1958. 

1 See article on Finance of Investment in Steel in Steel Review, January 1957. 
Apart from this windfall the overwhelming bulk of steel investment since the war 
has been financed by the community either via prices and profit margins or 
via state (including Realisation Agency) loans at low interest rates. 

2 All my data in this paragraph are taken from the Blue Book, National Income 
and Expenditure, 1959. Public corporations as a group incorporate some other 
bodies besides the nationalised industries, but the latter constitute the bulk of 
this sector. The method of estimating capital consumption, and the distinction 
between this and depreciation based on 'historical cost', is explained in detail on 
pa~es 76 to 78 of the Blue Book. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

PUBLIC CORPORATIONS AND COMPANY SECTOR : 
CURRENT INCOME AND INCOME AVAILABLE FOR CAPITAL 
CONSUMPTION AND NET CAPITAL FORMATION (£ MILLIONS) 


Company Sector Public Corporations 

1949 1958 1949 1958 
Total income 2,360 4,016 177 405 

less(-)

Dividend and Interest -{)10 -1,162 -86 -221 

Taxes (and remit. abroad) -885 -1,180 -2 -16 

Available Income 
865 1,674 89 168 

Provision for (-)
Stock Appreciation -170 + 22 Nil + 5 
Capital Consumption -300 -753 -176 -379 

A. Surplus (+) or Deficit (-) +395 +943 87 -206 
B. 
Net Domestic Capital Formation : 
Fixed 290 606 88 317 
Stocks 49 -5 33 40 
Finance available ( +) or required(-) after providing for investment 
(A-B) + 56 +342 -208 -563 

Capital Transfers 
+ 55 + 13 + 42 + 9 

Acquisition of Financial Assets ( +) 
or Borrowing (-)* + 111 +355 -166 -554 

Source: National Income Blue Book, 1959. 

* This final item includes investment abroad, i.e. companies may be increasing 
overseas investment rather than accumulating financial assets. 
The contrast between the two sectors is extreme. The public corporations 
had a large deficit after allowing for depreciation, calculated at replacement-
cost, and a much larger one after allowing for net investment. By 1958 
this involved them in borrowing over £500 million p.a. The company 
sector not only had a large surplus (A. in the Table), after allowing for 
depreciation, but even after financing all their net investment in Britain. 
The company sector could finance its total investment programme out of 
current earnings and emerge with a surplus (additional financial assets). 
Perhaps we should call this the mixed-up economy from now on. For 
these two sectors buy from and sell to each other. 

Deficits and Debts 

Having indicated the extent to which public corporation revenue falls 
short of costs of production (and capital consumption), e.g. by £206 million 
in 1958, the implications now concern us. Firstly, note that this re !t.esents 
an annual subsidy to industrial and commercia users of nationalised indus 
y products. National Income information indicates that about 20 per / 
cent of total sales by public corporations are in fact sales to public 
corporations, and approximately 25 per cent are sales to individual con-~ 
sumers; thus sales to industrial and commercial users account for more 
than half the total and are at least twice as big as sales to individual 
consumers. This is equivalent to an annual subsidy to such industrial users, 


10 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

therefore, of well over £100 million a year (that is, well over half the true 
deficit of the public corporations on their current costs of production). 
But it should not be concluded that higher nationalised industry prices 
would by themselves, in the absence of price controls within the company 
sector, significantly reduce company profits and redistribute income. The 

f conception of an alternative policy has to take into account the complexity 
of the problem of securing a markedly changed relationship, and distribution 
of income, as between the two sectors. 

Secondly, these deficits represent an increased debt burden for these

I 
industries and this does not correspond to any increase in tangible assets. 
In the case of electricity this problem is least acute since technical advances 
(especially those arising from economies of scale in power stations) keep 
down capital costs per kilowatt on new plant; even so, the Herbert Report 
(Chapter 15) estimated that in 1954-55 the accounting rules followed 
understated the provision needed for depreciation by £17 million. The 
problem is most acute in the case of coal and transport. In coal, the 
annual exhaustion of capacity (which has to be made good if output is 
to be sustained in the long run) is estimated to be about four million tons 
a year, costing some £40 million to replace,1 but very little of this has 
been covered by coal prices. 

The Growing Burden 

The debt burden on the nationalised industries mounts swiftly, and in 
coal and transport has to be carried upon a shrinking capacity. The capital 
liabilities of the major nationalised industries (N.C.B., B.T.C., electricity, 
and gas) were about £2,100 million when they were first nationalised. By 
1958 they were nearly £5,000 million, and are now well above that as 
borrowing mounts by over £500 million a year. Already, by 1958, their

I 
I
interest repayments per annum were over three times the interest payments 
due to the initial compensation. In 1949 the interest payments of the 
public corporations as a whole were £91 million p.a.; by 1958 they had 
risen to £221 million p.a.; by now the rentier income extracted from the 
public corporations each year is over £250 million. In the last five years 
alone the interest charges borne by the public corporations must total a 
thousand million pounds. On present trends, we should expect the annual 
burden to be about £350 million by the mid-1960s, and interest payments 
in the next five years to be about £1 ,500 million. 

Thus, instead of a re-distribution of income beneficial to the community, 
nationalised industry pricing has contributed to a rapidly swelling 'prior 
charge' of payments to rentiers. The surplus income of the companies and 

I 
I
property owners in the 'private' sector is lent, under state guarantee, to 
the industries the state has imposed its price policies upon, and becomes 
a vast debt burden dragging them down. 2 

1 Cf. N .C.B.-The First Ten Years, article by Schumacher. 
2 Keynes had thought that the euthanasia o! the rentier was a necessity if 
full employment was to be sustained; with this kind of economic policy, nationalisation 
gives parasitism a new lease of life. 



NATIONALISED INDUSTRIES IN' THE MIXED ECONOMY 11 

In coal the capital charges per ton produced have doubled since 1956. 
For transport the capital burden is now openly recognised as intolerable, 
but not before the finances of the B.T.C. had acquired a lunatic appearance.< 
With the capitalisation of their deficits, they were even advanced money 
to pay the interest on the money borrowed to pay the interest on compensation 
stock and other debt. And on that they will have to pay interest. 
(If the railways had succeeded in paying it all out of current revenue, they 
would have been pursuing a price policy economically damaging to the 
community and wasteful, as we shall see.) Moreover, the consumer who 
'benefits' from low prices will bear the burden of higher prices in the 
future. Supposing that the community's increased demand for power 
requires a net investment of £200 million per annum. If this is financed 
out of current prices, the annual investment charge to the community is 
not more than that in the long run. Suppose such a programme to be 
financed by borrowing over a twenty year period at 5t per cent or more 
p.a., as at present, then the long run annual investment charge becomes 
astronomically high. This is where the Labour movement's crude equation 
of 'public service' and the 'break-even' rule leads it. In addition, some of 
the burden may be carried by the workers in the nationalised industries. 
Rentier, un-earned, income has become a 'first charge' on these industries 
before earned incomes. This is economically damaging to them in those 
nationalised industries that face substitutes in the private sector. It is 
politically damaging to the Labour movement, in that the press can argue 
a direct conflict of interest between wage earners in the nationalised industries 
and all other wage or salary earners qua consumers. The growing 
transfers to rentiers go un-commented upon. The system is therefore 
politically conservative in its implications. 

tl > 

The Economic Irrelevance of 'Break-Even' 

' The 'break-even' approach is devoid of validity as a general pricing rule 
and is, rather, a substitute for a policy related to economic or social 
priorities For one thing, it has not necessarily been applied to the pricing 
of each good or service produced within an industry. For another, it mayf 
be possible to 'break-even' at various levels of output and cost (this was 
true of the coal industry until 1957). Moreover, the accounting procedures 
adopted to determine what is 'properly' revenue are at best arbitrary, 
and as used clearly defective. Nor is there any economic or social criterion 
by which it can be argued that it is 'best' to finance all net investment ] 
(however inescapable, given the required development of the economy) 
by borrowing; even if there were such a criterion it would seem strange to l 
apply it rigidly in one sector but not at all in another. 

But there are two other extremely important considerations. Production 
and use of a given commodity may involve social costs or social benefits 
(or both) and these may not be measured within the accounting procedure, 
or indeed accurately measurable at all. As an instance, the social cost 
attached to break-even pricing of coal in the early 1950s was that it did 
very little to stimulate fuel efficiency (thereby impairing the balance of 
payments contribution of the industry) and the inefficiency of fuel use 
was reflected in the social cost of smoke pollution. Possibly, a sharp 


12 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

general rise in coal prices, and even more likely a selective rise where coal 
was inefficiently used, would have helped reduce these social costs. At 
least it would have put a levy on coal use to match the social cost. However, 
we now face a different situation, in which coal is used more efficiently 
and the weapon of legislation is stimulating this. The market situation has 
also been transformed, and coal faces the direct competition of oil as a 
substitute. The increase in oil imports merely between 1958 and the first 
quarter of 1960 implies an increase in cost of about £120 million a year. 
If there is any argument on balance of payments grounds for subsidising 
agriculture, there are also grounds for limiting the inroads of oil in competition 
with coal. The considerations of social cost and social benefit 
have therefore a very different implication for price policy now from that 
of the early 1950s. But in both situations adherence to average cost pricing 
ignored and ignores these factors. This is even more relevant to railway 
finance. 


Marginal Output 

Break-even or average £9~ricing_jg!lores the cost of marginal output(as a factor to be considered in pricing. H0Wevef:"W1iere-capital costs areIhigh and capacity is not fully used all the time (this applies to electricity 

and transport off peak), marginal costs are important. In such a situation 
they are (taking them here to mean operating costs) lower than average 
costs. To charge average costs in such circumstances will mean that 
consumers are charged more than the cost of additional supplies or services; 
fuller use of the existing capital equipment would occur if consumers were 
charged a price based on marginal costs. In electricity two-part tariffs 
overcome this dilemma, more or less imperfectly.1 I railways, the dilemma 
is not overcome and the existing capital equipment is under-utilised. The'\ ' 
more the railways seek to recover c::rpiUil charges from higher tariffs to 
users, the more under-utilisation of equipment occurs. Any first-year 
economics student can demonstrate the waste of resources involved. At 1 
the same time, if additional traffic goes on our congested road system it 
creates social costs; under existing conditions, if additional traffic goes on 
the railways it is socially beneficial. The same argument applies to increased 
)ISe of buses (instead of the social costs involved in urban use of 
cars). he logic of this points clearly to running both the railways and 
urban bus services deliberately at an accounting loss; or finding ways of 
mulcting more heavily the road user who adds to the social costs of 
traffic congestion and dangc;P Here again, the break-even rule offers no 
guidance. It is little comfort, watching the L.T.E. continually contracting 
its bus services and passenger miles carried by cutting services and increasing 
fares, to know that these services 'break-even' after paying their contribution 
(£6 million p.a.) to the B.T.C.'s capital charges, and fuel tax 
and the rest to the government. This is not a 'public service' approach, it 
is bastardised commercialism. 

1 Because they may not reflect the cost of daily and seasonal peaks; there is no 
compulsion to adopt time of day tariffs, and the load factor doesn't improve. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

3. 
Subordinating the Public Sector: 
Investment and Controls 
P
P
RICE restraints and financial burdens are only one aspect of the 
manifold subordination of the nationalised industries to the needs of 
a capitalist economy. The process of subordination is seen also in the 
field of investment policy, in the attitude to substitutes in the private sector/ 
for nationalised industry goods and services (oil and road transport) and 
in wages policy. 

In the field of investment programmes we are becoming accustomed to 
the 're-phasing' (polite word for de-stabilisation) of public investment pro-
grammes to offset economic fluctuations in our 'free' economy. In the 
absence of effective control over the timing and amount of investment 
expenditure by business, we have a cycle of underuse of capacity alternating 
with periods of hectic increase in investment expenditure (accompanied 
as now by balance of payments difficulties). Economic stabilisation in 
such a system involves having instability of investment in both sectors 
rather than effective controls over capitalist business. As we may well be 
in for another bout of restriction of public investment programmes, it is 
worth recalling the effects of the last such cut-back, in 1957-58. The 
comment of the Manchester Guardian's Financial editor at the time was : 

'Last Tuesday the chainnan of the Electricity Council complained bitterly 
about the fetters that hold back what he felt sure were essential and economic 
projects. In the field of the N.C.B. further cuts seem to have been made ... . 
One result is that equipment manufacturers will have to spread deliveries 
against contracts over two years instead of one year . . . . Manufacturers 
affected by this 'stretch-out' policy complain that it is wildly uneconomic for 
both sides. Factory lines, if not entire factories, which depend largely on 
the demand of certain nationalised industries, have to be closed down . . . 
it may create serious supply difficulties in two or three years' time when 
contracts have returned to normal.' 

One can only wonder, supposing restraint to have been needed at that 
time, whether the 'national interest' is served by such extreme pressure on 
the nationalised industries in contrast to the background influences supposedly 
affecting the private company sector? 

Conservative governments have made investment programmes in the 
nationalised industries operate in a maze of contradictions, quite apart 
from periodic 're-phasing'. The slack in the economy in 1952, and the 
continued low level of company investment expenditure in the following 
year probably encouraged them to launch long-term programmes in railway 
transport as well as coaP Later, Mr. Eden's attachment to nuclear power 

The Labour Government, faced with competing demands for resources, and 
lacking any long-term programme of economic development, kept down investment 
on the railways to a mere trickle. Nor did it do anything to expedite a 
programme of major reconstruction and new development in coal mining. This 
spending only got under way in 1952/ 53, five years after nationalisation, and 
eight years after the Reid Report. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

gave us the accelerated and un-economic (and now de-celerated and still 
more un-economic) atomic power station programme. But then, in the 
name of competition, both in fuel and power and in transport, the successive 
Conservative governments have involved both coal and the railways in 
crisis, and in an economic environment in which no coherent long-term 
planning is possible. For, as the Permanent Secretary at the Ministry of 
Power put it, in evidence to the Select Committee on Nationalised Industries: 

'The nature of the coal industry is such that the Government has got to make 
up its mind, broadly speaking, whether it will want so much coal in, shall 
we say, ten years' time.'l 

Quite so, and that is exactly what is lacking at the present time. 

Introducing 'Competition' 

To advocate 'competition' in the field of public transport and freight 
haulage is simply to ignore the overwhelming considerations of social cost 
involved in the present pattern of transport and in its future trends. Apart 
from the irrationality of railway policy, which we have already glanced at, 
de-nationalisation of the bulk of the road haulage fleet largely extinguished 
the possibility of an integrated road and rail system. This was undertaken 
in face of the Transport Commission's emphasis on 

'the gravely disturbing effect which in their view the proposals were likelyto have upon the efficiency of their services, upon their finances, and their 
staff.' (B.T.C. Annual Report, 1952). 

'Competition' may well result in the bulk of additional traffic in the 1960s 
being carried by road; if this happens it will be directly opposed to social 
needs. Nor will it be a 'choice' that will minimise transport's call on 
material resources. Rather, we are likely to be involved in an immense 
diversion of real resources. 

In fuel and power, the cry of 'competition' conceals the vested interest 
of the oil companies in securing a drastic reduction in the use of coal. 
The balance of payments implications of this have been commented on. 
Curiously, advocacy of competition did not extend to allowing the importation 
of cheaper Russian oil (any more than the oil producers in the 

U.S.A. believe in tariff-free imports of oil). Nor does it extend to atomic 
power station construction, although The Economist's estimate is that such 
stations will produce electricity costing 50 per cent more than new coal-
fired stations. Nor does advocacy of tariff -free 'competition' extend to 
industrial products in general. Moreover, how does one explain the curious 
phenomenon that the decision to convert a number of power stations to 
oil burning which was taken in 1955-56 in anticipation of coal shortages, 
actually takes place and is persisted in during 1959-60 in a period of coal 
surplus? This is already accounting for a reduction of coal use of 7! 
million tons a year, although it cannot be seriously justified on grounds 
of cost advantage. True, contracts had been entered into, but these could 
have been re-negotiated (particularly if the government had suggested that 
they were reluctant to impose restraints on oil use in the economy, but ...). 
HC 187-1, 1958. Qu. 43. 


NATIONALISED INDUSTRIES IN THE MIXED ecONOMY 

Instead of a co-ordinated fuel and power policy we have tbe forced and ( 
dangerously rapid contraction1 of the coal industry, and a rapid structural 
shift to reliance on imported fuel. Is it too much to ask whose interests jhave prevailed, whose interests have been subordinated? 

Wage Restraint 

If the government has believed in the beneficent process of competition 
between industries, it has at the same time striven hard to ~e 
~ionalised industries instruments of wage restraint. Throughout the 
nationalised industries, wage questions have been narrowly viewed from 
the angle of cost of production; the commodity status of labour has, if 
anything, been enhanced. Operation of the 'break-even' rule has contributed 
notably to this by making wage disputes turn not on the justice 
of the case-or if such a word is considered old-fashioned, let us say, the 
appearance of equity to those concerned-but on an accounting calculation 
of the price rise any wage increase would precipitate. Behind this was 
always the political exploitation of the situation by the press. But over 
and above that has been the direct intervention of the state (departmentally 
this would seem to have been above all a Treasury policy) with the 
intention of delaying, reducing, or outright refusing wage increases. Of 
course, placing the annual wage battle in the public sector has its political 
attractions for the party in power. The point does not need to be laboured, 
as it is notorious enough. For instance, in 1958, faced with (potentially) 
a risk of conflict both with railway workers and London busmen, it was 
the Cabinet that decided what should be the size of the final offer to the 
railwaymen. The Economist was even old-fashioned enough to think that 
the same 'strong' policy should have been adopted in face of the N.U.R. 
demand for an interim increase pending the Guillebaud Report. 

It should be said that the latter represents the first attempt at finding 
some other basis than sheer expediency or Treasury deflationary views for 
wage policy in the public sector. In the present mixed economy, 'wage 
comparability' is the best one can hope for as a basis for wage determination, 
even if it means reproducing the irrationalities of other industries' 
wage structures in nationalised industry. For the government will not allow 
these_industti~to_be wage leaders. However, the comparability basis is 
likely to be a somewhat illusory one. as it is more likely to follow wage 
rates than earnings (which in most private industries rise faster than wage I rates), and the earnings gap as between workers in public employment and 
those in the private sector must be expected to widen to the disadvantage 
of the former. 

The uncertainty and gloom hanging over the industry are leading to a massive 
exodus of labour. In the last twelve months nearly 10 per cent of the wage-
earners left the industry (that figure is net). 'Wastage' for other than medical 
reasons, age, or redundancy, has increased dramatically. In 1959 the increase in 
such wastage was much greater than redundancy and dismissals for men under 

41. All the key coalfields meant to expand output are losing manpower rapidly 
(e.g. North East, net loss 11 ,500 in latest twelve months). The N.C.B. has lost 
control of the manpower position in the key coalfields. 

NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

The effect of these pressures in the 1950s can be illustrated from available 
earnings data. I have compared the latest available earnings data 
(for October 1959) with those for October 1952. The date is chosen because 
it follows the rapid movements in prices and wages after the Korean war. 
Between these years, the wage rate index for men rose 40 per cent, and 
average earnings for men rose 51.5 per cent. During the period none of 
the public sector industries, for which such information is available, show 
increases in earnings as high as the average, let alone comparable to those 
in some major industries in the private sector : 

Earnings, Men,
Oct. 1952 to Oct. 1959 
Industrial 
Earninf?s Index 
Industry percentage increase -Men 
Paper and PrintingVehicles 
64%* 
58 % 
119 
112 
Chemical and Allied 56 % 101 

'ALL INDUSTRIES' 51.5 % 100 

Electricity Supply 50%* 95 
Gas Supply ... 43 % 91 
Tram & Bus Service (not L.T.E.) 50%* 90 
Coal Mining 33 % 122 

* Exceptional increase, twice the average or more, in hours worked. 
B.T.C. earnings figures are n~ot available on a comparable basis, but it should 
be recalled that the Committee of Enquiry into railway pay (Guillebaud) 
found rates of pay on the railways were 8 to 10 per cent below wage 
rates for comparable jobs elsev.here. A trade union leader who argued, 
against his members' support for nationalisation, that it would make more 
difficult the securing of wage increases was perhaps a realist. 

NATIONALISED INDUSTRIES IN TilE MIXED ECONOMY 17 

:l 4. Profits for Private Industry 

I
I
T is, on the face of it, an instructive contrast to turn from the emphasis on 
control and restraint, and general anti-inflationary pressure, in the field 
of nationalised industry price and wage policy, to the scant control exercised 
in the ncm a!!i_general handling of contracts. There is no part 
of nationalised industry activity about which the community knows less 
-a real failure of accountability here-or should suspect more. One 
can scan the annual reports in vain for any illumination upon the subject. 
Were it not for the activity of the Monopolies Commission, the Select 
Committee's occasional probing, and the rare occasions when complaints 
are voiced publicly,! there would be very little positive information about 
these matters. This would indicate, nevertheless, that the Government has 
not been concerned to exert pressure 'in the public interest' to avoid 
exploitation. One could go further; by deliberately preventing the nationalised 
industries from entering the field of manufacture of materials 
required, the state has prevented one method of overcoming the monopoly 
power of suppliers, namely 'vertical integration'. In this context such 
vertical integration becomes a political question because it involves the 
extension (or contraction) of the nationalised sector. 

Yet this is hardly small scale stuff. True, contracts given by publicly ( 
owned industries are only one section of the total flow of government 
contracts for private industry; as far as I can estimate, about one-half. 
But in the same decade, 1949-58, whose dismal financial record for the 
nationalised industries has been made clear, nationalised industries purchased 
about £12 000 million of goods and services from the privatesector. 
This was as big an item as their total wage and salary bill during the period. 

Approximately £8,500 million of this total was made up of purchases from 
outside the public sector on revenue account, and about £3,800 million on 
capital accounU The annual rate of purchases from the private sector 1s 
now in the region of £1,500 million. 

No Procedures for Awarding Contracts 

One would think that a government concerned with the national interest 
would establish certain rules of conduct in handling contracts, especially 
as any inflation in their cost will be reflected in prices charged to the ' 
consumers and will be a factor generating cost-push inflation. How strange 
that we have never beard this annual flow of £1 ,500 million of contracts 
discussed in this context! How strange that the considerations that lead 
the Government periodically to resist wage increases, even if this may seem 

1 For instance Mr. Gethin's complaints of the B.T.C.'s purchasing procedures 
which led to the Howitt Report (Purchasing Procedure of the B.T.C., Cmnd. 262). 
Mr. Gethin had been Supplies and Production Adviser to the B.T.C. 
2 National Income Blue Book, 1959, Table 30 and Table 48 are my sources. 
Revenue account purchases consist of 'purchases of goods and services' less 
'revenue sales inside sector'; purchases on investment account of 'gross capi~l 
formation (fixed)' minus 'sales to own capital account', 



18 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

I 
I 
unjust to the workers concerned, do not lead to determined resistance to 
any unnecessary increase in contract prices! t 
1s not that nationalised industry contracts operate within generally 
understood and accepted procedures, so that in consequence there is no 
interest in discussing them. Instead, such rules have never been formulated. 
Nor is any account of stewardship in this respect incorporated in the 
l Annual Reports. 
One might expect it to be a rule that Board members and staff should 
not ave connectionswith contracting firms, but this is not so. Some 
Area Boardrneri1bers are connected with firms trading with the B.T.C. 
Similarly, are there no connections between the development of new mining 
machinery by private firms, and mining engineers employed by the N.C.B.? 
One would expect that the entertainment of acquaintances and personal 
relationships would not influence the placing of orders, but we only have 
the assurance of the Chairman of the B.T.C., which annually places £300 
million of contracts, that this does not apply to an abnormal extent_! 
Nor is it true that contracts are only placed after genuinely competitive 
tender. Where nationalised industries are confronted by organised monopoly 
suppliers, the state has not striven to overcome such cartels2 and 
monopolies. Instead the statutes of the nationalised industries restrict their 
ability to man~refor themselves. One would think that where state 
cont"fa'CtS"provide a large and relatively stable part of order books, the 
rates of profits secured (in the absence of major risks attached) would 
be low. But the recent flurry of take-over bids in tele-communications 
should give the lie to that. One would think that, generally, the state would 
insist on expert investigation of costs, efficiency, and margins, wherever 
a flow of major contracts is involved. But this is not so. 

It is not possible to attempt any comprehensive evaluation of the handling 
of this vast flow of contracts. The veil has been lifted on only a few 
parts of the whole. Still, what follows may help to indicate the problems. 

Electric Plant Contracts 

One of the first studies throwing any light on this subject was the 
Monopolies Commission Report on 'The Supply of Electrical and Allied 
Machinery and Plant'. In this case the reference to the Monopolies 
Commission was received in April 1952. The enquiry took over four years 
to complete. The Commission explained this partly in terms of 'the 
unusually long time which at each stage of our enquiry it has necessarily 

1 Howitt Report, Cmnd. 262, p. 7. The aptest comment on this is found in 
Hamlet, Act Ill, Scene 11: Player : I hope we have reformed that indifferently 
with us. Ham/et: 0! Reform it altogether. 
2 Oligopoly and informal collusion between oligopolists largely escape both our 
methods of monopoly control-the Restrictive Practices Court, and the Monopolies 
Commission (whose scope the 1956 Act heavily curtailed) -though this 
is now the typical market relationship in British industry. If anything, the 
Restrictive Practices Court's work reinforces the tendency to oligopoly and 
price leadership by stimulating the concentration of control within industries 
in order to ensure 'disciplined' markets; the cable industry is a very pertinent 
example, and one relying heavily on public contracts. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

taken some of the principal witnesses to collect information and assemble 
views' (Report, p. 2). The Report was printed in February 1957. By then 
the Restrictive Practices Act was on the statute book; no action was therefore 
taken on the Report, as its subject matter now fell within the scope 
of the Restrictive Practices Court. None of the agreements examined have 
however been before the Court. 

The Monopoly Commission found that manufacturers were fixing 
common prices despite variations in cost of production; this protected the 
position of the high cost producers1 and meant very high profit margins 
for the low cost producers. The manufacturers justified this partly in terms 
of the high cost of capital investment and research. Central Electricity Authority 
orders accounted for 80 per cent of the home market trade in major 
generating equ1Pfi1ent.-The Authority directed its efforts 'towards obtaining 
either a justificat-ion of the common prices on the basis of disclosed costs 
or a measure of price competition'. All it achieved was 'some effect' in 
securing 'some disclosure' of their costs.2 One firm, the lowest cost producer, 
broke away from the ring to the extent of reducing prices 2t per 
cent below the ring price in return for the guarantee of a certain volume 
of orders. As an example of what was happening, the Report showed that 
profit rates on cost for members of the cartel on large motors and 
alternators sold in the home market had been 9.3 per cent in the boom 
year 1937, but were over 25 per cent in 1951 and 1952. The Committee 
of Enquiry into the Electricity Supply Industry also looked at the question 
of these arrangements and made the interesting point that the Central 
Electricity Authority made no attempt to beat the cartel by ordering from 
abroad. The Herbert Report criticised this interpretation of the 'national 
in erest' and remonstrated: 

'If the Authority, in order to induce home manufacturers to be more competitive, 
had felt it necessary to make purchases from abroad, they should 
have ascertained the policy of the Government by approach to the Minister. 
We understand that they never did so.'3 

Yet not only did this system involve the C.E.A. in paying unreasonable 
prices; the Authority also asserted that 'in specific instances the system 
has retarded the achievement of some of its aims in technical matters'. 

Distributing Income 

It is worth stressing the interesting implications of such a situation in 
terms of distribution of income. The manufacturers were charging prices 
which largely self-financed their expansion. Thus money which the nation-f 
alised industry had to borrow at increasingly high interest rates to finance 
investment in electricity supply was also financing the replacement and 
expansion of capital equipment of the electrical machinery manufacturers. 

1 

'The manufacturers have advanced the general argument that the least efficient 
manufacturer whose capacity is needed to meet demand should be able to sell 
at a price high enough to afford him a livelihood'. Report, p. 253. This looks 
like the resurrection of natural right doctrine in a novel form. 

z Report, p. 254. 
3 Herbert Report, p. I 15. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

On the one band therefore a growing debt burden; on the other the 
basis for rapid capital gains for the holders of the equity of the private 
sector firms. 'Costs of production' in nationalised industries have to stand 
rr tbree transfers, interest in compensation, interest on additional stock as a 
result of borrowing to finance growth, and the generation of profit income 
in the private sector to finance their capital accumulation. We repeat, 
nationalised industry borrowing financed the bulk of capital formation for 
such contractors and generated the capital gains of their sbarebolders.1 

It is strange, therefore, that even a committee of non-socialists such as 
that which investigated the Electricity Supply Industry, hesitated to recommend 
public production of electrical machinery: 

'It is certainly not a very practical or economical proposition at the present 
time for the Central Electricity Authority to undertake the manufacture of 
this very complicated engineering equipment, which would require investment 
in plant and buildings on a huge scale and the recruitment of skilled labour 
now fully engaged.' (p.l14) 

•This proposition is nowhere justified in the Herbert Report; as a continuous 
flow of orders on the largest scale is involved, there is nothing inherently 
'un-economic' about such manufacture. Clearly, the Committee were 
thinking of the Authority starting up additional plant of its own, in which 
case (as with any new project) there would be initial, but hardly insuperable, 
problems. This would not apply if key manufacturing firms were 
taken over. 
Similar issues arise over the railways' switch from steam to diesel and 
electric locos. There was a long tradition on the railways of vertical 
integration, with departments developed to handle construction and manufacture. 
These, however, are deliberately restricted and hampered in their 
operation by statute.l) Here, too, the interests of powerful electrical 
engineering firms prevailed. An industry staggering under a vast debt 
burden is the source of lucrative contracts assisting the development of 
the supplying firms-contracts which the Select Committee reports were 
not commercially justified: 

'Their (i.e. the B.T.C.'s) sense of public resonsibi/ityS ... led them . . . 
to actions which, as a purely commercial firm, they might have avoided. Thus 
it led them to give British manufacturers the chance of providing the railways' 
first diesels, when they could have gone instead to the more experiencedforeign makers. It has led them to give, at some cost to themselvesS a 

1 In manufacturing, gross profits run at about 20 per cent of gross output; tf 
this figure could be applied to nationalised industry purchases, it would represent 
nearly £300 million a year of gross profits generated by such contracts. To 
this must be added the £250 million of annual interest payments to obtain 
a picture of the annual transfers to rentier and profit incomes from the nationalised 
industries. 

l) Select Committee on Nationalised Industries, Report on British Railways, 
HC 254, 1960, p. lx. 'By the statutes under which they operate the Commission 
are not able to enter the export market themselves . . . nor are they allowed 
to manufacture products which they do not need themselves, except under special 
licence. These must obviously be factors which have affected them in planningahead for their workshops.' The motivation of such restrictions is equallyobvious! 

s My emphasis. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 21 

number of facilities to British industry, in the belief that by so doing they 
were helping the British export trade.' (HC 254, 1960. P. lxxx.) 
Yet this same B.T.C. is itself by statute unable to enter the export market! 
Why not a 'sense of public responsibility' about railway workshops? 

No Competitive Tenders: Hydro-Electricity 

The Select Committee's scrutiny of the North of Scotland Hydro-Electric 
Board gives further insight into the handling of contracts. For water 
turbines, orders were placed with three manufacturers in proportion to 
their capacity; these had originally been induced to set up plants in 
Scotland, and this was apparently thought to require the provision of 
guaranteed markets indefinitely. All orders for this type of plant had.j" 
been confined to these Scottish manufacturers, and there had been no 
competitive tendering.1 Similarly, as to the Board's handling of contracts 
for water wheel alternators: 

(Q.803) 'All the firms capable of manufacturing water wheel alternators in 
this country have had a share of our business. We have divided it up as 
fairly as possible taking into account their manufacturing capacity and how 
far they do in fact manufacture in Scotland, which has always been a 
consideration the Board have paid great attention to. 804. I am thinking of 
firms like B.T.H., Metropolitan Vickers, and General Electric? -They have 
all bad orders from us. 805. But again, it is not competitive tendering?-No.'~ 
It transpires that acting 'as fairly as possible' is unrelated even to such / 
price advantages as might have been secured through competitive tendering 
(although competition in supplying has been largely absent in this field). 
The Select Committee recommended a return to competitive tendering, 
without considering the limitations on competition from the supply side. 

But the experience of the same Board shows that competitive tendering 
is not by itself a guarantee of improved contract arrangements. 

All their main civil engineering and construction contracts were awarded 
after competitive tendering, but these allowed for increases in cost instead 
of being awarded on a fixed cost basis. The final cost was far higher 
than the origina estimates. The Board's spokesman argued that this 

'was explained by the rise in wages and materials which have taken place 

in the interval and which have to be paid to the contractors under the 

contract conditions.' (Q.881). 

But this can by no means explain the final cost of such contracts. The 
Select Committee recommended more use of fixed price contracts but did 
not look very closely at the rise in construction costs. To illustrate, the 
costs of the major projects (given in Annex C to Appendix II of the Select 
Committee Report) are analysed in the case of the four most recent ones 
listed. These finally cost £12 million ; the original estimates were just under 
£6 million. The Table that follows shows the increase in cost for each 
contract and compares this with the National Income data on increases ' 
in employment costs per unit of output, and relevant prices, over the 
period of each contract. The National Income figures exaggerate the cost 

1 HC 304, 1957. Q.774-802. 
2 Ibid., Q.803-805. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

increases involved as they show the rise in costs over the whole period of 
each project whereas expenditure by the contractors would in the main 
have occurred in earlier years. 

COSTS OF CERTAIN HYDRO-ELECTRIC SCHEMES 

Period from Increase in cost 
Scheme estimate to (final divided Cost and Price Increases 

No. final completion by original) (a) (b) (c)* 
22 Late '47 to 1952 -t-108 % +21 % +20 % +25 % 
24 Early '48 to 1956 + 97% +43% +35% +40% 
27 Early '48 to 1956 +176% +43 % +35 % +40% 
61 Mid '50 to 1956 + 81 % +36% +30% +31 % 

* 
(a) Employment costs per unit of output; (b) Prices of fixed assets; (c) Prices 
of final output. 
Note. The increase in project costs is arrived at after reducing the originalestimates by 5t per cent to make them comparable with the figures given for 
final cost. See Note 2 to Annex C, Appendix 11, op. cit. 

All that need be added to the material contained in this Table is that the 
more closely the evidence given by the Board to the Select Committee on 
this matter is examined, the more inadequate it appears. But such eccentricities 
in contracting procedure are not confined to the Hydro-Electric 
Board. 

The Economist in a recent criticism of atomic power station contracts 
wrot : 

'So far atomic business has been conducted in this country on the principle 

f dealing out contracts among consortiums as if they were a deck of cards 
... there has been no competition. Nor will there be in the future if the 
Minister of Power is to be taken literally . . . because he has plainly stated 
that under the o~~ation-a-year policy all the teams will get enough work 
to keep them bu~ 

Yet, argues The Economist: 
· 

'there is a wide difference between the skills of the three different design 
consortiums . . . some tenders are 30 per cent more expensive than others. 
Since capital cost holds the key to the price of atomic power . . . somethingmust be done to encourage the low bidders to stay in business and encourage 
the high bidders to get out.' (The Economist, June 25th, 1960) 

No Competitive Tenders : the Railways 

In the case of the B.T.C., the Report on the Purchasing Procedure of the 

B.T.C. found widespread non-competitive tendering, Trade Association 
price fixing, and contracts placed for what can only be termed 'historical' 
reasons (e .g. the replacement of the s.s. 'Dinard'1). Some analysis is 
provided by this report of the scale of contracts placed with monopoly 
suppliers : 
1 For this case, see Howitt Report, pages 37-40, which include Sir Harold 
Howitt's extremely critical 'findings'. '' 


NATIONALISED INDUSTRIES IN' TilE MIXED ECONOMY 23 

CONTRACTS PLACED BY B.T.C. H.Q., IN 1955 AND 1956 

In £ millions As % of TotaL 

Competitive ... 119.4 51 % 

Trade Association prices 74.4 3lt% 

Non-competitive 41.4 17t % 

Source : Howitt Report, p. 19. 

Thus, in the only reasonably comprehensive material on a nationalised 
industry's contracts which has been published, approximately one half in IJ 
value of the contracts were placed with monopoly suppliers or at prices 
fixed by Trade Associations.1 

One of the contracts examined by Sir Harold Howitt may help illustrate 
the environment of contract placing; it concerns v.acuum ake cylinders, 
and Sir Harold's conclusions on this case were no"t"Particularly critical. 
Westinghouse, the 'traditional' supplier, were about to be awarded a 
contract for some hundreds of thousands of cylinders at a price of 
£30 13s. 4d. each. Although the B.T.C.'s Supplies Adviser pressed for an 
attempt to obtain cylinders from 'non-traditional' sources, the Supply 
Committee (in a hurry to get supplies) only agreed that if there were such 
supplies available they would be used for additional deliveries and not 
'in substitution for supplies' from traditional manufacturers. Subsequently, 
the Chairman of B.T.C.'s Western Area Board approached tbf. British 
Motor-Corporation, of which be was a director, and they offered to supply 
cylinders at £21 17s. 8d. each. Westingbouse, on learning of this, reduced 
their tender price to £23. The B.T.C. finally made a saving of nearly a 
third of the previously anticipated cost as a result of this competing bid. 
In this case the influence of the link between a B.T.C. Area Chairman and z 
the B.M.C. was beneficial compared to Westingbouse's monopoly position. 
The Report notes that while the B.T.C. were attempting to interest other 
firms in tendering, Westingbouse 'were approached by various manufacturers 
who wished to inspect their factories and obtain their "know-how" 
They not unnaturally refused'. Perhaps it is 'not unnatural' for monopolists 
to behave like this. But why did not the B.T.C. make it a condition of 
their placing a bulk order with Westinghouse that they should co-operate " 
in supplying to other manufacturers information on the production 
process? 2 

In the wider field of public contracts, attention has recently been drawn 
to agreements between the Post Office and manufacturers, by Pye's takeover 
bid. Bulk supply agreements between the Post Office and eight 
manufacturers control the supply of telephone equipment. In three out 

1 Earlier the Railway Executive was involved in waste and increased expense 
from the cartel agreement on cast iron rainwater goods; they told the Monopolies 
Commission 'they would arrange to centralise their purchases to a much 
greater extent .. . were it not for the fact that the Rainwater Agreements prevent 
them from gaining any appreciable advantage in price by so doing'. The generaleffect of such trade association agreements on nationalised industry operationwould be worth investigation. The Monopolies Commission Report on Collective 
Discrimination quotes another example, Report, p. 71 . 

2 Details from Howitt Report, pp. 21-24. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

of the four such agreements there is no provision for tendering by outside 
firms. The Economist commented: 

~ 'In these arrangements competition, in any meaningful sense of the word, 

seems as scarce as modern telephone equipment is in Britain.' (July 23rd, 1960) 
These bulk agreements operate within the framework of agreements between 
the manufacturing firms concerned; over twenty agreements concerning 
the manufacture of telecommunications equipment are on the Register of 
Restrictive Practices. The pattern of non-competitive tendering, exclusive 
dealing, and trade association restrictive agreements would appear to be 
something more than the exception. The concept of 'public service' seems 
here to have been transformed into the provisiOn of out-door relief for 
far from indigent manufacturers. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 25 

5. Accountability and Participation 
A
A
S an irresponsible society, we have to be thankful for small mercies. 
What accountability exists on the part of the nationalised industries is 
one of these small mercies. This is a subject on which so much has been 
written that it can be dismissed with more brevity than the less familiar 
features of economic relationships between the two sectors. From the point 
of view of the business community, there is little to cavil at in the present 
arrangements. The Morrisonian concept of 'business efficiency' has contributed 
to a situation in which the Boards of the nationalised industries 
are fairly well assimilated in type, composition, and outlook, to the top 
directors generally. The composition of the Boards has been analysed in 
detail more than once1 and the preponderance of company directors is a 
familiar point. In some cases, such as Area Railway Boards, the large firms 
or chambers of commerce in the area concerned are well represented-a 
sort of business man's syndicalism. Moreover, the large users of nationalised 
industry goods and services can exert considerable influence on 
policy. 2 Apart from that it would be ungenerous of them to criticise the 
general direction of the economic policies pursued, representing as it does 
a business man's socialism. When the periodic urge to investigate and alter 
fife operation of tliestructure of these industries makes itself felt, it is 
people drawn from large-scale business who investigate and advise-andu 
they build in the image they understand. The Chairman of I.C.I. investigate§" 
the structure of the N.C.B.-not vice-versa. 

The problem is rather that of accountability to the rest of the community, 
to parliament, to the workers concerned. The processes of decision-taking 
are remote indeed from the channels of accountability. This is exemplified 
particularly by the way in which Ministers use informal pressure to secure 
the policies they desire and avoid the use of formal directives which would 
involve them in direct parliamentary scrutiny and accountability. n the 
case of coal there is even an arrangement in which this informal exercise 
of powers is enshrined in a formal agreement! This Gentleman's Agreement3 
that the Board shall not raise their general level of prices without 
the Minister's agreement, is presumably so-called because it neither rests 
on statutory authority nor does it make the Minister accountable for what 
are in fact his decisions. Perhaps the Jack of financial reserves with which 
the N.C.B. emerged from a decade of coal shortages to face a harsher 

' 
economic climate should be called genteel poverty. The informality of the 
pressures used and the lack of effective accountability over such decision-1 
taking are natural enough as an extension of the processes of decision-/ 
taking in the world of large-scale business and finance. But it is hardly a 

1 Acton Trust, The Men on the Boards; Universities and Left Review, 'The 
Insiders'; Clive Jenkins, Power at the Top. 
2 The annual reports of the B.I.S.F. show evidence enough of that; cf. B.I.S.F. 
Annual Report, 1957, p. 46 for 'substantial concessions' secured from the B.T.C. 
3 See N.C.B. Memo, HC 304, 1957, p. 155, and Minister of Power Memo, HC 
187 -I, 1958, p. 37. 



26 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

challenge to the even more complete lack of public accountability in industry 
and finance generally. 

Lack of Information 

The Webbs, discussing nationalisation, called for a sear hlighJ of pub


' 
lished information. All too often the information published by nationalised 
industries resembles smokescreen rather than searchlight. I have mentioned 
before the almost total lack of any information on contracts and their 
terms. Policy arguments are concealed. The pressures determining the 
adoption of particular policies are scarcely hinted at. A gloss is put on 
almost every awkward problem. For instance, the B.T.C.'s Annual Report 
for 195R could start off: 

'The picture of the year 1958 presents a record of substantial progress in all 
departments of the undertaking, unfortunately marred by a reduction in freightcarryings following the decline in activity of the heavy industries, and by the 
London bus strike.' 

Considering that freight train traffic accounted for 60 per cent of railway 
receipts in 1957, and that its receipts fell by nearly £30 million (over 10 
per cent) in 1958, 'unfortunately marred . .. a record of substantial progress' 
is a curious way of putting the position. This is obvious enough when one 
adds that freight train traffic (in net ton miles, and in million tons) has 
been declining since the early 1950s (before, as well as 'following', the 
'decline in activity'); and that the railway's financial deficit reached £89 
million in 1958. As to 'substantial progress in all departments', London 
Transport's figures of passenger journeys and car miles have declined since 
1951; similarly, the 'outwards' l.raffic from Docks, Harbours and Wharves, 
has declined precipitately since 1953. 

We do, of course, enjoy the bogus and degenerate accountability secured 
by press coverage of nationalised industry affairs. The press normally treats 
private industry as a 'success' story (the completely uncritical acceptance 
of the steel industry's own account of itself is noteworthy, but understandable 
in view of lavish advertisement expenditure); the operations of private 1./
sector industries that are patently 'failing the nation' (e.g. shipbuilding and 
machine tools1 ) are left in decent obscurity. But if there are price increases 
in the nationalised industries, these are featured; moreover, price increases 
elsewhere can be 'explained' as resulting from these. Bureaucracy is featured 
-not without cause, but not constructively either. We have noted the 
treatment of wage claims and industrial relations. Not least, the press ./< 

, 
sows confusion by attempting an equation of accounting deficits wit 
inefficiency. Indeed, given capitalist control of the 'mass persuaders', the 
existence of a publicly owned sector can be used to sow confusion about 
the nature, role, and likely achievements, of public (as contrasted with 
private) ownership and control. At least this is likely to be the case in the 

1 It should be noticed that expert investigation of the affairs of these industries 
takes the form of reports by the Department of Scientific and Industrial Research, 
which are not published, and not even (as far as I can discover) available to 
the Trade Unions concerned. Criticism and expert scrutiny here-using public 
resources -operate behind a veil of secrecy. MPs please note. 


NATIONALISED INDUSTRIES IN THE MIXED .

~NOMY 

27 

absence of any campaign of socialist criticism of the present role of the 
nationalised industries, and presentation of a socialist alternative.1 

By contrast, the work of the Select Committee on Nationalised Industries 
(Reports and Accounts) has been of real assistance in probing the processes ~· 
of decision-taking which have hitherto largely escaped any procedures of 
accountability, parliamentary and otherwise. Students of nationalised industry 
have a debt of gratitude to the Committee, which has certainly 
demonstrated the potential scope and benefits of extending public accountability. 
It would be an admirable technique also to apply to the Reports 
and Accounts of all public companies. However, it is at best dissecting 
past decisions rather than extending our knowledge of living issues. 

Labour Relations 

When we turn to labour relations there is not even any such modest 
achievement to record. After all, even the 'comparability' approach in 
wage determination means that the nationalised industries -in wages and 
conditions-are to follow not to lead. Over the whole field of industrial 
relations, it is the pattern and practice of large scale private industry that 
has been followed-generally with a time-lag. Formal techniques of joint-
consultation have been treated as the essential basis of 'participation' and 
accountability, following, with a time-lag, big-firm practice elsewhere. 
Major or exclusive reliance on such a technique is diminishing in private 
industry, in favour of managerial manipulation of 'group dynamics'. One 
suspects that nationalised industries will now 'discover' group dynamics and 
all that. The fact remains that no new forms of industrial democracy have 
been thrown up in our nationalised industries; there is no change in the 
basic commodity status of labour and the wage system. 

The problem of labour relations in the nationalised industries goes back 
to the choice of the Morrisonian 'business efficiency' model for the public ~ 
corporation, and the defeat of conceptions of extended worker participation 
in nationalised industry decision-taking. With this went a general assumption 
as to the economies of large-scale operation, which does not seem 
to have been modified by any doubts as to the efficiency of large-scale 
management. The argument was that this was necessary to achieve integration 
within an industry, and the provision of specialist services. Con-I _ 
sequently, centralised administrative and executive structures were developed -(
as with transport in 1948, and coal particularly after the Fleck Report2) . 

1 The Labour Party's 'review of the nationalised industries': Public Enterprise, 
certainly did neither of these things. Its architects, who seem to have been 
descendants of Dr. Pangloss, presumably recognised that, in terming it-modestly 
-a 'review' and not a 'policy'. It marked a slight retreat from 'break-even' 
philosophy towards 'self-financing', but in the absence of any other proposals 
this only accentuated the assimilation to the practice and character of capitalist 
industry. 
2 The Fleck Report, apart from adding additional departments to the structure, 
Iecommended the systematic development of a level of management (Group) 
interposed between pit and Area. Curiously enough, the Herbert Report, finding 
the same tendency for an intermediate level of management to be set up between 
operating unit and Area in electricity supply, reached the opposite conclusion 
and recommended its elimination, to give operational management more genuinemanagerial authority. There are in fact two directly opposed the<ilries as to 
management structure in the two reports and the government accepted both! 


28 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

The structures created rested, at least until the Herbert Report's dissenting 
voice, on the theory that, for effective management of subordinate formations, 
a narrow 'span of control' was needed, i.e. a very limited number 
of subordinates could be controlled and adequately supervised by any one 
manager. Consequently, a hierarchical structure evolved, with tier after 
tier of higher management. There seems to have been little awareness of 
the problems of morale and alienation involved for people working in such 
structures; particularly there seems to have been scant appreciation of the 

• 
impact of such structures on operational management. The narrow 'span 
of control' approach really denied significant responsibility to 'lower' (i.e. 
operational) levels of management; in addition, there are problems of 
diffusion of responsibility, of over-detailed interference in the work of 
'lower' formations,1 of the shortage of adequately trained personnel to man 
the apparatus (pulling the more competent into higher management, away 
from operational responsibility). 
Trade Unions and Management 

There is no room within the confines of this study to analyse the conflicting 
views as to managerial structure, in attempting the co-ordination of 
management over an entire industry. It is necessary, however, to indicate 
some of the consequences for industrial relations of the model adopted. 
The Morrisonian model cut off from their Trade Unions such trade union 

1 leaders as did join the management boards, and this in a way that has not 

1 
applied to business men taking such posts (who could move away to other 
directorships subsequently). They were thus less likely to transform top 
management or even have a sig11ificant impact upon it through constituting a 
distinctive point of view, and the more likely to be assimilated to the pattern 
of managerial orthodoxy. Such appointments did not make an impact 
on the worker's sense of separateness, of alienation, from the administration 
of his industry. 

The National Union of Mineworkers provides some contrast to this 
severance of Union ties-at least, in intention. On October 13th, 1949, 
which was about two months before Mr. Bowman notified his appointment 
as Chairman of the Northern Division of the N.C.B., the N.U.M. Executive 
recorded this decision : 

'That should an official of the Union, having accepted an appointment as a 
member of the N.C.B., cease to be so employed through circumstances over 
which he has no control, or through circumstances necessitating his resignation, 
before he reaches the pensionable age, he should be permitted to 
return to the employ of the Union on not less favourable conditions than 
those enjoyed by an official acting in the capacity in which he himself was 
acting when he was appointed a Board member.' 

This initiative is of some interest, and should be more widely known. It 

Xrepresents the only attempt that I know of to strengthen the position of 
those appointed to Board positions from the Union ranks. 

1 Particularly initially, since higher management were more familiar with the 
smaller scale of operation of the subordinate levels they controlled than with 
the special problems of their own. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 29 

Moreover, although the Trade Unions in these industries bad lost some 
of their able administrators as a result of such appointments, no serious 
attempts were made to create an improved Trade Union apparatus and 
service to members to match the new situation. Nor have the Unions 
attempted systematically to build up a trained leadership adequate for a 
major extension of their influence and an increase in their future effectiveness.
1 

Union Responsibility 

As to 'responsibility', trade union members have bad the worst of both 
worlds. Rank and file demand for participation, for 'our' men, was met 
by their leadership stressing the need for independence -the Union organisation, 
we were told, must not be involved in managerial responsibility. 
On the other hand, when the rank and file posed economic and human 
demands upon the system, their leaders talked 'responsibility' (the effect on 
output, on productivity, the national interest, the current crisis). Thus one{ 
bad the acceptance of responsibility in fact, Trade Union identification with 
the apparatus of the public corporation (especially in coal), but without 
control; indeed, without either of the main requirements of the active 
workers, tangible participation and tangible benefits. 

It is in fact nonsensical to suggest that the trade unions, and still more 
the workers in a particular industry, would lose 'independence' if they 
exercised authority in relation to managerial decisions. Every time a 
collective bargaining agreement is signed the trade union is establishing its 
authority and limiting in certain directions the freedom of action of 
management; it is also involved in responsibility for the agreement it has 
negotiated, as it may discover to its cost. But that doesn't mean that 
collective bargaining infringes the 'independence' of the trade union.2 The 
independence turns upon whether or not decisions of the trade union are 
determined within its structure according to its own constitutional rules, 
or are imposed from without; independence turns also upon whether or 
not the agreements the union enters into are terminable or not. Strangely 
enough the N.U.M., for instance, does not find it impossible to exercise 
executive authority in one sphere of management, the welfare arrangements 
of the industry (run by C.I.S.W.O.). It does not fear for its independence 
when the new Coal Mines Act strengthens the role of workmen's 
inspectors (again, involving an extension of authority over certain managerial 
decisions, and an increased responsibility on the part of the workers 
for the adequacy of safety regulations). Really, somebody ought to subject 

'

1 In the later 1950s some Areas of the N.U.M. began to constitute some exception 
to this generalisation. The Derbyshire, Notts. and Yorkshire Areas have 
initiated long-period day-release courses in social science subjects for active 
members (in conjunction with University Extra-mural Departments). If their 
example were followed more widely by other trade unions, this would constitute 
a major advance and a much needed one. 

2 This was in fact seriously argued by industrial syndicalists. Such an attitude 

is either a directly revolutionary one in intent (Cf. The Miners' Next Step, 

published in 1912), or an attitude of mock heroics in face of insufficient power 

to impose an acceptable collective agreement. 

~


r' 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY

30 

the long-sustained argument that workers cannot participate in manage~
ment decisions, or they lose their independence, to linguistic analysis; it 
would be a fruitful field for such study. 

Joint Consultation 

l 
l 
Indeed, if joint consultation is operating effectively it is difficult to sustam 
the argument that it is only advisory in character. The most effective joint 
consultative committee I have seen at work (an Area Safety Committee 
in mining) worked well because the Area General Manager turned agreed 
decisions into executive orders on the spot. Anyone who has taken part 
in joint consultation of this sort will recognise that the participants were 
involved in responsibility for such agreed decisions. The distinction between 
joint consultation and joint management can be overdone where the 
managerial action is the result of agreed decisions. But after all, these can 
be achieved not only through consultation but also through collective 
bargaining. The problem is how to widen the area of decision-taking which 
normally is based on agreed rules or agreed decisions, how to curb managerial 
autocracy, and how to establish areas of direct worker self-
government (as with the guild socialist suggestion of the collective contract). 
While joint consultation is not an adequate channel for securing such 
objectives, it can make a contribution (so can the extension of the subject 
matter of collective bargaining). It can at least provide a method of exerting 
some control over job environment. But in nationalised industry there has 
been considerable neglect of consultation, from both sides. The outstanding 
exception to that was the managerial initiative in electricity supply. There 
has been a widespread failure to link the different levels of consultation 
adequately, or to open 'higher' levels to trained and informed participation 
by rank and file workers. All too often higher levels of consultation are 
the province of full-time officialdom and may degenerate into an unrewarding 
formality. At plant level, as we have seen, the independent 
authoritij of operational management is so circumscribed that there is little 
to share, even if management wished to ; the joint consultation the worker 
sees is largely limited to vestigial influence on job environment. Trade 
Union officials are generally overworked, and any real initiative from their 
side to take up the slack in consultation (which would involve training, 
adequate briefing and preparation, and so on) would increase their workload 
and its complexity. One can understand, therefore, while not being 
satisfied with, the atmosphere of the-routine-as-before among trade union 
leaders and officials; one senses too the confusion and sense of alienation 
among the rank and file. There has been no bold experiment in industrial 
relations. There has been no drive to extend significantly the democratisation 
of management decision-taking. There has not been from this side 
any effective counter pressure to the sum total of forces pushing the public 
corporations .towards the pattern of large-scale commercialism; the sub


-~ 
ordination of these industries to the needs of capitalist industry externally 
is at least part cause of this. But even after full allowance is made for the 
environment within which the nationalised industries have operated, there 
is still a failure in initiative and imagination on the part ,of the trade 
unions, which they must overcome. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

6. Reconstructing the Public Sector 
A. 
A.
NUM.BER of rea.ctions to the present position of the nationalised 
mdustnes are posstble. One would be largely to accept the mixed 
economy as it is, to accept the predominance of the ideology, organisation, 
and interests of the large private firms, and to accept the assimilation in 
type of the nationalised industries to these. After all, it might be argued, 
even business men can see the force of the argument as to the consequences 
of the mounting debt burden, and must move to ease it, and to alter the 
basis of pricing policy; and as for industrial relations, wage comparability 
will win the day against cruder wage restraint policies. Another reaction 
is to argue that the relationship of the nationalised industries to the rest 
of the economy is mainly the result of nearly a decade of Conservative 
rule and hardly the fault or responsibility of Labour movement views on 
public ownership. If there were a Labour government it would be possible 
to make changes in organisation and policy that would re-socialise the 
nationalised industries, so to speak, and this would not need more than 
existing programmes provide for, concerning inroads into private ownership 
and control (i.e. the status quo of 1951). 
Thirdly, it may be argued that any major transformation of the nature 
of nationalised industries is only possible within the context of a considerable 
shift in the balance of the two sectors of the economy, a transition to 
socialism, in which at least for the main concentrations of economic and 
financial power (the 'giant' firms), social needs and public accountability .. 
will prevail over the maximisation and private appropriation of profit. On 
the whole, I think the analysis attempted in previous sections points towards 
the third reaction if one is a socialist. For instance, it is very obvious that 
it is the lack of effective control over price-determination, profit margins, 
investment decisions, etc., in the private sector (and this means primarily 
in the biggest companies) that has led to the use of the nationalised industries 
as a regulator, with all the consequences that have been traced. Again, 
while private industry predominates, the profit and rentier incomes directly 
arising from the operation of nationalised industries can be reduced from 
their present £500 million or so per annum, but the generation of such 
incomes cannot be eliminated.1 There is no attempt made here, however, 
to survey the whole field of controversy thrown open by the idea that 
socialists should seek to reconstruct the public sector as well as extend it. 
But it is necessary to indicate some of the directions in which changes 
would have to occur


-if the nationalised industries are to be an instrument for extending ./ 
social control over industry and production for social need in place of 
their role as milch-cow of capitalist industry; 

-if, in their organisation and mode of operation, the public account-

For instance, if nationalised industry prices to individual consumers are held 
down to actual costs of production, within our mixed economy this may represent 
a subsidisation of wages to private industry. 


32 NATIONALISED INDUSTRIES IN TIIE MIXED ECONOMY 

ability achieved and the status given to working people within them are to 
be such as to challenge the irresponsibility and autocracy of capitalist 
industry. 

Extending Public Ownership 

1. In view of the size and continuous character of nationalised industry 
purchases, and the way in which they have been handled, there is a clear 
case for making this area a priority in the extension of public ownership. 
This might take either of two forms, and can be argued in two complementary 
ways. For some industries, order books and prospects for development 
turn largely upon contracts placed by the state and the nationalised 
industries. There is no justification for public money being allowed to 
f 
generate capital gains for private shareholders in such a situation. Moreover, 
there is an obvious need for rationalisation of research and development, 
and adequate public control over the rate and direction of development 
to ensure that such industries are technologically efficient and have 
adequate capacity. This obviously applies to mining machinery and other 
equipment, to the aircraft industry, to tele-communications equipment, and 
to many other sections of the giant electrical engineering firms. Post Office 
and radio communications spending on plant and machinery was £78 
million in 1958; electricity supply spending on plant and equipment £227 
million. In addition there were large purchases of diesels and electric 
locos and other electrical equipment both by the railways and by the coal 
industry. The bulk of home order books for the giant firms in electrical 
engineering are public contracts. We have seen, also, the monopolistic 
control many of these firms 1-}ave asserted. The other approach to this 
question is to argue that if the nationalised industries are to exert their 

Ifull bargaining strength in negotiating contracts, to exert 'countervailing 
power', they must be able to undertake the large-scale manufacture of 
equipment wherever necessary.1 
Equally, it would be undesirable to leave the bulk of major constructional 
work to private firms, as at present. The vast constructional programmes

( involved in the power station programme, in pit re-organisations, in railway 
electrification, and so on, are sufficiently long-term for there to be a strong 
case for building up public firms able to handle them.~ What are needed 
are very large-scale public civil-engineering and building firms using the 
most up-to-date techniques and employing specialist resources. 

1 'Bargaining strength may arise from their size as users; it may arise also 
from the fact that they could, in the absence of an adequate price concession, 
either use alternative materials or ... start to make it themselves.' MonopoliesCommission Report : Collective Discrimination, pp. 23-24. 
2 Labour Party proposals for extending municipal ownership of housing require 
the same approach to meet efficiently the large scale repair and renovation involved; 
direct labour departments could be made compulsory for local authorities 
and required to undertake a given percentage of such work as a minimum 
(there are re trictions on direct labour departments that would need to be removed 
too). The impact on labour conditions, particularly the reduction in casualisation 
of the building labour force, would be extremely beneficial. This, combined with 
the sugge tion in the text would turn a large part of building and construction 
into a public service, and curb the monopoly power of the builders' conferences 
and the large firms. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 33 

This raises the question of the form such public ownership would take, { 
as it involves creating a state sector in manufacturing and construction, to 
some extent in competition with private firms. The large-scale organisations 
required could come into being as a result of 'take-over' by the state 
(whether by bids or otherwise) and / or by the setting up of new firms (such as 
a National Construction Company). In the latter case, there would not be 
any compensation to capital but there would be involved the current capital 
cost of assembling plant and equipment. Moreover, it would take time to 
build up these resources and to bid away from other firms the specialists 
needed. The logic of this is to proceed by a combination of take-over of 
some existing firms and then rapid expansion of their capacity. It should 
not be thought that for publicly owned firms to compete with private ones [ 
involves any new conception of nationalised industry. The steel companies 
taken over in 1951 engaged in a wide range of activities themselves and 
through subsidiaries; this had created a state sector in, among others, constructional 
engineering and mechanical engineering, and brickworks.1 These 
subsidiaries, in time might well have been merged into larger combines 
to make the most rational use of their resources. (I am assuming, of 
course, that the large firms in steel would be re-nationalised. The case for 
doing so I have argued in an earlier Fabian pamphlet.2') 

Standards for Private Contractors 

2. Even if there is a considerable extension of public ownership in 
industries supplying the public sector, there will in a mixed economy continue 
to be private firms carrying out state contracts. Just as we already 
require such contractors to adhere to certain standards in wages and conditions, 
so in the public interest we should insist on certain standards in 
their economic performance. Partly it is a question of profit margins. It 
is intolerable that public industries which may be earning no more than, 
say, 5 to 7 per cent on capital employed (or less where there are social 
benefits involved) should have to purchase at prices involving a yield 
of 15 per cent or more on the capital of the private supplier. Particularly 
is this so since the element of risk involved in production for such contracts 
is limited (the only major risk at present comes from arbitrary chopping 
and changing in nationalised industry investment progammes by the Government, 
and there will be less of that required as public control is extended). 
But the public should also be satisfied that the firms concerned are efficient 
(the organisers of Pye's 'take-over' bid in telecommunications quite clearly 
assumed the opposite of their rivals). This calls for the development by all 
purchasing agencies of teams capable of investigating thoroughly the costs 
and efficiency of firms carrying out major state contracts, and such contracts 
should involve the purchaser's right to undertake such investigation. 
1 The N.C.B. has its own brickworks too, and ranks as a large-scale producer. 
There is a strong case for extending such public production of bricks, both on 
grounds of price and of failure to provide adequate capacity, someth-ing that is 
being felt at the present time. 

2 Fabian research pamphlet No. 198. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

New Basis for Pricing 

3. 
To turn to pricing, there would seem to be three principles to follow: 
(i) quid pro quo pricing to capitalist industry; 
(ii) the provision 
of public service to the individual consumer without any 
element of market exploitation; 
(iii) consideration 
of social cost and social benefit in price determination, 
wherever these are relevant. 
To develop these points: (i) unless the nationalised industries apply the 
same pricing rules to private industry and commerce as those nationalised 
industries themselves are confronted by (or succeed in obtaining) as purchasers, 
the pricing system is simply transferring income in the wrong 
direction. There may be price inflation limitations on this policy in the 
short run. But one needs to make a radical break from the present 
exploited position of the nationalised sector. To take a recent example 
of the arrogant attitude of private industry: in October 1958 the steel 
industry, which was making gross profits of £200 million per annum, protested, 
through the British Iron and Steel Federation, against a 7t per cent 
increase in freight charges on steel made by the railways which, even so, 
went on to make a deficit of £89 million. We have bad enough of this 
socialism for big business. 

Protecting the Consumer 

(ii) The individual consumer in our system has little enough protection 
against sellers. Moreover, it is politically important to stress the difference 
between nationalised industries a:1d private industry in their treatment of 
the final consumer. This is the justification for maintaining the 'break-even' 
rule in this sphere while departing from it elsewhere, and not levying on 
the consumer a surplus over production costs. It might be argued that 
the current consumer should contribute to the finance of additional capital 
investment. It is certainly true that if he does, he thereby reduces the 
financial burdens placed on future consumers (current disadvantages but 
future benefit), whereas given private ownership the mulcting of the current 
consumer results in increased profitability for the firm and capital gains 
for equity shareholders. But at this stage it is important to put the emphasis 
on financing nationalised industry investment in ways that challenge the 
profit and rentier incomes arising from nationalised industry operation; 
that is, by reducing profit incomes (via higher nationalised industry prices, 
and more comprehensive restraints on widening profit margins in the private 
sector), and by reducing and transferring to the state, rentier incomes (see 
para 4, subsequently). Hence, for these economic and political reasons, 
nationalised industry sales to individual consumers still seem an appropriate 
sphere for 'break-even' pricing. 
This is assuming that no element of social cost or benefit is involved, so 
that accounting cost really reflects the best use of resources. It assumes 
also that there is not arbitrary cross-subsidisation on particular goods and 
services; for instance, at present the passenger on main line express trains 
is mulcted to subsidise other railway services. It assumes, what is not true 
at present, that adequate provision is made for capital consumption (as we 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

have seen, this throws up a serious charging difficulty in the case of railways, 
or rather would do were there not a sound argument in terms of 
social benefit for the budget carrying the capital charges). It means 
also, as the sphere of state provision widens, that nationalised industries 
or firms have to interest themselves in the efficiency of distribution if they 
are to guarantee adequate protection to the consumer; rationalisation of 
coal distribution is long overdue. 

Social Costs and Social Benefits 

(iii) The argument as to the relevance of social cost or social benefit 
to the pricing of goods and services has been advanced earlier, and does 
not require repetition. There was probably a strong case in the early to 
mid 1950s for arguing that 'break-even' pricing of coal to the individual 
consumer was disregarding the element of social cost in the generally wasteful 
consumer use of coal (this was even more true of industry and industrial 
use). In such a case the Minister responsible should either issue a directive 
to the Board that in the national interest they should alter the basis of 
pricing, or the Chancellor should impose a tax. By contrast, at the present 
time there is the strongest possible case for arguing the social benefit of 
encouraging increased use of railway or bus transport in preference to 
private car use (especially urban), and a strong case for encouraging in-/ 
creased use of the railways for freight haulage. In such a case the same 
procedure should apply (government grant to cover deficit on operation, 
or tax relief on bus fuel and license duties) and I or taxation on other forms 
of transport should be increased. 
Reducing the Debts 

4. There remains the problem of the debt burden on nationalised 
industries, and its rapid increase. Already this adds £250 million per annum 
in interest payments to their costs of production. As to what should be 
done, there are really three problems. How far should these industries 
be relieved of existing capital charges? How should additional borrowing 
from the state be handled? How should the state handle the rapid increase 
in public debt (i.e. the fact that the state sector is each year a large 
borrower, thus swelling rentier claims on future earned income)? 
The economic problems of transport and coal make the burden of existing 
capital charges important. If the transport system of the country is to be 
rationally used, railways should not have to demand prices that cover 
their enormous capital charges. As they are a vital public service from 
whose existence all must benefit, the bulk of their capital charges should 
be transferred to the budget. The coal industry was arbitrarily prevented 
from self-financing its development when it could have done so, and this 
should be compensated for by reducing the N.C.B.'s capital debt. This is 
only to accept the principle that the Select Committee has put forward 
in its report on British Railways : 

'Your Committee wish to recommend the principle that, where Government 
action causes a nationalised industry to incur a specific loss or specific expend



36 NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

I 
iture which it would not otherwise incur, the Government should take steps 
to compensate the industry.' (HC 254, 1960, p. xci)1

I 

When the Government lends to nationalised industries for investment 
essential for the maintenance and improvement of basic supply industries, 
clearly it should do so at low interest rates. There is no reason to push 
up such interest rates because, say, high interest rates are being used to 
discourage less essential investment elsewhere. This links with the question 
of how to handle public indebtedness, for this has been growing by £500 
million per annum. 

One remedy is to stop the annual increase in public debt (and rentier 
income) by increasing the rate of tax on unearned income and using this 
increased revenue to finance public investment. Income tax rates on unearned 
income can be increased and a capital gains tax instituted. Secondly, 
the state could secure the use at very low interest rates of a proportion 
of the additional funds arising each year in the increase in bank deposits 
and the income of insurance companies; the system of compulsory deposits 
can be used in the case of the banks and very low interest rates attached. 
The total assets of banks and insurance companies at the end of 1958 
were around £15,000 million, and the average annual charge in these assets 
over the seven years preceding had been about £500 million. Given these 
magnitudes it would not be difficult to finance a considerable part of 
essential social investment from forced loans. 

x 
x 
5. The nationalised industries have suffered both in pricing and investment 
policy as a result of being used as a stabiliser to offset the vagaries 
· of the private sector. Contraction of the private sector and expansion of 
' 
the public one would of course lessen the need for such counter-fluctuation. 
But apart from that, an extension of control and the use of inducements 
in the private sector must be attempted, to bring pressure to bear on the 
timing, location, and industrial priorities in investment spending. 'Fiscal 
inducement can play a part here; investment allowances should only be 
forthcoming to firms that conform to governmental requirements on timing, 
etc. Much discussion of possible control techniques has taken place and J 
do not attempt to develop the point here. What is evident is that effective 
control of major pricing and investment decisions cannot be confined to 
public industry. 

If this principle is extended to Government action on coal as the Committee 
clearly intended, very large sums would be involved. For instance there was a 
£74 million loss on selling imported coal below cost. ' 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

7. 
Structure, Accountability, 
and Participation 
I
I
F there is not a major socialist initiative in the public sector in accountability 
and participation, socialists will weaken their case against the lack 
of social accountability and the autocratic structures of the giant firms. This 
is not to say that, even in the absence of social ownership of a particular 
firm, we should be prepared to tolerate the present lack of social accountability. 
The initiative that socialists take in the public sector must have its \ 
counterpart in radical changes in company law and the development of 
techniques of social control at industry level throughout the economy. We 
need to remember that if it is only nationalised industries that are subjected 
to techniques of public accountability and critical review of their performance, 
while all the public know of private firms is their advertisement 
'image', the political implications can be damaging to the development of 
the very sector that is accountable. In private industry, the Labour government 
used monopoly investigation only marginally, retreated precipitately 
from Development Councils when the Trade Associations opposed them, 
and made no attempt to alter the system under which only shareholders 
(and this in practice means large shareholders) exercised control. Yet a 
social democratic party cannot-if it is to justify its label-continue to 
neglect the question of developing social accountability. Even to go so 
far as to dislodge shareholding, not only from complete but also from 
majority control, would be a painless enough operation. The Development 
Council or Control Board technique must certainly be re-furbished, and, 
together with the elimination of restrictive trade practices, largely replace 
the Trade Association as the 'representative' of industry. The techniques 
and details of such forms of social accountability are outside the scope 
of this study, but it must be remembered that in any transition to a more 
socialist society the private sector cannot be left untrammelled by account-( 
ability, even if in these matters the public sector is the leader and the 
model. While there are two sectors the characteristics of both can change 
as social accountability is extended. 

Limiting Higher Management 

What should be the characteristics of public sector firms? Suppose 
we assume that the basic unit of executive management in public industry 
is either a regional one or a large firm. Re-organisation to secure advantages 
of local integration may transform national firms into regional organisations, 
but it cannot be assumed that this will inevitably be so. It should not 
be assumed that to achieve full economies of scale such organisations must 
be formidably large. The size of firms in a capitalist economy is dictated by 
the financial advantages of size (both in opportunity for market domination 
and raising of funds), and multi-product diversification to spread risks. 
Moreover, specialist functions requiring a very large scale for efficiency 
can be handled at industry level. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

Within such firms any hierarchy of levels of higher management existinJ 
above the operating unit would need scrutiny. For control over the unit, 
standard costing and measures of comparative performance (using operational 
research teams) may be preferable to over-reliance on personal 
supervision with its narrow span of control and tendency to pull respons


l\ibility away from the operational level. Where operational management 
has scope and responsibility there is a significant sphere of control over 
job environment and plant development for workers to participate in. 
Experiment is needed both in forms of participation, and in material incentives 
to participate (including collective incentives). Both at plant level 
and at Board level there is need for experiment in worker and Trade Union 
participation (they are not the same even if a closed shop operates). This 
could be both in terms of board membership and in terms of control of 
hitherto 'managerial' functions (e. g. welfare provision, supervisory appointments, 
safety regulation and control). Intelligent extension of collective 
bargaining is one form that the extension of participation can take. Of 
course, this implies the development of training and education for effective 
participation. But unless we pay no more than lip service to democracy 
and participation by people in controlling their environment, nationalisation 
must involve a whole series of experiments and a wide variety of forms of 
industrial democracy. It has not yet done so. 

Control at Industry Level 

Where public ownership covers all or most of an industry, how should 
integration, control, and accountability be handled? Rather than the all-
powerful executive board at th:s level, the regional boards or firms could 
be required to organise on a federal basis the necessary industrial functions 
(such as research and design; staff training; long period planning). At this 
level too, major industrial relations questions and wage negotiation would 
be handled. (One might mention here that the miners' objection to decentralisation 
of authority is due to fear of a retreat from national negotiation 
and wage uniformity, and due to fear of the introduction of competition 
between the coalfields. It is not opposition to structural change, but-and 
very rightly-opposition to a further step in the direction of commercialism 
and market values.1) The Minister should have power, as now, to 
issue general directives (for instance, if he felt boards were neglecting opportunities 
of developing specialist services at industry level). Such a structure 
might make it more difficult for him to evade parliamentary scrutiny by 
informal pressure in place of open directive, though one should not be 
too optimistic about Ministers. Public accountability could be greatly 
strengthened by establishing at industry level strong supervisory boards 
with a considerable representative element (including trade unions and 

It has been suggested to me that this is rather a statement of what the miners' 
objections should be rather than of what they are. It does seem to be true that 
the N.U.M. are in danger of losing their balance and putting themselves in the 
thankless posture of defending the sacred tablet of 1947. This is in contrast to 
their own critical attitude in the past to the managerial philosophy of the Fleck 
Report. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

consumer organisations, and, I would think, M.P.s). These could publish 
periodic reports on the progress of firms or regions and on the overall 
position of the industry, together with proposals, which need not be unanimous, 
aimed at the responsible Minister. Such reports could be the subject 
of parliamentary debate (perhaps, flexibly, if either opposition or government 
chose). Important industries still in the private sector could have a 
similar supervisory board as now, imperfectly, in steel. 

These suggestions in the field of economic policy and of institutional 
arrangements are no more than a rudimentary sketch of a socialist alternative 
to the present way in which our nationalised industries are handled. 
If they help precipitate a fresh examination of these questions in place 
of the well-worn cliches so often use<) they will have served their purpose. 


NATIONALISED INDUSTRIES IN THE MIXED ECONOMY 

Appendix 

Extract from S. G. Hobson, National Guilds (1914) 
Appendix 11 : Towards a National Railway Guild, by H. Lascelles, pp. 312-31 3 

'Experience of State ownership has not accorded with socialistic principles ... 
The cheapening of the postal service, street travelling, gas, water, etc., has 
appreciably reduced the working expenses of commercialism by contributing to 
the cheapness of labour; and the standard of comparison of labour's remuneration 
when State or municipal employees agitate for less irksome conditions, is always 
the wages paid by privately owned concerns ... . 

'It is the height of inconsistency for any party professing the doctrine of "the 
earth for the workers" to point, except within well defined limits, to cheap street 
travelling and doles in relief of rates as "benefits" conferred by municipalising 
tramways, or to universal penny postage as the outstanding "benefit" of the 
State post office, unless they mean benefits to interests which they profess to 
combat. 

'The unholy desire of the proletariat for cheapness in everything plays effectively 
into the pocket of the dividend pensioners. 

'It may be taken as a foregone conclusion that if nationalisation of the railwayscould not be resisted by the trading community they would seek to turn it to 
account by demanding unreasonable concessions in charges and facilities . . . . 

'The conservative instinct of the propertied classes is against the restriction 
of their fields of operation by State enterprise, but the very tardiness of progressin extensions of State ownership gives them ample time to turn these almost 
entirely to private profit.' 

Extract from G. D. H. Cole, Self Government in Industry (1917) 

p. 203 and pp. 217-218 
'The argument that we have brought to bear upon thorough-going opponents 
of nationalisation applies also to those who say that the time for nationalisation 
will come, but that the workers are not yet ripe for it. Of course the workers 
are not yet ready for it, and that is precisely why it will come. Were the workingclass as a whole imbued with the idea of control . . . nationalisation would no 
longer serve the capitalists' ends . . . . Nationalisation is coming now, and 
coming inevitably, because it is the capitalists' last card. When their dividends 
are no longer safe from the direct action of the workers, they trust to the State 
to save them by nationalisation -at any rate, for the time. 

'. . . National management is inevitable, as a transitional stage, in the mines 
and on the railways . . . first, because there Trade Unionism is strong, or at 
least will soon be strong enough to frighten the employers into getting their 
profits guaranteed by the State; and secondly, because even there Trade Unionism 
is weak -too weak, that is, and too little self-conscious to assume full control 
. . . . It is probable, therefore, that the most the railwaymen or the miners will 
at first secure, when their industry comes to be nationalised, will be recognitiontogether with an organised power of making representations to the bureaucrats 
who will still be in control . . . . The demand for the actual control of industry 
will come later than the claim to criticise those who control it. The introduction 
of State management will be the signal for a long battle between bureaucracy 
and freedom.' 


MEMBERSHIP 
of the Fabian Society 


IS open to all who are eligible for individual 
membership of the Labour Party. Other radicals 
and reformers sympathetic towards the aims of 
the Society may become Associates. Please write 
for further particulars to the General Secretary, 
11, Dartmouth Street, London, S.W.I 
(WHitehall 3077) 



SOCIALISM IN THE SIXTIES 

You should also read 

SOCIALISM AND NATIONALISATION 
by Hugh Gaitskell, M.P. 
Tract No. 300, reprinted 3I


CASUALTIES OF THE WELFARE STATE 
by A udrey Harvey 
Tract No. 321 216d. 


THE RACE AGAINST THE H-BOMB 
by Denis Healey, M.P. 
Tract No. 322 21


THE IRRESPONSIBLE SOCIETY 
by Richard M. Titmuss 
Tract No. 323 2/6d 


CAN LABOUR WIN ? 
by Anthony Crosland, M.P. 
Tract No. 324 2l6d. 


LABOUR IN THE AFFLUENT SOCIETY 
by R. H. S. Crossman, M.P . 


•

Tract No. 325 216d. 

THE SOCIALIST IMAGINATION 
by Wayland and Elizabeth Young 
TractNo.326 21


BRITAIN'S ROLE IN A CHANGING WORLD 
by Kenneth Younger 
Tract No. 327 2I