Is Nationalization an Answer to Climate Change?

Market solutions have been tried. There's now a new push to simply take over extractive industries and clean them up.

Rail passengers pass a train operated by Virgin Trains East Coast main line service are at London Kings Cross rail station in London on May 16, 2018. - The British government announced on Wednesday that it would resume control of the East Coast Main Line rail service, privatised three years ago, following the termination of the franchise agreement with Virgin Trains East Coast (VTEC) - a joint venture between Stagecoach and Virgin. Trains will continue to run by the Department for Transport (DfT) through an operator of last resort (OLR). (Photo by Daniel LEAL-OLIVAS / AFP)        (Photo credit should read DANIEL LEAL-OLIVAS/AFP/Getty Images)
Rail passengers pass a train operated by Virgin Trains East Coast main line service at Kings Cross rail station in London on May 16, 2018. The British government announced that it would resume control of the East Coast Main Line rail service, privatized three years ago. Photo: Daniel Leal-Olivas/AFP/Getty Images

Earlier this month, Sen. Elizabeth Warren, D-Mass., proposed a slew of measures to rein in corporate power, the centerpiece of which was ensuring that 40 percent of corporate boards be comprised of workers, rather than just shareholders. While it’s a novel idea in the United States, this sort of corporate co-governance is standard fare in Germany, Europe’s largest economy — and a heartily capitalist one at that.

None of that stopped the right from losing its collective mind about the idea. The National Review’s Kevin Williamson called Warren’s notion a plan to “nationalize every major business in the United States of America,” which would “constitute the largest seizure of private property in human history.” The actual plan, of course, would do no such thing. At its most radical, Warren’s proposed bill — titled the “Accountable Capitalism Act” — would essentially bring American capitalism more in line with its Western European counterparts, and also closer to what that economic system looked like here before the shareholder revolution encouraged corporations to focus narrowly on short-term profits.

If the right is freaking out about a plan as modest as Warren’s, what will it do once the left actually starts putting nationalization on the table? The United Kingdom might find out soon enough, and in the process become one of the only countries to take the problem of climate change seriously, by letting the state — not just market tweaks — play a driving role in the transition away from fossil fuels.

With Theresa May’s Conservative government looking increasingly weak, it’s possible that the opposition Labour Party in the U.K. — under the leadership of socialist Jeremy Corbyn — could take power in the coming years, or even months. Among the party’s top-line demands is nationalizing or renationalizing several basic services.

“Britain is a long-established democracy. But the distribution of ownership of the country’s economy means that decisions about our economy are often made by a narrow elite,” the party’s 2017 manifesto states, adding that a Labour government would set out to “bring key utilities back into public ownership to deliver lower prices, more accountability and a more sustainable economy.”

In particular, Labour hopes to renationalize private rail companies; “transition to a publicly owned, decentralised energy system”; create a regional network of publicly owned water companies; and reverse the privatization of the Royal Mail — the now profit-driven British equivalent of the U.S. Postal Service — as soon as possible.

Nannette Corley, President of American Postal Workers Union Montgomery County Area Local, Gaithersburg, Md., chants with other supporters during an APWU rally at David Lawrence Convention Center Tuesday, Aug 21, 2018, in downtown Pittsburgh. The group protested the Trump administration's efforts to privatize the U.S. Postal Service. (Lake Fong/Pittsburgh Post-Gazette via AP)

Nannette Corley, president of American Postal Workers Union Montgomery County Area Local, Gaithersburg, Md., chants with other supporters during an APWU rally at David Lawrence Convention Center on Aug. 21, 2018, in Pittsburgh. The group protested the Trump administration’s efforts to privatize the U.S. Postal Service.

Photo: Lake Fong/Pittsburgh Post-Gazette via AP

It would be a dramatic about-face on decades of public policy in Britain. Under the government of Conservative Prime Minister Margaret Thatcher, elected in 1975, the U.K. became a kind of testing ground for putting public goods and state-owned enterprises into private hands. State-owned companies until that point had constituted around 10 percent of Britain’s gross domestic product, thanks to the preceding Labour government’s expansion of the state’s role in the economy. The Thatcher administration sought to reverse that and then some; during her tenure, 50 state sectors were sold off, from mines to airlines to oil companies to mail services to electricity, with more privatizations to follow after she left office in 1990.  

“We’ve gone through, now, 40 years in which economic policymaking and politics generally have been dominated by neoliberalism and neoliberal ideology, and that has argued that the private sector — the market — can always provide the optimum solution to any problem we face,” Shadow Chancellor John McDonnell, Corbyn’s second-in-command, told The Intercept. “We’ve had that experiment now for 40 years, and it’s failed dramatically,” he said, noting how privatization has tended to lead to poorer services and higher costs for consumers.

An investigation by the U.K. government into the country’s “Big Six” energy providers has shown that customers were overcharged by 1.2 trillion pounds between 2009 and 2013. Research commissioned by the British trade union TUC found that monthly railway passes in the U.K. are dramatically more expensive than their publicly owned counterparts on the European continent, and often less reliable. In some cases, the government has ended up having to pick up the slack when private contractors failed to deliver. The most recent case involved the Virgin Trains East Coast line, which had to be effectively renationalized, and was taken over by the Department for Transport earlier this year after the company breached its 3.3-billion-pound state contract. The Australian bank Macquarie — which acquired the London-area utility Thames Water in 2006 — loaded it up with billions of pounds worth of debt so that it could siphon off increasingly high interest payments to shareholders, all the while neglecting to make needed infrastructure investments and dumping tens of millions of liters of sewage into the Thames River. Macquarie eventually, in late 2017, sold off its last remaining stake in Thames Water to the Canadian Pension Fund and the Kuwait Investment Authority for a cool 1.35 billion pounds.

All this might help explain why nationalization (and renationalization) enjoys overwhelming public support in the U.K. A spring 2017 YouGov poll asked Britons whether they thought 13 different public and private industries should be under private or public ownership. Respondents wanted just three –banks, airlines, and telecommunications — to remain private. Fifty-three percent of those polled preferred energy companies to be run in the public sector; 60 percent thought railways should be publicly owned; and 59 percent said the same for water companies. Another poll released last October was still more dramatic, with 83 percent of residents favoring the nationalization of water systems and 77 percent favoring a publicly run energy sector.

Accordingly, a leak of Labour’s manifesto — intended to damage the party’s chances in the last general election — did precisely the opposite last summer, instead driving Labour voters to the polls and helping the party pick up several seats.

Transmission lines and Cooling towers at the TVA Shawnee Power Plant in West Paducah, Ky., are illuminated by the rising sun on Tuesday, Nov. 14, 2017. (Ryan Hermens/The Paducah Sun via AP)

Transmission lines and cooling towers at the TVA Shawnee Power Plant in West Paducah, Ky., on Nov. 14, 2017.

Photo: (Ryan Hermens/The Paducah Sun via AP

Some degree of nationalization is fairly standard around the world, and many of the sectors that Labour is proposing to nationalize either have been publicly owned in the U.K. before, or are nationalized elsewhere.

When it comes to energy, nationalization is more common than not. In the U.S., in Nebraska, the grid is entirely publicly owned, and several states have public or cooperatively owned power providers that meet around 9 percent of the total electricity demand in the U.S.

Major oil and gas producing countries like Saudi Arabia, Russia, and Norway all have state-owned oil companies, and around 70 percent of fossil fuel resources around the world are publicly held. Several Latin American countries which elected left-leaning governments as part of the “pink tide” brought their oil and gas sectors under public ownership as a means of becoming independent of foreign — and particularly American — capital. This model of “resource sovereignty” — and fueling expansions of social services with oil and gas sector profits — has led to tense showdowns between governments and indigenous peoples and environmentalists. It’s also been a source of chronic economic instability, with the 2015 oil price collapse being a key factor in the cratering of Venezuela’s largely extraction-based economy.  

And while it’s not technically nationalization, the world’s largest economies offer generous state support to the fossil fuel industry. The G-20 nations are on track to invest $1.6 trillion in support of new fossil gas projects in the coming years, adding to the roughly $444 billion in subsidies handed over to the coal, oil, and gas industries by those governments annually. According to a series of leaked files, the U.K. government alone has bolstered fossil fuel companies with 6.9 billion pounds in public funding since 2000 — 4.8 billion pounds of which was committed since the Conservatives took power in 2010.

What’s unique about Labour’s nationalization plans with regard to energy is that they would make Britain the first country to nationalize its power sector with the express intention of weaning it off fossil fuels and with an eye toward decarbonizing the economy.

Others have proposed steps still more dramatic than those laid out by Labour. Researchers with the Next System Project, for instance, have outlined what it would look like for the U.S. government to nationalize major U.S.-based fossil fuel producers through a process known as quantitative easing, wherein the government spends money into existence by changing the makeup of the Federal Reserve’s balance sheet, as it did when it purchased toxic mortgage assets from major banks in 2008. In a paper released this week, Carla Santos Skandier argues that staying within the world’s “carbon budget” — the limited amount of emissions that can be put into the atmosphere before we risk catastrophic warming — will require the state (and central banks, in particular) to play a more active role in economic planning. “The most effective, and timely, way to untangle the paralyzing relationship between government and industry is through a federal buyout of the fossil fuel companies that control these noxious assets,” she writes. “And how would that work? In brief, the federal government would acquire 51 percent or more of the shares of such major US-based, publicly-traded fossil fuel companies as ExxonMobil, Chevron, and ConocoPhillips.” Such a move, Skandier adds, would also kneecap the industry’s political considerable influence over climate and energy policy.

Exactly how Labour’s more modest nationalization plans would work depends on the sector. For the railways, Faiza Shaheen, director of the Center for Labour and Social Studies — a think tank with close ties to the labor movement — says the government could simply take over private contracts as they expire, typically every seven years. (Since we spoke in early June, Shaheen announced her bid to challenge Conservative Party Parliament member and former party leader Iain Duncan Smith for his Chingford and Woodford Green seat.)

Privatized utilities without those sorts of time-limited contracts would likely come under public ownership via a different process. “We’d have to look at whether we can buy the controlling stake in it” by selling government bonds, Shaheen told The Intercept. “So, do we go in and get 51 percent of it and make sure that the board is loaded with people that are going to change the incentives toward delivering for the public?” Even in that event, she says, there would still be work to be done in terms of reorienting those companies away from their sole focus on profit-making.

As sector-by-sector details are worked out, Shaheen says, it’ll be important to have a set of principles to guide how renationalization will be carried out, chief among them ensuring “that these companies are no longer about making profit and are run in the public interest.” Central, as well, to Labour’s nationalization plans is making sure that new public entities are thoroughly democratic and transparent, including deep involvement in their governing bodies from workers in those utilities and the communities that either receive or are impacted by their services. “If there’s ever a case where government is starving certain sectors of resources, that should all be on record in a way that can be easily held to account,” she said.

McDonnell explains, “We don’t want to go back to old-style centralist management that was effective in some instances for that particular period but wouldn’t be effective in facing up to modern day challenges.”

As Shaheen puts it, there’s a basic difference between what motivates private companies and what motivates public ones, and what they’re set up to accomplish as a result. “It’s about the strategic direction of where that company is going … that long-term thinking that you won’t get” in the private sector, she says. “It is about having a say, about having power. And I think that’s a critical component of the Corbyn project, is that it’s not just about fundamental economic change and all of the values that Corbyn is associated with, but it’s also about changing power dynamics — whether that be through democratization, or direct ownership, of some of our most critical bits of infrastructure.”

Labour’s climate plans would represent a stark break from the market-based approaches that have been emphasized at the European Union-level and in the states through periodic interest in carbon taxes in the U.S. As I began to ask what he makes of the free market approach to climate change — the idea that simply setting the right price on carbon and pollution will cure the problem — McDonnell cut me off: “Well that hasn’t worked, has it.”

He’s right. The European Union Emissions Trading System — of which Britain has been a part — has only recently shown signs of recovery after the price collapsed soon after the system was set up. Prices have rallied this past year, now sitting around 20 euros per metric ton of carbon. That’s still far below the level that economists Lord Nicholas Stern and Joseph Stiglitz suggest, in their World Bank report, is the bare minimum necessary to stay in line with the targets laid out in the Paris Climate Agreement, which they found would require prices of at least $40-$80 per metric ton of carbon dioxide by 2020, and between $50-$100 per by 2030.

The free market approach to climate action, McDonnell told me, often fails to recognize “that there has to be a leading role for economic planning, and a leading role for the state to get involved, working in partnership with the private sector but also in partnership with local communities as well.” He sees a considerable role for private industry in the future of the British economy, including in decarbonization. But he also thinks their seat at the table should be alongside workers’ and community members’.

Labour’s climate plans extend well beyond nationalization, too. The party hopes to factor climate and the environment into just about every level of Britain’s economic decision-making, including climate concerns in forecasts created by the independent Office for Budget Responsibility, which reports to the Treasury — a rough amalgam of the U.S.’s Office of Management and Budget. He also hopes to bolster the OBR’s resources for modeling environmental impacts. They plan to ban fracking should they take office, and fund a just transition for workers in carbon-intensive industries to move into other well-paid, unionized work, with the party throwing its support behind the One Million Climate Jobs campaign being pushed for by several trade unions. Labour frontbencher Clive Lewis has stated that as much as 60 percent of the U.K.’s energy could come from low-carbon sources by 2030, through investing massively in renewables and adopting a “mission-oriented industrial strategy,” by putting in place “the right institutional framework and support — and then let business figure out how to get there. We’ll initiate and direct a wave of innovation across a range of industries.”

McDonnell and his team have also proposed the creation of a National Investment Bank to finance new and low-carbon infrastructure. The bank would feature regional arms that help make grassroots economic planning a reality, plans Labour has already started to foment in opposition through a series of regional conferences and local town halls.

“What we’re trying to do is say that if we can do it — the oldest industrial nation, where the first industrial revolution started — if we can do it, it can provide an example for others,” McDonnell said. “But it needs a recognition that you cannot rely upon market forces to do this.”

Climate March - London. Labour Party leader Jeremy Corbyn (second left) attends the march through London calling for ambitious action to tackle climate change. Picture date: Sunday November 29, 2015. Campaigners want the Government and other countries to agree a deal that will shift the world to 100% renewable energy and protect people from the impacts of climate change. See PA story ENVIRONMENT Climate. Photo credit should read: Dominic Lipinski/PA Wire URN:24892318

Labour Party leader Jeremy Corbyn, second left, attends the march through London calling for ambitious action to tackle climate change on Nov. 29, 2015.

Photo: Dominic Lipinski/PA Wire/AP

Complicating all of this is the fact that Britain is currently on its way out of the European Union, and could be made to renegotiate a host of climate-related commitments and EU-wide rules governing the role of the state in the economy. Erected principally as a free trade bloc, the EU has baked into its foundation a series of rules intended to encourage the easy flow of economic activity between member states within something known as the single market. Specifically, that market is premised on “four freedoms” believed to drive prosperity: the free movement of goods, capital, services, and people, more narrowly interpreted as labor. Some of those rules might present challenges to the kinds of plans Labour has proposed, including nationalization. That is, under the EU’s single market, nations are strongly encouraged not to renationalize privately owned entities, and there are limits placed on the kind of state aid the government can invest in what’s considered to be the domain of the private sector.

Laurie Macfarlane, an economist and associate fellow at the Institute for Innovation and Public Purpose at University College London, says “the rules are based on an assumption that goods and services are best produced by the private sector operating in a competitive market, and the state should only intervene where there is a clear ‘market failure.’”

Those rules, he adds, likely wouldn’t present a barrier to many of the changes Labour is proposing — such as a National Investment Bank, policies to promote green investment, and even renationalization of some sectors — and actually mirror the kinds of social democratic policies at work in places like Germany or Denmark. Where a Labour government may run into trouble is if it hopes to jump beyond that, should it, say, seek to nationalize big swaths of the economy and large corporations like BP, or heavily subsidize certain firms. “That’s where you run into the realm of having to demonstrate a market failure. So long as you’re in the area of standard natural monopoly industries” — like rail and utilities — “that isn’t particularly radical stuff.”

Some on the left are more skeptical about what’s possible within the single market. The EU has pushed to liberalize utility services and move away from the kinds of regional and national public monopolies that are common in Europe and elsewhere, potentially meaning that government-run rail, water, and electric companies could only be one among many service providers, competing with private companies that might undercut them on things like wages.

It’s for that reason that Alex Gordon, a train driver and former president of the National Union of Rail, Maritime & Transport Workers, argues that the single market and Labour’s manifesto are simply incompatible. “The Labour Party’s policy in opposition is to call for renationalization of [railway] assets into an integrated, publicly owned company analogous to British Rail, perhaps run differently with a different board of directors, but essentially a publicly owned integrated railway company,” he told me. “That is impossible within the European single market,” and would violate rules passed by the European Commission in the early 1990s to break up rail operations into separate businesses.

As the March departure date nears, it’s still too soon to tell how exactly Brexit will go, what it will entail for the British economy, or what rules the European Commission will be keen to enforce on the other end. The worst-case scenario seems to be a “no deal” or “hard” Brexit, which Chancellor of the Exchequer Philip Hammond warned could leave a 80-billion-pound dent in the British economy as it defaults to WTO rules to trade with Europe and abruptly cuts off other ties. Both the Conservative government and Labour leadership have stated that they’re eager to maintain at least some of the benefits of the union, especially access to the customs union and the single market, which would enable Britain to trade freely with continental Europe. One possibility is for the country to negotiate something resembling Norway’s relationship to the EU, in which they pay to be a member and enjoy access to trade but don’t have a meaningful say over the EU rules and regulations that impact them. Labour says that it wants to retain a close relationship with the EU single market, but has indicated that it would seek exemptions from state aid and procurement rules. The EU, though, has signaled that it sees any picking apart of single market rules as a betrayal of the overall principles, and may be unwilling to accept such a compromise. Macfarlane predicts that “the EU will insist that the U.K. commits to abiding by these rules as part of any deal, whether that involves staying in the single market or just signing a comprehensive trade deal.”

On climate specifically, it remains to be seen whether Britain will continue to engage with the Paris Agreement as part of the EU, as it has for the last several years, or look to formulate its own independent emissions reduction strategy. Whether Britain will continue to participate in the EU’s Emissions Trading System post-Brexit also remains up for debate.

Barring some dramatic political upheaval, it will be May’s Conservative government that continues to negotiate Brexit and oversee whatever transition does happen. Labour, meanwhile, is preparing for a future where Brexit isn’t the only storm the U.K. will have to weather.

Reporting for this piece was made possible by funds from the Heinrich Böll Stiftung North America.

Top photo: Rail passengers pass a train operated by Virgin Trains East Coast main line service at Kings Cross rail station in London on May 16, 2018. The British government announced that it would resume control of the East Coast Main Line rail service, privatized three years ago.

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