British Socialism on Trial

by GEOFFREY CROWTHER

1

SOCIALISM is not an exact term; different people often use it in very different meanings. In particular, there is a broad definition and a narrow definition of the term. Treated broadly, socialism can be taken to cover a great many forms of intervention, by the state or by labor organizations, with free economic processes. What these interventions — whether they be public ownership of industry, or government regulations, or labor laws or labor contracts — have in common, and what entitles them to be grouped under the socialist banner, is that they are all advocated, by those who believe in them, on the score that they’ are necessary to advance social welfare or to secure social justice.

Socialism, on this broad definition, is an order of thought that stands in revolt against the purely economic conception of industry and commerce that ruled in the last century, the economic conception that the purpose of industry was to turn the factors of production — land, labor, and capital — into finished products with the maximum economic efficiency and the minimum economic loss.

But there is also a narrower definition of socialism in which it is exclusively identified with the ownership of industry by the state. “Nationalization of all the means of production, distribution, and exchange" is the classical expression of this doctrine; it was the historic slogan of the British Labor Party In its years of propaganda. This still is the party s official doctrine in its years of power and, indeed, it is on this narrower plane that we have been having such spectacular experimentation in Great Britain in the past three and a half years.

What have been the economic consequences of the British nationalization schemes?

Since the Labor Government took office in the summer of 1945, eight schemes for the nationalization of industry have been introduced into Parliament. (I do not propose to say anything about two other measures of “socialization,”the scheme of National Insurance “from the cradle to the grave" and the companion National Health scheme. I omit them partly because they are not strictly projects of nationalization, and partly because they are not, in principle — whatever they may be in detail matters of controversy between the political parties. Both spring from decisions taken by Mr. Churchill’s wartime coalition government.)

Of the eight nationalization schemes, three represent the purchase, by the state, of enterprises of a special kind already in the hands of one concern or a very small number of concerns. One of these is the Bank of England. It is hardly necessary to spend any time disputing the right of the state to own its bank of issue if it chooses to do so. The nationalization of the Bank of England, so far as I know, has had no effect whatever on the way in which the Bank conducts its business. A new Governor took office early this year. He was chosen, as the Governors of the Bank always have been, by his colleagues on the Gourt of Directors, for his personal qualities of technical competence; and if the agreement of the Government was on this occasion given formally and publicly, that was merelymaking explicit and open a state of affairs that has long existed. It must be a very long time indeed since a Governor of the Bank of England was elected without the approval of the Government.

Another of these minor nationalizations is that of Gable and Wireless, the company which owns and operates the British overseas communications system. There again, I can see arguments of expediency for and against the actual public ownership of a concern which must in any case necessarily operate within a fairly tight framework of governmental regulation. But I can see no question of principle involved. The third of these minor nationalization schemes is that of civil aviation. Perhaps Americans would not agree, but the British consider this a matter that raises no issues of principle, for the reason that civil aviation in Britain has always been — and from the circumstances of the case, which are different from those in the United States, probably always must be — subsidized by the Government.

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THAT leaves five major industrial nationalization schemes. Coal was the first, and the National Coal Board has now been the sole owner and operator of coal mines in Great Britain for more than two complete years. The second, chronologically, was transport. The British Transport Commission came into existence on January 1, 1948. From that date it has owned and operated the railways and it is gradually exercising its powers to assume the ownership and operation of passenger and freight traffic on the roads of the country and of the docks, harbors, and canals. It does not cover shipping, which remains in the hands of private enterprise, except for the cross-Channel routes formerly operated by the railway companies. The British Transport Commission is the owning and supervising body; but operation is in the hands of five subsidiary Executives—the Railway Executive, the Road Transport Executive, the Docks and Inland Waterways Executive, the Hotels Executive, and the London Transport Executive for the special problem of passenger traffic in the metropolitan area.

The third major scheme in chronological order was electricity, which came into effect on April 1 last year. You must remember that the wholesale distribution of electric power — that is, the nationwide high-tension grid, which buys power from the generating stations and sells it to the distributing concerns — was nationalized many years ago, by a Conservative Government — and, I should in fairness add, has been a very great success from every point of view, both financial and technical. So that the nationalization of the rest of the industry was not quite so complete ,a novelty as might be thought. The whole industry is now owned by the British Electricity Authority, which operates through regional boards. Fourthly, there is the nationalization of the gas industry. There is no nation-wide gas grid in Great Britain, so the nationalization scheme is more localized, with a supervisory Gas Council at the center. This scheme is to take effect on May 1, 1949.

Finally, there is the bill for the nationalization of the iron and steel industry. This is now before Parliament, and as a general election will almost certainly occur before it can take effect — and possibly even before it is enacted it must not be taken for granted that it wi11 go through. But the scheme proposed has one interesting variant on the others. In all the other major cases, the Government has compulsorily purchased the assets of the existing companies, most of which will be wound up and cease to exist. In the steel industry, it is proposed to purchase the capital of the existing companies, but to leave each of them intact, with its own board of directors, though of course with only one shareholder, the Government’s Iron and Steel Corporation. This is proposed because of the much more varied and more competitive nature of the steel industry.

Those are the five major schemes. You will see that only three of them were in actual operation when these words were written, and only one, the coal scheme, has published the results of a year’s trading. The basis of ascertained fact for any firm conclusions is thus very narrow. Nevertheless, I think a certain number of at least provisional judgments are possible.

I believe our experience in Great Britain has already exploded many of the arguments that are usually advanced in favor of nationalization in principle. For example, it was always said that the morale of the workers was badly affected by the knowledge that they were working for employers who were inspired by the wicked profit motive, and that once they knew they were working for the community, there would be fewer disputes, less absenteeism, and a general improvement in keenness and productivity. We now know — what most of us suspected — that this is bunkum.

Keen eyes have thought they detected, in the first few weeks of a new nationalization, some evidence of greater willingness to serve on the part of the employees. But if so, it has not lasted beyond the customary length of a honeymoon, nor has it been large enough to register in any of the statistics. In the coal mines, for example, absenteeism is as great and disputes are as frequent as under private enterprise, and if there has been a slight improvement in output per man-shift, that is at least as likely to be due to the progress that has been made in mechanization as to any better morale.

Indeed, there are signs that the coal miners are already suffering disappointment over the results of the great reform they have looked forward to for so many years. Nationalization, to the ordinary miners down the pit, has always meant that the industry would become their own industry. They say that it is not nearly the same thing to discover that it is now the nation’s industry; in fact, they complain that the old private owner, for all his faults, was visibly there to be complained to and to be stormed at; he was not the helpless agent of a remote and soulless board in London. The old “morale” argument is beginning to reappear in the form of assertions that if the industry were really handed over to the men and their union to run, they would work with a real sense of satisfaction and that productivity would shoot up. This argument is bunkum too, and I am glad to say that there is no sign of its being treated as anything but bunkum by the Labor Party.

But the fact that it can be heard at all illustrates how dead is the old belief that the mere assertion of public ownership, the mere removal of the profit motive, would automatically improve the psychological atmosphere of an industry. Indeed, it may be that it has the opposite effect, for a politically appointed board, subject to directions from the Government and consisting in part of ex-tradeunionists, is inevitably a weak body in collective bargaining and in the maintenance of industrial discipline.

It may turn out to be the greatest weakness of nationalized industries that they are sitting birds to the unions, and that a nationalized industry is one in which labor costs are constantly pushed up, to the detriment of the consumer and the community. I say that may turn out to be a weakness. It certainly has been so in the past two years in Britain, but then in a period of overfull employment and of urgent universal demand, all employers tend to be weak bargainers. Examples of rapid rises in labor costs, at the behest of the unions, have not been entirely unknown in that citadel of private enterprise, the United States. It may, therefore, be too soon to judge a nationalized board’s ability to stand up to the unions. The test will come when there is again a buyer’s market for labor.

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ANOTHER of the traditional arguments in favor of nationalization in principle has always been that, when an industry is no longer managed by those who chance to be its owners, but a deliberate selection of the best men available is made, the quality of the top management will improve. This also, I think, has been disproved.

I do not wish to decry the quality of the men who have been appointed to the new boards. Certainly the political element in their selection, though it exists — as is, I suppose, inevitable—is not obtrusive. The Chairman of the National Coal Board a former coal owner who, if he has any politics, would presumably be a Conservative. The Chairman of the Transport Commission is a former permanent civil servant, who therefore has no politics. The Chairman of the Electricity Authority is the former General Secretary of the Trades Union Congress, and this alone, of the three major cases, could be called a political appointment. But though these men and their colleagues are men of ability, who have been honestly appointed, I do not think anybody would claim that their standard of competence is noticeably above that of private industry.

Moreover, they suffer from the disadvantage of having to work as a board or committee. It is true that private industry is also managed by boards directors, but a private board consists of men chosen precisely because they can work together, while a publicly appointed board is constituted on the opposite principle of reflecting many different points of view. It requires a chairman of quite outstanding personality to make such a board work well.

Another very interesting conclusion is beginning to emerge from British experience. It has been the fashion for some time among socialists to decry the practice of private industry of electing part-time non-specialist members of boards of directors. The earlier nationalization boards consisted very largely of whole-time members. Moreover, every member was put in charge of one department of the board’s functions — such as production, sales, personnel, research, and so forth. Inevitably these men tended to regard themselves less as members of a board with collective responsibility than as heads of departments, meeting in conference with their colleagues but with ties of loyalty to their departmental subordinates. Phis undermined the cohesion of the board itself and made life very difficult for the subordinate regional and district boards, each of whose specialists — the district sales manager or the district production manager —was in direct relationship with a member of the central board in London.

The coal industry, in particular, has suffered under this form of organization, and there is now a perceptible reaction towards the non-specialist board, with a large admixture of part-timers. It has been rediscovered that functional specialists have their limitations and that there are virtues in broad knowledge, in ripened judgment, and in nontechnical common sense. In short, it has been discovered that private enterprise knew rather more, and the theorists rather less, about how to run industry than had been supposed.

Another of the traditional arguments in favor of nationalization has always been that if the industries that are heavy users of capital — fuel, power, transport, and steel —are all brought into public ownership, it will be very much easier for the Government to work out an effective program for the smoothing out of economic fluctuations, by controlling the level of capital investment. If more or less capital investment is needed in the interests of general stability, the Government can issue the necessary instructions to the industries it owns.

In practice, things do not work out so simply. The more eminent and competent are the boards appointed to run the nationalized industries, the more will they insist on having their own point of view. Where it is a matter of the Government on the one hand and private industry on the other, the Government can, in the last analysis, enact a law or issue an executive order. But where there is a dispute between one agency of the Government — the central economic planning department — and another — the board of a nationalized industry, probably supported by the Government department that watches over it — then, as anybody who has served in governments knows, there may be no way of resolving the dispute. As one of the British economic planners was heard to observe not long ago, “ British industry is now divided into two sections: privately owned industry, over which the Government has a fair degree of control; and publicly owned industry, over which the central organs of the Government have no control at all.”

In all these ways, then, the arguments in favor of nationalization in principle have been disproved, and the belief that there was some magic in the mere fact of public ownership has faded. But I think it is equally true to say that the arguments against public ownership in principle have also — I won’t say been disproved, but I will say that they have been discovered to have very little immediate application. Certainly no disasters have followed upon nationalization. On the contrary, these industries have continued to be managed by the same sort of people—in the overwhelming majority of cases, by identically the same people — as they were before, and in exactly the same way. The ordinary resident in England, unless he happens to have been a shareholder in one of the expropriated companies, is unable to detect any difference whatever as a result of nationalization.

Some people would say that, there is one big difference. Each nationalized industry in turn seems to run at a loss in its first year. Now this is very unfortunate for the socialists and it will be amusing to watch them, in the election campaign that is approaching, trying to escape from the accusation that socialism brings bankruptcy. It will be a new, and a chastening, experience for them to be on the defensive.

Nevertheless, I think a fair-minded man must admit that the losses the industries have suffered have been due to bad luck rather than to bad management. On the railways, the loss has been the result of somewhat smaller post-war traffic combined with the high and rigid level to which costs were pushed during the war. Something of the same sort is happening in the United States. In the coal mining industry, the first year’s loss was due to increases in wages conceded before nationalization had taken effect.

In short, to the question “What have been the economic consequences to date of the British nationalization schemes?” the nearest I can get to a candid answer is to say “None at all.”Certain tendencies have been revealed and on the whole they tell against nationalization. But none of them makes a great deal of difference in the short run. The evidence to date fully confirms the judgment that the mere fact of ownership of an industry, whether it is public or private, is of little or no importance at all.

What does matter is how the owners of the industry, whoever they are, run it. And on that vital point the only evidence available to date is that a publicly owned industry is run in very much the same way as a privately owned industry, certainly no better, but there is no proof that it is run very much worse.

This is partly, no doubt, because of the particular nature of the industries that have been taken over by the British State. With the exception of coal, they are all industries of public utility type, necessarily operating in fairly large units in conditions of greater or less monopoly. It may be that if public ownership were applied to more competitive, multiunit industries, it would have immediate effects on the way the industries were run. But even this is by no means certain. The method of nationalization proposed in the Iron and Steel bill suggests that it is possible to have public ownership of an industry without either creating a monopoly or suppressing competition. But this is speculation. The only conclusion for which there is hard evidence is that the substitution of public for private ownership, by itself, changes nothing in the conduct of an industry.

Indeed, I make a grievance out of this lack of change. If there was no intention of making a drastic change in an industry’s method of operation, what on earth was the point of taking all the trouble to nationalize it? If you merely substitute public for private ownership, and do nothing else, then the probability seems to me to be that your industry will slowly deteriorate. Political pressures, deference to the trade-unions, committee government, and — above and beyond all else — the lack of competition (though there has been far too little competition in recent years in British private industry)— in time all these factors of decay will have their effect. Unless there is something big you want to do to offset all these, then there is no case for nationalization.

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IT so happens that, in each of the three big industries that have been nationalized in Britain, it is possible to see something big that needs doing and that only the state can do. In coal, the argument is by now familiar. The British coal mining industry is very old and geologically very difficult to work. Years ago it should have had a massive transfusion of new capital, but there was plenty of cheap labor available, so the industry went that way instead. Now that there is no more cheap labor — indeed, an insufficiency of labor willing to work in the mines at any price —the industry needs a gigantic program of rationalization, of re-equipment, and of concentration on the lowest-cost pits.

It has been made quite clear, in the past thirty years, that this task was beyond the powers of the private owners of the industry. The economic justification for the nationalization of the mines is that it is only the state that can provide the capital and carry through the reorganization. To say that only the state can do it is not the same thing as saying that the state will in fact do it. But if it does, it will reap economies more than enough to offset the defects of political weakness and of cumbrous management that are inherent in nationalization.

In transport also there is a similar argument. Great Britain, you must remember, is a tight little island, no larger than the states of New York and Pennsylvania combined, but with one third of the population of the whole United States in that area. By the end of the nineteenth century, the island had been equipped with a railway system adequate, and more than adequate, to carry all the inland transport business of the country. Indeed, as was demonstrated during the war, the British railways can still carry nearly all the traffic of the country. Nevertheless, there has grown up in the last forty years a second transport system, on the roads, which can also move very large traffics.

Beyond any doubt, Great Britain has more transport than it needs. If both these transport systems are to be kept fully maintained and fully staffed, there will be great waste of resources. You have a pale reflection of the same problem in the United States, but with your vast distances and your still rising population, it is not nearly so severe.

There is in Britain at least a case for working out some differentiation of task between the rail and the road, in order to reduce the volume of transport capital that has to be maintained and the numbers of transport employees who have to be remunerated. Such a sorting of tasks might be the means to a great reduction in the over-all cost of transport in Britain. Clearly it could only be done if both systems of transport were in the same ownership, and equally clearly the only possible sole owner is the state. It does not follow, once again, that it will be done; I would not be overoptimistic about it. But if it were done, the nationalization of transport might be the means of securing a great economy for the British nation.

Similarly in the case of electricity, the British electricity supply industry got off on the wrong foot in the 1890’s owing to the excessive parochialism that was then inflicted upon it by Parliament. The subsequent process of consolidation has never fully succeeded in putting this right, very largely because of the impossibility of consolidating municipal undertakings, which are almost standard practice in the cities, with company undertakings in the small towns and rural areas. There has hitherto been far too much variety, not merely in charges and rating systems but also in technical factors such as voltages and frequencies. Here again, there are real economies to be reached which may be large enough to outweigh the characteristic defects of public ownership.

In each of these three cases, then, there are some arguments for nationalization. There are, so to speak, strategic advantages to be reaped that may be enough to offset the tactical disadvantages that are inseparable from large-scale, bureaucratic, monopolistic, organization. But while the tactical disadvantages are almost inevitable and make their appearance at once, the strategic gains will have to be worked for, and will not mature for some time.

The onus of proof is quite definitely on the advocates of nationalization. They may be able to provide the proof— for the industries that are already nationalized — but that depends on what they do with their industries now that they have nationalized them. The fact of nationalization proves nothing; the future conduct of the industries will prove everything.

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To LEAVE the argument here, however, would be to miss the major point. To say that British experience proves the nationalization of industry to be a matter of comparatively small importance does not prove that socialism itself is unimportant; it merely establishes that the public ownership of industry is a much less important part of the doctrines of the Left than has usually been supposed. It proves that a discussion of socialism within the narrower definition is a waste of effort and that the discussion must be removed to the broader field. The doctrine of the state ownership of industry is only a corner—and not in my view the most important corner — of a much wider tendency of our time, the economic consequences of which are by no means confined to the eastern shores of the North Atlantic Ocean.

We are witnessing within our own democracies a great struggle of ideas. Western industrial civilization, as we know it, grew up under the domination of a system of ideas that we now call those of the Right. It was a system of ideas that exalted material progress and production, and under it more wealth has been created than was ever before imagined. But it was also a system that took relatively little notice of the miseries and the injustices that were the price of its progress. We have therefore in the last generation seen the rise of the opposite doctrines of the Left, which exalt the security and social welfare of the individual, even at the cost of economic efficiency and the maximum creation of wealth.

This is one of the great antitheses of our time, which reappears in innumerable guises. It is the antithesis between Progress and Security, between the efficiency of the economic system and its equity. It is the contrast between the gospel of work and the endowment of leisure, between the premium that our fathers put upon thrift and the stimulus that the present age gives to consumption.

I do not believe that any of us can afford to be fundamentalists in this conflict. Life would be easier if one could say that one order of ideas was wholly right and the other wholly wrong. But I do not think it is so. Wc cannot simply go back to the nineteenth century. There is far too much of the logic of the twentieth century in the ideas of the Left for it to be possible to sweep them aside. I am one of those who think that the movement 1o ihe Left of the last twenty years has gone too far and that, if we are to hold to the course that history has set us, the time is due for a tack to the Right. But there must be both elements in our twenticthcenlury society, and we shall spend the rest of our lives learning how they can be trained to double harness.

Of this great antithesis, the issue of the public ownership of industry is only one of the manifestations. It is true that, in Britain today, such oldfashioned ideas as enterprise, efficiency, and thrift are at a dangerous discount. But the nationalization program is not the cause of these things; it is one of their effects. It is because the British community has come to put other economic and social ideals a long way ahead of productivity that a change in the ownership and management of the basic industries can be contemplated so lightheartedly.

If you would seek the causes of the phenomenon, you will find them, not in this or that particular theory, but in the change that lias come over the whole climate of public opinion in which industry lives. Nor is this change confined to the representatives of labor in Britain. When I contemplate the general state and prospects of the British economy,

I am much less alarmed by the nationalization schemes as such than I am by the empire that the doctrines of the Left—control and restriction in the interests of scarcity — have won over the minds of businessmen and wage earners alike. There is no point in deploring the symptoms if the cause is left untouched.

Nor should socialism, in this wider definition, be regarded as a purely European phenomenon. The doctrines of the Left have made a great deal of headway in America in the last two decades. The public ownership of industry is not an immediate issue, but there is already a degree of regulation and control in the interests of individual security and welfare that could hardly have been conceived of in 1929.

If therefore you look upon socialism as an exotic disease, like typhus or beriberi, the symptoms of which it may be interesting to have described by a visiting traveler, but which can be kept out of your own country by quarantine regulations at the ports, I submit you are making a great mistake. For one thing, it is not a disease, but a perfectly legitimate and responsible movement of human thought. And for another, though the manifestations of it may be different in different countries, it is a tendency that is present, in this twentieth century, everywhere where men are free to think. Or do you perhaps believe that enterprise and efficiency and hard work and thrift are not under attack in vour own country?

I said “under attack” — but that is the wrong word, for if suggests a battle. And this issue of Right and Left is not a battle that can be won by either one killing the other. It is rather a problem that has to be resolved by the mating of the one with the other and the birth of offspring that takes something from each but has its own life.

But there is a battle in the world today, a real battle to the death. It often appears in the disguise of a battle between different systems of economics. That is a trap set by the enemy and designed to foster unnecessary quarrels in the ranks of those who oppose him. If the main difference between the Soviet system and our own were simply that the Soviets believe in the public ownership of industry and we do not, we could agree to differ and each mind his own business.

But we know that is not what is at issue. It is human liberty that we cannot agree to differ about. It is not the public ownership of industry that we fear, but tyranny, and the military aggression that follows in its wake. What divides us from the Soviets is not their views on the matters I have been discussing, but their views on my right to discuss them.

I have sometimes heard the argument in America that, since Communism means a complete loss of liberty, every socialist experiment must mean some loss of liberty. That seems to me to be poor logic — unless you are prepared to admit that the American public school system, the United States Post Office, the State Banking Commissions, and the Maritime Commission are all of them limbs of tyranny. Certainly nobody in England thinks the basic liberties are endangered by the socialist experiments we have had. All of them will be submitted, within little more than a year at most from now, to an election that will be as free — and, I would add, as unpredictable — as anywhere in the world.

Democracy, after all, is a system of trial and error. Perhaps alt systems of government are that, but only democracy provides deliberate opportunities for the correction of error. If you believe in democracy, you must believe that a free people, given time for argument and reflection, will put right any major errors into which it may have slipped.

Whatever other defects the British democracy may have, it is not given to immoderation. I think Americans can rely upon it that the socialist experiment will be put to the most searching test at least once in every five years, and that by this process what is proved to be error in it will be washed away, while what is valuable will remain to add a few more stones to that great edifice of human achievement that is known as the society of free men.