Corbyn’s state-run firms would fail

There was a time, not long ago, when nationalisation was a taboo subject, and rightly so. We all knew that state ownership didn’t work and that it produced worse outcomes than private ownership; and the idea that the state would start buying up companies again was unthinkable. To use the jargon beloved of political scientists, nationalisation no longer fell within the Overton window – the range of politically and publicly acceptable ideas. The centre had shifted in a free-market direction, and the Marxist Left was isolated. Every privatised industry had generated immense improvements for the consumer and for the taxpayer, something that even New Labour finally recognised by 1994-95.

Yet there is no such thing as permanent progress in politics, even though the privatisation programme – without any exceptions whatsoever – has been a massive, historic success. Jeremy Corbyn is surging in the opinion polls, and many voters back his catastrophic, Gdp-trashing policies to renationalise energy companies and swathes of the economy. This return to ideological madness can be traced to several developments.

Some of the original privatisations were mishandled. Even more emphasis should have been put on competition, even at the cost of raising fewer funds from the sell-off; and industry regulators should have been given greater time-limited powers to achieve this, and then wound down. The aim should have been to achieve much more competitive markets in all privatised areas at least five years sooner. There was also a lack of awareness at how hard it would be to get enough consumers to change suppliers. This is only now being tackled, at least 15 years too late.

Legacy under-investment from the nationalised years should have been tackled at the onset: some of the cash raised by selling off the water firms could have been reinvested in building a North-south pipeline that would have avoided water shortages, for example. There is nothing that is more guaranteed to infuriate voters than being treated badly by private monopolies; they are much more indulgent towards the state.

The biggest problem was the railways: policy errors in this area inflicted the most damage to the idea of private enterprise running infrastructure. Here again, the reforms were overall a huge success: the old railways were starved of cash, relatively dangerous and carried far fewer passengers.

But the structure chosen after privatisation was flawed: the industry was artificially fragmented. Ironically, the aim was to inject competition, but that never happened. The structure also helped keep up costs and was predicated on subsidies to keep unprofitable lines going, a state of affairs which has become toxic (even if irrationally so, as the old British Rail was horrendously loss-making). The problem, once again, is that the public is biased against the private sector: it is outraged if a private company is paid by the state to do something, but not if a government body is in receipt of far more to do far less.

The Left-wing fightback began in earnest 15 years ago when Labour controversially renationalised Railtrack in the wake of the Hatfield rail crash, creating the publicly owned Network Rail in its place.

The financial crisis was the next watershed moment: banks were taken into state ownership, angering a public which couldn’t understand why their own businesses were allowed to go to the wall. There were no special bankruptcy mechanisms for banks at the time, no resolution mechanisms to deal with large, complex wholesale financial institutions, and the authorities simply felt that they had no choice. Today, in theory at least, they would know to wipe out equity holders and bail-in bondholders, recapitalising the banks, before winding down the non-viable parts. But in 2008 nobody had a clue.

The seeds for Corbynomics had been planted: if the establishment was prepared to nationalise the banks, why not do the same with energy and water firms? We must hope that the Tories are reelected next week – but the real battle for pro-market advocates will only really begin the day after the election. We need to remake the case for private enterprise from first principles – but to succeed, this project will have to learn the lessons of the past 25 years and always remember to put competition and consumer choice first. allister.heath@telegraph.co.uk