What is the effect of nationalisation of private sector industry on employment?


With the news that East Coast railway services have been nationalised again, there is a resurgence of interest in the nationalisation of the entire rail network. With the Labour Party pledging that they’ll re-nationalise the railways if they’re voted into power, and purportedly 70% of UK citizens supporting nationalisation, we thought we should get involved and consider the potential impact of re-nationalisation on jobs.

Nationalisation as a last resort

Traditionally, nationalisation has been used very much as a last resort. Faced by the prospect of a business or industry being forced to close due to unprofitability or other market forces, governments have often stepped in to prevent large scale jobs losses. For instance, in 2013, the Scottish government nationalised Prestwick Airport in an attempt to safeguard jobs.

In this context, nationalisation has a strong, but localised, effect on jobs and employment. However, for job protection to be maintained, nationalisation does need to result in a reversal of fortunes for the business involved. In the modern economic climate, government is unlikely to protect a weak business indefinitely, particularly if it fails to demonstrate improved financial performance.

Nationalisation as a response to unemployment

There are also examples in history of using nationalisation as a means of combatting high unemployment rates. In the post-war reconstruction period in particular, the Labour Government pursued a policy of ‘full employment’ and attempted to achieve this by nationalising a number of key industries.

Though the policy successfully lowered the high unemployment rate at the time, it is arguable that many of the nationalised industries were poorly run, which contributed to the UK’s economic stagnation in the 1970s leading to privatisation again in the 1980s. The debate continues regarding the economic impact of nationalisation in this period and the extent to which it affected employment levels in the long term.

Nationalisation in 2018

The difficulty with predicting how nationalisation will affect jobs now, is that nationalisation is not being considered for either of the two reasons mentioned above. Instead, this nationalisation is a response to poor performance by private companies, and the perception that private rail companies are milking the system for profit while delivering sub-standard services.

In today’s economy, predicting how nationalisation will affect job numbers is challenging. To a large extent, it depends on how successful the nationalisation is and its implementation. Nationalisation may affect employment within those services that private companies are likely to terminate due to unprofitability, for example, a nationalised railway service is more likely to maintain staffing for quiet, rural services and stations, whereas private owners are more likely to remove the less profitable services.

Finally, it’s important to note that long-term nationalisation is currently only being pursued by the parties in opposition, most notably Labour. While nationalisation has occurred under Conservative governments, it’s usually a temporary arrangement to address a particular need.

Labour and the trade unions

If Labour become able to nationalise the industries they list in their manifesto (rail, energy, royal mail & water) they would be doing so most likely with the support of the unions, but the manner in which they nationalise would also require their support. Consequently, any nationalisation process would need to avoid job losses.

However, this doesn’t necessarily mean that new jobs would be created either as the most likely outcome is that employment opportunities in nationalised industries would remain stable.

Consequently, the effect of nationalisation on a business or industry is completely contextual. While some outcomes are more likely than other, the overall impact nationalisation has will vary from industry to industry, and region to region.

Julie Taylor

Employment Law

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