Robert Griffiths explains why we shouldn’t get too excited over the recent spate of nationalization.

Like the nationalization of Northern Rock in Britain, US President George W Bush’s plan to bail out Wall Street finance corporations to the tune of $700 billion has spread ideological confusion far and wide.  Some right-wing newspapers in Britain condemned the Northern Rock takeover as a return to the “state socialism” of “old Labor.”  Some Labor Party MPs and trade union leaders saw things the same way and were suitably encouraged.  One US senator has now accused Bush of being a “socialist” because the president wants to use public money to take mortgage debts into state ownership.

How should the left characterize these developments?

First, we need to be clear about what nationalization means in a technical sense. It is the taking into ownership by the state of industries, services or enterprises that are engaged in economic activity. Local authorities – the local state – also run facilities and services in the form of “municipal ownership.”

These two main types of public ownership are themselves part of the spectrum of social ownership, which also embraces workers’ co-operatives and similar common ownership enterprises where the workforce in effect employs itself and owns the full product of its labor.

What distinguishes all forms of social ownership from capitalist ownership is that the latter involves shareholders whose money employs waged labor and entitles them to a share of the wealth created not by himself or herself but by the workforce. This money, which is inseparable from the market relationships – employment of labor and the sale of its product – in which it is invested, is capital.

In The Political Economy of Revolution, Konstantin Zaradov distinguishes between three types of nationalization, arising as they do at different stages of economic and political development.

The first is capitalist nationalization. This is where the state power, which acts to maintain and perpetuate capitalist society, takes privately owned assets and facilities into public ownership. It does so not to change the economic and social basis of society, to dispossess the capitalist class and weaken it politically. On the contrary, this kind of nationalization is intended to maintain or develop a function, which is important or even vital to the maintenance and development of capitalist society. It may be an essential industry, which the previous capitalist owners have mismanaged or run into the ground, extracting maximum profit without investing and modernizing for the future. This was the case with coal and the railways before the 1945-51 Labor government nationalized them. Huge programs of public investment then followed.

It may be an important area of technology, which initially requires massive investment with little or no prospect of a short or medium-term return on capital. This was once the case with postal services, then broadcasting and space exploration and now nuclear fusion.

Capitalist nationalization is invariably carried out and subsequently administered in ways, which make clear its intention to perpetuate and strengthen capitalism, not to weaken or overthrow it. Generous compensation is paid to the former owners, often in the form of interest-bearing Treasury bonds or stock.

For many decades, the nationalized industries in Britain had to hand over a large part of their operating surplus to the Treasury to help fund these interest payments to former shareholders. It was a crippling burden, which enabled anti-socialists to label public ownership as inefficient, loss making and subsidized.

It also required the management of state-owned enterprises to squeeze as much surplus, unpaid labor out of the workforce as possible, while charging high prices to individual consumers such as gas and electricity-using households or rail travelers. Corporate customers, on the other hand, paid some of the lowest prices for freight, gas and electricity in Western Europe. The nationalized industries pursued purchasing and contracting policies, which enabled private suppliers to make vast profits out of their dealings. Not surprisingly, many of the senior national and regional managers of state-owned industries were drawn from the private sector.

From the managers of the notorious Powell-Duffryn Combine in the coal industry in 1947 to Michael Edwardes at British Leyland and Ian MacGregor at British Steel and then the NCB in the 1970s and 1980s, the policy has been to run the state corporations with the personnel and techniques of the private sector. Apart from the appointment of a token trade unionist or two to the board, the nationalized corporations were also structured to exclude industrial democracy and parliamentary accountability from their operations.

Lenin used the term “state capitalism” to identify measures of state intervention in the economy which involved the state in dealings with private capital. Government contracts with privately owned companies, state trading monopolies, public subsidies to private enterprises, a state-owned bank, measures to regulate private enterprise and public-sector boards containing private-sector capitalists are all forms of state capitalism.

Every government engages in state-capitalist policies of one kind or another, whether or not they nationalize enterprises. As large-scale capitalism became dominated by a small number of monopolies in each sector of a country’s economy, Lenin turned to the term “state-monopoly capitalism” instead. In Britain, the US, Germany, France, Japan and elsewhere, the connections between the machinery of state and its top personnel and the capitalist monopolies are so close and numerous that state political and monopoly economic power are effectively fused into a single entity, namely state-monopoly capitalism.

In this context, it is clear that the nationalization of Northern Rock and the US buy-out of financial assets are measures of state capitalism, as were previous capitalist nationalizations in Britain and the establishment of the Tennessee Valley Authority and the Freddie Mac and Fannie Mae mortgage companies in the US.

They are certainly not what Lenin called “revolutionary-democratic” or what Zaradov characterizes as “democratic nationalization.” This takes place when the struggle for state power has broken out and the working class, left or revolutionary movements are on the offensive. In The Impending Catastrophe And How To Combat It (1917), Lenin urged nationalization of the banks and trading monopolies in Russia in a situation where the bourgeois democratic revolution had begun and workers’ and peasants’ soviets had created “dual power.” Zaradov points to the democratic nationalization of key industries by left governments in Chile and Portugal in the 1970s.

In each case, nationalization was intended to dispossess powerful sections of the capitalist class, whether native or foreign, to weaken them economically and politically and to make their operations more transparent and publicly accountable in order to strengthen the position of the working class and its allies and representatives. Such are the measures of democratic nationalization in Venezuela and Bolivia today.

Once all the significant organs of state power are under the control of the left, to be reorganized, abolished or replaced by new ones, measures of socialist nationalization can be carried through. These involve wholesale dispossession of the capitalist class with minimal if any compensation, the introduction of extensive industrial democracy, integration into macroeconomic planning and so on. Britain has never experienced socialist nationalization. The struggles within the Labor government and labor movement to implement programmers of democratic nationalization in the 1940s and 1970s were defeated. We had capitalist nationalization instead.

Today, New Labor and President Bush are proposing state capitalist measures. The $700 billion US plan is not really one of capitalist nationalization, however. Using public money to buy financial assets, which are almost worthless, is more of a swindle of the public than anything else.

The question is, where real capitalist nationalization is proposed, should the left support it?

If such a measure enables us to fight for democratic nationalization more effectively, then so be it. However, its parentage and deficiencies need to be pointed out. It is the policy of a pro-capitalist government and state designed to uphold the system.

But, if a capitalist nationalization can save a strategic industry or a significant number of jobs, then it can help us make the case for more government intervention and public ownership, planning, accountability and real workers’ participation in management – in other words, for democratic nationalization.

However, democratic nationalization will only be achieved as part of the struggle of the working class and its allies for state power. The election of a left government of socialist, Labor and Communist MPs would likely mark the beginning of that process.

The record of this current New Labor government shows how far we have to go. Economically, though, state capitalist measures continue to prepare the ground for fundamental change.

As Lenin wrote in 1917, “state-monopoly capitalism is a complete material preparation for socialism, the threshold of socialism, a rung on the ladder of history between which and the rung called socialism there are no intermediate rungs.”