The Nationalization Mess

Even the most Blimpish British opponent of the Labor government's nationalization of industry would not dispute its goals. But even some stalwart Laborites are sorely embarrassed by the failure of state-owned industries to achieve any of those goals. Far from stimulating Britain to rising peaks of employment, technological progress and exports, the government enterprises have dragged the economy down.

The National Coal Board, for example, has been so slow to close inefficient pits that it requires immense government subsidies; it lost $24 million in fiscal 1969. The railroads have run a deficit of around $365 million in each of the last two years. The utility industry was pushed into an excessive expansion program and has had to raise electricity prices. Now the pressures of hard politics threaten to make a similar financial mess out of British Steel Corp. (BSC), the company that the government was counting on to prove that nationalization could really work.

Political Roadblocks. When the Labor government took over steel in 1967, officials proclaimed efficiency to be their primary objective. They argued that the fragmented private industry, which earned 1.9% on investment in 1966, could not acquire the capital to build the modern mills needed to compete with Japan and the U.S. The Laborites induced Lord Melchett, a Tory banker and philosophical opponent of nationalization, to accept the chairmanship of BSC on the promise that he would be allowed to run it in a strictly businesslike fashion. He quickly ran into political roadblocks.

To mollify opposition to nationalization, the government divided BSC into four geographical regions, each run by an executive of an old private steel company. The regional managers tried to maintain their operations as separate entities and ignored Melchett's efforts to exert centralized control. One manager, for example, announced an ambitious investment plan without even telling Melchett about it. Lately, however, Melchett has got a firm enough grip on BSC to draft a long-range modernization program.

Forced Subsidy. The company's efforts to earn the profits to pay for that modernization, however, have yet to succeed. Although BSC had 1968 sales of $2.6 billion, which ranked it as the world's third biggest steelmaker, behind U.S. Steel and Bethlehem, the company lost $29 million, and there is no immediate prospect of getting out of the red. Melchett has been frustrated in efforts to cut costs, partly by the government's policy of protecting the nationalized coal mines. BSC is not allowed to import low-cost foreign coal, and purchases of foreign oil are taxed extravagantly; as a result, steel's fuel bills are excessively high. To pay them, and the costs of modernization, Melchett proposed steel price increases totaling $128 million a year.

Melchett was stopped by the government's Prices and Incomes Board, which ruled late in May that BSC could raise prices only $96 million. The board's order was intended to help British export industries--most of which are not nationalized--by holding down the costs of their steel. Melchett angrily protested against forcing BSC to subsidize exports, but to little avail.

Despite BSC's troubles, the ardor of Labor's left wing for more nationalization has not dimmed. Last month a party committee recommended that the government take control of drug manufacturing and movie theaters, either by starting new companies or nationalizing existing ones. Such proposals stand small chance of adoption, but there is equally small chance that steel will soon be returned to private hands. To buy BSC, which has assets of $3.3 billion, an enormous investment by any private group would be required. The government's policies hardly promise enough profit to justify such an investment.

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