Northern Rock nationalisation shocker !

There is shock and dismay in some circles in UK over the decision to nationalise the failed bank, Northern Rock. Many in Thatcherite Britain see it as a huge ideological setback when, in fact, it is no more than an acknowledgement of the ground reality that a private acquisition was just not possible.

It is one of those situations when the government is compelled to step in. Will Hutton points out in the FT that this compulsion has manifested itself before. Governments took over major private enterprises in the UK and re-privatised them when their fortunes improved. Further, private enteprises do benefit from a variety of government actions that fall short of nationalisation:

As the postwar period wore on, nationalisation became more obviously justified only by pragmatism, whatever the rhetoric. The government of Edward Heath did not nationalise Rolls-Royce for any reason of socialism; it took it into temporary public stewardship because its technology was deemed too important to allow it to slide into bankruptcy – a decision amply justified by events. The government of Harold Wilson could justify the nationalisation of the bankrupt shipbuilding industry and British Leyland only because it was the last hope of saving them and, as it transpired, organising their orderly dispatch. The Bank of England did not “nationalise” the secondary banks in 1974; it operated a financial lifeboat for the same pragmatic reason that today’s government has ended up owning Northern Rock. It was likewise for this reason that the US government came to own Continental Illinois in the 1980s.

......There are few companies in the FTSE 100 that have not in some way had their franchise today shaped, supported and helped by government action. One obvious example is BP, which was nationalised by Winston Churchill in 1913 in part for the pragmatic rationale of securing oil supplies. But Vodafone, which was given the 900 MHz spectrum on which to launch mobile phone services by Margaret Thatcher, and GlaxoSmithKline, which was until recently accorded generous margins by National Health Service procurers to support pharmaceutical research, are other examples. Whether it is ITV, BAE Systems, Tesco, HSBC, Johnson Matthey or Standard Chartered Bank, every corporate history is intertwined with the state.

In other words, it is not always public versus private ownership. There is a continuum in ownership with nationalisation at one end and zero government support at the other. Most enterprises come in between. At which point in the continuum particular businesses should be located is a determination one makes on pragmatic, not ideological grounds. But die-hard advocates of the market just can't see that.