As the coronavirus spreads, and the economy falters, the option of nationalising them instead should be put on the policy table, argues Chad Satterlee.
The unfolding coronavirus pandemic is unleashing an unprecedented crisis on the Australian, and global, economies. It is a crisis on multiple fronts: a health crisis, an economic crisis, a financial crisis, an employment crisis, and a social crisis.
Under these conditions, measures of private profitability are increasingly unreliable guides for efficient resource allocation. Government intervention, as we are already starting to see, is inevitable. The question is what interventions are most effective.
When conditions get bad enough, relying on taxes and transfers may not be enough to keep private investment and associated incomes at levels which avoid economic depression. If we get to such a point – something that cannot be ruled out – history suggests that merely handing out public money to private businesses without conditions attached in the hope they will use it in ways that keep the economy afloat is a highly ill-advised act of faith.
Instead, the government should seriously canvass nationalising all large businesses in order to stabilise investment.
This includes medical facilities, manufacturing, airlines, supermarkets, financial institutions, energy, mining, and construction. In turn, their workers would become public sector employees. Existing managers could be kept in place and paid public salaries.
Given that much of the world is locked down, the usual threat of capital flight in response to this plan evaporates.
Under government control, investment can be kept at levels higher than would be justified in private markets. State-owned businesses can be required to produce as much as they can while adhering to health constraints. The prices of services and goods could then be lowered until anything that cannot be sold is bought by customers.
While some businesses will make losses under this directive, others like supermarkets will be highly profitable. Since all large businesses would be state owned, the profits that accrue to Treasury from businesses that do well can be used to prop up loss-makers.
The top five global producers of ventilators control around 50 percent of the market. At present, governments the world over, like panic buyers at supermarkets, are trying to procure ventilators for their hospitals in preparation for impending surges in demand. It is unclear why these companies would necessarily ramp up production to socially required levels when they could more easily restrict output below these levels in order to keep prices high. Government-controlled production could avoid this possibility.
Panic buying could likewise be directly controlled so that goods and services in the first instance go to those who need them, not those who are the fastest to the shelves.
How it would work
Nationalisation can be enacted through an act of parliament. The act should broadly state that all property of relevant businesses are to be placed in the hands of the state on some date, and that their ownership and governance structures be reorganised according to whatever principles the government deems prudent.
In the interim, the Finance Minister and his advisers could then directly oversee the operation and reconfiguration of nationalised financial institutions, the Health Minister and his advisers the operations of the nationalised medical sector, and so on.
Compensation could be delivered in a number of ways. One straightforward mechanism is for the government to issue private owners with special shares in nationalised businesses that yield cash dividends paid at a fixed rate roughly proportional to the interest return on government bonds. The shares should not have any voting rights attached. On some future date, those shares would be cancelled, effectively eliminating private ownership.
Could all of this be carried out by the Liberal-National Coalition?
In normal times, governments of any ideological stripe are forced to support pro-business measures because this is the basis of tax revenues, the state of employment, price levels, and ultimately the foundation of electoral success or failure.
Yet businesses are currently entering a phase of life support. It is in this context that the Liberal-National Coalition may well be forced to consider economic intervention on a gargantuan scale to maintain its legitimacy.
Our business leaders are keenly aware of this, which is the real reason why they are taking voluntary pay cuts and offering loan deferrals for some customers. Unfortunately, this will not be enough to stave off economic crisis.
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