This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the
September/October 2015 issue.
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A Case for Public Ownership
Dear Dr. Dollar:
Would the U.S. economy work better if some industries were nationalized? Banks? Other industries? Which ones and why?
—Richard Hobbs, San Jose, Calif.
Even in a thoroughly capitalist economy, where most economic activity takes place in markets and firms are driven by profit-making, there are good reasons for some industry to be publicly owned. Indeed, a non-trivial amount of industry in the United States is already publicly owned.
For example, as Gar Alperovitz and Thomas Hanna pointed out in a July New York Times opinion piece, there are “more than 2,000 publicly owned electric utilities that, along with cooperatives, supply more than 25 percent of the country’s electricity... In one of the most conservative states, Nebraska, every single resident and business receives electricity from publicly owned utilities, cooperatives or public power districts. Partly as a result, Nebraskans pay one of the lowest rates for electricity in the nation.”
Electric utilities (and other utilities) are “natural monopolies,” operating in realms of the economy which are not (or are hardly) open to multiple, competing firms. Roads, subway systems, and major water control systems are other examples of “natural monopolies.” Another form of natural monopoly arises with unreproducible minerals (oil, copper, iron, etc.); public ownership could allow society in general, rather than private firms, to reap the profits from their scarce supply. Private ownership is, of course, possible in such cases, but, if it is to be socially acceptable, it must be heavily regulated or heavily taxed or both. Given the costs—and often the failures—of meaningful regulation and the ineffective taxation of large firms, public ownership can be a more effective way to go.
In other industries, where the operations of firms have large impacts beyond the firms’ immediate actions, public ownership can also be the best economic option. Here is where banking provides the prime example. Because the actions of banks have such far-reaching impacts on the whole economy (“systemic impact”), they must be either publicly owned or thoroughly regulated—and, as experience of recent years has demonstrated, regulation has not worked. Also, firms outside the financial sector can have systemic impacts, and, indeed, during the Great Recession the federal government in effect nationalized large auto firms to prevent their failure from wreaking havoc throughout the economy. (However, the government played a minimal role in operating the firms and quickly moved to return them to private ownership.)
In other types of industry, firms can have large impacts beyond their immediate actions where positive “spill-over effects” (“externalities”) are large. For example, the Tennessee Valley Authority and California’s Water Resources Control Board (which operates as both a de facto enterprise and a regulatory agency), deliver essential services that have such large impacts. Private firms could not capture profits from all the immense social benefits that such enterprises can create. Thus the huge investments in water systems that these public agencies provide would not be undertaken by private firms.
Still another example where public operation makes economic sense is with so-called “public goods,” where one individual can consume the product without reducing its availability to another individual and from which no one is excluded. Street lights are the classic example, and other municipal services—for example, fire-fighting and traffic-control systems—also fall in this category.
Clearly, it is possible for private firms to be engaged in some of these public activities. A private firm, for example, could operate the public lighting system under contract from a municipality. Garbage collection is privately operated in many locales, and road construction and repair are often contracted to private firms. Yet, when private firms are engaged, regulation and public oversight—more difficult in some realms than in others—has to be extensive.
Under present political conditions, moving to greater public ownership is not likely. Privatization, in fact, has been at the top of the agenda at many levels of government—for example, with schools, hospitals, the military, and prisons. In these cases, not only does it generally make more economic sense (in terms of costs) for the operations to be in the public sector; in addition, privatization undermines democratic control precisely in areas where it is most important. Public schools, hospitals, the military, and prisons all have their problems, sometimes severe, but placing these institutions in the private sector is neither economically nor politically beneficial.
“Public ownership” can have many forms, and certainly control of economic activity by a distant government authority does not assure democratic control. Yet, public ownership by both worker and consumer cooperatives, as well as by local governments, generally holds out more promise of democratic control as well as a greater likelihood of serving public interests.
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