Why nationalise when you can regulate

The question I’ve been thinking about lately is ‘why would any government (or potential government) talk about nationalisation when they could just regulate instead’?  I can’t really think of a single advantage of nationalisation over regulation.  I would love to hear comments on this if you think differently.  I believe that the only time governments should nationalise is in an emergency situation and that would probably be because regulation has failed.  

There is a link between economics and nationalisation because in order to nationalise a company you have to buy it, or take on the debt of that company.  Both of these increase the national debt of the country.  With regulation there is no financial transaction and the national debt of the country does not change.  Regulation can be used across all industries from financial services, utility companies to steel companies.

Jeremy Corbyn has been arguing to nationalise the energy grid so that energy providers can supply directly to the grid in a local, cheap and environmentally friendly way.  He has also discussed nationalising the rail network and other UK assets. But why not use regulation instead of nationalisation?  It wouldn’t add to the national debt and they could achieve the same aims.

Regulation has been used in the energy industry in the recent past to promote renewable energy.  In 2002 the Renewables Obligation was issued, this required all electricity suppliers to increase the percentage of energy supplied by renewable production.  They targeted 15% by 2015-16 and 20% by 2020.  Corbyn could issue similar regulation to achieve his goal of locally produced environmentally friendly energy.  

The last nationalisation by the UK government was in 2008 during the financial crisis.  The government had to nationalise banks that were distressed and were bankrupt.  The government nationalised the debts of Northern Rock as well as the Royal Bank of Scotland.  Their debt was added to the national debt.  This in turn led to the austerity measures that have been with us for a decade.  The cost of this nationalisation has been expensive and painful to the general population of the UK. 

There is an argument that better regulation of the financial services could have significantly limited the cost of this financial crash.  The UK property market was overheated: Northern Rock had gone from sleepy high street building society to leading mortgage lender in the UK in a short space of time, the phrase NINJA loans referred to banks lending to people who had: no income, no job and no assets, there was a property bubble that also indicated a very overheated property market.  

The regulation of the UK mortgage lending market was poor and banks were making poor lending decisions which led to excessive house price inflation and financial instability.  Arguably, better regulation at the time could have prevented the government from entering an emergency nationalisation situation.

Nationalisation through choice and not in an emergency situation will still have the same financial implications.  There has been an argument that the industries could be mutualised, which would make the employees the owners of the company.  There still needs to be a transfer of ownership from the current shareholders and this has to be done at least at market price to prevent the UK market becoming a ‘no-go’ zone to investors.  There is no cheap way to nationalise a company.

There is a role for government to play in privatised industries and this is through regulation.  Governments should be using effective regulation to manage the risks that are built up in the private sector and also to achieve government led goals such as the increase in energy produced by renewables.  I can’t see the case for nationalisation unless the industry is in distress and jobs and financial stability are at risk.