Scotland’s Recovery and Public Commercial Enterprise: Rebuilding prosperity from the ground up
In 2015 a PWC report described public enterprise “an important instrument in any government’s toolbox”. At a time when lockdown is necessary to beat the global pandemic and economic damage unavoidable, we may soon find public enterprise not just an important tool, but an essential tool.
First off, what is public enterprise in this context? We’re all familiar with public corporations sometime termed State-Owned Enterprises (SOES), but usually just those that provide public services – say, CalMac or Scottish Water for example. There is another kind of Public Enterprise however. Those which instead of directly providing a service, produce commercial goods. In the 21st century such firms are generally small or medium in size, able to call on the resources to weather tough times, but also able to respond to market forces to generate profits to the public purse. That’s creating decent, secure jobs that can act as the dependable lynchpin to any local economy. Any Western economy without a healthy domestic market and good worker/consumer spending power is doomed to stagnation, with the least well-off certain to be the worst hit. Given almost universal projection of a rise in unemployment worldwide by the end of the pandemic, we can expect a necessary accompanying rise in social security costs to get through the aftermath, both as individuals and as a nation. It will take a second round of government action if we want to get the economy moving again in the near future.
So why Public enterprise? Well, the response to the lockdown has already shown that the recovery is going to have to be government led. As with the 2008 crash we’ve seen that only the public sector has the scale to weather such a storm whilst still focusing on the public good. Now, clearly there are some private concerns still doing pretty well. Since the start of this pandemic, billionaires in the US have added another additional $434 billion to their existing wealth. As for the public good, case after case keeps emerging of how much of that profit has come from firms roundly condemned for soaking up bailouts whilst failing to provide adequate PPE. In some cases taking loans to boost margins and then simply cutting straight to massive staff layoffs regardless.
Like so many of today’s global issues, despite what we may hope that is not a uniquely American problem. The controversy around Richard Branson brings that a bit closer to home. Branson hasn’t paid income tax in 14 years since moving to an overseas tax haven (incidentally one under British protection) and sits on a £4.2billion (and growing) personal fortune. He’s now after a £500million bailout from the government for one of his airlines. Specifically the one with which he has already forced 8’000 staff onto unpaid leave or redundancy. Given the necessary scale of global pandemic response, that £500million ultimately would have to come from new government debt, which as taxpayers and as a society (including the 8’000 unpaid and sacked staff, but excluding Branson) we ultimately bear the collective burden thereof.
The solution cannot be to let the economy crash and burn – unlike Branson most of us don’t have the savings to weather that kind of storm. Hence the importance rightly attached to responsible regulation at this stage. There are plenty of Scottish and local businesses who play by the rules who absolutely must be supported through this, just like anyone else. Our Danish neighbours over the water were amongst the first to set the example and bar companies who skip their share of tax from claiming taxpayers money, and we can rightly be proud that Scotland’s similar move came quickly after.
Yet even having preserved as many companies as possible though lockdown won’t help us one jot if incoming rises in unemployment and underemployment rip the floor out of the domestic market and sink them all anyway. From the rhetoric of some neoliberal economists you’d think they forget that consumers and workers are the same people. Without proper wages (and strong pensions), there is no customer base for business.
This is where PWC’s “important instrument in any government’s toolbox” comes in to play. It is going to take a second wave of public investment to refloat much of the economy, and public enterprise is amongst the most direct and productive ways of doing so from the ground up. The timeframes required fit current circumstances. Compared to limited grants to purely the private sector, it creates jobs that can weather a longer recovery period for longer-term profits. Compared to a longer term UBI project, each prospective new firm has a vastly lower investment requirement and creates jobs far more directly.
It also offers a more concrete guarantee of value for money than trying to woo larger oversea firms. Remember in 2018 the £4.5million Michelin Tires took from the Scottish Government to invest in their Dundee factory? Less than twelve months later Michelin closed the factory anyway. If the factory closed before that money was invested, where did it go? With public enterprise, that isn’t a risk for the taxpayer. Where public money goes, public oversight follows – and often, public profit. Companies like Dyson and Michelin shift abroad not because it isn’t profitable to manufacture in the West, but because it is more profitable to top-shareholders to manufacture elsewhere. If there’s profits to be made here that they don’t want, we might as well make them for the public purse.
In 2012 German firms in German public ownership turned a net profit of €21billion. Given these figures include all transport and municipal utility corporations which are geared to provide services rather than generate revenue, that’s not a bad incidental by-product. Consider what can be achieved when those companies are geared for production of goods rather than provision of services. The Budweiser Budvar brewery in the Czech Republic may come as a surprising example of public ownership. In 2017 alone they turned a profit of £8.5million, much of it from exports. It doesn’t have to be beer (Corona anyone?) we have the existing infrastructure and workforce skills already in the country to range some new public firms into most areas of production. Manufacturing of popular and sought after clean technologies is set to be a huge growth industry for the future, but one that newer smaller private companies often struggle to find the start-up resources for. Medium-sized firms with public investment and oversight however do not face that obstacle in the same way. Creating jobs exporting turbines from Dundee or Clydebank could raise additional funding for schools. A new electric car or bus factory in Motherwell or Livingston could ultimately help us invest more our NHS or the care sector.
We already have the powers to do this, and one way or another we are going to have to find and spend huge sums on recovery. There is however a psychological and political barrier to overcome. Our body politic is still afflicted with a certain hangover from the 1980s – there’s an often pervasive assumption amongst many politicians and press barons that we can only either shrink the public sector or at best preserve it as is. When people want to protect local libraries from closure they’re trying to take the country “back to the 1970s”. In truth there is nothing legally stopping the establishment of new, modern public enterprises that reach beyond services, yet it sometimes feels like there might as well be. It’s perhaps a good example of the Gramscian political theory of cultural hegemony. Rather, getting the best recovery means we need to push past the psychological barriers defended by certain politicians and certain media moguls and raise the idea. Just because it wasn’t done here in the Thatcher era doesn’t mean we can’t do it now. This is 2020, not 1988. The present is better shaped by the needs of the future than by politicians of the previous century. If nothing else, take assurance that plenty of other European countries have successful Public Commercial Enterprises, we just don’t see much about most of Europe in our news. The economic case is modern, clear and can be well articulated. With the political will to do this, it can be done.
So there we go, if we want value for money, then I agree with PWC. Public Enterprise is an important tool for augmenting our recovery strategy. A dozen or so new publicly-owned commercial enterprises could act as anchor bolts to help firm the foundation of a recovered economy. In fact, we could actually go one further. If we want our recovery strategy to be based on a prosperity that wells up from below, rather than trickles down from above, public enterprise may be the exact tool we need.