Rational renationalisation


Comment: A capitalist case for infrastructural Corbynomics

3rd November 2015
By Paul Graham Raven

The ideological dimension to the question of renationalising Britain's infrastructure is used as an excuse not to discuss the other dimensions – not least the practical or economic arguments. Far from being an anti-capitalist position, however, public ownership, at state or sub-state levels, offers the opportunity for a fairer and more sustainable capitalism.

So: when I speak of renationalisation, I speak of the shared public ownership of the systems in question, whereby all profits are reinvested. When I speak of infrastructure, I refer to: the electricity grid; the gas grid; the water and sewerage systems; the railways and all rolling stock thereof; the road network, local bus services and what remains of the Royal Mail distribution assemblage; the rivers and canals and ports; the copper and fibre and routers and exchanges of the communications networks.

What would such a renationalisation achieve?

1. Levelling the playing field

Regional state spending on infrastructure is both insufficient and unequal, with most money flowing to the already saturated southeast. This unfair distribution sees the squeakiest wheels perpetually deprived of grease, which entrenches the economic disadvantage experienced in those areas. This is because the infrastructural system-of-systems sketched above can be considered as the medium through which all but the most local economic activity must be conducted: every commute, every shipment and every transaction is in some way mediated by infrastructure. As such, if the connectivity in your region is inferior to that elsewhere, you're operating at an economic disadvantage. And the longer the disparity in investment continues, the more consolidated that disadvantage becomes.

If connectivity in your region is inferior, you’re at an economic disadvantage. And the longer the disparity in investment continues, the more consolidated that disadvantage becomes

Meanwhile, many privately provided services are heavily subsidised, with local public transport being the prime example. Infrastructural services like these are the ultimate in inelastic goods, which is a fancy economist's way of saying that they're so essential to getting anything done that people can't do without them, which in turn means that anyone selling those goods can set any price they like. Private providers of these services can hold the people to ransom: either ticket prices (and state subsidies) rise, or vital services will have to be cut.

This stress on the system is what network analysts call the 'last mile problem'. Nodes at the 'centre' of a network (bear with me) are those which are connected by high-capacity links to many other nodes, while nodes of the 'last mile' are connected to fewer nodes through fewer, lower-capacity links: as with telecoms, railways or roads, bulk traffic on major routes scales well, and can even be profitable, but fulfilling the thin, granular demand for local connectivity is unavoidably a loss-making enterprise. Every new node connected adds a similar amount of value to the network as a whole – but it's cheaper and easier to connect a new node in Canary Wharf than at Land's End, which is why network expansion starts to slow down some time before total coverage is achieved.

The ability to run a profitable transportation or telecoms service is entirely predicated on being able to pick and choose which routes you run, which means the transportation companies get to both make a profit on their bulk and long-haul business, and extract subsidies from local government as contractors-of-last-resort for last-mile services – even though the bulk traffic would be considered reduced if last-mile coverage declined. Considering that the value of a network accrues to the network as a whole, it becomes clear that the bulk traffic should subsidise the local connectivity – because the latter is both the source and destination of the former.

2. Harnessing the power of monopoly

It is not just that infrastructures are networks; it's that all the infrastructures together are a network of networks – a metasystem, in which every infrastructure's good function depends upon the good function of all the others. There's no potable water without an operational power grid; maintaining the power grid means moving people and parts around by roads and rail; the road and rail networks couldn't run without the telecoms network; the telecoms network can't run without energy. If the Internet of Things boosters are right, this paradigm will only strengthen its grip as time progresses. Without widely implemented safety standards and open protocols, this proliferation of multiply-connected devices will be a minefield for consumers, but such standards are only effective if they persist across the entire network – which in turn can only be achieved by an organisational monopoly.

Networks tend naturally towards monopoly. This is the so-called 'network effect', where the increased network extent (and hence value) makes it more attractive to newcomers; as the network saturates, the increase in attraction falls away, but the opportunity cost of leaving increases (which is why almost everyone's still on Facebook, but almost no one's happy about it).

In other words, infrastructures simultaneously construct and capture a market for their own services; as a result, competition often isn't beneficial to the customer, or to the quality of service in a mature network.

A monopoly is the most effective organisational strategy for managing a network – and if you won’t take that from me, maybe you’ll take it from Peter Thiel

A monopoly is the most effective organisational strategy for managing a network – and if you won't take that from me, maybe you'll take it from Peter Thiel, a man who has bankrolled some of the most successful and powerful network businesses in Silicon Valley. But Thiel's desire to capture the base of the infrastructural stack should be all the warning we need: the only way to contain a monopoly and still exploit its organisational advantages is to take it into public ownership.

3. Investing in the future

Massive investment is clearly required in UK infrastructure, but it seems that the best offer the market can currently provide is a sweetheart deal on a discredited nuclear reactor design to be underwritten by the Chinese state. Leaving aside the wisdom of getting into bed with China specifically (not to mention the question of whether we really want more nuclear in the energy mix): if we must be in debt to someone for our future energy security, then why not be in debt to ourselves, at historically unprecedented low rates of interest on government borrowing? Why not pay that interest back to ourselves, into our collective future? That's not "saddling our kids with debt": it's investing in the foundations of a future where they'll get a fighting chance to mitigate the consequences of our myopia.

(I'm sure there’ll be concerns as to how you'd fund this programme, but it's nothing that a progressive land-value tax system, realistic development levies and a rebanded council tax couldn't cover… though a stiff carbon tax on fuel for personal vehicles wouldn't go amiss, either…)

Utopian? Well, perhaps. Maybe it'll help if you think of the above as being rather like the recent arguments for 'net neutrality' in the US and EU, only scaled up to encompass not just communications but transportation, sanitation and energy networks, too. Network neutrality advocates argue that internet service providers must treat all user traffic equally, and not cut special sweetheart deals with certain content providers, like Netflix or Spotify, whereby their stuff streams faster. It recognises the internet as a public utility – an old term for infrastructure, perhaps, but one which betrays how differently we once thought about these essential networks that sustain our lives and bind our communities together.

Like it or not, all of us – individuals and businesses alike – need constant, equitable access to the infrastructural metasystem, in order to perform the economic roles expected of us. Private ownership and control of the very medium of economic exchange is not capitalist, but feudalist: an economics of tollbooths, bribery and highwaymen. If we are obliged to continue in the competition of all against all, then the playing field must be levelled – and that playing field is infrastructure.


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