Why Won't Ed Balls Renationalise the Rail?

If you were to glance at this headline, you might think Labour is tearing itself apart over rail renationalisation. It isn't, but that the bulk of members and supporters think the rail should be taken back into public ownership reflects its popularity in the wider population. Pretty consistently, over half of the electorate would like to see this happen, with just 20% content with the current set up. Apart from Tories who are evenly pro- and anti-, voters for Labour, the LibDems, and UKIP notch up big majorities in favour.

Labour are the natural go-to for renationalisation. It's the one furthest away from the rail companies. It's also the party that has partially broken with market fundamentalism, whereas the others cross their fingers and call it a long-term economic plan. And there's history. It was Labour who ensured the state had a hands-on role in the economy after the war. Yet, despite the record, against the widespread support for the policy (second only to renationalising the utilities), the party leadership prevaricates and fudges. It is expected that this week, rail policy will retain competitive tendering for contracts, but allow a state-owned entity enter the bidding process. Why the studious avoidance of a policy that is a surefire vote winner?

Part of it comes down to the shadow chancellor's cautious economics. Yes, Ed Balls is reputed to be a Keynesian these days. This was the niche he carved out during the Labour leadership contest, and has relied on Keynesian nostrums to oppose Tory austerity ever since. However, the relationship between Ed and JM is one of fleeting acquaintance rather than deep, philosophical commonalities. Basically, Keynes believed that markets tended toward a stagnant equilibrium with little innovation and high unemployment. Ed, however, nods more toward neoliberal common sense. Yes, the government should pursue an industrial strategy. In economics, the state has to be an activist. Yet his preference distinctly leans against direct intervention. The state's role is to create the best possible conditions for markets to flourish. It steps in only when things go catastrophically wrong. It is countenanced as a last resort, as per during the 2008-09 crisis.

In Ed's opinion, the markets in energy and rail aren't entirely broken. Their dysfunctions can be overcome with a bit of tinkering. Hence, having a state-owned company bidding for franchises compels existing contract holders to up their game. And in those bits of the network won by the public contractor will still be disciplined by the market under pain of losing the franchise when it next comes up to tender. It's a classic fudge the front bench thinks would satisfy the clamour for renationalisation, while satisfying Ed's (and Ed's) preference for market-based solutions.

So much for woolly theory. As ever, there's hard politics in play. At the Fabian Conference earlier this year, I asked Ed about rail renationalisation - why not, considering how popular the policy is? The answer was as you might expect; "can't make spending commitments ... it's not a priority ... if any cuts are to be reversed, they'll come before this ... let's try repairing the markets first." The reticence is part hangover from New Labour, in which nationalisation is the N-word never to be uttered. And it sits uneasily with the pro-business offensive the leadership have been making of late. Pledging to nationalise something doesn't go down well in business circles. If the trains go, what other failing markets could be up for state takeover? It's all about securing "confidence" and opposing this to Tory recklessness already undermining "stability". There's also the small matter of the present franchise holders. If they know their number is up, there's zero incentive for them to upgrade and replace rolling stock, improve the service, etc. The state would inherit a dilapidated service requiring the injection of taxpayer cash to make right.

Here's the second point. The Labour leadership are pledged to restore their reputation for prudence by managing austerity "fairly", rubbing out the deficit, and cracking down on public sector debt. Everything is fully costed - the schtick of inviting the OBR to cost Labour's proposals is a nice rejoinder to the usual Tory "tax and spend" nonsense. Nationalising rail via a zero cost phased return is too much of a variable, a potential unknown that could be lumped in with uncosted spending and thereby jeopardise the "sound finances" strategy, and with it a huge pile of Tory/Labour floating voters.

I think this is the wrong approach and further underlines the disconnect between Westminster and the rest of the world. It might be that those floaters in the marginals want a government who's careful with taxpayers' cash. Who doesn't? And yet, the present situation is that franchise holders already get handsome bungs from the government to keep prices down. In reality, that subsidy is basically a profits guarantee. Voters aren't stupid. They prefer renationalisation because a centralised service in a natural monopoly makes sense, and they'd much rather see any money it makes returned to taxpayers' coffers.

So come on Eds, do the decent thing. Do the popular thing.