Across the pond

New Labour supporters wake up this morning with the unpalatable news that their government is reverting to the core commitment of Old Labour. Chancellor Alastair Darling has finally admitted, after five months of attempts to solve the crisis at the Northern Rock Building Society by getting other businessmen to take it over, that the only solution is nationalisation.

That is turning the clock back fifty years.

It was in the 1950s that Hugh Gaitskill won the Labour Party leadership. One of the main issues in his victory was his willingness to dump Clause Four of the party’s rules, that committed it to the nationalisation of all means of production, etc. Nationalisation of electricity, gas and partially steel, combined with the creation of the National Health Service, had been the core policy of the first majority Labour government in British history led by Clement Attlee. Gaitskill won the leadership as a moderniser willing to leave businessmen to run business.

Gaitskill died shortly afterwards but the man who succeeded him, Harold Wilson, won by changing his policies. He had been a leading left winger, worshipping at the foot of Nye Bevan. But shifted to the right. Once in power, instead of nationallisation, he created a body called the Industrial Reorganisation Corporation, run by merchant bankers, and charged with doing things deemed by the government as to be in the national interest, by twisting arms and offering incentives. Its main achievment was the creation of GEC, a merger of Britain’s three biggest electrical companies, led by Arnold Weinstock of the most fervent believers in free enterprise capitalism of the time.

The last major nationalislation in Britain was in 1971, by which time Wilson had been succeeded by the Conservative government headed by Edward Heath. One of Britain’s finest and most prestigious companies, Rolls-Royce was being crippled by losses on its RB 211 aero engine. It was a fine engine, but the company could not make money out of it, because of the stiff competition from the much bigger US aero-engine makers.

Heath decided he could not let Rolls Royce go to the wall. Its aero-engines were a major foreign exchange earner for Britain. And the original business of motor cars was an international symbol of British excellence. It was one of the measures which made Heath unpopular with the Conservative right wing and helped to pave the way for Margaret Thatcher’s bid for the party leadership. And once in power Thatcher returned Rolls-Royce to private ownership. It has prospered since then and is now the second largest aero-engine maker in the world after the US General Electric Aviation.

Gordon Brown’s government was faced with quite as acute a problem with Northern Rock as Heath faced with Rolls-Royce. Northern Rock was not a household name and it was much smaller than the leading companies in the mortgage business. But the spectacular queues to withdraw money which formed when its financial difficulties became known created fears of a collapse in the housing mortgage market, with thousands of houses being repossessed.

Gordon Brown gave a pledge to the depositors by guaranteeing their savings. The cost to the government has risen steadily month by month since then and now amounts to a staggering £55 billion.

The politician who emerges with most credit in this sorry saga is Vince Cable, formerly acting eader of the Liberal Democrats. Right from the first news of the impending collapse he argued that the only sensible way out was nationalisation. Otherwise it meant that the Government, and behind them the tax-payers, were bearing the losses, while the private shareholders would take whatever profit resulted from the bail out.