Although Britain had defeated the Axis Powers in the Second World War, the country was falling from its status as the world’s sole economic power; 1945 was the second consecutive year that GDP per capita had fallen. Influenced by economists like William Beveridge and John Maynard Keynes, British economic policy operated under the guidance of what is referred to as the Post-War Consensus. From the end of the Second World War until the election of Margaret Thatcher’s Conservative Government, British politicians from both major political parties agreed to establish Britain as a social democracy. A key element of the Post-War Consensus was its proposition of nationalisation as a method to increase output and to make utilities more available to the British people. Nationalisation, although well-intentioned, was the leading cause of the decline of the British coal industry, and therefore lead to increased energy dependence on other nations.
Between 1945 and 1951, Clement Attlee’s Labour government
nationalised numerous major industries, including coal, electricity, railway
transportation and telecommunications. Broadly, such industries were
nationalised to further the public interest; the Coal Industry Nationalisation
Act 1946 reads, “There shall be a National Coal Board… charged with the duties
of:
(a) working and getting the coal
in Great Britain, to the exclusion (save as in this Act provided) of any other
person ;
(b) securing the efficient
development of the coal-mining industry; and
(c) making supplies of coal
available, of such qualities and sizes, in such quantities and at such prices,
as may seem to them best calculated to further the public interest in all
respects, including the avoidance of any undue or unreasonable preference or
advantage.”[1]
Supporters of nationalisation often invoke the concept of
“economies of scale” to demonstrate that granting the state total control of a
particular industry would make the operations within that industry more
efficient by reducing the cost required to produce one good. In a 2020 article
for The Conversation, Professor Emeritus Colin Bamford made this
argument in favour of the nationalisation of Northern Rail[2];
by increasing the proportion of operations handled by a singular body, the
initial cost of constructing large railway networks and building trains is
divided among the increased number of operations, giving the body a comparative
advantage in that industry.
Figure 1: Economies
(and diseconomies) of Scale
Following this argument, as coal production by a singular
body (in this case the National Coal Board) increased between Q and Q2,
as shown in Figure 1, the price of producing each unit of coal would
decrease, meaning that the newly nationalised coal industry could further
production, provide lower energy costs onto consumers. This would help fulfil
the National Coal Board’s (NCB) aim of providing affordable energy to British
citizens.
By examining changes in coal production output, as well as
the cost of domestic heating for the average consumer, one might be able to
assess the effects of state control of the coal industry. Between 1946 and
1952, coal production in the UK increased from 193.11 million tonnes to 228.5
million tonnes[3],
an increase of 18%. In the same period, however, the cost of domestic heating
also increased by ~20%. This suggests that the National Coal Board experienced
diseconomies of scale; an increase in output resulted in an increase in cost
per unit, which is responsible for the increase in consumer prices.
In this case, the diseconomies of scale were caused by the
corrupt way the Board was run. Section 2 of the Coal Industry Nationalisation
Act 1946 stipulated that “The chairman and other members of the Board shall be
appointed by the Minister of Fuel and Power…”. Hence, unsuccessful operations
arose. By granting a Member of Parliament to choose the individuals who would run
the coal industry, it became inevitable that the chairman and members of the
board would be those with special connections to powerful politicians. The
legislation specified that board members should be “qualified as having had
experience of, and having shown capacity in, industrial, commercial or
financial matters, applied science, administration, or the organisation of
workers”; this did not guarantee effective operation of the coal industry. In
the first four decades after the nationalisation of the coal industry, total
coal production in the UK decreased by 44%, despite the NCB’s ambitious targets
to increase output.
Figure 2: Coal production in the United Kingdom between 1946 and 1987, the years that the National Coal Board was in operation.
One often posited hypothesis for the decline of the British
coal industry is the availability of cheaper alternative energy sources. Critics
of the nationalisation hypothesis might argue that the decline of the coal
industry was caused by the increased availability of oil in the North Sea or
the increased use of nuclear power. The country’s first nuclear power station
was opened in 1956 and oil exploration in the North Sea became increasingly
popular in the middle of the 1960s. However, the availability of alternative
energy sources does not suffice as an explanation for the decline of the
British coal industry If anything, these criticisms further expose the failure
of nationalisation. For nationalisation to be effective, long-term demand for
the commodity that has been nationalised must be guaranteed, or else the
resources devoted to nationalising the industry would have been put to waste.
If coal had remained under private control after World War II, the diseconomies
of scale caused by the NCB would not have occurred, and the coal industry might
have remained competitive for much longer. Moreover, no taxpayer money would
need to be devoted to nationalising the soon-to-fail industry.
Ultimately, the National Coal Board failed as it could not
adapt to changing market circumstances. The NCB set ambitious, arbitrary
targets, and in the absence of the profit motive, there was no real impetus to
dispense with poor chairmen. Throughout the era of state control for the coal
industry, the price of domestic heating for the average consumer increased. The
National Coal Board’s commitment to “further the public interest” had the
inverse effect.
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