Government interventions in business: A bridge too far?

What’s the first thing that comes to mind when someone makes the case for governments buying some equity in leading businesses and prestigious properties? For many, this idea immediately conjures images of nationalist governments, exorbitant tax rates, crushed industries, wheelbarrows full of currency and shortages of essential goods. For ease of reading, please rest assured that this article will not be followed by a biography of Stalin.

Hopefully, this piece will spark a debate on whether the role that our government plays in our business environment could evolve for the benefit of all involved. 

Many governments finance these interventions with oil revenues – why didn’t we?

In the late 1970s and the 80s, the discovery of commercially lucrative oil reserves in the North Sea was heralded as ‘God’s gift to the economy’ by then PM James Callaghan. He wasn’t the only one celebrating. A new government saw these revenues as God’s gift to monetary policy. Taxes fell to 40%, national borrowing was slashed, and nobody was too worried about the consequences of this oil bonanza ending. 

Is it fair to blame this approach entirely on Thatcherism?

Many would like to blame the lack of investment of the North Sea oil money solely on Margaret Thatcher’s policies, but this is unfair. In his landmark article ‘Dude, where’s my North Sea Oil Money?’ for The Guardian, Aditya Chakrabortty reflected on the Norway’s hugely profitable sovereign wealth fund as ‘a glimpse of what Britain could have had, had it been governed by something more imaginative and less rapacious than Thatcherism.’ 

It’s true that the government of the day often gets blamed for controversial policy decisions taken while they were in power. However, it is often unreasonable to make the case that a government’s decisions are exclusively their own and aren’t influenced by any of the political thought preceding their time in office. In fact, quite often (if not always) political decisions are taken precisely because of the thinking and writing that inspired leaders to run for political office in the first place. 

So where does this reluctance to intervene come from?

Many Thatcherite policies, including the use of the North Sea oil money to fund tax cuts, were hugely influenced by the writings of F.A. Hayek. Among the more influential of his ideas was the notion that major state involvement in the economy represented a direct assault on individual freedom. For Hayek, this degree of economic planning was the first step on a short road to totalitarian government and the loss of democracy completely. 

In one of his most famous books, The Road to Serfdom, Hayek writes ‘in recent years, observer after observer has been impressed by the unforeseen consequences of socialism,’ arguing that when governments take stakes in businesses, ‘what is promised to us as the Road to Freedom (becomes) the Highroad to Servitude.’ 

Hayek accepted that a minimal level of government interference in the free market to maintain both Health and Safety standards and a basic safety net for individuals in hardship is ‘fully compatible with the preservation of competition.’ However, he felt that this interference should be as limited as possible, allowing individuals to gain freedom through enterprise and ultimately, wealth. 

The Thatcherite approach to spending the North Sea oil revenue wasn’t just a political whim. It was based on the genuine belief that permitting the individual to retain as much wealth as possible through very low tax rates was fundamental to the very fabric of our freedom and democracy. 

The view that economic and political freedom are indivisible partners was not exclusive to Thatcherism in British politics. Hayek gained renewed fame in the mid-70s after being awarded the Nobel Memorial Prize for Economics alongside Gunnar Myrdal, but The Road to Serfdom was first published (and hugely popular) in 1944. A year later, as the Second World War finally drew to a close in Europe, debate raged over the UK government’s role in post-war Britain. 

Interventions often become good ideas in hindsight

 As both sides of the political spectrum came together to rebuild the country, the creation of a National Health Service, which would allow all UK citizens to access free healthcare at the point-of-need was a bold new idea. By the time Thatcher was elected PM, it had become impossible to imagine life in Britain without the NHS. Yet in 1945, public opinion couldn’t have been more different. 

It was touch-and-go as to whether we would even have an NHS. The idea of nationalising the health service and consequently restricting the profit-making potential of the health sector was offensive to many people at the time. The BMA ran a survey in which less than 10% of over 4,000 doctors were in favour of the NHS when it was still just a Bill in Parliament. The Opposition voted against that Bill 21 times before it became law.

Although debate raged over whether to create an NHS, it was not as though the government turned a blind eye to the nation’s welfare. 

Basic welfare measures were never debatable...were they?

 Between 1906 and 1914, the introduction of state pensions, free school meals and medical checks, child labour laws and other reforms by Britain’s new Liberal government were highly controversial. 

As with the NHS and the North Sea oil bonanza, debate over the role that the government should play in private commercial activities led to criticism of the Liberal reforms. What would happen if the gift of all these complimentary health consultations and this flood of free money made people lazy and unproductive? How would entrepreneurs be able to grow world-beating businesses? 

Opposition to the introduction of state pensions was so great, that the House of Lords threw out Chancellor David Lloyd George’s ‘People’s Budget’ and forced an election in the process. 

Nowadays, as in both the 1940s and 1970s, almost all British people would find any opposition to the Liberal reforms as an affront to basic human decency. Over time, we tend to oppose government interventions in businesses when they are initially proposed. Many years later, we then accept that in hindsight, these interventions were much needed and probably should have been introduced far earlier than they were. 

Could we grow to support more substantial government interventions in business?

We already support government ownership of many assets across Britain. From property to household name businesses and football clubs, foreign governments hold huge stakes in some of our greatest assets. 

Norway’s sovereign wealth fund owns prime property on Regent Street and stakes in multiple FTSE 100-listed companies. Qatar’s sovereign wealth fund bought one of London’s most-famous department stores in 2010. We are seemingly happy for every government apart from our own to play a significant role in British industry. 

Please do not interpret this as a call for full-scale nationalisation of industry. It is not. It is merely raising the question of whether limited UK government investment in certain industries (either directly or through a financial vehicle), would provide our major employers with vital support. The recent furlough scheme has allowed businesses up and down the UK to keep going over last six months and remains hugely popular. Surely further support is the next logical step? 

How do you see the government’s relationship with the business community evolving over the months and years to come? Does it matter if majority stakes in leading British assets are owned by foreign sovereign wealth funds? Join our debate and help build a roadmap for how the UK should move forwards.