Financing the Nationalized Industries

Abstract

Government spokesmen have frequently emphasized that their approach to the problems of nationalization has been based on the merits of each case. These indications of policy have usually been intended to apply to such broad questions as which industries should be nationalized or how they should be taken over, but a similar variety of approach is discernible in the more restricted field of the methods adopted for financing the industries once they have been taken over. To some extent these differences are attributable to the differing physical nature of each industry but the methods of acquisition and compensation, the choice of organizational forms and the price and profit policy followed, to which more extensive reference is made in other articles in this symposium, have also played their part. In regard to the provision of finance, three nationalized undertakings have peculiar features. The Bank of England stands in a class apart, since the Act which nationalized the Bank made no provision for financing its subsequent operations nor for the publication of any report from which the methods adopted might be judged. The Bank has, as an act of grace, published an annual report each year since nationalization, but the information therein is somewhat meagre, and the value of the extensive real estate holdings, including the rebuilding and extensions now in progress, is not distinguished in the balance sheet. The absence of any reference to finance in the nationalizing Act or the new Charter is perhaps explainable by the facility with which a bank can create money by credit expansion. Indeed, the Bank of England, being the central bank of the country and not now in any way restricted by the size of its gold or other reserves, is able to create money at will. This ability, of course, is exercised only in close agreement with the broad lines of governmental financial policy as a whole, and in any event, the amount of new finance required annually by the Bank for its own purposes must be comparatively small and would certainly be dwarfed by the vast sums needed in other nationalized industries. Another peculiarity concerns the airways corporations, for it was envisaged that, unlike other nationalized concerns, these might have to be operated at a loss, at any rate in the early years, and provision was made for subsidies from public funds. For each financial year the corporations are required to submit to the Minister of Civil Aviation estimates of their expected revenue and expenditure, and on the basis of these estimates and other information, the minister determines the amount, if any, of the grants which may be made to them from the Exchequer at the end of