The Coal Board and the Investor
[We have received the following letter from a reader who has listened to the Brains Trust , and cannot reconcile their statements about nationalisation with statements made in the SOCIALIST STANDARD. Our reply follows the letter.—Ed. Comm.]
Greenford, Middlesex
November 29, 1948.
The Editor, THE SOCIALIST STANDARD
Sir,
The B.B.C. Brains Trust, including Colin Brooks, Wilson Harris, M.P., Kingsley Martin and Percy Cudlipp, Editor of the Daily Herald, discussing a question “What is a Capitalist?” came to the unanimous conclusion that, as the mines are nationalised, everyone in this country is a capitalist.
Apropos of the above, may I quote from the SOCIALIST STANDARD, November, 1948, and ask you a question?
The quotation: —
“The mines are run on capitalist lines . . . that of making a profit in order to continue the payment year by year of millions of pounds of interest to capitalist investors, both the former owners and those who invest new money through the Coal Board.”
The question : —
“How does one invest news money through the Coal Board?”
Yours sincerely,
D. D. DOBING.
The Brains Trusters’ argument that we are all capitalists now because the mines are nationalised betrays muddled thinking.
Why do they say this only after coal nationalisation in 1946? Why not 300 years ago when “we” became the owners of the State Postal Service? There is also a curious gap in their declaration. If nationalisation is a fundamental change that turns the working-class into capitalists, why does the Brains Trust not go the whole hog and claim that it also turns the capitalists into wage-workers—or was that too silly even for the editor of the Daily Herald?
“Capitalist” and “wage-earner” are definable terms, and nationalisation does not destroy their meaning and application. With nationalisation or without it, the capitalists are those who possess capital in sufficient amount to be able to live on the income from it without having to work; and wage-earners are those who have to sell their mental and physical energies in order to live. Nationalisation therefore does not end or materially alter the relative position of the exploiting and exploited classes.
What nationalisation does to the capitalists is to decrease the proportion of them who are directly associated with the management of industry, either as owners of businesses or as shareholders in companies, and to increase the proportion whose wealth takes the form of Government stock. This is not new and it is not caused only by nationalisation.
Some capitalists have all their capital in the business that they own and control as proprietors and others have all their capital invested in a single company of which they are shareholders. In both cases the capitalist is entirely dependent on the fortunes of the particular company. If its trade is good the proprietor or shareholder gets large profits. In years of bad trade profits fall; and if the company goes bankrupt the capitalist loses part or all of his capital.
In order to lessen that risk many capitalists have their investments distributed over many different companies. Or they invest in banking shares or insurance company shares or in the shares of investment trusts because these institutions own widely distributed investments and are therefore more stable than one company would be.
The greatest degree of security is obtained by investing with the Government, by buying Government securities, and many individual capitalists, as well as companies, banks, etc., have large holdings.
The source of the income derived by the investor is ultimately the same whatever the form his investment takes; it comes from the surplus value produced by the exploitation of the working class. The interest paid on Government securities comes partly from the profits of State undertakings, but to a larger extent from the taxes levied on the profits of industrial and commercial concerns. One other difference is that the interest on Government securities is at a fixed rate and is therefore unlike the dividend on ordinary shares of companies which normally rise and fall as the company’s profits rise and fall.
Our correspondent is particularly concerned with the Coal Board and its finances. The Board’s position is fully explained in the Annual Report for 1947. (Chapter VIII. Published by Stationery Office, 4s. (1d.) The Government is responsible for compensating the former coal owners, but, under the Coal Industry Nationalisation Act, the Coal Board is responsible for paying the money to the Government for that purpose out of the profits of the coal industry. The compensation consists of three items: (1) £78,157,000 of Government 2½ per cent. stock issued to the former owners of coal royalties; (2) £16-1,660,000 of stock to be issued to the former owners of the mines; and (3) a further amount, not yet fixed, for certain other assets of the mines, and which will be paid partly in Government stock and partly in cash.
Further, the Coal Board is to receive on loan from the Government for development purposes and as working capital the sum of £150,000,000. This also will have to be repaid, with interest. (So far only £33 million of this £150 million has been advanced by the Government to the Board.) The Board may also temporarily borrow £10 million in the form of bank overdrafts.
The net result of this was that for the year 1947 the Board had to pay £15 million to the Government out of the profits of the industry.
Actually the profits for the year were less than £15 million, but what is not paid in one year will have to be made, up in subsequent years. As the Report puts it, the Board must, by law, “make their revenue sufficient to meet outgoings over an average of good years and bad. This means, broadly speaking, that the Board must operate as a business on business lines.” (Page 89.)
The above figures relate to 1947. The position in the third quarter of 1948 was much the same: —
“The trading account alone shows a profit of £3,117,057, but this is more than swallowed up by the quarterly interest on the Treasury’s loan, to provide the Board with working capital and the interim income payments to former owners. These charges are listed together as amounting to £3,850,000 for the quarter.” (Manchester Guardian, 7/12/48.)
There remains the question, how new investors come into the picture. They are the people who have provided the £33 million capital lent by the Government to the Coal Board (to increase to £150 million within five years), for the Government raises the money from investors as part of the national debt. The total national debt is now over £25,000 millions, and on this the Government pays interest amounting to about £500 million a year. Part of the interest goes to “small savers” who have savings certificates or deposits in the Post Office Savings Bank, the remainder goes to the large holders of Government securities, that is, the commercial companies, banks, insurance companies, and individual capitalists. Among these bond holders are the colliery companies and individuals who are being compensated for the nationalised mines and coal royalties, and also those investors who, during the past year or two, have provided the additional millions of pounds raised by the Government as part of the national debt to provide new capital for the coal mines and other nationalised industries.
This financial arrangement looks complicated, but reduced to its simplest terms it means first that investment in nationalised industries is indirect. In non-nationalised industries also much investment is indirect, as for example the capital that reaches industry through investment trusts, but in the nationalised industry the indirect investment takes place through the Government. This leaves the capitalist relationship essentially the same as before, but with the Government and the Hoards acting as agents for the whole capitalist class, standing between them as exploiters and the workers who are exploited to provide the property income of the capitalist.
Note on Russia
In passing it is interesting to observe the close resemblance these arrangements bear to the operations of State concerns in Russia, as described by the Director of the Financial Division of the State Planning Commission of the U.S.S.R. (“The Soviet Financial System,” by M. I. Bogolepov. Published by Lindsay Drummond, Ltd.)
He points out that in Russia the “State-owned establishments are run as juridically independent economic units. Each establishment, having received from the State for its exclusive use both equipment and capital, proceeds to operate on its own, with its own financial accounting, bank account, credit facilities, and, finally, with the right to make a profit.” (P. 9.)
Under Russian law this profit “belongs to the State” ; but whether all or part or none of it has to be handed over to the Government each year depends on whether or not the particular State concern needs additional capital for the purpose of expanding its operations. Industry as a whole “turns over to the budget approximately half of its total profits, and maintains control of the other half.” (P. 12.) The State enterprises all have to go to the State banks for seasonal credits or for part of their working capital (paying interest at from 2 per cent. to 4 per cent.). By this means the Government is able to maintain a continuous check on efficiency, for the bank will only grant the loan after having made “an analysis of the borrower’s financial and economic position.” (P. 34.). If the concern’s position is financially doubtful the Government steps in and finds out why.
Bogolepov also shows that a considerable and increasing part of the money needed by the Russian Government is obtained through Government bond issues and the Savings Banks, most of it at a much higher rate of interest than is paid to holders of Government securities in Great Britain. The 4 per cent, tax free paid to Russian bondholders is about 2½ times as much as the 3 per cent. on British Transport Stock from which tax is deducted—Ed. Comm.