How to Denationalize

April 27, 1959

In the last decade the political appeal of an orthodox socialism—i.e., of government ownership and operation of the means of production—has been fading to the point of disappearance, at least in the U.S. and in Western Europe. Even the parties of the left no longer openly propose further nationalization, but busy themselves chiefly with more “welfare” programs. Yet the nationalization that has already taken place has remained practically undisturbed. It is even carried on, in Britain and elsewhere, by conservative successors of its original socialist sponsors. The prevailing assumption has been that socialization is an irreversible process.

It has remained for Western Germany to find a politically acceptable route to the restoration of private enterprise. A few weeks ago it offered “people’s shares” of the capital stock of Preussag A.G., a government-owned mining and machine-building concern, for private subscription. Sales were limited to persons with a taxable income of not more than the equivalent of $3,800 a year, and each buyer was limited to five shares at the equivalent of $33 each. The issue was oversubscribed three times. And now the West German Government has begun preparations for the sale, through a similar plan, of the extremely successful government-owned Volkswagen company.

Here is an example that the British, French, Norwegians, Italians, and Spanish, among others, would do well to study and to emulate. The “others” include the citizens of our own country. Let us take two outstanding examples: The New York subways and the Tennessee Valley Authority.

NEW YORK SUBWAYS

New York City has operated its own “independent” system since 1932. It bought the rights and properties of the IRT and BMT from the private companies in June 1940. Prior to that time the great issue had been the sanctity of the 5-cent fare. Politicians had made a living by denouncing the “profiteering” and “gouging” of the private companies. But under municipal ownership and operation, the fare jumped from 5 to 15 cents by 1953, an increase of 200 percent. This cannot be blamed solely on “inflation.” In the same period the general consumer price index increased by only 91 percent. Even a 15-cent fare now fails to meet municipal-operation expenses. The deficit in the fiscal year ended June 20, 1958, was $11 million. It is expected to be around $17 million in the current fiscal year.

These subway deficits have helped to bring about New York City’s present fiscal headaches. The issue of private operation has now been revived by the dramatic offer of a group of investors to negotiate for the purchase of the city’s entire transit system. The particular terms suggested may not be acceptable, but the re-privatization of the subways is greatly to be desired. The city might well offer “people’s shares,” with a maximum amount purchasable by any individual, and perhaps a preference to present employees. If any shares remained unsold, the city could open up the rest to free competitive bidding. In any case it would have to give guarantees against imposing fare-controls that would threaten solvency.

AND THE TVA

When we turn to the TVA, we find its political champions still pushing for ever more expansion and special privileges. For the fifth consecutive year, Congress is being asked to authorize the TVA to finance its new requirements for outside capital by issuing revenue bonds to the public. The April survey of the Guaranty Trust Co. of New York points out the dangers of this “blank check” precedent for government agencies. TVA, the bank shows, has always operated under conditions that make a mockery of the “yardstick” idea that was part of the excuse for its origin. “TVA pays no Federal income tax and nothing in lieu thereof. . . . It receives its capital funds from Congress and yet has never paid any interest to the Federal government on any Congressional appropriation. These are not operating economies but special privileges bestowed on the people of one area at the expense of the taxpayers at large.”

It would not be difficult to devise a plan to sell TVA to small investors, perhaps giving prior choice to residents of the territory TVA serves.