Publicly owned enterprise: Ever heard of the North Dakota Mill?
From Kenya to the US and UK, the idea of socialising business is picking up steam. But can it work?
After two power outages hit New York City in the span of eight days, Mayor Bill de Blasio, who is also a United States presidential candidate, made a bold suggestion, implying that the local government should take over the privately-owned electricity and gas utility that serves the city.
“We don’t depend on a private company for water or for policing or for fire protection,” de Blasio recently said at a news conference, Bloomberg reported. “If they can’t handle the job, it’s time to look at new alternatives.”
History is littered with the remains of failed or deeply troubled publicly owned enterprises. Consider the US Postal Service and its mounting debt. In the first quarter of its 2019 fiscal year, the government-owned enterprise reported a net loss of $1.5bn. That’s nearly $1.0bn more than it lost in the first quarter of 2018, and yet some officials are reluctant to privatise the enterprise. They argue the postal service is held to significant pension fund requirements that make it harder to record a profit. Remaining in public hands, supporters argue, is one way to prioritise universal service over earnings.
Indeed, around the world politicians argue that expanding public ownership could help solve a wide range of urgent problems – from climate change and inequality to corporate abuse and inadequate basic services.
In the United Kingdom, shadow chancellor John McDonnell promises that under a Labour government, workers at businesses with more than 250 employees would eventually own 10 percent of their companies.
Lawmakers in Kenya, meanwhile, voted to nationalise Kenya Airways after the airline reported a full-year loss of 5.95bn shillings ($57.8m).
Critics say such schemes are not only confiscatory but inefficient, arguing there is little incentive in state-owned enterprises to contain costs, weed out corruption or terminate less-productive workers.
One notable example of a publicly-owned enterprise that has managed to avoid such pitfalls can be found in North Dakota.
The North Dakota Mill
In 1922, North Dakotan farmers and progressives saw a decades-long dream come to pass with the opening of a state-owned flour mill. The mill was designed to boost the price of wheat. Farmers had long felt squeezed between what they thought were dubiously low prices paid by out-of-state mills and predatory rates charged by railroads.
“All the big grain companies were ripping off the farmers, and so [the state government of] North Dakota decided they were going to build their own flour mill,” said farmer Mike Dahlen, whose property is located about 25 miles (40km) from the mill.
Known simply as the North Dakota Mill, the publicly-owned enterprise has been grinding up locally grown grain and processing it into flour for nearly a century. Today, it is the largest flour mill in the US, employing more than 150 people and annually processing 33 million bushels (1,162 cubic metres) of wheat. It is also self-sustaining, typically turning a profit for its owner, the state.
The facility “demonstrates that public ownership is a viable option beyond traditional sectors such as water, energy, and transportation,” political economist Thomas Hanna told Al Jazeera. He wrote the book Our Common Wealth, which explores public ownership in the US. Having businesses in public hands, he reasons, encourages “more local economic control and broader-based prosperity”.
“Nobody can touch the price,” Dahlen said of what the mill pays him for wheat. The mill generates enough demand to increase the local price between five and 10 cents per bushel, according to its CEO, Vance Taylor. That means a typical North Dakotan farmer with 1,250 acres (506 hectares) of wheat and a yield of 40 bushels per acre (0.03 cubic metres per 0.4 hectares) could bring home up to $5,000 more than he or she would have otherwise earned, according to Frayne Olson, a crop economist at North Dakota State University.
The operation runs “essentially the same as private-sector mills”, Taylor explained. In 2018, the North Dakota Mill had $339m in sales. Its profit rose 46 percent over the previous year to $14.2m. And because it is a public enterprise, more than three-quarters of its profits – some $10.1m – was transferred to the state’s general fund.
A model for public ownership
The North Dakota Mill’s mandate is to “promote and support North Dakota agriculture, commerce, and industry”. And it has several governance features that experts say are key to its viability. It sets clear objectives that prevent it from “drift[ing] off into things that are not on task” or falling prey to corruption, according to Matt Bruenig, founder of the crowdfunded think-tank People’s Policy Project.
Dahlen, the farmer, credits the success of the mill to sound management, including a focus on technological efficiency and worker morale. The facility balances democratic oversight and transparency with managerial independence, Hanna said. It releases audited financial reports, and is overseen by a commission comprised of three elected officials: the governor, agricultural commissioner and attorney general. Mill executives provide public updates in open meetings with this board, where they may seek approval of major proposals for altering the mill’s operations. But day-to-day business is left to management.
“You walk into some places and the workers are complaining all the time,” he said. “These guys [workers at the North Dakota Mill] are generally speaking fairly happy guys; I know they gave the employees a pretty [generous] bonus here last year.”
Drawing a contrast between Taylor, the mill’s CEO, and executives of other food processing companies, Dahlen said, “He dresses kind of normal, and he acts normal, and I think all the people work hard for him because they incentivise the employees to work hard.”
Privatisation expert and University of Oklahoma finance professor William L. Megginson thinks the mill also benefits from market discipline. Requiring publicly-owned enterprises to compete on equal footing with private firms, as is the case with the mill, is the best way to minimise their weaknesses, he contends. “Competition is [the] first order of importance,” he said. “Ownership is secondary to that.”
Trendsetter?
State data shows the North Dakota Mill has an operating income margin comparable to its private peers. Yet Megginson argues that this makes it an exception among public enterprises.
“If [public ownership] was that efficient, why isn’t everybody doing it?” asked Megginson, whose research is often used to make the case for privatising state-owned enterprises around the world.
Not all academics agree with Megginson. A 2015 review of studies argues that existing research does not support the commonly held belief that private enterprises outperform public ones. One analysis found that during the post-war era, most nationalised industries in Britain posted “significantly better” productivity growth than their mostly-private US counterparts. Another study concluded that German and Japanese companies seized by the US government during World War II performed similarly to private firms. And a report commissioned by the European Union concludes that German public banks are more efficient than private ones.
”If
was that efficient, why isn’t everybody doing it?”]
Some economists see cooperatives as another useful form of collective ownership. They already play a key role in US agriculture. Cooperative grain storage facilities – which are owned by farmers and, like the North Dakota Mill, operate in the farmers’ interests – buy up to 80 percent of American grain and oilseeds, said Olson.
Model for other industries?
Hanna, the political economist, thinks the North Dakota Mill’s model of public ownership could be applied to other industries as a way to protect small businesses, labour and national interests.
Over the years, automation at the mill has clearly rendered some jobs obsolete: the facility reportedly runs eight milling units with only five operators. But employees whose work is displaced or downgraded by new technology would have more of an economic cushion to fall back on, Bruenig said. Mill employees have defined-benefit pension plans, and most belong to a union – now rarities in the US private sector. Plus, productivity gains at the mill would continue to go to farmers and residents of North Dakota, rather than private investors, he said.
This illustrates how public ownership could serve as a hedge against what’s becoming known as automation risk, a threat that Bruenig says may present itself when “robots are doing more and more of the work”. In such a scenario, he argues, financial gains linked to robot labour would go to the owners of capital (robots) rather than average citizens. Yet if everyone owns the enterprise, in theory at least, everyone benefits from its success.
Farmer Dahlen is wary of government interference in the market, calling himself a “classical economics person”. Nonetheless, he thinks the mill shows that publicly-owned enterprises can sometimes act as a valuable check on corporate power.
“I can’t say it would work everywhere,” Dahlen said. “But it seems to be working in North Dakota.”