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https://www.economist.com/by-invitation/2023/07/10/mathew-lawrence-on-why-privatisation-has-been-a-costly-failure-in-britain>
"THE BRITISH economy has been subject to a giant experiment: privatisation on a
scale more extensive than in almost any other OECD country. Perhaps most
strikingly, following the lead of Augusto Pinochet’s Chile, in 1989 the
Conservative government privatised the water industry in England and Wales.
This outlier status remains to this day: the majority of water infrastructure
in other countries is held and managed by the public. To see the disastrous
effects of this experiment, one need only look at England’s crisis-ridden water
companies—or brave a swim in an English river flooded with sewage.
Emblematic of these failures is Thames Water, England’s largest water company.
Having accumulated debts of £14bn ($18bn), in part the legacy of a leveraged
buy-out by Macquarie, an Australian investment group, it is now precariously
exposed to higher interest rates. But the problem extends beyond one company.
At the time of privatisation, the water industry as a whole carried no debt,
partly because £15bn had been paid off by the government beforehand. Since then
the sector has accumulated £53bn in debt while distributing £72bn to
shareholders, the majority of whom are international investors. English
water-bill payers, who have no choice but to use their local monopoly provider,
are essentially taxed without representation for the benefit of using this
essential service.
The practice of loading a company with debt to distribute cash to shareholders
and managers is especially pronounced among private-equity owners in the water
industry. However, the tension between generating strong returns for investors
in uncompetitive monopoly conditions and providing high-quality, affordable
infrastructure to the public is as real for publicly listed companies as it is
for those owned by private equity.
The effects of this tension are clear. For example, South East Water—thousands
of whose customers were left without running water this summer—spent more on
dividends and servicing its debt than on infrastructure in the two years to
March 2022. Water bills for Britain as a whole have increased by around 360%,
more than double the rate of inflation, since privatisation. Over that time,
annual capital investment by the ten largest water and sewage companies has
fallen by some 15%, according to research by the
Financial Times (FT). Bills
are lower in Scotland, whose water company is government-owned, even though it
has invested 35% more per household per year than English firms."
Via Diane A.
Cheers,
*** Xanni ***
--
mailto:xanni@xanadu.net Andrew Pam
http://xanadu.com.au/ Chief Scientist, Xanadu
https://glasswings.com.au/ Partner, Glass Wings
https://sericyb.com.au/ Manager, Serious Cybernetics
