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.

The case for privatisation rested on two claims, reiterated by Michael Howard, writing recently for The Economist. First, the bracing force of competition would improve utility management and hence overall outcomes. Second, it would unlock access to private capital to fund much-needed investment that would otherwise be held back by short-termism and scarcity—supposedly endemic to public ownership.

Neither claim stands up to scrutiny. Private management and weak regulation have delivered a crisis-ridden sector and chronic underinvestment. Water companies have made clear that investment will be funded mainly by increased bills, undermining the idea that private capital is essential for investment.

Dogmatic adherence to privatisation in the face of its sustained failure suggests ideology, not pragmatism, was the motivation. Whether key infrastructure is publicly or privately owned, investment in its construction and maintenance will always ultimately be borne by taxpayers, bondholders and water customers. The question is whether we want to add to those costs the weight of shareholder payouts and the extra interest that private owners have to pay over sovereign borrowers. If your answer is, like mine, no, then the solution is obvious: the public ownership that prevails in most other water systems around the world.

Rather than defending a failing status quo, a better approach would be to use existing law to hold responsible those who have wrung the industry dry, and then to change the law’s purpose and water companies’ governance and ownership to put the public interest first—treating water as a human right and organising water networks as a critical public service.

The case for public ownership should rest on a sober assessment of how best to deliver fundamental public goods and services. Public ownership—which can operate at multiple levels, from the national to the municipal—is clearly not appropriate for every sector. But it allows the pursuit of a broad range of objectives beyond profit-maximisation.

If the argument for public ownership is strong in water, it is even more powerful when it comes to the biggest socio-economic challenge confronting humanity: the energy transition. In the span of a decade we must undertake an unprecedented investment and divestment sprint to deliver a clean electricity system, which private ownership and market co-ordination are ill-equipped to deliver. As Derek Brower put it in a recent column in the FT: “The sheer scale of the physical infrastructure that must be revamped, demolished or replaced is almost beyond comprehension. Governments, not BlackRock, will have to lead this new Marshall Plan.”

From bringing new renewable-energy generation online, to dramatically expanding a backlogged grid and storage, to phasing out fossil-fuel assets, the discrete elements of grid decarbonisation aren’t discrete at all: they must be synchronised to limit physical bottlenecks and inflationary pressures. Private investment, hindered by the profit imperative and, in many quarters, a preference for liquid assets over longer-term capital investments, cannot deliver a smooth wholesale transformation of the electricity system. Public ownership offers greater affordability, more effective co-ordination and greater democratic oversight. The argument for it is built on necessity, not nostalgia.

In his recent book, “The Death of Consensus”, Phil Tinline traced how the power of political nightmares has driven the transformation of Britain’s economy. The case for private ownership drew strength from a spectre that, advocates argued, haunted British life: sclerotic service under nationalised utilities that stood as both cause and symptom of wider national decline. Yet the age of privatisation has now produced its own nightmare: of raw sewage gushing into rivers as international shareholders profit, utility bills rising relentlessly as infrastructure creaks and, now, the potential collapse of leading water and energy companies under the weight of their own fragile, extractive business models. It is time we woke up and exorcised the ghost.

Mathew Lawrence is the founder and director of Common Wealth, a think-tank, and the co-author of “Owning the Future” (2022).

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