The crisis in the privatized water companies was inevitable – as private utilities will always race to the bottom with cuts to services in order to maximize profits.
The crisis in Thames water has recalled for re-nationalization of the company as well as the entire water network. The government have been keen on forced re-nationalization because the financial situation is very dire.
How is the crisis affecting?
The crisis raises wider issues across different sectors about the role of the state in ownership, in investment in growing the economy. Also in protecting the environment and the the overcharging of customers. Re-nationalization is the basis for resolving all of these issues. Water distribution is in the side of public good.
Who other than the public should own it?
Essentially, the crisis in the water companies is very straight forward. Also within the business model of privatized monopolies is inevitable. Books have taught that maximizing profits are gained under free market competition. Which ensures both price competitiveness and constantly improving service. In reality the experience of the free market is very different.
How is monopoly affecting the water market?
Monopoly is very different form of market. Monopolies operating in the free market do not face competition. As a result, profit maximization is achieved by raising charges and cutting back on services. This is what has happened under the privatized utilities, which do not compete with each other in any meaningful sense. This explains the high charges, leaks, frequent hosepipe bans and raw sewage being dumped into waterways. None of the competitors of Thames water is offering to improve that service, reverse those awful trends or to cut prices.
What is the cause of the Financial crisis?
The immediate cause of the financial crisis is the very high interest rates already imposed by the Bank of England. The bank’s governor is threatening even higher rates. With bank bailout, which will amount to the privatization of financial rewards and the socialization of losses. The background to the financial crisis is instructive about how these companies are run.
What are the impact of Privatization?
First, water bills have risen by 40% since privatization. Which indicated that the bulk of all funding comes from ordinary households. Secondly, they have become hugely indebted in order to fund enormous payouts to shareholders. The Financial Times points out that they have borrowed £53 billion since privatization, when they were initially debt-free. This has helped to fund £72bn in shareholder dividends over the same period. Thirdly, it is frequently claimed that shareholders “provide private capital” for investment that would not be available.
What is the task of Labour movement?
Labour movement should influence the decisions of this government which will mainly be driven by the depth of crisis. Also the nationalization which people wants to see must be kept in mind. To agitate for it under a Labour or Labour-led government.
Profits and losses are feature of the system, and sometimes losses (or over-indebtedness) are catastrophic. The providers of public goods should be permanently in public hands. They should be public goods not just owned by the public sector but operating in the interests of the public. That should be our goal.
