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THE crisis in Thames Water has revived calls for renationalisation of the company as well as the entire water network.
There are reports that even this government is considering a forced renationalisation, because the financial situation is so dire.
For those of us who have long argued for renationalisation, crises at companies like Thames Water are no surprise and the case for renationalisation unanswerable.
This crisis also raises wider issues across different sectors about the role of the state in ownership, in investment in growing the economy, in protecting the environment and to the overcharging of customers.
Renationalisation is the basis for resolving all of these issues. Water distribution is a public good. Who other than the public should own it?
Essentially, the crisis in the water companies is very straightforward, and within the business model of privatised monopolies is inevitable.
We are taught in the textbooks that maximising profits under free market competition ensures both price competitiveness and constantly improving service. In reality the experience of the free market is very different.
Monopoly is very different. Monopolies operating in the free market do not face competition, by definition. As a result, profit maximisation is achieved by raising charges and cutting back on services.
This is exactly what has happened under the privatised utilities, which do not compete with each other in any meaningful sense at all.
This explains both sky-high charges, interminable leaks, frequent hosepipe bans and raw sewage being dumped into our waterways.
No “competitor” of Thames Water is offering to improve that service, reverse those awful trends or to cut prices.
To a greater or lesser extent all the privatised water companies are guilty of the same practices.
The claim that the regulators provide any impediment to these terrible business practices is clearly ridiculous. It has all happened on their watch and been overseen by laissez-faire governments.
The immediate cause of the 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, so we can expect further business failures of this type.
But watch carefully. Because on all past form this government, which claims “there is no money left” for public-sector pay, or to properly fund the NHS, or even for free school meals, is quite willing to hand over tens of billions of taxpayers’ money to the shareholders and/or the bondholders of the failing private companies.
As with the bank bailout, it will amount to the privatisation of financial rewards and the socialisation of losses.
There should not be a penny paid over to either group, the holders of shares or bonds. In the free-market ideology that is so popular in government circles and beyond, they are rewarded far taking risks.
If they are going to be bailed out when their bets go wrong, they are playing no function at all and should be removed from our key industries.
As some commentators have pointed out, Rishi Sunak’s response to distressed mortgage-payers is that there will be no bailout and they must “hold their nerve.”
Naturally, the poor renters also faced with higher rents as a result are not even on his radar. The shareholders and bondholders should also be told to hold their nerve. They should not be bailed out.
One key argument usually trotted out in these circumstances is that it will be ordinary people’s pensions that will be hit.
But the number of people currently contributing to private pensions in this country has fallen to 6.8 million, little more than one in 10 of the population and mostly high earners.
It would be unconscionable to force the poor or middle-earners to bail out big business and the rich in these circumstances.
In any event, no-one is talking of a general collapse of all companies listed on the stock market, something which no government could successfully prevent.
The background to the financial crisis is instructive about how these companies are run. First, water bills have risen by 40 per cent since privatisation, according to the National Audit Office. This means 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 privatisation, 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 otherwise be available.
But this is false. In general, the private shareholders only pay out once when they acquire the assets from the public sector.
Sometimes, in an emergency they are asked for further funds. Thames Water shareholders were asked to provide £1.5bn last summer. But it is their refusal to provide anything more than £500 million which has precipitated the crisis.
Of course, for Thames Water read any number of water companies. And for the water industry, read any number of sectors; rail, post, energy, the banks. The government wants to add to that litany of failure, most especially with the NHS.
For the labour movement there are two key tasks. We are unlikely to influence the decisions of this government, which will mainly be driven by the depth of the crisis itself. But we should be clear in the type of nationalisation we want to see, and to agitate for it under a Labour or Labour-led government.
We cannot afford more RBS-style nationalisations. We should not be bailing out either shareholders or bondholders with enormous amounts of money only then to nurse the failed private entity back to health and re-privatise so that it can happen all over again.
We need to explain that business failure is part of the free market model. Profits and losses are feature of the system, and sometimes losses (or over-indebtedness) are catastrophic. As a result, our key utilities are, by their nature, too precious ever to be in private hands. The providers of public goods should be permanently in public hands.
Nor should we allow RBS-style business as usual practices to be continued. These are enormous assets, whose investment can help transform the economy in the direction of the green transition, creating good, well-paid jobs, as well as cutting bills.
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.
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