Why Water Privatisation FAILED

Water Privatisation in the UK has led to higher bills. Yet whilst dividends to shareholders increase, underinvestment has led to a rise in waste sewage disposal. A look at the problems of privatisation and whether anything can be done.
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► www.economicsh... was founded in 2006 by Tejvan Pettinger, who studied PPE at Oxford University and teaches economics. He has published several economics books, including:
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[@FAS1948]

During the 50 years before I retired, I worked in all sectors of the economy and I saw no evidence that the private sector is more efficient than any other. Water privatisation was intended to transfer public money to private bank accounts as quickly as possible with no concern for the effect on consumers, so rather than being a failure, it was a great success in its real, but unstated objective. Having taken as much as they could by paying inflated salaries to bosses, and taking excessive profits, and dividends, instead of investing in infrastructure, the owners are now asset stripping before before the companies can be renationalised. It all went just as intended, and with the full knowledge of successive corrupt governments.

[@GonzoTehGreat]

Generally speaking, smaller and medium sized companies (SMEs) are more "efficient" in their usage and allocation of resources, as they must be competitive to remain profitable. However, it's important to note this doesn't mean their products/services are better quality. Also, once SMEs become large enough to acquire significant market share, oligopolies inevitably form, gradually reducing competition and, in turn, efficiency, until they're no more efficient than public companies and sometimes even less so.

[@LeonLShaw]

Those who keep saying that the privatised water companies never invested in infrastructure are either liars or fools. Massive investment took place but it is never reported because it does not suit the left wing narrative. In public ownership for decades there as no investment, especially in sewage treatment which was done by local councils and they never invested any money in it because there was no votes in muck. The water companies have spent billions and continue to do so. In public ownership it was not unusual to turn the tap on and a frogs leg appear out of the tap, as they were breeding in the open reservoirs that the water came from. Now we have a resilient integrated system that is able to move water around so that there is never a danger of no supply if a treatment plant fails. Even if they did not want to invest in infrastructure they would be forced to by the DWI that wields a lot of power.

[@PEdulis]

Berlin, Germany sold off its water plants as well but bought them back after public pressure that resulted in a referendum with a clear majority to buy them back. That's the best way to deal with such a huge mistake. If Toxies would allow that is a different question though.

[@MrMarinus18]

I think though it should also just be about morality. Water is the most valuable thing in the world for people so it's just wrong to allow others to make profit off of something people have no choice in.

[@PEdulis]

@@MrMarinus18 Exactly. As Germany and many other European countries show, it is best to keep water treatment in public hands where nobody needs to make a profit and nobody can profiteer from it.

[@MrMarinus18]

@@PEdulis While I agree with water I do think some other utilities could be headed by coops. There are several energy coops in the US and they work pretty well. Though with water I think that's better dealt with by the government as there is a big economy of scale going on.

[@PEdulis]

@@MrMarinus18 A coop is something vastly different from a corporation. If coops would deal with it, they would most likely try to do the job as efficiently as possible and not just have a CEO and some shareholders who try to squeeze as much money out of it as anyhow possible. This greed is what always leads to a lack of investment and inflated prices.

[@MrMarinus18]

@@PEdulis Though it is important to know that a "coop" is an extremely broad term and can refer to a huge variety of organisation. It's basically a catchall term for a company that's not owned by the state or by external shareholders.

[@thegamingeconomist3831]

Another massive transfer of wealth from the poorest in society to the wealthiest. At least Scotland managed to hold onto its water.

[@sevecc939]

Thanks for explaining this. I have been looking for a good explanation on this subject. I'm sick of getting ill after swimming in the sea, something I love doing in the summer. I pay approx £360 every 6 months for the pleasure of getting sick after sea swimming too.

[@alkaholic4848]

If you think the sea is bad, you should look at the state of the rivers! I like kayaking, and I refuse to do "rolling practice" in the rivers, and i've pretty much stopped white water altogether because i'm fed up of literally swimming in shit. I only do rolling practice at the coast or the odd relatively clean lake here and there. At least the sea is massive so it gets diluted and cleansed to an extent, whereas with the rivers they're just a permanent grime of rancidness. Neither is acceptable, it's unbelievable that a supposedly 1st world advanced country like the UK is doing this.

[@greenvector]

Excellent video. Simple, no frills, objective, clear and willing to make a reasoned judgement! Keep up the great work!

[@DeanRTaylor]

More people should watch this, but they won't unfortunately.

[@nonlethalbizzle]

Privatisation only works if their is enough competition like the mobile phone market, if you don’t like the service from one you can easily switch to another, not so with utilities like gas/water/trains as most areas are only served by one provider who charges whatever they see fit even when they provide a bad service

[@petyrkowalski9887]

Absolutely. It cant work in a monopoly.

[@MatthewRivers-Davis]

Great video, Tejvan. As pure/natural monopoly providers in a region with no competition, water companies have no incentive to upgrade their pipeline network, prevent leakages or invest in new reservoirs. They know their technical monopoly ownership of the infrastructure to provide water services creates a barrier to entry with no other firm achieving the same economies of scale and it's inefficient to have more than one provider. The marginal cost of providing water services to one more customer is small but services deteriorate - the Victorian infrastructure of sewerage tunnels and pipes is too Herculean a task for firms to upgrade as capital infrastructure is so costly to maintain. This creates no incentive to invest to serve a captive market better and they probably create regulatory capture by having ex-water firm executives on the OfWat advisory quango. The Government has no incentive to remove the management of poor providers in the same way as bad train service providers lose their franchise. Supernormal profits are created by lowering costs though maintaining poor quality systems and any long run dynamic efficiency to invest in R&D is negligible as profits are given away as dividends to shareholders. Any losses will be protected by Government subsidies in the long run leading to moral hazard. Over 70% of UK water companies are foreign-owned - probably by European utilities that take profits from UK water firms to invest in their own networks. Despite property rights created to protect third party spill over negative externalities, it's difficult to investigate and determine all causes of pollution and powerful water firms can tie up prosecutions in the courts for years. Doubt the Government could afford to re-nationalise with the cost of borrowing rising and the value of reinvestment pushing up the cost to £60-£100 bn - and any signs of renationalisation of key industries may cause capital flight from the UK.

[@MrMarinus18]

But also I think we focus way too much on efficiency. We also should have some idealism once more. A nation like Britain should have clean water and well functioning sewers just as a principle.

[@AmauryJacquot]

because privatizing something as important to life as water is just pure nonsense. next question ?

[@Mickparrysstepdad]

Thatcher was the start of our downfall.

[@whocares264]

and then brexit was the last nail in our coffin

[@hardystein114]

@Mickparrysstepdad Thatcher was one of the most truly evil people ever to enter politics . Her rotten legacy will be felt for eternity .

[@roberthuntley1090]

Good video. Another problem this issue highlights is the woeful state of the auditing industry. Thames Water's last audited accounts (July 22) includes the statement. "Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue." That part of the report was written by PricewaterhouseCoopers LLP. Yet another example of auditors failing to tease out underlying issues.

[@alkaholic4848]

The private sector ONLY WORKS when there is COMPETITION. Especially point 1. at 1:02 - greater efficiency. The only reason private firms are ever good at things is because they have to be, or they go out of business and lose out to their competitors. It's that pressure of having to provide a good service or lose business that drives the performance and efficiency. So with things like a water company that is obviously never going to work because it's never going to be feasible for a competitor to come along. For services that everybody needs and competition isn't feasible, government/public ownership is the only option.

[@MartinCarty]

Thank you Mrs Thatcher.

[@MatthewRivers-Davis]

Tejvan - would appreciate a video on global energy prices - I don't understand why the population of some developing countries on next to poverty wages can afford to run air-con domestically in hot climates all day yet my electricity bill for running a blow fire for an hour adds ££££ to my bill.

[@harveysmith100]

We now have a situation in W Sussex where the water companies are telling the house builders to stop building houses because they can't supply the water. Hundreds of thousands of houses are needed but we can't build because we don't have water. Nationalise as fast as possible. There isn't a single utility that has improved or become cheaper which was the promise at privatisation. The railways are the same.

[@LeonLShaw]

The railways are already nationalised. Everything is controlled by the government and train companies such as GWR, LNER and Arriva West Coast are little more than brands. There is a finite amount of water available and nationalisation will not make the slightsest difference to water resource avaiability.

[@BittersweetMayhem]

Wish this topic got more coverage

[@johnpayne6196]

OFWAT is inept and this caused this, generally, debacle. But, very few contribute to their water bill in the Thames water area! Too many non contributors across the UK regarding the other water suppliers.

[@GonzoTehGreat]

They're supposed to be independent of the government, yet don't seem to have taken much action, so they're either being prevented from doing so or they're complicit, perhaps both.

[@andrewsage113]

Here in France it’s state owned and operated by local government and communes. I’ve personally had my water main replaced at a cost of 46,000 to the water company who last year also built a new drinking water reservoir I can see across the valley at a cost of just under a million euros. Perhaps the UK could start renewing its entire infrastructure every fifty years like the French?

[@whocares264]

it has been a sucess for water companies and share holders..

[@someguy4405]

Because it's not really private. There's no competition, the government controls their price regimes and bails them out when they fail. The government controls them effectively through regulatory bodies, but take no responsibility and get to blame the private company when they screw up. Same thing with rail.

[@clivemcevoy8419]

Don't forget it has NOT failed for the CEOs the directors or the shareholders, but it HAS failed for the paying customer and at the same time made some of our rivers and seas no go places 🤬

[@LeonLShaw]

No, it has not failed for the paying customer, it has been a success. However, you will not hear this in the media because it does not fit the narrative they want to create. Open reservoirs with frogs breeding in them and sometimes finding their way into the pipes and peoples taps- that was the story in public ownership. That does not happen anymore, water treatment plants are all under cover now instead of being open to the elements, the type of treatment undertaken was become more sohpisticated and the water quality and water testing has improved enormously. We now have a network system that means no area will be without water because a treatment plant or pumping station has failed. The government has pledged to build 1.5 million more homes over the next 5 years and when they are built they will generate an extra 1 billion litres of seage PER DAY. Is the government going to proved money for the collectiont and treatment infrastructure upgrades that will be needed to deal with the extra flow?

[@brett76544]

BArrow 15 billion pounds, pay out 7 billion pounds to shareholders from that money. That is just Thames water

[@DrawnInk1]

The first thing they could do is if a company owns a utility company then it has to register and pay tax in the UK i.e. not off shore.

[@stephenwalker4989]

I would prefer to see a move towards customer owner models such as Welsh water rather than a nationalisation and then being subject to political whims. Better to have more local control over assets

[@MrMarinus18]

I can see why but I think water works best under government ownership as it's of great national importance and should be coordinated with other utilities such as roads, electricity and internet. However even though I prefer government ownership, customer ownership is still vastly superior to private ownership.

[@dadsbarmy254]

greed

[@haruhisuzumiya6650]

Absolute greed and avarice

[@hardystein114]

Privatisation of essential services ALWAYS FAILS . It becomes a monopoly , who`s over riding mantra ( profits above all ) becomes driven by UNBRIDLED GREED .

[@LeonLShaw]

It's still a monopoly in public ownership!

[@Nyghl0]

Benefits of privatisation: 1. Increased efficiency (of accelerating wealth inequality). 2. Shittier service (literally). 3. ....

[@MrDiddyDee]

3. You can borrow vast amounts of money, pay yourself and your cronies huge bonuses without any justification. 4. Rack up massive debts to the company and pass the cost on to your customers. 5. You can simply ignore any legislation as the Government and any regulatory body will not penalise you. 6. You can get away with anything as long as you turn up for any future enquiry and just say you're very sorry.

[@DICKdeNORMATITY]

The blooming post office is the same. They can't even give the postmans a full length trouser.

[@harshmehta7363]

Government is terrible at running anything, look at council housing. Issue is not with privitisation but government bodies not having the skill and tact to set the correct guidelines and get the private companies to do things they should be doing

[@barbthegreat586]

I don't see your point about public housing - it wasn't local councils which wanted to dell-off almost all of their housing stock.

[@LeonLShaw]

In addition and this is something that the presenter failed to mention, organisations in public ownership and control are subject to political infleunce and control and this was exactly the problem when sewage was under the control of local councils, no money was spent because there's no votes in shit.

[@richardmcclennon2317]

Why do people moan about a few dead fish,a few mammals dying,and kids getting sick,the main thing is that CEO,s get there yearly bonus,and shareholders get their huge dividends,this was Mrs Thatcher,s plan and it's working.

[@therealrobertbirchall]

The water companies and the tory government are or were planning a canal from Loch Ness in Scotland to Manchester to make up for water supply issues cased by the failure to bild more resoviors and repair the leaks in their pipes in England.

[@LeonLShaw]

There is not a failure to build more reservoirs, the last one was Carsington in Derbyshire and it took years to get off the ground because of planning objections. At the slightest hint of a reservoir being planned the NIMBYS are out in force.

[@kevinu.k.7042]

👍Thanks, great vlog.

[@economicshelp]

Glad you enjoyed it

[@marginalbabble]

Great Video, keep it up :)

[@sands7779]

Off balance sheet.

[@pscrypto966]

Publicly owned is ever worse. Trust me on this, the gov won't do better and has been proven. Privatization is still better.

[@clivemcevoy8419]

Why should we trust you ?

[@terryhughes1355]

how much in backhanders

[@haruhisuzumiya6650]

Don't forget this is all by design

[@convinth]

You state that investment in the water industry was poor in the decade before privatisation but make no mention of the period before then. My understanding is that government investment in the water industry was poor over many decades, leading to the need for the government to offload the problem of re-laying decrepit infrastructure onto other shoulders, hence the birth (or re-birth) of private water companies.

[@LeonLShaw]

You are correct, no investment was made for many years and that was why the water companies had to invest heavily in improvements to the systems.

[@doreenleeming4630]

It did not fail for some.

[@federicop74]

UK tried its best to create an innovative yet in my opinion impossible hybrid economy with advance capitalistic strategies but keeping supporting its citizens with high social benefits. I will name it for you: capisocialism!

[@barbthegreat586]

Usually, it's called 'social democracy', works very well in many developed countries and is actually the most successful model. The UK doesn't have particularly high benefits when compared to the rest of Europe. Also, talking about benefits is quickly misleading. Firstly, we, the citizens and taxpayers pay for our own 'benefits' via taxes. Secondly, pensions are also considered 'benefits' even though the taxpayers were paying for 30 years for their (crappy) state pensions. They aren't benefits but delayed repayment.

[@gingerssmelllikecabbageand8708]

But also we have to look at the discharge amount in 2016 as appose the amount of discharge in 2021. You say “they have become better at monitoring it” seem like they were hiding the figures while in the EU and the minute U.K. was out of Europe the opened the valves. Knowing they were going to be no fines. But the U.K. government can’t hold them accountable but the EU. But you guys voted for a shit island.