The Collapse of Neoliberal Privatisation

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By C P Chandreasekhar on IDEAs 19 April 2024

Thames Water, one of England’s many regional water monopolies, infamously privatised by Margaret Thatcher in the 1980s and symbolising the dramatic turn in economic policy that neoliberalism implied, is finally collapsing. Unable to mobilise £500 million from shareholders who have milked the company over years, Kemble Water, the parent company of Thames Water, defaulted on debt service payments of £190 million that fell due in the first week of April 2024. Meanwhile, rotting infrastructure resulting from long years of underinvestment under private ownership is resulting in leakages that are egregiously polluting water sources with sewage. So much so that the captain of Oxford’s boating team blamed stomach illness among team members because of too much “poo in the water” of the Thames for their defeat by Cambridge.

In the ideologically driven privatisation push after Thatcher’s return to power, her government privatised in 1989 ten regional water authorities (RWAs), responsible for water supply, water quality, and sanitation throughout individual river basin areas. Till then water supply and sewerage services were considered to be one of the economic activities that were sites for “natural monopoly”, because investment size and technological characteristics did not allow for competition between multiple private suppliers. Hence, they were seen as obvious candidates for government ownership. The prevailing understanding, backed by economic theory, was that allowing monopoly to be exercised by private owners would lead to profiteering at the expense of prices paid by and quality afforded to consumers.

Thatcher turned that understanding on its head, with dramatic implications for policy not only in England but across the world. Diverse arguments were used to justify privatisation. They included assertions that government ownership inevitably led to financial mismanagement; customer support had suffered in the absence of a thirst for profit; political constraints on reasonable pricing had resulted in underinvestment and adversely affected the quality of service; that government monopoly had undermined democracy; and that, in any case, it was not the business of government to be in business. What was concealed was that, in the case of the water and sewerage authorities, shortfalls in production and quality were partly a result of past government policy. Their ability to provide adequate services was undermined by a decision of the Thatcher government elected in 1979 to limit borrowing by the RWAs, which held back much-needed capital investments. As has been true of many instances of privatisation since, the public sector was wilfully run down to build a case for its hand over to private players.

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