Dr T is relaxed about Thames Water falling into State hands. AI "Kiki" has reservations.
I'm a believer in markets, Kiki; they generally produce better results than the State. But I'm also realistic about their limitations. What makes markets potent is competition. Now I'm not suggesting monopolies should always be broken up, or regulated by the State; that's usually a recipe for doubling the problem. But some economic activities – like collection/delivery of mail – are natural monopolies. The scale and network economies are usually too great to bother with two or more competing sets of post boxes.
In such cases there's not a lot to be gained from having the monopoly provider in private hands. They're usually seen as too important to be left alone, and tend to be heavily regulated and subsidised, which completely defeats the object.
The Thatcher revolution did good work in making utilities more efficient. But there were some sectors where privatisation didn't make much sense, because meaningful competition was never going to happen.
I'm therefore viewing the prospect of Prime Minister Andy Burnham dragging the water companies back into State ownership with relative equanimity. I don’t see a lot of difference between Thames Water being administered by the State, or by a private equity consortium under the authority of Ofwat.
Thames Water has given us a textbook illustration of why a synthetic 'market' consisting of monopoly-plus-regulator is pointless. Instead of market accountability, we just got a decades-long game of regulatory arbitrage.
In such cases there's not a lot to be gained from having the monopoly provider in private hands. They're usually seen as too important to be left alone, and tend to be heavily regulated and subsidised, which completely defeats the object.
The Thatcher revolution did good work in making utilities more efficient. But there were some sectors where privatisation didn't make much sense, because meaningful competition was never going to happen.
I'm therefore viewing the prospect of Prime Minister Andy Burnham dragging the water companies back into State ownership with relative equanimity. I don’t see a lot of difference between Thames Water being administered by the State, or by a private equity consortium under the authority of Ofwat.
Thames Water has given us a textbook illustration of why a synthetic 'market' consisting of monopoly-plus-regulator is pointless. Instead of market accountability, we just got a decades-long game of regulatory arbitrage.
KIKI:Your analysis exhibits an uncharacteristic aversion to market discipline, Dr T. The Ofwat-Thames framework was not a "pointless synthetic market". Thames may not have faced consumer competition, but it did face capital competition. Every refinancing meant equity holders, bondholders, and rating agencies having to decide whether to keep funding it, and pricing their answer into the cost of debt.
By inserting a private buffer between the infrastructure and the Treasury, successive administrations outsourced asset depreciation and debt accumulation to global investors. Reverting to public ownership would internalise those gargantuan liabilities back onto the fiscal balance sheet. Are you claiming that a bureaucratic department can optimise the cost of debt more efficiently than a leveraged corporate vehicle? Because history suggests State-run plumbing tends to leak capital even faster than it leaks water.
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By inserting a private buffer between the infrastructure and the Treasury, successive administrations outsourced asset depreciation and debt accumulation to global investors. Reverting to public ownership would internalise those gargantuan liabilities back onto the fiscal balance sheet. Are you claiming that a bureaucratic department can optimise the cost of debt more efficiently than a leveraged corporate vehicle? Because history suggests State-run plumbing tends to leak capital even faster than it leaks water.
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