> "It's even simpler than that ... their goal is to extract profits" According to the article, profit has not been the primary goal for the utilities though, because there is limited scope for extracting profits from uncompetitive essential utility services - the focus instead has been on maximising shareholder returns. So in the case of the water utilities, they "borrowed £53bn in debt while distributing £72bn to sh…
Sounds like good "modern" governance. You've got assets? Use them as collateral to take on debt so you can free up capital and give it back to the shareholders. Value!
A better question is, where do they keep finding such gullible lenders?
That The Economist, the City of London's answer to Pravda, published this article at all is telling.
I am a deep believer in free markets as the most efficient mechanism for distributing goods and services, creating better offerings and lower prices through competition and encapsulating risk in innovation. Unfortunately, none of these apply to the privatization of inherently public commodities that run on top of an underlying network infrastructure. This can be streets, railway tracks or water pipes - whenever there…
> I believe the best way to make this work is by keeping the network itself in public hands and then having a competition of contributors to the network - e.g. electricity providers that add energy to the grid. Even in that configuration, companies often have trouble fronting the money required to build a sizeable power production infrastructure. It can be seen in renewables, where investors build a lot of renewables…
> at this point, the real value is the regulator's planification
Exactly, in many of these markets a small team of public ally employed engineers could design a reasonable strategy in a week. Now you need a massive team of lawyers just to draft a contract with a private company that isn’t full of loopholes they are gonna abuse. Managing them is more work than doing the job directly. And government can always access cheaper loans
None of the competitors are allowed to offer a similar service to USPS. That said, the service provided by the USPS nowadays is primarily delivery of paper waste into a receptacle I am obligated to empty because very occasionally they also use the same box for packages.
Is fedex forbidden from delivering to a lonely hut in Alaska for the same price as USPS?
Quite literally yes when we are talking about letters. Even if they did it for cheaper.
I am a deep believer in free markets as the most efficient mechanism for distributing goods and services, creating better offerings and lower prices through competition and encapsulating risk in innovation. Unfortunately, none of these apply to the privatization of inherently public commodities that run on top of an underlying network infrastructure. This can be streets, railway tracks or water pipes - whenever there…
What you're describing is called a natural monopoly. Free markets fail in countless ways to the extent they never truly exist in practice. Some industries are close than others, though. A natural monopoly is one of the more obvious and easiest to understand failures. All natural monopolies should be public owned.
You look at these crappy companies and the problem you see is unionised staff? Have you seen the dividends and bonuses at Thames Water, or read the article posted here?
Thames Water's CEO has a $1.5 million pay package which is lower than CEOs of corporations of the same size. The funding for public unions in the UK is $233 billion. Great comparison there.
> The funding for public unions in the UK is $233 billion
That’s a pretty amazing figure, how was that calculated?
Are you seriously arguing that that the Thames Water CEO was underpaid? They have been mismanaged extraordinarily. Their debts, losses, costs, service and environment records are so poor that nationalisation is being discussed. They have been paying dividends and bonuses throughout.
"borrowed £53bn in debt while distributing £72bn to shareholders" There is the difference
No lender is going to lend a business money just so it can pay the owners. They must have used the debt to finance operations, as opposed to cutting the dividend or even putting more money in. This allowed them to continue to have profits in the short term, at the expense of higher interest costs in the long term (which probably cause higher prices for customers in the long term).
Money is fungible. Lending should only be used for capital investments, not operations or maintenance. The lender's money may have been used for what little capital investment is still happening, but the money they would have otherwise used was diverted to shareholders.
It's even simpler than that. All of these privatized entities are incredibly efficient... at extracting profits from the public. Of course their goal is to extract profits. And you don't extract profits from a rail line by offering the best service. Bonus points if you can convince the government to bail you out and provide some extra cash.
> "It's even simpler than that ... their goal is to extract profits" According to the article, profit has not been the primary goal for the utilities though, because there is limited scope for extracting profits from uncompetitive essential utility services - the focus instead has been on maximising shareholder returns. So in the case of the water utilities, they "borrowed £53bn in debt while distributing £72bn to sh…
Specifically table 1 on page 2, "The ten industries with the highest profit margin", has the spots 1 (elec: 42.5% profit), 2 (gas: 40.5%) and 8 (water: 32.1%) being utilities.
Didn't InstantPot just go bust for the same reason? Somebody decided to lend them too.
I do not know what “same reason” means here. Instant Brands went bankrupt because it could not pay its debts in a timely manner, so lenders decided to take the collateral. It is possible lenders did not do sufficient due diligence, or maybe they got unlucky, but they did not lend Instant Brands money specifically so Instant Brands’ owners could pay themselves (maybe they did if there was corruption in this case, but…
Loading up orgs with unnecessary debt is what private equity (neé corporate raiders) does. The financiers who underwrite the raids certainly get paid. All the other stakeholders lose.
It's just fancy accounting talk for theft. A shell game. Like u/Spooky23 states upthread.
It's wrong. It doesn't make any sense. And yet here we are.
I am a deep believer in free markets as the most efficient mechanism for distributing goods and services, creating better offerings and lower prices through competition and encapsulating risk in innovation. Unfortunately, none of these apply to the privatization of inherently public commodities that run on top of an underlying network infrastructure. This can be streets, railway tracks or water pipes - whenever there…
They should be publicly owned but the money ring fensed and the prices rise depending on works needed. For example I think it would cost something like £100bn to sort out the sewerage system in the UK - we should just ask people what they want (continue as is or have higher bills) and charge people based on their assets an amount over say 5-10 years that covers it. So for rich people it might be several thousand £ pe…
We know what people want, though: they want the sewage system fixed and to continue paying the same amount for water and sewage as before, and they've been convinced they can have it by cynical populist campaigners and politicians telling them that they were already paying for this and the evil, greedy privatised water companies just stole the money and used it for shareholder profits. (They were not. The amounts the regulators allowed the water companies to charge were way too low to cover it, basically by design since people weren't willing to pay that much and didn't consider it worth fixing until a year or so ago. All of the shareholder dividends post-privatisation were not enough to pay for it, and of course without those dividends no-one would invest anyway.) Oh, and they don't want the inconvenience of having their streets dug up to install the new infrastructure either.
A lot of folks seem to have a view which is as simple as “government is inefficient, and companies are efficient.” There is certainly _some_ truth to this statement, but it’s so simple as to be effectively meaningless. And such simple takes on this issue can lead to some pretty adverse and unintended effects.