Posts Tagged ‘‘The Great Divestiture’’

No, Tweezer! It’s Not Labour that’s Attacking Investment, but Tory Privatisation

January 20, 2018

More lies from Theresa May, the lying head of a mendacious, corrupt, odious party. Mike put up another piece earlier this week commenting on a foam-flecked rant by Tweezer against the Labour party. She began this tirade by claiming that Labour had turned its back on investment. This was presumably out of fear of Labour’s very popular policies about renationalising the Health Service, the electricity industry and the railways.

But Labour hasn’t turned its back on investment. Far from it. Labour has proposed an investment bank for Britain – something that is recognised by many economists as being badly needed. It was one of Neil Kinnock’s policies in 1987, before he lost the election and decided that becoming ‘Tory lite’ was the winning electoral strategy.

The Korean economist, Ha-Joon Chang, who teaches at Cambridge, has pointed out that privatisation doesn’t work. Most of the British privatised industries were snapped up by foreign companies. And these companies, as he points out, aren’t interested in investing. We are there competitors. They are interested in acquiring our industries purely to make a profit for their countries, not ours. Mike pointed this out in his blog piece on the matter, stating that 10 of the 25 railway companies were owned by foreign interests, many of them nationalised. So nationalised industry is all right, according to Tweezer, so long as we don’t have it.

The same point is made by Stewart Lansley and Joanna Mack in their book, Breadline Britain: the Rise of Mass Poverty (Oneworld 2015). They write

The privatisation, from the 1980s, of the former publicly owned utilities is another example of the extractive process at work, and one that hs brought a huge bonanza for corporate and financial executives at the expense of staff, taxpayers and consumers. Seventy-two state-own enterprises we4re sold between 1983 and 1991 alone, with the political promise that the public-to-private transfer would raise efficiency, productivity and investment in the to the benefit of all. Yet such gains have proved elusive. With most of those who landed shares on privatisation selling up swiftly, the promised shareholding democracy failed to materialise. In the most comprehensive study of the British privatisation process, the Italian academic Massimo Florio, in his book The Great Divistiture, has concluded that privatisation failed to boost efficiency and has led to a ‘substantial regressive effect on the distribution of incomes and wealth in the United Kingdom’. Despite delivering little in the way of unproved performance, privatisation has brought great hikes in managerial pay, profits and shareholder returns paid for by staff lay-offs, the erosion of pay and security, taxpayer losses and higher prices.
(P. 195).

They then go on to discuss how privatisation has led to rising prices, especially in the electricity and water industries.

In most instances, privatisation has led to steady rises in bills, such as for energy and water. Electricity prices are estimated to be between ten and twenty per cent higher than they would have been without privatisation, contributing to the rise in fuel poverty of several years. Between 2002 and 2011, energy and water bills rose forty-five and twenty-one percent respectively in real terms, while median incomes stagnated and those of the poorest tenth fell by eleven percent. The winners have been largely a mix of executives and wealth investors, whole most of the costs – in job security, pay among the least well-skilled, and rising utility bills – have been borne by the poorest half of the population. ‘In this sense, privatisation was an integral part of a series of policies that created a social rift unequalled anywhere else in Europe’, Florio concluded.
(pp. 156-7)

They then go on to discuss the particular instance of the water industry.

Ten of the twenty-three privatised local and region water companies are now foreign owned with a further eight bought by private equity groups. In 2007 Thames Water was taken over by a private consortium of investors, mostly from overseas. Since then, as revealed in a study by John Allen and Michael Pryke at the Open University, the consortium has engineered the company’s finances to ensure that dividends to investors have exceeded net profits paid for by borrowing, a practice now common across the industry. By offsetting interest charges on the loan, the company will pay no corporation tax for the next five to six years. As the academics concluded: ‘A mound of leveraged debt has been used to benefit investors at the expense of households and their rising water bills.’
(P. 157).

They also point out that Britain’s pro-privatisation policy is in market contrast to that of other nations in the EU and America.

It is a similar story across other privatised sectors from the railways to care homes. The fixation with private ownership tis also now increasingly out of step with other countries, which have been unwinding their own privatisation programmes in response to the way the utilities have been exploited for private gain. Eighty-six cities – throughout the US and across Europe – have taken water back into a form of public ownership.
(Pp. 157-8)

Even in America, where foreign investors are not allowed to take over utility companies, privatisation has not brought greater investment into these companies, and particularly the electricity industry, as the American author of Zombie Economics points out.

Lansley and Mack then go on to discuss the noxious case of the Private Equity Firms, which bought up care homes as a nice little investment. Their debt manipulation shenanigans caused many of these to collapse.

So when Tweezer went off on her rant against Labour the other day, this is what she was really defending: the exploitation of British consumers and taxpayers by foreign investors; management and shareholders boosting their pay and dividends by raising prices, and squeezing their workers as much as possible, while dodging tax.

Privatisation isn’t working. Let’s go back to Atlee and nationalise the utilities. And kick out Theresa, the Tories and their lies.