In this video, we'll begin to discuss some details of the United Kingdom water privatization experience. We're going to look at how political economy and other status quo conditions in the UK, at the time of privatization, influenced decisions to undertake radical globally unprecedented change to the institutions delivering water and sanitation services. To recap our earlier session on changing institutions, the UK water privatization is an option seven case from our seven alternative deal structures between the state and private sector firms. It is a full divestiture, where the state sells the municipal water utility assets to a private firm. As we've said, it's the most controversial and thus rare deal structure in the water world. Dale mentioned his colleague, Professor Wu Shun's metaphor of swimming with two sharks, to highlight the risks of relying too heavily on either public or private sector management of a water sector. Dale used this metaphor as a reminder that both extremes require checks and balances. The privatized UK water sector has relied exclusively on the private sector for the past nearly 30 years. But indeed, the state did not exit the scene. Instead it developed significant checks and balances in the form of regulation and is continually aimed to revise these in light of changing conditions and expectations. We'll cover these evolving roles and responsibilities of these UK regulatory bodies later, in our next seventh section on regulating the water and sanitation sector. First, we need to be clear we're actually talking about Britain here, not the whole of the UK. A deal structure, Option seven Full Divestiture Privatization of Water and Sanitation Services, took place in England and Wales only in 1989. Scotland to Northern Ireland, interestingly, did not follow England and Wales' water development path, either at the time or since. They've retained public ownership and operation of their water and sanitation sectors. You'll recall here our earlier observation that privatization is very dependent on local context. Scotland and Northern Ireland were very different to England and Wales. They lacked certain privatization prerequisites, as we'll refer to them in our next video. There were also distinct differences of political approach, topography, geographical remoteness of water customers, network asset configurations and conditions, raw water supply availability and so forth, in Scotland particularly. Nevertheless, the water sectors of Scotland and Northern Island have, in my view, learned much from their neighbor's experience with changing institutions. And some less controversial forms of public, private partnerships such as consulting contracts, service contracts and management contracts have been used. Ideas and people have also flowed across these borders in both directions to influence the design and operation of economic and environmental regulatory institutions, in particular. This has involved policy and planning issues, such as domestic and non-domestic competition arrangements, water pricing controls, leakage, and water resources management. So the England and Wales water privatization case is not only of global interest, but also has provided opportunities for learning in the UK. We opened our fifth session with a reminder that our views on privatization may be shaped by our ancient instincts related to water. We need to think carefully about our emotional responses to privatization versus studies of the empirical evidence as to whether it makes sense in a particular time and place. The time and place for me was 1989. This is when the England and Wales water privatization happened. I was 15 years old and I was living in Wales. I saw privatization happen. I saw television adverts, set to Handel's Water Music, inviting people to buy water shares. I saw news reports about the stock market flotation. I lived through some turbulent social and political conditions that I'm about to describe that preceded the England and Wales water privatization. I remember frequent pre-privatization water service interruptions in the early 1980s. And I remember water authority vehicles driving down the street I lived on. They'd call out boil water notices over megaphones, telling our family to boil our water to make it safe after it had become cloudy or discolored during network repairs or maintenance. It's easy for me to forget how rare such formally routine occurrences have now become since privitazation. So that change seems positive. In the late 1990s, a decade after water privatization, I started PhD research that led me to uncover negative impact of privatization on the innovation rate in the England and Wales water sector. Over the course of this and later research, I found that privatization and the regulatory practices that accompany it have made it hard in some senses for the England and Wales water sector to plan and act longer term to address major challenges like climate change. During my research journey I've encountered many vehemently anti-privatization views. And over the years, I've swayed in different directions on the issue of privatization myself. It helps, though, to take a global lens like we're doing in this course. This allows us to take a hopefully balanced and more nuanced view. And certainly it's helped me to see the England and Wales water privatization as just one possible institutional configuration among many. It has strengths and weaknesses and there's a lot to learn from it. Have a look at this photo. Do you recognize the lady on the right? What about the gentleman on the left? Chances are that if you grew up during the 1980s, like I did, you recognize Margaret Thatcher on the right, later known as Baroness Thatcher. Margaret Thatcher was UK Prime Minister from May 1979 to November 1990. During that time, her conservative government was reelected twice, in 1983, and in 1987. You may have an immediate positive of negative response to such a controversial individual. This maybe based on experience or on the character films that have been made about her such as when she was portrayed by Hollywood actress Meryl Streep in 2011. She had a strong will and a staunchly anti-socialist stance. Her Britain Awakes speech at Kensington Town Hall, London, on 19th of January 1976 led to her famously being dubbed the Iron Lady in the Soviet newspaper Red Star. In 1975 Margaret Thatcher was elected leader of the Conservative Party, then in opposition to the ruling Labor government. Her government was elected to power after the so-called winter of discontent in 1978 and 1979 and we'll come to this in a moment. She has various controversal events associated with her time in office, not only the wide ranging privatization program Of UK public services and industries. There's the Forkland's War in 1982. And introducing a per capita tax, a community charge, in 1989 that led to poll tax rights in 1990. She also clashed with her party due to her more isolationist views about Europe. Thatcher's leadership was challenged and she eventually resigned her leadership in 1990 and left the House of Commons two years later. She was given a life period then joined the House of Lords. Margaret Thatcher spearheaded a conservative party political agenda, an ideology of deregulation and liberalization and popular capitalization within which the England and Wales water privatization took place. Now let's look back at the photo. On the left is 40th president of the United States Ronald Reagan who held office from 1981 to 1989, overlapping with the Thatcher period in the UK. Both leaders inherited economic conditions of high inflation and high unemployment when they took office. A polarizing anti-socialist, anti-communist approach underlined both leaders' terms in office. President Reagan was an ally to Thatcher and similarly a staunch advocate of deregulation and liberalization. In spite of their similarity though the US did not later pursue the same broad program of privatizing public utilities and industries as happened in the UK. Thatcher's Conservative Party government was elected following the winter of discontent under the Labor government during the winter of 1978 to 79. This is when attempted caps on public sector pay increases in the UK had led to disputes between trade unions and the government. Before this also in the 1970s the UK had many strikes by coal miners and others in the public sector, again due to pay caps during periods of high inflation. This had led to disruption to electricity utility services, with even a three day working week in 1974 to conserve energy due to shortfalls in supply caused by industrial action by coal miners. During this winter of discontent, rubbish went uncollected and grave diggers in nearby Liverpool and here in Manchester, according to newspaper reports of the time, even left bodies unburied. Criticism of these public sector conditions and their consequences fueled the conservative party campaign, leading up to fatuous election in 1979. Including a famous swipe at the labor party opposition using an advert with the play on words, labor isn't working. These status quo conditions of the UK's political economy set the scene for Thatcher and at least one key ally to launch an ideology driven, globally unprecedented program of privatizing 26 different public utilities and industries from 1979 to 1991. John Moore, later Lord Moore of Lower Marsh, was a key ally of Thatcher, and one driving force of the UK privatization program. This was thanks to his advisory and policy roles as economic secretary to the treasury in 1983, and financial secretary to the treasury from 1983 to 86, within Thatcher's government. Moore had even lived in the Unites States earlier in his career. His wife was American. He was described as having movie star good looks, and he was even seen as a potential candidate for prime minister, himself, one day. He was informally known as Mr. Privatization. You can see here a quote from his winter 1992 address to the Center for Policy Studies in London, privatization everywhere, the world's adoption of the British experience. He talks of how the huge range of industries presently languishing in state control around the globe can be successfully transferred to private ownership by adopting the British experience. This speech came after the wave of UK privatizations and after the England and Wales water privatization in 1989. But it captures many of the ideas that fueled most design of and support for the UK's privatization program in the early 1980s. And you can see how these views must diversinated with fractures and with those of her ideological soulmate, Ronald Reagan, as the UK's Times newspaper once reportedly described him. And of course, Reagan has talked in front of the British parliament in 1982 of Marxism-Leninism being left on the ash heap of history by the forward march of freedom and democracy. In the same speech Moore spoke of how the radical experiment of privatization was pioneered in the UK and had become a practical proven process by which state owned industries can join the free market, with visible and often dramatic gains for the industry, it's employees, it's customers, and as he puts it, for the government that set them free. Strong words. Moore also clearly believed that state owned industries were destined to perform poorly. Here we see he details how this will affect the whole economy and lead to poor returns on capital, low productivity, high costs and prices, poor labor relations, inefficient resource use, and poor customer service. So, can we say these political economy status quo conditions of the UK like the late 1970s perceived failures of public services and the anti-socialism, anti-communism embodied and acted upon by fracture more on others, explain why the UK privatisation happened here and nowhere else in the world at that time. Does it explain why the England and Wales water privatization part of the wider privatization program happened? Or does it help to explain how the water privatization was able to persist for nearly three decades afterwards? Certainly I've come across this kind of popular account that the UK privatizations and the England and Wales water privatization specifically was somehow the inevitable outcome of Thatcher or of the ideology she seemingly personified and espoused. What do you think? Is this kind of historical, biographical account of the motivations and actions of some particular prominent individuals sufficient for this kind of explanation? I think not. It is an appealing account but it's incomplete. What problems does this biographical account of individuals throw up for us? Well let's ask ourselves. If this personality and ideology-focused account is sufficient for us to understand water privatization in England and Wales, then why did water privatization not occur in Scotland and Northern Ireland? They retained public water utilities. But Thatcher was prime minister for the whole of the UK, not just for England and Wales. So why didn't the privatization program encompass the whole of the UK? In our part one MOOC, we looked at the UK's historical water development path. That's the sequence of choices made over time to move the UK, and London and Manchester in particular, to higher levels of water and sanitation services. We acknowledged work by professor Frank on long term transitions in the way technology systems and institutions are configured. We saw that many social, cognitive, economic technological, political and institutional factors can be involved in changes of this magnitude. After all, the England and Wales water privatization was one of 26 public industries privatized between 1979 and 1991, as we've said. We show there a simplified Illustration that any policy outcome requires at least political will, some supporting science or evidence, and the resources to implement. In our account so far, we've only really touched upon the politics and specific political figures. In the following videos we'll look more at the additional factors. A former colleague at the Alliance Manage Business School, Professor Jean Shawl, has written several highly critical articles on the England and Wales water privatization. One of her key points was that the justification of the time for water privatization was based mainly on ideology rather than empirical evidence. A key advantage, then, of detailing the ideology and personalities of the UK water privatization program in this video, then, is that it enabled us to get from this ideology some promises about the apparent benefits of the England and Wales water privatization. And we'll return to these promises in our later videos to see if they were fulfilled, when we look at some of the good, bad, and unclear outcomes. Here, let's take these promises applying to the new private water utility, to the government, and to consumers as shown in this table. And we'll take the simple politics, science, resources factors from my earlier policy process then diagram. First, from Moore's ideological writings, we can tell that one of the first promises of privatization was to reduce political interference in the operation of the new private water utilities. His 1992 speech after all did not blame the quality of the work force for the poor performance of state owned industries, but rather the politicians in charge. He worried that political priorities would take precedence over commercial ones. Similarly, for government, the apparent strategic political benefit was to reduce its burden. It would cease to be an owner operator of a public water utility, and become just a regulator. You’ll be able to judge from our later videos whether a reduced political interference and a reduced operational burden here actually happened. For consumers, the popular idea of market capitalism of this late 1980s period was that accountability to shareholders would provide far more behavioral control on the new private water utilities than political accountability. The main scientific benefit that was promised was that the new private utilities would be free to adopt or to develop the best commercial practices and technologies from anywhere in the private sector world. The time scales necessary to do this and whether water utility staff had the skills and resources to adopt or develop new technologies and working practices were never clarified though. We'll return to this point later. On resources, the promise was clearly that the new private water utilities could get out of the incremental budgeting inherent in their dependency on the public purse. Where only small differences to a previous year's budget were ever likely to be available to them. Instead operating in the private sector, resources could be efficiently raised from capital markets and the new companies could plan further ahead and could grow and diversify the same as any other private enterprise. For government, the receipts from selling these public sector utilities in industries would offset the need for borrowing to fund the public budget. The 26 UK privatization from 1979 to 1991 on paper did generate around 47 billion pounds sterling. The water privatization sale was about 5 billion pound of this, as we'll see in a later video. And overall privatization sales in 1989 including other state industries sold at the time were equivalent to about 4% of public debt that year. We'll return to this aspect later in our video on the privatization sale price. Lastly, the promise was also clear that competition for resources for the water market, whatever that was meant to be at the time, would drive more efficient operations and attract new entrance in the development of new services that could drive consumer choice. These promises were not embodied in rigorous performance indicators, however, that could be compared before and after the England and Wales water privatization. And in spite of the ideological rhetoric that water privatization would lead to efficiency gains, an evidence-based case was not made that the public water industry was inefficient. It was also not convincingly argued that water privatization, that is the sale of the assets, automatically equated to liberalization, or the creation of a competitive market, in the England and Wales water industry. Lastly, there was little mention of the risks of large monopoly profits or excessive dividends to shareholders and executive pay rises. Perhaps these were not considered. Perhaps the state was confident they could be controlled through appropriate regulation or perhaps behind the scenes, this risk was simply considered a price worth paying to attract manager skilled at managing highly capital intensive industries. In the next video, we'll look at four prerequisite conditions, moving beyond just the ideas of certain key individuals that made the England and Wales water industry an attractive and achievable proposition for a full divestage of privatization. To close, though, it's worth stating a caveat here about some of our points on the role and influence of prominent individuals. Thatcher and Moore no doubt did influence the trajectory and pace of the UK's privatization experience. And in our latest session on regulating the water sector for the England and Wales industry, we'll come across an equivalent to Moore's Mr. Privatization. There we have an influential personality, a regulatory innovator, a kind of Mr Regulation if you will, in the form of economist, Professor Steven Littlechild. Similarly, also we'll look at the case of Phnom Penh, Cambodia and there we'll encounter who has been highly regarded for his instrumental role in reforming the Phnom Penh water supply authority. Thanks for watching this video.
