<story><title>Privatisation has been a costly failure in Britain</title><url>https://www.economist.com/by-invitation/2023/07/10/mathew-lawrence-on-why-privatisation-has-been-a-costly-failure-in-britain</url></story><parent_chain><item><author>lotsofpulp</author><text>How are shareholder returns and profit different?</text></item><item><author>m-i-l</author><text>&amp;gt; &lt;i&gt;&amp;quot;It&amp;#x27;s even simpler than that ... their goal is to extract profits&amp;quot;&lt;/i&gt;&lt;p&gt;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 &amp;quot;borrowed £53bn in debt while distributing £72bn to shareholders&amp;quot;, which of course is what the issue is now interest rates have risen significantly. The article describes this as &amp;quot;the tension between generating strong returns for investors in uncompetitive monopoly conditions and providing high-quality, affordable infrastructure to the public&amp;quot;. The end result is still the same though - transfer of wealth in a socially destructive direction.</text></item><item><author>juujian</author><text>It&amp;#x27;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&amp;#x27;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.</text></item><item><author>wolframhempel</author><text>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’s a shared, standardized network that needs to be maintained by all market participants a lot of the mechanisms that make privatization appealing don’t apply anymore and you basically end up with the same tragedy of the commons only in private hands.
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.</text></item></parent_chain><comment><author>Spooky23</author><text>Profit is the gain made by the enterprise. Shareholder returns are monies paid out to shareholders.&lt;p&gt;When the board is more like a group of Huns than a Shepard, you find that after you pay out the shareholders, the enterprise is toast. In some cases, like most recently in big box retail, the private equity investors are running an obvious and odious, but legal, fraud.&lt;p&gt;With utilities, the business is all about capitalization and cash flow. They should be stable and boring businesses. When they are exciting, the management is burning the candle at both ends.</text></comment>
<story><title>Privatisation has been a costly failure in Britain</title><url>https://www.economist.com/by-invitation/2023/07/10/mathew-lawrence-on-why-privatisation-has-been-a-costly-failure-in-britain</url></story><parent_chain><item><author>lotsofpulp</author><text>How are shareholder returns and profit different?</text></item><item><author>m-i-l</author><text>&amp;gt; &lt;i&gt;&amp;quot;It&amp;#x27;s even simpler than that ... their goal is to extract profits&amp;quot;&lt;/i&gt;&lt;p&gt;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 &amp;quot;borrowed £53bn in debt while distributing £72bn to shareholders&amp;quot;, which of course is what the issue is now interest rates have risen significantly. The article describes this as &amp;quot;the tension between generating strong returns for investors in uncompetitive monopoly conditions and providing high-quality, affordable infrastructure to the public&amp;quot;. The end result is still the same though - transfer of wealth in a socially destructive direction.</text></item><item><author>juujian</author><text>It&amp;#x27;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&amp;#x27;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.</text></item><item><author>wolframhempel</author><text>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’s a shared, standardized network that needs to be maintained by all market participants a lot of the mechanisms that make privatization appealing don’t apply anymore and you basically end up with the same tragedy of the commons only in private hands.
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.</text></item></parent_chain><comment><author>jfengel</author><text>Borrowing is accounted differently from earnings. But yes, at the end of the day the people getting rich don&amp;#x27;t care which pile of money it comes from, and the people getting poor service are equally unhappy.</text></comment>