Gullivered

I finally read James Meek's article in the LRB. The article has a terrible title, and begins with the least gripping lead in journalistic history- but after this worrisome tedium, it begins to rip along nicely. The account he gives of Free Market capitalism in the power market, set loose by Thatcher's ideologues who wanted to strip away the power of the state (at one point he quotes the mastermind behind privatizing the production and selling of electricity in England saying, about another government monopoly: what the post office needs is an imaginative asset stripper) and ended up with a national grid owned almost entirely by foreign companies, among which figures France's ... state owned energy monopoly, EDF. Meek, smartly, looks beyond the image of privatisation to see how the British version became such a disaster for the customer. It turns out that the Thatcherites were disgusted with the American way of privatizing energy. In the U.S., the regulation of private energy providers turns around limits on their profitability: Rate of return regulation meant that,in effect, in the U.S., local monopolies on energy were tolerated. In Britain, this was considered a horrible error, an intrusion of the state on the wonderous workings of the market - the Brits developed regulation based on prices. However, it turned out that this regulation never actually returned the lower costs due to 'efficiencies' to the customer. As the cost of electricity went down,, the profits went up, and all that money went to shareholders and management. So much for the justification that privatizing the power market would be good for the end user. As usual, the end user was screwed. More interestingly, competition in the British market led to vertical integration, as power makers bought power distributers, and then to takeovers of the industry by foreign companies - which, irony of ironies, then get bailed out by the government when they run into trouble, since the electricity has to keep flowing at all times. The image of Britain that comes through in Meek's article is of a Gulliver that carefully weaves the lilliputian web that imprisons it. Swift would have loved the utter ridiculousness of the Thatcherites and their New Labour heirs: like Houyhnhnms, they nasally, Oxbridgianly screw the country and reward themselves, or, if they are true believers, make up incredibly silly stories about the wonders of free trade and comparative advantage. The tory that came up with the privatisation scheme, a man named Littlewood, is interviewed by Meek, and he tells him (incredibly!) that takeover of the British electricity market is a good thing, cause britain could then move resources into where it had a competitive advantage, financial services. Yep, those power plant engineers were just hungering to create multi-tranche CDOs, and they finally got a chance to do so.

Although this point in history does seem troubling from many points of view, it does reliably provide farce on a grand scale.