The Water Company

There is a water company. It operates in a part of England. Its business is collecting the raw sewage from homes and businesses. Those homes and businesses pay the water company to take their sewage away. Because only one company operates in their area, they don’t have a choice of which water company they use. The water company is a monopoly.

Unlike every other country in the world, water companies in England are private companies. They are usually owned by foreign investment funds. Because the owners are overseas and because they own a monopoly business, they try and extract as much money from it as possible in the form of shareholder dividends. So they tell the people who run the water company what they must do. They must generate as much shareholder value as possible. The people that run the water companies have to do what the owners tell them or they will be replaced by someone who will. So the instruction goes down the business, more shareholder value.

Money for shareholders can come from two main sources, revenue from customers and debt. In a sensibly run business, revenue from customers would cover all running costs and create some profit. Debt would be created to invest in infrastructure which would ultimately yield greater revenue as greater capacity to treat sewage became available. But this isn’t a sensibly run business. The shareholders want their money now, not when infrastructure projects start to yield greater revenues. So the water company looks at ways to save money on operating costs.

It knows that it can get away with discharging raw sewage into rivers and the sea when there is heavy rain and the volumes of water coming through the system are too great to handle.
Of course, rainwater isn’t sewage and shouldn’t be going through the system. But in many areas, the Victorian sewers provide just one route for all wastewater. That worked at the time but capacity hasn’t been increased. So if investment was made to separate out sewage and rainwater, not so much waste would go to the sewage plants and more rainwater could be collected as potential drinking water. But this work would require a lot of investment and time to deliver and the owners want their shareholder value now. So the work doesn’t get done.

In fact, debt that should be used for investment is created to give to the shareholders. The water company is borrowing money to give to their shareholders! This is an outrageous decision. The only way this can be explained is that the pressure from the shareholders was so intense that the company was compelled to go down this route.

The company squeezes its costs in every way to direct money to the shareholders. Since it costs hardly anything to dump sewage into the rivers, this is done to the maximum that the rules allow. Soon the water company starts dumping sewage even when there is not heavy rain because it is cheaper for them to do this. They start to do a cost analysis: how much can they save by not treating waste versus any fines they are likely to get from the Environment Agency. They know that savings are immediate and fines may happen in the future. So wastewater is dumped outside of what the rules allow and more shareholder value is generated.

Workers at the front line who see the effects of the dumping are alarmed and speak up. They are told that this is the new operating model and they will have to implement it. If they don’t, they can go and work elsewhere. The water company is now not in the business of keeping the processing waste and keeping rivers clean, it’s in the business of creating maximum shareholder value.

So the water company pumps huge amounts of effluent into the rivers. The rivers stink and the fish die. Anglers, wild swimmers, canoeists and people who live by the river are outraged and protest to the Environment Agency. The agency has suffered funding cuts and finds it difficult to mount an investigation. No enforcement takes place and things get worse.

The water company recognises that it is receiving bad publicity and hires a public relations company to promote positive stories about the company and its vision of clean rivers for the future. But the positive stories are simply those stories which the public relations company thinks the public wants to hear. They don’t reflect any real change at the water company which is still in the business of maximising shareholder value which it is achieving by polluting on a massive scale.

Eventually, the water company will collapse under the weight of debt, fines and customers refusing to pay their bills in protest. But the owners have their money and the management of the company knows that it is likely that they will keep their jobs when the company is taken into public ownership. That is inevitable because otherwise the sewage from thousands of homes and businesses would go untreated and there would be a full-blown environmental catastrophe.

In the eighteenth century, the new industries spewed pollution into the air, land and water. Profit was more important than the natural world or even the human world. Workers in industrial northern cities never saw the sun because of the thick blanket of air pollution in the sky above them. No action was taken until conditions became intolerable. The Thames wasn’t cleaned up until the Great Stink of 1858. Air pollution was not controlled until the Great Smog of 1953.

Now we are moving backwards as the government is increasingly desperate to be seen as “business friendly” and so places a lower priority on regulation. No regulation means that bad things happen. There’s a saying from Yorkshire, “Where there’s muck, there’s brass”. Down at the water company, there’s a lot of muck going into the river and a lot of brass going to the shareholders.