The Real Slim Shady

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What have the rail, power and pensions industries got in common? This would be funny if it wasn't such a disaster.

The more Blair fumbles around for anything resembling factual information which might justify laying waste to Iraq, the more he ends up looking like the real Slim Shady. Much the same can be said for our glorious leader's stance on privatisation--sly and deceitful. The yarn that's spun is that everything is going according to plan--the reality is more like it's all going down the pan.

Evidence that the government's enthusiasm for private enterprise is wreaking havoc throughout the economy has been stacking up at an awesome rate in the past few weeks. On the railways it has got so bad that Network Rail (the 'not for profit' body which took over from Railtrack and gets the vast bulk of its funds from the taxpayer, but is not allowed to be called a nationalised industry) was forced to take back direct control of track maintenance from the 'troubled' private contractor Amey in what the 'Independent' described as 'the "creeping renationalisation" of the railways'.

It emerged that some of the key rail 'modernisation' projects were going to be shelved when an institutionalised absence of accountability led to the discovery of a gaping chasm in network funds. Just before Xmas, the chairman of the Strategic Rail Authority, Richard Bowker, owned up to the fact that a staggering £31 billion of taxpayers' money had all but vanished in less than 12 months--which works out at more than the entire subsidy handed over to British Rail in the 50 years of its existence. None of this has prevented bosses of the train operating companies from informing us that things have clearly gone so well since private firms took over that prices will soar again in the new year, together with more service cuts.

Less well publicised is the series of rapidly widening cracks which has been appearing in the privatised electricity industry. Up until a few weeks ago, bosses in the sector were confidently dismissing any talk of a 'California-style' meltdown in the UK power industry as pure fantasy. There wasn't the slightest danger of shortages or blackouts here, where the real problem was one of overcapacity (too many power stations producing too much electricity).

That was before yet another void suddenly appeared in the accounts of British Energy, the nuclear generator which produces roughly 20 percent of UK domestic power. Until not that long ago, British Energy was still being held up as one of the jewels in the crown of privatisation, even though by far the biggest explanation for its (as it turns out, tremendously fleeting) success had always been that mountains of government subsidy lavished over previous years had to be written off before anybody would even think about buying any shares.

Most of those who did and thought they were onto a good thing at the time must now be wondering if they shouldn't have bothered--by a miracle of popular capitalism, the value of each share had slumped from a peak of £7.30 in January 1999 to a mere sixpence by the middle of January this year. Furious at this nosedive, a bevy of the industry's most ardent privateers--like the lords Parkinson (Cecil), Walker (Peter) and Marsh (Richard)--even had the brass neck to band up and write a letter to the 'Financial Times' which called for 'a new approach to energy policy' and warnd that future supplies might be put at risk if some of the industry's costs were not borne by the taxpayer 'rather than by utilities that are required to be competitive', as they put it.

Meanwhile, it was announced, in quick succession: that one of the major power-generating companies, Powergen, was about to shut three of its plants because they were no longer 'economic'; that the profits of the German RWE (which owns the other major power-generating company in the UK, Innogy) had slumped by 22 percent; and that the sale of Midlands Electricity was in doubt (less than 9 months after its takeover by the Aquila group) after more than £1 billion of debt had been uncovered in the company's accounts.

According to a study carried out by a firm of specialist advisers to the European Commission on utility markets, the best conclusion to be drawn from all of these shady dealings was that 'a competitive market is unsuitable and unsustainable for the electricity industry'. The same report recommends a return to some form of central planning 'to avoid California-style blackouts' and warns that 'the state of Britain's power sector will catapult to the top of the political agenda if problems are not addressed'.

No need to wait that long in the pensions industry, though. Major firms in the UK and the US have been bailing out of 'final salary' pension schemes at a rate of knots in the past year and the collapse of one of the industry giants, Equitable Life, caused widespread consternation. But the sheer scale of this private lack of finance has only recently become fully apparent.

In a special supplement published at the start of the new year, the 'Financial Times' reported the findings of a global study on pensions which showed that, in the last year alone, an estimated $1,400 billion (that's one thousand, four hundred billion dollars) had been wiped off the value of retirement funds. In the UK, pensions fund assets plunged to $934 billion last year--equivalent to about 66 percent of gross domestic product. In 1999, the same assets were worth $1,400 billion, nearer to 100 percent of GDP.

In other words, private pension fund managers and advisers have somehow or other managed to let something like $466 billion worth of UK pension fund cash slip through their fingers in less than three years. And these are the same people who are still pressing for privatisation of the NHS and the London Underground.

Alert readers might have spotted by now that the rail, power and pensions industries all have something in common. Less than 20 years ago, all of them were nationalised industries, in the days when slogans like 'nationalisation, without compensation' and 'nationalise the top 100 companies' were regular war cries on the left. Maybe it's about time they got updated, especially since Blair seems to think he can resist union demands for the end of a 'two-tier' workforce in recently privatised companies. This is despite the fact that such an agreement has been reached in Scotland. And, as it happens, the government might be put out of its misery over whether or not to renationalise the railways sooner than it had intended in Scotland as well. The ScotRail franchise comes up for renewal next year and has been earmarked for takeover by Deutsche Bahn, the state-owned company which has a monopoly of the rail system in Germany.