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Sometimes, you come across an argument that is both offensive and compelling. This certainly applies to James Meek’s sprawling essay on British energy policy for the London Review of Books.

The most offensive aspect is the spurious link he makes between Margaret Thatcher’s privatisation programme and the economic policies of Adolf Hitler. In a serious piece of journalism, Godwin’s Law is more usually fulfilled in the comments beneath the article.

And yet, Mr Meek does have some extremely pertinent – if uncomfortably challenging – points to make about the unintended consequences of electricity privatisation. The fact of the matter is that Britain’s power sector is now dominated by French, German and Spanish companies which are either state-owned (e.g. France’s EDF) or which have the status of ‘national champions’ i.e. integral components of a corporatist settlement (e.g. Germany’s E.ON and RWE).

It wasn’t meant to be ths way:

  • “In Thatcherite terms EDF was a public sector mammoth that would inevitably be hunted to extinction by the hungry and agile competitors of post-privatisation countries like Britain. The laws of economics said so. And yet the opposite happened. The mammoth thrived, and Britain failed to produce new competitors, agile or otherwise.”

A sure sign that things haven’t gone well is just how happy the unions seem to be about it all:

  • “Greg Thomson, Unison’s head of strategic organisation, told me that since it crossed the Channel EDF had gone against prevailing management orthodoxy by reinstating a final salary pension scheme for workers. Unison was given seats with the CGT [a French union] in an EDF/union body, a ‘European Works Council’, and enough leverage over EDF management to get union recognition for previously non-union workers at a call centre in Sunderland. ‘When London Electricity was privatised, we adopted a policy of returning it to public ownership, and I’m pleased to think I delivered on that,’ Thomson said. ‘Obviously to the wrong nation, but you can’t be too picky.’”

Ouch.

And yet it would be a mistake to regard this outcome as a failure of market economics. Because, as Meek documents in considerable detail, what emerged from the privatisation of the electricity industry, bore little relation to a real market. What was actually created was an artificial trading system defined by a bewilderingly complex web of rules, incentives, subsidies and price controls. Unsurprisingly, this unleashed a ruthless competition not to provide value to consumers, but to game the system, run rings around the regulator and sweet talk the politicians.

This was compounded by a completely un-level playing field between British and continental energy markets:

  • “…implicit in Thatcher’s support for the single market was the acceptance of a single Brussels-based regulator as the ultimate arbiter of fair competition in Europe… Brussels has let the French protect EDF from competition at home, allowed EDF to borrow money at low government rates, and let it expand into the open arena of Britain.”

To quote the former Labour energy minister John Battle: “‘The French said they wanted to open up their markets but they never did.”

The Coalition is presently embroiled in another overhaul of the energy ‘market’. This should have been an opportunity to massively simplify the system – thereby fostering true competition and real transparency on costs. Instead, it looks as if this ‘reform’ will only create further complexity.

Will we never learn?

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