The power of accounting: reflecting on water privatization?

Abstract

The water industry was one of a number of publicly owned enterprises and assets which were privatized during the 1980s in the UK. The Government justified its privatization programme on a number of grounds. In particular, it claimed that privatization would improve industrial performance by subjecting the nationalized industries to the discipline of the market, and so would yield benefits, via greater efficiency, to the industry, customers and the nation. Examines first the extent to which an accounting model and the financial numbers in the annual reports and accounts can be used to substantiate Government claims, and describe and explain the outcomes. Assesses whether accounting can assume a constructive and emancipatory role, by challenging existing problem diagnosis ‐ public sector inefficiency ‐ and posing alternative questions and solutions. Shows that the financial evidence does not substantiate the Government’s claims. Finds that greater efficiency, meaning lower costs relative to output, did not occur. Significant increases in efficiency had occurred prior to privatization, leaving little room to improve efficiency without jeopardizing levels of service and future service provision. The distribution of the surplus, which is publicly seen as a conflict between consumers and shareholders, is in fact much wider than this. Argues that the surplus has been so distributed that it has not only substantially benefited the shareholders at the expense of other stakeholders, but also has created the conditions whereby the other stakeholders will be disadvantaged in the future. Concludes that the real beneficiaries were largely invisible in the Government’s case for privatization.

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