Monday, 11 September 2017

Revisiting the Regressive Sale of the Green Investment Bank to the Macquarie Group: More Evidence of the British Government’s Adherence to Short-Termism

In June of this year, this author wrote of the sale of the Green Investment Bank (GIB) to the Macquarie Group for £2.3 billion, something which had Conservative politicians rejoicing at the £160 million profit the sale generated for the public purse. However, the piece and the associated commentary was adamant that the sale represented the lengths to which the Conservative Government’s regressive commitment to short-termism could go, with the assertion being that Macquarie could not be relied upon to continue the positive work of the GIB or not bleed the organisation dry before it moved on. Although there are many instances of the Macquarie group portraying this negative aspect to capitalism, in this post we will focus on the latest example and revisit the decision of Theresa May’s government upon that basis.

Before we revisit the sale of the GIB, assessing the latest example of the culture at the Macquarie Group will reveal for us the care and attention that the Conservative Government took when selling the GIB. In March of this year, Macquarie had sold its final stake in Britain’s largest water supplier Thames Water for £1.35 billion, subsequently bringing its 11-year investment in the company to a close. Macquarie initially bought the company for around £8 billion, with the FT suggesting that the sale fits in with the common trend of Macquarie with regards to its penchant for 10-year investment strategies. However, assessing that 11-year period, rather than the financial outcome, reveals quite a story and demonstrates the culture at Macquarie and those it invests in. The company itself was this year handed a record £20 million fine for a series of pollution incidents within its networks, with six separate cases of what the Environment Agency labelled ‘widespread, repeated, sustained and avoidable pollution’ affecting local wildlife and the local public; the company had taken to discharging ‘millions of litres of untreated sewage’ directly into the rivers. Rather predictably, this is unlikely to be an accident, and the former head of OFWAT (The Water Services Regulation Authority) suggests this when he stated that the corporate structure at Thames Water, and other utility companies, was simply not appropriate and encouraged such behaviour in the hunt for profits. Yet, that structure is the one that exists since Margaret Thatcher privatised the water industry in 1989, and in keeping with her legacy Macquarie saw fit to treat Thames Water purely as a vehicle for profit extraction.

Reporting earlier this month, the BBC described how Macquarie had saddled Thames Water with over £2 billion of debt, the bulk of which was not used to strengthen the company but to divert funds towards Company Executives and investors. In analysing financial records, the report states that total returns for Macquarie’s investors from Thames Water averaged between 15.5 and 19% a year, almost double what could be expected from this particular industry. Furthermore, the FT found that between 2006 and 2016, Macquarie had paid itself and associated investors £1.6 billion in dividends, all whilst the company was loaded with £10.6 billion in debt – the company currently owes over £11 billion with a £260 million pension deficit. This approach to business with respects to infrastructure is well-known, and is what Solomon refers to as the ‘Macquarie model’ – ‘One of the biggest drivers of the firm’s business is its securitisation of infrastructure assets’.

Whilst those on the right may be adamant that privatisation works and is of benefit, the reality of the situation is that the strict adherence to ‘profit first’ leads to social hazards, particularly within such a field like social infrastructure. Not only can this be seen when we look at residents paying the company to treat their water, only then having to deal with their water supply being contaminated, but also the wider Macquarie group is no stranger to controversy with its financial planning scandal and a whole host of other scandals looming large in its recent history. Yet, it was to this venal entity that the British Government gleefully ‘offloaded’ the GIB earlier this year, proclaiming in the process that the move allowed the bank ‘more freedom to borrow, remove state aid restrictions, and allow it to attract more capital’, which in light of the above reads like methods with which the Macquarie group can bring the now-titled ‘Green Investment Group’ to its knees, rather than helping it expand and create Green opportunities that may benefit society. As a side-note, the GIB is now called the Green Investment Group so that it can ‘expand internationally’ and avoid regulations that are attributed to banks, particularly in Asia - £2 billion may in the end represent a bargain for what is, in the hands of the Macquarie group, a profit machine masquerading as a social benefit.

Ultimately, the sale of GIB was not a surprise, and nor should the parasitic story of the Macquarie Group’s tenure as Thames Water’s owner be a surprise either. Privatisation of often pilloried as being the cause of social destruction, and that may be true, but another question needs to be asked: is it really the case that privatisation has to be like this? Is it the concept of privatisation that is the problem, or the incredibly venal, short-term and selfish culture that those in power demonstrate that is really the problem? It is suggested here that it is the latter, and the only remedy for that social infection is a criminal justice system that punishes white-collar crime like it punishes blue-collar crime – however, this idealist view does not take account the socially-destructive effect that aspects like the Public Relations and Lobbying industries have upon preserving that system. The real fear is that the response to one of the greatest financial crises, one which has seen environmental and sustainability concerns pushed closer to the forefront of financial movements more than ever before, is being eroded by that culture that created the Crisis in the first place. The sale of the GIB to the Macquarie group is just one microscopic juncture in a much larger story, and it is that story that we need to talk about as much as possible.

Keywords – Green Investment Bank, Macquarie Group, Environment, Sustainable Finance, Capitalism, Public Hazard, Public Infrastructure, White-collar Crime, @finregmatters

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