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In the News

Market failure and government failure - Southern Water dumped raw sewage into sea for years

Geoff Riley

14th July 2021

It is difficult to think of a more egregious example of how cost-cutting by privatised, profit-seeking corporations can lead to such damaging effects on the environment.

Over a period of six years, Southern Water permitted the discharge of a huge amount of untreated effluent into water on the south coast of the UK.

According to the Guardian report, "In one wastewater treatment plant, Millbrook, outside Southampton, the equivalent of 371 Olympic-sized swimming pools of sewage or 746 million litres, were released into Southampton water in four years and eight months."

The negative externalities here are obvious and very costly.

Senior Executives at the highly profitable Southern Water are extremely well paid and were aware of the practice but did nothing to stop it.

When will cases brought about these utilities lead to prison sentences rather than "large" fines which are tiny compared to the revenues and profits of the regional water monopolies?

As Caroline Lucas from the Green Party rightly points out, 'Even by the standards of privatised water companies, this case is shocking - the repeated pollution, the deceit & that it was done to line pockets of shareholders."

The relative impotence of the regulatory agencies such as Defra and Ofwat is clear to see. I'll be adding this example to my teaching notes on government failure.

Negative Externalities - Market Failure Analysis I A Level and IB Economics

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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