C’anterbury Tales

The sun is definitely setting. Photo by Thomas Charters on Unsplash

The United Kingdom is dead. Long live … nope, nope, it’s pretty much dead

As we celebrated Fourth of July this week, all I can say is: thank heavens the Founding Fathers fought to leave the United Kingdom.

Something is rotten in the state of Albion, and it probably starts with the sewage streams coursing through the country’s waterlogged landscape. The past two weeks have put a global klieg light on Thames Water, the private utility that supplies water to about 15 million Britons (out of a population of 67 million). The fecal stench doesn’t stop with the company’s negligent dumping of millions of gallons of raw sewage into the country’s rivers. If only.

The rot extends all the way to its looming financial collapse as one of the country’s most important and most indebted utilities, while simultaneously acting as a Rorschach ink blot test for every economic, political and social theory out there.

First, there are the “green” bonds, if by green we intended to mean the color of algal blooms. Thames Water sold $3 billion worth of green bonds in 2022 alone to ESG investors, all while dumping sewage that has killed marine wildlife and threatened the drinking water of thousands of people. That’s not very E or S or G, and more of an F and U. Who’s at fault? Is it the company that lied about its lack of awareness, or is it an ESG industry that’s hellbent on finding goodness without doing the precise data analysis required to make a judgement (see last year’s The ESG Mirage and related “Securities” podcast).

And those bonds, in addition to being the antipode of ESG, are also not really great bonds, if by bonds we mean financial instruments that will pay its holders … something, or anything. For Thames Water is also in deep financial distress following a prolific debt binge driven by its private equity consortium that has seen the company drowning under $17.7 billion of debt. That debt mostly didn’t pay for service or infrastructure upgrades, but were instead vehicles for extracting profits out of the company under the blind eyes of government regulators. Is privatization and Thatcherite politics to blame? Is it the typical willful incompetence of government officials? This ink blot offers a shape for everyone to identify.

Unfortunately, Thames Water, like much of the U.K.’s water utilities, has a maintenance backlog the length of the post-Brexit export lines to the European Union. As Bloomberg put it this week:

One fifth of all water supplies lost to leaks. Over 800 sewage spills on average every day in 2022. More than £60 billion ($76.4 billion) of debt built up by the water utilities. There is no shortage of numbers to help tell the story of Britain’s failing water industry. But there is only one that really matters: how much will it cost to fix the system.

Even partial estimates suggest hundreds of billions of pounds will be needed. And the bill will almost certainly fall at the feet of households in the form of higher prices or additional taxes.

With great leadership, Thames Water CEO Sarah Bentley resigned last week, nominally because of the sewage spills and the financial penalty the company received although the daunting task of salvaging Britain’s foremost water utility would seem to be a prime explanatory factor as well. One almost envies Andre de Ruyter, who suffered attempted cyanide poisoning and a firing as CEO of South African state energy giant Eskom as he attempted to improve that country’s regular blackouts (discussed further in “Elemental Capacities”). Sometimes the démission is the honorable exit out of the morass.

Thames Water is in a brutal position, but water is just the unfrozen tip of the iceberg for British infrastructure. The Financial Times ran a lengthy story this week on the post-Brexit and post-Covid financial difficulties of the high-speed rail and Chunnel-operator Eurostar that connects London and Paris:

Eurostar is struggling with staff shortages and train reliability issues, and has had to cancel significant numbers of trains over the past year. It has stopped running trains from London to the Disneyland resort near Paris, as well as its former summer direct services from London to Avignon, in southern France. In the UK, Eurostar has also abandoned its former stations at Ebbsfleet and Ashford in Kent and collects passengers only at St Pancras.

Coming only two years after it narrowly averted bankruptcy, the retrenchments have stoked fears that a pioneer of international high-speed rail services is in decline. In the UK media especially, they have been viewed as emblematic of the burdensome bureaucracy and crimped ambitions of the post-Brexit economy. More broadly, the operator’s troubles spell gloom for a key element of the effort to shift passenger journeys from air to rail as Europe attempts to decarbonise its economy.

The FT’s Robert Wright ultimately writes an optimistic story, and I for one wish the Eurostar my best. But the litany of challenges keep coming. There’s the aftermath of the Grenfell Tower cladding fire, with some estimates pegging a complete remediation of flammable British apartments at $67 billion. Britain’s National Health Service is suffering an exodus of doctors and a regular series of strikes that makes American medical burnout seem merely like a bad hangover. As The Observer noted this week:

Nearly 170,000 workers left their jobs in the NHS in England last year, in a record exodus of staff struggling to cope with some of the worst pressures ever seen in the country’s health system…

If Britain had a functioning industry, it was finance, but even there, competition from New York, Euro markets like Amsterdam and Frankfurt, and Singapore have pulled activity away from the City and Canary Wharf. That’s most notable with Arm, founded in Cambridge, UK but now readying an IPO in New York despite intense lobbying from British economic officials. The reason? Arm executives believe that the chip-design company will get a better valuation outside the sterile London Stock Exchange given the AI valuation craze in America. In addition, the war in Ukraine hasn’t done any favors for London finance either, with Russian money no longer passably being laundered through local trading houses, an economic flow that Oliver Bullough ably chronicles in his look at the industry last year in Butler to the World.

British malaise has been a decades-long phenomenon, which I personally date to the Suez Crisis of 1956 although plenty of other dates are reasonable (so many dates to choose from!). That malaise led to and was exacerbated by Brexit, and then was intensified by the Covid shutdowns from which the Isles are still struggling to recover from.

The latest figures published last week show the U.K. stagnating on GDP growth (although missing the technical definition of recession by a thin hair!) while inflation remains the worst among advanced economies (or as CNBC put it in a headline, “Britain is now the only major economy where inflation is still rising”).

The British Embassy to the United States posted a fun tweet using a Friends meme to joke about the Fourth of July, following up with another tweet saying that “We’ve remained the closest of allies and we love our Special Relationship with you.” That Special Relationship has been the bedrock of U.S. diplomacy since World War II, and helped usher in the post-war order from which so much of the globe’s progress and development took place.

But when does the Special Relationship transform into the kind of “special relationship” you have with a wayward uncle whose antics, self-destructive habits and hankering for the limelight finally force you to back away from family functions?

Britain lost its dominant place in the world decades ago. The only people who haven’t come to terms with that reality are the British themselves, plus Anglophiles in America who read Churchill biographies instead of grappling with the country’s present-day quagmire. Brexit was the last, great hope for a Britain that could escape the mollycoddling of Europe and strive for its own success. But that movement assumed that the British were ready to step up to the demands of global competition — Chinese working hours, Korean industrial prowess, and Taiwanese tenacity. The British never stood a chance.

It’s twilight for a country that was once the beacon of scientific and human progress. Newton, Cavendish, Darwin, Turing, Crick & Watson — the very fundamentals of fields like physics, chemistry, biology and computer science were invented across that dour land.

But that was then and now, here we are. The water is sewage, the apartments are a fire hazard, the physicians are on strike, the trains can’t go from there to, well, there. From the pinnacle of the imperial center to whatever peripheral malaise we are witnessing. The story of today’s Britain serves as a warning: here’s what happens when you don’t meet reality head on. The land of David Hume failed to find Enlightenment, to find truth. And now it tries to live in the falsehood that it’s still relevant in a century of great power conflict.

Thank heavens we left the United Kingdom. Can you even imagine if we hadn’t?

Video Podcast: Fertility Rules from wildfire sperm death and microplastics to the potential of AI with investor Leslie Schrock

Composition by Chris Gates
Composition by Chris Gates

The birds and the bees just don’t cut it anymore. With the rising age of first pregnancies in America, optimizing fertility has become the linchpin for potential parents embarking on the journey to childbearing. Even so, we remain beholden to dozens of myths driven by inadequate science, even while we ignore the vast new potential — and limits — of a bountiful set of advanced technologies that aim to make fertility a more understandable and approachable subject.

In our very first video “Securities” podcast, I was joined by Leslie Schrock, venture investor alonside Lux portfolio companies like Gameto and Alife Health as well as the author of the new book “Fertility Rules: The Definitive Guide to Male and Female Reproductive Health”. We discuss the complex intricacies of the new science of fertility and why we have so much more to do to bridge the gap between expert knowledge and popular understanding.

🔊 Listen to the podcast

🎬 Watch the podcast on YouTube

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That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.