New Internationalist

The Facts

Issue 355

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Privatization / The FACTS

Privatization - The Facts
The last two decades have seen a sea change in the provision of public
services across the Western world and more recently, thanks to structural
adjustment, across the Majority World too. The private ownership of
public assets are at the core of economic globalization.

We did not fight for liberation so that we could sell everything we won to the highest bidder! Poster from a workers protest in South Africa

Public auction
The 1990s saw an orgy of privatization as thousands of public enterprises were sold off to private owners in more than 100 countries around the world.

Between 1990 and 1999 the value of all state assets sold totalled nearly $900 billion, growing from $30 billion in 1990 to $145 billion in 1999.

Global privatization proceeds.1

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Sell phones
In the 1990s telecom companies accounted for a third of all rich-country privatizations - peaking at $42 billion in 1997.

Privatization revenues by sector, OECD countries 2

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Paying the price

HIGHER COSTS
Privatization is supposed to save money but it rarely does. Profits add to costs. And governments can borrow money at lower interest rates, making public financing far cheaper.

. In the Dominican Republic electricity charges jumped by 51% after privatization -daily blackouts followed. The Government was forced to underwrite the private sector due to contract obligations. By 2000 the country owed the power companies more than $135 million.4

. The Auditor General in New Brunswick, Canada, found one school built under a public/private partnership deal would have cost $775,000 less if the province had done the work. Half the extra cost came from higher borrowing costs the private company had to pay.5

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BAD JOBS
The main way privatization saves money is through salary reductions and layoffs.

. In Mexico the privatization of state-owned firms has decimated trade unions and led to massive job losses. Membership of the railworkers union fell from 90,000 to 36,000 after private owners took over in the 1990s.6

. In Chile attempts to foster private medical care reduced the number of employees in the public-health sector from 110,000 to 53,000 between 1973 and 1988.7

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GREATER RISK
Privatization is often accompanied by inadequate regulation and a mindset that places profit ahead of public safety.

. The 1996 privatization of British Rail created an inefficient, accident-prone system supported by massive public subsidies. In 2001 the number of cancellations reached 165,000 - nearly three times the level of 1999. More than 2,000 contractors were involved in maintaining infrastructure.8

. When the Conservative Government in Ontario, Canada, cut water-quality inspection staff and shut down government testing labs in favour of private labs the result was disastrous. In May 2000 in the small town of Walkerton seven people died from contaminated drinking water and hundreds more became ill.

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LESS ACCESS
The doctrine of 'full-cost recovery' for privately run public services means many low-income earners can no longer afford basic services.

. In South Africa 25% of the country's 44 million people had their water and electricity disconnected after the services were privatized.9

. The Private Finance Initiative (PFI) in public hospitals in Britain has led to major reductions in services. The first 14 hospitals built with private participation saw the number of beds reduced by 30% and cuts to clinical staff budgets of 25%.10

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LOSS OF CONTROL
When public services are privatized they are more unaccountable; citizens put both long-term rate stability and proper equipment maintenance at risk.

. In Lee County, Florida, the water and sewer system was returned to public control in 2000 after an audit discovered a history of slipshod maintenance. The county estimated costs of $8 million to rebuild the system.12

. In Britain, a $45-million plan to renovate two hospitals in Coventry ballooned into $261 million when the project was privatized. The National Health Service will now have to pay the private owners $54 million a year for the next 25 years.13

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CORRUPTION AND BRIBERY
Cost-cutting and downsizing have slashed regulatory budgets as privatization has expanded, creating conditions ripe for crime.

. In Bolivia, Aguas del Tunari, the privatized water concession in Cochabamba, refused to disclose the reasoning behind price increases on the grounds that it was a commercial secret.11

. In Hungary, where the Budapest Sewerage Company is owned by Vivendi, contracts and documents relating to the deal are kept secret from elected councillors.11

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Open veins again
Privatization in the South is a basic requirement of World Bank and IMF economic restructuring.

. Latin America has dominated public-sector sell-offs. In 1998 Brazil sold its Telebras Communications Network for $19 billion.

. Since 1995 privatization has been growing in Eastern Europe,3 including the sale of publicly owned banking, transport, oil and gas and utility firms. In 1999 the region accounted for 24% of developing country privatization sales, up from 18% in 1994.

. In sub-Saharan Africa the number of privatizations has risen dramatically with more than 3,000 completed by 1998, though the total value of sales is relatively small, accounting for just 3% of total developing-country proceeds between 1990 and 1999.

Privatization revenues by region (1998) 3

1 Privatization in Competitive Sectors: The Record to Date, Sunita Kikeri and John Nellis, World Bank Policy Research Working Paper 2860, June 2002
2 'Recent Privatization Trends in OECD Countries', Ladan Mahboobi in Financial Market Trends, No 82, June 2002, OECD Corporate Affairs Division
3 Privatization in Latin America and the Caribbean, Region Fact Sheet, www.ipanet.net/documents/WorldBank/databases/plink/factsheets/LAC.htm
4 'The problems with IPPs', www.indiaonline.com/info/spfe/inpp/ch10
5 Hostile Takeover, Annual Report on Privatization 1999, CUPE
6 'Off the Grid' by David Bacon, Multinational Monitor, Jan/Feb 2002
7 Corner House Briefing Paper 23 by Sarah Sexton, July 2001
8 'Derailed' by Brendan Martin, Multinational Monitor, Jan/Feb 2002
9 'An Answer to Marketization', Patrick Bond, Multinational Monitor, July/Aug 2002
10 'Privateers on the March' by Allyson Pollock, The Guardian, 11 Dec 2001
11 Water in Private Hands, David Hall, ATTAC, Feb 2002
12 'Privatization not a cure-all for ailing water and sewer systems', Public Citizen, www.citizen.org/pressroom/release.cfm
13 'Damaged by the evils of the market' by George Monbiot, The Guardian, 21 Mar 2001


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