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Keynote

Issue 355

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THIS MONTH'S THEME
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Privatization / KEYNOTE

The great privatization grab - The worldwide sale of public assets to private interests is larceny on a grand scale, argues Wayne Ellwood. It’s time to stop the privateers and revive the notion of the public good.

THE Niagara Parkway begins quietly at the southern edge of the tidy tourist town of Niagara-on-the-Lake then loops through some of southern Canada's finest farm land, hugging the lip of the Niagara Gorge. Two hundred metres below, the slate-green river boils and twists. The road is pastoral, edged with fruit stands and vineyards, jammed with tour buses and picnickers when the sun shines. Cruise past Queenston Heights - which the Americans tried to scale before being routed in the War of 1812 - past the Floral Clock and the bridge to Lewiston, New York and you eventually glimpse the graceful flank of the Sir Adam Beck Generating Station, built to capture the incredible hydroelectric potential of Niagara Falls.

The plant is named after Adam Beck, a cantankerous visionary and dyed-in-thewool Tory who nearly a century ago led the fight for public power in Ontario. As Chairman of the Ontario Hydro-Electric Power Commission Beck fought a cabal of private power producers looking to profit from the newly opened electricity market in the Canadian province. By 1910 he had succeeded. A crowd of 8,000 stood silently inside a darkened icehockey arena in Berlin (now Kitchener), Ontario as Beck flipped the switch to unleash cheap power generated by Niagara Falls. The gathering erupted as a bank of electric lights spelled out the slogan: 'For the people.'

Sir Adam would be seething if he were here today. Ontario Hydro, once the largest publicly owned power authority in the world, lies in fragments - victim of one of the great ideological scams of the last two decades: privatization.

Swept to power on a tide of freetrade enthusiasm in the early 1990s, the Ontario Conservative Party was an enthusiastic convert to market fundamentalism and its three steps to salvation: downsize government, slash public spending and cut taxes. Privatizing the province's assets was key to this strategy. And Ontario Hydro was the big one. According to Chris Stockwell, energy minister at the time, 'over the long term [privatization would] create a more competitive environment that will keep rates lower'. The law of supply-and-demand would lure investors, eager companies would compete to build new generating plants, consumer prices would be kept low.

Unfortunately, things didn't turn out that way. Soon after the market was opened in May 2002 rates began to skyrocket. Electricity markets are by definition volatile. Consumers (ie voters) were outraged and the Government quickly went into damage control. After a summer of soaring temperatures and roller-coaster prices rates were capped - the Government followed with a billion dollars in rebate cheques to customers who'd been paying above the odds. Finally, last autumn electricity rates were frozen - at a cost of $110 million a month for the foreseeable future.1 That 'cost' is the difference between the 'deregulated' price paid to private producers by the provincially owned distribution company and the 'frozen' price paid by consumers. Inevitably, the citizens of Ontario get shafted. The rate freeze will cost taxpayers billions which go straight into the pockets of private power companies. Even so, privatization is not dead. The Government may still unload its remaining generating stations.

This blinkered insistence on selling off public assets is by no means confined to North America, nor to electricity. Dozens of countries and scores of public enterprises around the world have been caught up in this frenzy, many with little choice. Power companies, ports, airlines, railways, even social-welfare services have been put on the block. Across the Majority World, countries forced to the wall by debt have been pushed into the privatization trap by a combination of coercion and blackmail.

Both the World Bank and the International Monetary Fund (IMF) require economic reforms known as 'structural adjustment' in order to qualify for new development loans. Structural adjustment is a code word for economic globalization and privatization - a formula which aims both to shrink the role of the state and soften the market for private investors.

Critics have been insisting for years that 'adjustment' does more harm than good. A massive study involving hundreds of civil-society groups across eight countries confirms this judgement. The Structural Adjustment Participatory Review Initiative (SAPRI) held hearings from Bangladesh to El Salvador gathering grassroots information over a four-year period, originally with the participation of World Bank President Jim Wolfensohn. However, when the Bank realized the outcome of the hearings it declined to participate in the release of the final report. No wonder. The SAPRI review confirmed what Northern NGOs and ordinary people in the South had been saying for years: 'Adjustment policies contributed to further impoverishment and marginalization of local populations while increasing economic inequality.'2


Democracy denied
Despite the convincing claims of its critics the Bank remains wedded to privatization. Its new Private Sector Development Strategy released in February 2002 reinforces what it calls 'policy-based lending to promote privatization'. The new initiative seeks to expand the Bank's business-friendly division, the International Finance Corporation, whose role is to prise open doors for private companies, both foreign and domestic.3 The emphasis is on increasing the role of private business in the service sector: water, sanitation, power, education and healthcare.

How much latitude do poor nations have to reject or shape adjustment policies which are presented to them by the Bank or the IMF as conditions of borrowing? Virtually none. The right of governments (elected or otherwise) to make sovereign policy decisions on behalf of their citizens - the bottom line of democracy - is simply jettisoned.

The Bank and the IMF have been enforcing market fundamentalism for decades.

In Cartagena, Colombia, the incoming mayor changed his plans to scrap privatization of the city's water supply after a four-hour meeting with World Bank officials when he was advised that privatization was a 'condition' for release of aid funds.4

To qualify for debt relief under the Bank's Heavily Indebted Poor Countries Initiative (HIPC) Southern nations are instructed to fall into line. According to Oxfam- UK, debt relief to Honduras under an HIPC agreement was delayed for six months when the IMF demanded more progress on electricity privatization.5

Largely due to this arm-twisting the sale of state assets has swept across the Majority World and the former Soviet Union.

Russia has been one of the most spectacular disasters. Guided by Western 'shock therapists', the transition to private ownership was riddled with corruption. Former Communist Party apparatchiks wound up in control of most state assets while billions haemorrhaged out of the country into numbered Swiss bank accounts. According to business writer Paul Klebnikov the country suffered its worst economic decline since the Nazi invasion of 1942: 'There was a 42-per-cent decline in GDP. The population was impoverished. Mortality rates skyrocketed and the Russian state was essentially bankrupt.'6

In the shadow of the Great Depression, Western nations sought to redefine the notion of public good

Privatization has a chequered history in the South, too, where it has been bedevilled by corruption, regulatory failure and corporate bullying. Often companies are reluctant to invest in energy projects without a guaranteed return. Enter the 'power-purchase agreement' (see 'Power surge') - a legal sleight-of-hand which requires a publicly owned electricity distributor to buy power from private producers at a fixed price in US dollars for up to 30 years - even if demand swoons and the power is not used. In India, the Maharashtra State Electricity Board (MSEB) was taken to the cleaners by the now-disgraced Enron Corporation and its $920-million Dabhol power plant. At one point, after renegotiating the powerpurchase deal, the MSEB was obliged to pay Enron $30 billion a year. Indian critics called the deal 'the most massive fraud in the country's history'. Writer and activist Arundhati Roy notes that the MSEB was forced to cut production from its own plants to buy power from Dabhol and hundreds of small industries had to close because they couldn't afford the expensive power. 'Privatization,' Roy writes, 'is presented as being the only alternative to an inefficient, corrupt state. In fact, it's not a choice at all... [it's a] mutually profitable business contract between the private company (preferably foreign) and the ruling élite of the Third World.'7

Apologists point to the alleged failures of public enterprise as ample reason to introduce market discipline. The public sector can't compete for profits or market share so it must be inefficient. The logic is half-baked but it does contain a grain of truth: all of us have had our run-ins with blasé government workers, crowded hospital emergency departments or interminable post-office queues. But, rather than asking what people deserve from government and how to bring that about, privatizers insist on throwing out the baby with the bath water. The result has been a colossal shift of public wealth into private hands over the past 25 years, part of a frontal assault on state-funded welfare programmes carefully constructed at the end of the Second World War.


Social wage
In the shadow of the Great Depression and chastened by the horror of war, Western societies sought to redefine social provision and the notion of public good. There was renewed concern with the rights of citizenship and entitlement to basic services (healthcare, education, public housing, subsidized mass transport and unemployment insurance) as part of a 'social wage'. These programmes were purposely removed from the pressure of the market, to be funded by general taxation for the benefit of all. The strength of the welfare state varied from one country to another. It had its weakest foothold in the US. But the rationale was the same: social cohesion and economic progress were furthered by a shared sense of community. In the climate of the times, with socialist sympathies on the rise, the welfare state was a halfway house between Soviet-style communism and a raw, unhinged capitalism.

Forty years later things changed. The welfare state was under attack and nowhere more so than in Britain, one of the countries where it was most advanced. Prime Minister Margaret Thatcher sold off British Telecom (1984), bus transport (1985), gas (1986), British Airways and the Airports Authority (1987), water and electricity (1990) and, eventually, the coal industry and the railways. Under subsequent Tory and Labour administrations other key areas like healthcare and education have been subject to 'privatization by stealth' - a combination of systematic under-funding and private-sector out-sourcing (see 'Bad medicine').

After two decades the decline is stark: opinion polls show profound disillusion with the nation's privatized services and a willingness to spend more tax money to reclaim the system. As writer Susan George notes: 'In Britain and elsewhere the overwhelming majority of privatized company shares are now in the hands of financial institutions and large investors... In 1984 public companies brought over £7 billion [$11 billion] to the British treasury. All that money is now going to private shareholders.'8

In their scramble to balance budgets, cut costs and slash taxes governments worldwide have opted to let the private sector in on the action. Sometimes it's called 'alternative service delivery'. That might mean contracting out garbage collection or park maintenance - or it might mean letting volunteers run community centres. Either way it's a recipe for reduced wages, longer hours and loss of local control over vital community services. As the Canadian Union of Public Employees notes: 'Experience around the world and across the street shows that these ventures will increase costs, reduce quality, restrict access and confound accountability.'9 Value for money is not necessarily value for people.

Another ploy which cash-strapped governments have embraced is the 'public-private partnership' (P3). The idea is that private capital builds and owns the infrastructure (of a school or hospital for example) which the municipality then leases back. This is an attractive proposition because it allows governments to disguise debt by pushing it off the balance sheet.

P3s are a good investment - but not for the public. Take this example from New South Wales. When the Government signed a deal with Health Care of Australia in 1992 to rebuild the Port Macquarie hospital it figured to save $50 million. On investigation the state auditor found the Government would pay $143 million for the hospital, nearly three times what it would have paid to build it itself - and still wouldn't own the building.10

Once the door to privatization is open it may be impossible to close it again. Trade deals currently in place, like the North American Free Trade Agreement (NAFTA), or the General Agreement on Trade in Services (GATS) now under negotiation, are clearly tilted towards the rights of corporations.

GATS is immense and worrying. Disguised in the legal language is a set of rules to facilitate the corporate takeover of global services. This includes basic needs like water and education but also things like tourism, entertainment, banking, insurance, distribution services and even retail trade. Researcher Scott Sinclair says the GATS list of what constitutes a service is so broad 'it reads like catalogue of occupations and human needs'.11

Make no mistake, we're talking big money. Services is the fastest-growing sector in international trade - worth about $1.35 trillion, or a quarter of the global trade in goods, in 1999. Western countries and Western-based corporations account for about 80 per cent of world service exports. Africa, by comparison, gets about two per cent, mostly in tourism. Sinclair goes on to explain how a thicket of proposed GATS rules, including 'national treatment' and 'market access', could make privatization and deregulation effectively irreversible (see 'GATS Attack!'). Because many public services now have private-sector involvement we may have already started down that road. Measures designed to promote and protect local educational values could be labelled as 'barriers to trade'. This in turn could lead to destructive pressures on the public system, opening the doors to foreign firms wanting to run public schools for profit. In the US educationmanagement organizations are a fast-growing part of the 'education industry'.

Somehow opposition continues to burst forth from those sidelined by the market’s perverse notion of equality

Second enclosure movement
The political implications are profound. The World Trade Organization (of which GATS is part) functions as a supranational constitution which trumps the will of national governments to shape policy on behalf of their citizens. Powerful dispute-resolution bodies which rule on corporate claims of discrimination have been active under NAFTA and the WTO. There is no reason to believe they will be any less active in consolidating a profit-driven vision of society if the expanded GATS round is agreed to on 1 January 2005.

This faith in the market as the ultimate measure of human relations is carving out new markets where once there were none - what is sometimes called the 'second enclosure' movement. Just as the aristocracy in Britain dispossessed peasants and claimed common lands for their own 300 years ago, giant transnational corporations are aiming to control essential human needs - water, education, healthcare, the atmosphere, even the genetic structure of life itself - and sell them back to us.

But free markets do not make free societies. While corporations pursue the commodification of everyday life and citizens act out their lives as private consumers, public space is being eroded and social control intensified. As the gap between haves and have-nots grows, more of our world is roped off for private use. The War on Terror has become a convenient excuse for curtailing civil liberties, sealing borders and clamping down on dissent. Says global-justice activist Naomi Klein: 'It simply isn't possible to lock away this much of our collective wealth without an accompanying strategy to control popular unrest and mobility.'12

Somehow opposition to the privateers' agenda continues to burst forth from those who are sidelined by the market's perverse notion of equality. Angry farmers in Bangalore storm the Karnataka Power Transmission Company offices to protest electricity privatization. Civil-society groups from Argentina to Thailand organize to trash the forthcoming GATS agreement. More than 100,000 public-sector workers take to the streets of Paris to oppose job losses and wage cuts. Meanwhile, back in Ontario thing are looking up too. Public outrage over the privatization of Hydro One, the utility's distribution arm, eventually forced the Government to stop the sale - a huge victory. The people of Ontario may yet see Adam Beck's dream of electric power in the public interest - not for the profit of the few.

1 'Hydro shocker: What went wrong', Thomas Walkom, Toronto Star, 2 Nov 2002
2 'The policy roots of economic crisis and poverty', www.saprin.org/global_rpt.htm
3 'Unsustainable conditions - the World Bank, privatization and water', Hall and Bayliss, PSIRU, Aug 2002.
4 'Establishing and implementing a joint venture for water sanitation services for Cartagena, Colombia', www.ghkint.com/pdf/cartagena.pdf
5 'Privatization and poverty', K Bayliss, Jan 2002, http://idpm.man.ac.uk/crc/
6 'The theft of the century', Multinational Monitor, Jan/Feb 2002.
7 Power politics, Arundhati Roy, South End Press, 2001.
8 'A short history of neoliberalism', Susan George, Conference on Economic Sovereignty in a Globalizing World, 24-26 March 1999.
9 Cross-country sell-off, Annual Report on Privatization 2002, CUPE, www.cupe.ca/arp2002
10 'Health care privatization down under', Fast Facts, Canadian Centre for Policy Alternatives, 30 March 2000.
11 'How the WTO's new service negotiations threaten democracy', Canadian Centre for Policy Alternatives, Sept 2000.
12 Fences and Windows: Dispatches from the Front Lines of the Globalization Debate, Naomi Klein, Picador / Flamingo / Vintage, 2002.

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