We use cookies for site personalization, analytics and advertising. You can opt out of third party cookies. More info in our privacy policy.   Got it

Puerto Rican teachers come out against the government’s drive to privatize public education. Photo: Ricardo Arduengo/AFP/Getty Images

The case for public ownership

Public Ownership
Privatization

Come election time and politicians’ promises fly thick as clouds of swifts. Imagine if a candidate aiming for high office were to promise at the hustings – after the usual guff about government not interfering with ordinary people’s lives, of course – that their party also intended to keep its distance from providing public services and would strip those that remained to the bone. Political suicide, one might think.

Yet after decades of an ideological war on the public sphere, when tirades against ‘big government’ are shorthand for the privatization and marketization of the vital goods and services that governments would normally be expected to provide, such a claim would not be far from the truth.

One of the conclusions of the year-long Australian People’s Inquiry Into Privatization was that ‘there is more, not less, demand for government services – but increasing reluctance from governments to provide them. Communities did not agree to accept less coverage or less quality from government, but that is increasingly their experience.’

Recently British Prime Minister Theresa May admitted in a speech at her party’s spring conference that voters had ‘doubts’ over the Conservatives’ handling of public services, especially the National Health Service (NHS). She then made this curious statement that was also tweeted by the Conservatives’ account: ‘Brilliant Conservative councils keep taxes low so people can keep more of the money they earn and deliver high-quality services for those who rely on them.’

It is one of those utterances that overflows with signification. But the main promise is that the state will keep its hands off individuals’ hard-earned cash by not making them pay too much of that nasty tax, while still magically delivering on the services that tax could be paying for. (May is no stranger to ‘have your cake and eat it’ thinking on other fronts, too.)

‘There is more, not less, demand for government services – but increasing reluctance from governments to provide them’

The tax smokescreen employed here is a common one for proponents of the deeply unpopular but entrenched privatization dogma that has dominated public service provision. Opinion polls routinely show public support for public ownership (click here for a round-up of British polls). And privatization, whether it has taken the form of outright sale of an asset that should have remained public, a so-called public private partnership (PPP) or outsourcing, has had one spectacular failure after another.

This is because the model of market liberalism – that private companies borrowing through financial markets could deliver better public services than democratically elected governments drawing on public funds – that has been promoted since the 1980s has more than a few fatal flaws. The much-vaunted efficiency of private companies was solely directed at returning a profit for shareholders. The moral distinction of vital services that need to be run for people rather than profit was lost on the captains of business.

The logic of private entrants into this arena was to pick and choose the juiciest contracts, milk them for profit, and cut and run if things fell apart. Plus the current top-heavy culture of high shareholder dividends – fat-cat CEO salaries, and the rest be damned – makes private corporations a particularly bad fit with public provision. The competitive discipline of market forces does not apply. As Cat Hobbs, director of the public services campaign group We Own It puts it: ‘Vital public services, like water provision, tend to be natural monopolies. You don’t get to choose the water coming out of your taps – there is one set of pipes. It would be impossible for any company to provide real competition to that, so what you effectively have is private monopolies.’ Consider the private British water companies, which raked in profits of $2.8 billion in the financial year ending 2017, with a so-handsome-it’s-cosmetically-enhanced profit margin of 17 per cent. They have paid out dividends to shareholders that are roughly equal to profits over the last decade, which means infrastructure investment is a low priority.

Such gushing profits get reflected in bills, of course. In the higher income OECD countries, the average price for energy charged by private companies is 23 per cent higher than by public companies. In France privatized water company bills are on average 16 per cent higher than those of their municipal counterparts. And of course the Cochabamba water wars of Bolivia are legendary, when US transnational Bechtel hiked up prices for this vital resource way beyond the ability of poor people to pay.

Partners or sharks?

The rotting fruits of neoliberalism ironically only sweetened privatization when they should have poisoned it. The 2007-08 global financial crisis, which resulted in austerity policies in most high income countries, did little to shake our political elites’ conviction in the value of private sector contracts. Underfunding and undermining of the public sector continued. International financial institutions, often with the support of government, prescribed not only sell-offs, which led to the loss of income to the public purse, but dubious PPP schemes meant to transfer risk to the private sector. If private companies invest, then they are taking the up-front risk, goes the logic in its simplest form. But PPPs usually turn out far more expensive than public procurement because private companies borrow money at much higher rates of interest than government can. Then there are the profit margins that are often written into contracts and the fortunes handed out to the big accounting and financial advice firms who guide the deals.

Eventually, of course, the investment must be repaid (many times over) by the public purse. The National Audit Office reckons that the British taxpayer is in hock to the tune of £200 billion for Private Finance Initiative (another term for PPPs) ventures. A 2016 report found that a quarter of the European PPPs it studied, generated annual returns on investment of 12 per cent – all draining into private hands. In the Majority World, where the risks are perceived as higher, investors expect returns closer to 25 per cent – this is the stuff of pay-day loan sharks. Yet PPPs are being pushed through the usual development finance and aid channels by the World Bank and Western governments onto countries in the Global South seeking cash for public projects.

When Boris Johnson was Mayor of London he lamented the multibillion-pound débâcle of a collapsed London Underground PPP scheme, saying: ‘In other countries this would be called looting, here it is called the PPP.’ Now elevated to the top job at the Foreign Office, his department is actively recommending similar private funding schemes for healthcare to Zambia and Liberia putting them at risk of ‘unjust and unpayable debts’.

Outsourcing has penetrated into some of the most critical areas of service provision, such as home care, administering disability benefits, and running prison systems. Huge transnationals have cornered the market, tendering low to win hefty government contracts. Quite apart from the fact that they use their position to renegotiate contracts terms upwards soon after taking charge, their model is based on exploiting (less than) minimum wage labour and zero-hour contract workers – often to provide care for the most vulnerable. One can’t help but think that any notion of the ‘public good’ has left the room in such arrangements.

The benefits of public ownership are obvious – no wasteful leakage of dividends to shareholders and returns to the public purse from profitable endeavours

This corporate entrenchment in the public sector – and its shortcomings – is typified by the collapsed construction giant Carillion, a firm that held 450 taxpayer-funded contracts in Britain and employed 20,000 workers, which gave it a ‘too big to fail’ status, with ministers awarding it contracts crossing the billion-pound mark even after it had published profit warnings.

While Carillion is being seen by some as a British turning point, with opposition Labour leader Jeremy Corbyn promising to ‘rewrite the rules to give the public back control of their services’ if elected, it remains to be seen if the current government will veer from its default of throwing money at the private sector. In Australia, things have got so bad that even a champion of privatization, Rod Simms, the Competition and Consumer Commission chair, declared that ‘a sharp uppercut is necessary’ as privatization was damaging the economy. And indeed Australian regional governments are stepping up and taking enterprises into public ownership, where the market has failed.

The defiant city

But as an influential study from the Transnational Institute documented last year, there is already a quiet revolution afoot on this front and it is taking place mainly at the city level. They found that ‘there have been at least 835 examples of (re)municipalization of public services worldwide since 2000, involving more than 1,600 municipalities in 45 countries’.

This is particularly remarkable as it is far easier to privatize than it is to take back into public ownership. Over the years, governments’ decision-making and operational abilities have been degraded with cutbacks in public servants and an over-reliance on private consulting firms. Austerity conditions that often necessitate the takeback have left public spending budgets depleted. As Cat Hobbs of We Own It says: ‘The public sector needs to have sufficient funding, it needs to have sufficient knowhow and expertise, and it needs to have the assets that make public ownership possible.’

And then there is always the issue of the degree of compensation owed to a private company and whether they will sue for large sums for the termination of the contract. There have been instances of private companies that have ratcheted up debts and turned around to sue for the loss of imagined future profits when their contract was cancelled. Investor protection mechanisms make it particularly lucrative for foreign companies to go down this route (see Lavinia Steinfort’s article, also in this issue of the magazine). Argentina has suffered 59 such lawsuits when it enacted progressive measures to make public services work for the people.

The amount of preparation should not be underestimated – both Paris and Buenos Aires took years to do the groundwork to take back their water services successfully.

Many of these obstacles are better surmounted at the local level where common cause for pressing issues is easier to find – and it is worth noting that support for public ownership in this local context can come from across the political spectrum. The benefits are obvious – no wasteful leakage of dividends to shareholders; returns to the public purse from profitable endeavours which can then cross-subsidize services which are essential but not profitable; a boost to the local economy as jobs are created, and the strengthening of workers’ rights and capacity to organize.

Of course municipalization is meaningless if it adopts the values of the marketplace and ignores the social dividends it is so well placed to deliver. But it often delivers on both economic efficiency and social benefit. Valladolid in Spain made savings of 71 per cent by bringing street cleaning services in-house, while at the same time providing secure jobs to workers who normally had few rights.

Outfits like the Nottingham City Council-initiated Robin Hood Energy are all about reclaiming the public ethos and are a world away from the bloated, overly managerial cliché of old style public ownership. Operating as an energy generator and supplier, it was specifically set up on a not-for-profit basis in order to address fuel poverty and provide low-cost energy. Its motto: ‘No private shareholders. No director bonuses. Just clear transparent pricing.’ In Germany, 284 municipal energy providers have addressed popular demand for renewable energy, bringing about a wave of transformation that private companies were reluctant to be part of.

The way public ownership is being rethought often includes accountability to the people using the services and their participation in decision-making; it addresses issues of environmental and social sustainability.

If there is a leitmotif to the new municipalist movements it is democratic engagement and popular participation, not just in terms of public services and resources but in terms of reimagining the city as a site of resistance (see Luke Stobart’s article on how it is being done in the Barcelona area, page 26). It is a realization that it is possible to exert positive power and transform the conditions of our lives by changing things at a local level.

Particularly strong in Europe, these movements are outward looking, reaching out to movements in the Global South that operate under different, much more challenging circumstances, sharing knowledge and helping to bring their struggles to wider attention.

This is a ball that is rolling, but in terms of current economic orthodoxies it is still rolling uphill. How far it can go will be determined by its successes, of course, but also by the continued engagement of the likes of you and me – the public.

Home page banner photos: Puerto Rican teachers come out against the government’s drive to privatize public education. Photo: Ricardo Arduengo/AFP/Getty Images. A French state-run train. Photo: Cramos, CC-BY-SA-4.0-International

New Internationalist issue 512 magazine cover This article is from the May 2018 issue of New Internationalist.
You can access the entire archive of over 500 issues with a digital subscription. Subscribe today »

Subscribe   Ethical Shop