The end of an era for privatization

The end of an era for privatization

By Jasper Goss

JAKARTA (JP): For roughly the last quarter of a century, the
idea that governments did too much dominated the thinking of
mainstream economists, most politicians and senior bureaucrats.
Privatization, liberalization and corporatization became the
central core of economic and political policies in most
countries.

Made famous by the British government of Margaret Thatcher and
given a favorable imprimatur by the International Monetary Fund
(IMF) and the World Bank, these policies came to be known as
neoliberalism.

Throughout the 1980s, the state was "rolled back" in a wide
range of countries. Irrespective of political background,
mainstream parties embraced neoliberalism. In the developing
world the most important laboratory for neoliberalism was Chile,
under Gen. Pinochet.

Starting in the 1970s, the Chilean regime instituted an all-
encompassing program of neoliberalism that saw easy access for
foreign investment, banking and finance sector deregulation,
reduced labor standards and rights ("labor market flexibility"),
the privatization of state utilities and the introduction of
privately funded social security.

Chile's shift to what its leaders called capitalism popular
(popular capitalism) was marked by massive increases in the
wealth of the already rich. During the 1980s, when Chileans
started to appear in the Forbes list of the world's billionaires,
Chile, for the first time, entered the top 10 list of countries
with the most uneven distribution of wealth -- coming in sixth.

Chilean enterprises were privatized with the promise of worker
participation in management. Yet, there was in fact only one case
where workers managed to gain a seat on the board of directors of
a privatized enterprise.

Of the 12 Chilean state enterprises privatized in 1986 and
1987, an effective subsidy of between 27 and 69 percent by the
national treasury was recorded, according to the Christian
Democrat think tank CIEPLAN.

But these problems have occurred elsewhere. In Australia, when
33 percent of the national telecommunications carrier was
privatized in early 1998, each share was sold at A$2. Yet, one
year later, when a further 16 percent was privatized, each share
was sold at close to A$4. In effect, the Australian government
subsidized the share price of the initial round of privatization
at a rate of 50 percent.

Accompanying this wave of privatization was the retrenchment
of 25,000 workers in the three years to 1999, decreasing the
enterprise's work force by one-third. In addition, by partially
privatizing an extremely profitable state asset, the Australian
government lost close to US$1.2 billion as a result of dividends
paid to private investors in the first year after the one-third
privatization.

The process of selling state enterprises at subsidized costs
has been repeated throughout the world. It is in the interest of
private sector investors to play down the value of the public
sector, since exaggerating public sector inefficiency and lack of
profitability will reduce the potential costs of state assets.

However, there is ample evidence that strategic economic
sectors can be run effectively by the publicly run sector.

Ask any West European which is cheaper and provides better
service: the privatized British rail network or the state-owned
Dutch network.

Ask anyone from Auckland about a privatized state enterprise
that did not supply electricity to the city center for a month
because the pursuit of profits preceded the maintenance and
upgrading of infrastructure.

Ask people from Melbourne about the absence of natural gas
supplies during the middle of winter because of the impacts of
corporatization.

Or ask the citizens of the ex-Soviet bloc about the effects of
collapsed economies, where a decade of neoliberalism has left 19
out of 22 countries with a smaller gross domestic product in 1999
than in 1989, according to The Economist.

This is the real nub of the debate about privatization.
Whatever the economic benefits, and at best the evidence is
contradictory, privatization remains deeply unpopular worldwide.

While many have cited the example of the Victorian state
government in Australia as the most successful regional
government to implement privatization policies, it is worth
noting that this government was dismissed in only its second
term.

The Victorian public reacted strongly to the visible decline
in their education, health and transport services as public
sector support for these essential social needs was withdrawn.

In Thailand, attempts to privatize profitable state assets,
such as the electricity and telecommunication enterprises, which
provide important revenues to the government, stabilize prices
and secure the rights and livelihood of workers, are raising
concern.

In fact, the International Monetary Fund (IMF) and the World
Bank, the chief international promoters of privatization and
neoliberalism during the 1980s and 1990s, are themselves no
longer quite so effusive in their support.

For the first time, the IMF has contradicted prevailing
orthodoxy by stating that regulation of capital flows between
countries might be beneficial. The World Bank and the IMF have
decided to rename their hugely unpopular "structural adjustment
loans" as innocuous-sounding "poverty reduction strategy loans".

But, beyond this, it is clear that the benefits of
privatization and neoliberalism are disproportionally
distributed. Privatization makes national governments weaker in
their ability to manage the volatility of world market forces.

In Indonesia and Thailand, countries burdened by a crisis of
public debt resulting from private sector mismanagement, one must
ask a question. Is a steady and continuing source of income from
state enterprises, which is used to lessen debt, better than a
lump sum, in the form of privatization, which will still not
clear the debt and will require reductions in social services and
new taxes to supplement lost income?

We should remember that decisions to privatize state assets
are not inevitable, but, are ultimately made in the realm of
politics and not in the realm of science, as the boosters of
neoliberalism would have us believe.

The pursuit and extension of publicly owned social services
and utilities does not contradict "scientific" reality, it only
contradicts the present political orthodoxy.

The writer is an independent researcher currently studying the
political economy of globalization in Southeast Asia. He is a
member of the National Tertiary Education Union in Australia.