The twentieth century experienced a period of extraordinary growth in the size and power of capitalism with nation states weakened, economic policy shifting from Keynesianism to Monetarism, and neoliberal governments abdicating their power to control interest rates, exchange rates and the money supply. It saw nation states restricted under compulsory trade arrangements in which corporation-friendly treaties drove out often hard-won, socially-friendly national laws. It saw unprecedented growth in the three pillars of modern capitalism, the neoliberal Holy Trinity: privatisation, deregulation and globalisation. For thirty years the Washington Consensus ruled.
The twentieth century also witnessed social democratic governments defecting to the neoliberal camp – especially in Britain, Australia and the US, and it saw trade unions weakened by the creation of a new global reserve army of labour in China, the Indian sub-continent and the former Soviet Bloc.
It saw the Soviet Union collapse and its rich public resources brutally cannibalised by the Russian capitalist oligarchs. And, last but not least, it saw the Chinese Communist Party became the Chinese Chamber of Commerce.
All of this, of course, was but a prelude to the Global Financial Crisis:
In 2008, corporate psychopaths flew financial weapons of mass destruction (financial derivatives) into the twin towers of our economy, the housing market and the stock market. Ten trillion dollars of wealth imploded in a cloud of dust.
And whilst global capitalism is on the ropes, there are as yet few signs of concerted, viable socialist opposition. Meanwhile, the forces of capitalism press on – especially with privatisation.
Margaret Thatcher, Conservative British prime minister, introduced privatisation in the early 1980s to raise money for the government, to cut back the size of the public sector and to break the power of the public sector unions. Money making, however, was never the real objective because the sale of public assets entails the loss of on-going revenues to government and this inevitably means lower government income in the long run. Privatisation involves the sale of public assets to private buyers at fire-sale prices - including things like public housing, public utilities and public industries - at bargain basement prices. Privatisation quickly made many private fortunes at public expense.
The types of assets privatised were often natural monopolies like rail or telecommunications. Once privatised and free of regulation, these former public monopolies quickly become unfettered private monopolies, free to increase prices and reduce supply. Privatised assets are often very profitable and supporters put this down to increased efficiency, but their profitability stems instead from fire-sale acquisition prices, monopoly market power, cut-backs in repairs and maintenance, and reduced service standards.
Privatisation diminishes democracy: governments are answerable to the electorate, capitalist corporations aren’t. ‘Commercial-in-Confidence’ contracts limit public and parliamentary scrutiny and thereby reduce public control. Privatisation, therefore, changes the operating principles and the operating environment. Corporations care only for the bottom line; ignoring any wider social responsibilities they might have once had while in government hands – like cross subsidies, welfare concerns, social inclusion or the environment.
Privatisation is based on several false ideas: that governments are intrinsically inefficient; that there is no such thing as the public interest; that government debt causes inflation and higher interest rates; and that government investment crowds-out the more productive private investment. These ideas are as false as those on which the neoliberal house of cards was built in the first place. Now that that house has blown away maybe it’s time to rethink privatisation as well.
The Top Ten problems with Privatisation
1. Privatisation, transferring ownership and/or control of public assets to private buyers, together with deregulation and globalisation are the three main pillars of of modern corporate capitalism. Corporations have the status and rights of ‘legal persons’ (and in the United States, unbelievably, they also have human rights). Unfortunately, however, such ‘corporate persons’ are psychopaths. They exhibit:
· Callous unconcern for the feelings of others.
· An incapacity for maintaining enduring relationships.
· Reckless disregard for the safety of others.
· Deceitfulness, repeated lying and conning others for profit.
· An incapacity to experience guilt.
(‘The Corporation’, Bakan, J. 2004)
Not surprisingly therefore, when giant corporations collapse (Enron, Lehman, HIH etc), subsequent investigations show their callous indifference to shareholder assets and worker’s pension funds.
2. Global financial markets, monopolized by some of the world’s largest financial corporations, out of control due to greed, deregulation and market failure, are driving the global privatisation agenda; witness the Sub-Prime Global Crisis, massive government bailouts and yet multimillion dollar privtisation bonuses continue to be paid despite continuing losses running into the billions (eg Royal Bank of Scotland)
3. Public goals are broader than the corporate bottom line which ‘privatises’ profits but externalizes (socialises) costs – the costs the corporation creates but doesn’t have to pay are other people’s problems
4. Corporations prefer to privatise natural monopolies; allowing them to reduce supply and increase prices, maximizing their profits. Everyone, except the capitalist, knows that natural monopolies must be publicly owned or, at the very least, tightly regulated to safeguard the public interest. In the last three decades, corporations have successfully opposed regulation everywhere
5. Privatised assets are poorly maintained and poorly developed – UK railways
6. Privatisation distorts the allocation of resources; for example, a toll put on some road in the middle of an otherwise free but complex road network completely rearranges all subsequent traffic flows
7. Privatisation diminishes the sphere of democratic control and accountability – governments are answerable to the electorate, corporations aren’t, ‘commercial in confidence’ contracts prohibit public audit review and parliamentary scrutiny
8. Privatisation severely constrains government fiscal and financial flexibility; major public revenue earning assets have been handed over to the corporations and the revenue streams are subsequently lost to government
9. Based on the first false ‘efficiency’ premise that corporations and markets are efficient, but governments aren’t; that corporate debt is better somehow than government debt and that governments need to shift the risk to corporations
10. Based on the second false ‘inflation’ premise that government debt increases the money supply which in turn creates inflation, adverse terms of trade and higher interest rates.
The above only skims the surface of the sea of problems with privatisation. Over time this post will grow to expand on each and every one of the ten dot points. It might even add a few more.
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