Europe on privatization binge despite evidence showing no benefits

December 3, 2012

A news story from from Straight Goods News:

A new privatization bonanza is underway in southern Europe, with Greece and Portugal leading the way. But recently published research shows the trend in recent years in Europe has been in the opposite direction as it becomes ever clearer that there are no benefits – except for the corporations and fat cats

The European economic crisis is misery for most, but is proving quite a boon for those who don’t know the meaning of austerity. The billionaires, the well-heeled corporate executives, the owners of private equity groups or ‘vulture’ funds.

For privateers seeking to make a quick buck, Greece, is the new ‘El Dorado’, as the country’s privatization chiefs has put it. The IMF-EU-ECB or ‘Troika’ want the country to raise €50 billion through sell offs of state owned assets by 2022. To be sold to the highest bidder are stakes in banks, utilities, the national lottery, ports, airports, motorways and other infrastructure, plus a vast amount of publicly owned real estate — from a former royal palace to the Athens police headquarters — and prime cuts of land, including beaches in the holiday hotspots of Rhodes and Corfu.

As part of Portugal’s ‘bailout’ by the ‘Troika’ in May 2011, the government is required to raise €5.3 billion in two years with the national airline, energy companies, national rail and urban rail, tram and ferry transport services set to be privatized. Already last year the government sold a 21 percent stake in Energias de Portugal to China’s Three Gorges Corporation, and in February this year Lisbon sold a 40 percent stake in Redes Energéticas Nationais to the State Grid Corporation of China.

In Spain and Italy too there are efforts underway to kick start a mass sell-off of state enterprises and properties.

Despite this new privatization party, recent research shows that the trend in Europe in the past few years has actually been the other way – towards bringing private assets and services back into public ownership. The story has been of utilities in particular – water, energy and public transport – being ‘remunicipalized.’
In France, water has been taken back from privateers in no less than 16 cities including Bordeaux and Paris, home of utility giants Veolia Environnement and GDF Suez. H20 is in the process of returning to total public ownership in Berlin and Budapest too. In Italy plans to privatize water were knocked back in a referendum in 2011.

In Germany electricity has been undergoing a process of renationalization as 2,000 private concessions expired. The Swedish parliament rejection the privatization of power company Vattenfall (a major player in wind power in the UK) . In Hungary, the state is taking back control of the energy sector, part of which is controlled German multinational E.on, which also has substantial holdings in the UK. Latvia, meanwhile, has declared it illegal to privatize electricity company Latvenergo.

As for transport, bus services have been brought back into public ownership in France, with rail renationalized in Estonia and Germany halting privatization plans for Deutsche Bahn.

Some waste management, cleaning and catering services have also been taken back into public hands.

These are the findings of a recent report by Public Services International Research Unit (PSIRU) at the University of Greenwich.

But why this trend? PSIRU looked at the conclusions of a mass of independent research into the impact of privatization, from the mid-1990s through to 2011. And it found that cost savings (due to higher borrowing costs or transaction costs) and promised price cuts didn’t take place; there were problems with the quality of services, insufficient or the wrong type of investment; private firms were unaccountable and unresponsive to local needs; and privatization and outsourcing of public services had led to worse working conditions and job security for employees — indeed lowering the cost of labour was a central component of the ‘efficiencies’ offered by the private sector.

Opinion polls reflect such an experience with privatization, and confirm a deeper mistrust of making profits from public services and goods. Whether a new phase of privatization really takes off will depend whether or not that popular rejection turning into popular resistance.

Encouragingly in Spain, there is stiff resistance against water and health privatization in Madrid, which is governed at regional level by the same neo-liberal Popular Party holding the reins of national power. And earlier this year, moves by the extreme right wing administration of Giovanni Alemanno to open up water to privateers in Rome, despite the national referendum banning it, also met with stiff resistance. Opposition in Portugal and Greece (as in Spain), meanwhile, has formed part of the huge anti-austerity protests seen this autumn, culminating in the European-wide strikes and mobilization on November 14.

Getting back to the arguments for a minute. Big business – now more than ever dependent on public contracts and public wealth to maintain profits, dividends and millionaire bonuses for the top executives — knows it can’t win on the merits of privatization on cost, quality, accountability or treatment of employees. But it still has the ultimate, TINA excuse. There Is No Alternative because governments are broke and heavily indebted. They need cash to pay the creditors or risk collapse.

There a number of ways of answer that one. One was given by the IMF itself recently when it estimated that privatization proceeds if fully realized as dictated by the Troika, would only trim only up to one percent from Greece’s debt, which is expected to rise to a staggering 189 percent of the nation’s economic output in 2013, from 175 percent this year. Ending extreme austerity and cancelling at least some of the billions owed is a much more effective a solution to the debt problem, as many politically mainstream economists now accept and, by the way, has been the case throughout history.

In formulating a response to TINA it is also worth considering that, according to some recently published figures, the sum spent on the bailout of the private banking system since 2008 — $1.7 trillion — was roughly equivalent to 30 years of privatization proceeds globally. So any gains today for national treasuries from selling off the family silver could easily been blown tomorrow in the next mega hand out to the capitalist system. Which given the ever deteriorating state of it seems highly likely.

To quote one US economist whose name escapes me now, those who pay their debts just end up owing more. And in this debt-privatization con game we’ll have been robbed of everything in the process.

Read the story at Straight Goods News.