Trading in basic needs

Print edition : April 28, 2001

When basic services and public goods become freely tradeable commodities, the poor are the worst-hit.

THERE was a time, not all that long ago, when it was generally understood that certain basic services should be available to all people, as a fundamental human right. The right to food and shelter were typically seen as being on a par with other rights such as a minimum right to drinking water. Of course, the realities of our unequal world meant that, even when this was generally accepted, it did not mean that all people actually did have access to these things.

However, the role of the state in attempting to provide some of these services, and particularly those which were seen as "natural monopolies", to its citizens was established. Indeed, it would have been hard to find even the most rabid of free-marketeers arguing that these were activities for the private sector.

All that has changed, not just rapidly but quite dramatically. There is now virtually no state activity (even defence, in some African states) which is seen as necessarily the sole preserve of the state. And the trend of privatisation of a range of public services has become so pronounced that it no longer raises eyebrows. Almost all public goods are now seen as freely tradeable commodities, and private ingenuity works out ways to make people pay even when access is hard to limit, and governments fall in step with the dominant ideology.

Nevertheless, the news that from April Fool's Day this year the water supply of the city of Johannesburg in South Africa has been privatised and handed over to a single monopolist supplier comes as a shock. After all, the South African government is controlled by the African National Congress, which came to power in 1994 promising free public services to those who could not afford them, and in fact promised universal public access to clean drinking water only three years ago.

This privatisation of water supply is part of a larger plan, known as Igoli 2002, which aims to turn Johannesburg into a "world-class city". The strategy for this is the dubious one of privatising more than a dozen services, through cleaning hawkers off the streets, paying top executives millions of rands, building on top of the water table thousands of drop toilets with no flush facilities, and through selling off profitable assets.

There has been a massive two-year civic campaign against this privatisation led by the South African Municipal Workers Union. Not only the workers affected but hundreds of thousands of other citizens took part in this protest movement. Not only did SAMWU point out numerous cases across the world where privatisation of public services has led to higher prices and monopolistic practices but it specifically criticised this deal. It emphasised that the new supplier, Suez Lyonnaise des Eaux of France, had made no commitment to provide water to the poor.

Suez Lyonnaise's recent record does not give grounds for great optimism. In Santiago, Chile, the company has insisted on a 33 per cent profit margin in its operations. In the city of Casablanca, within the first year of the company taking over the water supply, prices rose three-fold. Even in France, its record is less than spotless in terms of consumer satisfaction and prices.

While it remains to be seen what happens in Johannesburg, the writing on the wall is already fairly clear. The absence of adequate regulation in this sector and the fact that the company will be effectively a monopoly in the area mean that poor people may face a large hurdle: covering relatively non-subsidised recurrent (operating and maintenance) costs and paying sufficiently high service charges so as to reward investors with the expected 32 per cent rate of return.

The current mainstream discussion is replete with pious statements of how people must be prepared to pay for the public services they benefit from. This ignores the basic points that all citizens effectively pay for the provision of public service through taxation, and that the poor typically pay a much higher proportion of their income in indirect taxes than the rich. Those eager to raise "user charges" for public service provision need to be gently reminded that one major reason why many citizens of developing countries do not pay is that they cannot - they simply do not have the money.

This is why it is so widely found that the poor in any country are inevitably much worse off after a public service is privatised. A recent literature review sums it up thus: The effects of privatisation bear most radically on the poorest in the community; there is widespread evidence of more cut-offs in service and generally a harsher attitude towards low-income "customers". Water in Britain is a case in point. Water and sewerage bills increased by an average of 67 per cent between 1989-90 and 1994-95, and during roughly the same period the rate of disconnections owing to non-payment of bills rose by 177 per cent. The inflexibility and hostility which often characterised the public utilities' attitude towards non-payment has, over the same period, been replaced by an emphasis on pre-payment meters and "self-disconnection" as public goods have been commodified (Hemson, 1997, quoted in Patrick Bond, "Privatisation, participation and protest in the restructuring of municipal services", 2001).

IT is not only the poor who are worse off. It is now increasingly evident that private companies are less likely to observe safety norms, regulate production and distribution in socially desirable ways, and also that they tend to behave in monopolistic ways whenever they get the opportunity.

Of course it is not hard to understand why there is such a strong private lobby for such privatisation within South Africa, coming from multinational companies. Privatised South African infrastructure is potentially highly profitable, with internal rates of return approaching 30 per cent. In South Africa such pressure was reinforced by systematic pressure from the World Bank and its sister organisation the International Finance Corporation, which have been systematically promoting what they call "public-private partnerships".

It is well known now that these are usually a combination of public risk bearing and private profit, but the World Bank has been plugging these as the only solution to the region's severe infrastructure inadequacy. The International Monetary Fund also has been aggressively promoting these: in a recent random review of 40 IMF loans issued in 2000, it was found that in the case of at least 12 of these loans (mainly to poor Sub-Saharan African countries) the IMF conditionalities required either the full privatisation of water supply or policies ensuring full cost recovery.

But soon the World Bank may not be the only source of such pressure. There are strong indications that the United States and some other developed countries wish to incorporate public services into the ongoing negotiations of the General Agreement on Trade in Services (GATS). The potential in this area to open up is immense once all public services are targeted. It means that health, water supply, sanitation, education, social security, transport, postal services and general municipal services can all be opened up not only to private participation but also to free trade.

It is obvious that the potential for profits is immense. One estimate of the current size of the global health market is more than $3.5 trillion a year, which is more than the total value of exports from all the countries of the Organisation for Economic Co-operation and Development (OECD). Similarly, global expenditure on education is estimated to be $42 trillion, and even on water, as much as $2 trillion.

This is not a market that major multinational companies can afford to ignore, especially as the slowdown in a range of other sectors becomes more pronounced. We can thus expect to see such pressure mounting across the developing world, and of course in India as well.

The sad reality is that many of our policy-makers do not even require much external pressure to go in for such privatisation. Thus, in the State of Andhra Pradesh whose government has already become the most eager beaver of privatisers, the Hyderabad Metropolitan Water Supply and Sewerage Board is considering privatising the operation, maintenance and functioning of water supply in Kukatpally as a pilot project for one year.

We have seen dismal pictures of farmers and weavers in Andhra Pradesh committing suicide because of the material stress that has been exacerbated by government policies. Perhaps in the not so distant future, we will have to witness more instances of human misery stemming from deprivation of the most basic of human needs.

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