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Business-Managed Democracy

“Business-managed democracies are those in which the political and cultural arrangements are managed in the interests of business”

Sharon Beder

Business-Managed Government

Business Interests

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Many businessmen were persuaded during the 1970s and 80s that the price of government-supplied services was too high because of bureaucratic inefficiencies and because of the social goals that governments were pursuing. They believed that the uncompetitiveness of government providers made private industry uncompetitive too.

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protest against PO sell-offThe beneficiaries of privatisation have been the banks, building societies, insurance companies, pension funds and other industrial and commercial companies that were able to invest in the newly privatised services and/or provide loans to those who did. For example, the banks were major investors in power companies and their executives populate the boards of electricity companies. They advised on privatisation schemes and helped draw up deregulation legislation around the world.  They collected fees from brokering the purchase of independent power companies world wide and have been involved in energy trading themselves.

Privatisation is good for the development banks because the money raised by the asset sales helps governments of poor nations to pay the interest on their debts, at least in the short term.

Privatisation has been good for multinational corporations because they have been able to buy profitable government assets and have more opportunities to sell their products and services into new markets, often with heavy tax-payer funded subsidies.

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The case for privatisation could not be presented in self-interested terms to the public. It had to be presented as being in the interests of the wider public. Groups such as the large industrial energy users utilised the language of free-market advocates to state their case in terms that were not too obviously self-interested.  The neo-conservative think tanks provided that language.

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Business Expansion

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Western-based transnational corporations have sought investment in developing countries as a source of new markets because profit opportunities in affluent countries, especially in traditional areas such as primary industries and manufacturing, have declined. Privatisation in developing nations offers opportunities for such investment and these corporations have increased their push for privatisation policies in developing countries in the late 1980s “in response to a cyclical downturn in interest rates and a longer-term fall in rates of return on investment in mature industrial economies”.

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The United Nations Development Program (UNDP) claims that privatisation benefits transnational corporations (and some local firms) by allowing them to get access to industries in developing nations that had previously been closed to them and buy up established enterprises sometimes at cut rate prices: “In many countries the privatization process has been more of a ‘garage sale’ to favored individuals and groups than a part of a coherent strategy to encourage private investment.”

The expansion needs of US private utilities was another driving force for privatisation:

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In the early 1990s, with their home market’s power demands growing at snail’s pace, these companies began expanding overseas. In China, India and South America, though, they ran into dysfunctional legal and social systems and governments that  changed the rules at whim. Then they found clean, safe Victoria, which not only spoke English but offered leafy suburbs and schools, fine restaurants, theatre and other amenities for foreign managers.

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Infrastructure Companies

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Infrastructure copanies have benefited greatly from the privatisation of public service provision around the world, particularly Public-Private Partnerships (PPPs) in water, energy and transport. Between 2001 and 2007 the largest 75 infrastructure companies grew more than twice as fast as the average for other major companies (see graph below).

Growth of Infrastructure Companies compared with All Major Companiesgrowth of infrastructure companies graph

Source: David Hall, 'PPPs in the EU - A Critical Appraisal', London: Public Services International Research Unit (PSIRU), October 2008, p. 6.
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Infrastructure PPPs are increasingly being bought up by financial institutions, particularly infrastructure funds such as Australian-based Macquarie Group (previously Macquarie Bank), the largest of them. PPPs are often attractive investments and very profitable as they involve guaranteed regular payments as well as additional fees to the funds themselves.

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