Cartels and Conglomerates
Privatisation of services is not only transferring publicly-owned assets into private hands but also into the hands of fewer and fewer companies. The buyers of government assets and services have mainly been large transnational corporations that, over time, have bought up or squeezed out their competition.
Expansion helps corporations to cut costs and spread expenses but mainly it is done to increase profits, either by acquiring rival companies at home and so increasing their market power or by finding overseas corporations that promise high rates of return on investment. This latter prompted US companies to purchase approximately half the available power companies in Britain and Australia as soon as they were privatised.
The Transnational Institute observes:
Despite the frequent claim about the negative impacts of public monopolies, these are often recreated by private foreign companies that manage to assume control over the whole chain of production, transmission and distribution of electricity, undermining government efforts to introduce competition and keep some authority over prices, supply and environmental standards.
The companies that have taken over electricity provision in most countries are transnational companies with little interest in the welfare of local citizens. Former Calilfornian Governor, Gray Davis, found this was true even of corporations based in other states. He belatedly moaned, in a state of the state speech in 2000: “We have surrendered the decisions about where electricity is sold, and for how much, to private companies with only one objective: maximizing unheard-of profits…”
Many energy, water and other service corporations are so large that they are often far more powerful than the local governments they contract with to supply services. This makes it very difficult for those governments to enforce terms of contracts relating to performance or to say no to rate increases without fear of retaliation. Retaliation threats are also made against more powerful governments. In Britain, when the water regulator, Ofwat, tried to get private companies to reduce their rates and improve their water quality, the giant conglomerate, Suez, threatened to slow down environmental investment and not keep to an EU schedule to adopt environmental standards.
In addition corporations often use their power to insist on renegotiation of the terms of contract after they have won a tender. Such renegotiations can involve rate increases and reductions in the scale of promised infrastructure improvements. According to the World Bank, more than half of the water contracts in Latin America were renegotiated during the 1990s.
The problems associated with concentration of ownership are exacerbated because of the inability of national governments to control foreign owners. Firstly there is the problem that foreign owners are likely to send their profits back to their home countries rather than make further investment in their facilities or spend the money in the country where they earned it, thus stimulating the local economy.
Secondly, foreign owners can withhold services for political and economic reasons, thereby cutting off an essential part of the economic system without governments being able to do anything about it. For example, Walt Patterson relates a situation that occurred in 1998 when Quebec was experiencing an electricity crisis. A private US company shut down its plant until it could get the price it wanted for its electricity. US companies also shut down supply in the Dominican Republic to force the government to pay its debt to them. Patterson observes:
Oil multinationals with a wide portfolio of activities in different parts of the world have never hesitated to suggest that they will withdraw from a particular concession or shut down a particular oilfield if government policy appears contrary to their interest. Electricity multinationals with similarly large portfolios will have a much more potent threat at their disposal…
In Brussels in 2009, a Veolia Water company, Aquiris, that was in dispute with the government, stopped operating a sewerage treatment plant and allowed raw sewage to flow into the river Zenne “causing an environmental disaster”.
If privatisation and deregulation are taken to their logical end, which is the aim of advocates, the public will be unable to influence the development of essential services, the terms of their provision, the reliability of their supply, their accessibility or their price. These will all be decisions made by cartels of transnational corporations whose primary motivation is profit and power. These cartels will be able to exercise power over national, state and local governments.
Current trends suggest that these service transnationals will become not merely ‘power centres’ but ‘global centres’, owning systems extending across entire continents, including electricity, natural gas, water, waste management and telecommunications. Given what is at stake it is little wonder that the push for privatisation and deregulation has been strong and relentless, bulldozing citizen opposition out of the way.