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Privatisation as Panacea
March 2005
The present phase of globalisation
is based on Washington Consensus, which was defined by John
Williamson in 1990. This consensus was arrived at among the U.S.
Treasury Department, the IMF, the World Bank and the
Inter-American Development Bank. Later, the GATT and, its
successor, the WTO, came to share in this consensus. Joseph
Stiglitz, a Nobel laureate, underlined that “It was a consensus
formulated between 15th street and 19th street in Washington.”
As is known, the U.S. Treasury Department is situated on the
15th street while international organisations like IMF are
located on the 19th street. The countries that were supposed to
act in accordance with the Washington Consensus had no say in
its formulation.
Privatisation was one of the ten key elements that constituted
the Washington Consensus. Obviously, it rejected the activist
role of the state. The existing public sector undertakings were
to be disposed of to private buyers. The previous BJP-led NDA
government in India appointed a minister for disinvestment,
whose only job (like a court receiver} was to sell off state
assets by hook or by crook. It was contended that market forces
would allocate resources and carry on production with utmost
efficiency and the incidence of corruption would be reduced to
zero because there would be no scope for political and
bureaucratic interference. Moreover, state exchequer would no
longer be saddled with rising deficits resulting from losses in
public sector companies. People at large would benefit because
they would not be taxed to meet the growing deficits.
Votaries of privatisation assume that private sector is more
efficient than the public sector. Our historical experience does
not testify to this. Had private sector been more efficient, we
would not have witnessed high incidence of sickness in
industries like sugar, jute, cotton textiles, mining, and
engineering industry. Private owners never cared for their
modernisation needs.
There was a time when the activist role of the state was
stressed in order to protect the citizens and help them secure
education, employment opportunities, medical facilities and
goods and services to meet their basic needs. The U.S.
Declaration of Independence on July 4, 1776 underlined the need
of the institution of government to secure for people the rights
to life, liberty and the pursuit of happiness. What a travesty
it is that the inheritor of this legacy, the government of the
U.S.A. is now supporting privatisation so that governments of
developing countries abdicate their responsibility of protecting
their people and leaving them at the mercy of market forces. It
has ignored the experiences of the Great Depression when the
market failure brought immense misery to people at large not
only in America but all over the world in varying measures!
Even the recent experiences suggest that private sector, given
the opportunity has high propensity to indulge in corruption and
unethical practices. Acts of corporate frauds and illegal
machinations have been widely reported even in the U.S.A. and
other developed countries. Giant corporations like Enron,
WorldCom, Tyco, Marsh & McLennam and Parmalat have been exposed
as thoroughly corrupt and adept at cheating both public at large
and state exchequer. This is testified by no less a
constitutional authority than the Attorney General of the New
York State, Eliot Spitzer. According to a report, he has termed
the Wall Street business model formulated in the previous decade
as very narrow in approach and always conflicting with the best
interests of the clients. Stock analysts “worked hand in glove
with investment banking operations of brokerage houses to
defraud the investing public.” It is now known to all that a
“reputed” firm of auditors helped Enron defraud the investors as
well as customers.
It is being touted in India that the government should withdraw
from producing and distributing electricity, supplying water,
constructing roads and looking after sanitation facilities
because they can be handled more efficiently by the private
sector. Past experiences do not support this contention. Let us
go into the construction of railways in India. They were
constructed by private companies under certain terms and
conditions (known as Old Guarantee System initially and New
Guarantee System after some modifications) and they indulged in
investing extravagantly so that they could get rid of their
surplus capital and fleece India as much as possible. Any
undergraduate textbook on India’s economic history can throw
light on this.
Our government quite often relies on private sector to finance,
build and operate roads, airports, container ports and bridges,
and recover costs along with handsome returns on its investment.
The generally adopted “build-operate-transfer” (BOT) agreement
leads to show an inflated amount as investment so that it
controls the facility for much longer than actually required. In
this bureaucrats and politicians help, of course, after lining
their pockets.
It was much trumpeted that once electricity distributions was
privatised in Delhi, the incidence of power theft would
drastically go down, maintenance would improve and load shedding
would become a thing of the past. Nothing of this sort has
happened. The extent of corruption among the staff has not gone
down nor are the employees better behaved and prompt in
attending to complaints. Power theft has not appreciably
declined. Moreover, incidents of unbelievably inflated bills are
being sent harass the consumers and extort money from them. It
is strange that Delhi government did not look at the experience
of California where Enron indulged in manipulation and fraud to
fleece the consumers.
One trustworthy study has this to say: “There is little logic,
other things such as good planning and management being equal,
to the supposition that the private sector can deliver
electricity to the public at a lower cost, given that private
financing is generally more costly than government financing and
private profit must be reflected in user rates. Private
companies always aim to push rates up and rate wars among
competitors cause financial distress in any industry, as has
been evident in telecommunication and air travel.” Further, “The
notion that the private sector can run everything more
efficiently than government was creeping into even the
national-security arena. Joseph Stiglitz…explains the trend only
half-jokingly: “Why not privatise the making of atom bombs – or
at least the processing of the uranium that goes into atomic
bombs?”” It is a perturbing piece of news that Delhi government
has made up its mind to privatise the business of water supply
to Vivendi, a foreign company. Degremont, a subsidiary of the
French multinational, Suez, has been entrusted with a
50-million-euro design-build-and-operate drinking water
production in Sonia Vihar. After completion, it will supply
water to 30 lakh people, largely in South Delhi. Water will come
from Tehri Dam. It is interesting to that “Vivendi’s Onyx, which
specialises in waste management, was awarded the contract to
manage garbage and street litter in Chennai…. The company is
paid $13,700 a day to collect and dispose of garbage in three
key areas in the city. Its sister organisation, Vivendi Water,
was given the contract to manage the water services in the city.
This is an economy where many have to live on less than $1 a
day.”
There are studies showing that privatisation of water supply has
invariably led to higher charges and pushing the poor in great
hardship.
Those who regard privatisation as a panacea must not forget that
once the country starts its journey on the path of privatisation,
it cannot go back and it must face the social, economic and
political consequences resulting from it.
Girish Mishra,
E-mail: gmishra@girishmishra.com
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