Privatization - the facts

Paying the price

HIGHER COSTS

Privatization is supposed to save money but it rarely does. Profits add to costs. And governments can borrow money at lower interest rates, making public financing far cheaper.

• In the Dominican Republic electricity charges jumped by 51% after privatization –daily blackouts followed. The Government was forced to underwrite the private sector due to contract obligations. By 2000 the country owed the power companies more than $135 million.⁴

• The Auditor General in New Brunswick, Canada, found one school built under a public/private partnership deal would have cost $775,000 less if the province had done the work. Half the extra cost came from higher borrowing costs the private company had to pay.⁵

BAD JOBS

The main way privatization saves money is through salary reductions and layoffs.

• In Mexico the privatization of state-owned firms has decimated trade unions and led to massive job losses. Membership of the railworkers union fell from 90,000 to 36,000 after private owners took over in the 1990s.⁶

• In Chile attempts to foster private medical care reduced the number of employees in the public-health sector from 110,000 to 53,000 between 1973 and 1988.⁷

GREATER RISK

Privatization is often accompanied by inadequate regulation and a mindset that places profit ahead of public safety.

• The 1996 privatization of British Rail created an inefficient, accident-prone system supported by massive public subsidies. In 2001 the number of cancellations reached 165,000 – nearly three times the level of 1999. More than 2,000 contractors were involved in maintaining infrastructure.⁸

• When the Conservative Government in Ontario, Canada, cut water-quality inspection staff and shut down government testing labs in favour of private labs the result was disastrous. In May 2000 in the small town of Walkerton seven people died from contaminated drinking water and hundreds more became ill.

LESS ACCESS

The doctrine of ‘full-cost recovery’ for privately run public services means many low-income earners can no longer afford basic services.

• In South Africa 25% of the country’s 44 million people had their water and electricity disconnected after the services were privatized.⁹

• The Private Finance Initiative (PFI) in public hospitals in Britain has led to major reductions in services. The first 14 hospitals built with private participation saw the number of beds reduced by 30% and cuts to clinical staff budgets of 25%.¹⁰

LOSS OF CONTROL

When public services are privatized they are more unaccountable; citizens put both long-term rate stability and proper equipment maintenance at risk.

• In Lee County, Florida, the water and sewer system was returned to public control in 2000 after an audit discovered a history of slipshod maintenance. The county estimated costs of $8 million to rebuild the system.¹²

• In Britain, a $45-million plan to renovate two hospitals in Coventry ballooned into $261 million when the project was privatized. The National Health Service will now have to pay the private owners $54 million a year for the next 25 years.¹³

CORRUPTION AND BRIBERY

Cost-cutting and downsizing have slashed regulatory budgets as privatization has expanded, creating conditions ripe for crime.

• In Bolivia, Aguas del Tunari, the privatized water concession in Cochabamba, refused to disclose the reasoning behind price increases on the grounds that it was a commercial secret.¹¹

• In Hungary, where the Budapest Sewerage Company is owned by Vivendi, contracts and documents relating to the deal are kept secret from elected councillors.¹¹

1. Privatization in Competitive Sectors: The Record to Date, Sunita Kikeri and John Nellis, World Bank Policy Research Working Paper 2860, June 2002
2. ‘Recent Privatization Trends in OECD Countries’, Ladan Mahboobi in Financial Market Trends, No 82, June 2002, OECD Corporate Affairs Division
3. Privatization in Latin America and the Caribbean, Region Fact Sheet,
4. ‘The problems with IPPs’,
5. Hostile Takeover, Annual Report on Privatization 1999, CUPE
6. ‘Off the Grid’ by David Bacon, Multinational Monitor, Jan/Feb 2002
7. Corner House Briefing Paper 23 by Sarah Sexton, July 2001
8. ‘Derailed’ by Brendan Martin, Multinational Monitor, Jan/Feb 2002
9. ‘An Answer to Marketization’, Patrick Bond, Multinational Monitor, July/Aug 2002
10. ‘Privateers on the March’ by Allyson Pollock, The Guardian, 11 Dec 2001
11. Water in Private Hands, David Hall, ATTAC, Feb 2002
12. ‘Privatization not a cure-all for ailing water and sewer systems’, Public Citizen,
13. ‘Damaged by the evils of the market’ by George Monbiot, The Guardian, 21 Mar 2001