The Pirate Privateers
by Dani Sandberg
New Internationalist magazine, September 1994
"We have the impression that our continent is being invaded...
It is taking us back two centuries." So says Gerardo Petrarca,
a trade unionist in Argentina. A leading financial consultant
in London privately agrees with him. "The idea that you can
take core utilities and sell them on a practically unregulated
basis to some group of foreigners to make hay with strikes me
as so irresponsible that it is certain to back fire. It's just
A tidal wave has been rolling over the boundaries of the state
and crushing the influence of democracy almost everywhere for
the past 20 years. The result has been what Doug Hellinger of
Development GAP in Washington calls the 'greatest ever transfer
of public wealth into private hands'.
The wave first formed in Chile after the military coup in
1973, which created a democracy-free 'green-field site' ideal
for practical experiments. It spread to the UK under Margaret
Thatcher and the US under Ronald Reagan, to Aotearoa/New Zealand,
over the Iron Curtain to Eastern Europe and the territory of the
former Soviet Union, then on to the Third World. It flattened
the remnants of 'public enterprise' and further enriched a tiny,
already wealthy international establishment.
By 1992 more than 80 countries around the world had 'privatized'
some 6,800 previously state-owned enterprises (SOEs). The majority
were not, however, in the rich industrial countries that were
promoting privatization and buying most of the assets, but in
Eastern Europe and the developing world. In Africa there have
been 373 privatizations, compared to just 170 in the rich industrial
countries that belong to the Organization for Economic Co-operation
and Development (OECD). Many of the SOEs were, in effect monopoly
suppliers of essential public services like water, electricity
or telephones. Painful experience has proved that if such services
are run by private monopolies they are so unrestrained in their
search for profit that they cannot be tolerated in democratic
societies. Private monopolies also break the rules of competition
in a 'free market'. So for most of this century conventional wisdom
was that essential public services must either be run by the state
or operated under stringent democratic supervision.
But since the mid-1970s people have somehow been convinced,
or simply informed, that if public monopolies are flogged off
to form private ones everyone will be better off. Some are. But
fabulous earnings by many of the newly-private monopolies were
predictably balanced by sharply rising charges to 'customers'.
The profiteering process had begun even earlier with the undervaluation
of the public assets that were sold off. In the UK British Telecom
was undervalued by at least $5 billion and in Argentina the state
telephone company ENTEL by some $4 billion, or four times its
selling price. This was a pattern repeated over and over again.
Taken together, such undervaluations amounted to a massive subsidy
to private profit by public donation.
In the UK as in Chile a gloss of 'popular capitalism' was
briefly put on public sales, encouraging share ownership among
the general public. Because of the undervaluations there were
some gains when small, first-time buyers sold their shares, as
most of them very quickly did. The bulk of shares ended up in
the hands of the financial establishment. 'Popular capitalism'
quickly vanished from the vocabulary of privatization.
In Mexico an already extreme concentration of wealth and power
was intensified by the process of privatization. A group of some
35 businessmen who already controlled nearly a quarter of Mexico's
Gross National Product took a leading part in virtually all the
privatizations of public utilities - they were the only people
who had the money. Here, as elsewhere in Latin America, shares
in the new private monopolies sponsored the growth of stock markets
where massive speculative profits could be made again by those
who had the money to start with.
In Chile between 1975 and 1979 most of the local banks were
sold for a song to the handful of families that already dominated
Chile's finance and industry. So disastrous were the results for
Chile's financial 'stability' that a program of rationalization
had to be hurriedly cobbled together. During the second round
of privatizations that began in 1985 by far the largest chunk
of stock in ENDASA, the electricity utility, was made available
to members of the armed forces.
In the 1990s a new and particularly lucrative variation on
this theme has emerged. What are called 'debt-for-equity swaps'
exchange Third World debt for national assets, particularly in
Latin America and especially where state-owned commercial assets
can be linked to world markets. Because debtor governments are
in a relatively weak position and international banks, backed
by the World Bank and the IMF, in a much stronger one, complex
currency deals invariably produce knock-down sales of state assets
Something very similar has been going on in Eastern Europe
and the territories of the former Soviet Union. Access to Russia's
huge natural resources has been gained in bargain-basement deals.
In 1990 the Gorbachev Government gave De Beers, who monopolize
the world diamond market, an exclusive five-year concession on
all Soviet diamond production in exchange for $1 billion in desperately
needed foreign currency. The most conservative estimate put the
real value of Russian diamond production during this period at
five times this amount.
Manufacturing industry in Africa required a high degree of
government involvement to establish. Now these industries are
being privatized. In Togo, for example, the World Bank's International
Finance Corporation supervised the sale for $9.3 million of
two textile mills to a group of US-South Korean investors in 1985.
Just one of the mills had cost the state $50 million five years
earlier. The Government also gave the new owners a guarantee that
no competitors would be tolerated. Governments began to act like
the agents of private interest, transferring liability for bad
debts or failed money grabbing exercises onto 'their' populations.
In Uruguay during the 1980s huge debts incurred by the frigorificos,
the meat packing factories owned by the country's elite, were
simply 'taken over' by the military government on the grounds
that this was a 'strategic' industry.
Of course not all governments are democratic and SOEs are
not necessarily run in the public interest. SOEs, just as much
as private monopolies, can indeed be inefficient and operate in
the interests of corrupt governments and local elites. When it
came to the crunch, few people were willing or able to defend
them against the pirate privateers.
Just how completely this process became conventional political
wisdom can be glimpsed from Aotearoa/New Zealand, where it was
a Labor Government that came to power in 1984 and promised to
free the country from the grip of an interventionist 'welfare'
state. Within 10 years Aotearoa was being hailed by the OECD,
the World Bank and credit-rating agencies as a model for reform
Labor's Finance Minister, Roger Douglas, devised 'Rogernomics',
Aotearoa's more extreme version of 'Reaganomics'. He, together
with other key players in the new order, went on to set up consultancies
that collected $102.5 million in fees during the asset-sales program.
Consultants from Aotearoa are estimated to have earned between
$70 and $100 million from international business during 1992 alone.
The relationship between both Labor and - after 1990 - National
Governments and big business began to cause simmering unease.
The National Party's Wellington division urged, during a funding
drive directed at business in 1992, that 'those who benefit directly
from the policies of the Government must be encouraged to support
the return of the Government by their donations'.
This process will have to stop when there is nothing left
to privatize. Perhaps we shall then be persuaded to buy shares
in governments rather than vote for them. What we are left with
in the meantime, however, is a return to the nightmare of private
monopolies running essential public services. This creates a democratic
vacuum with ever-sharper divisions between rich and poor. The
question that needs answering urgently now is how this vacuum
is to be filled.
Dani Sandberg is a writer who has worked as an academic, a
teacher and a community activist.