COMMENTARY
The Perils of Privatization
The government claims that
privatization will increase competition, improve efficiency, and raise resources
for basic services. These will all redound, they say, to the benefit of the
people. There is however little reason to believe so.
BY SANDRA NICOLAS
Bulatlat.com
At first glance it seems
like a case of choosing the lesser of two evils. Militant groups, critical of
bad governance long before the term “good governance” came into vogue, seem
to be defending a dismally performing public sector against privatization.
But that is to miss the
point. The privatization of the National Power Corporation (Napocor) has been
opposed not in defense of the current—and admittedly dismal—status quo in
the power sector but as a step in the struggle to build an economy that serves
the interests of the greater public.
A big dream maybe, but
opposition to the power industry’s privatization should be on the basis of
what will in the long haul serve the public interest. After all, militant groups
were vindicated in opposing the globalization-oriented General Agreement on
Tariffs and Trade (GATT) and the country’s ascension to the World Trade
Organization (WTO)—look what has happened to our economy since.
Privatization is just one of
many market-oriented measures, including liberalization and deregulation, which
undermine the rational planning and management of an economy towards securing
the welfare of the people.
In any case, in clear
defiance of the opposition raised by the groups whose role in People Power 2
propelled her into the presidency, Ms. Gloria Macapagal-Arroyo hurriedly signed
the Power Reform Bill into law last week.
Monopoly power
The Philippines’ power
sector provides electricity that is among the most expensive in Asia—costing
more than Singapore’s and over double that of Indonesia’s or Thailand’s.
In 1998, only about 60 percent of households had access to electricity with the
poorer ones even rationing its use.
The government has clearly
failed to deliver while generation and distribution in the power industry is
grossly inefficient. But is privatization the solution? The promise of greater
efficiency is one of the come-ons being dangled.
So far, there is little
about private power to be excited about. Napocor generates more than half of the
country’s power but private independent power producers (IPPs) provide the
balance. The IPPs rake in profits through contracts onerous to government,
taxpayers and ordinary consumers. Overall, however, the country’s power
requirements remain inadequate.
But the Power Reform Act’s
proponents argue that it provides for more than mere private ownership; it also
opens the power industry to free competition. Unfortunately, the ambiguous
charms of competition fly in the face of a monopolistic power industry.
What is clear is that in the
Philippines power generation and distribution are natural monopolies
(notwithstanding “micropower” technology elsewhere). Compelling proof of
this is the US$1 billion needed annually for the next ten years to develop a
handful of facilities in the sector, a fact that proponents of the power bill
themselves invoke.
It also defies logic how
expanding a conglomerate such as that of the Lopezes which spans water, power,
telecommunications, and mass media can be seen as fostering competition. The
presumption, perhaps, is that they would willingly inhibit themselves from
exerting potential strategic advantages over its rivals. But would any
capitalist enterprise do so?
Profiting from the public
Anyway, take the case of the
Metropolitan Water and Sewerage System (MWSS). At the time of its privatization
in 1997, it was estimated that 56 percent of three billion liters of water
produced daily was lost to leaks and illegal connections. Under the regime of
privatization, the bulk of planned activities until 2002 is actually less to
expand water services than to simply capture the revenues lost through leakage
and theft.
On top of this, one of the
concessionaires, the Lopez-controlled Maynilad, is even now invoking financial
difficulties in asking for a 67 percent increase in water rates. Was it not said
that water rates would be lower under privatization?
Similarly, was it not also
said that deregulating the oil industry would lower the price of oil products
and lessen the burden on the consumer? Yet is the country better off now under a
deregulated oil industry?
That a private
profit-seeking corporation will, when faced with choosing between its profits
and the public interest, side with the public good is sheer fantasy.
Corporations simply exist not for the public good but to amass profits. That
some public good is served is only incidental.
It is right to worry about
how a profit-seeking monopoly will operate a public service. It will be
efficient, certainly, but only in how to make profits.
Resources aplenty
Another common rationale for
privatization is to generate resources, either by relieving the pressure on the
government budget or by attracting foreign investment. This too is begging the
wrong answer to the right question. In the country, resources abound if only the
government cared to tap these in earnest. Assuming of course that the government
is truly determined to deliver basic services to the people.
The amounts lost to graft
and corruption, for instance, are staggering. The World Bank estimated, in a
1999 study on corruption, that US$ 48 billion was lost from 1968-98 or US$ 1.6
billion annually; last year it said that P609 billion was lost from 1995-2000.
Both former House Speaker
Jose de Venecia and deposed president Joseph Estrada were fond of citing how 20
percent of the national budget, or about P140 billion in 2000, went to the
pockets of politicians and their cronies. There are even estimates that up to
P400 billion changes hands in illicit government transactions every year.
Estrada himself has been
said to have from P30-P100 billion in ill-gotten wealth. The Marcoses may have
amassed up to US$7 billion. Even Ombudsman Aniano Disierto said that P1.4
trillion was drained over four decades.
Factor in hundreds of
billions in unpaid taxes. Lucio Tan alone is said to owe P26 billion in back
taxes, the Marcoses about P40 billion.
And foreign loans and
investments do not really offer the net gain they tout. Apart from the revenues
lost from generous tax breaks, there is a sustained outflow of capital from the
country through profit repatriation and other payments.
Now stacked up against the
many hundreds of billions in pesos lost every year either through corruption or
to payments for foreign loans and investment, the resources generated from
privatization are laughable and reflect a grossly distorted sense of proportion.
From 1987-97, privatization revenues from the sale of 445 state-owned assets
were only P174 billion and the 2001 government target is to raise a paltry P15.7
billion. In truth, resources are better gotten elsewhere.
Third wave
And it is a distorted sense
of proportion that is worsening. The Philippine government is entering the third
wave of its privatization thrust.
The first wave basically
involved returning erstwhile Marcos assets to their allegedly original owners.
The second wave includes transportation, industry, infrastructure, and
utilities. This involved the sale of, among others, Philippine Airlines,
National Steel, Petron, MWSS and Napocor. The third wave, which is yet to come
into full play, includes social services like the Social Security System (SSS),
Government Service Insurance System (GSIS), public hospitals and schools.
Why are these a cause to
worry? Privatization adversely affects the general welfare. It invariably
results in making public goods and services available only to those who can
afford it. It also compromises the state’s ability to manage the economy
towards national goals of agrarian and industrial development and the greater
social welfare.
When decisions on how much to invest and what to produce for whom are left to capitalist private enterprises, balancing social costs and benefits on an economy-wide scale is virtually impossible. The driving force to economic activity will be reduced to the profit motive and resources will go towards where they will be most profitable rather than where they are most needed.
One of the most important economic roles of the state is precisely to direct the flow of resources towards those activities most beneficial to the greatest majority—for instance through taxes, subsidies, granting incentives for engaging in particular areas of social benefit and so on. Or it can engage in those activities itself.
But wait. Despite the limits
of markets, hasn’t the government been performing dismally? Yes it has, but
only because private profit-seeking foreign and domestic elite interests have
held sway over governance and matters of the public good.
The government, at least, can be brought to task for failing to fulfill its mandate to serve the welfare of the greatest majority. Better to exert efforts to make the government more effective than to decisively cripple it by turning key industries and social services over to private capital. The real challenge is to have a public sector that genuinely serves the public interest. Bulatlat.com