The “privatization” of local government functions under the state-appointed emergency manager in Detroit is lionized by a lot of right-leaning libertarians as an example of “free market reform.” But it’s a lot more accurate to treat it as flat-out looting — what Naomi Klein calls “disaster capitalism.”
The so-called “privatization” of government assets, as it’s carried out under “actually-existing free market reform,” is really just the latest example of a phenomenon as old as history: the enclosure of commons by state-connected rentiers. As Michael Hudson stated, in an interview on Thomas Piketty’s Capital:
…let’s look at Forbes’ list of the richest people in Russia, China, the Ukraine or the post-Soviet economies. I can guarantee you that they didn’t make this wealth by saving up income, they didn’t earn a higher income; they stole the property by fraud and internal bribery, the same way that the great fortunes were made in the United States. The History of Really Great American Fortunes by Gustavus Myers shows how the railroad land grants made fortunes by bribing congressmen and by privatising the land. The great fortunes are made by privatising natural resources, land and the public domain, and since 1980, when the concentration of wealth and income have really taken off, as Piketty shows, this is the age of privatisation, of Margaret Thatcher, of Ronald Reagan, and Boris Yeltsin in Russia.
But this goes back way further than Thatcher and Reagan, or even the Gilded Age railroad barons. As Henry George noted, most of the political conflict within the Roman Republic took the form of the patrician classes “privatizing” (enclosing) lands in the public domain, and land-poor and landless peasants periodically rising up to demand land reform.
And the same basic pattern applies to all kinds of public service “privatization,” under the kind of “free market reform” that’s carried out by neoliberal vultures feeding on one prostrate country or another.
The typical “privatization cycle” occurs as follows:
First, a basic infrastructure is created at taxpayer expense, either funded directly by taxpayer revenues or by bonds that will be repaid by the taxpayers. When it’s a country outside the US — especially a Third World country — foreign aid or World Bank loans may also help fund the project.
The infrastructure’s main purpose is usually to provide below-cost water or electric utilities, transportation, etc., to big business interests. In the Third World, that means foreign aid and World Bank loans to build the local power, water and transportation infrastructure needed to make Western capital investments (like offshored production) profitable. In California, the whole corporate agribusiness sector depends on massively subsidized water from government-funded dams. And as we will see below, large-scale business and industrial water consumers in Detroit have received preferential treatment like forbearance on tens of thousands of dollars in past-due water bills, while ordinary household ratepayers in poor neighborhoods are treated without mercy.
Second, Disaster Capitalists (to use Naomi Klein’s term) seize on opportunities presented by US-sponsored coups (like Pinochet and Yeltsin), economic meltdowns (the European periphery and Detroit) and military regime change (the US invasion of Iraq) to coerce governments into selling off that debt-financed infrastructure to global capital. And the Disaster Capitalist toolkit includes using such debt (either to bondholders or to foreign lenders), and fiscal insolvency from debt, in exactly the same way as debt peonage or debt to a company store — to blackmail government entities into “privatizing” their infrastructure to “private” (but politically connected) corporations or to domestic kleptocrats. The purchase price is a sweetheart deal, pennies on the dollar, because of the purchasing corporations’ insider ties to the political authorities selling off the goods.
Third, governments frequently spend more in capital investments to make the “privatized” infrastructure salable than they realize from the sale of it.
Fourth, the first item on the agenda of the corporation acquiring the newly “privatized” infrastructure is typically asset-stripping — jacking up rates, using the revenues as a cash cow, and simultaneously starving it of needed maintenance expenditures. The asset-stripping frequently yields more in returns, in a short time, than the company paid for the infrastructure.
And fifth — as Nicholas Hildyard pointed out in “The Myth of the Minimalist State: Free Market Ambiguities” (Corner House Briefing 05, March 1998) — far from operating as a “free market” actor, the newly “privatized” utility or other infrastructure usually operates within a web of state subsidies and protections that more or less guarantee it a profit.
Yet the practical outcome of these policies has not, in most cases, been to diminish either the state’s institutional power or its spending. Instead, it has redirected them elsewhere. It has also strengthened the power of many Northern nations to intervene in the economic affairs of other countries, notably the indebted countries of the South, the emerging economies of the former Soviet Union, and the weaker industrialised partners of trade blocs such as the European Union….
Far from doing away with state bureaucracy, free market [sic] policies have in fact reorganised it. While the privatisation of state industries and assets has certainly cut down the direct involvement of the state in the production and distribution of many goods and services, the process has been accompanied by new state regulations, subsidies and institutions aimed at introducing and entrenching a “favourable environment” for the newly-privatised industries.
The state has actually played a central role in implementing free market [sic] policies and, moreover, has a continued “intimate and ubiquitous” involvement in regulating the minutiae of the market economy — a direct consequence of the hand-in-glove relationship that free market [sic] governments have fostered between “adjusted” state institutions and market interests….
As an example of how so-called “privatized” state services continue to operate within a state-enforced web of protections, consider the “privatization” of pensions in Chile under Pinochet. The defined-contribution plans (of the sort lionized by the neoliberal Right as an alternative both to older-style corporate defined-benefit pension plans and payroll tax-funded government entitlement programs) were administered by a small number of state-licensed pension funds (a cartel, in other words), with very limited price competition and almost identical high management fees.
As George Monbiot said, “Ours is a toll-booth economy, unchallenged by any major party, in which companies which have captured essential public services – water, energy, trains – charge extraordinary fees we have no choice but to pay.”
What’s happening in Detroit these days follows exactly the same pattern of state-facilitated corporate looting. Detroit is very much an example of “disaster capitalism” in the same tradition as Pinochet’s Chile, Yeltsin’s Russia and Iraq under the Coalition Provisional Authority. Just as the puppet regime administered by Paul Bremer in war-prostrated Iraq sold off the Iraqi economy (via his “100 Orders” to Dick Cheney’s dirtbag friends, the state-appointed “Emergency Manager” in Detroit is overseeing the looting of a public resource commons developed at taxpayer expense.
The motto of Disaster Capitalism is “if it ain’t broke, break it” — so that transnational capital can seize on the opportunity to move in on a defenseless society and strip the carcass. In the case of Detroit, what “broke” the city and left it open to corporate looting was the collapse of the auto industry. The Detroit automobile industry, represented by the Big Three legacy automakers since WWII, resulted from two intersecting forms corporate-state collusion that defined the twentieth century American economy: the car culture and suburban sprawl, and a mass-production industrial model based on waste production and planned obsolescence. Both of these reached terminal crisis in recent years, and the mutually reinforcing wave trough left Detroit as a hollowed out shell, with severely downsized industry and population, burdened with publicly funded infrastructures that had been scaled to serve corporate needs during the peak years of the auto industry.
Just as in New Orleans after Katrina, the Disaster Capitalists are seizing on the opportunity presented by mass black exodus to ethnically cleanse, bulldoze and gentrify entire neighborhoods and sell off publicly-financed infrastructures to predatory corporate strip shop operations.
Homrich, which took over management of Detroit’s municipal water system, took on a $5.6 million contract and promised to shut off water to up to 150,000 households by the end of summer 2014.
A major part of [Emergency Manager Orr’s] decision was to hire a company that was only capable of shutting off households. By their own admission, Homrich had neither the expertise nor the inclination to go after large corporate debtors. Orr chose to attack thousands of residents rather than going after a small number of corporate and commercial accounts. These accounts owe nearly half of the total outstanding bills. Had Orr gone after 40 companies he would have brought in nearly all the outstanding corporate debt. Instead Orr approved a $5.7 million contract for two years to shut off residents. He has yet to account to anyone about these decision.
The company’s slogan is “water purification, delivery and disposal are not free,” but the question of how much of its price is actually oligopoly markup, management salaries and other additions to the actual cost of providing service isn’t even on the table. And the actual cost of purifying water is imposed on the system mainly by industrial users, not ordinary household consumers.
The fact [water] so often now needs “cleansing” is not primarily because ordinary people have polluted it. The fact the average Detroit bill is nearly twice the national average is not the fault of neighborhood folk who remain in the city. The fact its assessment has been increased 119 percent over the last decade and 8.7 percent over recent months is not due to mismanagement in the average household. The fact over $500 million in bonds raised for infrastructure improvements have been siphoned off to banks making record profits over recent years is not due to decisions made by citizens. The fact Detroit Future City articulates a plan, long in the making, to “triage” some city neighborhoods for re-design in the image of the suburb and that a decade of foreclosures and now “ethnic cleansing by water shutoff” may well serve such plans rather nicely, is not a vision hatched on inner city porches. The fact Kevin Orr and the governor are likely eager to clear bad debt from the DWSD books to entice a private investor to buy the system to turn a profit — research shows rates are likely to increase three-fold when privatization takes over — is not a motive much explored in media coverage of the moment. But none of this comes up for discussion, when DWSD announces the increased shutoffs and Homrich begins turning the keys. Instead, the racist certainty poor people of color are “free-loading with their bills” and “showering for three hours every day”… instantly take over the mainstream mind like a national demon returning home to its most familiar haunt.
Orr has also hired Veolia, one of the world’s largest corporate owners of “privatized” water systems, to advise him on “how to find cost savings” in sewer and water service. And meanwhile Orr is taking corporate bids to “privatize” Detroit’s water. It’s a safe guess that Veolia, which has already looted municipal systems throughout the Great Lakes region in Ontario and the American Midwest, is a prime candidate to take over.
There’s no getting around the fact that the groundwater, natural bodies of water and other reservoirs are themselves commons, and there’s a huge body of capital infrastructure for making this water usable that was financed by local taxpayers or ratepayers. And from this it follows that the act of “privatizing” this socially created commons in which members of the local community have an ownership stake, to rack-renting private water companies, is nothing but an expropriation of their property rights followed up by extortion.
A commons, rightfully speaking, cannot be divided up into individual shares or its property otherwise alienated except by the assent of the whole, by whatever bylaws govern it. To take the example of the mir, or communally controlled open field system in the Russian village, the Stolypin “reforms” and the forced collectivization in the Soviet era were equally impermissible violations of village stakeholders’ collective ownership rights. Although under the customs of most medieval open field systems it was possible to legitimately spin off one family’s aliquot share of the open fields as a “close,” under Stolypin this was imposed wholesale by central government fiat, taking away land that was the common property of the village without village assent. And under the Soviet collectivization program, village boundaries were ignored altogether, the open fields of multiple villages amalgamated together, and village governance rights nullified in favor of state-appointed managers.
In the case of modern water systems, the problem is that the function of commons governance, the rightful province of the ratepayers themselves who communally developed the water system and consumed its output, was usurped by the local government. And we all know who states actually serve — as evidence by the very fact of corporate “privatization” itself.
The results of water “privatization” are generally pretty bad. They just create a new layer of parasites that either siphon off the resources that previously went to maintaining the system, or charge ratepayers in excess of the cost of providing the service.
According to Colin Ward, the late anarchist historian in the UK (“Water and the Gift Relationship”), when village wells and pumps were set up 150 years or more ago, against a background of recurring cholera and other water-borne epidemics, local communities appreciated the significance of clean, abundant water as a common endeavor. And in living memory, when water systems were still a common resource under local control, communities typically responded to conservation measures in a public-spirited manner in times of drought. That ended, first with the nationalization of water control for England and Wales in 1974 under ten regional boards, and then with the sale of the water industry to private corporations in 1989. Subsequently rising water rates and rampant disconnections resulted in a tenfold increase in hepatitis and dysentery. At the same time, thanks to the public’s adversarial perception of water suppliers as a capitalist corporation and of water as a mere commodity, local communities responded with scorn to conservation measures.
In Detroit, according to Halima Cassells, water cutoffs have led — just as in the UK — to the spread of disease, foreclosures and the removal of children from their families.
Kostas Nikolaou, of the European Water Movement, writes: “The results of the private management of water, which is applied worldwide, are now known: degradation of water quality, increased water loss, deterioration of infrastructure and increasing prices.”
The public-private partnership is the usual form of privatization which opened the new field for business profits through the exploitation of the natural resource of water, although it belongs to everyone as a commons, and the labor embodied in the management of water supply and sanitation (processing, quality control, distribution, etc.) and finally, the appropriation of surplus value produced by workers. Further profits arising from the maintenance of infrastructure, implementation of technical projects etc, realized by the same or other companies. The price of water paid by citizens determined by the profits of companies and is well above the actual cost of receiving, processing and transporting water from source to tap.
The policy of privatization of water management is not accidental, but an integral part of the attempted privatization of strategic sectors of the society, economy and environment (as well as energy, natural resources, food, waste management, etc.) within the dominant neoliberalism as the contemporary expression of capitalism. This neoliberal privatization policy in conjunction with the – without historical precedent – aggressive policy of financial capital is an unprecedented attack of the smallest and richest percentage of society against the vast majority of the population and leads to a huge transfer of wealth from workers and small and medium classes to the hands of few, deepening further the current crisis (born and exacerbated because of social inequality) and pushing the system to more extreme disorder.
The policy of “privatization,” far from being a “free market reform,” is corporatist to its core. This is revealed, among other things, by the differential treatment of household and corporate ratepayers. In Detroit individual households in arrears are being disconnected — but not businesses. As Cassells notes, some businesses — despite being in arrears by thousands of dollars — are not being threatened with shutoff. Defenders of the shutoffs say some people would rather keep getting cable than pay their water bills. But they don’t mention that
there are corporations who would rather make money on cable broadcasts of their events than pay their water bills — such as Joe Louis Arena (home of the Red Wings) or Ford Field (home of the Lions) who owe respectively $80,000 and $55,000. And who at the time of the national broadcast were not facing shutoff. When white-owned corporations don’t pay, there is no mention of the fact and no rebuke. But if poor people of color struggle with bills, then all manner of stereotype and indignant excoriation come rolling to the surface. What may be true of a few cases gets readily cast across entire communities as the rationale for shutting down core city neighborhoods almost en masse. The racist disparagement could not be more evident.
And in even more egregious cases, private water utilities allow corporate malefactors like Nestle’s Poland Springs bottled water operation to deplete local water systems of artificially cheap water.
The fact that cutoffs are focused entirely on occupied homes, while water gushes from broken pipes in thousands of abandoned properties that haven’t been cut off, suggests that the real motivation is ethnic cleansing (along the lines of post-Katrina New Orleans) rather than actual cost-cutting.
All so-called “free market reform” and “privatization” that’s undertaken as a matter of state policy, in collusion with the corporations that stand to benefit from it, will inevitably result in corruption and political capitalism. As Noam Chomsky argued
Concentrated private power strongly resists exposure to market forces, unless it’s confident it can win in the competition. That goes back centuries…. Protectionist devices, such as those of NAFTA and the WTO, are only a fraction of the means by which the wealthy and powerful protect themselves from market forces. In fact, the core of the “new economy” is based on the principle that cost and risk should be socialized, and profit privatized (often after decades in the dynamic state sector).
The term “lemon socialism” was coined to describe the nationalization of industries that were losing money, but were still vital infrastructures or sources of primary inputs for corporate capitalism as a whole. Such “socialism” usually took the unprofitable industries off private capital’s hands for a lot more than it would have fetched on the securities markets, or gave the former rentier owners of the industries a new guaranteed income from interest on taxpayer-financed bonds.
Conversely, most of what passes for “privatization” and “market reform” in the political mainstream is really just “lemon privatization”: liquidating statist policies after corporate interests have squeezed all the benefit out of them. Instead of the capitalist state taking over a necessary function on behalf of big business because corporations no longer find it profitable to operate on their own nickel, the capitalist state is ceasing to perform a function that no longer serves the interests of big business. The legacy beneficiaries of all that statism decide it’s finally safe to change the rules and compete with the non-beneficiaries on a “level playing field.”
That’s pretty much what was involved in the British adoption of “free trade” in the nineteenth century: after they’d built a global commercial empire through mercantilism, forcibly unified world commerce in British bottoms, suppressed foreign textile trade, committed holocausts in Ireland and India, and exported enclosures to half the world, they decided it was time for the lion and the lamb to compete under a single law. “OK, no more government intervention, starting…. NOW!”
“Privatization” and “market liberalization” policies lobbied for by Halliburton, or by billionaires like the Koch Brothers and their ilk will always — always — result in corporate collusion and welfare for the rich.
What would a real free market reform look like?
The only rightful ownership of a common resource, developed at the expense of the community, is commons governance. To quote Nikolaou again:
So what is the answer? Once the water belongs to everyone, since it is a commons, a social good, a human right, then it must be social ownership and management. That is, they are real owners and managers all citizens with direct democracy, with equality, with social solidarity, without profit, without taxes. How can this be done?
Neo-mutualist anarchist Larry Gambone, in some writings no longer online, some years ago proposed “mutualization” of public services as an alternative to both state ownership and corporate “privatization.” That is, they should be transformed into stakeholder cooperatives governed by some mixture of representatives from those working in the public services and their consumers. So (for example) a public utility, instead of being sold to a corporation, should be turned into a cooperative jointly owned and managed by some combination of utility employees and ratepayers.
The same theme runs through much of the work of English anarchist Colin Ward. In Ward’s schema of recent British welfare history, there was originally a self-organized working class safety net of friendly societies, mutuals, lodges, cooperative insurance, building societies, and the like (described at length by Pyotr Kropotkin in Mutual Aid and E.P. Thompson in Making of the English Working Class). This welfare state was usually cooperatively owned and administered by its working class clientele themselves, and was frequently organized under the auspices of trade unions. Both the Fabian model of state socialism at the turn of the 20th century and the post-WWII Labour government were ideologically hostile to such forms of organization, and nationalized all such functions into central authorities administered by “properly qualified professionals.” And then three decades later, these centralized national authorities in turn were “privatized” to capitalist corporations under Thatcher. Despite the fake populist rhetoric of the Right, the managerialists running large corporations were as hostile as state bureaucrats to any form of genuine self-organization by ordinary people.
Ward proposed a return to the working class’s self-organized and self-managed social safety net in healthcare, education and other fields as an alternative to both state socialist and capitalist managerialism.
Mutualization was also promoted, after a fashion, by American libertarian Murray Rothbard. In “Confiscation and the Homestead Principle” (Libertarian Forum, June 15, 1969) he argued that, since state titles to property were invalid, state property like public utilities should be treated as unowned, and immediately become (via homesteading) the property of those currently using it. That would mean state industry to the workers, collective farms to the villagers, and public services reorganized as consumer cooperatives.
More recently, the Foundation for Peer-to-Peer Alternatives and other advocates of commons-based production have proposed organizing public services, as a commons, on a p2p or stakeholder cooperative basis.
The New Economic Foundation (NEF) has hence recently argued that public services should be delivered democratically and with the help of other not-for-profit community and civil society groups….
The first [step] is co-production among experts and citizens who are recipients of a service, in order to combine their knowledge.
Then there is participatory democracy, that allows service users more control over decisions, over public spending (through participaroty budgeting) and even over political decisions (an example is Iceland, who recently tried to “crowdsource” its new constitution).
One more measure to shift power is the reformation of public agencies so that they resemble the model of cooperative governance structures, by granting less hierarchical working cultures that ensure more autonomy and trust to their staff….
In short, “privatization,” as it is advocated by billionaires like the Koch brothers and their pet think tanks, is nothing but theft. The only genuine property rights in this scenario are the communal rights of the public who developed the resource commons. And this genuine property right is subject to constant expropriation and looting, in recent years, by the very neoliberal elites who talk the most about “free markets” and “property rights.”
