The shutoff of water to thousands of Detroit residents, the proposed privatization of the water system and the diversion of the system’s revenue to banks are possible because the most basic human requirement, water, is becoming nothing more than a commodity.
The potential sale of the Detroit Water and Sewerage Department is one more development of the idea that water, as with any commodity, exists to produce private profit rather than to be a public necessity. And if corporate plunder is to be the guiding principal, then those seen as most easy to push around will be expected to shoulder the burden.
Thus, 17,000 Detroit residents have had their water shut off — regardless of ability to pay — while large corporate users have faced no such turnoff. The Detroit Water and Sewerage Department began its shutoff policy in March with a goal of shutting off the water to 3,000 accounts per week. Residents can be shut off for owing as little as $150. That is only two months of an average bill.
Detroit water rates have more than doubled during the past decade, according to Left Labor Reporter, and in June another 8.7 percent raise was implemented. Yet only in July, months after residential water shutoffs began, did the water department announce it would send warning notices to delinquent businesses. There is no report, however, that any business has had its water turned off.
About half of the city’s overdue water payments are owed by commercial and industrial customers. Forty offenders, according to the department, have past-due accounts ranging from around $35,000 to more than $430,000. One golf course operator is said to owe hundreds of thousands of dollars.
The same week that the residential water shutoffs began, Detroit Emergency Manager Kevyn Orr put the water department up for sale. The department takes in about $1 billion in revenue per year, The Wall Street Journal reports, and collects more revenue than it spends. The system would potentially be a valuable asset for one of the multi-national corporations that have taken over privatized water systems around the world, mostly to the regret of the local governments and ratepayers.
Reversing the privatization of water
If Emergency Manager Orr succeeds in selling off Detroit’s water system, he will be bucking a trend. Dozens of cities in France and Germany have reversed earlier privatizations and are taking back their water systems after finding that higher prices and reduced services had been the norm post-privatization. French private water prices are on average 31 percent higher than in public water services. Five Pennsylvania towns that privatized their water saw their rates more than triple on average.
That rate differential shouldn’t come as a surprise — a government doesn’t need to generate a profit like a corporation. A water company, like any other capitalist enterprise, is expected to generate large profits for its investors and giant payouts to its executives, and thus must extract more money out of its property.
If the water system is privatized, Detroit’s city budget will receive a one-time boost, but forgo future revenues and lose control of a public good built with public money. Nor is there any guarantee that it would be sold at market value. A utility undervalued would produce quicker profits for any water company that got its hands on it, and every incentive is for it to be bought at as low a price as possible.
Banks, however, have already extracted huge profits from Detroit’s infrastructure. The water department is believed to have paid banks penalties of $537 million to escape its disastrous interest-rate default swaps. Instead of simply selling plain-vanilla bonds — paying bond holders a set amount on a set schedule — Detroit (like many municipal governments) became entangled in various complicated financial derivatives layered on top of its bonds.
Investment banks sold local governments interest-rate swaps as a form of insurance as a hedge against rising interest rates. But if interest rates went down — which they did — then the governments would be on the hook for large sums of money. (That rates would fall was predictable; central banks cut interest rates as a matter of routine during recessions.) Thanks to financial engineering falsely sold as “insurance,” the Financial Times reports it will cost Detroit $2.7 billion to pay back $1.4 billion in borrowing — this total includes $502 million in interest payments and $770 million as the cost of the derivatives.
The $537 million the Detroit water department handed to banks to escape continued extra payments to cover the swaps is more than four times the entire past-due water bill, residential and commercial, at the start of the water shutoffs in March.
Not so quick to challenge the banks
Yet there appears to be no effort to recoup any of that penalty money or to investigate if there was any illegality in the deals. Curt Guyette, writing for a Detroit alternative publication, Metro Times, said:
“Given the fact that former Mayor Kwame Kilpatrick, who is now is serving a decades-long sentence in federal prison for running the city as if it were a criminal enterprise when these deals went down, [was then in office] it doesn’t seem unreasonable to at least suspect that something shady might have been going on.
Nonetheless, Orr and the legal team from [corporate law firm] Jones Day — where Orr was a former partner, and which has as clients both Bank of America and a division of UBS — have, as the complaint [filed in federal court by community activists] points out, ‘failed to investigate the misconduct or take measures to recoup any portion of the $537 million in suspect termination fees paid to the banks.’ ”
Both Bank of America and UBS profited enormously from the interest-rate swaps. Emergency Manager Orr does not seem terribly bothered by democratic processes, however. He is going ahead with a separate plan to privatize Detroit’s parking department despite the fact that the City Council voted, 6-2, against it. The Detroit Free Press reports that the parking system generates $23 million in revenue with only $11 million in expenses. This would be another revenue stream leaving public hands, and the same needs of a private owner to generate profits would be expected to lead to the same results that privatizations of water systems and other public services have led.
The people of Detroit are fighting back, through demonstrations, lawsuits, appeals to the United Nations and in physically blocking crews assigned to turn off the water. Water is also being turned back on without asking for permission from authorities. Activists demand the immediate resumption of water service for everyone and to make water affordable. Detroit Debt Moratorium, for example, is calling for water bills to be capped at two percent of household income.
These efforts have borne some fruit as Emergency Manager Orr issued an order handing Mayor Mike Duggan managerial control over the water department in late July. The department subsequently declared a moratorium on water shutoffs until August 25.
A commodity is privately owned for the purpose of profit, regardless of human need; that the commodity is something as necessary as water does not alter that a commodity goes to those who can pay the most. The market determines who gets what, or if you get it at all — and the market is simply the aggregate interests of the most powerful industrialists and financiers. The agony of Detroit is the logical conclusion of reducing social and economic decisions to market forces. Detroit just happens to the be the locality that got there first.
Keep beating the drum, SD. One day, perhaps the anti-union and anti-government banditos will be stopped in their tracks.
A question about Detroit’s interest rate swaps (the link to the Financial Times doesn’t seem to go to the right place): If Detroit is paying $2.7 billion to pay off $1.4 billion in borrowed money, that doesn’t seem all that bad. It seems as though very few people know what bonds are and when presented with an option to finance some public project on a ballot, they just say “yes”. The don’t realize that bonds are very similar to mortgages and that, depending on the maturity and interest rate of the bond, the total amount to pay it off could easily be 3 times the face value of the bond. I would much prefer time-limited property tax increases, but no politician is going to back that means of financing projects because the 1% coupon-clippers and mortgage bankers wouldn’t get their pound of flesh that way.
I wish people would just wake up and realize that they are getting screwed big time, every time they turn around. We can stop this nonsense very easily: refuse to cooperate with the system in every way possible. If more of us grew our own food, harvested rain water, didn’t eat junk food, didn’t go into debt, stopped believing what we saw on TV, stopped voting for bonds …. think before acting!! It isn’t necessary to engage in violence, street protests or any other “action”. Just don’t cooperate any longer with the thieves.
That $2.7 billion necessary to pay off $1.4 billion represents the total for borrowing just from 2013 onwards. So we’re talking nearly 100 percent interest when we add in the penalties for escaping the interest-rate swaps. I believe “loan sharking” is the term for such usury. It could have been worse, yes, but I hardly think that a reasonable standard. (I know you are being relative and not defending the banks in any way.)
For the record, here is the full quotation from the Financial Times in my August 7, 2013, post, “Wall Street plunders Detroit while pensioners take blame“:
We would bring all this to a halt if all stopped cooperating. But not so easy as we are tangled in the webs of capitalism in almost every aspect of our lives. I am all for not cooperating to the extent we are able, but there is no getting around the fact that we have to get rid of the system and replace it with something better.
Yes, withdrawing cooperation would be a significant part of doing so, but by no means the only task — millions of people in the streets will be necessary. Would I like that to be non-violent? I sure would! But the question of violence lies with the state and not the movement opposing the state. Why was there a “velvet revolution” in Czechoslovakia in 1989? It wasn’t because Civil Forum and Public Against Violence were peaceful (although they were), it was because the Communist régime realized its time was up and handed over power. Unfortunately, there is no example of any capitalist régime leaving peacefully.
I’m not sure a comparison between Czechoslovakia in 1989 and the replacement of a “capitalist régime” is valid. By doing so, you make the Communist government of Czechoslovakia and an economic system equivalent, which I don’t think is true. It is certainly true that a government enforces a given economic system but what happens when a sizeable majority of the governed population no longer believes in that economic system? Capitalism resides within us all – that is what makes it so insidious. Capitalism is not external; it is internal – it is a way of life that is killing us all. When enough people understand that, and “get” the connections between daily life and the economic system that they are participating in, things will change. It will take decades for this to happen – it won’t be a “velvet revolution” that takes place in a relatively short time at all. You are doing a wonderful job in exposing the connections between our daily lived lives and how our daily actions continue to reproduce capitalism but it will take many more SDs to turn the tide. I think it is happening, just more slowly than many people on the Left would like.
If capitalism is to “go away”, the leadership charge will be led by the oppressed, not by the comfortable. I’m encouraged by reading about Cooperation Jackson. They know what they are up against and, I think, have a better grasp on what needs to be done than many middle-class “Leftists”.
I believe that I read that Detroit has more community gardens on a per capita basis than any other city in this country. That is a significant accomplishment and one not to be scorned by the Left. Theorizing only goes so far. There comes a time when concrete actions and dirty hands are required.
The Communist government of Czechoslovakia and an economic system are not equivalent, but I had not intended to imply an equivalence. I just wished to illustrate a point that a governing system can be changed, sometimes faster than the participants themselves imagine. But I should caution here that it is a Western myth that Czechs and Slovaks sought capitalism. Mostly they wanted a socialist system, but one that was democratic without the detested Communist Party monopoly.
A socialist system cannot be socialist if it is democratic, so in reality what was wanted on a popular level was that socialism be that in reality rather than on paper. Capitalism, however, was imposed without regard to popular will. Your larger point, that when a sizable majority long longer consents change becomes possible, is certainly true. Indeed, as you say, capitalist won’t go away until a sizable majority no longer consent. That day is coming, slowly and hesitatingly, but it is coming.
I say again that seeing examples of successful alternatives is key: “There is no alternative” is the glue of the consent. Let us support Cooperation Jackson and other cooperatives, for they lie on the path to a better world.
In my view this is just another sign of the continuing decline of capitalism. For awhile capitalism was great at mass producing cars, TVs and refrigerators cheap enough for workers to buy. But eventually everyone had all the durable goods they needed so corporations had to find a new way to make s profit. They did so by creating the consumer movement and all this artificial demand for stuff people didn’t really want or need. As wages steadily fell, they couldn’t make a profit this way any longer so they financialized the economy. Instead of producing goods and services, more and more corporations went into the business of selling financial products like insurance, real estate and derivatives that provided no real wealth at all for the economy.
That pyramid scheme collapsed in 2003 so now the corporate oligarchy is busy figuring out ways they can privatize the commons (education, water – maybe air is next) and sell it back to us at a profit.
Dr. Bramhall, you have summed it up well! Privatizing the commons and moving production to the places with the lowest wages and weakest safety and environment laws is the logic of capitalist enterprises, faced with relentless competition and ceaseless need to expand to meet that competition. Culture is appropriated and sold back to us as well — nothing escapes commodification.
I was exploring the Cooperation Jackson site and clicked on Our Story. Embedded in that story was a link to a piece written for the
British Columbia Cooperative Association, (BCCA) about the Emilian model. Never having heard of such a model, I read on. The article said that Emilia Romagna is a region in northern Italy of 3.9 million people that has “deep socialist roots and [a] long history of municipal republicanism.” There are 90,000 businesses in the region, compared to New York State, with 18 million people and 26,000 businesses. The article is an interesting read but what caught my eye was this, at the end of the article:
“It is not the size of a firm or the networks themselves that determine the success of our region. These are just the components. It is the attitude of co-operation that acts as the software which runs the system.”
John Restakis, the author, is apparently associated with BCCA and thinks that the Emilian model could work in British Columbia. I think not and here’s why: the cultures of British Columbia and Emilia Romagna are dramatically different. Emilia Romagna has deep socialist roots while British Columbia, despite the history of the IWW in the area, does not. I could be convinced otherwise – I don’t know a lot about the history of British Columbia. There is a long history of cooperation in Emilia Romagna which doesn’t exist in British Columbia or anywhere else in North America, for that matter.
What does all of this have to do with the subject of this post? A lot. Detroit is in the situation it is in today because of capitalism, which reifies individualism and greed. There is little or no history of reciprocity or cooperation in Detroit since the unions sold out to capitalism, starting in the 1940s. What little exists doesn’t begin to compare with what exists in the Basque Country (Mondragon, based on Catholic Social Justice) or in Emilia Romagna. What Kevyn Orr, the City Manager of Detroit, is doing is to be expected: that is what capitalists do – privatize the commons for individual profit. Government is a cooperative enterprise and capitalism, as exemplified by Grover Norquist’s famous desire to make government small enough so that it can be drowned in a bathtub, is its mortal enemy.
It is not enough to write about the Catastrophe of the Day, as so many “Left” sites (not so much this one, though!) do. What is critical is to draw the connections between capitalism and how it has torn asunder the social fabric, allowing capitalist relations to multiply like a mutant virus. We on the Left face an implacable enemy that is out to destroy us, either through violence, legal means, or co-optation. The answer is to revive a cooperative social model and demonstrate how it functions much better than capitalism, both for humanity and for the rest of nature. In the case of both Detroit and Jackson, the first step is to carve out a space in which to exist. That means, most importantly, to gain control of the means of production through ownership. While Detroit and Jackson (and NYC, too) may have a thriving urban gardening scene, for instance, the groups doing the gardening do not own the means of production (the lots where the gardens are located). Thus, they can (and often are) deprived of any progress towards their goals when either the city government or the private owners of the land exercise their ownership rights.
It’s time to get dirty and to stop exclaiming about the latest Catastrophe of the Day. It’s time to apply the lessons of Subcomandante Marcos to life in this country. Dangerous? Yes, indeed! But no progress will be made until concrete examples of cooperative relations are established. There is a growing Commons movement in this country, but I suspect that it is a capitalist Commons movement, not a socialist one. After all, Socialism is a swear word in this country, right?
Yes cooperatives are the key. They defy the core component of capitalism, that is private ownership of enterprises. But without changing the capitalist world itself through revolution, at least in one country, cooperatives too will be forced to follow the logic of capitalism. I think SD has written about it sometime ago – about the collapse of Mondragon.
I am amazed by the complexity of the financial system over there – credit rate swaps, options, and dozens of derivatives which I couldn’t comprehend. That alone seems to explain how hard it is for capitalists to make profit through productive investments these days.
I’m not a Leninist, a Trotskyite, or a revolutionary. The capitalist world will not change until we change. I’ve stated time and again, by quoting Pogo, that we have met the enemy and he is us. I’ll quote a right-wing populist and former paleo-conservative on the way forward: “Revolutionary social change, like charity, begins at home.” That was Karl Hess, in Dear America, 1975, p. 169.
All revolution accomplishes is to unleash the violent and repressive forces of the ruling class. If you want to lead the charge, go right ahead. I’m staying home.
As far as Mondragon and SD go, I don’t recall that SD ever wrote about the “collapse” of Mondragon. Mondragon has its issues, as all cooperatives do, and it has been accused of having capitalist subsidiaries in “developing” countries that engage in sweat-shop labor, but Mondragon itself has not collapsed.
Cooperation, not confrontation, is the only way forward.
Where is “over there”? “Credit rate swaps, options, and dozens of derivatives …” are a world-wide phenomenon – the aren’t restricted to “over there”, wherever that is. Financialization is not “productive investment” – it is just another way that capitalists engage in commodification. Having almost exhausted the supply of goods and services available to commodify, they have moved on to abstract concepts. Capitalists, if nothing else, are ingenious in finding a way to wring a profit out of any conceivable (and sometimes inconceivable!) object or idea.
By “over there”, I mean the USA. In my country, Indonesia, we also have finance market, but it is not as advanced as it is in the USA. I don’t think we have anything like MBS, credit rate swaps, or other derivatives here, yet.
And don’t mistake the word “revolution” as a bloody overtake of a government. By revolution, I mean a core change in how things work, in this case – capitalism. It has been proven that individual actions have not accomplished any notable changes – at least here in my place. So a collective, mass-based action is needed to accomplish that core change.
I fully agree with the idea of cooperation and cooperative enterprises, in fact it is the key of a socialist economy. But the ruling classes do not agree, and will not cooperate. Confrontation will happen, regardless we want it or not.
Indeed, as Alcuin noted, I haven’t written about the “collapse of Mondragon.” I did write about the collapse of one of Mondragon’s many dozens of enterprises. Mondragon, despite its size, is not at all immune from the rigors of capitalist competition. That very competition caused that Mondragon company to go under.
It is not enough for enterprises to be cooperative, the cooperatives must relate to one another and to their communities in a cooperative manner and be embedded in their communities. If market competition is left intact, the workers of a collective enterprise will “become their own capitalists.” This major caveat aside, cooperatives are a key toward a bigger world simply through an example of organizing enterprises differently.
I’ll be in the streets with Tim — millions of us in the streets, occupying critical space, not just a park, in sufficient numbers that can’t be moved is unavoidably part of the equation. If we are around long enough to see it happen, Alcuin, I do hope you’ll come out, too. The more of us who participate the faster the change happens. In the meantime, we have much work to do — yes, learning to cease our cooperation is part of that. That is, if we wish a transition to a better world to happen before capitalism takes us to a collapse from global warming and depletion of natural resources.
Indigenous Bolivians drove Bechtel corporation out of Bolivia when the bastards actually tried to charge them for collecting rain water! People choked the streets and business came to a halt. Bechtel went back to France and Bolivians elected Evo Morales, one of many progressive leaders to come throughout the world I HOPE. One should only come to the USA.
You might want to study Morales a little bit more closely – he’s not as “progressive” as you think. He was on the wrong side of the road (no pun intended!) on the TIPNIS highway issue.
I’d take Evo Morales over any U.S. political figure. But he is pushed forward by the progressive movement that propelled him to Bolivia’s presidency. The NACLA Report article on the highway issue (NACLA is an excellent source for Latin American analysis, incidentally) is a reminder that no leader is always correct, nor even leading.
There has been persistent pushing and pulling in Bolivia among Morales, the Movement Toward Socialism and the Indigenous communities who are the backbone of Morales’ support. But Morales can, and is, pushed forward in this process and is accountable to his movement in a way that bourgeois politicians never are.
Local people driving Bechtel out of their city is a fabulous example of that movement in action, and an example that should be replicated in many other cities.
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