Private sector is “efficient” only at extracting money from public

There is nothing that capitalists won’t grab if they see a possibility to score a profit. Not even the most basic needs for human life, such as water, are exempt.

A favorite tactic for grabbing what had once been in the public domain and converting it into private profit is the “public-private partnership.” A tactic sadly abetted by the world’s governments, as the name implies.

Public-private partnerships (PPPs), a decades-long string of disasters for the public but often a bonanza for the private, have left behind a long trail of one-sided results in water systems, electricity distribution, sewers, highways, hospitals and other infrastructure. The latest report testifying to the damage wrought by PPPs comes to us courtesy of the European Federation of Public Service Unions (EPSU), a federation of 8 million public service workers from over 250 trade unions across Europe, and the European Network on Debt and Development (Eurodad), a network of 49 civil society organizations from 20 European countries “working for transformative yet specific changes to global and European policies, institutions, rules and structures.”

The Palace of Westminster (photo by Andrew Dunn)

The EPSU/Eurodad report, “Why public-private partnerships (PPPs) are still not delivering,” paints a damning picture. The report declares:

“PPP advocates claim they bring financing, efficiency and innovation. But real-life experience reveals a different picture. The following points outline eight reasons why PPPs are not working: 1. PPPs do not bring new money – they create hidden debt 2. Private finance costs more than government borrowing 3. Public authorities still bear the ultimate risk of project failure 4. PPPs don’t guarantee better value for money 5. Efficiency gains and design innovation can result in corner-cutting 6. PPPs do not guarantee projects being on time or on budget 7. PPP deals are opaque and can contribute to corruption 8. PPPs distort public policy priorities and force publicly run services to cut costs.”

The EPSU/Eurodad report defines PPPs as “long-term contractual arrangements where the private sector provides infrastructure assets and services that have traditionally been directly funded by government, such as hospitals, schools, prisons, roads, bridges, tunnels, railways, and water and sanitation plants, and where there is also some form of risk sharing between the public and the private sector.” There may be risk sharing on paper, but in reality even this definition is a little too generous toward PPPs — in almost all cases, contractual clauses put the risk squarely on the public, and when the private company that has taken over a previously public good proves unable to manage or goes out of business, it is the public that pays.

The paper drew on examples across Europe, with some of the worst examples coming in Britain. Privatizing public services leads to higher costs, reductions in the quality of service and lengthier periods in completing construction. All of these results, of course, are directly opposite of what incessant capitalist propaganda continually blares. Although the EPSU/Eurodad report didn’t speculate as to why these results occur, it takes little imagination to see the reasons: Corporations exist to make the biggest profit regardless of social cost while governments need only provide a reliable service without having to generate seven- and eight-figure salaries for executives and windfalls for stockholders and other speculators.

It’s not profits above all else, it’s nothing but profits

Consider the words of Milton Friedman, godfather of the Chicago School of economics whose words are widely followed in corporate boardrooms and in financial publications. He put it plainly in an interview with author Joel Bakan in the context of a former BP chief executive officer suggesting (however disingenuously) the company would make environmental concerns more important:

“Not surprisingly, Milton Friedman said ‘no’ when I asked him how far John Browne could go with his green convictions. … ‘He can do it with his own money. If he pursues those environmental interests in such a way as to run the corporation less effectively for its stockholders, then I think he’s being immoral. He’s an employee of the stockholders, however elevated his position may appear to be. As such, he has a very strong moral responsibility to them.’ ”

That is the standard of the corporate world: Profits for speculators, period. No other considerations, no matter how flowery their public relations concoctions may be. There are no exceptions because a service or product is necessary for human life.

To return to the EPSU/Eurodad report, a much higher cost of financing was one cause of higher costs for the public to access previously public goods. Noting the hidden debt in these deals, the paper said, “In a PPP, instead of the public authority taking a loan to pay for a project, the private sector arranges the financing and builds the infrastructure, then the public sector pays a set fee over the lifetime of the PPP contract. In some cases, users also pay part or all of the fee directly to the private sector company (e.g. toll roads).” The United Kingdom National Audit Office “found that the effective interest rate of all private finance deals (7%-8%) was double that of all government borrowing (3%-4%).”

The Grand Palais in Paris (photo by Thesupermat)

An even larger differential was found in France: “A particularly vivid example was the Paris Courthouse PPP, signed in 2012, which featured an investment of €725.5 million and no less than €642.8 million in financing costs. The French Court of Auditors found that the interest rate for borrowing for the PPP was 6.4 per cent, while in 2012 the weighted average rate for government bond financing in the medium-long term was 1.86 per cent,” the report said, adding that operating costs were also higher. 

Another example is a Stockholm hospital that cost €2.4 billion instead of the projected €1.4 billion. The hospital was not only completed four years later than scheduled, but a “design competition” resulted in “operating theatres not being adapted for operations; the risk of medicines being destroyed because of medicine rooms being too warm; and physicians having to carry administrative material in backpacks because of the lack of space for administrative tasks.” One conclusion from this poor result is that “the high level of complexity, together with the private partner’s interest in cost-cutting as much as possible, can easily result in undesirable corner-cutting.”

The report concludes that “What decades of experience has shown is that PPPs come at a high cost and are not delivering the expected benefits.” 

If you can sell it, they will buy it

PPPs are particularly common in Britain, an unfortunate development that is not the cause of any one party. Britain’s version of public-private partnerships are called “private finance initiatives.” A scheme concocted by the Conservative Party and enthusiastically adopted by the New Labour of Tony Blair and Gordon Brown, the results are disastrous. A 2015 report in The Independent revealed that the British government owed more than £222 billion to banks and businesses as a result of private finance initiatives. Jonathan Owen reported:

“The startling figure – described by experts as a ‘financial disaster’ – has been calculated as part of an Independent on Sunday analysis of Treasury data on more than 720 PFIs. The analysis has been verified by the National Audit Office. The headline debt is based on ‘unitary charges’ which start this month and will continue for 35 years. They include fees for services rendered, such as maintenance and cleaning, as well as the repayment of loans underwritten by banks and investment companies. Responding to the findings, [British Trades Union Congress] General Secretary Frances O’Grady said: ‘Crippling PFI debts are exacerbating the funding crisis across our public services, most obviously in our National Health Service.’ ”

The Independent article reported that private firms can even flip their contracts for a faster payday. Four companies given 25-year contracts to build and maintain schools doubled their money by selling their shares in the schemes less than five years into the deals for a composite profit of £300 million. Clearly, these contracts were given at well below reasonable cost. Nor is health care exempt: A 2019 report by the Progressive Policy Think Tank found that there are English hospitals forced to divert one-sixth of their income to paying back private finance initiatives, with National Health Service trusts paying more than £2 billion on such repayments per year, “taking money away from vital patient services.” For just £13 billion of private investment, the NHS must pay back £80 billion! Quite a windfall for banks.

Naturally, such financial legerdemain is not limited to any particular country. Here is just a small sampling of outcomes:

• During the course of a 25-year contract with Suez and Veolia, water rates in the city of Paris doubled after accounting for inflation. Thanks to a secret clause, the two companies received automatic price rises every three months. When the contract finished, Paris re-municipalized its water system. Despite the short-term expenses of doing so, the city saved about €35 million in the first year and was able to reduce rates by eight percent.
• A privatization of the Buenos Aires water and sewer systems resulted in chronic failures to meet contractual obligations, repeated demands that the contract be renegotiated (granted by the neoliberal governments of the 1990s), failure to meet water-safety standards, worsening pollution of underground water sources, and price increases over the first decade of the contract 12 times that of inflation. The Argentine government then had to spend years raising legal challenges to take back the system even though the private company was in obvious default of its contractual obligations.
• The German city of Bergkamen (population about 50,000) reversed its privatization of energy, water and other services. As a result of returning those to the public sector, the city began earning €3 million a year from the municipal companies set up to provide services, while reducing costs by as much as 30 percent.
• A report by Food & Water Watch found that investor-owned utilities in the United States typically charge 59 percent more for water and 63 percent more for sewer service than local-government utilities. After privatization, water rates increase at about three times the rate of inflation, nearly tripling on average after 11 years of private control. Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs.
• A study by University of Toronto researchers of 28 Ontario public-private partnerships found they cost an average of 16 percent more than conventional contracts. Elsewhere in Canada, the Sea-to-Sky Highway in British Columbia will cost taxpayers C$220 million more than if it had been financed and operated publicly, and the cost of a project at the Université de Québec à Montréal was doubled to C$400 million.

Water as a commodity rather than a human right

That even water is a commodity is no surprise when corporate leaders consider it just another product that should have a price, most notoriously enunciated in 2014 when the chairman of Nestlé S.A., Peter Brabeck-Letmathe, issued a video in which he denounced as “extreme” the very idea of water being considered a human right. And not only water — various schemes exist to destroy the U.S. Postal Service in the interest of corporate profit.

There are even corporate executives who want to privatize the weather. No, that’s not in the realm of science fiction. The head of a private weather forecaster, AccuWeather, has repeatedly lobbied to prohibit the U.S. government’s National Weather Service from issuing forecasts! Under this scenario, the Weather Service would hand all of its data to private companies, who would then issue forecasts, while of course letting taxpayers foot the bill for the data. One of the U.S. Senate’s dimmest bulbs, fundamentalist Rick Santorum (thankfully no longer in office), once promoted a bill to do just that. And, incidentally, the National Weather Service issues forecasts more reliable than those of AccuWeather.

Photo by Marlon Felippe

Public-private partnerships are one of the surest ways of shoveling money into the gaping maws of corporate wallets. The result has been disastrous — public services and infrastructure maintenance is consistently more expensive after privatization. Cuts to wages for workers who remain on the job and increased use of low-wage subcontractors are additional features of these privatizations. Less services and fewer employees means more profit for the contractor, and because the contractor is a private enterprise there’s no longer public accountability.

The rationale for these partnerships is, similar to other neoliberal prescriptions, ideological — the private sector is supposedly always more efficient than government. A private company’s profit incentive will supposedly see to it that costs are kept under control, thereby saving money for taxpayers and transferring risk to the contractor. In the real world, however, this works much differently. A government signs a long-term contract with a private enterprise to build and/or maintain infrastructure, under which the costs are borne by the contractor but the revenue goes to the contractor as well.

Public-private partnerships are nothing more than a variation on straightforward schemes to sell off public assets below cost, with working people having to pay more for reduced quality of service. Capitalism in action.

Leaked Trump infrastructure plan is a plan for corporate subsidies

The Trump administration’s plans to rebuild infrastructure in the United States have been leaked, and it appears to be as bad as feared. At least three-quarters of intended funding will go toward corporate subsidies, not actual projects. It is possible that no funding will go directly toward projects.

There’s no real surprise here, given that President Donald Trump’s election promise to inject $1 trillion into infrastructure spending was a macabre joke. What is actually happening is that the Trump administration intends to push for more “public-private partnerships.” What these so-called partnerships actually are vehicles to shovel public money into private pockets. These have proven disastrous wherever they have been implemented, almost invariably making public services more expensive. Often, far more expensive. They are nothing more than a variation on straightforward schemes to sell off public assets below cost, with working people having to pay more for reduced quality of service.

That is no surprise, as corporations are only going to provide services or operate facilities if they can make a profit. And since public-private partnerships promise guaranteed big profits, at the expense of taxpayers, these are quite popular in corporate boardrooms. And when those promises don’t come true, it taxpayers who are on the hook for the failed privatization.

Panorama of Paris (photo by Benh Lieu Song)

The collapse earlier this month of Carillion PLC in Britain put 50,000 jobs at risk, both those directly employed and others working for subcontractors. The holder of a vast array of government contracts for construction, services and managing the operations of railways, hospitals, schools and much else, Carillion received contracts worth £5.7 billion just since 2011. Overall, an astonishing £120 billion was spent on outsourcing in Britain in 2015.

What did British taxpayers get for this corporate largesse? It certainly not was the promised savings. Parliament’s spending watchdog agency, the National Audit Office, found that privately financing public projects costs as much as 40 percent more than projects relying solely on government money. The office estimates that existing outsourcing contracts will cost taxpayers almost £200 billion for the next 25 years. (This report was issued before Carillion’s collapse.) In response, Labour leader Jeremy Corbyn said, “These corporations need to be shown the door. We need our public services provided by public employees with a public service ethos and a strong public oversight,” The Guardian reported.

Naturally, there was one group that did quite well from this privatization: Carillion’s shareholders, who reaped £500 billion in dividends in the past seven years. But it is the government that will have to pick up the tab if the company’s employees are to continue to be paid. On top of that, the company’s pension shortfall reached £900 billion, according to Reuters.

By no means is Carillion’s collapse the only privatization disaster in Britain. A bailout of the corporate-run East Coast rail system is expected to cost hundreds of millions of pounds. There are numerous other examples that have proven windfalls for corporate executives but expensive mistakes for the public.

Offer subsidies first, ask questions later

One of the many empty promises made by President Trump during the 2016 campaign was that his infrastructure plan would “leverage public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over ten years. It is revenue neutral.”

“Spur” investment, not actually spend on investment. This supposed plan originated with Wilbur Ross and Peter Navarro, a conservative economics professor. Ross, now Commerce secretary (although perhaps not for long if recent reports are to believed), was an investment banker who specialized in buying companies and then taking away pensions and medical benefits in order to quickly flip his companies for a big short-term profit. The two recommended the Trump administration allocate $137 billion in tax credits for private investors who underwrite infrastructure projects. The two claimed that over 10 years the credits could spur $1 trillion in investment.

So the new administration won’t actually spend $1 trillion to fix the country’s badly decaying infrastructure; it hopes to encourage private capital to do so through tax cuts.

That brings us to this week’s leak. The news site Axios published the Trump administration’s six-page outline for infrastructure investment on January 22. The document mentions no dollar figures. But what the document does do is to discuss where money will be sent. First up is “infrastructure incentives initiative,” which is to account for 50 percent of total appropriations. This category will provide grants to be used for “core infrastructure” projects and requires “Evidence supporting how applicant will secure and commit new, non-federal revenue to create sustainable long-term funding” and requires new sources of “revenue for operations, maintenance and operations.”

Netherlands highway (Daan Roosegaarde)

Although it is possible that local- or state-government funding could provide the required revenues, given the intentions of the Trump régime, what this means is that privatization is being counted on for these projects, with corporations taking over public facilities providing the required ongoing revenue streams.

A hint that this is intended is that the first item on a list of “Principles for Infrastructure Improvements” is an intention to make it easier for tolls to be placed on highways. That item is this: “Allow states flexibility to toll on interstates and reinvest toll revenues in infrastructure.” Again, it is possible that state governments might do this themselves. But the more likely scenario is the privatization of highways, with the corporations gaining control then installing toll booths to not only provide funds for maintenance but to hand themselves a perpetual profit. And if the profits don’t materialize, it won’t be private capital holding the bag. For example, nine privatized toll roads in Spain will cost taxpayers there €5 billion because the roads are being nationalized in the wake of the private operators’ failures.

A further hint is found buried in the section on water infrastructure, where we find this passage: “Remove the application of Federal requirements for de minimis Federal involvement.” This is likely intended to provide a green light to privatization of water systems. That has been done in France and Germany, with disastrous results. For example, water prices in Paris doubled over 25 years before the city took back its water system, saving €35 million in the first year and cutting rates. The German city of Bergkamen reduced costs by as much as 30 percent after returning its basic utilities to the public sector.

No details for a plan not based in reality

Another 25 percent of the total appropriations for the White House infrastructure investment plan is a “rural infrastructure program,” under which state governments are “incentivized to partner” with “private investment.” Various other programs constitute the remainder of the plan, none of which are clear as to who or what will be eligible.

The official unveiling of the plan will likely not be released until after the January 30 State of the Union address, according to a report in The Hill. A further sign of the lack of specifics is that the White House has had nothing substantial to say on the topic. The most recent statement on infrastructure that a search of the official White House web page could find was an August announcement that the president had signed an executive order making the “environmental and permitting processes more efficient.”

Channeling the president’s usual disregard for reality, the announcement claimed that “delays” in infrastructure projects cost “trillions” of dollars. The only actual projects mentioned are three pipelines, including the Keystone XL and Dakota Access lines, of which the announcement claims will “create over 42,000 jobs and $2 billion in earnings.” (Those figures appear directly copied from a widely discredited State Department environmental impact statement issued in 2014, when the Obama administration was supporting them.) In reality, a study by the Cornell Global Labor Institute found that, when all effects are calculated, there may be a net loss of jobs. Additional fuel costs in the Midwest, pipeline spills, pollution and the rising costs of climate change would contribute to job losses.

Of course, environmental damages are not considered in Trump administration projections, putting them even more in the realm of fantasy. Consider two World Health Organization studies that concluded polluted environments cause 1.7 million children age five or younger to die per year. The U.S. Environmental Protection Agency estimated a year ago that 230,000 lives would be saved and 120,000 emergency-room visits saved in 2020 if the Clean Air Act is left intact. Globally, air pollution could lead to nine million premature deaths and US$2.6 trillion in economic damage from the costs of sick days, medical bills and reduced agricultural output by 2060, according to an Organisation for Economic Cooperation and Development study.

This doesn’t come cheap, either — a study of energy subsidies estimates the totality of subsidies given to fossil fuels for 2015 was $5.6 trillion. Lest you think some “anti-oil” group made that calculation, that figure comes to us courtesy of the International Monetary Fund! The Trump administration will only add to this mind-boggling total as it has made clear its intentions to further subsidize gas, oil and especially coal, no matter the lack of rational economics. And the cost of global warming? Incalculable. What would be the future cost of hundreds of millions displaced from drowned cities? Or, in the long term, of destroying the Earth’s ability to maintain a stable environment?

Although Donald Trump is the worst yet of a long line of disastrous U.S. presidents, let’s forgo the easy idea that he alone is responsible for facilitating corporate plunder at the cost of all other human considerations. He is highly useful to the plutocrats who control the Republican Party, so much so that talk of a Trump impeachment should be relegated to the level of fantasy for the foreseeable future, barring an all-time wipeout in the 2018 midterms despite the Democratic Party’s uncanny ability to blow elections. The greater question is if sufficient numbers of Trump voters come to realize the degree they were hoodwinked for believing that a billionaire who built his fortune by screwing working people would somehow come to their rescue.

That’s the short term. For the longer term, humanity finding its way out of the dead end it is speeding toward depends on freeing itself from the grips of a system that repeatedly throws up Trumps, Bushes, Harpers, Thatchers and the like. The Trump administration is a symptom, not a cause, of morbid decay.

Tax cuts as a route to cutting Social Security

Conservatives are fond of saying that if you give a man a fish you can feed him for a day, but if you teach him how to fish you can feed him for a lifetime. This is supposed to tell us that social benefits, such as government programs, are bad for people. A much better example of conservative thought would be to say if I put a fence at the entrance to the pier and don’t let anyone else have access to the water, I can have all the fish for myself.

Let those peasants starve! Such a privatization of fish isn’t distant from the actual mechanics of class warfare as it is practiced, unfortunately.

Take the latest salvo in ongoing class warfare, United States edition: The coming assault on Social Security. Curious as to why the Republican Party’s mania for balanced budgets suddenly vanished? I mean, besides the mind-boggling hypocrisy we can expect from the Right. The immediate cause was to placate their billionaire donors who issued marching orders last June. A “donor retreat” at a Koch brothers’ compound in Colorado was attended by 400 people, and, as The Guardian reported, the “price for admission for most was a pledge to give at least $100,000 this year to the Kochs’ broad policy and political network. Donors decreed that Republicans must pass “tax reform” and reverse the Affordable Care Act (because health care is a socialist plot?) or their checkbooks would be shut.

That the Trump/Republican tax plan will be a bonanza for the wealthiest is well documented by this point, with the “Corker kickback” not only giving “dissident” Republican Senator Bob Corker a multimillion-dollar payday to ensure his vote but giving Donald Trump himself tens of millions of dollars thanks to the special rule benefiting real estate speculators. But lurking behind this devastating corporate offensive is the little matter of the extra $1.5 trillion to be added to the deficit. When Republicans (probably assisted by the more spineless among the Democrats) decide in the near future that deficits matter after all, social benefits will be in the cross hairs, with Social Security and Medicare likely to be the prime targets.

In advance of this, we will be treated to a rerun of horror stories designed to convince United Statesians that Social Security is unsustainable. The claim will once again be that either we’ll have to accept steep cuts to Social Security payments or privatize it, putting our retirements in the hands of Wall Street. This has been the wet dream of financiers for decades, and as an added bonus, Wall Street is another major beneficiary of the Trump tax cuts. “Heads I win, tails you lose” is always the way of Wall Street and here we have it again, pocketing untold millions from tax cuts and then taking away your Social Security when the ensuing deficit mounts.

One way of promoting privatization is to allege that there isn’t enough being paid into the system to cover future claims. It is true that in recent years Social Security has been paying out more than it is taking in, although it is far from broke. Concomitant with that argument is the claim that everybody takes out much more than they pay into it over their working lives. But that isn’t necessarily true — a Congressional Budget Office (CBO) report, issued in 2006, found that people earning near the median income get back about the same as they pay into the fund. Low-income earners do receive more than they pay, but conversely high earns get back less. But Social Security is supposed to be progressive. Indeed, the CBO’s report says, “The Social Security benefit formula is designed to provide beneficiaries who had lower life-time earnings with monthly benefits that are higher, as a percentage of their lifetime average earnings, than those received by higher-earning beneficiaries.”

The corporate interest in gutting Social Security

Those saddled with a lifetime of low or median earnings have spent a lifetime being exploited on the job, so whatever extras are received are pennies on the stacks of dollars extracted from them. Remember that profits come from the usually wide gap between what you are paid and the value of your work, and what financiers haul in is skimming off that pot collected by employers dealing in tangible services and products. There is a symbiotic relationship between financiers and industrialists and although there is much wrangling between them (which is why corporate press releases so often proclaim “enhancing shareholder value” as an important part of their mission), they have a mutual interest in exploiting employees.

That mutual interest extends to gutting Social Security, even if financiers have the more immediate interest. The challenge of funding Social Security isn’t a difficult one. An important reason why that is so is because Social Security taxes are only imposed on income up to $127,200. Anything above that is untouched. So why not raise the bar? Senator Bernie Sanders has introduced a bill that would apply this tax to all income above $250,000. This plan would eliminate 80 percent of the projected shortfall, according to an analysis from the Social Security office of the Chief Actuary. For whatever reason, Senator Sanders’ plan wouldn’t touch income in between. Taxing all income would raise still more money.

New York Stock Exchange (photo by Elisa Rolle)

Another method is suggested by Dean Baker of the Center for Economic and Policy Research. He argues that a payroll tax increase of four percent would be sufficient to fully fund Social Security and Medicare for another 75 years. He acknowledges that such an increase would be difficult for many workers, but he estimates that the loss of income from decades of upward distribution of income to be 40 percent — a loss ten times greater. That figures comes from the gap between the rate of earnings increases for working people and the rate of increases in productivity. He explains:

“[U]pward redistribution over this period has reduced wage growth by more than 40 percentage points. In short, our children are 40 percent poorer than they would otherwise be because of the money going to people like Bill Gates and Steve Zuckerberg rather than ordinary workers.

So by very conservative estimates, a typical person in their twenties or thirties has seen their income reduced by more than 40 percent because of all the money redistributed to those at the top. However, the generational warriors want young people to be upset about the possibility that a bit more than one-tenth of this amount could be used to pay for their parents’ and their own Social Security and Medicare. (This upward redistribution is also responsible for about half of the projected shortfall in Social Security, as more income going to profits and high-income workers escapes the Social Security tax.)

It is also important to understand that government action was at the center of this upward redistribution. Without government-granted patent monopolies for Windows and other Microsoft software, Bill Gates would probably still be working for a living.”

A trillion dollars for Wall Street

Privatizing Social Security would additionally cut benefits because financiers would take hefty cuts. The administrative costs of the retirement portion of Social Security (the bulk of the program) is 0.4 percent. In contrast, Dr. Baker reports, “even relatively well-run privatized systems, like those in Chile or the United Kingdom, are 10–15 percent of benefits.”

Such ratios were Social Security privatized would cost nearly $1 trillion in a decade, he calculates — $1 trillion taken from Social Security benefits and diverted into Wall Street’s bottomless pockets. Consider that the standard payment for hedge-fund managers is to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money. In 2014, the top 25 hedge-fund managers hauled in $11.6 billion despite collectively underperforming the stock market.

Fees for ordinary money managers are not this high, and a privatized Social Security wouldn’t pay fees as exorbitant as those charged by hedge funds. But it would still be huge sums of money. That is why Wall Street has long lusted to get its hands on it.

U.S. Treasury Department under new management (photo by takomabibelot)

Then there is the matter of returns. Would gambling Social Security funds on the stock market really result in better results? Not necessarily. In studying the stock market’s long-term returns for an article I wrote a decade ago, not long after the 1990s bubble had burst, I found that you would have to time your retirement to the peaks of bubbles. When adjusted for inflation, the Dow Jones Industrial Average — the ultimate index of stock-market health and which has its components continually adjusted so as to replace low-performing stocks with high-performing ones — was below its 1929 peak as late as 1991. Here are some long-term results:

• The Dow peaked at 995 in February 1965. Adjusted for inflation, that was 42 percent more than it was worth at its previous bubble peak in 1929, not so impressive when it took 36 years to get there.
• The ensuring crash bottomed out in December 1974. At this point, the Dow, adjusted for inflation, was worth only half of what it was worth in 1929 and little more than one-third of its 1965 peak.
• The most recent crash bottomed out in March 2009, at which point the Dow was three percent below its 1965 peak, adjusted for inflation.

The stock market is edging into bubble territory as we begin 2018, and stocks are priced high by historical standards. The basic measure of stock-price sustainability is the price/earnings ratio of the S&P 500, representing the largest companies on U.S. stock markets. The ratio’s average, calculated back to 1872, is 14. Prior to the 1990s bubble, the S&P 500 P/E ratio rose above 20 four times; each time it subsequently fell below 10. A standard measurement of the P/E ratio today is 26. One way to understand that number is that an investor is essentially paying $26 for each dollar of corporate profit, which is considered too high. It is true that the P/E ratio has been almost continually above the historic average since the 1990s bubble, but nonetheless this more recent rise indicates that a stock collapse is looming.

Goodbye retirement, goodbye disability payments

There aren’t any free lunches. A Center on Budget and Policy Priorities study notes that Social Security is not only a retirement program, but also an insurance program that could not be duplicated if privatized:

“Social Security is not only a retirement program but also an insurance program. About one-third of payroll taxes go to fund Social Security disability insurance and survivors insurance. Comparable insurance products would be extremely expensive to buy in the private insurance market, if one could even find such products. Social Security also provides an inflation-indexed annuity: Social Security benefits are adjusted each year for inflation and are paid until death, regardless of how long a beneficiary lives. These features of Social Security provide a valuable form of insurance against the risks of inflation and of outliving one’s savings.”

Nor would sinking funds into stock markets necessarily be a wise gamble, the Congressional Budget Office has said:

“Government investment in private securities does not offer a free lunch: although it would increase the expected value of budgetary resources, it would do so at the cost of exposing the government, future taxpayers, and beneficiaries of federal programs to greater risk. If that risk was taken into account, the returns on private securities would be no greater than the returns on government securities. … Using risky investment portfolios to finance spending by government agencies could weaken budgetary control of federal financial resources.”

That last item, however, is a lure of Republicans and their corporate masters. Create a larger deficit, cut social spending, repeat. This reduces lifespans, reducing payouts through Social Security and corporate retirement plans, for those lucky enough to still have one. Earlier deaths has already been declared a “silver lining” by U.S. corporations.

And let us not forget the sometimes bipartisan nature of Social Security cuts — Barack Obama had proposed a change to the way inflation is calculated for the determination of cost-of-living increases that would have resulted in lower adjustments for inflation, effectively a small yearly reduction. He did so as a bargaining chip in an effort to force Republicans in Congress to agree to modest tax increases. Ultimately, a Democratic Party revolt, spurred by grassroots opposition, forced an end to this plan, but this episode does serve as a reminder that social movements, not hoping for political office holders to do good, is the key to being able to retire some day.

In Chile, in 1998, the government actually asked workers not to retire because of a sustained economic downturn. (The Chilean retirement system was forcibly privatized under Pinochet). Think it can’t happen elsewhere? Keep in mind these words by Stephen Moore of the far right groups Club for Growth and Cato Institute: “Social Security is the soft underbelly of the welfare state. If you can jab your spear through that, you can undermine the whole welfare state.”

You’ll work until you drop, but Wall Street will profit.

The bait and switch of public-private partnerships

This being the age of public relations, the genteel term “public-private partnership” is used instead of corporate plunder. A “partnership” such deals may be, but it isn’t the public who gets the benefits.

We’ll be hearing more about so-called “public-private partnerships” in coming weeks because the new U.S. president, Donald Trump, is promoting these as the basis for a promised $1 trillion in new infrastructure investments. But the new administration has also promised cuts to public spending. How to square this circle? It’s not difficult to discern when we recall the main policy of the Trump administration is to hand out massive tax cuts to big business and the wealthy, and provide them with subsidies.

Public-private partnerships are one of the surest ways of shoveling money into the gaping maws of corporate wallets, used, with varying names, by neoliberal governments around the world, particularly in Europe and North America. The result has been disastrous — public services and infrastructure maintenance is consistently more expensive after privatization. Cuts to wages for workers who remain on the job and increased use of low-wage subcontractors are additional features of these privatizations.

Chicago at night (photo by Lol19)

The rationale for these partnerships is, similar to other neoliberal prescriptions, ideological — the private sector is supposedly always more efficient than government. A private company’s profit incentive will supposedly see to it that costs are kept under control, thereby saving money for taxpayers and transferring risk to the contractor. In the real world, however, this works much differently. A government signs a long-term contract with a private enterprise to build and/or maintain infrastructure, under which the costs are borne by the contractor but the revenue goes to the contractor as well.

The contractor, of course, expects a profit from the arrangement. The government doesn’t — and thus corporate expectation of profits requires that revenues be increased and expenses must be cut. Less services and fewer employees means more profit for the contractor, and because the contractor is a private enterprise there’s no longer public accountability.

Public-private partnerships are nothing more than a variation on straightforward schemes to sell off public assets below cost, with working people having to pay more for reduced quality of service. A survey of these partnerships across Europe and North America will demonstrate this clearly, but first a quick look at the Trump administration’s plans.

Corporate subsidies, not $1 trillion in new spending

The use of the word “plans” is rather loose here. No more than the barest outline of a plan has been articulated. The only direct mention of his intentions to jump-start investment in infrastructure is found in President Trump’s campaign web site. In full, it states the plan “Leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over ten years. It is revenue neutral.” The administration’s official White House web site’s sole mention of infrastructure is an announcement approving the Keystone XL and Dakota Access pipelines without environmental reviews, and an intention to expedite environmental reviews for “high priority infrastructure projects.”

Wilbur Ross, an investment banker who buys companies and then takes away pensions and medical benefits so he can flip his companies for a big short-term profit, and who is President Trump’s pick for commerce secretary, along with a conservative economics professor, Peter Navarro, have recommended the Trump administration allocate $137 billion in tax credits for private investors who underwrite infrastructure projects. The two estimate that over 10 years the credits could spur $1 trillion in investment. So the new administration won’t actually spend $1 trillion to fix the country’s badly decaying infrastructure; it hopes to encourage private capital to do so through tax cuts.

The Sea-to-Sky Highway in British Columbia (photo by D. Vincent Alongi)

There is a catch here — private capital is only going to invest if a steady profit can be extracted. Writing in the New Republic, David Dayen put this plainly:

“Private operators will only undertake projects if they promise a revenue stream. You may end up with another bridge in New York City or another road in Los Angeles, which can be monetized. But someplace that actually needs infrastructure investment is more dicey without user fees. So the only way to entice private-sector actors into rebuilding Flint, Michigan’s water system, for example, is to give them a cut of the profits in perpetuity. That’s what Chicago did when it sold off 36,000 parking meters to a Wall Street-led investor group. Users now pay exorbitant fees to park in Chicago, and city government is helpless to alter the rates.”

The Trump plan appears to go beyond even the ordinary terms of public-private partnerships because it would transfer money to developers with no guarantee at all that net new investments are made, according to an Economic Policy Institute analysis. The EPI report asks several questions:

“[I]t appears to be a plan to give tax credits to private financiers and developers, period. The lack of details here are daunting and incredibly important. For starters, we don’t know if the tax credit would be restricted to new investment, or if investors in already existing [public-private partnerships] are eligible for the credit. If private investors in already existing PPP arrangements are eligible, how do we ensure these tax credits actually induce net new investments rather than just transferring taxpayer largesse on operators of already-existing projects? Who decides which projects need to be built? How will the Trump administration provide needed infrastructure investments that are unlikely to be profitable for private providers (such as building lead-free water pipes in Flint, MI)? If we assume tax credits will be restricted (on paper, anyhow) to just new investment, how do we know the money is not just providing a windfall to already planned projects rather than inducing a net increase in how much infrastructure investment occurs?”

Critiques of this scheme can readily be found on the Right as well. For example, Douglas Holtz-Eakin, a former head of the Congressional Budget Office and economic adviser to John McCain’s 2008 presidential campaign, told The Associated Press, “I don’t think that is a model that is going be viewed as successful or that you can use it for all of the infrastructure needs that the U.S. has.”

Corporations plunder, people pay in Britain

Britain’s version of public-private partnerships are called “private finance initiatives.” A scheme concocted by the Conservative Party and enthusiastically adopted by the New Labour of Tony Blair and Gordon Brown, the results are disastrous. A 2015 report in The Independent reveals that the British government owes more than £222 billion to banks and businesses as a result of private finance initiatives. Jonathan Owen reports:

“The startling figure – described by experts as a ‘financial disaster’ – has been calculated as part of an Independent on Sunday analysis of Treasury data on more than 720 PFIs. The analysis has been verified by the National Audit Office. The headline debt is based on ‘unitary charges’ which start this month and will continue for 35 years. They include fees for services rendered, such as maintenance and cleaning, as well as the repayment of loans underwritten by banks and investment companies.

Responding to the findings, [British Trades Union Congress] General Secretary Frances O’Grady said: ‘Crippling PFI debts are exacerbating the funding crisis across our public services, most obviously in our National Health Service.’ ”

Under private finance initiatives, a consortium of private-sector banks and construction firms finance, own, operate and lease the formerly public property back to the U.K. taxpayer over a period of 30 to 35 years. By no means do taxpayers receive value for these deals — and the total cost will likely rise far above the initial £222 billion cost. According to The Independent:

“The system has yielded assets valued at £56.5bn. But Britain will pay more than five times that amount under the terms of the PFIs used to create them, and in some cases be left with nothing to show for it, because the PFI agreed to is effectively a leasing agreement. Some £88bn has already been spent, and even if the projected cost between now and 2049/50 does not change, the total PFI bill will be in excess of £310bn. This is more than four times the budget deficit used to justify austerity cuts to government budgets and local services.”

The private firms can even flip their contracts for a faster payday. Four companies given 25-year contracts to build and maintain schools doubled their money by selling their shares in the schemes less than five years into the deals for a composite profit of £300 million. Clearly, these contracts were given at well below reasonable cost.

City of London expanding (Photo by Will Fox)

One of the most prominent privatization disasters was a £30 billion deal for Metronet to upgrade and maintain London’s subway system. The company failed, leaving taxpayers with a £2 billion bill because Transport for London, the government entity responsible for overseeing the subway, guaranteed 95 percent of the debt the private companies had taken out. Then there is the example of England’s water systems, directly sold off. The largest, Thames Water, was acquired by a consortium led by the Australian bank Macquarie Group. This has been disastrous for rate payers but most profitable to the bank. An Open University study found that, in four of the five years studied, the consortium took out more money from the company than it made in post-tax profits, while fees increased and service declined.

As for the original sale itself, the water companies were sold on the cheap. Although details of the business can be discussed by “stakeholders,” the authors conclude, the privatization itself remains outside political debate, placing a “ring-fence” around the issues surrounding the privatization, such as the “politics of packaging and selling households as a captive revenue stream.” The public has no choice when the water provider is a monopoly and thus no say in rates.

Incredibly, Prime Minister Theresa May and the Tories intend to sell off more public services to Macquarie-led consortiums.

Corporations plunder, people pay across Europe

Privatization of water systems has not gone better in continental Europe. Cities in Germany and France, including Paris, have taken back their water after selling systems to corporations. The city of Paris’ contracts with Veolia Environment and Suez Environment, expired in 2010; during the preceding 25 years water prices there had doubled, after accounting for inflation, according to a paper prepared by David Hall, a University of Greenwich researcher. Despite the costs of taking back the water system, the city saved €35 million in the first year and was able to reduce water charges by eight percent. Higher prices and reduced services have been the norm for privatized systems across France, according to Professor Hall’s study.

German cities have also “re-municipalized” basic utilities. One example is the German city of Bergkamen (population about 50,000), which reversed its privatization of energy, water and other services. As a result of returning those to the public sector, the city now earns €3 million a year from the municipal companies set up to provide services, while reducing costs by as much as 30 percent.

The Grand Palais in Paris (photo by Thesupermat)

Water is big business. Suez and Veolia both reported profits of more than €400 million for 2015. Not unrelated to this is the increasing prominence of bottled water. Bottled water is dominated by three of the world’s biggest companies: Coca-Cola (Dasani), PepsiCo (Aquafina) and Nestlé (Poland Springs, Deer Park, Arrowhead and others). So it’s perhaps not surprising that Nestlé Chairman Peter Brabeck-Letmathe infamously issued a video in which he declared the idea that water is a human right “extreme” and that water should instead have a “market value.”

One privatization that has not been reversed, however, is Goldman Sachs’ takeover of Denmark’s state-owned energy company Dong Energy. Despite strong popular opposition, the Danish government sold an 18 percent share in Dong Energy to Goldman Sachs in 2014 while giving the investment bank a veto over strategic decisions, essentially handing it control. The bank was also given the right to sell back its shares for a guaranteed profit. Goldman Sachs has turned a huge profit already — two years after buying its share, Dong began selling shares on the stock market, and initial trading established a value for the company twice as high as it was valued for purposes of selling the shares to Goldman. In other words, Goldman’s shares doubled in value in just two years — a $1.7 billion gain.

Danes have paid for this partial privatization in other ways as well. Taking advantage of the control granted it, Goldman demanded lower payments to Danish subcontractors and replaced some subcontractors who refused to use lower-paid workers.

Corporations plunder, people pay in Canada

Canada’s version of public-private partnerships has followed the same script. A report by the Canadian Centre for Policy Alternatives flatly declared that

“In every single project approved so far as a P3 in Ontario, the costs would have been lower through traditional procurement if they had not inflated by these calculations of the value of ‘risk.’ The calculations of risk could just as well have been pulled out of thin air — and they are not small amounts.”

Not that Ontario is alone here. Among the examples the Centre provides are a hospital, Brampton Civic, that cost the public $200 million more than if it had been publicly financed and built directly by Ontario; the Sea-to-Sky Highway in British Columbia that will cost taxpayers $220 million more than if it had been financed and operated publicly; bailouts of the companies operating the city of Ottawa’s recreational arenas; and a Université de Québec à Montréal project that doubled the cost to $400 million.

A separate study by University of Toronto researchers of 28 Ontario public-private partnerships found they cost an average of 16 percent more than conventional contracts.

Corporations plunder, people pay in the United States

In the United States, a long-time goal of the Republican Party has been to privatize the Postal Service. To facilitate this, a congressional bill signed into law in 2006 required the Postal Service to pre-fund its pension costs for the next 75 years in only 10 years. This is unheard of; certainly no private business would or could do such a thing. This preposterous requirement saddled the Postal Service with a $16 billion deficit. The goal here is to weaken the post office in order to manufacture a case that the government is incapable of running it.

The city of Chicago has found that there are many bad consequences of public-private partnerships beyond the monetary. In 2008, Chicago gave a 75-year lease on its parking meters to Morgan Stanley for $1 billion. Shortly afterward, the city’s inspector general concluded the value of the meter lease was $2 billion. Parking rates skyrocketed, and the terms of the lease protecting Morgan Stanley’s investment created new annual costs for the city, according to a Next City report.

Haze from forest fires in St. Mary Valley, Glacier National Park. Republicans are targeting national parks for sale, too. (photo by Pete Dolack)

That report noted that plans for express bus lanes, protected bike lanes and street changes to enhance pedestrian safety are complicated by the fact that each of these projects requires removing metered parking spaces. Removing meters requires the city to make penalty payments to Morgan Stanley. Even removals for street repairs requires compensation; the Next City report notes that the city lost a $61 million lawsuit filed by the investment bank because of street closures.

Nor have water systems been exempt from privatization schemes. A study by Food & Water Watch found that:

• Investor-owned utilities typically charge 33 percent more for water and 63 percent more for sewer service than local government utilities.
• After privatization, water rates increase at about three times the rate of inflation, with an average increase of 18 percent every other year.
• Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs.

Pure ideology drives these privatization schemes. The Federal Reserve poured $4.1 trillion into buying bonds, which did little more than inflate a stock-market bubble, while the investment needs to rebuild U.S. water systems, schools and dams, plus cleaning up Superfund sites and eliminating student debt, are less at a combined $3.4 trillion. What if that Federal Reserve money had gone to those instead?

“Public investment to create private profit”

Given its billionaire leadership, the Trump administration’s plans for public-private partnerships will not lead to better results, and may well be even worse. Michael Hudson recently summarized what is likely coming in this way:

“Mr. Trump wants to turn the U.S. economy into the kind of real estate development that has made him so rich in New York. It will make his fellow developers rich, and it will make the banks that finance this infrastructure rich, but the people are going to have to pay for it in a much higher cost for transportation, much higher cost for all the infrastructure that he’s proposing. So I think you could call Trump’s plan ‘public investment to create private profit.’ That’s really his plan in a summary, it looks to me.”

This makes no sense as public policy. But it is consistent with the desire of capitalists to continually extract higher profits from any and all human activity. Similar to governments handing over their sovereignty to multi-national corporations in so-called “free trade” deals that facilitate the movement of production to locales with ever lower wages and weaker laws, public-private partnerships represent a plundering of the public sector for private profit, and government surrender of public goods. All this is a reflection of the imbalance of power in capitalist countries.

This is “the market” in action — and the market is nothing more than the aggregate interests of the most powerful industrialists and financiers. It also reflects that as capitalist markets mature and capital runs out of places into which to expand, ongoing competitive pressures will drive corporate leaderships to reduce expenses (particularly wages) and move into new lines of business. Taking over what had been the public sector is one way of achieving this, especially if public goods can be bought below fair market value and guarantees of profits extracted.

The ruthless logic of capitalism is that a commodity goes to those who can pay the most, regardless of whether it is something essential to human life.

When water is a commodity instead of a human right

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.

Water is a human right, the people of Detroit say. (Photo by Moratorium NOW! Coalition to Stop Foreclosures, Evictions, and Utility Shutoffs)

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.

“Justice” for a billionaire, none for the state he ripped off

There has been much cheering across the corporate media about the Permanent Court of Arbitration in The Hague ordering the Russian government to pay more than US$51 billion as compensation for confiscating the assets of Yukos, yet silence concerning the original theft of the company by Mikhail Khodorkovsky.

The basis of the decision by the arbitration court was that the assets of Yukos, seized for alleged non-payment of taxes, were sold for US$9 billion, well below the estimated value of the company. Conveniently left out of this picture is that Mr. Khodorkovsky purchased the assets for $159 million seven years earlier in a rigged process that he controlled. He did so as one of seven oligarchs who bought deeply unpopular former President Boris Yeltsin a second term and were handed control of the country’s vast natural resources as a reward.

This is a story that can not be separated from the fall of the Soviet Union and the looting of its assets, with a handful of newly minted oligarchs, mostly former black marketeers who became bankers, coming to control post-Soviet Russia’s economy. Estimates of the size of the assets that came to be owned by the seven biggest oligarchs (Mr. Khodorkovsky was one of them) in the late 1990s range up to one-half of the Russian economy. This at the same time that the Russian economy shrank by 45 percent and an estimated 74 million Russians lived in poverty according to the World Bank; two million had been in poverty in 1989.

Siberian mountain formation (photo by Irina Kazanskaya)

An important factor in the failure of Mikhail Gorbachev’s perestroika was that working people saw the reforms as coming at their expense. A 1987 reform loosened job protections in exchange for enterprise councils that were to have given workers a voice in management, but the councils were largely ineffective or co-opted by managements. The law had also been intended to eliminate labor shortages. It didn’t, and a 1990 reform was stealthily passed to reduce employment and eliminate the ability of working people to defend themselves. Enterprises would now have private owners with the right to impose management and ownership shares could be sold.

Exhaustion from years of struggle also were a factor in the lack of organized resistance to the elements of capitalism that were introduced in the last years of perestroika and to the shock therapy that was imposed on Russia at the start of 1992, days after the formal dissolution of the Soviet Union and the assumption of uncontested power by President Yeltsin. Shock therapy wiped out Russians’ savings through hyperinflation and state enterprises were sold at fire-sale prices, or sometimes simply taken.

Connections allowed him to set up businesses

Mr. Khodorkovsky used his connections as an official within the Communist Youth League to found a company that imported and resold computers and other goods at huge profits and engaged in currency speculation. The proceeds were used to buy companies on the cheap and found a bank. His bank, Menatep, earned large fees by providing credit when it was in scarce supply during the post-Soviet collapse.

When President Yeltsin was up for re-election in 1996, he faced a daunting challenge as his popularity rating was well below 10 percent — tens of millions of Russians had been plunged into poverty and the economy had contracted for several years in succession. The president admitted in his memoirs that he was about to cancel the election. But he was presented with a plan by the seven oligarchs, the scheme that became known as “loans for shares.”

These seven oligarchs offered President Yeltsin a bargain: In lieu of paying taxes, they would make loans to the government so it could meet its expenses, such as actually paying its employees. In return, the government would give the oligarchs collateral in the form of shares of the big natural-resources enterprises that were soon to be privatized. (Other state enterprises had been quickly privatized upon the implementation of shock therapy.)

If the loans were repaid, the bankers would give the shares back. If not, the oligarchs would hold auctions to sell the collateral. The government had no ability to pay back these loans, but President Yeltsin issued a decree sealing the deal in August 1995.

The oligarchs used their own banks to conduct the subsequent auctions, and, through a mix of rigged terms and conveniently closed airports, won them all at prices that were small fractions of the enterprises’ reasonable market value. These enterprises represented Russia’s enormous reserves of oil, nickel, aluminum and gold, and a minority share in the dominant gas company, Gazprom.

These seven oligarchs all became billionaires through the “loans for shares” scam. The oligarchs, who owned almost the entire Russia mass media, spent 33 times the legal limit on the election and provided 800 times more television coverage of President Yeltsin than was provided to his opponents.

Mr. Khodorkovsky’s bank, Menatep, was put in charge of the auction of Yukos. It avoided competitive bidding, enabling his holding company to buy it for $159 million, only $9 million above the starting price. As long as Boris Yeltsin was president, the oligarchs could steal all they wanted. Nor did Western authorities complain about this; President Yeltsin’s bombardment and illegal disbanding of the Russian Parliament in 1993, resulting in more than 500 deaths, was celebrated as a democratic triumph. Indeed, the World Bank’s chief economist for Russia declared, “I’ve never had so much fun in my life.”

Corporate lawyers as arbitrators

The Permanent Court of Arbitration that handed down the $51 billion judgment is one of the international tribunals that hear investor-state disputes behind closed doors. As is customary with these bodies, the arbitrators are corporate lawyers appointed by governments.

In the Yukos case, each side could choose one of the three panelists who hear the case. The deciding panelist was Yves Fortier, a former chair of one of Canada’s biggest corporate law firms and of Alcan Inc., a mining company since bought by Rio Tinto, and a director of several other companies.

I see no sense in denying that politics were behind Mr. Khodorkovsky’s prison sentence and his loss of Yukos. But there can be no dispute that politics and shady dealing earned him his fortune in the first place. The gangster capitalism in which he excelled in the 1990s, cheered on by the West, was without mercy. Are there going to be outpourings of sympathy for the tens of millions of Russians immiserated so that the country’s Khodorkovskys could become billionaires? I think we already know the answer.

Capitalists say the darndest things

Profits must be the only true human right if as basic a necessity as water is not. But although the modern public-relations industry has succeeded in rebranding robber barons as “captains of industry,” not even the most able army of flacks can always stop corporate executives from accidentally telling the world what they really think.

It’s no secret that some of the world’s biggest corporations are draining aquifers and reselling tap water at enormous profit. But they want to go further and make paying for water mandatory. Water is simply another “market commodity” in this view — most notoriously propagated by Nestlé S.A. Chairman Peter Brabeck-Letmathe in a six-minute video issued by his company. It’s fair to say that the apparent attempt by Nestlé to project an image of a company soberly grappling with the world’s problems through a stern rationality backfired spectacularly.

Photo by Marlon Felippe

Mr. Brabeck-Letmathe’s body language renders as nonsense Nestlé’s post-video contention that he didn’t mean what he said. Beginning at the 2:07 mark, he is shown as saying:

“It’s a question of whether we should privatize the normal water supply for the population. And there are two different opinions on the matter. The one opinion, which I think is extreme, is represented by the NGOs [non-government organizations], who bang on declaring water a public right.”

The chairman grimaces at the very thought of water being considered a right, then lets loose a smirk, signaling unmistakable contempt for what immediately follows:

“That means that as a human being you should have a right to water. That’s an extreme solution. And the other view says that water is a foodstuff like any other and like any other foodstuff it should have a market value. Personally I believe it’s better to give foodstuff a value so that we’re all aware that is has a price and that one should take specific measures for the part of the population that has no access to this water and there are many different possibilities there.”

A right to water is “extreme”! Such an opinion may well be considered “extreme” in many corporate boardrooms, but such opinions are not free of corporate interests. If the route to increasing profits is dependent on privatizing the commons and public services, such is the belief system that will arise. Thanks to their tireless work in combating such “extreme” beliefs, the one percent are doing just fine, thank you. That the perspective of industrialists and financiers are different from the rest of us is exemplified by Mr. Brabeck-Letmathe at the video’s 5:34 mark:

“We’ve never had it so good. We’ve never had so much money. We’ve never been so healthy. … We have everything we want and still we go around as if we were still in mourning for something.”

Well, maybe things aren’t quite so rosy

Yes, stop whining just because wages are declining around the world, unemployment remains high, inequality is reaching levels not seen since the 1920s, the environment is dangerously polluted, global warming is poised to spiral out of control, the power of the biggest capitalists and their multi-national corporations has rendered democratic participation a joke, older workers are thrown out of their jobs and their pensions unilaterally cut, there are few jobs for young workers who are mired in debt, housing and education costs rise far faster than inflation, and the world’s governments join hands with capitalists in a global race to the bottom with no accountability to their electorates.

If your idea of democracy is nothing more than having more flavors of cola to choose from, then indeed you have everything you want.

In an effort to ameliorate the damage, Nestlé subsequently issued a press release claiming its chairman “thinks water is a human right.” It turns out, if we were to believe Nestlé’s spin, that he was merely “trying to raise awareness about the issue of water scarcity. … He is not in favour of privatization, but is advocating more efficient water management by individuals, industry, agriculture and governments.”

That doesn’t square with what the Nestlé chairman plainly said in his video. Nor does it acknowledge the role of Nestlé in making water more scarce. Water, in fact, is big business. Bottled water is dominated by three of the world’s biggest companies: The Coca-Cola Company (Dasani), PepsiCo Inc. (Aquafina) and Nestlé (Poland Springs, Deer Park, Arrowhead and others). The world’s two largest private managers of water systems, Veolia Environment and Suez Environment, have combined revenue of US$51 billion. Much to grab, indeed.

Paying for the same thing that comes out of your tap

Companies that sell bottled water are not necessarily sending teams to remote mountain ranges. A report on AlterNet by Michael Blanding notes:

“[M]any times bottled water is tap water. Contrary to the image of water flowing from pristine mountain springs, more than a quarter of bottled water actually comes from municipal water supplies. … Both Coke and Pepsi exclusively use tap water for their source, while Nestlé uses tap water in some brands.

Of course, Coke and Pepsi tout the elaborate additional steps they take that purify the water after it comes out of the tap, with both companies filtering it multiple times to remove particulates before subjecting it to additional techniques such as ‘reverse osmosis’ and ozone treatment. Reverse osmosis, however, is hardly state of the art — essentially consisting of the same treatment applied through commercially available home tap water filters, while ozonation [a water-treatment process] can introduce additional problems such as the formation of the chemical bromate, a suspected carcinogen.”

A Natural Resources Defense Council study of more than 1,000 bottles representing 103 brands of bottled water found one-third contained levels of contamination exceeding allowable limits. Among these contaminants were synthetic chemicals, bacteria and arsenic.

It is not only bottling and repackaging tap water that is lucrative — supplying the tap water is as well if privatized. A study by Food & Water Watch found that:

• Investor-owned utilities typically charge 33 percent more for water and 63 percent more for sewer service than local government utilities.
• After privatization, water rates increase at about three times the rate of inflation, with an average increase of 18 percent every other year.
• Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs.

Dozens of municipalities in France, Germany and the United States are taking back their water and sewer systems, reversing earlier privatizations. Local governments consistently discovered that privatization led to higher prices, reduced services and deteriorating working conditions for holdover employees. Corporations operating these systems were simply putting into practice what the Nestlé chairman said in his video: Water is a commodity to be bought by those willing to pay a higher price.

In one notorious case, the World Bank forced the privatization of the water system in the Bolivian city of Cochabamba in 1999. Bechtel, the company that was handed the water system as the sole bidder in a secret process, charged a sum equal to one-quarter of city residents’ average household income and imposed a contract provision banning the collection of rainwater. After massive local protests backed by a global campaign forced it to leave the city, Bechtel sued Bolivia for US$50 million in damages and lost profits although its investment is believed to have been less than $1 million and Bechtel’s revenues are six times the size of Bolivia’s gross domestic product.

Even the weather is expected to earn a profit

Other government services taken for granted, like weather forecasting, are not exceptions. Bizarre as it sounds, executives at private weather-forecasting services like AccuWeather for years have advocated that the U.S. government’s National Weather Service be barred from issuing forecasts. The Weather Service is the most reliable forecaster in the country and taxpayers spend hundreds of millions of dollars on it. Yet we are supposed to eliminate this public benefit, converting it in its entirety into a corporate subsidy, so one capitalist can make a profit!

The concept that knowledge of a coming storm should be reserved for those willing to pay was pushed by AccuWeather and a lobbying group then calling itself the Commercial Weather Services Association, with one of the U.S. Senate’s dimmest bulbs, fundamentalist Rick Santorum, promoting a bill in 2005 that would bar the National Weather Service from issuing forecasts except during unspecified emergencies.

Under the bill, the agency would continue to collect data and then give all of them to private companies. AccuWeather would issue forecasts without the burden of collecting its own data, instead getting it for free at taxpayers’ expense. As a report in Slate noted, the bill’s language said:

“Data, information, guidance, forecasts, and warnings shall be issued … through a set of data portals designed for volume access by commercial providers of products or services.”

The disingenuousness of this bill was stated bluntly at the time by Jeff Masters on his Weather Underground blog:

“Private weather industry forecasters do their own forecasting, but will usually check their forecast against what the [National Weather Service] says before sending it out. If the NWS forecast differs considerably, there will frequently be an adjustment made towards the NWS forecast, resulting in a better ‘consensus’ forecast. So, with the proposed legislation, not only would we lose the best forecasts available, but the forecasts from the private weather companies would also worsen.”

But a couple of capitalists would make a bigger profit — so what if more people would die in floods or other natural disasters? That’s the magic of the market at work.