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Privatisation in Europe

The privatisation of public services is proceeding apace across Europe. Paolo Andruccioli examines what it means for consumers, workers, citizens - and democracy

November 1, 2007
12 min read

Even the chair of the EU’s competition authority is admitting that there may, after all, be public goods that are not for sale. In February this year Antonio Catricalà declared: ‘The truth is that one day we will have to distinguish between the market and universal services. So far, all efforts to do so have failed and even the courageous England has been unsuccessful in the liberalisation of railways and the transport system in general.’

For someone who is a true believer in competition and the free market and has praised legislation opening up public services to the market, this is remarkable. In the same presentation to a conference of the Italian senate on the ‘restructuring of public services’ he had to admit that, even in the case of Britain (always cited as a positive example of liberalisation),’We have witnessed problems arising in the provision of services and perhaps – since British authorities have stopped releasing data on security – also in the field of security.’

Across Europe a major conflict is raging over the future of public services. On the one hand are those who believe that privatisation and liberalisation is the only way to meet the needs of consumers, improve the efficiency of public finances and create a common European market allowing enterprises, professionals and workers to move freely. On the other hand are those who highlight the risks of privatising services that have been historically guaranteed and protected by the state, thereby depriving the public of democratic control over the way that their taxes are spent.

We are living in difficult times. In Italy privatisation began with the state-owned industrial corporations. Now the Prodi government is carrying it through to essential local public services – to what we consider to be ‘common goods’. In Germany they are still in the process of selling off their infrastructure: energy, railways, telecoms and so on. Everywhere, the views that emerged during the Thatcher and Reagan years in conservative parties have become all too common in parties of the centre-left – in spite of the growing evidence of the failure of privatisation and liberalisation from the standpoint of both consumer satisfaction and public finance efficiency.

Privatisation in the UK has gone furthest.The sell-off of industrial corporations such as steel and coal is historical memory. Britain is now engaged in opening up local government, health, education and part of the criminal justice system to private business. Public bodies are to become commissioning organisations, purchasing services from public, private and voluntary sector organisations.They are also being required to create new markets of competing providers where they do not already exist.

Claims and consequences

If we look at what is happening across Europe, a number of contradictions are emerging. One is that between the claims of liberalisation and the consequences of privatisation. Although in practice, they are closely linked (with liberalisation usually preparing the ground for privatisation), they are in theory distinct and often used for different ideological and political goals.

In theory at least, governments claim to use liberalisation to stimulate competition and to make it difficult for institutions with a monopoly or near monopoly to fix prices. Hence liberalisation of services is said to benefit the consumer.

Privatisation, on the other hand, is the partial or complete transfer of public industries to the private sector. It was used by Margaret Thatcher in its purest form – the outright sale of those industries – to defeat the trade unions. It has since extended to include the substitution of public delivery of services with private delivery through the process of competition and marketisation.

Italy provides a good example of how the impact of privatisation in reality conflicts with the theoretical claims of liberalisation. Last year, Perluigi Bersani, the minister for economic development during the first Prodi government (June 2006- February 2007), launched a liberalisation programme with the aim of attacking the privileges of monopolistic corporations, including taxi, insurance and pharmaceutical companies and mobile phone companies that impose unreasonable pay-asyou- go tariffs. Bersani’s attempt to protect consumer interests in the private sector will no doubt come up against strong corporate vested interest.The fact that it is necessary illustrates how disastrous were the consequences of the privatisations in the 1990s, when Italy went from being an economy dominated by state monopolies to one dominated by the oligarchies of private companies.

The way that postal services and telephone companies now operate illustrates this point. Although Italian Telecom has been privatised and there are various private companies competing in the mobile phone market, studies carried out by Eurobarometer, a research company employed by the European Commission, found Italian consumers to be the most dissatisfied in Europe, both in terms of customer services and value for money.The most favourable consumer feedback came from countries where public ownership of phone companies is still prevalent. Another classic Italian example of the failings of privatisation involves the high costs and inefficient operation of public highways, which were privatised in 1999 (with most of the shares bought by Benetton).

Our experience in Italy illustrates one of several problems with privatisation and liberalisation that are common throughout Europe: the end of a state monopoly has not translated into the realisation of a competitive market. Instead it has produced private oligarchies and massive profits for private companies, with very little going to public authorities, which continue to face dire problems of underfunding and debt. Financial institutions have been the main beneficiaries of the privatisation of infrastructure in Europe. Across the continent it is the same story: a deterioration in those services that were liberalised and a shared experience of huge job cuts and a weakening of trade unions.

Conflicts of interest

Another Europewide consequence of privatisation and liberalisation concerns the massive conflicts of interest within the continent’s major telephone, media, electricity and gas networks. For example, the European Commission wishes to separate the ownership of energy producing companies from that of companies that administer energy supply networks. It is seeking the same sort of split in the telecoms sector.

A conflict recently developed in relation to the latter between the EU commissioner for information society and media,Viviane Reding, and the German government.The problem is linked to German Telecom, which is currently investing large sums of money in the production of optic fibres and has no intention of allowing potential competitors access to its networks. For the moment, the issue seems to be on hold and it looks as though the commission may postpone any decision until after July, when the German EU presidency will expire. But these sorts of conflicts are becoming increasingly common and illustrate how the theoretical claims of liberalisation are contradicted by the fact that a pure and competitive market is an unreal abstraction.With the diminution of public control the interests of the economic elites will prevail – with ever lessening opportunities for any democratic challenge.

The passage from public to private that has taken place in Europe has demonstrated the link between privatisation (of industries, infrastructure and public utilities) and the increasing influence of financial markets on the direction of the economy and society. In many European countries, privatisation has been directly linked to diffused shareholding and ‘popular capitalism’, whereby shares in what were public industries and services are sold on the financial market and bought up partly by private citizens but mostly by international investors such as insurance companies.

France is a good example. Here the government, after years of resisting privatisation, decided to go down the route of selling shares to the public. ‘With the same pretext of controlling the public sector, both left-wing and rightwing governments gave birth to a real transformation of public industries into industrial multinationals, with a growing quota of private capital,’ says Nicola Galepides, of France’s main telecoms union. ‘State industries like France Telecom or EDF-GDF have often bought up public companies in emerging countries,’ says Galepides, and their involvement globally will only increase with privatisation.

In France, it looks as though postal services will be the next target of the privatisers, with international couriers first in the firing line. ‘Since this is not a market in expansion,’ says Galepides, ‘what will suffer are the rights of workers and the quality of services available to the citizens.’

The Spanish government, too, has turned to the private sector. Here privatisation began in 1986, when both industrial and public service sectors were privatised.The INI (National Institute of Industry) sold Seat and Puralator to foreign private companies, while 38 per cent and 98 per cent respectively of two important state owned companies in the energy sector, Gesa and Endesa, were sold on the financial market. In recent waves of privatisation, banks, food production companies and tobacco industries have all had the same treatment.

One result of this process of putting what were state services onto the market is that the citizen is being turned into a consumer and small shareholder. The political implications of this need seriously to be discussed; it underlies many of the contradictions facing left-wing parties today. There is only one explanation for the propensity of erstwhile parties of the left to support privatisation: in rejecting their past these ex-socialist and ex-communist parties decided they wished to strike a deal with the new holders of financial power.

Democracy and public services

There are two recurring strategic questions.The first is how to define in judicial terms ‘services for the general interest’ and ‘services for the general economic interest’ (see box); the second is the question of participatory democracy.

In relation to the first, the literature is vast but at the EU level there is no agreement. Italian research, undertaken by the CIGL union federation, the Network of Municipalities, Attac Italia and Arci found that EU legislation involves ‘no awareness of the notion of public service’ but only acknowledges ‘services for the general economic interest’. One of the most urgent political tasks for opponents of privatisation in Europe, therefore, is to secure a clear and definitive directive on services for the general interest.

Democracy is another fundamental problem that needs to be addressed. Privatisation has gone hand in hand with ‘individualistic’ and authoritarian political ideologies. The EU is witnessing a disastrous lack of civic participation in its policy-making.This has been highlighted in research by Greenwich University’s Public Services International Research Unit, on behalf of the European Federation of Public Service Unions, that is highly critical of the official report of the European Commission on services and liberalisation.

The researchers point out that the commission report – which, after all, deals with issues crucial to all European citizens – was published only in English and was edited by a very small circle of people, who failed not only to involve civil society associations but also institutional representatives from other EU committees. In the paper,’Evaluating Network Services in Europe: a critique of the EC evaluation of the performance of network industries’ (available online at www.psiru.org/reports/2006-03-EU-EPNIcrit.doc), the author, David Hall, highlights ‘the need for an independent, participative, and democratic process: the European Commission should not provide the defence, jury and judge for its own policies’.

Bolkestein and the future

A major problem facing Europe at present is the Bolkestein directive on the liberalisation of services. It was the latest of a series of directives that flowed from the European single market. The earlier directives were aimed at specific sectors – telecoms, energy, rail transport, waste and postal services – and required all EU members states to commit to a deregulation timetable to open up public networks to private operators.

Bolkestein aimed at complete liberalisation of service industries, creating a common European market. The way the law was formulated meant an attack on workers rights because it enabled a company from any EU member state to recruit workers in other EU countries on the basis of less favourable employment laws in its own ‘country of origin’.

Europe-wide protests led to a compromise by which the countries-of-origin clause was dropped and certain services would be protected from the opening up of the market. How long will this compromise last? Who can rule out that, sometime in the future, a foreign company might lobby successfully to take over services in areas that are now protected? In the internal European market, what sectors will be excluded from the liberalisation process? All services, linked to all sorts of general interests, might eventually be liberalised, leaving the state solely with the responsibility of assisting the most vulnerable.

One of the next battle lines on liberalisation and privatisation is likely to concern the health service. In this context, it may be worth noting that the present EU health commissioner is the Cyprus-born Marhos Kyprianou. It is well known that Cyprus does not have a public health service.

Translation by Ilaria Perlini

The end of state monopoly has not translated into a competitive market. Instead it has produced private oligarchies and massive profits

There are two classifications of public services in Europe. The services directive (2006/123/EC) applies to ‘services of general interest’, which includes education, social protection, security, criminal justice and local government services such as refuse collection. Certain services were excluded from the directive, including healthcare services, social services, social housing and financial services. The directive is intended to liberalise the cross border supply of services, thus helping to create a common internal market. ‘Services of general economic interest’ are commercial services with public service obligations, such as energy, transport and communications.

The European Public Services Union (EPSU) and the Socialist Group in the European Parliament (PSE) are campaigning for a new EU legal framework on public services. The aim is to establish common public service principles; legal certainty and exemption for social services, health, water and education from competition regimes; and the right for local and regional authorities to provide in-house services. It will also establish an Observatory to promote cooperation, improve standards and monitor the impact of liberalisation.

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