And here’s another thought… By William Bowles

24 October 2003

Although the Labour government denies that the takeover of the privatised rail maintenance contracts by the government-owned Network Rail is re-nationalisation, it admits that the reason is the vast savings that will be realised as a result, something like 25% of the current cost. It’s also got to do with the complete balls-up the various contractors have made of the job by virtue of the incredible complexity of integrating sub-contractors and sub-sub-contractors. Most of the major contractors are essentially investment corporations with neither the skills nor the infrastructure to do the work themselves (more ‘hollow’ corporations that I referred to in a previous essay).

And a series of crashes directly connected to maintenance has undermined rail travelers confidence in the system, which has been added to by the recent crashes on the Tube, also the ‘beneficiary’ of public-private partnerships, some of whom are the same companies that have been ‘maintaining’ the national rail network.

Now I thought publicly owned companies were intrinsically ‘inefficient’, bureaucratic and stunted all the inbuilt desires of people’s self-interest to better themselves. Okay, the initial Tory privatisation was motivated in part by its ideological agenda, but just as with the current mania for privatising everything, ultimately it’s got to do with lining the pockets of the government’s corporate pals.

When British Rail was privatised, contracts were cost-plus, a virtual license to print your own money and yet at the same time the government continued to dish out vast subsidies totaling billions of pounds a year. After years of neglect, the rail system was a complete shambles in need of a complete overhaul and private capital had no intention of making the necessary investment without state support. It would be decades, if at all before investors saw a return.

Is there a lesson here? You bet there is. It’s not just about saving money or even safety, as important as they are, but that the idea of publicly owned resources, long derided by the corporate propagandists reflects an ethic, a principle that publicly owned utilities are there for the benefit of the public. After all, it’s the public, you and me, who use them.

There is moreover, the question of how one measures cost and profit. Traditionally, no economy, socialist or capitalist, has priced the cost of nature, it’s been considered ‘free’. This is clearly no longer a tenable policy, it is after all the basis of a sustainable approach to development. Hence many of the costs of privatising are not paid for by the manufacturer but by nature and of course, by us. We are, after all, a part of nature.

Structural disadjustment
In the context of the current onslaught on the poor of the world via the IMF’s ‘structural adjustment’ programme, the essence of which is massive cuts in public spending on basic services and the privatisation of publicly owned resources, in ‘exchange’ for access to yet more loans, aside form the sheer immorality of the programme, there is an even more fundamental issue involved.

Virtually all of the major infrastructure of the developed world, roads, public transport, electricity, water, telecommunications, public housing, hospitals, schools, waste disposal, were paid for out of the public purse, the major reason being that there was no incentive in the short to medium term for private enterprise to invest when the ‘payoff’ might not come for decades. Let the public pick up the cost through taxes. And even in the US where much of this infrastructure has been built and owned by private enterprise, the state gave massive subsidies and tax breaks to the corporations involved.

The point here is that whilst the developed world has had decades to develop basic infrastructure – largely at public expense – to the point whereby it became profitable to sell it off under the guise of ‘inefficiency’ or through lack of continued state investment, the poor countries of the world are still trying to build the basics and do it without being subsidised by unequal trade agreements, and the surplus wealth that the developed world ripped off from the poor world in the first place.

Telecommunications — a textbook example
Telecommunications is a case in point for not only did it require massive investment in physical infrastructure, millions of miles of copper cable and thousands of telephone exchanges, it required a highly skilled workforce to build and maintain it.

Most developing countries, especially in Africa inherited telecoms ‘networks’ that serviced only the urban elites; the colonial administrators and the foreign corporations that were extracting raw materials. As the majority of the population were the rural poor, subsistence farmers, connecting them to the telecommunications network was neither affordable by the newly independent countries nor were the rural populations able to pay for the service.

The IT revolution changed the equation entirely and again, without massive state investment and/or subsidies, the IT revolution would not have taken off either. But the major effect was to change the scale and cost of production. No longer did it require decades of investment in physical infrastructure, the way was now open for private investors to get in on the act. Inventions such as microwave relays and then satellite followed by wireless, meant that no longer did you have lay hundreds or even thousands of miles of copper cable and then maintain it.

But most developing countries were still saddled with copper networks that were expensive to maintain and above all, obsolete. Yet even in the case of a country like South Africa with a fairly well developed telecoms sector, the state owned telephone network, Telcom, with an investment (read debt) of some R66 billion in its existing wired network, feared that allowing in cellular, satellite and VOIP (Voice Over Internet Protocol) would threaten its investment and that it would not be able to compete pricewise with the new systems. It partially solved the problem by using its monopoly position to invest in one of the three cellular networks (Vodacom) and at the same time form a price-fixing cartel with the major private network MTN in order to rapidly recoup its investment by gouging its customers.

But virtually all African countries are not in this position. If they want to join the ‘IT Revolution’ they have either to allow in foreign private investment to compete with the existing copper networks or sell-off state owned assets or both. Far from bridging the ‘digital divide’ the current policies of the World Bank and the IMF widen the gulf between rich and poor nations.

It’s all very well that the governments and media of the developed world rabbit on about how ‘inefficient’ and ‘corrupt’ developing countries are, and how they need the ‘benefit’ of a ‘short, sharp, shock’, but the reality is that developed world has had a convenient lapse of memory concerning how it got to be where it is and who paid for it. It’s a case of ‘Don’t do as I do, but do as I say!’


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