July 15, 2002	Monday	Jamadi-ul-Awwal 4, 1423

During the last two decades of the previous century, there has been a shift in state-controlled politico-economic management paradigm, which is leading to a progressively liberalist and free market reform creed.

Consequently, the role of the state is increasingly minimized in public sectors hitherto under state jurisdiction, which were owned, controlled or managed by it. Thus, nationalized industries, public utilities, state-owned companies, land and other asset, are being progressively disposed of, and the role of the private sector is being enhanced in them. All this is generally referred to as privatization, which includes a number of policies like divestiture, disinvestment, denationalization and deregulation.

The discourse on privatization has been surrounded by debates and controversies because of its social costs.

Access to basic services by the citizens who may not be able to pay for them constitutes the most critical social cost of privatization. Equity and access issues are directly related to the concept of ‘universal access to basic services’ or ‘universal services’, which are defined as services indispensable to people, including the aged and the disabled. (The provision of certain goods and services is regarded to be the responsibility of the state, and all citizens have the right to their access, whether they live in isolated or depopulated areas.) The scope of universal services is defined according to penetration rates, number of users and social norms. Goods and services like clean water, basic health services, essential food items essential for human sustenance, are included in it. However, some contend that electricity, gas, telecommunications, etc. also constitute these basic universal services. In short, the scope of these universal services is defined keeping in view the specific spatial context, and hence, it varies from place to place.

In fact, a state is considered the custodian of the rights of its citizens and responsible to provide essential goods and services required to ensure the survival of the poor and the marginalized. But when certain goods and services are privatized, the private or corporate enterprises may or may not be mindful or sensitive to the issue of equity and access. It is feared that in order to maximize the returns, the private companies may not care for the poor, dispossessed and the marginalized sections of the society, who might need the services but could not afford them. The problem aggravates if the state structures are not well in place or lack capacity to deliver in the wake of privatization. The case of water privatization in Ghana presents an appropriate example of this. In 1988, after privatization, Ghana Water and Sewerage Corporation ordered to remove the handles from the water pumps installed in the villages, as the people were unable to pay new water tariffs imposed under an IMF structural adjustment programme. Consequently, the villagers started resorting to other polluted and contaminated sources of water. In case of Britain, when water was privatized and its tariffs were increased many times, water connections of thousands of non-paying consumers were cut off. Moreover, it has been observed that the private enterprises or service providers have ignored unprofitable areas, being less viable in financial terms. Therefore, services to remote and unprofitable areas have been shut down or cutback in some instances. For instance, after liberalization of airlines in the US, some airline companies stopped their services to remote areas, which caused great inconvenience to their residents.

The issue of access and equity is inextricably linked to the regulation of privatized goods and services by the state. After privatization, the government assumes the responsibility of regulating the privatized sector, which is done through a variety of institutional arrangements including regulatory bodies and frameworks. These regulatory bodies, being quasi-judicial entities, regulate the functioning and performance of the privatized sectors, and try to strike a balance among the interests of the consumers of goods and services, corporate and commercial enterprises and the government. In the absence of effective regulatory mechanisms, the people may become vulnerable to the whims of the private concern, and confront a host of problems.

The task of regulation, however, becomes more challenging in case of natural monopolies, about which it is said that as the number of users increases, the cost per user decreases. In such cases, it is economical to have a single supplier. This is true of public utilities such as electric power, gas, and water supply. However, many goods and services, which were hitherto regarded as natural monopolies, are no longer so.

Since in natural monopolies, a single private company exclusively controls and manages the whole sector, effective system of regulation is needed to prevent the abuse of private monopoly powers, particularly relating to tariff and pricing, since in case of multiple suppliers, there is relatively less need for price control by the state. In this regard, the experience of water privatization in the United Kingdom is an example in point. In 1989, the British government privatized water boards, which were sold as local monopolies despite considerable opposition from various quarters. However, the privatized water sector could not perform well.

It would also be pertinent to cite the case of California Energy Crisis and the role of government regulation in it. In California, the state’s electricity market was deregulated in 1996, and electricity rates were frozen for most of the utility consumers for a specific period. When the rate freeze came to an end, and 3 million power consumers began to pay market rates in July 1999, the monthly bills for domestic users soared from an average of $50 to $120 within a year. Ultimately, the Legislature had to intervene and price caps were imposed. But the utilities, which could not pass the charges to consumers, amassed debts of $14 billion. The energy providers, fearful of not being paid by the utilities, began holding back powers in early 2001, which resulted in rolling blackouts on at least four occasions, causing a damage of millions of dollars to businesses. Again the State intervened by purchasing power for the utilities at a cost of $45 million a day. It can be safely inferred from this example that if necessary, the state institutions including the Legislature and Judiciary may intervene in cases of adjudication or settlements of disputes, or even if the consumers are excessively taxed.

The questions of access and equity, and regulation are related to the issue of pricing and tariffs. In many southern countries, the state monopolies are often being replaced by private monopolies or oligopolies, since there are not enough suppliers to permit a healthy competition. The consumers are thus subjected to arbitrary price increases. Moreover, the private companies are applying full-cost pricing policies. Another contributing factor in the soaring prices is that the cost of surveillance and monitoring of the privatized and deregulated services are also included in the consumer prices.

People generally expect a decrease in billing of goods and services after privatization, and in some cases, it has actually happened. For instance, after privatization of electricity in the UK, the consumers are paying the lowest electricity charges in Europe. However, such examples do not abound in numbers, and there are a host of complaints of over-billing or excessive tariffs of privatized goods and services. For instance, as a result of privatization of municipal water services in many cases, customer rates of water have doubled or tripled, whereas corporate profits have risen to 700 per cent. In Bolivia, for example, the water prices were immediately doubled in 1999 after privatization of public water system. The case of privatization of Britain’s water services presents an unusual example, perhaps unparalleled in some respects. After water privatization, the prices skyrocketed up to 450 per cent in some cases, with an average increase of about 67 per cent. Similarly, the water consumers in French cities having privatized water services are paying 30 per cent more than public water users. Thus, pricing policies of the commercial and corporate interests regarding privatized goods and services need to be effectively monitored by the government.

Transparency, accountability and public participation in regulation processes can partially address the problems of ineffective regulation and over-pricing. The regulation processes and decision-making regarding privatization policies ought to be transparent to ensure maximum accountability. Furthermore, regulators must ensure citizens’ involvement in these processes. The citizens and consumers have to be engaged in an informed debate, particularly in public hearings of regulatory bodies for tariff determination. Again, critics contend that public participation is largely missing, or at least not encouraged. In a privatized economy, there is a dire need for evolving an institutional framework for ensuring transparency, accountability and public participation at large. Other related concerns include effective institutional mechanisms for public complaint redress, imposition of penalties on private companies for malpractices and compensation for all categories of consumers for any harm done to them, and consumer-friendly policies in general.

In addition, the social cost of laying-off labour or workforce is also not negligible. In order to make subsidized, ailing and non-profitable state-owned enterprises profitable and financially viable for privatization, redundant workforce is generally laid off. For instance, before the privatization of British Steel 35 per cent of its workers were shed within a few years. Similarly, in Turkey, the Meat and Fish Corporation, which employed 250,000 employees, reduced the number to 100,000 after privatization. Thus, despite placating measures of the government like generous offers in shares of companies and golden hand shake schemes for the labour, privatization for the people generally means loss of jobs.

These social costs of privatization policies need to be taken into account before going ahead with them since these discontents arising out of privatization policies may lead to conflictual situations at various levels.