Limiting Resources: Market-Led Reform and the Transformation of Public Goods

Introduction: Public Utility Reform: Problems and Perspectives

introduction: public utility reform: problems and perspectives Over the past twenty-five years, extensive programs designed to encourage private participation in the provision of public utilities have been implemented globally. In Latin America, where fiscal austerity and divestiture in state-run firms became a condition for access to development loans, privatization was particularly widespread. Citing problems of corruption and inefficiency in state-owned enterprises, economists and advisors in the region promoted market solutions, even in sensitive utility sectors: ‘‘In 1993, the World Bank approved policies that stressed the need for sound commercial practices, independent regulation, and extensive private sector participation in the energy sector. These policies extended to the power sector a process that had first begun with the oil and gas sector in 1983. . . . The orientation towards introducing competition and the private sector was extended to all infrastructure sectors after [1994]’’ (Albouy 1999). El Salvador was one country that took World Bank prescriptions to heart. The Salvadoran government ‘‘realized early on that without significantly changing the way the public sector operates; providing a credible framework; and involving increasingly the private sector in service provision , it [would] be difficult to maintain the high levels of growth needed to reduce wide spread poverty, particularly in the rural areas.’’1 A massive transfer of assets and activities from the state to the private sector, nongovernmental organizations, and local government occurred during the 1. World Bank, ‘‘World Bank Finances Modernization of El Salvador’s Public Sector,’’ press release, 3 September 1996. Quotation from Harold Fuhr, task manager, Technical Assistance Loan (the subject of the press release). 2 LIMITING RESOURCES 1990s. The international rating agency for private investment, Fitch New York, was so impressed by these structural reforms that it granted El Salvador high investment ratings but warned that ‘‘further privatization and prudent liability management [would] also be necessary to limit the deterioration of the government’s balance sheet.’’2 Despite the praise and guidance of international investors and economists , however, the promise of privatization and other forms of marketization fell short for ordinary Salvadorans. In rural sectors, rate increases following electricity privatization took a serious toll, with the additional burden of rising costs for energy-dependent services, such as deep-well water pumps. In poor sectors that consumed less electricity, rates increased up to 47 percent, while high-usage customers paid 24 percent more. Meanwhile, few improvements in service quality or coverage were evident in the years following privatization (Structural Adjustment Participatory Review International Network [SAPRIN] 2001). Labor groups expressed particular disaffection for the ‘‘impressive’’ gains made by privatization, mainly due to shifting social relations that left workers with little power: ‘‘Over the past two weeks, the Salvadoran Right-wing government fired [numerous] public sector workers , many of whom had over 20 years of service and the majority of whom were rank-and-file union members. . . . Salvadorans have been protesting in the streets and marching together with the demands that the government stop the firings, reinstate the workers, stop privatization of state owned services , and stop raising the cost of living.’’3 Accounts of early bank privatizations mirror this theme of shifting social relations by focusing on the elite side of the equation: ‘‘In El Salvador , privatization, implemented as it was without taking into account relationships of power, was used by [elite] groups . . . to appropriate for themselves most of the banks. . . . The outcome of these privatizations was different than anticipated because the country’s power relations were not understood or taken into account.’’4 A similar set of privatization policies —accompanied by similar shifts in social relations and patterns of resistance—was seen in other countries of the region. In May 2008, for example, more than a dozen people were injured in Sardinal, Costa Rica, by flying stones, sticks, and tear gas in clashes over the construction of a 2. Reported in Business Wire, 16 August 2001, www.businesswire.com. 3. Reported by the Committee in Solidarity with the People of El Salvador (CISPES), 15 January 2002, www.cispes.org. 4. Roberto Rubio, FUNDE (Fundación Nacional para el Desarrollo), El Salvador, in a report to the Structural Adjustment Participatory Review Initiative (SAPRI), http://www .worldbank.org/research/sapri/fgfmeth.htm. INTRODUCTION 3 privately financed and publicly built aqueduct.5 Water company representatives held that, although the government should have explained the project better to the community, the degree of unrest was not due to any genuine threat...