Fundamental to the
Nordic model of society
is a well-developed public
sector. But that is every-
where under attack by the
forces of neo-liberalism, as
explained in this speech to
an alternative ”people’s
conference” held in con-
nection with a summit
meeting of EU and
S.E.Asian countries
in September 2002.
TNCs & Democracy

Asbjørn Wahl, Co-ordinator
Norwegian Campaign for the Welfare State

Privatization and competitive tendering of public services have gained ground everywhere during the past two decades. Driven by strong economic interests and the neo-liberal offensive, there has been a massive transfer of assets from the public to the private sector. In addition to geographical expansion, encroachment on the public sector has become the most important way for many transnational corporations (TNCs) to capture new markets. That part of the economy which during the past century was removed from the market and made subject to democratic governance, is gradually being reduced in size and scope, to the advantage of big corporations.

The European Union's Maastricht Treaty created pressure for privatization in member-states by forcing them to comply with very strict ”convergence criteria”.

Privatization in the European Union

According to the OECD, assets of more than US$150 billion were transferred from the public to the private sector in 1997-- an increase of fifty percent from the previous year. A new world record was established in 1998: By the end of that year, Europe accounted for over half of all privatized assets in the world.

According to the EU’s own research institute, the European Foundation for the Improvement of Living and Working Conditions (the so-called Dublin Institute), three main factors have contributed to increased privatization in the European Union during the last fifteen years.

One was the general ideological pressure of neo-liberalism and its adherents. Another was the establishment of the Single Market, which resulted in a number of directives on deregulation starting in 1986; this created an institutional framework for and a political project of privatization. The third major factor was the Maastricht Treaty of 1992 which created pressure for privatization in member-states by forcing them to comply with very strict ”convergence criteria”, including a maximum budget deficit of three percent and a national debt no greater than 60 percent of gross national product.

Thus, liberalization of markets and fiscal constraints have been used as effective means to force privatization in the member-states.

Great Britain which, during Thatcher era played a leading role in the global neo-liberal “revolution”, was in the forefront of deregulation and privatization in Europe. At first, it privatized all state-owned manufacturing industries, then telecommunications (1984), public bus transport (1985), gas (1986), water and electricity (1990), railways (1996) and nuclear power (1997). This policy was continued under the New Labour/Old Policy government of Tony Blair. In tandem with privatization, many laws and regulations were abolished. Now, there are not many public utilities left to privatize.

There has also been widespread privatization in the health-care and social-service sectors. Prisons have been privatized and, in the municipal sector, more than half of all blue-collar work has been taken over by private companies.

In the third phase of privatization, which has just begun in Western Europe, the last remaining elements of the welfare state are being attacked by governments and corporate interests.
Three phases, three stages

The process of privatizing state assets typically involves three phases and three stages. The first phase is the privatization of state-owned manufacturing industries and financial institutions (banks and insurance companies). These are already integrated in competitive markets and, with the shift in policy from market interventionism to market liberalism, all the old arguments for keeping these branches under state-ownership vanished like dew in the morning sun.

The second phase involves the privatization of utilities, the core infrastructure of society. This includes energy, water, telecommunications, postal services and railways. Many EU countries are currently in the midst of this phase. This kind of privatization has provoked more heated debate and confrontation-- between trade unions and governments, in particular-- than the privatization of manufacturing industries. But since such policies have been pursued by all types of governments-- right-wing, centre and social democratic-- trade unions and other social movements have mainly been on the defensive.

The third phase of privatization has just begun in Western Europe. It includes sectors like health care, education, social services, pension schemes, etc. These are the last remaining elements of the welfare state, which are now being attacked by governments and corporate interests. The European Union is playing a key role in this process: Its requirements for the harmonization of social conditions, professional qualifications and social benefits in order to facilitate the free movement of labour between member-states, and thus the creation of a much more flexible workforce, are being used as arguments for the deregulation and subsequent privatization of the remaining public sectors.

Parallel with the three phases of privatization, there is an ongoing effort to transfer as many municipal services as possible to the private sector, primarily through the use of competitive tendering.

The three stages of privatization apply especially to public utilities. The first stage is deregulation of the market in question; every privatization process starts with the liberalization and deregulation of the market. The second stage is the transformation of public agencies into publicly-owned joint-stock companies. In the third and final stage, the state sells its stocks to private interests.

A common experience of many countries is that, at every successive stage, governments try to soothe the trade unions by promising that “we are going to go so far, but no further”. This is particularly true of social democratic governments, But experience has shown that such promises are usually no good for more than a couple of years, at most.

Some of the most expansive TNCs, many of them European, have based their growth on the take-over of public services. This is especially true in areas where competitive tendering is being used to open markets for transnational players.
The role of the TNCs

One of the most striking features of current developments in both the global and the European economies is the enormous concentration of power and resources in the hands of transnational corporations. At a very rapid rate, they are seizing control over a growing portion of the global economy. More and more gigantic corporations are being formed in the mega-merger wave that is currently engulfing every continent. Through the privatization process, they are taking possession of a rapidly growing portion of the public services in every corner of the world. Some of the most expansive TNCs, many of them European, have based their growth on the take-over of public services. This is especially true in areas where competitive tendering is being used to open markets for transnational players.

When the Swedish corporation, Linjebus, acquired a Norwegian bus company some years ago and was awarded a couple of contracts in public transport, when British Onyx Co. acquired the biggest Norwegian waste-management company, and when Danish Krüger Co. tried to take over a water-distribution company, it was not immediately clear to us that all of these companies were subsidiaries of one and the same multi-national– the France-based giant, Vivendi.

Vivendi is the largest private company in France. Some parts of the conglomerate have specialized in taking over public services in many sectors and in all parts of the world. It forms cartels and combinations in order to prevent and reduce competition all over the world. It is a giant in energy and water; it has extensive activities in Europe, in South and North America, in Asia and in Australia. It has grown from nothing to become the biggest public transport company in Europe, and it is also big in waste management, in construction and, more recently, in telecommunication, media and entertainment. It also controls the biggest private education institution in France, Educinvest, with 250 schools. The total number of Vivendi employees is about 340.000, and the conglomerate has experienced enormous growth during the past fifteen years-- that is until last spring, when its aggressive policy of acquisitions and high debt recoiled when the latest stock-market bubble burst.

In Europe, there are many indications that there will only be five or six major energy companies left within a few years.
Dividing the spoils

In many areas, markets are tacitly being divided up between big corporations. Water supply provides a good example. Two French companies are dominant on a global scale: Suez-Lyonnaise and Vivendi. They do encounter competition from four others; SAUR, Anglian Water, Thames Water/RWE and International Water. (Through mergers and acquisitions, the number was reduced from nine a few years ago). However, the six companies co-operate a great deal, both on and behind the scenes. When the water supply of a major city is privatized, two or three of them often establish combines and take over the entire operation; the alliances vary from city to city. It is fairly easy to imagine how fiercely they compete in one city, when they work together in the next!

It is the same with waste collection and management. Four companies dominate the European and world markets; Sita, Onyx, RWE and Rethman. The first two are subsidiaries of Suez-Lyonnaise and Vivendi, respectively. Five years ago, there were four additional companies: Fabricom, FCC, WMI and BFI. They offered real competition in the global marketplace; but they have all been devoured by the four giants, primarily Sita and Onyx.

The same development can be observed in the energy sector. In Europe, there are many indications that there will only be five or six major energy companies left within a few years. The German giant RWE will surely be one of them. Another may be Tractebel, owned by Suez-Lyonnaise. A third may be the new company which is now being developed by the French state monopoly EDF (Energi de France) in co-operation with Vivendi for the purpose of acquiring energy companies and win contracts outside of France.

The net result of the competitive-tendering system is not greater competition, but greater monopolization.
Eliminating the competition

One of the multi-national giants’ strategies is to underbid-- purposely submitting a bid that does not even cover the costs of providing the service in question-– in order to squeeze out competitors, in the belief that it will pay off in the future when a more or less monopolistic situation makes it possible to raise prices and increase profits.

The behaviour of Onyx in Great Britain during the mid-1990s illustrates this phenomenon. Onyx had been successful in winning a number of waste management contracts in southern England, but year after year had run up an enormous deficit. Unlike other companies in similar situations, however, Onyx did not go bankrupt. Every year, the company received a check from its parent company in France, which at that time was named Générale des Eaux (now Vivendi). Everybody knew very well what was going on: Onyx had submitted a number of underbids in order to get rid of competitors. Soon afterward, Onyx simply bought its main British competitor, further reducing the competition.

In short, the net result of the competitive-tendering system is not greater competition, but greater monopolization. In Great Britain an investigation in the mid-1990s found that five companies controlled more than 60 percent of all tendered contracts in waste management. There are even fewer now. The corresponding figure for the home-care sector was 65 per cent.

When competitive tendering was introduced for public transport in Sweden at the start of the 1990s, it took only six-seven years in order to restructure a branch with about 250-300 bus companies to the current situation in which three companies control more than two-thirds of the market. Two of the companies, Swebus and Linjebus (now Connex), were rapidly taken over by multi-nationals.

These are not exceptions. They illustrate what usually happens when a segment of the public sector is made subject to competitive tendering. It has happened again and again, in country after country. The only ones who do not seem to notice this development are the advocates of privatization and competitive tendering. They routinely deny that this very well-documented process is taking place. Negative experiences-- and there are a lot of them-- do not have any influence whatsoever on their policies and decisions.

The recent shift in EU policy will lead to further privatization and redistribution of power from democratically elected officials to market forces and transnational corporations.

Even supporters of competitive tendering in Great Britain concluded that it was an unsuccessful policy. Now the European Commission has adopted the same failed policy.
Recent attack

I will conclude by drawing your attention to one of the most recent attacks on public services in the European Union. About two years ago, the European Commission proposed a ”Regulation concerning public service requirements and the award of public service contracts in passenger transport by rail, road and inland waterways (COM[2000]7).” This regulation advocates a policy of compulsory competitive tendering in public transport.

This is a major shift in EU policy. It breaches the subsidiary principle, i.e. that decisions should be made at the lowest possible level by those who are directly concerned. It thus represents a serious threat to local democracy, hindering national, regional and local authorities from developing alternative systems to strengthen and improve public transport. It will lead to further privatization and redistribution of power from democratically elected officials to market forces and transnational corporations.

The European Commission argues for the ”necessity” of introducing compulsory tendering in public transport in a way that will eventually apply to any public service which has been opened to competition from TNCs in at least some of the EU member-states. This is now the case with most public services. Should the Commission succeed in introducing compulsory tendering in public transport, the same kind of attacks could be expected on a number of other public services, such as water and gas supply, electricity, waste collection, health-care and social services, education, etc. In other words, the proposed regulation is a privatization trap.

Today, EU member-states and local authorities have organized their public transport in different ways. With compulsory tendering in force, regional and local authorities will be deprived of the right to decide how to organize public transport; a policy of privatization will be imposed upon them. Most likely, this is the intent of the proposal. It is no secret that the European Commission has long been impatient with and irritated by what it considers to be the too-slow pace of privatization-- especially at the local level, where politicians are closer to the people who elect them and must therefore take into account the lack of popular support for privatization.

Thus far, compulsory tendering for public services has only been tried in Great Britain during the reigns of Margaret Thatcher and John Major. Under their governments the British Parliament introduced compulsory tendering in municipal services-– first with regard to blue-collar work, then later to white-collar work. Even supporters of competitive tendering concluded that it was an unsuccessful policy, and the system was abolished shortly after the electoral defeat of the Tories in 1996. Now the European Commission has adopted the same failed policy.

The proposal is currently in the rather complex decision-making process involving both the European Parliament and the Commission. Even if opposition is strong in some countries, most politicians at the local level hardly know anything about this proposal. Among those who are informed, many do not see the privatization trap which the proposal represents for all kinds of public services.

In the long run,
we will have to build
broad national alliances against these policies, a process that has already begun in Norway.
Organize resistance

It is important to stop proposals like this one from the European Commission. We should therefore organize resistance, mobilize trade unions and other social movements, local politicians and municipalities and put pressure on the governments. It is true that national governments usually try to avoid their responsibility for EU policies. However, the final political decisions at the EU level are made by the Council of Ministers, which consists of representatives of all national governments. We should make them accountable for the neo-liberal policies they have been pursuing, regardless of their governments’ political colour.

In the longer run, we will have to build broad national alliances against these policies. In Norway we have organized the Campaign for the Welfare State which includes trade unions in both the private and public sectors, as well as organizations representing women, students, pensioners, small farmers, users of welfare services, etc. It is not yet a massive popular movement, but we have established a political, social and organizational infrastructure based on the broad alliance which is necessary if we are to stop the policy of privatization and make another world possible.

In his book, Public Services or Corporate Welfare, British expert Dexter Whitfield notes that, “Privatization is more than asset-stripping the public sector. It is a comprehensive strategy for permanently restructuring the welfare state and public services in the interest of capital.”

Well said! Organize and fight: People against the corporate take-over of our general-welfare states!

— Address to ASEM4People Workshop  
Copenhagen, 21 September 2002  
Revised 1 October 2002