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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Location: Northwest Arkansas, United States

Tuesday, March 29, 2005

Public Services, "Privatized" and Mutualized

Larry Gambone has a couple of good posts on the organization of public services at the Porcupine Blog. In the first, "Why Privatization and Deregulation Haven't Worked," he writes:
The central concern of any corporation is to make a profit. Anything which interferes with this profit making is eliminated. When this rule is applied to services, most particularly those 'natural monopolies' like electricity, water, rail transport, and 'human services' like hospitals, the results can be highly negative. Profitable, 'high traffic' areas are serviced, while less profitable are not. The wealthy get health care, the poor remain sick. In the old days, rural areas were not electrified because it cost too much. City districts with a lower population were not served with tram ways because it wasn't profitable.
I confess to some reservations about this complaint. Ultimately, services should be paid for by those using them, and the price should reflect the cost of providing them. Of course, that's leaving aside near-term expedients for dealing with the unjust distribution of wealth, which results from government intervention on behalf of the privileged owning classes. But ideally, in an economy where labor keeps its full product and no economic exploitation takes place, people should not receive subsidized services that they aren't willing to pay for at the full cost. The cost of providing electricity and water to rural areas may be so high that, when the cost is internalized in price, people in those areas find wells, cisterns, solar and wind power, etc., to be more cost-effective.

Of course, violations of the cost principle more often benefit the well-to-do at everyone else's expense. Many comfortable middle-class people live in outlying areas and engage in costly behavior precisely because the government has been providing subsidized utilities. (This is comparable to the yuppie practice of building those beach front houses that keep going down in mudslides, because the government bears the cost of insurance) One of the main forces behind sprawl is the provision of below-cost utilities to new suburban housing developments and big-box stores, at the expense of homeowners and businesses in older downtown neighborhoods.

And, as Larry points out, privatized utilities violate the cost principle more than they honor it. Ordinary residential rate-payers pay higher bills to compensate for provision of cheap services to industry.
Then, the corporation has a debt, the amount it had to pay to the city for the water works. To pay for this debt, employees are fired and rates increased. Since the industrial users are charged low rates, the people least able to afford the increases, small business and home owners, will pay the balk of increased costs. The consumer and the worker end up paying for the purchase.
On the whole, I think the provision of below-cost services by government-owned utilities has been a powerful force for promoting our dependence on "hard energy" distributed through centralized grids, and impeding the adoption of decentralized forms of appropriate technology or intermediate technology.

Larry is 100% correct that the real motive behind "privatization" has nothing to do with genuine free market principles. It's just another example of the old game of "public assets, private profits":
Rail, public transit, electricity generation, water and sewage treatment represent hundreds of billions of dollars of tax payer money invested over the last 90 years. To this figure must be added lands expropriated or given as gifts to build dams and railroads. Privatization hands all this wealth - that we tax payers in theory own - to corporations at a cut rate, for if they were sold at their true cost, no one would buy them.

The policy of deregulation and privatization was never designed to improve services, it was designed to loot.
Amen! This was pretty much the finding of a recent study of water "privatization." In many cases, the government had to spend even more money upgrading facilities, before "private" corporations would find it worthwhile to purchase them. In effect, the taxpayers have paid the corporations to take public assets off their hands.
Instead of encouraging investment, privatisation has left governments offering increased concessions to entice investors to acquire their assets– often to meet the requirements of donors. For example, between 1991 and 1998 the Brazilian Government made some US$85 billion through the sale of state run enterprises. However, over the same period, it spent US$87 billion ‘preparing’ the companies for privatisation.

Rather than being a major source of finance, private contractors are committing little of their own capital and are instead looking to municipalities, central government or donor governments/institutions to provide the money....

In fact, in many cases foreign companies are relying on the donor community to bail them out when they get it wrong.
Larry concludes his post with a call for expropriating "privatized" services (without compensation), and placing them under a system of cooperative governance with day-to-day management carried out by the workforce's representatives, and strategic control divided between representatives of the labor force, consumers, and community.

In his second post on a similar theme, "All Power to the Bureaucrats," he writes specifically about the government-owned super-hospitals being built in the Montreal area.
Doctors, trade unions, Medicins sans frontieres are all opposed. These projects result from bureaucratic empire-building, and are not derived from any real need.

The mega-hospitals will centralize the power of the health care bureaucracy even more than it already is. And as someone who works in health care, I can tell you that they have enough trouble running the system now.
Hospitals, he writes, are an ideal candidate for mutualization:
Ironically, hospitals would be an ideal place for introducing worker-self management. They are not owned by a corporation, and supposedly belong to the community. They have a highly educated staff. A council composed of nurses, doctors, technical, trade and support staff, elected by mass meetings of the groups concerned would be the best form of management. For sure such a group would not come up with a crack pot idea like a mega hospital!


Blogger Harlequin said...

One specific note to your reservations about Gambone's plaint, in the first part of the piece, about how high-profit sectors of a privatized industry get all the attention, low-profit sectors get none.

You state that people should properly pay for exactly what they receive. However, with many things of this sort, part of what they receive is long-term benefits on the community scale (social capital is, I believe, the mot de vogue). This is rarely apparent up-front, but if accounted for can render your objection somewhat moot... a true-cost/true-benefit analysis which includes the enlargement of your own trade circle.

It's much the same as the way in which European welfare states have been more successful at promoting the middle class - which I would identify here as workers who are receiving somewhere close to the fruits of their labour, neither vastly more nor vastly less - than the U.S. has. (Sorry, no direct hard evidence link handy, will search out on request.)

Thus paying a premium on your own high-profile services at (for instance) a hospital, deliberately, so as to help subsidize (say) preventative medecine for others who wouldn't be able to afford it without your assistance... may in fact be a wise choice. Certainly I would contend that the evidence available suggests that this is to some degree the case.

Paying for what you receive may include paying for social stability... preventative medicine for poverty and its attendant ills.

- Eric Finley

March 29, 2005 5:39 PM  
Blogger Kevin Carson said...

You have a point, Eric. I suppose it's possible that the members of a completely self-financed water or electric cooperative might see it in their self-interest to extend services to those who can't afford them. They might even find the psychic returns alone sufficient to justify it. If there is no coercion from outside, and it's entirely the policy of the owner-members, I have no problem with it.

Just as a seat of the pants thing, though, I'd guess that things would be run a lot closer to the cost ideal than at present, without a state to impose redistribution. For one thing, the state's current redistribution in favor of the wealthy would definitely go--or at least you'd think so, unless people are really gullible.

I can imagine voluntary ways of distributing risk or cost over the lifetime of an individual, as well. For example, letting low-income people into a health care co-op for a premium that's below cost, in return for being locked into a lifetime contract to keep paying the same percentage of their income even if that income increases. Or distributing education costs beyond the families with kids currently in school, by allowing young childless people to sign a lifetime contract for a very small premium, on the understanding that if they do have kids the education costs will be covered with no increase in the premium.

It's conceivable that some "redistribution" might be accomplished through the same voluntary, contractual pooling of risk that insurance is based on.

March 29, 2005 10:20 PM  
Anonymous Anonymous said...

Auctioning off taxpayer-purchased assets is awful. It amounts to stealing money from the poor to sell to the rich. It would be significantly better just to turn the ownership of state enterprises over to the workers and then getting out of the way of the market.

Nevertheless, privatisation has gone well in many countries: Ireland, New Zealand, Eastern Europe, and the former Soviet nations have all done well with privatisation. Even a lousy set-up adjusts and improves quickly in the presence of market forces.

- Josh

March 30, 2005 5:09 AM  
Blogger Bill said...

Actually, the success of privatisation tends to be in two directions:
1) Presentation. State monopolies didn't market very well - I remember the newly privatised utilities over here suddenly turning all glosy and 'customer focussed' back in the eighties.
2) asset stripping. The true sin of nationalised industry is that the marketable value of its assets compared with its profits tend to be too high - there is no merger/bankrupcy mechanism to adjust this. When firms get privatised it's often hugely profitable to just sell off capital assets and pare back the service rather than concentrate on users needs. Over here, former British rail firms made most of their early dividends payouts from land sales, not service improvements. The land was idle but not harming the service. They also cut the staff back, which left them prone to the massive pay demands of the few remaining drivers - they did well...

March 30, 2005 6:13 AM  
Blogger Kevin Carson said...


I think a good analogy is selling a car for a tiny fraction of its value, while you're still making payments on the original sticker price.


Thanks for providing that information on asset stripping. As for the RRs selling off land, that's interesting given that the main purpose of the RR land grants in this country was not to provide rights of way for the actual track, but to give the RRs real estate along the general route that they could auction off to settlers and make big $$.

March 30, 2005 9:44 AM  
Anonymous Anonymous said...

Josh-- in "former Soviet states" do you include Russia? If so, I'd question your claim that privatization has "gone well" there.

On that score, note that in the early post-Soviet years Russia experimented with a sort of privatization by citizen's dividend: people were given vouchers that theoretically made them shareholders in the formerly state-owned enterprises. In principle, this could have been a very good idea, a way of ensuring that ordinary citizens actually got a piece of these common assets. In practice, IIRC, it was a complete failure, because

(a) the vouchers were not for specific enterprises but for a general basket of all the former SOEs, making it difficult for people to gauge what they actually owned or exercise any control

(b) the ownership was more theoretical than real, partly because the Russian government then as now consisted almost entirely of liars, thieves, and drunken incompetents

(c) many voucher recipients, unfamiliar with capitalist investing, were fleeced by fraudulent investment schemes (I remember seeing, on TV in Krasnodar in the fall of 1993, a bunch of commercials for MMM Invest with the tag line "Turn your voucher into gold!"; MMM Invest turned out to be a Ponzi scheme)

--Nick Weininger

March 30, 2005 9:58 AM  
Anonymous Anonymous said...

i'm not really sure what hospitals the gentleman is referring to...many are run privately, either independently by trustee boards or by healthcare corporations.

April 01, 2005 12:50 PM  
Blogger Kevin Carson said...


He's referring to the government-owned hospitals in Quebec, and arguing that worker self-management would be preferable to government management.

April 01, 2005 4:24 PM  

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