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Selling Life: From Johannesburg to New Jersey

Barbara Garson
Date Published: 
February 14, 2003

I read that 87 people had been arrested in Johannesburg, South Africa for demonstrating against electricity and water privatization. As it happens, my mutual fund (the one I wrote about in Money Makes the World Go Around) has shares in Suez, the private French water company that now owns Johannesburg’s water.

Some of the Johannesburg protesters had had their water cut off for non-payment by my water company. When the public water authority in northern KwaZulu-Natal levied new water fees, many families were similarly cut off and started taking water from the river. The result was a cholera epidemic with thousands ill and hundreds dead.

One reason the Kwazulu-Natal water board imposed those full cost fees and determined to collect them or cut people off was to make their water system attractive like Johannesburg’s to a buyer. After all, a private company like Suez can’t supply water, or anything else, unless it can collect the full cost for the service plus a bit more for me (the investor). For instance, Suez’s contract to manage the water system of Santiago, Chile guarantees us a 33% profit margin. As an increasingly uncomfortable investor, I decided to demonstrate at the South African consulate on the day the 87 arrestees went to trial.

Fighting global capital is one thing: fighting August in Manhattan is another. It was a small demonstration—25 people including the two reporters—and so tame that the four police officers assigned to us left early. Yet two things I learned, one in the planning, the other inside the South African Consulate truly surprised me.

Global reach

At a meeting where I recruited for the demonstration, someone from New Jersey asked if the water company involved was by any chance Suez-Lyonnaise. It turns out that Suez (it dropped the Lyonniase from its name) owns the water system of Bergen County, New Jersey! People there are upset because Suez is selling the water system’s preserve land to developers.

I had no idea that water privatization in the US had gone so far. Bergen County’s water had actually been privatized in the early 1990s. In 2000, French-based Suez bought the much smaller US based United Water Resources Co. and acquired Bergen County in the deal. A Suez representative explained to me that they would go on using the name “United” because it was a long-established American company and people don’t like to feel that their water is owned by foreigners. (I guess that’s why we call ourselves “Johannesburg Water” in South Africa.) Under whatever name, Suez currently supplies water to 8.5 million people in the US and Canada and operates water systems in 17 of the United States. That’s why some of the signs at our demonstration read: “STOP WATER PRIVATIZATION IN SOUTH AFRICA AND NEW JERSEY.”

Till I heard about Bergen County, I’d worried about water privatization in terms of the distribution of that precious necessity. When a water system is privatized, companies like Suez bid for (or bribe for) the exclusive mandate to sell water in an area. I suppose I’d vaguely understood that they also buy the pipes, the filtration plant, and related real estate. But I hadn’t fully appreciated that a private purchaser gets to own all the water and all the land in the aquifer and reservoir systems.

In some cases—Cochabamba, Bolivia for one—the private owners stopped people from drawing water from wells on their own land because the sale gave the company the exclusive right to distribute all the water in the region.

In other cases, counties sold their water systems only to find that the new owners were shipping the water out of area. The world’s leading water companies, Vivendi and Suez also sell most of the world’s bottled water under a variety of brand names. As good water becomes scarce, and as world incomes become more unequal, it becomes increasingly profitable to sell water to far away rich people and decreasingly profitable to hook up taps for poor local residents.

In addition to the water and the pipes, privatization contracts transfer other assorted assets that may have been settled on the public authority. In Bergen County, that included land that had been set aside years earlier as a preserve. Over the years, considerable property has been quietly stashed away in public entities that no one in the past imagined would ever be “saleable.”

At the time that my mutual fund bought shares in Suez, it also bought into the privatizing British Railways. The fund’s analyst who spotted the deal, a curly-haired young railroad buff, came to the next shareholders meeting with a toy box full of the wonderful surprises he’d found inside. It seems the railroads were the largest landowners in Britain. (Queen Elizabeth came second.)

As a result of purchasing the railroads, our fund now owned oodles of valuable urban real estate around almost every RR station in England. Even if the railroads were to be re-nationalized the analyst told us—as the tracks eventually were because of all the train crashes that followed privatization—we’d get to keep the money made from selling off those properties.

As stagnating First World companies grow desperate to meet Wall Street’s earnings projections, their “investment” strategy is less and less about running and developing an enterprise and more and more about immediate cash flow and asset stripping.

Public good

To well-meaning leaders of “underdeveloped” (as we used to call them) nations, the most compelling argument for privatization is that a transnational corporations (TNCs) has more money than your treasury. You may not like that fact, but you want to bring water and electricity to your people and the TNCs have, or can borrow, the money to lay the pipes and cables.

But will they do it? A transnational executive would be betraying his shareholders if he spent even a penny of the company’s own or borrowed money extending water pipes into neighborhoods where people are too poor to pay back the costs. If your citizens can’t afford full cost plus profit, and if your treasury is poorer than the company you’re bargaining with, then no matter what you put in the contract, you can’t compel a TNC to act for the public good.

There’s only one constituency to whom corporate executives are legally obliged to tell the truth and to keep their promises. Executives don’t go to jail for promising workers that they’ll keep their jobs when, in fact, they mean to fire them. Executives don’t go to jail for saying they’ll open branches or water taps in poor neighborhoods when, in fact, they mean to close them. It was lying to shareholders that got Enron executives into trouble.

At one time some government officials must honestly have believed that selling their public utilities to private companies would mean capital investment and efficient management. By now that hope has been disappointed in rich and poor countries alike.

That brings me to the surprise I found inside the South African consulate. Despite the experiences of the rest of the world, the ANC government sincerely believes that privatization is the best way to develop their country. That’s certainly the impression I came away with when our delegation presented our petition to Ivan Vosloo, South African Consul-General.

First let me say, that our petition and delegation were polite and respectful. Some of us, myself included, had been arrested sitting in at the old apartheid South African consulate. This time we were there, not in the spirit of “Shut it down!” but with concern that the country work. The petition’s signers, the New York Direct Action Network (DAN), the Westside local of the Green Party of New York, and the New York News and Letter Committee asked the South African government to drop charges against the 87 and to stop handing public utilities over to private companies.

It was partly out of politeness that our petition went on to say: “We recognize that powerful foreign governments, international corporations, and institutions like the International Monetary Fund pressure nations to privatize their valuable resources and to charge all users full price for utilities. Their arguments and threats may have been difficult to resist when the ANC first came to power.”

In fact, Suez is more famous for its bribes than its threats. In France, the Mayor of Grenoble and a high Suez executive both went to jail for the bribe that gave the city’s water contract to Suez. Unfortunately, it took the citizens another two years of legal struggle to break the disgraceful contract. And Grenoble’s exposure has no effect on the contract for Paris about which independent auditors have said the “true profit margin is two and a half times the official reported figure.”

Our petition to the South African government politely suggested pressure as opposed to payoffs as an explanation for their privatization policy. But Ivan Vosloo wasn’t looking for excuses. The South African Government had no IMF or World Bank loans that put them under any obligation to privatize, he reminded us. They were doing so in order to develop the country. Their constitution guaranteed water and their contracts with private companies included social provisions for adding new taps. They also had a policy of requiring that free water be supplied to the poorest people.

Drop in the bucket

It sounded pretty good except that I happen to know that the free water was the proverbial “drop in the bucket.” More important, the South African government, under no IMF pressure, as Vosloo reminded us, has adopted the IMF-World Bank policy of full-cost recovery for electricity and water. That means that the Northern KwaZulu-Natal water system like all the others must fully pay for itself. So if it’s required to give away a certain amount of water for free, others in the poor region must pay higher prices.

Under the full cost return policy there are to be no subsidies from the general coffers nor even from richer neighborhoods to poorer. As a result, people in Soweto pay significantly more per kilowatt-hour for electricity than people in the wealthy community of Sandton where the 87 were arrested picketing in front of the mayor’s house. It costs more to bring electricity to a slum.

Probably because I knew a bit about water, Mr. Vosloo moved on to telecommunications, where, private companies operating under government supervision are rapidly connecting remote parts of the country, he told us.

It occurred to me in passing that his phone facts might be just as open to interpretation as his water facts. Still, I’m prepared to believe that a private utility can sometimes do as well as a public utility, especially at providing a new optional service like cell phones as opposed to an absolute necessity like potable water. To me, it’s a practical question to be examined case by case.

Not so to Vosloo, who moved from water to electricity to telephones and finally informed us that nowhere, “at no time in all the history of the world” (he pointed back over his shoulder perhaps toward ancient Mesopotamia), had public enterprise been as beneficial as private. A member of our delegation rose to give various examples, starting with the TVA which still provides the cheapest electricity in the United States, but she saw that it was useless.

I consider myself a socialist. Yet I recognize that relatively unregulated capitalism has increased the total wealth of some countries in some eras. The process may have been painful for many of the people who lived through it, still, in some places, at some times it has produced something you could measure as “development.”

What a pity, what a horror, that the ANC should have latched on to extreme capitalism in just the place—a third world country with an enviably rich public sector—and at just the time—a period of economic stagnation in the first world—to be royally ripped off. I left the Consulate fearing that these neo-liberal notions, so sincerely held, may prove even more costly for South Africa than President Mbeke’s equally dubious theories about AIDS.

By the time I got home from the South African Consulate, I was thinking more about privatization in the US. Third world privatization got a big push in the 1970s when first world companies began running out of businesses to invest in at home. Investment abroad can be risky. Taking over an already constructed monopoly like a phone company, a national airline, or a water system is the safest and most lucrative bet. But these chunks of cheap ready-made third world wealth are almost all gone by now, so the pressure is on to privatize the public wealth that’s accumulated in Europe and North America.

Next big fight

In the US, the privatization of jails and schools has stirred the most controversy so far. More startling though is military privatization. Brown and Root, a subsidiary of Vice President Cheney’s oil and gas construction firm, Haliburton, is one of the companies that supplies armies to private companies and to governments including the US. Brown and Root mercenaries, usually retired servicemen, are sometimes hired for their special military skills. But they’re also used as generic soldiers in countries where the law (US or foreign) limits the number of official US servicemen that can be deployed.

Much privatization in the US has been either on a state or local level, or, as in the case of military privatization, small scale and/or hush-hush. But recently President Bush announced with great fanfare that he means to privatize 850,000 federal jobs.

Privatization on that scale will allow the administration to punish its enemies by breaking the country's largest unions and to reward its friends with contracts and loot beyond anything Boss Tweed could hand out. Even more ominously, it gives private corporations a larger, or at least a more official, say over what we used to think of as public policy.

Many societies have decided that goods like water, education and health care shall be available to everyone no matter how poor, if for no other reason than to provide healthy skilled workers and to prevent epidemics. But private companies can’t give things away below cost and they can’t adjust costs according to need or ability to pay. Nor can a private energy or water company be expected to put conservation or environmental protection above profit. It wouldn’t be fair or even legal since their first obligation is to their stockholders.

If we want the luxury of considering fairness, kindness or long-range survival, many of our resources have to be publicly owned. Once we take this stand we’ll find ourselves very busy. At one and the same time, we’ll have to campaign to prevent new privatization and to return water, energy, and other assets to public control. This may entail lobbying, ballot initiatives, and educational campaigns. We’ll also have to take direct action.

Right now many states are moving forward with energy and water privatization. I’m sure we’ll find creative ways to show that we consider the new owners illegitimate. There are many effective forms for collective nonpayment.

Privatization in rich countries produces a different kind of suffering than in poor countries but it is being driven by the same desperate investors. We may respond a little differently than they do in Johannesburg, South Africa or Cochabamba, Bolivia, but this is our next big fight too.

About the Author
Barbara Garson is the author of Money Makes the World Go Around: One Investor Tracks Her Cash Through the Global Economy, Penguin, New York, 2002. In this book, investor Garson puts part of her book advance into Franklin Templeton’s Mutual Shares Fund. That’s how she became a part-owner of the French-based water company Suez.