Saw an interesting pair of Greek films recently about the awful situation their country is in, but more importantly, about the ridiculous solution proposed by the IMF.
At its core, the IMF demands of Greece two things austerity (which generally benefits the rich who don’t depend on public services as the rest of us) and privatisation (putting the juiciest of state assets up for sale to the highest bidder). Much attention has been focused on austerity, and I think everyone in the world other than “no taxes” Lagarde , Merkel and Ron Paul accepts that austerity in a time of economic crisis just makes things worse.
But its the privatisation issue I’m more interested in discussing here, as it equally doesn’t work and will in the long run just hand a lot of money over to corporations while ultimately costing the Greek government lots of money in the long run (and thus ultimately making Greek’s debt problems much worse).
A parable for Privatisation
Let me use the following analogy to explain why privatisation is a bad idea:
Suppose that I made and offer to anyone reading this that I would buy you’re car off you. I’ll only pay a fraction of its current market value, but in return for you selling it to me at a discount I will then provide you with (for a substantial annual fee of course) a transportation solution that will look suspiciously like you’re old car (I’ll have painted it a different colour and stuck my logo on it!). You will still be responsible for fuel costs, road tax, etc. While strictly speaking I’ll be responsible for maintenance and replacement of the car, there’s nothing legally you can do if I decide to take my time getting the thing fixed (forcing you to take a cab for sufficient long that you then realise it would be cheaper just to pay for the repairs yourself) and my ultimate plan is to never replace the car, Ill either expect you to cough up for that also, or else I’ll just fold the company when the car finally gives up the ghost. So how many want to take me up on the offer?
As the privatisation of public services around the world has shown, most notably in the UK under Thatcher (aka the wicked witch of Finchley), privatised public services are rarely if ever run better in private hands than in public hands. It cost the UK around a billion to subsidise the railways in the last year before privatisation and it now costs 5 times more post privatisation. You have to go back to the 1970’s to recall a time when the UK water systems had to bring in drought measures . Yet they seem to happen every year or so now, since privatisation. Now while there are many causes for the UK’s present drought, ranging from climate change and increased urbanisation (higher water demand and more run off). But clearly the private water companies failure to maintain pipes and reservoirs is a big part of the problem. Indeed its has been pointed out that they have every financial incentive NOT to fix the problems in the system, as this creates an artificial shortage, leading to higher water rates (and more profit to them).
But then again, it should be obvious to anyone who knows the first thing about capitalism why this is the case. The critical ingredient in any capitalist system is competition. A private company in a monopoly situation is as just as likely to become as bloated and inefficient as a publicly owned company is. Indeed, the only real difference is that the private company creams off 25% for profit and has little if any incentive to make long term investments (such as building new railway lines, reservoirs, power stations, etc.) as the benefits of such infrastructure will appear many decades from now, while the cost will appear today (which for a typical corporate shark out to make a quick buck is unacceptable).
So why are the IMF trying to impose such ridiculous measures onto the Greeks if they’ve been proven repeatedly not to work? In part its ideological. Much like the mediaeval doctors who believed that they had to bleed a patient (or drill holes in his head to let the evil spirits out) to cure him of his ills, but when he died rather than accepting the obvious fact that the bleeding killed him, they instead insist that he wasn’t bled enough. So they proceed to bleed the next patient even more (who also dies due to a lack of bleeding). For the neo-liberals to back down as regards these strategies would be the equivalent of them running up the white flag and declaring that their extreme brand of capitalism has failed, and there’s about as much chance of that happening as there is of the pope suddenly saying sure’s its all a load of hokey poky mumbo jumbo!
Firstly, the corporations send in economic advisors to a developing country, who advise that they should take out large loans to build infrastructure. The corp’s then arrange for Western states to lend the developing nation lots of money (way more than they can reasonably be paid back). Of course most of this money finds its way back into the pockets of western businessmen in the form of generous construction contacts, or into Swiss bank accounts through corrupt practices. Inevitably, the developing country soon runs into debt problems, Western governments hold the indebted country’s feet to the flames and send in more economic advisors from the IMF. They, unsurprisingly advise that those same state assets the government was advised to build should now be sold to private business interests at a fraction of their value.
The only difference now is, they are applying the same script to western states rather than developing countries. Well I suppose what goes around comes around! But let us not pretend that the IMF or right-wingers such as those in charge in Germany, don’t have an agenda here, and rescuing Greece, the euro or dealing with the sovereign debt crisis is certainly not part of that agenda.