From Screwed: The Undeclared War against the Middle Class by Thom Hartmann, © 2006, published by Berrett-Koehler.
Privatizing the Commons
From Unequal Protection: How Corporations Became
“People”—and How You Can Fight Back
fascism (fâsh’iz’em) n. A system of government that exercises a dictatorship of the extreme right, typically through the merging of state and business leadership, together with belligerent nationalism. [Ital. fascio, group.] -fas’cist n. -fas-cis’tic (fa-shis’tik) adj.
—AMERICAN HERITAGE DICTIONARY (1983)
PRIVATIZATION IS THE IDEA OF TAKING COMMONS FUNCTIONS OR resources out of the hands of elected governments responsible to their voters and handing their management or ownership over to private enterprise answerable to shareholders. Many arguments have been advanced about privatization; those in favor argue that corporations run for a profit can be more efficient than government, and those opposed usually argue that the resources of the commons should always be held in the hands of institutions that are answerable only to the people who use them—the citizens—and thus must be managed by elected and responsive governments.
Opponents of privatization of the commons also usually point out that whatever increases in efficiency a corporation may bring to a utility, the savings produced by those increases in efficiency rarely make their way to the consumer but instead are raked off the top by the corporation and distributed to shareholders. One of the more high-profile examples is Enron and its role in the privatization of electricity worldwide, with particular focus on how Enron’s privatization of electricity in California worked to the detriment of California’s citizens but produced millions in profits for a small group of Texas stockholders; another example is an Enron subsidiary’s meetings in 1999 with Governor Jeb Bush of Florida in which it proposed to privatize and take over much of the state’s water supply.1
Supporters of privatization point to the creative ways corporations can extract profits from things governments previously just supervised in a boring and methodical fashion. For example, an article in the Houston Chronicle in January 2001 titled “Enron Is Blazing New Business Trail” noted the “extraordinary year” the Houston-based company was having, with most of the company’s revenues coming “from buying and selling contracts in natural gas and electricity.”
The article quoted Kenneth Lay, who, the newspaper said, “has a doctorate in economics,” as extolling the virtues of profiting from trading in previously regulated or government-run commodities. “The company’s emphasis on trading to hedge against risk has been emulated by other firms in energy,” the article said, including “Duke Energy, Dynegy, Williams Energy—and increasingly in other industries.”2
Who Owns the World’s Water?
While Enron started the discussion in Florida in 1999 about privatizing that state’s water supplies and the Everglades, the process was already a done deal in Bolivia. In 1998 the Bolivian government requested a $25 million loan guarantee to refinance its water services in the community of Cochabamba. The World Bank told the Bolivian government that it would guarantee the loan only if Bolivia privatized the water supply, so it was handed over to Aguas del Tunari, a subsidiary of several large transnationals, including an American corporation that is one of the world’s largest private construction companies.
The next year Aguas del Tunari, in an effort to squeeze profits out of Bolivia’s water, announced that water prices were doubling. For minimum wage or unemployed Bolivians, this meant water would now take half their monthly income, costing more than food. The Bolivian government, acting on suggestions from the World Bank and Aguas del Tunari, declared all water corporate property, so even to draw water from community wells or to gather rainwater on their own properties, peasants and small farmers had to first pay for and obtain permits from the corporation.
The price of water was pegged to the US dollar to protect the corporation, and the Bolivian government announced that none of the World Bank loan could go to poor people to help with their water bills.
With more than 90 percent of the Bolivian people opposing this move, a people’s rebellion rose up to deprivatize the water system. A former machinist and union activist, Oscar Olivera, built a broad-based coalition of peasants, workers, and farmers to create La Coordinadora de Defensa del Agua y de la Vida, or La Coordinadora. Hundreds of thousands of Bolivians went on a general strike, brought transportation in Cochabamba to a standstill, and evoked violent police response in defense of the Aguas del Tunari corporation’s “right” to continue to control the local water supply and sell it for a profit. Victor Hugo Danza, one of the marchers, was shot through the face and killed: he was 17.
The government declared martial law, and members of La Coordinadora were arrested and beaten in the middle of an early-April night. The government seized control of the radio and television stations to prevent anti-corporate messages from being broadcast. But the uprising continued and grew.
The situation became so tense that the directors of the American corporation and Aguas del Tunari abandoned Bolivia on April 10, 2000. They took with them key files, documents, computers, and the assets of the company—leaving a legal shell with tremendous debt.
The Bolivian government handed the debts and the water company, SEMAPA, to La Coordinadora. The new company is now run by the activist group—essentially a local government itself now—and its first action was to restore water to the poorest southern neighborhoods, more than 400 communities, which had been cut off by the for-profit company because the residents didn’t have the money to pay profitable rates for water. Throughout the summer of 2000, La Coordinadora held hearings through the hundreds of neighborhoods it now served.
In the meantime the American corporation moved its holding company for Aguas del Tunari from the Cayman Islands to Holland so that it could legally sue the government of Bolivia (South America’s poorest country) under World Trade Organization and Bilateral Investment Treaty rules that Bolivia had signed with Holland.
On January 19, 2006, a settlement was reached between the government of Bolivia and Aguas del Tunari, and it was agreed that “the concession was terminated only because of the civil unrest and the state of emergency in Cochabamba and not because of any act done or not done by the international shareholders of Aguas del Tunari.” With this statement both parties agreed to drop any financial claims against the other.3
Why take such extraordinary steps against such a poor country? There’s more at stake than the immediate situation. If this citizens’ group is successful in turning a water supply back from private to government hands, and thus improving water service and making it more egalitarian and less expensive in this poverty-stricken country, it could threaten water-privatizing plans of huge corporations around the world.
The stakes are high, even as cities across India, Africa, and other South American countries hand their local water systems to for-profit corporations. Nonetheless politicians around the world are stepping up the rate at which they’re pushing for a transfer of the commons to the hands of for-profit corporations. Checking voting records and lists of corporate contributors, it’s hard not to conclude that there is a relationship between this political activity and the generous contributions these corporations give to pro-privatization politicians.
“Private Equity” Can Erase a Firm’s Values
In today’s business environment, when corporations are run in ways that benefit the environment or their workers as much as their stockholders, they’re at risk. When good salaries and pension plans are cut, it’s referred to as “unnecessary fat” that can be trimmed. (Note that such cuts are made much more feasible when wages are forced down by exporting jobs from the local economy.) Similarly, behaving in a more expensive but environmentally friendly way is “not efficient.”
In an article in Yes! magazine, economist and author David C. Korten pointed out that for many years the Pacific Lumber Company was, in many regards, a mo
del corporate citizen. It paid good salaries, fully funded its pension fund, offered an excellent benefit package to employees, and even had an explicit no-layoffs policy during soft times in the lumber economy. Perhaps most important to local residents who weren’t employed by the company, Pacific Lumber “for years pioneered the development of sustainable logging practices on its substantial holdings of ancient redwood timber stands in California.”4
In a nation where such employee- and nature-friendly values were both valued and defended, Pacific Lumber Company would have a bright future. But in a world where profit is the prime value, and humans and ancient trees are merely excess fat, Pacific Lumber was a sitting duck.
As Korten documents in his article, a corporate raider
gained control in a hostile takeover. He immediately doubled the cutting rate of the company’s holding of thousand-year-old trees, reaming a mile-and-a-half corridor into the middle of the forest that he jeeringly named “Our wildlife-biologist study trail.” He then drained $55 million from the company’s $93 million pension fund and invested the remaining $38 million in annuities of the Executive Life Insurance Company—which had financed the junk bonds used to make the purchase and subsequently failed.
The remaining redwoods were the subject of a last-ditch effort by environmentalists to save them from clear-cutting.5
In the end the government stepped in to save some of the old-growth forests, but the business and its employees were already screwed, and the private equity artist had already taken his cut.
Once upon a time, America had laws that corporations couldn’t own other corporations. If that were still true, situations like that chronicled by Korten would become illegal rather than the norm. (And people who become multimillionaires by employing such predatory leveraged-buyout and private equity techniques, from Mitt Romney to T. Boone Pickens, would actually have to work for a living.)
The reason James Madison and Thomas Jefferson—and even Alexander Hamilton and John Adams—worried so loudly about “associations and monopolies” growing too large and powerful is that they would begin to usurp the very lives and liberties of the humans who created them. It becomes particularly problematic when companies are bought and stripped of their assets by other companies that aren’t even in their industry but are simply asset hunting.
In the realm of government, the Founders kept power close to the people with the Tenth Amendment and other constitutional references to the powers of states over the federal government. A similar principle could apply to corporations.
The breakup of AT&T between 1974 and 1984 led to vigorous growth in the telecommunications industry, although that industry is once again reconsolidating in the absence of Sherman Antitrust Act enforcement.
Seizing Other Nations’ Commons via Patent
Because international courts have recently held that life forms and their by-products are patentable, multinational corporations in wealthy nations have been busily patenting the living products of poorer nations.
For example, people in India have been using the oil of the neem tree as a medicine for millennia: but now more than 70 patents have been granted on the tree and its by-products in various nations. One European patent on its use as a fungicide was recently thrown out, but others stand.6
In similar fashion, Maggie McDonald notes in the British magazine New Scientist that “a botanical cure for hepatitis traditionally used in India can be patented in the US.” She notes that Vandana Shiva documents how this is not a process that is driving innovation or competition, as multinationals often claim, but instead, “a survey in the US showed that 80 percent of patents are taken out to block competitors.”7
Ironically, that same issue of New Scientist has a feature on recruitment news that extols the wonders of becoming a patent agent. In the new world of international biotechnology, the article says, “Wealth is measured not in gold mines, but in the new currency of ‘intellectual property.’” Eerily echoing Shiva’s claim, the very upbeat article on getting a job in the patent business says, “The aim is to lock away these prize assets [for your company] so they can’t be plundered by commercial rivals.”8
And the business of locking up these assets pays very well. Ted Blake of Britain’s Chartered Institute of Patent Agents is quoted as saying, “You’re looking at six-figure salaries for those who make it as partners in an agents’ firm.” Not only is the pay good but the work is also very chic. Reiner Osterwalder of the European Patent Office told the magazine, “Patents are no longer stuck in a dusty corner. They’re sexy, and touch questions of world order.”9
The British Broadcasting Corporation (BBC) notes that not only can plants and their uses be patented but the very genetics of the plants can be nailed down. An article about the patenting of the neem tree published in 2000 on the BBC website says, “Genes from nutmeg and camphor have also been patented with the aim of producing their oils artificially—a move which would hit producers in developing countries.”10
And it’s in developing countries where the race to patent indigenous life forms is most rapid, particularly by American-based companies, because US patent law doesn’t recognize indigenous use of a product as “prior art,” meaning once a use for a plant is “discovered” by an American company—even if that plant has been used in that way for 10,000 years by local tribes, it’s considered new and thus patentable. The website www.globalissues.org notes, “In Brazil, which probably has the richest biodiversity in the world, large multinational corporations have already patented more than half the known plant species.”11
The consequences of this behavior are profitable for corporations but can be devastating to the humans who find that their food or medicinal plants are now the property of a multinational corporation. Corporations say that this is necessary to ensure profits, but the thriving herbal products industry—made up mostly of domestic plants that cannot be patented—testifies to the untruthfulness of this assertion. Selling plants may not be as profitable as selling tightly controlled and patented plants, but it can be profitable nonetheless.
This is not to say that plants should or should not be patentable. In a democracy the benefits or liabilities of corporations’ patenting life forms would be discussed and decided by popular vote. Because of the Santa Clara “decision” and its consequences, however, corporations have exercised their “right” to get patent laws changed and exemptions established that would be difficult to impossible for an ordinary human to accomplish.
Changing Your Citizenship in a Day
For a human to change his or her citizenship from one country to another is a process that can take years, sometimes even decades, and, for most of the world’s humans, it is practically impossible. Corporations, however, can change their citizenship in a day. And many do.
The New Hampshire firm Tyco International moved its legal citizenship from the United States to Bermuda and, according to a 2002 report in the New York Times, saved “more than $40 million last year alone” because Bermuda does not charge income tax to corporations while the United States does. Stanley Works, which manufactures in Connecticut, will avoid paying US taxes of $30 million. Ingersoll-Rand “saves” $40 million a year.12
Offshore tax havens figured big in the Enron debacle, as that corporation spun off almost 900 separate companies based in tax-free countries to shelter income and hide transactions. Through this device the company paid no income taxes whatsoever in four of its last five years and received $382 million in tax rebates from Uncle Sam.13
Generally, when a human person changes citizenship, he is also required to change his residence—he has to move to and participate in the country where he is a citizen. But Bermuda and most other tax havens have no such requirement. All you need do is be a corporate person instead of a human person, pay some fees (it cost Ingersoll-Rand $27,653), and, as Ingersoll-Rand’s chief financial officer told the New York Times, “We just pay a service organization” to be a mail drop for the company.14
Similarly
, if you or I were to open a post office box in Bermuda and then claim that we no longer had to pay US income taxes, we could go to jail. Corporate persons, however, keep their rights intact when they decide to change citizenship—and save a pile in taxes.
Corporations are taxed because they use public services and are therefore expected to help pay for them.
Corporations make use of a workforce educated in public schools paid for with tax dollars. They use roads and highways paid for with tax dollars. They use water, sewer, power, and communications rights-of-way paid for and maintained with taxes. They demand the same protection from fire and police departments as everybody else, and they enjoy the benefits of national sovereignty and the stability provided by the military and institutions like the North Atlantic Treaty Organization and the United Nations, the same as all residents of democratic nations.
In fact, corporations are heavier users of taxpayer-provided services and institutions than are average citizens. Taxes pay for our court systems—the biggest users of which are corporations, to enforce contracts. Taxes pay for the maintenance of our transportation infrastructure—our roads, bridges, and ports—used heavily by corporations to move their goods. Taxes pay for our Treasury Department and other government institutions that maintain a stable currency essential to corporate activity. Taxes pay for our regulation of corporate activity, from ensuring safety in the workplace, to a pure food and drug supply, to limiting toxic emissions.
Taxes also pay (hugely) for our military, which is far more involved in keeping shipping lanes open and trade routes safe for our corporations than protecting you and me from an invasion by Canada or Mexico (our closest neighbors, with whom we’ve fought wars in the past). It’s very difficult to calculate because government doesn’t keep track of it, but it’s not hard to see that corporate use of our commons—what is funded with our taxes—is well over half of worker use.
The Thom Hartmann Reader Page 32
