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The Price of Privatized "Development"

Uruguyans Learn from Bolivia, Not India

by SAUL LANDAU And PUJA PATEL

Privatization has become a no-no word for George Bush since his handlers viewed polls indicating that the US majority fear that the word relates to them losing their future social security. But third world people have come to understand privatization as a euphemism for the externally mandated sale of their property to multinational companies. In several instances catastrophe has resulted from such sales.

In 1999, the Bolivian government, following World Bank advice, provided a subsidiary of the US-owned Bechtel Corporation a 40 year lease to run the Cochabamba water supply. More than half a million people in the area, most of them desperately poor, came to depend on Bechtel for water. Bechtel tripled the price.

Instead of wringing their hands, the Cochabamba populace staged general strike, shutting down the city of Cochabamba and forcing President Hugo Banzer to either declare martial law or concede. At first, Banzer ordered troops to disperse the protestors. The repressive forcers wounded some 100 people and killed four. The protest intensified and threatened to spread, so Banzer conceded and broke the contract with Bechtel.

Oscar Olivera, a protest leader, claimed that the protest questioned the right of "the World Bank, international business, [to] be deciding these basic issues for us." Indeed, beyond any philosophical issue, as Jim Shultz put it, Bolivians were "simply angry at the practical result." ("The Politics of Water in Bolivia," The Nation Jan 28, 2005)

Even after Cochabamba’s privatization failed, however, supposedly hard nosed and practical World Bank leaders clung to their dogma that development requires privatization. In 2002, Bank representatives wearing officially issued rose-colored glasses declared that another water privatization project in the El Alto-La Paz (Bolivia’s capital) area had "achieved positive results."

Unfortunately for them, the people of the area didn’t read the report. In January this year, like their countrymen and women in Cochabamba, they seized the streets. And, history repeated itself, this time with President Carlos Mesa conceding to overwhelming popular opposition to the private water contract.

Privatization taught most Bolivians that they could not allow capitalist market methods to determine water prices. Multinational corporations invest in water or any other needed resource for profit. Why else would they buy them?

It didn’t require Karl Marx to teach Bolivia’s poor that they cannot afford this market model. But this lesson has not yet reached those who design curricula in business schools throughout the United States or programs at the World Bank. If water prices exceed income levels, the poor must go without water or revolt. "In El Alto the cost of getting a water and sewage hook-up," wrote Shultz, "exceeded a half-year’s income at the minimum wage.

Until recently, when voters in several South American countries (Argentina, Venezuela, Brazil and Uruguay) chose Presidents who vowed to break with the World Bank-IMF formula, the major political parties of the region had not consulted their constituents over whether or not to privatize their resources. Rather, government technocrats decided such issues. The local MBAs met with Bank and Fund officials to design "privatization schemes" as prerequisites to keep loans flowing from the multilateral lending agencies–and, more importantly, to keep receiving US and European foreign aid.

To justify handing over public resources at bargain prices to their associates in the corporate world, the official world money lenders cited "public corruption." Private property, they argued, means efficiency, whereas public property lends itself to dishonesty. Compare the pilfering of government bureaucrats to the multi billion dollar scandals at ENRON, World Com or Adelphia!

Moreover, Bank representatives posited, by offering resources like water to investors the nation will lure both needed capital and expert management. Such "thinking" obscured the fact that poor families could not afford to buy "privatized" water. Evidently in the minds of IMF-World Bank lenders, this "minor" problem paled before the opportunity to entice foreign investors to help develop a Third World country.

The water privatization scandal spread from Bolivia to Uruguay. Indeed, Uruguayans had already learned the consequences of privatization from prior efforts of their own government.

On October 31, 2004, sixty percent voted to reject privatization and protect water as a public resource, thus guaranteeing all Uruguayans access to water. They indicated they understood the difference between privatization and real development. Then, in January, they voted out of office the very government that promoted the privatizing scheme.

In some areas of India, the population did not vote on privatization. Technocrats and politicians made the decisions to "develop" first through public and then private means. In the late 1980′s, the Indian government constructed Indian Petro Chemicals Limited (IPCL), a massive petrochemical complex in Nagothane, a small, fertile agricultural and fishing settlement on the banks of river Amba in Maharashtra. The government also built a dam on the Amba to provide water for IPCL.

Indian government officials swore to villagers that this "modernization" would mean ample jobs. Locals would no longer have to depend on fishing or agriculture. As promised, the government invited hundreds of small and medium scale businesses to Nagothane to create an economic ecosystem in this rural area.

The government kept its promise to transfer thousands of farmers, displaced by the building of the factory, to well-paying jobs within the embryonic IPCL economy. To support this vast industrial complex, the government also planned to include hundreds of small and medium scale factories, employing thousands of rural laborers, in a 30 mile radius. A multitude of small, family-owned restaurants, transportation businesses, general stores, and other service oriented enterprises also popped up in order to sustain the new colossus.

The locals surrendered their old way of life and learned skills required for the petrochemical industry. They stopped being peasants and became industrial laborers. Progress!

But the impact of the initial stage of state-controlled "development" paled in comparison to what ensued. In 1991, India shifted from a model of state-private co-ownership, to free market capitalism — corporate globalization. Led by the current Prime Minister and then Finance Minister Manmohan Singh, the state began to privatize its vast holdings, the underpinning of India’s old economy and stability.

In 2002, as privatization became the key to India’s new economic plan, the government sold Indian Petro Chemicals Limited to the Reliance Industries. In the name of efficiency, Reliance made immediate changes.

It erased Indian government "obligations" and "solemn promises" to dozens of small and medium scale businesses that it had invited to Nagothane. Instead, it replaced them with large scale enterprises located in different parts of the country. Giant transportation companies replaced the independent truck owners.

In a few years, unemployment became chronic and massive in Nogothane. The streets teem with laid-off workers and, because vending machines replaced small restaurants and tea stalls within the factory compound, members of the service sector have also joined the ranks of the unemployed. What does such a process do to democracy?

Democratic rules don’t apply to ghost towns, which now characterize the Nagothane area; empty factories and warehouses share the space with shanty-towns and abandoned homes and businesses. The surrounding land has also suffered due to the immense pollution created by IPCL. Peasants cannot work the no-longer fertile, contaminated land and the construction of the Amba Dam has led to a scarcity in fish.

Even highly trained and skilled workers of the petrochemical product industry find themselves seeking employment in the odd-job sector. Unable to return to farming and fishing, and desperately seeking income producing work, the once healthy people of the area now exemplify third world misery–in their own emaciated bodies.

Proponents of India’s new capitalism promised riches for all, through the "trickle down" process. But these optimists have yet to explain how this supposed wealth will filter down to the unemployed people of Nagothane. Left on the sidelines of the road to development, the people of Nagothane have become victims of the free market.

Although the people of Nagothane have yet to take their fates into their own hands, the Bolivians and Uruguayans have showed that it can be done–certainly when it comes to water.

Bank and Fund officials cling to privatization as the key to development. Is this also a command from George Bush’s religious instruction book? Democracy for the third world requires invading another country (Iraq) and privatizing its public resources? From the Bolivian and Uruguayan experiences, bankers should have learned that privatization policies lead to popular revolts, or even revolutions. But the official world money lenders refuse to separate the concept of development from privatization. Indeed, they reject the very idea of people controlling their own vital resources. If this is development, then cancer is certainly growth!

Saul Landau is a fellow of the Institute for Policy Studies and directs Digital Media for Cal Poly Pomona University’s College of Letters, Arts and Social Sciences.

Puja Patel is a senior at Cal Poly Pomona University and a member of its National Model UN team.