Reason’s Cure for Flint: More of the Disease

In a Feb. 1 article at Reason, Adrian Moore outlines his solution for the poison water crisis in Flint. He states his proposal straightforwardly enough in the title: “Here’s How to Fix Flint’s Water System: Privatize It.” This strikes me as curing the disease with more of the same disease. Some right-libertarians are sure to object “B-b-but that wasn’t privatization at all! It’s corporatism (or crony capitalism)!” But crony capitalist privatization is the only kind there is.

We all know private water utilities are an industry. But the water privatization process itself is an entrenched industry. All the basic procedures have already been worked out and standardized of, by and for the private water utility industry, and local governments’ role amounts to little more than rubber-stamping a deal written by the corporations they’re dealing with. ALEC’s model privatization statutes and boilerplate legal documents are all written by private water utility lobbyists. And the consultants municipalities hire to negotiate privatization deals have a financial incentive to promote the water companies’ interests instead.

There’s a gross information asymmetry between the municipalities selling water utilities and the corporations buying them. Making such deals is what the water companies do, so they have experienced permanent staff on hand. A local government, on the other hand, is likely negotiating its only water privatization. The consultants hired by a city government have previously worked with the corporation buying the utility, and will likely work with it again. Their business relationship with the city will be a one-off affair, whereas their relationship with the private water utility company is ongoing. So not only are all the procedures already designed by the corporate players, but even the high-priced consultants nominally representing the city have a primary professional interest in maintaining corporate good-will. Indeed the standard consultancy contract includes a “success fee,” which penalizes consultants for honestly informing a local government that an offered deal is against its interests. In this process even well-meaning local officials are at the mercy of a “permanent government” of industry lobbyists and consultants.

How, in practical terms, do such deals work to the disadvantage of local communities? For starters, the standard privatization contract includes an “Adverse Action” clause, which guarantees the purchaser of a privatized utility or service of remuneration by local government in the event of any action that “reduces anticipated revenues.” In other words, the private utility company has a “right” to guaranteed revenue.

Perhaps more important, the process by which the sales price of a public utility is set is usually corrupt as all get-out. Local governments frequently lose money on the sale of utilities. A 2005 study found that governments privatizing utilities frequently offer “concessions to entice investors to acquire their assets” (Clare Joy and Peter Hardstaff, “Dirty Aid, Dirty Water” World Development Movement, Feb. 2005). As an article at Global Justice Now points out (“Myth 2: Big business runs things better“), private corporations that buy up public assets are the real “benefit scroungers”: that is, “most privatised public services only work because of subsidies and handouts from the public purse.”

There’s been a slough of articles at Reason about the Flint crisis, framing it as being all about corrupt government authorities rather than privatization or austerity as such. But those “corrupt government authorities” are precisely the people who carry out privatization deals, whether under Pinochet, Thatcher, Yeltsin, the Iraqi occupation regime or Snyder. It’s the corruption — the grossly asymmetric role of the water industry in setting the terms of privatization — that makes it profitable for the corporate players. Privatization is as popular as it is among corporate lobbyists only because it is a rigged game with socialized costs and guaranteed profit — if there weren’t crooked money in it, their money wouldn’t be pouring into pro-privatization lobbyists and right-wing “free market” think tanks and periodicals. Writing the rules of privatization so that government structures the (ahem) “free market” to guarantee profits to private business is what those lobbyists at ALEC — much beloved of Reason — are all about.

Moore writes that government water utilities are subject to “political hijacking” like Flint’s desire to build its own water infrastructure with stimulus money. But it’s the very same people who will be carrying out a water privatization agenda. And the standard water privatization process, as such, is nothing but political hijacking of local government. Also, please bear in mind that Snyder and all his Emergency Managers have strong ideological ties to ALEC and an affinity for its privatization agenda; Snyder’s former chief of staff was a Nestle lobbyist, and his wife was Nestle’s public spokesperson. If you want corporate privatization of water, these are the people that are going to do it — Snyder is the private water industry’s man.

Privatization, in general, isn’t about “free market reform” at all. “Cronyism,” which right-libertarians are fond of invoking as some kind of outlier phenomenon, is at the heart of privatization. Privatization is just the other side of “lemon socialism.” Whether industries are nationalized or privatized by a capitalist state, the ultimate beneficiaries will be the dominant capitalist interests.

Capitalist states, in periods of rapid industrialization and infrastructure build-outs, typically either provide massive subsidies to private industry to build capital-intensive infrastructure that wouldn’t be profitable for the industry to build on that scale at its own expense (for example the U.S. railroad system), or convert them into regulated utilities with guaranteed profit. Nationalization and regulated private monopoly are two variations on the same thing. When states nationalize industry, it’s usually capital-intensive infrastructure that’s costly to operate and has a thin profit margin at best. So it serves the interests of capital as a whole for the government to operate railroads, utilities and so on, subsidize their operating costs from general tax revenue, and provide artificially cheap infrastructure to the big business interests who depend on the socialization of costs for their profit. Nationalization, in short, usually involves industries that are vital to corporate capitalism’s business model but aren’t really are that profitable for private business to operate itself.

Privatization, on the other hand, is just the opposite. After the state has already done the work of building up a costly infrastructure at public expense, private capital offers to take that already built-and-paid-for infrastructure off their hands at pennies on the dollar and run it as a cash cow — often, as we saw above, reducing service and stripping the assets previously built up at public expense.

I agree with Moore that the protection of local government against liability for disasters like Flint, via “sovereign immunity,” is an abomination. Other than that, though, his talk of increased “accountability” under privatization is a weak joke. The irony is that the privatization industry actually writes legislation to minimize private water companies’ accountability to local communities. To repeat, privatized water corporations are a major constituent of ALEC — and remember, Reason, which runs all these high-principled articles about the “free market” beauty of water privatization, takes a generally positive view of ALEC and has defended it as a “free market think tank.” Water privatization, typically, used to require not only the passage of an ordinance but a public referendum to approve the sale. But ALEC is pushing state legislation that would enable local governments to sell off utilities by an ordinance alone, without public approval, unless opponents managed to get enough signatures on a petition within a specified period of time. Can you say “railroad job”?

As evidence of the superior service of private water utilities, Moore cites the 90% annual renewal rate of privatization agreements. But considering that (thanks to ALEC!) the renewal is likely to be by local government rather than by a referendum, the decision to renew is being made by the same crooked politicians who negotiated the crony capitalist deal with the water corporation in the first place, and who were poisoning the public before that.

Because local water infrastructure is a natural monopoly — it would obviously be impractical to have multiple sets of parallel competing pipes running along the same public rights-of-way — there is no real competition involved. There may be a change of corporate ownership, but if so it will be one company entirely replacing another’s control of water service on an all-or-nothing basis. And whatever entity controls the infrastructure will be able to set rates to guarantee itself a profit. In this regard there is little practical difference between outright sale of water infrastructure to a private corporation and simply contracting out municipal water service provision to a private company. Indeed Moore favorably mentions the 1,000 communities that “have hired a private company to operate their publicly-owned water utility” right alongside those where the utility itself is privately owned.

If local governments’ accountability to the public is largely a fairy tale, what does that say about putting water utilities still another remove from even theoretical public control? If the goal is to increase the public accountability of those supplying water, it makes sense to make public control more, not less direct. But neither direct management of water by a government bureaucracy only theoretically responsible to the public, nor by a corporate body whose contract is renewed by such a theoretically accountable government, is much to crow about.

So what’s the solution? If I’m against corporate privatization, I must be in favor of leaving water under the control of government bureaucracies, right? Wrong. As an anarchist, I agree with the individualist Benjamin Tucker that all human affairs should be in the hands of individuals or voluntary associations. Or as the communist Kropotkin put it, governed “by free agreements concluded between the various groups, territorial and professional, freely constituted for the sake of production and consumption.” Kropotkin’s vision was for the voluntary associations that exist in all areas of life to extend themselves “so as to substitute themselves for the state in all its functions.”

If what we want is real accountability to the public, instead of choosing between indirect representation (municipal water) and even more indirect representation (corporate water), why not choose direct ownership and governance by the people themselves? The natural monopoly status of water utilities means that theoretical representation is meaningless. What’s needed is real accountability: Direct control of the utility by the users themselves, from the inside. Public water resources and infrastructure must be owned directly by the public — the ratepayers — themselves, with those administering them on a day-to-day basis being subject to recall at will by those who pay for the water and drink it. And the best approach to genuine free market reform — reclaiming the water commons from both government and corporate bureaucracies — is local direct action to assert the people’s property right in their own water.

The Center for a Stateless Society (www.c4ss.org) is a media center working to build awareness of the market anarchist alternative