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New Texts Out Now: David McDonald, Rethinking Corporatization and Public Services in the Global South

[Cover of [Cover of "Rethinking Corporatization and Public Services in the Global South"]

David McDonald, editor, Rethinking Corporatization and Public Services in the Global South. London: Zed Books, 2014.

Jadaliyya (J): What made you write this book?

David McDonald (DMD): After three decades of privatization, we observe a growing worldwide trend of governments taking back control of services, or creating new forms of public services, with the overall number of public enterprises globally on the increase. Corporatization is one of the most popular forms of this renewed interest in government ownership, but it raises some tricky questions about the nature of what it means to be “public.”

Technically, corporatized agencies are fully owned and operated by the state, with separate legal and financial status. Water and electricity utilities are common examples, but the practice extends to a much wider range of goods and services, from airports to universities and hospitals. The main rationale for corporatization is to create arm’s-length enterprises with independent managers who are expected to account for costs and revenues as though they were operating a stand-alone company. This ring-fencing is intended to create greater financial transparency, reduce political interference and strengthen managerial accountability. But, more controversially, corporatization has also been used to create market-friendly public sector cultures and ideologies. Public water and electricity utilities, for example, have been run increasingly like private companies, sometimes with the express intent of privatization once their profit potential has been realized.

In other words, corporatized services may be “public” in name, but not necessarily in character, and this books seeks to better understand the pros and cons of this popular governance model and the extent to which it should be considered an “alternative to privatization,” with a focus on countries in the South.

J: What particular topics, issues, and literatures does the book address?

DMD: The book’s chapters demonstrate that not all corporatizations have been carried out with this commercial imperative in mind. There are many examples of equity-oriented water and electricity corporatized agencies at various levels of government. The authors of this book shed light on how and why these agencies have managed to resist neoliberal pressures and prioritize social objectives. For example, we studied Tunisia’s state-owned electricity provider (STEG), which benefited from massive investments under the previous autocratic regime of Zine El Abidine Ben Ali, but suffered from corruption and a lack of transparency. The provider is now grappling with pressures to democratize its governance structures following the so-called Arab Spring. Nevertheless, a commitment to state-led service provision still pervades the public sector and has contributed to widespread electricity coverage and considerable capacity (see excerpt below).

We also looked at Costa Rica’s electricity utility, ICE, which has been one of the most efficiently run companies in all of Latin America, public or private, evolving out of the country’s social democratic experience with its modelo solidario (solidarity model). Costa Rican citizens are aware of the state’s contributions to national development, and have broadly resisted previous attempts to privatize public enterprises. In Uruguay, Obras Sanitarias del Estado (OSE) is another positive example of corporatization, providing high-quality, affordable and nearly universal water services to the country’s population for more than sixty years.

Our case studies from Asia and Africa are not quite as encouraging but still cut against the grain of powerful neoliberal trends in public service delivery. In Malaysia, we examined the state-owned and operated electricity provider Tenaga Nasional Berhad (TNB), which has managed to resist much of the neoliberal pressures that have altered electricity utilities in the region. For TNB, social objectives have remained at the forefront of decision-making and there have been important public investments in long-term service expansion and equity. In the Philippines we looked at the Leyte Metro Water District (LMWD), which has taken environmental sustainability and watershed management seriously, and to some extent issues of equity as well, seeing water as an essential service for poverty reduction in the region. Finally, we looked at one of the poorest and driest countries in the world—Burkina Faso—where a corporatized water service provider (ONEA) has fought off privatization and managed to maintain a commitment to public ethos in its service provision.

These are not the only, or even necessarily the best, pro-public corporatized entities in the South today, but they demonstrate the potential for non-neoliberal corporatization. Learning from their strengths (and weaknesses) can help us better understand the possibilities for progressive corporatizations in the future, and the mistakes of the past.

J: How does this book connect to and/or depart from your previous research?

DMD: This book builds on the work of the Municipal Services Project (MSP), a research initiative that explores alternatives to the privatization and commercialization of service provision in electricity, health, water and sanitation in Africa, Asia and Latin America. It is composed of academics, labor unions, non-governmental organizations, social movements and activists from around the globe. We have been analyzing successful alternative service delivery models to understand the conditions required for their sustainability and reproducibility. Our book Alternatives to Privatization: Public Options for Essential Services in the Global South (Routledge, 2012) continues to serve as an essential conceptual and methodological framework to test these models against actually existing alternatives on the ground.

J: Who do you hope will read this book, and what sort of impact would you like it to have?

DMD: We hope this book can serve as a tool for researchers and practitioners to better understand historical, contemporary and proposed alternatives to commercialized service delivery. We also aim to conduct research, and produce material that is relevant and useful to communities and organizations on the ground. For this reason, we have actively sought the participation of communities, frontline service workers, managers and other parties involved in the delivery or consumption of services. This has enabled us to build research capacity and insights at the grassroots level.

We also produced audio-visual materials, and have recently released a short animated video based on this book, with subtitles in French and Spanish (and we encourage people to get in touch with us if they would like to assist with translation into other languages, including Arabic!). You can watch the video on YouTube.

In general, the project advocates for progressive service delivery reforms to generate more equitable and sustainable outcomes. We engage from the local to the multilateral level, sharing promising alternatives with government officials, labor unions, NGOs, social movements, donor agencies, development banks, and other policy-makers. Yet, there are daunting challenges. Many public sector bureaucracies have been thoroughly imbued by a commercial ethos, and future progressive public delivery will require both reclaiming and transforming the state.

J: How does this book connect to your new research projects?

DMD: As this phase of our project draws to an end, we are compiling essays that point to ways forward for more progressive public services, to be published in two books (Zed Books and Icaria Editorial). They portray an eclectic mix of actually existing alternatives to privatization that rebuff the dictates of neoliberalism while also challenging the practices of many public services of the past. From public health in rural Guatemala, to solar electricity in Africa, to municipal insourcing in the United States, we will offer probing insights into the complex and sometimes incongruous ways in which people are “making public.” We will cover a broad spectrum of state and non-state actors, from the local to the supra-national.

Corporatization will remain a key area of focus because it is arguably the most important public policy shifts for essential services in the global South. Drawing on the research of scholars and activists from around the world the books will raise questions about the diverse institutional and ideological nature of “publicness,” and highlight the daily (and fragile) grind of creating public services geared towards equity and accountability.

In the coming years, we will contribute to closing major knowledge gaps, specifically with regards to alternative forms of financing for public services, the role of non-state actors in shaping and delivering services (and their partnerships with the state), innovative forms of performance evaluation, efforts to achieve gender equity, and people-centred governance reforms.

J: Your network has close links with Latin America, Southern African States and Asia, but less with the Arab countries, or more widely the South and East of the Mediterranean. Why? Don't you believe that the struggle for public services is an emergency in the post-“Arab Spring” period?

DMD: The Municipal Services Project was formed in 2000 to research the impact of neoliberal reforms in the electricity, water and health sectors in Southern Africa. In 2008, the initiative was scaled up, creating a global network of researchers interested in alternatives to the privatization of public services in Africa, Asia and Latin America. We since have been collaborating with the Ghana-based Africa Water Network and the Regional Network on Equity in Health in Eastern and Southern Africa (Equinet) in Zimbabwe. With regards to electricity, it is by far the least organized of the three sectors we cover, at least in terms of the development and conceptualization of alternatives. As a result, few regional fora exist to engage in this area. 

More generally speaking, our research has found that Sub-Saharan Africa is the weakest region in terms of “successful” alternatives, constrained in large part by the ongoing stranglehold of international financial institutions such as the World Bank, the relatively conservative/neoliberal regimes in power, and limited state capacities. There is robust resistance to privatization on the continent, but this has not yet morphed into as effective a voice on alternatives to privatization as we have seen in the other two regions.

And yes, you are right about the Arab Mediterranean. They are exciting points of study. In fact, we are starting new work on water programmes in Morocco, and partnerships that the public utility ONEE has with the water operator in Burkina Faso. As our network expands in the region, I hope our research will as well.

Excerpts from Rethinking Corporatization and Public Services in the Global South

From Chapter 4: An “Arab Spring” for Corporatization? Tunisia’s National Electricity Company (STEG), by Ali Bennasr and Eric Verdeil

“STEG has been an independently managed public company since its creation in 1962, and has been enormously successful in extending electricity and gas throughout Tunisia. With more than 99 per cent coverage in rural and urban areas, STEG has achieved the highest level of access to electricity in Africa, and is a notable example of the ability of the public sector to offer reliable and affordable electricity services. Despite pressures to privatize, STEG management and union leaders have largely resisted this trend, managing to keep the company in public hands.

But as with other corporatized service entities around the world, STEG has not been immune from neoliberal trends, such as the introduction of market-based performance indicators, cost-reflexive pricing and private sector outsourcing (see Chapter 1, this volume, for an extended discussion of these tendencies within corporatization). Nor has STEG managed to stave off privatization entirely, as evidenced by the introduction of an independent power producer in the 1990s.

Much of STEG’s “success” also comes from its authoritarian roots and centralizing management culture.  From the 1950s onward, successive Tunisian governments have dictated investment strategies for electricity provision with little consultation or debate about the character of power generation or its long-term rollout plans. Whether for purposes of improving people’s lives, boosting economic output, currying political favour, or some combination thereof, the Tunisian state has made electricity delivery a priority for the country and has done so using a publicly owned and operated utility.

Post-revolutionary Tunisia presents STEG with some remarkable new challenges, however, not least of which will be its ability to democratize itself and work out new governance relationships with the state. STEG’s status as a “public” agency may also be in question, as neoliberal actors (internal and external) put pressure on the state to privatize or at least introduce stronger market-based operating principles in the electricity sector.”

From Chapter 9: Corporatization is Dead… Long Live Corporatization?, by David A McDonald

“Like it or not, corporatization is here to stay. It will remain a prominent—if not dominant—feature of the international public service landscape for many years to come. As states and communities become increasingly wary of privatization, and as private companies shy away from risky ventures in low-income countries, corporatization is increasingly being seen as a safe ‘public’ option for service delivery in Africa, Asia and Latin America.

Although corporatization remains heavily influenced by the principles of new public management, it is not inherently neoliberal. Arm’s length public corporations have a long and complicated history, and corporatization should be seen in this larger context. Corporatization is an institutional framework, not an ideology, despite the prevailing form it has taken on today.

The case studies in this book are testament to this diversity, demonstrating the potential for corporatized agencies to resist neoliberal pressures and to operate relatively progressive forms of services in a global market economy. None of these utilities are perfect—no public service ever is—but they do represent the possibility of operating state agencies with considerable autonomy from the market.

For those interested in alternatives to privatization, corporatization offers a form of state ownership that is (theoretically) answerable to broad public service mandates, and which removes the structural necessity of profit taking by private firms. It can shield public utilities from short-term or nepotistic policy making, with the creation of a “professional” cadre of bureaucrats and technicians sheltered to some extent from the vagaries of elected politics.

Corporatization can also contribute to greater financial and managerial transparency. If done well, it can enhance democratic decision making about the allocation of resources, pricing, subsidies and investments, all of which can advance more equitable and affordable services for all. In doing so, corporatization can improve the credit rating of a service entity, potentially making it easier to raise capital domestically and internationally. The case studies in this book are living proof of all these possibilities.

Nevertheless, we cannot overlook the pressures imposed on service providers—public or private—to marketize and commodify service delivery in a neoliberal world. Nor can we ignore the structural limitations of this state-centric model, which assumes a dominant role for the government apparatus. Non-state actors can be incorporated into service planning and implementation, but the balance of power is necessarily skewed in favour of state agencies, potentially leading to autocratic, paternalistic or unequal forms of service delivery in practice.

Corporatization is also predisposed to creating vertical silos—corporatized fiefdoms that can operate indifferently to the needs of other public agencies or other levels of state (Nor-Aziah and Scapens 2007, Pollitt 2006, Pollitt and Talbot 2004). Creative planning and strong political will can alleviate these concerns to varying degrees, but isolationism is intrinsic to the practice of ring-fencing, and necessarily cuts against the grain of holistic service planning.

Another tension is the ambiguity corporatization creates around notions of “publicness,” due in part to the binary nature of our public/private language. Corporatized services are entirely owned and operated by the state, and therefore public in institutional terms, but this designation can be confusing, making it difficult to criticize neoliberal forms of public management, inadvertently contributing to a defence of problematic forms of public enterprises (often in the name of resisting privatization).

This grey zone of publicness is seldom discussed and often poorly understood in the debates about corporatization. In a world of sound-bite media and slogan-driven mobilizations, “public” and “private” are simple, evocative terms, making it difficult to discuss more nuanced features of corporatization (good or bad). After three decades of neoliberalism, anti-privatization activists are understandably reluctant to criticize state-owned enterprises, but this reticence can delay needed improvements to, or the dismantling of, crudely commercialized behaviours.”

[Excerpted from Rethinking Corporatization and Public Services in the Global South, edited by David McDonald, by permission of the editor. For more information, or to purchase this book, click here.]

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