public spending, the economic crisis, privatisation, efficiency, and remunicipalisation

EPSU Kiev March 2012 www.psiru.org

by David [email protected]

Public Services International Research Unit (PSIRU)University of Greenwich, UK www.psiru.org

March 2012

Public spending, the economic crisis, privatisation, efficiency,

and remunicipalisation


• The economic crisis• Austerity and the IMF and EU

• Links topay and employment

• The economic and social role of public spending

• Privatisation and PPPs: not more efficient• Re-municipalisation: a growing trend in Europe

Summary


The economic crisis: origins, government responses, IMF ‘exits’

• Crisis and recession originates from financial sector – banking practices, personal and corporate borrowing– inequality (wages-profits shares, high/low incomes) meant

too many people increasingly dependent on debt– But NOT excessive government borrowing or spending

• Governments respond with ‘stimulus’,increasing spending to maintain economic activity and jobs– Same all over world, very effective– Increased borrowing to do this, deliberately

• Now free market ideology demands ‘exits’ from the stimulus: IMF, G-8, EU, rightwing governments– General pressures for cutbacks


Government debt levels only rise AFTER crisis

Government debt in Eurozone and US(2009, 2010 forecasts)

40

50

60

70

80

90

100

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

per

cen

t o

f G

DP

EA-12

USA

Source: European Commission


Region and Ukraine hardest hit by crisis

% change in GDP

2009 2010 2011 2012 2016

Ukraine-

14.54.2 4.7 4.8 4.0

Russia -7.8 4.0 4.3 4.1 3.9

CIS -6.4 4.6 4.6 4.4 4.2

EU -4.2 1.8 1.7 1.4 2.1

Sources: The Jobs Crisis: Household and Government Responses to the Great

Recession in Eastern Europe and Central Asia. World Bank 2011

http://go.worldbank.org/ZWFZ7IGHJ0; IMF WEO September 2011


Governments stimulate economies

2009 Total stimulus as % of GDP

All G-20 countries 3.9

Of which:

Advanced countries 4.3

Emerging market countries

3.3

Sources: IMF 2009 The State of Public Finances: a Cross-country Fiscal Monitor SPN/09/21 http://www.imf.org/external/pubs/ft/spn/2009/spn0921.pdf ; World Bank 2011 The Jobs Crisis: Household and Government Responses to the Great Recession in Eastern Europe and Central Asia. http://go.worldbank.org/ZWFZ7IGHJ0

e.g. Ukraine – like Germany – “provided subsidies to companies that agreed to retain workers, leading to

less unemployment”


Crisis: cost of rescuing the banks- equals global revenue from 30 years of privatisation


• Russia, Armenia, Moldova, Turkey increase public spending on health and education and public services, despite fall in GDP

• But countries under conditions from IMF/EU cut spending (Latvia, Ukraine, Bulgaria)

The Jobs Crisis: Household and Government Responses to the Great Recession in Eastern Europe and Central Asia. World Bank 2011 http://go.worldbank.org/ZWFZ7IGHJ0

But IMF countries cut public services, pensions


Public service

Ukraine and other countries under IMF/EU pressures

Others

Unemployment benefit

Hungary and Ukraine tightened UI eligibility criteria (land holding, weekly visits)

unemployment insurance (UI) benefits were among the first benefits to reach crisis-affected households.

Social assistance

in Romania and Ukraine, there was no appreciable increase inthe number of social assistance beneficiaries

In Bulgaria, Montenegro, and Serbia, the countries’ flagship LRSAs responded to the crisis by increasing coverage rates

Pensions Romania, Ukraine plan later retirement age

Armenia, Romania, Russia, andTurkey significantly increased minimum pensions in 2009 to protectthe poor.

Education Bulgaria, Latvia, Ukraine cut education expenditures

Armenia, Moldova, Russia, Turkey increased real expenditures on education in 2009

Health Latvia, Ukraine and Bulgaria, cut expenditures

Armenia, Moldova, Russia, and Turkey increased real health expenditures in 2009

More cuts, less support under IMF/EU conditions (Source: World Bank)


Ukraine: Unemployed less likely to receive benefits


• IMF loan and austerity policies 2008-2011– Cuts in public sector pay and jobs– Pension age for women raised 55>60, required contributions increased by 10 years– Reduction in minimum wage from Hr 1,180 UAH ($148) in 2011 to Hr 1,073 ($134)

in 2012– IMF now (March 2012) refuses to pay further money unless the government

increases energy prices to consumers

• Public opposition– In early July 2011, thousands of protesters took to the streets in the Ukrainian capital

Kiev to try to block pension reforms promised as part of the country's IMF loan. The protest involved both Ukraine's trade unions and the political opposition. The law was approved anyway, raising the retirement age for women from 55 to 60, though the country has relatively low life expectancy.

• http://www.brettonwoodsproject.org/art-568916, http://www.brettonwoodsproject.org/art-567920

• IMF policies not working– “the programmes sponsored by the IMF – in Ukraine, in Latvia, in Hungary, in

Romania, in Greece, in Ireland, in Portugal – are not yielding the benefits which were initially claimed for them by the advocates of the “structural reform path”, in particular in the growth area. In addition, years of fiscal austerity are now starting to take their toll on the populations concerned. Expectations are not being fulfilled, and a backlash is underway.”

• (Edward Hugh Staring Into the Ukrainian Economic and Political Abyss http://www.economonitor.com/blog/2012/02/staring-into-the-ukrainian-economic-and-political-abyss/)

Ukraine: IMF conditions and conflicts


• EU Neighbourhood Policy and Eastern Partnership– Governs EU relations with neighbouring countries– Implemented through series of bilateral agreements

• EU-Ukraine Association Agreement– Negotiations finalised December 2011– Not yet initialled (as at 19 March 2012)– Includes: “Ukraine's gradual integration in the EU Internal

Market including by setting up a deep and comprehensive free trade area”

– Includes: “a reform agenda for Ukraine.. Comprehensive Institutional Building Programme (CIB) particularly important”

• (Association Agreement in a nut-shell http://ec.europa.eu/commission_2010-2014/fule/docs/news/20111221_more_information_fule_visit_to_ukraine.pdf )

– negotiations on association agreements are also going on with Armenia, Azerbaijan, Georgia and Moldova.

– (Laima Andrikiene 15 March 2012 Europe's relations with its eastern neighbours, work in progress http://www.publicserviceeurope.com/article/1651/europes-relations-with-its-eastern-neighbours-work-in-progress

Ukraine: EU Association Agreement


IMF and politics: effects of crisis and IMF ‘exit’ plans

Primary public

expenditure as % of GDP,

2007

Annual real growth 2008-

2010:Primary public expenditure

Annual real growth

2008-2010:GDP

Average adjustment called

for by 2030 by

IMF

High-income countries

35.8 4.30% -0.20% -8.70%

Developing countries

24.5 9.30% 5.10% -2.75%


Cutting staff, services, benefits (40:30:30)

A Status Update on Fiscal Exit Strategies” IMF Working Paper WP/10/272 http://www.imf.org/external/pubs/ft/wp/2010/wp10272.pdf


change by 2014 as % of GDP

Total 10.5 Spending cuts

Social benefits 1.9 Wage bill 0.9 Pharmaceutical spending 0.5 Health care 0.3 Extra-budgetary funds (finance for non-

government agencies)0.5

Other expenditure (finance for local government)

0.4

State-owned enterprises (subsidies) 0.4 Operational expenses 0.3 Investment spending 0.2 Defence expenditure 0.1

Tax increases Tax policy 3.6 Tax compliance 1.4

Greece: the impact of an IMF/EU package (-157,000 jobs)


• Source: IMF Fiscal Monitor Update January 24, 2012 As Downside Risks Rise, Fiscal Policy Has To Walk a Narrow Path

Contradictory messages – cutting deficit means cutting growth


• IMF study of 102 countries found that:• countries which scored well on the quality of

the public sector regulation…as measured by the Worldwide Governance Index—quality of regulation did worse economically in the recession than others.

• the same results with banking sector liberalisation: “the countries that liberalized their financial systems the most, were most affected by the banking and economic crisis.”

• It concluded that: • “the countries with the best ratings in terms of

public sector regulatory framework, as well as those countries with the most far reaching financial deregulation, were hit the hardest economically”

• The results confirm previous studies:– by ECB economists who found that

countries did better if they scored badly on ‘market friendliness’ – especially in the financial sector.

– in Latin America in the 1980s, which found that financial liberalisation damages growth.

Contradictory messages – ‘good’ governance is bad for economy

Sources: IMF WP/11/261 The Economic Crisis: Did Financial Supervision Matter? November 2011 http://www.imf.org/external/pubs/ft/wp/2011/wp11261.pdf; Worldwide Governance Indicators Ukraine (March 2012)

http://info.worldbank.org/governance/wgi/sc_chart.asp#

UKRAINE SCORES ON World Bank Governance Indicators

Year

Percentile Rank

Governance Score

(0-100) (-2.5 to +2.5)

Voice and Accountability

2010

44.1 -0.15

2005

39.4 -0.23

2000

32.7 -0.5

Political Stability 2010

42 -0.1

2005

38.5 -0.27

2000

29.3 -0.49

Government Effectiveness

2010

24.9 -0.77

2005

33.2 -0.59

2000

23.4 -0.76

Regulatory Quality

2010

32.5 -0.55

2005

33.8 -0.5

2000

28.9 -0.53

Rule of Law 2010

25.1 -0.8

2005

26.3 -0.81

2000

14.4 -1.13

Control of Corruption

2010

17.2 -0.97

2005

29.8 -0.69

2000

7.8 -1.09


Numbers (‘000s) %

Total -3,679 -1.7%

Private -5,790 -3.5%

Public sector 2,111 3.9%

of which:

Public administration and defence; compulsory social security -54 -0.3%

Education 884 5.8%Human health and social work

activities 1,256 5.9%Water, sewerage, waste

management and remediation activities 25 1.6%

Employment changes in EU during crisis :2007 Q4 and 2010 Q4

Sources: Eurostat database Employment (lfsq_egan2, lfsq_egana) downloaded 08/07/2011 http://epp.eurostat.ec.europa.eu/portal/page/portal/employment_unemployment_lfs/data/database


EU: public and private change in real wages during recession are closely linked, except for 4 countries with IMF programmes: Greece, Latvia, Hungary and Romania (Eurostat, 2008Q1-2011Q1, data for 20 EU countries)


Links are even closer if IMF countries are excluded. It is the IMF policies which distort the relationship by suppressing public sector

pay rises below the norm


The economic and social role of public spending

• Public spending = spending by governments and municipalities on public services and social security

• Public services/spending/workers presented as:– Parasitic on ‘real’ productive sectors of the economy– ‘luxuries’ to be sacrificed for general economic benefit– Inefficient compared with private/market provision

• But empirical evidence shows– Rising public spending is linked to economic growth– Post-crisis trends reflect long-term path– Productive benefits of health, education– Economic and social benefits of equality


OECD countries with higher GDP per capita tend to have higher public spending as a proportion of GDP (OECD data

for 2008)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0 20000 40000 60000

Publ

ic spe

ndin

g as

% o

f GDP

GDP per capita


Long-term link between public spending and growthGovernment spending as % of GDP 1870-1996, ave of 14 countries


Government spending as % of GDP, USA, 1903-2010

• www.usgovernmentspending.com/


• 1930 and 2009: rise after recession, then dip and level?

USA: Government spending around recessions


• Patterns in and after wars

But falls back after wartime spikes


Questions and issues

• Explaining the positive links

– Productivity gains from infrastructure,

– Productivity gains from public health/education

– Demand effects of equalising income distribution

• Employment impact

• Political mechanisms > contestable– citizen not consumer preferences

• General constraint of taxation? – But varying levels, and global trend is upwards


OECD 2008: Functions of public spending


Infrastructure investment and growth 1991-2005

Change in ave per capita growth between 1991-1995 and 2001-2005. Calderon and Serven 2008


Public and private capital spending on infrastructure USA 2007


Public healthcare is more efficient and effective

•Life expectancy in USA is lowest in high income OECD, lower than Cuba

•Infant mortality in USA is 2x the rate in Czech republic, Portugal, Japan


Public services and equality

Effects on equality of public services in UK (£ per year) Bottom 2nd 3rd 4th Top All

households

Ratio Top/Bottom quintile

Original income 4 970 12 020 23 305 38 321 73 810 30 485 15

Income after tax and benefits 7 269 13 507 19 731 27 553 50 006 23 613 7

plus benefits in kind from public services (health, education etc)

6 315 6 411 5 969 5 000 3 870 5 513

Final income 13 584 19 918 25 699 32 553 53 876 29 126 4


Equality: countering social problems


Half the jobs in the world

Jobs supported by public spending and

public servicesTotal Of which

Public employees

Private sector employees

Percentage of all jobs in the world

50 17 33


Forecast increase in public health spending (IMF)

“the top priority is to contain the high rates of spending growth that have led to marked increases in spending-to-GDP ratios over

the past 50 years” (IMF 2010)


Increased future needs for public spendingService Annual rise

in public spending

Health and social care

+4.5% GDP

Public? or inefficient and inequitable

Pensions Secure? or linked to returns on investment?

Climate change +1.5% GDP

Necessary

Fibre-optic etc ?

Developing countries

? Necessary: schools, health, infrastructure


Affordable and fair taxation

“our tax collectors are like honey bees, collecting nectar from the flowers without disturbing them, but spreading their pollen

so that all flowers can thrive and bear fruit”

Pranab Mukherjee India’s finance minister, budget speech, July 2009


Can the private sector do it better?Efficiency, privatisation, PPPs, liberalisation

• Empirical evidence does not support assumption that private sector will be more efficient– “While there is an extensive literature on this subject, the theory is

ambiguous and the empirical evidence is mixed.”(IMF, March 2004)• Studies across countries and sectors find no consistent difference

– Water and electricity: “no statistically significant difference in efficiency scores between public and private providers.” (Estache et al, 2005)

– Telecoms: global study comparing private and public companies found that “efficiency growth following privatizations…is significantly smaller than growth in public sectors.” (Knyazeva, Knyazeva and Stiglitz 2006)

– Buses: no significant difference in efficiency between public and private bus operators, or mixed systems (Pina and Torres 2006)

– Auditing: Australia: ‘outsourced audits are more costly’ (Chong et al 2009)– Prisons: Lundahl 2009 “private prisons provide no clear benefit”• No efficiency gains from liberalisation in EU or USA• “No evidence of consumer benefits from electricity/gas/telecoms

liberalisation” (Florio et al, 2008, Goto and Makhija 2009)


Economics 1: cost of private capital higher

• Cost of private capital is higher

• UK privatisations and PFI– shareholder dividends and company debt cost more

than government debt e.g. bonds (in crisis, much more)

• So: PFI costs 2% extra interest = £20 billion total (FT 2011)• So: water bills would be £900 million lower per year if

public (PSIRU 2008)

• True in developing countries too – e.g. for power stations Indonesia pays lower

interest rate than multinationals; Shell+Bechtel get same credit rating as Philippines government


Economics 2: private sector not more efficient

• Empirical evidence does not support assumption that private sector will be more efficient– “While there is an extensive literature on this subject, the theory is

ambiguous and the empirical evidence is mixed.”(IMF, March 2004)• Studies across countries and sectors find no consistent difference

– Water and electricity: “no statistically significant difference in efficiency scores between public and private providers.” (Estache et al, 2005)

– Telecoms: global study comparing private and public companies found that “efficiency growth following privatizations…is significantly smaller than growth in public sectors.” (Knyazeva, Knyazeva and Stiglitz 2006)

– Buses: no significant difference in efficiency between public and private bus operators, or mixed systems (Pina and Torres 2006)

– Auditing: Australia: ‘outsourced audits are more costly’ (Chong et al 2009)– Prisons: Lundahl 2009 “private prisons provide no clear benefit”– “No evidence of consumer benefits from electricity/gas/telecoms

liberalisation” (Florio et al, 2008, Goto and Makhija 2009)


Empirical evidence on efficiency…..Bel G. and Fageda X. 2010 Does privatization spur regulation? Evidence from the regulatory reform of European airportshttp://www.ub.edu/irea/working_papers/2010/201004.pdf

Bel G., Warner M. 2008 Does privatization of solid waste and water services reduce costs? A review of empirical studies Resources, Conservation and Recycling 52 (2008) 1337–1348

Cabeza García L. and Gómez-Ansón S. 2007 The Spanish privatisation process: Implications on the performance of divested firms International Review of Financial Analysis Volume 16, Issue 4, 2007, Pages 390-409

Cho, Hsun-Jung and Fan, Chih-Ku. 2007 Evaluating the Performance of Privatization on Regional Transit Services: Case Study J. Urban Plng. and Devel., Volume 133, Issue 2, pp. 119-127 (June 2007)

Cowie J. 2009 The British Passenger Rail Privatisation Conclusions on Subsidy and Efficiency from the First Round of Franchises Journal of Transport Economics and Policy, Volume 43, Part 1, January 2009, pp. 85–104

D'Souza J., Megginson W and Nash R. 2007 The effects of changes in corporate governance and restructurings on operating performance: Evidence from privatizations Global Finance JournalVolume 18, Issue 2, 2007, Pages 157-184

Estache A. and Gomez-Lobo A. 2005. Limits to Competition in Urban Bus Services in Developing Countries Transport Reviews, Vol. 25, No. 2, 139–158, March 2005

Estache A. Tovar B., Trujillo L. 2008 How efficient are African electricity companies? Evidence from the Southern African countries. Energy Policy 36 (2008) 1969–1979

Estache A., Perelman S., Trujillo L. 2005 Infrastructure performance and reform in developing and transition economies: evidence from a survey of productivity measures. World Bank Policy Research Working Paper 3514, February 2005. http://go.worldbank.org/919KQKSPS0 Farsi M., Fetz A., and Filippini M. 2006 Economies of scale and scope in local public transportation CEPE Working Paper No. 48 April 2006 http://www.cepe.ch/download/cepe_wp/CEPE_WP48.pdf

Figueira, C., Nellis, J. and Parker, D. 2006 Does Ownership Affect the Efficiency of African Banks?The Journal of Developing Areas - Volume 40, Number 1, Fall 2006, pp. 37-62


More empirical evidence on efficiency……Florio M. 2004 The Great Divestiture. MIT Press.

GONZÁLEZ-GÓMEZ F. and GARCÍA-RUBIO M. 2008 Efficiency in the management of urban water services. What have we learned after four decades of research? Hacienda Pública Española / Revista de Economía Pública, 185-(2/2008): 39-67

Gruber H. and Verboven F.1999 The Diffusion of Mobile Telecommunications Services in the European Union” CEPR Paper No. 2054 1999 European Economic Review, 2001, vol. 45, issue 3, pages 577-58

International Monetary Fund 2004 Public-Private Partnerships March 12, 2004 http://www.imf.org/external/np/fad/2004/pifp/eng/031204.htm

Knyazeva A, Knyazeva D., and Stiglitz J. 2006. Ownership change, institutional development and performance. March 2006

Knyazeva A., Knyazeva D, Stiglitz J., Ownership changes and access to external financing, Journal of Banking & Finance 33:10 October 2009 doi:10.1016/j.jbankfin.2008.12.016

Kraft, E.; Hofler, R.; Payne, J. 2006 Privatization, foreign bank entry and bank efficiency in Croatia: a Fourier-flexible function stochastic cost frontier analysis Applied Economics, Volume 38, Number 17, 20 September 2006 , pp. 2075-2088(14)

Lundahl et al. 2009 Prison Privatization : A Meta-analysis of Cost and Quality of Confinement Indicators Research on Social Work Practice 2009 19: 383 http://rsw.sagepub.com/content/19/4/383

Ohemeng F. and Grant J. 2008 When markets fail to deliver: An examination of the privatization and de-privatization of water and wastewater services delivery in Canadian Public Administration Volume 51 Issue 3, Pages 475 – 499 Published Online: 27 Oct 2008

Parker, D. and C. Kirkpatrick (2005) ‘The Impact of Privatization in Developing Countries: A Review of the Evidence and the Policy Lessons’, Journal of Development Studies 41(4): 513–41.

Pina, Vincente and Torres, (2006) 'Public-private efficiency in the delivery of services of general economic interest: The case of urban transport', Local Government Studies, 32:2, 177 — 198


Even more empirical evidence on efficiency…..

Pollitt M. 1995) Ownership and performance in electric utilities. OUP

Pucher J., Korattyswaroopam N., Ittyerah N. 2004 The Crisis of Public Transport in : Overwhelming Needs but Limited Resources Journal of Public Transportation, Vol. 7, No. 4, 2004

Sohail M., Maunder D. and Cavill S. 2006 Effective regulation for sustainable public transport in developing countries. Transport Policy Volume 13, Issue 3, May 2006, Pages 177-190

Wallsten S. and Kosec K. 2008 The effects of ownership and benchmark competition: An empirical analysis of U.S. water systems International Journal of Industrial Organization Volume 26, Issue 1, January 2008, Pages 186-205

Willner J. and Parker D. The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly Journal of Economics Volume 90, Number 3 /April, 2007

Wu H. and Parker D. 2007 The Determinants of Post-Privatization Efficiency Gains: The Taiwanese Experience. Economic and Industrial Democracy 2007 Vol. 28(3): 465–493. http://eid.sagepub.com/content/28/3/465.abstract

Yvrande-Billon A. (2006) The Attribution Process Of Delegation Contracts In The French Urban Public Transport Sector: Why Competitive Tendering Is A Myth . Annals of Public and Cooperative Economics 77 (4), 453–478.

Zhang, Y.-F., Parker, D. and C. Kirkpatrick, 2002, ‘Electricity Sector Reform in Developing Countries: An Econometric Assessment of the Effects of Privatisation, Competition and Regulation’, Working Paper No.31, Centre on Regulation and Competition, Institute for Development Policy and Management, .


Economics 3: Marketing

• Market segmentation – Selecting countries or services or groups of customers– differential pricing (lower for big customers =

regressive cross-subsidy); pre-pay metering vs. direct debit

• Pricing strategy– for monopolies e.g private water in France 16% more

expensive than public (Chong and Sauusier)– Opaque contracts to deter switching e.g. electricity

• Strategic marketing– loyalty incentives (bribes); forecast errors; 25 yrs

notice– Strategic withdrawals e.g. AES, Veolia, Suez– Public policy influence with governments, IFIs, univs


Value for money assessment of PPPs vs public sector

Factor Comparing Evidence indicates

1 Cost of capital Debt interest + dividends PPP more expensive

2 Cost of construction

Comparative costs and completion PPP more expensive/neutral

3 Cost of operation Comparative efficiency Neutral

4 Transaction costs Procurement + monitoring, management

PPP more expensive

5 Uncertainty Incomplete contracts, contingent liabilities, impact on service

PPP riskier

• Cost of capital :always higher for private sector• Construction ‘on time’ :is costly ‘turnkey’ contract, for bankers’ benefit • No efficiency savings• Real transaction costs and uncertainty• No reduction in public spending under PFI schemes: government pays


The summary failure of Metronet (London underground PFI)

• “The return anticipated by Metronet’s shareholders appears to have been out of all proportion to the level of risk associated with the contract…”

• “In terms of borrowing, the Metronet contract did nothing more than secure loans, 95% of which were in any case underwritten by the public purse, at an inflated cost…”

• “Metronet’s inability to operate efficiently or economically proves that the private sector can fail to deliver on a spectacular scale..”

• “The Government should remember the failure of Metronet before it considers entering into any similar arrangement again. It should remember that the private sector will never wittingly expose itself to substantial risk without ensuring that it is proportionally, if not generously rewarded. Ultimately, the taxpayer pays the price…”

• “we are inclined to the view that the model itself was flawed and probably inferior to traditional public-sector management. We can be more confident in this conclusion now that the potential for inefficiency and failure in the private sector has been so clearly demonstrated. In comparison, whatever the potential inefficiencies of the public sector, proper public scrutiny and the opportunity of meaningful control is likely to provide superior value for money. Crucially, it also offers protection from catastrophic failure. It is worth remembering that when private companies fail to deliver on large public projects they can walk away—the taxpayer is inevitably forced to pick up the pieces.”

(UK House of Commons Transport Committee January 2008)


Summary

• Re-municipalisation trends by sectors– Water– Electricity and gas– Public transport– Other services– Banking and finance

• Some issues– Political and economic factors– Finance– Ownership and employment– Democracy


Water - remunicipalisation

• France: city of Paris remunicipalised water 2010– Reduces prices by 8%– Also some other French cities/communes: Bordeaux, Brest,

Varages, Montbeliard, Durance-Luberon, Castres, Cherbourg etc– Others do not eg Toulouse

• Hungary: Pecs terminates Suez, remunicipalises• Unclear future possibilities:

– Other central and eastern Europe• Tallinn tries to renegotiate/cut tariffs• Contracts in Czech rep, Hungary, Poland expire in next 10 years

– UK England/Wales renewal due 2014, but no campaign

• Successful defences eg Italian referendum• Remunicipalisations also in North and South

America• But: Greece is forced to privatise water by EU/IMF


Electricity• Germany: municipalities buy energy companies

– BW buys 45% of EnBW from EdF (€4.6bn.) • under CDU/FDP, Greens/SDP opposed

– Hannover, Frankfurt et al buy Thuga from E.on (€2.9bn)– Essen, Bochum etc buy Steag from Evonik (€649m.)– NRW passes law to facilitate municipalisation of energy companies– Other municipalities buying as 2,000 grid concessions expire

• Seen as way for greater policy control, plus profitable

• Other cases– Finland: state takes 53% control of Fingrid– Swedish parliament rejects privatisation of Vattenfall– Hungary: state buys back shares in MOL, discusses buying gas/power

from E.on– Latvia: illegal to privatise Latvenergo – Lithuania: re-integrated state energy company– But: Greece forced to sell shares in PPE

• Elsewhere: – Latin America: renationalisation of some electricity companies– Japan: state bails out Tep


Public transport

• UK: London terminates 4 PPPs (out of 6)– TfL remunicipalised two very big PPPs for underground

metro renovation: Metronet in 2007, Tubelines in 2010 (£30bn.)

• Parliament: “Metronet’s inability to operate efficiently or economically proves that the private sector can fail to deliver on a spectacular scale”

– TfL remunicipalised Croydon Tramlink 99-year concession in 2008: paid £100m.

– TfL terminated Oyster-card PPP (£100m. p.a.), saving 18% per annum through refinancing, new contract issued

• Germany: DB privatisation postponed• Other cases: rail renationalisation in Estonia• But: continuing privatisation of rail companies eg

Poland, Slovakia, etc• Elsewhere:

– Renationalisation of railways in New Zealand, Guatemala,


Other services

• Waste management– some re-municipalisation of contracts in many countries– But e.g. Italy municipal companies still own operations,

but may contract out most labour-intensive services

• Cleaning– UK hospital cleaning in Scotland, Wales, N. Ireland

brought back inhouse; some councils remunicipalise cleaning to provide decent work, and saves money

• Banking and finance– Nationalisation used to save some banks from collapse– Hungary, Bulgaria renationalise some pension liabilities

to ensure payment of pensions


Factors

• Politics– Some progressive politics e.g. Paris water, Italy

water, Swedish non-privatisation of Vattenfall, UK cleaning

• Hungary more complex: Fidesz is nationalist party

– against mainstream austerity politics – Greece etc• Bank bailouts not based on progressive policies

• Efficiency, effectiveness and services– key factor in failed PPPs etc e.g. London transport,

German energy, Hungary water– Evidence supports publicly run services


Issues• Political and economic issues

• Financing: charging ‘full cost recovery’ to users is not inevitable or necessary. The choice of taxation or user charges is a political choice for all services e.g. public transport, water, waste, energy, housing. – May be a problem for some green positions on using

• Profits: it is not necessary for municipal/state companies – To compete for business and expand like private companies– to make profits, or a ‘return on capital’: debt can be just deferred

payment/taxation

• Employment: public ownership of an asset or system is not enough, one core political issue is decent pay and conditions and security of employment.

• Range of services: there is no defined list. We can decide to extend extend or reintroduce services e.g. housing, public sector banking as a public service - not as a bailout or commercial venture

• Democratic control. Public assets and finance should be subject to democratic control i.e. Not captured by corporate interests


Conclusions

• Crisis has mixed effects in region

• PPPs and privatisation not efficient alternatives

• General future upward pressures on public spending: economic recovery, infrastructure, healthcare, pensions, equality, climate change, broadband, development

• Political conflicts with international institutions

• The Italian referendum: 96% (25 million) vote to repeal law promoting privatisation of water and law providing 7% return on capital to be built into water prices– Good democracy, good economics

EPSU Kiev March 2012 www.psiru.org David Hall is director of the Public Services International Research Unit (PSIRU– see www.psiru.org ) in the Business School, University of Greenwich, London. He researches and teaches the politics and economics of public services and privatisation, with special expertise in the sectors of water, energy, waste management and healthcare. His publications include articles in academic journals, book chapters, many reports published by PSIRU and others, and two books. He was the coordinator of the Watertime project, an EC-funded 3-year research project on decision-making on water in 29 cities in Europe, involving a group of five universities and research institutes, from 2002-2005. He was guest editor of a special issue of Utilities Policy in 2007. He led a 2-year research project on corruption, funded by the Wallace Global Foundation, from 2001-2003.He had a leading role in the EC-funded CIRIEC report on cohesion and SGEI for DG Regio in 2004. He has contributed to the EC-funded SWITCH project, a major 5-year study of water governance and finance across the world, and the EC-funded PRESOM project, a 3-year project studying privatisation and the European social model.

He has been invited to address meetings organised by the World Bank infrastructure division, the United Nations department of economic and social affairs (UNDESA), the OECD, UNCTAD, the ILO, the European Parliament, the EU Social and Economic Committee, the Belgian parliament, and the UK Department for International Development (DFID), and has been an expert witness at the constitutional court of Indonesia. He has been an invited speaker at seminars and conferences at universities and research institutes in many countries, including the universities of Athens, Bandung, Berlin, California, Cambridge, Harvard, Lima, London (UCL), Madrid, Milan, New York (Cornell), Oxford, Paris 8, and St Petersburg. He has spoken to meetings of trade unions and civil society groups in over 40 countries.

Acknowledgements and disclaimerThis presentation is based on research carried out by the PSIRU over many years. This research has been financed by various bodies including the European Federation of Public Service Unions (EPSU www.epsu.org), Public Services International (PSI www.world-psi.org ), the European Commission the PRESOM network http://www.presom.eu ); the International Labour Organisation (ILO www.ilo.org); the United Nations Research Institute for Social Development (UNRISD www.unrisd.org ); and others.


1. Defensive resistance

– to austerity 'exit' packages of cuts: campaigning effectively– to privatisation, which seems to be reviving in the region, eg Russia,

Kazakhstan

2. Positive campaigning, social dialogue, and politics :

– For expansion of public healthcare, public pensions, etc in RU & CA countries – For the role of the state in public services, macroeconomic policy

3. Some strategic issues

– who are our allies? Civil society, social movements, students, professionals?– do we have a clear 'alternative' economic and social (and fiscal) policy?

Issues for union strategies: national level


• IMF packages– Similar packages in Romania, Hungary, Latvia, Greece, Portugal, Ireland– EPSU/PSI publicity and support for union actions, demands, dialogue

• EU Neighbourhood policy and EU-Ukraine Association Agreement– EU neighbourhood policy is vehicle for extending EU internal market

liberalisations– Association Agreement is key instrument, includes structural reforms as

condition for trade agreement

• Other EU policies impacting on Ukraine– EC ‘2020 framework’ and new fiscal rules: tighter– EU internal market and procurement policies eg liberalising services– promotion of PPPs by EU (and OECD, and UNECE)– labour rights issues especially fair wages clauses

• Potential impact of possible customs union with Russia

International union strategies with EPSU

public spending, the economic crisis, privatisation, efficiency, and remunicipalisation

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