The Multinational Monitor

July/August 2002 - VOLUME 23 - NUMBER 7&8


C o r p o r a t e  R e f o r m  A f t e r  E n r o n

An Answer to
Marketization
Decommodification and the
Assertion of Rights to Essential Services

By Patrick Bond

Johannesburg -- A post-apartheid upsurge of protest against worsening class and gender inequality in South Africa is beginning to shape a new strategy to limit the corporate drive to marketize essential services.

From the townships of Soweto and other urban ghettos, to the many rural areas which have still not received piped water, poor communities are demanding a "lifeline" supply of water and electricity. And calls are rising for free access to antiretroviral medicines, for five million HIV-positive South Africans, few of whom can afford life-saving drug treatments. Such demands, based upon the political principle of "decommodification," may be the key to locking the door on services privatization.

The verb decommodify was popularized by Gosta Esping-Andersen, a Swedish academic. In his 1990 book The Three Worlds of Welfare Capitalism, he points out that during the first half of the twentieth century, the Scandinavian welfare state grew because of urban-rural, worker-farmer alliances which made universalist demands on the ruling elites.

Those demands typically aimed to give the working class and small farmers social protection from the vagaries of employment, especially during periodic recessions, by weaving a thick, state-supplied safety net. Over a period of decades, these social protections took the form of generous pensions, healthcare, education and other free state services which, like childcare and eldercare, disproportionately support and liberate women.

The electoral weight and grassroots political power of the worker-farmer alliance won these demands, with high taxes on wealthy households and large corporations paying for the services.

Much less far-reaching construction of welfare-state policies occurred elsewhere across the world, prodded in part by strong labor movements and Cold War elite fears of a socialist alternative to capitalism.

Recent years have seen corporations and the far right roll back some of the long-standing social benefits previously won by civic movements, including in Scandinavia.

But now, led by movements in the developing world, citizen campaigns are asserting countervailing pressure, pushing forward a decommodification agenda that seeks both to defend and expand social rights.

Decommodifying Municipal Services
In a setting as unequal as South Africa -- with 45 percent unemployment and, alongside Brazil and Guatemala, the world's highest income disparities -- the market-oriented policies adopted during the 1990s pushed even essential state services such as water and electricity beyond most households' ability to pay. Some of these policies were adopted before political liberation from apartheid in 1994, but many were the result of influence on Nelson Mandela's African National Congress (ANC) by the World Bank, the U.S. Agency for International Development and other global and local market fundamentalists during the late 1990s.

The Municipal Services Project (www.queensu.ca/msp), based at Johannesburg's University of the Witwatersrand and Queens University in Canada, does periodic local and national studies of water and electricity commodification. Of South Africa's 44 million people, approximately one quarter have had their water and their electricity disconnected in recent years. In many settings, the policy of full "cost recovery" -- setting prices to cover the full cost of production and delivery -- has had devastating effects. Most notably, water cutoffs caused people to rely on untreated and contaminated water sources, resulting in an unprecedented cholera outbreak.

The ongoing cholera epidemic has claimed more than 140,000 victims and 250 known fatalities. Its epicenter was the August 2000 outbreak at Ngwelezane in KwaZulu-Natal. Two months later, the largest South African newspaper, the Sunday Times, reported that the outbreak followed a decision by local officials to shut off the free piped water that had been supplied for 17 years after a drought in the early 1980s. Free water ended at the beginning of August, and the first case of cholera was confirmed on August 19. Eventually, health officials demanded the free water supply be restored.

The $7 connection fee imposed by the local government, upon the instruction of higher authorities, was unaffordable for thousands of people. Installation of pre-paid meters -- with water supply automatically terminated if consumers have not pre-paid their bills -- was intended to save a few thousand dollars, but ended up costing the provincial KwaZulu-Natal health authorities and the sick people millions.

Public Goods and State Services
The failure to fully account for the social and environmental benefits of state services is typical of commodification. When state services undergo commercialization or privatization, water, electricity, health and other agencies act like, or become, private businesses divorced from government obligations to ensure basic services for all. A company that takes a privatization or outsourcing contract then has no qualms about cutting off the service to those who cannot afford to pay the full cost recovery price, plus a profit mark-up.

It has no responsibility for the social and personal costs of cholera, diarrhea, tuberculosis or other AIDS-opportunistic infections incurred by health clinics and the patients. It feels no guilt when women and children suffer most. It does not repair environmental damage when women are forced to cut down trees to heat their families' food. It pays none of the local economic costs when electricity cut-offs prevent small businesses from operating, or when workers who have lost access to even their water and sanitation become unhealthy and less productive.

This ability to avoid the social implications of "public goods" associated with water and electricity allows huge multinational corporations to make enormous profits by expanding infrastructure systems just to the point where low-income people live.

Usually this is a geographic decision, so that areas served by privatized services are noticeably "cherry-picked;" wealthy consumers get the services but poor people are denied access. Most of the pilot water privatization projects in South Africa recreate the old apartheid boundaries of black townships. In one case, in Stutterheim, the subsidiary of Paris-based Suez has failed to supply the low-income areas since it won the water contract in 1993.

Saur had to renegotiate its Dolphin Coast contract in mid-2001 due to lack of profits, with research showing that it regularly denies services to poor people. For similar reasons, Saur also pulled out of its Maputo, Mozambique contract in late 2001. In the impoverished Nkonkobe area of the Eastern Cape, the mayor fired the Suez subsidiary late last year for failing to deliver affordable services, and the company is responding with a lawsuit for millions of dollars in damages.

The Johannesburg Water Company, also managed by Suez, is controversially introducing pit latrines in spite of porous soil and the spread of the E.Coli bacteria, so as to avoid poor people flushing their toilets. Public health problems, including mass outbreaks of diarrhea and even cholera last year, continue to embarrass officials in the host city for the August 2002 World Summit on Sustainable Development.

Should the Rich Pay More?
Resistance to the commodification of water and electricity often takes the form of a short-term inexpensive flat rate for all consumers. In Durban, community groups are mobilizing for a $1 monthly fee for all municipal services, alongside an insistence that no one's supply be cut off. Even water minister Ronnie Kasrils conceded in early May that cut-offs due to inability to pay are probably unconstitutional in South Africa.

For medium-range policy, a redistributive demand for decommodification is advanced by groups like the South African Municipal Workers Union, Rural Development Services Network and Soweto Electricity Crisis Committee. They demand a specific minimal amount of water -- 50 liters per person per day -- and electricity -- 1 kilowatt hour per person per day -- to be supplied free. The free services should be financed not only by subsidies from central government, but also by a "rising block tariff" in which the water and electricity per-unit charges rise for higher-volume users -- a cross-subsidization from wealthier and big business users to lower-income consumers.

These demands, grounded in decades of social struggles to make basic services a human right, were originally given political credibility with the promise of "lifeline" services and rising block tariffs in the Reconstruction and Development Program (RDP) of 1994, the ANC's campaign platform in the first democratic election. They were partially incorporated in the 1996 Constitution, which guarantees that "everyone has the right to an environment that is not harmful to their health or well-being; everyone has the right to have access to healthcare services, including reproductive health care; sufficient food and water; and social security."

The World Bank immediately became the most effective opponent of this philosophical principle and political strategy, arguing that South Africa does not have sufficient resources to make good on the RDP or its constitutional commitments. Beginning by drafting infrastructure investment policy in late 1994, Bank staff then played a self-described "instrumental" role in "facilitating a radical revision in South Africa's approach to bulk water management." In 1995, the water minister, Kader Asmal, accepted Bank advice not to supply South Africans with free water.

For Asmal, who from 1998-2000 served as chairperson of the World Commission on Dams, "The positions I put forward are not positions of a sell-out. ... The RDP makes no reference to free water to the citizens of South Africa. The provision of such free water has financial implications for local government that I as a national minister must be extremely careful enforcing on local government."

It took a leap of logic to redefine the word "lifeline" to mean, not free, but instead the equivalent of "operating and maintenance costs" -- full cost recovery. Under the influence of his own neoliberal bureaucrats and the World Bank, Asmal's slippery semantic solution was applied with increasing ruthlessness during the late 1990s.

The main criticism of a free lifeline and rising block tariff offered by Bank water official John Roome, the task manager of the controversial Lesotho Highlands Water Project, was that water privatization contracts "would be much harder to establish" if poor consumers had the expectation of getting something for nothing. To make consumers pay, Roome continued, Asmal needed a "credible threat of cutting service."

This was part of the advice that the Bank's 1999 Country Assistance Strategy for South Africa termed "instrumental," and that was central to Asmal's 1998 Water Pricing Policy. Technically, since the short-run marginal cost curve of water and electricity slopes downward -- the higher the consumption, the less it costs to supply each additional unit--the World Bank recommendation to "get the prices right" leads to a pricing policy in which higher-volume users pay less per unit, rather than more. In short, a private supplier objects to serving low-income people with even a small lifeline consumption amount.

A Free Lifeline
Labor and community groups demanded the government reverse its full cost-recovery policy in the late 1990s. Asmal's mid-1999 replacement, Ronnie Kasrils, began hinting at a policy change in February 2000 after rural water projects broke down at a dramatic rate. The failure of most tap projects reflected how poor rural South Africans have become, unable to maintain the vital service without a subsidy. Yet subsidies for operating and maintenance were prohibited in Asmal's 1994 White Paper.

When cholera broke out in August 2000, less than four months before nationwide municipal elections, the ANC government reacted by promising a free services lifeline. It was progress, although for poor households the promise was half the amount needed, and for electricity was undefined but in practice amounted to only a tenth of essential needs.

In South Africa, since free water came into effect in July 2001 as official policy -- notwithstanding widespread sabotage by municipal and national bureaucrats responsible for administering the policy -- there have been no new water privatizations, in large part due to the fear that cherrypicking and supply cuts will be deemed unconstitutional.

The World Bank's Roome and his colleagues see Kasrils and the ANC's free-services promise as potentially dangerous. In March 2000, the Bank's "Sourcebook on Community Driven Development in the Africa Region" laid out the policy on pricing water: "Work is still needed with political leaders in some national governments to move away from the concept of free water for all. ... Promote increased capital cost recovery from users. An upfront cash contribution based on their willingness-to-pay is required from users to demonstrate demand and develop community capacity to administer funds and tariffs. Ensure 100 percent recovery of operation and maintenance costs."

Social disasters from such rigid neoliberal policy are strewn across Africa. Thanks to user fees and efforts to obtain cost recovery across the continent, many low-income people simply cannot afford state services, and families forced to ration access cut back on girls' schooling or healthcare.

Decommodifying Electricity, Health
Water is not the only sector where activists are responding to the logic of the markets with calls for decommodification. The Soweto Electricity Crisis Committee continues to hold protests against politicians who insist that the inclement privatization of the state electricity utility requires cut-offs of power to those who cannot pay. At a demonstration at the Johannesburg mayor's house in April, the mayor's bodyguard shot eight live rounds of ammunition into a crowd of nonviolent protesters, 87 of whom were then locked up. Fifty were denied bail for 10 days, before being released in an incident now considered to be the first time in South Africa that neoliberalism has claimed political prisoners. The bodyguard remains at large, uncharged, while the Soweto protesters will face the prosecutor in mid-August.

The same spirit of decommodification has emerged from the Treatment Action Campaign and its international allies like ACT UP, who together have advocated for provision of life-saving treatment to people with HIV/AIDS. But like water and electricity, the demand for drug treatment has also hit the barrier of transnational (and local) corporate power. When financier George Soros was asked about treating HIV-positive South Africans in an April interview with the South African Broadcasting Corporation, he replied, "I think to provide treatment to the bulk of the people is just not feasible. I think to provide treatment for instance to qualified workers actually saves money, actually saves money for companies."

The interviewer responded, "Aren't you uncomfortable to talk in a way that is a kind of death sentence to those who we can't afford to treat?"

Replied Soros, "I think the cost of providing actual treatment to everyone at the present. ... I don't think it's realistic. It's not achievable."

Staying Alive
Still, what the South African experience these last few years shows, is that full cost-recovery doesn't work and will be resisted, especially if combined with service cut-offs.

Northern campaigners are also lending support. For example, U.S. activist efforts led to legislation in 2000 requiring the United States to vote against International Monetary Fund and World Bank projects and loans that included user fees on primary healthcare or education. That initiative helped prompt the Bank to abandon its longstanding support for school fees and actually begin to oppose the imposition of such charges. (The Bank continues to support fees for basic healthcare.) The change in Bank policy on user fees for primary education encouraged Tanzania to abandon school fees, with the result that 1.5 million additional children -- mostly girls -- are now able to attend school. Many of the Northern activists who helped win the user fee victory are now working to support initiatives to decommodify water.

Campaigners in developing and industrialized countries alike -- as well as some government officials -- insist that basic services create additional social welfare in the form of public goods, but only if they are not privatized. Only the state has a built-in incentive to use public services like water and electricity to promote public health, gender equity, environmental protection and economic spin-offs.

Not only do privatizers ignore public goods, they are also inevitably opposed to free lifeline supplies and redistributive pricing. Hence, as so many South Africans have learned these last few years, the fight against privatization is also a fight to decommodify the basic services everyone needs, simply to stay alive.

Patrick Bond, a professor at Wits University in Johannesburg, is author of Unsustainable South Africa: Environment, Development and Social Protest and editor of Fanon’s Warning: A Civil Society Reader on the New Partnership for Africa’s Development (both published in the United States by African World Press, http://www.africanworld.com).