Introduction was very insufficient and the private sector

Topic: BusinessComparative Analysis
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Last updated: September 7, 2019

                         Introduction  For some academic’s neoliberalism is the idea that promotes privatisation while prescribing reforms and process such as deregulation, regulation and marketization which decreases government participation and increases the role of private sectors and communities in the process (Bakker, 2007). (Loftus and McDonalds, 2001) argued that privatisation was mainly imposed by SAP’s. Big cooperation’s are also less present in the developing world and small scale private providers are more acceptable for NGO’s (Parker and Kirkpatrick, 2005).

These small-scale providers are also considered as neoliberal reforms as they decentralise responsibility from the state just like a private company (Parker and Kirkpatrick, 2005). Privatisation started in the 1990’s in the global north and these global reforms were spread to the global south via international financial institutions such as the world bank by reforming institutions (Megginson and Netter, 2003). In this essay, I will focus on the neoliberal reforms of privatisation by looking at case studies from Argentina, Bolivia and the Philippines.

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I will highlight how the governance of the private companies and how they are run can influence its impact on the host country. I will show how in some cases mismanagement can even lead to conflicts breaking out using the example of Bolivia and show how the poor are often the most the oppressed ones in these situations by showing the price hikes of the water straight after privatisation in Bolivia and Argentina. Philippines In the Philippines water was only available for a few hours a day and the pressure was not enough to take it up to the second floor in the 1990’s (Dumol, 2000). At that time, the service coverage was only 67%, and 15% of the water was lost due to the poor infrastructure (Dumol, 2000). It was suggested that that the government was very insufficient and the private sector could do a better job. The literature shows that privatisation is always introduced after a crisis (Edwards, 1995). In Philippines, there was a power crisis which was followed by a water crisis making the perfect conditions for privatisation to occur (Dumol, 2000).

The build-operate-transfer law came into effect in the 1990’s to allow the privatisation of water in the Philippines (Dumol, 2000). The water has now been privatised for the last 20 years in Manila Philippines and has been proving affordable water since then (Wu and Malaluan, 2008).  When water in Manila was originally privatised, they split the city into east and west side (Wu and Malaluan, 2008) (Figure 1). The east side was taken over by the company Manila and the west side by a Maynilad.

The coverage of the east side increased by 94% in less than a decade (Wu and Malaluan, 2008). Another reason for the east side’s huge success was the community based grassroots schemes because they offered huge subsides to people with low income and who could not afford water but then those people were responsible for their own infrastructure and management (Inocencio and David, 2001). This leads to empowerment of the local people as they get to participate in service delivery and you are making new jobs within the community. Local people will also have more trust if they see that community leader living with them as is involved within the community. Whereas the Maynilad company on the west side were penalising people who were stealing water, often the poor who could not afford to pay for the water (Inocencio and David, 2001). The East side worked but the west side failed in the first part (Inocencio and David, 2001).

 The west side failed due to the bad governance as it was controlled by a foreign French company that left after the financial crisis in 1997 whereas manila water stayed (Inocencio and David, 2001). Hence it is suggested that when the privatised sector is run by local companies with a long-term plan it will work (Inocencio and David, 2001). In the case of Manila who were a 200-year-old business in the Philippines with an excellent reputation in the property business, they had a financing model and used local currency so when the 1997 crisis hit, the French company were having to pay double their foreign borrowing (Inocencio and David, 2001).

 West side company Maynilad also changed 3 Ceo’s in a quick succession whereas manila has the same ceo for 10 year’s (Inocencio and David, 2001). Manila were also offering the lowest priced service in the world and they gradually increased the price over many years rather than having a big hike like the west side Maynilad (Wu and Malaluan, 2008). The Manila success has to be attributed to reducing non-revenue water from 63% to 11% which saved them a lot of money (Wu and Malaluan, 2008). They also replaced all the leaking pipes and the net effect of all of these changes was an affordable water service after 20 years (Wu and Malaluan, 2008).  This neoliberal reform of privatisation has had many positives such as improving business opportunities for low income households. The local fishing industry is increasing as people are spending less time and money for their water, and using that money instead to purchase higher quantities of nutritious food like fish (Chia et al.

, 2007). The water quality before 1996 was not up safe standards but after the privatisation the quality of the water has increased (Chia et al., 2007). This reduced the deaths in children and allowed more children in general to attend school especially girls which will increase their chances of escaping poverty in the future and improve their quality of life. This case study has shown that how two companies in the same country had different outcomes which was all due to their governance, structure, long term financial planning and not leaving out the venerable. This shows the conditions under which privatisation could work in the developing world by employing local companies from the country with a reputation rather than multinational’s from abroad which are only concerned with revenue.                      Figure 1: The history of Privatisation in the Philippine capital of Manila (Source: Circle of blue 2012)Cochabamba Cochabamba was another example where the World bank and the IMF pushed the Bolivian government to sell its public enterprises to international investors.

This included the sale of the national airline, electric utilities, the national train service and the water service (Olivera and Lewis, 2004). Cochabamba is the third largest city in Bolivia and in 1999 they privatised their water supply (Bonnardeaux, 2009). Before privatisation the government only covered 57% of the population and had 50% losses through unaccounted for water which mostly came from leakages (Bonnardeaux, 2009). There were also problems with water pressure, rationing and water availability (Bonnardeaux, 2009).

Large amount of people depended on private wells and private vendors (Olivera and Lewis, 2004). In 2 months after the water was privatised by the company Aguas del Tunari on a 20-year lease and the price increased by 35% even though the water quality had not improved (Bonnardeaux, 2009). The rate hike meant that half of people’s monthly income went up for paying for the water who were the poorest amongst the population (Olivera and Lewis, 2004). The decision to increase prices came from well-off of people in Washington who said to increase prices by $30 which for them was nothing but the minimum wage per month for people living in Cochabamba was only $41(Olivera and Lewis 2004). Moreover, if the boliviano’s price dropped compared to the US dollar then the new law (2029) allowed there to be a price increase to compensate the difference so the water company does not lose any money (Olivera and Lewis, 2004).  This shows that the company was more concerned with their profits then the supplying safe water to the people in the country.

 The water bills after the privatisation suggested that people went from using 5 cubic meters of water per person to 20 cubic meters per person a month which was not possible (Olivera and ewis, 2004). This led to a huge conflict in the area which first included a roadblock, strikes and the shutdown of the city (Bonnardeaux, 2009). This led to police brutality which injured a lot of the people (Bonnardeaux, 2009). There were many riots in Cochabamba which lead to many deaths and injuries (Bonnardeaux, 2009). It was regarded as the battle between indigenous peasants and private corporations.  The private company was given the right to provide all water services within Cochabamba which gave the water company rights to the storage tanks, wells in people’s houses and tanker based vendor (Olivera and Lewis, 2004). Only the private company was allowed to distribute water and all the other distributors were regarded as illegal under the new law.

The new law also prevented people from building collection tanks or to collect rain water. People felt that their water was being taken away from them, and they saw it as something that belonged to the community. (Shultz, 2008) Shortage of water affected farmers as they could not irrigate their crops and earn money by selling them (Shultz, 2008). They did not have enough funds to send their children to school (Shultz, 2008).

There was not enough water to be used to grow feed for their animals. People were also getting ill because of drinking unsafe water, some people even lost their voice as they developed TP due to drinking dirty water for a prolonged period of time (Olivera and Lewis, 2004). In the april of 2000 control was given back to a public company after massive protests (Assies, 2003). This was known as the first water war where tens of thousands of people marched downtown and collided with police which resulted in one death of a civilian (Otto and Bohm, 2006). This lead to a general strike which closed down the city for 4 days (Assies, 2003). Things got so bad that the government had to declare a state of siege during which 40 people were injured and a further 5 deaths occurred (Assies, 2003). This had bought the country to a standstill where the economic output of the country further decreased.

This case study shows how privatising the water supply and giving its responsibility to a foreign company had devastating impacts as they did not understand the local people and went against their beliefs of water belonging to the community which caused a huge conflict to erupt. This case study is good example of privatisation going wrong where the private company is only concerned with large profits and will do anything to get them.   Argentina Another way to introduce privatisation is through the introduction of structural adjustment programmes which in 1985 the IMF forced Argentina to adapt to in order to apply for new loans (IELRC, 2007). In Buenos Aires before privatisation only 70% of the population had access to a safe water supply pre-1992 and only 58% of the people in city were connected to the sewage system and the poor who were the among the least likely to be connected. There were serious water shortages in the summer (Galiani et al., 2005).

Before privatisation there was a lack of investment, maintenance, poor customer service, service interruption, low pressure, overstaffing, high unaccounted-for water and low collection rates (Galiani et al., 2005). Only 1% of the connections were metered which meant if people misused their water they would not have to pay (Galiani et al., 2005).

There was no way of knowing what was the amount of water that a household was using if they were not metered, people could easily abuse the service and other who didn’t may have been made to pay the same price.  Some environmental problems were that since people did not have sewerage connections they would use septic tanks to put waste water inside which ended up contaminating ground water sources (Vilas, 2004). This increased the likelihood of the people catching hepatitis, dysentery as that water was not safe to drink anymore (Galiani et al., 2005). This could also lead to diarrhoea which makes the body lose even more water (Galiani et al.

, 2005). If this groundwater feeds into nearby rivers, it could pollute them and affect the wildlife and affect the local finishing industry which people rely on heavily. If people get ill they won’t be able to work and provide for their family or pay for basic necessities such as food and water which will cause their health to impact in a negative way (Positive feedback). Like we said before in the case of the Philippines that water privatisation always comes in after a crisis so after this crisis the water was privatised.

In Bueno Aires, there was a concession with a group of foreign firms and with the city there was a 30-year contract that water would be provided and the system would be maintained for 30 years (Vilas, 2004). The price was still regulated and the consortium was overseen by a governmental agency. The benefits of the privatisation were that child mortality fell by 8% in privatised areas and 26% in the poorest areas (Galiani et al., 2005).

 Other positives included connections increasing from 70% to 83% in 6 years after the privatisation (Galiani et al., 2005). There was a lot of investment in the water supply system, there was less unaccounted-for water (Alcazar et al, 2000).

Productivity increased and the response time to complaints dropped and water pressure improved (Alcazar et al, 2000).   This only shows one part of the story as privatisation had very negative impacts as well. The connection fee went up by 84% (Alcazar et al, 2000). Most of these connections were not affordable for many families. The price for the first 2 years of connection equated to 18% of their income (Vilas, 2004). The connections fee went up by 46%. The prices for already connected users went up less and these people tended to be higher income families so they benefitted from these reforms (Galiani et al.

, 2005). The main burden fell largely on the poor who didn’t have the infrastructure to connect to these new water connections and they were made to pay more for their connection (Galiani et al., 2005). These families are the families that need the most help and we always neglect them. They have to decide between buying water or buying food to eat and if we increase the prices we are often making this decision for them. It causes a cycle of events as if poor people can’t afford water, they won’t be able to look after their health, which would mean they can’t provide for their family and wont have enough money to send their children to school.

If the children can’t got to school, they can’t get good jobs in the future and help the developing country move to the next stage of development.  The water connections which were metered went up from 1% to about 12% which meant 88% of the people could use excess water and not pay (Hall, 2002). The private company were trying to get the poor families to pay for the cost of the meter which was $200 which they could not afford (Hall, 2002). This led to the contract being renegotiated in 1997 and then renegotiated again after the Argentine crisis of 2001 (Vilas, 2004).

By 2002, water rates in Buenos Aires had increased 177% since the start of the private concession. (Vilas, 2004) As during the crisis, the value of peso fell and the water company raised prices to cut its losses short and there was a lot of conflict between the company and the government which led to the private water company decreasing the water quality and investing less ((Galiani et al., 2005). This angered the government and the 30-year-old contract was terminated in 2006 and the government took control of the water supply for Buenos Aires (Jose ?et al., 2007). Although we can say this neoliberal reform of privatising the water in Buenos Aires bought many advantages but it had a fatal flaw that a lot of the burden of the distribution fell on the city’s poor. This example once again shows that you have to think carefully about how you will accommodate poor people within the new water system because it is them who are often the most venerable and we make the pay the most         Conclusion  In this essay, I have shown how neoliberal reforms such as privatising the water services have both had positives and negatives impacts in the developing world.

I showed how the Philippines case study shows that governance is the most important thing in ensuring that privatisation brings about all the benefits which it promises to. Long term vision, planning, structure, financing plan and being local were the most important things that made the manila project a success. This in contrast with Cochabamba’s case study where the foreign private companies did not understand the local area well and were just concerned with making profit rather than actually improving the water quality or the coverage of the water supply. This caused huge riots in the city and caused a lot of disruption.

The last example of Buenos Aires where the privatisation once again failed to meet its promises and again overcharged the poorest of the country had to have their contract terminated because of their huge price hikes. This all has shown us that privatisation could work if done properly in the case of Manila but due to the current standing of the world and our tendency to make a quick profit, privatisation has caused a lot of disruptions in many regions of the world

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