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Corporatization

Corporatization is arguably the single most important trend in ‘public’ service delivery today. It refers to government ownership models that grant legal and financial autonomy to public enterprises that operate with some independence from the state. Water and electricity utilities are common examples, but the practice extends to a much wider range of goods and services, from airports to universities to hospitals (e.g. in Malaysia).

There is considerable debate over the merits of corporatization in essential services. The MSP’s contribution to this discussion is published in Rethinking Corporatization and Public Services in the Global South, a collection of case studies from the electricity sector (Costa Rica, Malaysia, Tunisia) and the water sector (Burkina Faso, Europe, Philippines, Uruguay). This book shows how corporatization can be both a blessing and a curse: sometimes allowing for more transparent sectoral planning but often encouraging public utilities to run on private sector principles that detract them from social objectives. Our animation video popularizes key findings.

The main objective of 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. It can also serve to enhance the borrowing status and credit ratings of agencies, less encumbered by complex intra-governmental finances.

More controversially, corporatization has 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.

Progressive cases

Not all corporatizations have been carried out with commercial imperatives, however. Our research has found many examples of equity-oriented water and electricity corporatization at various levels of government. This work sheds light on how and why these agencies have managed to resist neoliberal pressures and prioritize social objectives.

The electricity utility in Costa Rica is a good example. For decades, ICE has been one of the most efficiently run companies in all of Latin America, public or private, evolving out of Costa Rica’s social democratic experience with the ‘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, OSE is another positive example of corporatization, providing high-quality, affordable and nearly universal water services to the country’s population for more than 60 years. OSE has achieved one of the highest coverage rates for water and sanitation in the region, and Uruguayans consider it a point of national pride that it was the only country on the continent not to be affected by the cholera epidemic in the late 1990s. OSE’s unionized workforce is also involved in decision-making to some degree, and the company is considered to be run effectively, transparently and efficiently for the most part.

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, which has managed to resist much of the neoliberal pressures that have altered electricity utilities in the region. Its social objectives have remained at the forefront of decision-making and there have been important public investments in long-term service expansion and equity. Access is improving and service quality is generally good.

In the Philippines we looked at the Leyte Metro Water District, which has benefited from a national effort to create more institutionally coherent water systems. LMWD has created partnerships with other public service providers and actively shares resources and knowledge within the public sector. It 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.

North Africa provides a different sort of corporatization history, as evidenced in our study of Tunisia’s state-owned electricity provider, which benefited from massive investments by the 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. Nevertheless, a commitment to state service provision still pervades the public sector and has contributed to widespread electricity coverage and considerable capacity.

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 socially oriented 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.