Selling off

The price of privatization in France

by Mathias Reymond

[This article published in July 2019 is translated from the German on the Internet, Ausverkauf - LMd.]



Privatization was considered a panacea since the 1980s. Competition, it was said, would bring lower prices to consumers, encourage entrepreneurs to innovate and ultimately make everyone richer.

Three decades later, the balance is not so rosy. While private capital was able to buy into companies that had been nurtured with public money at bargain prices, unbridled competition imposed new costs on the general public.

Nor do the historical facts speak in favor of privatization, quite the contrary. On the contrary, when many companies were nationalized in France after the Second World War, the consequences were only positive: public companies were able to correct market mismanagement, guarantee public services and, above all, shape the country's economic and industrial development.

But then Paris was inspired by the neo-liberal economists of the Chicago School and began to reduce public spending, following the example of the British Thatcher government (1979-1990) and US President Ronald Reagan (1981-1989). In one fell swoop, many state-owned companies were converted into public limited companies.

With the sale of the "family silver", the government also gave up important control instruments. Since the first privatizations under Prime Minister Jacques Chirac in 1986, the French state has sold around 1500 companies and transferred more than 1 million state employees to the private sector. The share of state employees (excluding public authorities and administration) in total employment has fallen from 10.5 to 3.1 percent within three decades.

At the end of the 20th century, the preamble to the Constitution of the Fourth Republic of 1946 seemed to be outdated. For the preamble stipulated that "Every asset and every enterprise whose operation has or acquires the character of a public service or a de facto monopoly must be transferred to the ownership of the community".

At that time, Électricité de France-Gaz de France (EDF-GDF) was responsible for electricity and gas supply, France Télécom for telecommunications and SNCF for rail transport. These companies were therefore wholly state-owned and had no competitors, from production to distribution, network infrastructure and customer service. Today, EU rules on "free and fair competition" require state companies to separate network and operations. In Sweden, for example, up to 30 companies are active on a railway line.1

Even economically liberal economists have long advised against giving so-called natural monopolies such as transport routes, telephone, postal, energy and water supply networks to

competition, because the total costs are significantly lower when only one company is responsible. As the necessary investments are costly, it is not advantageous from a general public point of view to build two or three networks for one service. Competition is therefore only meaningful in the upstream areas, i.e. in production, or in the downstream areas, i.e. in distribution. And not in the operation of the networks.

In France, natural monopolies have been managed by public companies in order to avoid the private sector taking advantage of them. This is the case, for example, with the SNCF Réseau rail network and the Réseau de transport d'électricité (RTE) electricity network. After private interests repeatedly called for these markets to be opened up as well, the French state allowed private companies to enrich themselves at the expense of the users, who thus became customers. The various governments justified this sometimes with the high investment requirements, sometimes with the need to reduce public debt. In 2004, Prime Minister Jean-Pierre Raffarin declared: "All tasks that can be carried out by the private sector must be privatized "2 .

The excesses of the privatization mania are most evident in the case of the motorways. Although a few sections are still in public ownership, all profitable routes have been sold to private operators, who have thus gained a dominant position. This is also a big mistake from an economic liberal point of view: if customers cannot switch to other offers, a private monopoly is not economically optimal. It can, like a shop on an island isolated from the world market, push through drastically excessive prices.

Instead of restructuring itself financially, as hoped for, the state has given up an important permanent source of income by selling the motorways for 14.8 billion euros. With the sale, the state made a loss of 10 billion euros, because the French Court of Auditors had estimated the value of the concessions at almost 24 billion euros.

Despite the financial crisis, the motorway companies were able to increase their gross profits by an average of 5.1 percent per year between 2006 and 2011. For all other companies (outside the financial sector), profits stagnated or even fell over the same period.

These profits were not reinvested in the motorway network, for example, but flowed solely to the owners: The companies Vinci, Eiffage and Abertis, which have held the licenses for 9,000 kilometers of motorways since 2006, have since paid dividends to their shareholders to the tune of 27 billion euros. This money has thus escaped the state.3 At the same time, toll charges have risen steadily, and at a much higher rate than inflation.

In 2013, the Court of Auditors complained that these gifts had been given to the private sector in disregard of the common good and basic transparency rules.4 It is therefore no wonder that toll booths were attacked by the protesting yellow vests as a symbol of the alimony and privilege of the rich.

When things go wrong, the state steps in

In Great Britain, on the other hand, where private water companies distribute 95 percent of their profits to shareholders, but have neglected to make the necessary investments in the networks, the privatization wave is already abating again. Recently, privatization has even been reversed, as in the case of Birmingham Prison or the East Coast Main Line.

The regulatory authorities' protective claim that they can provide reliable and affordable public services has been refuted by reality, comments Yves Salesse, member of the French Council of State and the anti-neoliberal organisation Fondation Copernic: "This has been refuted by reality. Regulators do not have the means to influence the behavior of multinational companies in a sustainable way "5 .

The development of energy and telecommunications prices over the past two decades is difficult to measure objectively in view of the changed consumption patterns - especially in these sectors. Nevertheless, one thing is certain: the costs of competition for the general public are higher than expected. For while profits have been privatized, the collective losses caused by the withdrawal of the state no longer appear in the balance sheets.

For example, when new competitors appeared in sectors where there was originally no competition, this led to costs that did not exist before either. These naturally affect prices, such as advertising and marketing costs, which are sometimes higher than the research and development budget, or lobbying costs.

Here are some figures for 2017: Orange, formerly France Télécom, spent 329 million euros on media advertising, the electricity supplier EDF 126 million, the gas supplier Engie 99 million and the railway company SNCF 72 million euros. Lobbying the EU Parliament costs EDF €2 million per year. This money, including for ten full-time staff,6 is not available for improving public services.

In the past, the revenue generated by public companies benefited the public, whether in the form of higher government revenue or as investments. Private operators, on the other hand, now only convert the profits into dividends for shareholders. This balance sheet also includes the increasing burden on customers due to personnel savings, with which the company intends to improve its competitiveness.

In all companies - from France Télécom to the Post Office and the SNCF - the workforce was already being reduced before the privatization wave began. At SNCF, around 100,000 jobs have been cut since 1985. And everywhere, working conditions have been tightened up, leading to an increased suicide rate at France Télécom between 2000 and 2011.

These cutbacks in state-owned companies meant that service was getting worse and worse. It was precisely this that then justified the need to privatize and open up the sector to competitors. As a result, customers today have to deal with a large number of contacts and many of them feel as if they have been caught in a Kafkaesque labyrinth.

Liberalization and privatization have ultimately only confused consumers, but have whetted the appetite of the industry bosses and their puppets even more. The takeover of the state by the private sector is no longer about the realization of an ideological project. Economist James Galbraith explains what companies really want: the state must provide an environment that is conducive to their development. The state has to provide an environment that earns them as much money as possible, restricts their power the least, and, "in case something goes wrong", guarantees their rescue.7

1 See Julian Mischi and Valérie Solano, "Freie Bahn", LMd, June 2016.

2 Quote from: Marc Landré and Gilles Tanguy, "Les onze réformes qui mettent notre État sous pression", L'Expansion, Paris, 1 April 2004.

3 Grégoire Allix, "La privatisation des autoroutes, un traumatisme originel", Le Monde, 8 April 2019.

4 Martine Orange, "Autoroutes: les dessous des relations entre l'État et les concessionnaires", Mediapart, 13 January 2019, www.mediapart.fr.

5 Yves Salesse, "Service public et marché", Regards croisés sur l'économie, No. 2, La Découverte, Paris, September 2007.

6 Transparency International, www.integritywatch.eu.

7 James K. Galbraith, "The plundered state, or what speaks against the free market", Zurich (Rotpunktverlag) 2010.

Mathias Reymond is a lecturer in economics at the University of Montpellier and the author of: "Au nom de la démocratie, votez bien!", Marseille (Agone) 2019

Le Monde diplomatique of 13.06.2019, Mathias Reymond