Feature

Globalisation? Privatisation!

The World Trade Organisation is not just reducing barriers to international trade. It is also opening up public services to commercial exploitation – and it is already happening, warn Allyson Pollock and David Price

The high-profile privatisations of the education authorities in Hackney and Islington, London, and Leicester and Liverpool are paralleled by similar developments in other public sectors, including the NHS, social housing and social services.

Each initiative is part and parcel of a raft of market-orientated policies which includes privatisation of the public service infrastructure through the private finance initiative (PFI) and public-private partnerships, and privatisation of the workforce through ‘best value’, competitive tendering and contracting out. The state is using these reforms to redraw its boundaries and redefine public goods as private responsibilities.

While the re-engineering of public expectations and public services continues apace in the UK, most people are not yet generally aware that the policy of privatising state functions and responsibilities is part and parcel of a much larger global programme by the World Trade Organisation (WTO), which is currently being adopted by governments and transitional corporations in more developed countries.

WTO’s role in privatising services

The WTO was created in 1995 to lower import taxes, remove barriers to free trade and resolve trade disputes. Its 134 trade ministers met to launch its programme in Seattle at the end of November 1999. The broad objective of the summit was to expand private markets by removing barriers to the global movement of goods, services, and capital. What few people realised was that a major focus of the talks was public services.

The WTO hopes to prise open the public funding streams which pay for public services for commercial exploitation. US and European governments use the WTO to promote the commercial interests of their transnational corporations (TNCs), which they see as the source of economic prosperity. President Clinton says the WTO is a major tool for ‘strengthening US domestic prosperity and global leadership’, and calls for the aggressive use of the WTO to open up markets to US-based TNCs. The EC links European prosperity to the commercial profits of European-based TNCs.

With profits in the manufacturing industry falling, the corporate lobby is targeting the proportion of gross domestic product that governments spend on public services. In health and education alone, government spending is in excess of 15 per cent of GDP in many European countries, but much of this goes on voluntary and public sector provision.

To capture a share of this budget, TNCs are mounting a concerted campaign to open up more provision to the private sector. For example in health care, industry lobbyists argue that ‘public ownership of health care has made it difficult for US private sector health care providers to market in foreign countries’. Charlene Barshefsky, US chief trade delegate who chaired the Seattle round, says that ‘commercial opportunities exist along the entire spectrum of health and social services’.

The WTO is devising the international laws and regulatory frameworks which will allow it to open up public funding pools and public services to the market. The General Agreement on Trade in Services (GATS) opens up service provision, like education and health care, to direct foreign competition and ownership.

According to the WTO and its main backers – the US government and the EU – the weakness of GATS is that although 134 countries have signed up to it, too few have made the specific market access commitments to back this up. Many members states have omitted to list the service sectors which they will open up to foreign acquisition or have deliberately shielded public services from privatisation.

The objective at Seattle was to make sure that member states’ commitments under GATS were expanded and strengthened. To achieve this, WTO signatories were told to include more services in GATS in line with their earlier promise of ‘progressive liberalisation’. Proposals are in place to deny governments public service opt-out from GATS, widely used to protect welfare services from commercial take-overs (see news, page 2).

The European Commission and US government, both of which favour fast-track privatisation of the public sector, are also pressing member states to avoid political controversy by making across-the-board commitments (known as horizontal targeting), without advertising the public service implications.

In addition to GATS, the WTO has two other devices crucial to opening up Europe’s public services and their funding pools.

Government procurement rules supply the legal and regulatory framework within which public bodies contract for goods, services, and investment funds. Procurement reform is a primary mechanisms for opening up public services to international competition. EC proposals focus on ‘[unlocking] new potential markets’ by extending private firms’ involvement with public services and by creating contracting rules to ensure ‘acceptable returns for investors’.

The WTO disputes settlement procedure allows one member state to challenge the domestic laws of another and provides a mechanism for changing the ways in which governments regulate and subsidise public services. The US is committed to making mandatory a disputes system which outlaws subsidies and regulations which are not market-friendly.

From public to private in the UK

The UK is leading the way in re-engineering its public sector services. One example of this is the switch in the funding arrangements for public services. In the NHS, for example, budgets were previously allocated on the basis of geographic areas’ needs and health services received block budgets on an annual basis.

Now funding is allocated as a payment per patient so that it follows the patient to the point of delivery. The capitation payment is favoured by the World Bank because it allows the substitution of private for public sources of funding such as co-payments, user charges and private insurance. It also allows funds to be diverted from public to private services.

One of the best examples of this in the UK is long-term care. Despite the rhetoric of care in the community, the 1980s and 1990s was a period of extraordinary growth in private institutional care, which grew from 175,000 places in 1985 to 650,000 places in 1998. This growth was funded almost entirely out of the public purse.

In 1983 the Conservative government switched to capitation payments using the social security budget. Individuals who qualified for social security support were allowed to spend their allocation in the private sector. Local authorities and NHS hospitals were not eligible to divert the income from capitation payments to their own services but had to meet needs from their existing budgets.

This created an incentive for public authorities to close public provision and switch clients into the private sector. Once privatisation was almost complete, the government was able to switch off the public funding stream, making paying for long-term care primarily an individual responsibility, until people became too poor to pay. Thus the 1948 contract of cradle-to-grave care was broken.

There is pressure to extend this pattern to the rest of the NHS. The NHS Plan for England published in July focuses on an expansion in intermediate care, much of which is likely to be contracted for in the private nursing home sector. New care trusts will be given powers to commission both health and social care, and for the first time NHS bodies will have the ability to introduce charges by redefining what is nursing and what is non-nursing care.

Under the latest reforms, these care trusts will receive a capitation payment for each patient and will come under increasing pressure to ration NHS care. GPs have already been considering whether to ask the government to allow them to sell private services such as health insurance and other private services.

Similar schemes are being announced in education. A co-payment template is about to be tried in the UK. Next year the government will offer a £10,000 ‘individual learning account’ to pay for education and training after the age of 18. This can be spent in either the public or private sectors but is only released when the account holder makes their own contribution.

The UK has also changed the financial rules governing public assets. For the first time, the public sector has to make a return on its capital and pay interest on its debt — that is, behave like a commercial corporation even though its income is largely dependent on government spending plans.

Known as resource accounting, commercial accounting practices were introduced in to the NHS in 1990 and have been extended throughout the public sector. In the NHS, this charge is known as the capital charge (the returns made to the Treasury by public entities on their net relevant assets valued at replacement cost) and forms a revenue stream to fund the annual rental charges associated with PFI schemes.

The UK government is outsourcing labour-intensive and capital-intensive infrastructure projects through the PFI. It permits the private sector access to public funds, although it is presented as permitting the public sector access to private funds. The privatisation of public funds has been achieved by the virtual elimination of new public funding for capital projects. The government is now seeking to extend this financing model throughout the public sector.

All of these policies are being copied in other, more developed countries. They are not neutral reforms but highly opportunistic programmes propagated and supported by multilateral financial institutions. Seattle was billed as the largest trade meeting in history but post-Seattle, WTO plans are about dismantling public services in the interests of private sector corporations.

The basis of public services is redistribution. They encourage solidarity by pooling risk across society and by basing entitlement on need, not ability to pay. Early privatisations of public services included the utilities, transport and long-term care. Evidence shows that these adversely and disproportionately affect the poor, elderly, frail, disabled and unemployed — the most vulnerable groups in society.

The authors of the Black report and members of Labour’s own independent inquiry into inequalities in health published a statement in the Financial Times (26 November 1999) outlining their concerns about the effects of extending trade to public services. A serious public debate on the implications of the WTO talks for public services in general and for public health in particular is now urgent.