Detroit, Disaster Capitalism and the Enclosure of the Water Commons

The “privatization” of local government functions under the state-appointed emergency manager in Detroit is lionized by a lot of right-leaning libertarians as an example of “free market reform.” But it’s a lot more accurate to treat it as flat-out looting — what Naomi Klein calls “disaster capitalism.”

The so-called “privatization” of government assets, as it’s carried out under “actually-existing free market reform,” is really just the latest example of a phenomenon as old as history: the enclosure of commons by state-connected rentiers. As Michael Hudson stated, in an interview on Thomas Piketty’s Capital:

…let’s look at Forbes’ list of the richest people in Russia, China, the Ukraine or the post-Soviet economies. I can guarantee you that they didn’t make this wealth by saving up income, they didn’t earn a higher income; they stole the property by fraud and internal bribery, the same way that the great fortunes were made in the United States. The History of Really Great American Fortunes by Gustavus Myers shows how the railroad land grants made fortunes by bribing congressmen and by privatising the land. The great fortunes are made by privatising natural resources, land and the public domain, and since 1980, when the concentration of wealth and income have really taken off, as Piketty shows, this is the age of privatisation, of Margaret Thatcher, of Ronald Reagan, and Boris Yeltsin in Russia.

But this goes back way further than Thatcher and Reagan, or even the Gilded Age railroad barons. As Henry George noted, most of the political conflict within the Roman Republic took the form of the patrician classes “privatizing” (enclosing) lands in the public domain, and land-poor and landless peasants periodically rising up to demand land reform.

And the same basic pattern applies to all kinds of public service “privatization,” under the kind of “free market reform” that’s carried out by neoliberal vultures feeding on one prostrate country or another.

The typical “privatization cycle” occurs as follows:

First, a basic infrastructure is created at taxpayer expense, either funded directly by taxpayer revenues or by bonds that will be repaid by the taxpayers. When it’s a country outside the US — especially a Third World country — foreign aid or World Bank loans may also help fund the project.

The infrastructure’s main purpose is usually to provide below-cost water or electric utilities, transportation, etc., to big business interests. In the Third World, that means foreign aid and World Bank loans to build the local power, water and transportation infrastructure needed to make Western capital investments (like offshored production) profitable. In California, the whole corporate agribusiness sector depends on massively subsidized water from government-funded dams. And as we will see below, large-scale business and industrial water consumers in Detroit have received preferential treatment like forbearance on tens of thousands of dollars in past-due water bills, while ordinary household ratepayers in poor neighborhoods are treated without mercy.

Second, Disaster Capitalists (to use Naomi Klein’s term) seize on opportunities presented by US-sponsored coups (like Pinochet and Yeltsin), economic meltdowns (the European periphery and Detroit) and military regime change (the US invasion of Iraq) to coerce governments into selling off that debt-financed infrastructure to global capital. And the Disaster Capitalist toolkit includes using such debt (either to bondholders or to foreign lenders), and fiscal insolvency from debt, in exactly the same way as debt peonage or debt to a company store — to blackmail government entities into “privatizing” their infrastructure to “private” (but politically connected) corporations or to domestic kleptocrats. The purchase price is a sweetheart deal, pennies on the dollar, because of the purchasing corporations’ insider ties to the political authorities selling off the goods.

Third, governments frequently spend more in capital investments to make the “privatized” infrastructure salable than they realize from the sale of it.

Fourth, the first item on the agenda of the corporation acquiring the newly “privatized” infrastructure is typically asset-stripping — jacking up rates, using the revenues as a cash cow, and simultaneously starving it of needed maintenance expenditures. The asset-stripping frequently yields more in returns, in a short time, than the company paid for the infrastructure.

And fifth — as Nicholas Hildyard pointed out in “The Myth of the Minimalist State: Free Market Ambiguities” (Corner House Briefing 05, March 1998) — far from operating as a “free market” actor, the newly “privatized” utility or other infrastructure usually operates within a web of state subsidies and protections that more or less guarantee it a profit.

Yet the practical outcome of these policies has not, in most cases, been to diminish either the state’s institutional power or its spending. Instead, it has redirected them elsewhere. It has also strengthened the power of many Northern nations to intervene in the economic affairs of other countries, notably the indebted countries of the South, the emerging economies of the former Soviet Union, and the weaker industrialised partners of trade blocs such as the European Union….

Far from doing away with state bureaucracy, free market [sic] policies have in fact reorganised it. While the privatisation of state industries and assets has certainly cut down the direct involvement of the state in the production and distribution of many goods and services, the process has been accompanied by new state regulations, subsidies and ins: