Incoherence in the debate over ‘privatization’
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The term “privatization” is contentious and controversial but despite the controversy it causes, people often have no common understanding on what it actually means. As a result, debates on privatization are often misleading and incoherent.
When Law No. 7/2004 on Water was submitted for judicial review at the Constitutional Court, petitioners argued that the law was intended to privatize the water sector despite the fact that the term privatization is never mentioned in the law. Government representatives denied that the water law was a privatizing instrument since it did not regulate the transfer of shares from state-owned companies to the private sector.
Why is it that the government often denies privatization whereas NGO activists argue that privatization is occurring? It is because when the government says “privatization”, they often mean “divestiture”, i.e. the reduction of assets for financial or ethical objectives. Divestment is the opposite of investment.
The government is technically correct because the law on state owned enterprises defines privatization as a sale of equity. However, it is theoretically incorrect to say that other forms of private sector participation such as management contracts, affermage (the private operator is responsible for operating and maintaining the utility but not for financing investment), leases and concession, are not privatization. In those instances, the state has, to a certain extent, retreated from providing goods or services. The legislation could also be misleading.
The emphasis in privatization debate in Indonesia tends to be on ownership. The government will deny that privatizations are occurring since there is no divestiture. Civil societies are complacent because it seems that the private sector is prohibited from participating in the provision of goods and services. These debates miss the point.
It should be understood that privatization is a continuum. Divestiture (the government version of privatization) and long term contracts are a part of this continuum. But even ordinary procurements are privatization in a certain sense since they involve non state entities. Office stationary, Internet services and other logistics must come from somewhere and they are usually provided by the private sector.
The only difference between divestiture and simple logistics procurement is on the degree of the private sector’s involvement in providing goods and services.
Ownership-focused debate on privatization is too narrow. Civil society often assumes that privatization (of ownership) will automatically result in the privatization of wealth, etc. But this is not always true. In some countries, an increase of civic engagement and transparency is the result of privatization.
The very reason why public utilities were privatized in England during Thatcher’s administration is exactly because privatization was thought to be in the public interest. Regulatory apparatus was designed to defend the public interest. Later after the Labor government came to power, this role was strengthened by preventing public utilities from cutting off their services due to the customer’s inability to pay.
In terms of transparency and social engagement, privatized public utilities in England are much better than the state owned companies in Indonesia. Despite being owned by the state, Indonesian badan usaha milik negara (state owned companies) are substantially more secretive and disengaged than privatized English utilities.
Privatization processes in England and other parts of Europe is the reassertion of the public sphere. The state reconfigures itself as a regulator to defend the public interest by applying transparency and participatory principles in the regulatory process.
In Indonesia the debate focuses primarily on the ownership question and there is a lack of discussion of the role of the state as a regulator, and the accountability of the private sector. Privatization has already occurred through contracting, but most people are complacent because the company’s ownership status remains “public”.
The irony is that our country is in certain ways more liberal than the neoliberals. Neoliberal England fully divested its public utilities but strongly regulates the privatized entities and guarantees the public sphere. Conversely, our government is very reluctant to formally retreat from the market.
However, at the same time scratches the back of the private sector through contracts, but with no accompanying strong regulations. In terms of the public sphere, this kind of privatization conducted “by contract” could be much worse than full divestiture.
I urge that the debate on privatization should not be focused on the question of ownership alone. Ownership debate is tricky. State ownership is not a guarantee that things are not privatized and conversely, privatized ownership — could be more public than state ownership if accompanied by strong regulation.
Our focus should not be on rejecting privatization per se and then advocating state ownership. Instead, our focus must be on the role of state in defending the public interest, in reasserting the public sphere and in holding the private sector accountable for public service delivery.
The writer is a lecturer of law.
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