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Privatization Prevents Proper Solid Waste Management in India

December 30, 2010

A client has asked me to develop a position paper on the privatization of solid waste management in India. Privatization, a right-wing tactic to downsize government by transferring public money, public assets and public work to the private sector, became popular in America under the Reagan administration, and is now being imposed on low and middle-income countries as a condition attached to loans from the World Bank, the IMF, and other lenders of development aid. Proponents claim that privatization will achieve considerable cost savings through increased efficiency. This really means that savings, if any, are achieved largely by shifting the cost of an activity or service to labor through steep wage cuts and layoffs.

Privatization is often advocated by economists, who always endorse privatization for reasons that are more paranormal than rational, reasons which at best are unsubstantiated empirically, but more often are utterly counterfactual. They embrace privatization on the basis of an enormous leap of faith, and they expect their audience to do the same.

A typical example of economists’ perverse reasoning on privatization is found in the doctoral dissertation of Louigueur Patrick Dorvil, now an economist at the European Investment Bank. Dorvil, a prominent proponent of privatization, has a habit of endorsing privatization while simultaneously acknowledging its dismal track record. In his dissertation, Dorvil acknowledges, “very few experiences in the field of solid waste privatization in low and middle-income countries have shown solid waste management to have been successfully implemented so far.” But that doesn’t discourage him from endorsing it. I find this cognitive disconnect perplexing, but I suspect that I might begin to see the sense in it if I was paid hundreds of thousands of dollars to spread it.

Dorvil repeatedly asserts, “The decision to privatise a public service should not be based on ideological considerations but rather on economic merits.” Dorvil fails to understand that this assertion itself is ideological–it is a product of his beliefs about what is good, what exists and what is possible. He fails to recognize this because his education has been for the most part an indoctrination in the theology of economics. His faith in the infallible judgment, omniscience and beneficent intentions of the invisible hand lead him to affirm the sanctity of “economic merits,” as if they are somehow immaculate, or free from the sin of ideology, which might tempt one to consider noneconomic matters such as public health or environmental impact.

The fundamental problem that arises from privatization is goal divergence. In the case of solid waste management in India, the goals of the government and the private sector diverge to the extent that the objectives of privatization not only deviate from, but actually contradict the objectives of policy. Dorvil acknowledges this problem, writing, “it is difficult to compare the performance of private firms and municipal management in the field of solid waste management, since these organizations pursue different goals . . . Private firms are indeed interested in maximizing profit, whereas the objectives of municipal management are much more complex.”

In his dissertation, Dorvil repeatedly concedes that the tendency of contracts to pay contractors on the basis of the quantity of waste collected and transported creates a strong incentive to maximize waste. Tipping fees for private companies that operate landfills create the same incentive. Dorvil calls this a “contradiction of the hierarchy principle”—the principle that makes waste minimization paramount. But despite acknowledging this contradiction, he nevertheless advocates privatization. He acknowledges other problems with privatization: the shortage of municipal administrators qualified to manage, monitor and enforce contracts, and the shortage of bidders, defeating the supposed advantages of competition. These too he dismisses, insisting that all this can be solved by “good inter-organisational relationships” and “flexibility”–a solution that sounds naïve, sure to fail, murky and conducive to corruption.

Economists regard efficiency as the paramount objective of public policy, yet economists avoid definition or clarification of its precise meaning. Economic writing is notable for its ambiguity, or the absence of specificity. The word “efficiency” functions as smoke that economists blow in one’s face to cloud discussion. An example of this is an article by Ioannis Kessides, a lead economist at the World Bank. In his article, “Infrastructure Privatization and Regulation: Promises and Perils,” the words efficient, efficiency, inefficient and inefficiencies are mentioned 33 times. They function as placeholders for substantive, precise meaning. Efficient and efficiency appear 26 times, as efficient prices, efficient pricing levels or efficient natural resource exploitation. Inefficiency, inefficiencies, and inefficient appear seven times, as inefficient taxes, inefficient public utilities, inefficient subsidies, and inefficient restrictive labor practices.

Unsurprisingly, economic efficiency is portrayed as being in tension with social equity: it’s a tradeoff, either one or the other. In the economist’s mind, social equity compromises efficiency.

Equity is mentioned four times in the sense of “return on equity” (meaning the money value of property), but only three times in the sense of distributional or social equity (meaning an arrangement that is equitable).

Equitable occurs once, as “equitable tariff setting”, which in the World Bank’s mindset probably means rich and poor pay an identical tariff. Variations of the word competition (competition, competitive, competitiveness and uncompetitive) are mentioned 49 times.

The ritualistic chanting of the words efficiency and competition makes the article sound like more of a prayer than a serious policy prescription.

By insisting upon the privatization of solid waste management services as a condition of development aid, World Bank economists and their fellow travelers have brought the implementation of India’s decade-old solid waste management policy to a standstill. While Indian authorities engage in a distracting exercise of trying to comply with the ideological strings attached to such loans, garbage piles up on street corners.

In junkets held in fancy hotels, India’s officials and authorities are subjected to the expert advice of World Bank staff such as Shubhagato Dasgupta, who package their economic mumbo jumbo into sermons accompanied by colorful, cryptic, confusing, crowded PowerPoint slides like this one on private sector participation in India’s waste management sector.

Shubhagato Dasgupta's Mindnumbing PowerPoint Slide

Shubhagato Dasgupta's Mindnumbing PowerPoint Slide

In my next post, I’ll review findings of some studies of privatized services in the US.

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One Comment leave one →
  1. January 8, 2011 1:43 am

    cool

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