Privatization and Environment Essay ⋆ Environment Essay Examples ⋆ EssayEmpire

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Privatization is the conversion of state or common property, or of an open-access resource, into private property. The privatization of a common property resource is also often referred to as enclosure. Privatization is justified on economic efficiency grounds, with claims that it ensures that owners or investors devote their full attention to enhancing the productivity of the privatized resources because they reap the full returns of their efforts. In addition, it is claimed that private property ensures that the costs of any environmental damage must be borne by the property owner, thus ensuring that such damage is minimized. Critics of privatization, however, insist that it usually serves only to enrich a small elite by handing them a resource formerly owned by all the people in common, without leading to any environmental benefits.

It is impossible to make accurate generalizations about the environmental impacts of all forms of privatization, because private property is suited for some but not all purposes, and, like all forms of property, depends on supporting institutions (e.g., relevant laws and their enforcement). Furthermore, property cannot so easily be classified as “public” or “private,” because many kinds of property involve overlapping rights or entitlements-the “bundle of rights” that constitutes property may be unbundled during privatization, with only some of those rights being transferred to private property holders. The result is then some form of “recombinant,” or “fuzzy,” property in the words of David Stark and of Katherine Verdery (both of whom study eastern European privatizations). Detailed study is needed on such privatizations in order to understand the environmental outcomes. In addition, even if privatization is an appropriate goal, actual outcomes depend on whether it is handled in a transparent manner untainted by corruption. Finally, particularly in the post-Communist context, many social and economic changes occurred at once (including democratization, economic collapse, and in some cases recovery) that can make it difficult to determine which environmental changes are due to privatization rather than other causes.

In some instances, the new property regime is clearly not appropriate for environmental preservation, social equity, or even the creation of a free market. This consideration applies most often to “natural monopolies,” such as the provision of water and sewerage services, the construction and maintenance of railway lines (though not necessarily the services of rail transport on the rail network), roads, and electric power grids (though not the production of electric power). In such cases, market competition is either greatly constrained or absent, and poorly conceived privatization efforts can easily lead to negative results. For example, privatization of British rail services was followed by some highly publicized accidents, high prices, and inconvenient connections and ticketing arrangements between lines operated by different companies. Such problems push consumers to prefer car or bus transport over more environmentally friendly trains. To correct these problems, renewed state involvement in the rail system was found to be necessary.

Networks constructed on the basis of private initiative tend to focus only on the most profitable places (sometimes called “cherry-picking”); if the goal is universal provision, this may be insufficient. For example, in 19th-century Britain, private piped water supplies only brought potable water to about 10 percent of the urban population, which not only meant poor living conditions for the other 90 percent, but also greater risk of disease outbreaks (e.g., cholera). In response, piped water supplies were made a municipal responsibility, later centralized in 10 regional water authorities. However, in the late 1980s, continuing concerns about river water quality and the reluctance of the national government under Margaret Thatcher to make necessary investments in water treatment led to a policy of privatization. Since it was recognized that regional monopolies would likely engage in monopolistic practices, price caps were imposed on water charges, while environmental regulations were strongly enforced. The result was improved water quality in rivers, lakes, and beaches, but underinvestment in some aspects of water provision (e.g., in preventing leakage of water) and high returns for shareholders. These were so high, and the water charges increased so much, that the public protested and the subsequent Labour government tightened price controls. This public reregulation has been so extensive that the private water companies actually resemble public services, and some of them have even applied to change their status to nonprofit ventures owned by some or all of their customers.

Privatization of water supplies has also occurred elsewhere in the world, often with far more problematic results. In the Bolivian city of Cochabamba, a privatization program in 2000 turned over the system to a subsidiary of the Bechtel corporation. In contrast to the British case, where the water itself was still regarded as public property, this privatization even extended to rainwater as soon as it fell on the ground within city limits, turning people who collected rainwater in their own cisterns into thieves. A high rate of return was guaranteed to the water company, in part by tying water rates to the value of the U.S. dollar. A massive protest movement declared that the vital resource of water was everybody’s property, and forced the reversal of water privatization within half a year. The renewed municipal water company was reformed to ensure direct accountability to customer representatives. More successful water privatization schemes do exist (for example, in La Paz, Bolivia), but include much more stringent regulation of private water companies.

In other cases, privatization is much more likely to lead to environmentally favorable outcomes because a private property regime is in principle well adapted to the resource use in question. This includes the privatization of state-owned or communal agricultural farms in China after 1978, and in eastern Europe and the former Soviet Union after 1989. Privatization in these cases offered the opportunity to reverse some of the environmental damage created by decision making and price setting by distant bureaucrats with little appreciation of local environmental or social conditions (e.g., as analyzed by James Scott). The actual outcomes varied tremendously, however, depending on how the process of privatization was handled. For example, in a study of three villages in China’s Henan province, Muldavin found that two villages created corporate institutions to take over indivisible communal facilities (for example, small enterprises processing agricultural commodities), with each member holding a share.

The land, however, was distributed among individual property holders. One of these villages achieved positive environmental outcomes by pursuing a diversified “ecological” agriculture with strong investment in irrigation and biogas facilities, though fertilizer use was perhaps excessively high. The other “corporate” village pursued a high-input agriculture plus industrialization, thus increasing environmental impacts. A third village was completely decollectivized, meaning that indivisible agroindustrial assets were appropriated by a few individuals. Irrigation facilities declined, many farmers ended up with excessively small holdings and overexploited their soils, while others applied excessive amounts of fertilizers to compensate for the lack of irrigation. This study demonstrates how important the process of privatization is in determining outcomes, and that it is essential to build up new institutions to make the new property regime viable.

In the former Soviet Union and eastern Europe, outcomes of privatization of agricultural land have also been very diverse. Where land holdings after privatization were small and fragmented, access to markets was poor after the centralized marketing facilities were dismantled, or the elimination of price controls led to drastically increased prices for agricultural inputs, farmers reverted to more subsistence-oriented production methods, involving small-scale diversified family farms minimizing the use of agricultural chemicals (e.g., in large parts of Bulgaria, Romania, and Poland). On the other hand, where access to markets was good, and where state or collective farms remained as large undivided units (e.g., as joint stock companies), they typically invested in more intensive or specialized farming, while shedding some of their labor force and increasing economic efficiency (e.g., much of Eastern Germany).

An instructive historical example illustrating the importance of the process of privatization occurred in 19th-century Alpujarra (in Spain) and Lucania (in Italy), as described by McNeill in Land, Property, and the Environment (2002). Although some of the old and complex property regimes in land, water, trees, and animals had been highly inequitable, they did ensure that radical changes in land use required the support of diverse interest groups with overlapping rights, preserving ecologically sustainable land uses. Privatization was marred by widespread nepotism, allowing a few new owners to take over vast acreages. They were able to quickly accumulate windfall profits from the sale of timber, with little concern for the eroding hillsides left behind. Many of the deforested lands were put to the plow in spite of their unsuitability for agricultural purposes, increasing erosion problems. This kind of behavior is often referred to as “asset stripping.”

On a much larger scale, asset stripping has occurred in the wake of privatization of large state enterprises in the former Soviet Union and some of the eastern European countries. These activities may have much more important social and economic than environmental consequences, however. Some forms of deindustrialization that happened as a result may be regarded as environmentally beneficial (e.g., reduced greenhouse gas emissions), but others may not (e.g., leaking oil pipelines, abandoned industrial sites contaminated by chemicals).

Those industries that privatize and continue to operate are expected to work more efficiently, that is, minimizing the consumption of scarce (i.e., expensive) natural resources. This can lead to investments in order to become more energy efficient, for example. However, where clean air, water, and soils are treated as if they were expendable (that is, there is no effective regulation of pollution), there is no incentive for private enterprise to take any more care to avoid pollution than the state enterprises that preceded them. Where privatization has stimulated rapid industrial growth (as in China), the result is therefore a significant increase in environmental pollution. This once again shows that it is vital that privatization be accompanied by effective institutions (in this case, appropriate regulations), and that it may be counterproductive if such institutions do not exist.

Bibliography:

Karen Bakker, An Uncooperative Commodity: Privatizing Water in England and Wales (Oxford University Press, 2003);
Michael Burawoy and Katherine Verdery, , Uncertain Transition: Ethnographies of Change in the Postsocialist World (Rowman and Littlefield, 1999);
Barbara Cellarius, In the Land of Orpheus: Rural Livelihoods and Nature Conservation in Postsocialist Bulgaria (University of Wisconsin Press, 2004);
Richard Edmonds, , Managing the Chinese Environment (Oxford University Press, 2000);
Joshua Muldavin, “The Paradoxes of Environmental Policy and Resource Management in Reform-Era China,” Economic Geography (v.76.3, 2000);
Oscar Olivera, in collaboration with Tom Lewis, Cochabamba!: Water War in Bolivia (South End Press, 2004);
John F. Richards, ed., Land, Property, and the Environment (Institute for Contemporary Studies Press, 2002);
James Scott, Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (Yale University Press, 1998);
Thomas Sikor and Dara O’Rourke, “Economic and Environmental Dynamics of Reform in Vietnam,” Asian Survey (v.36/6, 1996);
Katherine Verdery and Caroline Humphrey, , Property in Question: Value Transformation in the Global Economy (Berg, 2004);
Ingolf Vogeler, “State Hegemony in Transforming Rural Landscapes of Eastern Germany: 1945-94,” Annals of the Association of American Geographers (v.86/3, 1996);
Ernst von Weizsacker, Marianne Beisheim, Oran Young, and Matthias Finger, eds., Limits to Privatization: How to Avoid Too Much of a Good Thing: A Report to the Club of Rome (Earthscan, 2005).