Tuesday, May 31, 2005
True Believers at the World Bank "In the McNamara era, the bank began to make loans on the condition that nations privatize public services and allow foreign money to move in and out of the country with little regulation. The idea was to create a climate in which private investment would lift people out of poverty. For the next 30 years, the World Bank and the International Monetary Fund followed this market-oriented strategy, which came to be known as 'the Washington Consensus.'

Before the McNamara years, the poorest people didn't get much richer. But during the Washington Consensus years, they got poorer and poorer.

I saw how that could be possible when I became a shareholder in the French water company Suez, which took over the water system of Johannesburg, South Africa.

To get ready for privatization, South African communities followed the World Bank/IMF suggestion that water rates be raised so consumers would get used to paying the full cost. The water of many people was cut off when they couldn't pay their bills. In some places they started taking water from rivers. The result was a cholera epidemic.

Cholera is an extreme result for a development scheme. But then, privatizing water in Africa is an extreme application of the World Bank's private investment theory. After all, a private company has to have some way of making money.

How is a private water company supposed to recoup the expense of extending pipelines to people who are simply too poor to pay the real cost? If you buy a Third World water company, it's far easier, you'll quickly discover, to recoup the investment by siphoning the water out to be bottled and consumed elsewhere.

Even in the First World, it's often more profitable to siphon off than to 'develop.' For a few years, the Suez Co. also owned the water system in Bergen County, N.J. During its stewardship, it sold off land around the reservoir to private builders. Then it turned around and sold the whole water system to another company. We shareholders took the money and ran. Technically that's called 'asset stripping.' And it's perfectly legal."

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