Going nowhere

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Fifteen years after drastic legislation transferred public corporations to the private sector, the railways of Argentina have failed public and workers alike. Julio Adolfo Sosa recounts how decades of poor economic management – by powers inside and outside the country – culminated in a disatrous decision that should not be repeated...

The Peron government in the 1940s designed a nationalisation project that distanced our railway from the British and French systems it had been modelled on since 1853. Designed to collect the wealth from Argentinian cattle-raising and transfer it to the European markets, the railway was supposedly built from the port inland. It had never reflected the need for routes to link and integrate the country’s vast national areas of production.

Now the plan was for Argentina to be part of an industrialisation process, with a growing home market and a growing, politically driven public sector. In this context, nationalisation of the major public utilities (railways, energy, electricity, and so on), until then in the hands of foreign capital, symbolised a huge step forward for a country in search of self-determination. Sadly however, the process was to be aborted following the military coup that toppled Peron in 1955. At this point the major public utilities, now in the hands of the state, embarked on a course towards operational and technical collapse.

Decades of under-investment in railway stock made it impossible for railways to compete with the road transport industry, which now benefited from preferential policies.

Guided by the International Monetary Fund and its special committee for railways (the Larkin committee), the government adopted “modernisation” strategies, which meant closing down branch lines and stations and cutting back on services. Meanwhile thousands of highways were built alongside the railways, undermining the capacity of the railways to meet traffic demands.
As a result of these changes, the railways lost services, cargo and rail employees while, ridiculously, the number of administrative staff increased inversely in proportion. In this way, road traffic was overburdened to the detriment of the state railways, which soon dropped their market share to under seven per cent of the country’s general cargo traffic.

Disruption and de-industrialisation
Argentina had given up its growth strategy to play a secondary role assigned by the first world countries through the international institutions. The disturbing rates of de-industrialisation that ensued did not lead immediately to high unemployment, thanks to state regulation and customs protection policies. However the skeleton of national productivity was undernourished and vulnerable. After 1976, when a new military dictatorship began to follow a policy of deregulation, the first signs of breakage appeared.

Incoming goods from other markets, mainly in Asia, destabilised the small and medium-size businesses, and undermined an already weak economic situation.

The international oil crisis and plummeting dollar had increased the appeal to rich countries of placing their currencies in developing countries, such as Argentina. This increased their purchasing power in an unrestricted market, and encouraged the creation of a large foreign debt, increasing the dependence of countries like Argentina on the dominant countries.

Rich countries could rely on the foreign debt to prevent any kind of independent venture toward development. Ensnared in the nets of the IMF and World Bank, Argentina could only wait for them to impose their plans on the region.

The Falklands War with Great Britain in 1982 deposed the military, and the fragile democracies following those bloody years inherited the stigma of the foreign debt, which systematically determined every government act.

The period beginning 1983 was marked by attempts at clear democratic social reforms. However many of these were rejected by the public sectors, which demonstrated constantly and en masse, against what they saw as the stifling of the government by adherents to World Bank economic strategies. This level of disruption made government unworkable and ended with the resignation of the national authorities before the end of their mandate.

Private sector betrayal
In mid-1989 new government authorities introduced a mega-law transferring public corporations to the private sector. This law and its regulatory decrees were applied on a gradual and staggered basis, which made it impossible to stage a unified defence of public corporations by the workers. Separate, scattered and fragmented disputes arose, which damaged even further the few opportunities for creating discourse.

The old rhetoric about monopolist and efficient public corporations was fast becoming a faint memory for Argentineans. People saw the consequences and not the causes of the destructive policies. They saw the results of 30 years of non-investment, and wanted to see money ploughed in to public services. But they did not understand the motives of the contractors who moved in to benefit from the concessioning process that took place.
As the public corporation transferred to the private sector, the private companies introduced new, inferior forms of labour representation to replace the collective bargaining agreements approved years before. They systematically cut jobs and benefited from an ongoing reduction in wage levels relative to prices, which in most cases has remained unchanged to date since the first concessions were awarded in 1991. Meanwhile rising unemployment and demographic changes have drained the capacity of many pension funds to provide social protection for those employees who remain.

With no regulatory authority to report to, the private companies have failed to draw up safety policies, leaving increasingly unskilled and untrained labour vulnerable to accidents. Recent reports suggest 89 per cent of these companies fail to comply even with prevailing national safety laws. Yet in some cases financial difficulties have prompted the government to extend a contract, even before the concession has expired. This has happened despite the failure of some companies to make the investments they pledged as a condition of winning the concession.

Rail privatisation has come to symbolise the dissolution of the nation state in Argentina – the erosion both of the state’s influence and its regard for matters of vital social importance.

The state is neither good nor bad, but a tool to be judged only in how it is used and for whom. Surely this tool must be at the service of the vast public majorities, and not solely of privileged minorities who in turn serve the developed countries in their exploitation of our economy.

The experiences undergone by the Argentine railways after privatisation have been overwhelmingly negative, characterised by job losses and the failure of new companies. Today, the new government seems to have recognised the public’s concern, and it intends to reintroduce inland passenger train routes. Obviously this will be a hard task given that the infrastructure is destroyed and heavy investment must be made, but at least such intentions can begin a journey towards recovery.

Already undermined by decades of political mismanagement and under-investment, privatisation helped to destroy the railway system in Argentina and in so many South American countries. We offer our solidarity and support to any union fighting to challenge this process in their country.

Where did it all go wrong?
In February 2003, an unusual event took place at the headquarters of the World Bank in Washington DC. Staff from its Latin American and Caribbean region, from executive director level to the lowliest economist, came together for a seminar called Rethinking Privatisation.

Don’t get too excited. This was certainly a sign of the times, and there was some serious rethinking going on, but the international institution that has been more responsible than any other for the wave of railway privatisations in Latin America was not about to announce it was all a mistake.

Nevertheless, the World Bank and an increasing number of Latin American governments are facing reality: that privatisation in transport and other public utilities has not gone according to plan.
The problems have attracted most attention in relation to water services, following a series of debacles that have led the major transnational businesses in the sector to decide, in effect, to call it a day in Latin America.

The most celebrated setback came in the Bolivian city of Cochabamba, where a mass uprising in 2000, against water price rises associated with privatisation, left one demonstrator dead, scores injured and the government licking its political wounds. The 40-year concession awarded to a consortium led by the US firm Bechtel had hardly begun before the Bolivian president was forced to annul it.

Elsewhere, too, water privatisations have been running into trouble. Even in Buenos Aires, long the international model of water privatisation promoted by the Bank, the French giant Suez decided to pull out of its 30-year contract last year when the country’s financial crisis forced a choice between huge price rises and huge losses.

By then, water rates in the city had already risen by 20 per cent, although privatisation was supposed to reduce them by that much. Internationally, according to the United Nations’ 2003 Human Development Report, “Privatisation in water and sanitation has led to much higher fees, sometimes overnight – and sometimes with disastrous consequences.”

Privatisation has led to some investment in infrastructure, in rail as in water, with some improvements as a result, but the benefits are unevenly distributed in favour of big business. The clearest patterns in rail have been the closure of loss-making passenger services (which is most of them) and a shift away from carrying small-scale freight. Investment, where it has occurred, has been concentrated on facilitating the inter-modal movement of big bulk cargo for export markets.

Failure to deliver
The impact on jobs has been catastrophic. In Argentina, some 90 per cent of the railway workforce was cut in preparation for and following privatisation, in the first half of the 1990s. In Brazil, railway employment fell by 75 per cent, from 42,000 to less than 11,000 over the five years of the privatisation process up to 1998.
Despite those massive cost savings, Brazilian rail privatisation is failing to bring many of the promised economic benefits, and the concerns raised in a major ITF study published two years ago have been borne out.

Serious problems have arisen from the fact that the consortia that have taken over bulk freight services are dominated by companies whose primary interests are in the cargo itself, particularly iron and steel. Those companies have an obvious incentive to put their corporate needs above those of other businesses and this had led the new Brazilian government to begin to improve the inadequate regulatory arrangements.

History repeats itself
A new national agency has been set up to “regulate and co-ordinate the activities of the concessionaires, ensuring neutrality in relation to the interests of users,” according to the leading conservative daily newspaper, O Estado de São Paulo. Other press reports suggest that investment levels are well behind those required under the privatisation contracts. With six out of the seven concessions reporting losses, the original rationale for privatisation – that it would mobilise capital to renew the infrastructure – is looking less and less convincing.

Consequently, the government is under increasing pressure to bail out the privatised rail companies, using public funds set aside for regional economic development. It is estimated that the equivalent of about US$1.4 billion will be needed for investment, and most of that is expected to come from the National Bank for Economic and Social Development, BNDES.

Piecemeal restoration of public ownership has already begun. Brasil Ferrovias, a holding company that has consolidated ownership of several of the originally separate concessions in the five years since privatisation, has recently closed a deal with the state government of Mato Grosso, according to Brazil’s mass circulation daily Folha de São Paulo. If approved by the new regulatory agency, it will see a major freight route deprivatised so that investment can go ahead without concerns that its benefits will be unfairly distributed.

In a continent where the public ownership of rail infrastructure was originally a response to the failure of private concessions to serve the public interest, it seems that history could be about to repeat itself. Like the World Bank, Latin America is rethinking privatisation.

Brendan Martin is director of Public World, a London-based international association specialising in the political, social and labour dimensions of privatisation and public service reform.

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Issue 14 January 2004

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