Cambodia
now has its first stock exchange and the country’s political and economic
leaders are all fired up about entering the world of ‘high’ finance. Well,
maybe it’s not that high, but still they are proud of making a beginning.
The
first stock listed is Phnom Penh Water Supply Authority, two others to follow
are Electricite du Cambodge and Telecom Cambodia. All three are public
utilities. All are reasonably well-run though the telecom company, the only one
that’s not in a monopoly position and thus subject to market forces, is behind
the times and not very competitive.
The
capital’s water company is highly regarded amongst developing country public
water systems: it’s well run and efficient. That means it’s well placed for
privatization and public officials are giddy with having such a good candidate
for their new stock market.
For
the longest time, as far as everybody including the media was concerned the
sell-off of public assets was considered all positive and there was no in-depth
reporting as to the details and possible consequences of the move. However,
anybody who keeps up with these trends in the world knows that privatizing
essential services like water in a low-income country has almost invariably
turned into a disaster. As well, private water companies have also often had a well-deserved
bad reputation in rich countries. Privatization is also high on the agenda of
the International Monetary Fund, the World Bank and conservative financial and
political establishments. They hate to see potential profit centers go
unexploited regardless of any possible negative impact on the people served.
There
are often good rationales for privatization, since, according to prevailing
economic philosophy, publicly owned enterprises are likely to be inefficient,
uneconomic, poorly run and repositories for political patronage. Private
companies, on the other hand are so well run, or so the ideology goes, they do
everything cheaper and better and the people ultimately save money and receive
better service by selling off their public enterprises to the free market.
You
certainly wouldn’t want a government involved in a competitive market, like
making shoes, for instance, as in Soviet times, because it would never work out
well. However, if you’re dealing with an absolutely essential service which enjoys
a monopoly market position the dynamic is totally different.
The
first thing that happens when a public utility turns private is that rates go
up. That is ostensibly to extend and improve service; in reality, in most
cases, private utilities spend the absolute minimum on improvements, especially
if they involve very long paybacks. The only way to keep them honest is to have
strong regulatory systems in place, which, in the case of Cambodia, would
constitute near miraculous intervention.
The
purpose of a privately owned water company is to make a profit, everything else
the company does is incidental and secondary to that primary goal. On the other
hand, the mission of a public water utility is to provide clean water at the
lowest possible price. When providing water, the most essential ingredient of
survival, to a population in which many people are living right on the edge of
existence, minimum cost is imperative.
Cochabamba,
Bolivia provides a good example of the perils of privatizing water. As per the
demand of international financial organizations - IMF, World Bank -
Cochabamba’s water system was sold off to a multinational corporation. They
immediately raised the rates to the point where large numbers of the peasantry
could no longer afford water; which resulted in demonstrating and rioting and
in no time at all, the utility was back in public hands.
At
the very same time that the capital’s water company was put in the process of privatization,
a small water provider was privatized in Ratanikkiri Province. Rates nearly
doubled along with vastly improved service, but large numbers of people
affected by the changes resisted and fought them. The government relented and
gave the people a choice, either the old system which provided cheaper but relatively
low quality water for about 12 hours a day, or the new privately owned system
which offered 24 hour, better quality water at the higher rate. A lot of
people, already barely scraping by, chose the cheaper lower quality public service.
So,
after about a year of hearing about the privatization of Phnom Penh’s water
company, without any details appearing in the media, I wrote to the Cambodia
Daily to ask for better, more in-depth coverage. Maybe the information was
ready to come out anyway because the stocks were about to be sold, but it turns
out that only 15% of the company is being sold so that the municipality will
retain complete control. They expect to gain about $20 million they can use for
improvements and expansion at a much lower cost than borrowing. So, it may not
be such a bad deal for the people after all; still, people don’t invest money
without the expectation of returns. Sometimes returns on investment come as a
result of rising stock values, but chances are that the utility is going to
have to pay dividends so the money will hardly be free and the end result will
have to wait for the passage of time.
Cambodia
is actually a poster child for the conservative fixation on privatization and
free markets. There are few import controls, except occasionally when specific
industries are threatened, so Cambodian entrepreneurs are forced to compete.
There are also few restrictions on investment, leaving the economy wide open. As
often as possible provision of public services and development of public spaces
has been left to private investors.
Cambodia
is very well positioned to take advantage of this openness compared to
surrounding nations. The decimation of the country’s industry and commerce in
the Khmer Rouge years took the country all the way down to square one, so it
needs a lot of imports for goods it can’t produce itself. Moreover being a
small country it can’t really compete for investment in industrial scale
operations, though if the ASEAN group ever gets its tariff free zone happening
it won’t matter which country an industrial operation is located in.
Higher
education provides a good example. The Royal University, founded in the fifties
after the country became independent, was Cambodia’s first tertiary institution.
The first private university, Norton U., was established in 1997. In the
ensuing 15 years some 30 or 40 higher institutions have been opened, meanwhile
the Royal U. has remained static, with no investment over the years. It works
fine for the government, people get educated and it doesn’t have to pay for it.
All it has to do is try to regulate the sector and establish standards, which,
in the event, vary wildly. The drawback is the relative high cost of tuition in
private institutions. Many potential students are left out because of the dearth
of subsidized public education.
Recent
privatizations of public space in Phnom Penh also provide a good example of its
pitfalls. In the last few years two large, centrally located pieces of land
were traded away to rich Cambodians with no controls whatever. One was the
former police headquarters at Streets 154 and 51, the other was the old T-3
prison site at Streets 154 and 13. Both sites are large enough, prominent
enough and important enough to have warranted international design
competitions. Both could’ve included large developed areas with quality
buildings as well as substantial public squares and green spaces. What did we
get instead? Most of the former police headquarters is now a public market with
adjoining car park. The building is okay but nothing special - a cheap metal-roofed
structure with a modicum of interesting design - though to its benefit, it does
include a bandstand for music events. However, except for the market stalls fronting
the streets, 80% of the stalls remain empty even after years on the market; it’s
obviously wasted space. The former T-3 prison site is a hodge-podge of car
repair shops, parking lots and buildings that range from non-descript to trashy.
A tremendous opportunity for adding quality urban spaces to the city has been
lost, at least temporarily: there are no structures of any real value at the
T-3 site so a better designed future space is still a possibility.
Dam
construction also provides a good example of the trade-offs inherent in
depending on others for financing and construction. Cambodia heaps boatloads of
gratitude on China and Vietnam for their willingness to fill the country with
dams without it having to pay for them, but in the end it may rue the day. Often
hidden in the fine print of the contracts are provisions that require Cambodia
to not only pay a high price for the energy generated, but also a high price
even if the energy’s not needed or produced. That’s leaving aside the environmental
degradation and loss of fisheries that is always a corollary to large dam
construction.
It
makes sense for the dam builders: they’re not going to put hundreds of millions
of dollars into dam construction without guarantees that they’ll get a return
on their investments. However, so many dams are under construction or in the
planning stages in addition to two coal-fired power plants in the works for
Sihanoukville - one is a large 700 megawatts - that the country could soon be
awash with power and require years of increasing demand before the electricity
is needed. For instance, peak power demand in Phnom Penh, which is easily a
large majority of the country’s total demand, is 350 megawatts, whereas the one
S-ville coal plant, by itself, will produce 700 megawatts. Cambodia may well
find itself paying through the nose for power it has no use of.
The
other alternative is to become a power supplier to neighboring countries. Electricity
from the controversial Lower Sesan Dam in Stung Treng is intended almost
exclusively for export to Vietnam. It’s one thing to sacrifice one’s own
environment for the sake of needed electricity, but to do so strictly for
export is pure folly, the free market gone wild; though in truth, sacrificing
one’s land for quick bucks is nothing new and happens as easily in America as
it does in developing countries.
Finally,
probably the most discouraging aspect of Cambodia’s give-away-the-farm
mentality is the granting of economic land concessions on a grand scale. Twenty-two
percent of the country’s entire land surface, nearly 4 million hectares, has already
been given away in land and mining concessions and the give-away is continuing
apace. That includes large swaths of national parks and conservation areas.
The
largest concession - 315,000 hectares which is equal to 3150 square kilometers
- was granted in 1997 to a ruling party senator. Even with that vast holding,
he still has frequent conflicts with the locals; he can’t stand to let
villagers living within the concession have a few hundred hectares… typical of
the filthy rich.
That
was before a 2005 law that limited concessions to 10,000 hectares, equivalent
to 100 square kilometers. However, there are ways to get around that
limitation: in one case four adjacent concessions, each nearly 10,000 hectares,
have been granted to four companies owned by the same corporation, a Vietnamese
one at that. Isn’t it ironic that individual foreigners are not allowed to own
small plots of land but immense holdings are granted to foreign corporations?
A
prominent CPP lawmaker quoted in the Cambodia Daily strongly defended the
practice of granting concessions as important for the country’s development and
said the poor people being displaced should be willing to sacrifice for the
good of the country. It’s easy for a rich lawmaker to speak about the need for
the peasantry to give it all up for their homeland. While many of the villagers
displaced by land concessions are given plots of land elsewhere, they’re often
either poor quality land or in places where they have a hard time earning
money. There will be jobs offered in the rubber, oil palm and sugar plantations
but they’ll be low paid, not very desirable jobs. Nearly every concession
involves displacing local people or the destruction of the forests they depend
on for their livelihood. In some cases, the government discovers years later
that the area has been logged, the grantee has pocketed the profits and then
has failed to develop the land as proposed. They then yank the concession, but
by then the damage has been done.
The
plan to convert immense areas of the country into corporate plantations reminds
me of the great inequality that exists in many Latin American countries as a
result of the colonists taking land that was previously held in common and dividing
it up amongst themselves. The result has been that a few percent of the
population descended from the original colonists owns almost all of the land. The
rest are landless peasants. In a sense, Cambodia is being recolonized: large
areas are going from public ownership into corporate ownership.
It’s
easy to understand the leadership’s eagerness to give away the farm: they get
permit fees and the land is developed without any cost to the government. In my
mind, rather than give 10,000 hectares to a corporation, it’d be far better to
grant 100 hectares each to 100 people, or 10 hectares each to 1000 people and
then provide the training and wherewithal needed to plant the rubber trees,
etc. That way the profits and benefits are spread around to large numbers of
people rather than the profits going to corporations or the wealthy and the
peasantry left with low wage, peon work.
That
of course would require planning, investment and organization, rather than
simply pocketing the commission fees (both overt and under-the-table) and
walking away. Unfortunately, that goes against the prevailing wisdom that
corporations always know best and privatization is the only legitimate way to
develop a country.
All
in all, the mania for giving away the farm may well bring development to the
country - rubber, oil palm and sugar cane are all likely to be in high demand
in the future - but it’s a very big question whether that growth will benefit
the people at large. It may turn out to be a classic case of the folly of trickle-down
economics where, in the event, a lot of money goes directly to the top, while
only a pittance trickles down to the bottom.
I
don’t doubt that Cambodia’s public officials are sincere in their beliefs that
they’re doing the right thing for the country, whether or not they are
personally benefiting. There’s also no question that development is desperately
needed, but in their zeal to give away the farm I fear they will also be giving
up a lot more and that all Cambodians, outside of the elite few, will, in the
final tally, be losing out.