Privatization as a Threat

PRIVATIZATION AS A THREAT

PRIVATIZATION OF PUBLIC FUNCTIONS
ENDANGERS STATES’ WELL-BEING AND TAX CAPACITY

By Siegfried Bross

[This article published on NachDenkSeiten, February 2, 2007 is translated abridged from the German on the World Wide Web,  http://www.nachdenkseiten.de/wp-print.php?p=2070. Siegfried Bross, a judge in the German constitutional court, gave this address in Stuttgart.]


I. PRELIMINARY REFLECTIONS

1. Several years ago the privatization of public enterprises including basic necessities was intensively resolved and not merely discussed (1) despite a number of failed privatizations. (2) The privatization of public enterprises and functions including averting dangers, it was argued, would open up greater economic and personal possibilities for people. At the same time, costs for the services once in public responsibility would fall and the state budget relieved while the efficiency of the enterprises would soar. As far as I can see, the truthfulness of these ideas was not scrutinized. Experiences of everyday life show that hardly anything is produced more cheaply. Garbage removal, transportation and the supply of electrical energy are examples. Telephone costs are lower. Were the services once supplied in public responsibility more reliable after privatization or have the services and security fallen for users or consumers (e.g. catastrophes in tunnels)?

2. Before taking further steps toward privatization of areas like basic necessities or averting dangers, the state must be reminded of its responsibility arising out of the welfare state principle of Art 20, Par 1 of the German constitution as a concretization of human dignity of Art 1, Par 1. This responsibility forbids the state in fulfilling its functions from using a private third party not completely under its control. The state cannot use a third party as though it still fulfilled the functions in its own responsibility. An unbridled state regimentation is not promoted here. Developing constitutional criteria for a well-balanced relation between the state and the private sector is crucial. In this way, the sovereignty of a state to protect its entrusted people would be safeguarded. The sovereignty of a state can be greatly harmed by negative developments on the secondary and tertiary planes.

The economic approach that is obviously legitimate for every private enterprise and observance of public functions exclude one another. These functions must be fulfilled by the state with its extensive political authority and care of entrusted people. The current development which is strongly encouraged by the European Union (EU) and the international plane (IMF, WTO and the World Bank) runs counter to this. Because of structural deficits, no proper solution is offered to this burning problem. Beyond the question of state sovereignty, viable starting-points for a self-definition (not a foreign definition) of a body politic are hard to find. Basic rights are endangered institutionally and not only in their subjective content.

Formulated differently, when the state continuously withdraws from fulfilling public functions by privatizing substantial parts of itself and allowing functions to be fulfilled by private third parties, the state could put itself in question and its power for self-definition – independent of sovereignty. Why does the state exist if it forfeits a large part of its substance?

3. Another aspect supports my view. The EU as well as nation states cannot avoid intensively controlling competition. This control begins at a low level in competitive actions (advertising, attacks on others through stealing for example) and leads to control of more or less friendly corporate mergers. In any case, the privatization euphoria is not formally free of contradiction. This is very clear when state monopolies are replaced by private monopolies as a result of privatization.

When the state rids itself of observing public functions through privatization, it loses active and creative possibilities. This means it ultimately loses political capacity. The state no longer defines the guidelines of politics and development of the body politic and its society. Private parties not democratically legitimated do this. As a result of privatization, the state can not control because it can no longer exert its demand power. With privatization, the state removes the constitutional welfare state foundation from hundreds of thousands or even one or two million regular jobs as jobs are outsourced to low-wage countries or domestically mutated in mini-jobs or illegal job conditions. The state thereby evades its exemplary function in employment and education (apprentice shortage) and also its stabilizing effect on the demand power of its employees as consumers for the overall economic situation. This double effect in the primary and secondary areas is cancelled. The state revenue side is weakened by privatizing profitable public expenses. On the other hand, the expense side is expanded which leads to a further decimation of the public budget and the splitting of society. We in Germany now have the problem of social equity in relation to the poorest states of the world. Redistribution from top to bottom and not bottom to top is imperative. The study of the World Bank concludes that 26 states worldwide face collapse today – compared to “only” 17 states ten years ago.

Finally, the state can be blackmailed or extorted. When the railroad is privatized and then opened through Europe-wide or worldwide invitations to competition or through the stock exchange, the state with its economy could be seriously damaged when its whole enterprise is suspended for 1 or 2 weeks. This is true when an artificial electricity shortage is provoked to force up prices. Oil through rusty pipelines in the US with an erratic rise in the world crude oil price is another impressive example. The conflicts between Russia and White Russia (now between Russia and the Ukraine) on account of the transmission of gas and oil can be named here as well as the recent discussion on the EU plane about separating suppliers and networks to promote competition in the energy sector. Not accidentally, the privatization development ran in the opposite direction with the railroad in Germany in the 19th century: from the private- to the state railroad.

With abandonment of guarantor liability of the public treasury and complete withdrawal from this sector, every state runs the risk of becoming the plaything of private parties and uncontrollable market forces…

The intolerable influence of international rating agencies on the reputation of a state seems hardly recognized. When the German rating agency is downgraded, German taxpayers lose billions of euros, not the German finance minister. With complete or partial privatization, a rating agency can damage its reputation like the German psychiatric hospital or the traffic network of a city. Here is an example. When I gave an address on the planned privatization of the national psychiatric hospital in September 2005 in Hanover, a rating agency of the German government a few days later “served” a catalogue of demands. If these demands were not fulfilled, the rating would be downgraded.

Who determines the guidelines of policy in Germany and other states affected in the same way? Isn’t it time to take energetic counter-measures, reassess the undifferentiated privatization of public functions and erect barriers that are still possible according to public law?

The effects on a public function privatized by the state are often obscured when analysts insist costs are saved and profits and shareholder value increased by economizing in this or that area, by national psychiatric hospitals or by other elementary public functions. The examples mentioned at the outset teach the exact opposite. Many businesses on the market often act in hasty obedience toward actors in the economy before they even speak. In what state do we live and what is our view of the person? Doesn’t a superficial and merely materialist approach degrade people to objects exchangeable at any time?

What state functions may be handed over to private parties on the background of constitutional requirements and what functions cannot be handed over? From a constitutional perspective, nothing should put the state in question and harm or restrict its sovereignty. These principles are in effect because of the state monopoly on force for averting dangers and assuring basic needs.

II. REFLECTIONS ON CONSTITUTIONAL LAW

1. The constitution is neutral on economic policy. That is the German constitutional court’s conclusion on the organization of the economic order. (12) The legislator may propose any economic policy that seems appropriate as long as the constitution is respected. Thus the legislator has an enormous creative freedom. Consideration of the legislator’s creative freedom may not lead to an abridgement of what the constitution guarantees unchanged in all change, namely the individual freedoms guaranteed in the basic rights. Life in human dignity is not possible without these freedoms according to the constitution. The essential freedom of economic- and social policy granted to the legislator is joined with the protection of freedom to which the individual has a constitutional claim against the legislator. (13)

The German constitutional court affirms the constitution’s view of the person. The person is a responsible independent individual whose position in relation to state authority is defined by the constitution. The basic rights represent an objective value system. The individual rights position of individuals does not undermine but strengthens this system. The claim or participation aspect is vital. Obligations ultimately result for the organization of the economic system. For our context, the basic rights are connected, above all the right of human dignity of Art 1 Par 1, the freedom of conduct of Art 2, Par 1 and the welfare state principle of Art 20, Par 1. We could conclude the individual is independent and personally responsible according to the German constitution. However the state may not leave this to the individual. Rather this generally accepted foundation must be assured as the framing condition for a peaceful society respecting the interests of all people… The state and economic order may not be organized so the society collapses and only one part stands on the sunny-side of life. The profit maximization of privately organized areas obviously violates this framing condition. (14)

2. The administration of justice of the German constitutional court goes beyond the described principles. The German constitutional court sets human dignity in the center for basic necessities which include the social security systems. Energy supply is one of these basic necessities. The citizen needs this necessity to ensure a dignified existence. In an earlier decision (15), the German constitutional court pointed out the public authority increasingly accepts functions in the area of basic necessities that directly or indirectly help the personal life of the individual citizen. (16)

In a remarkable comment within the decision (17), the German constitutional court said the welfare state strives to balance and preserve all interests. The general welfare is not equated from the start with the interests or desires of a certain class. An approximately equal advancement of the well-being of all citizens and an approximately even distribution of burdens are desirable. The ideal of “social democracy in the form of the constitutional state” should be a priority. The political order of liberal democracy must aim systematically at adaptation, improvement and social compromise. Abuses of power must be stopped. In a later decision (18), the German constitutional court said regarding the welfare state principle that state provisions and care are enjoined for individuals and groups hindered in their personal and social development by personal circumstances or social discrimination. The political community must assure them of the minimum prerequisites for a dignified life, strive to integrate them – as far as possible – in the community, advance their care and create the necessary caring institutions. (19)

The legislator’s creative freedom exists within parameters. Basic necessities are vital infrastructural areas for assuring a dignified life, i.e. institutions needed by the person in realizing individuality like electricity, water supply, telephone, railroad and postal service
Secondly, there are areas where the weak in society do not have the same prerequisites or the same chances for personal development as the large majority. Here the state must be active according to the welfare state principle. The state has the duty of ensuring a just social order. (20) Profit maximization runs directly against this.

This administration of justice must be upheld today. The welfare state principle still obligates the legislator to ensure a balance of social differences. Beyond this, state care for individuals or groups hindered in their personal or social development by personal circumstances or social discrimination is ordered. (21) Because of constitutional guidelines, the legislator and the state cannot evade this obligation through legislative measures and abandon people to their fate…

3. The state economy may not only be seen negatively. Rather the state economy is absolutely necessary in the infrastructure of basic necessities and averting dangers. The state remains independent and cannot be extorted or blackmailed. In this way, the state meets its obligations from Art 1 Sec 1 and Art 20 Sec 1 of the German constitution.

Extensive privatizations have increased dependence on international financial structures. Speculation against the German mark (DM) and against the euro is possible almost at pleasure. No one asks the actors who directs these immense financial streams and out of what motives and interests.

Privatizations in the areas of basic necessities and averting dangers must be cancelled. The state cannot make old age provisions into investment objects. The private economy fails here nearly every day. After the new economy burst like a soap bubble, everyone must reflect on the example of the US and search intensively for ways out. A bank scandal in which investors lost $50 billion and have nothing for their old age has effects. (23) I will not discuss comparable past criminal intrigues with similar losses to investors for their present life and old age. The state has to regain its capacity for action in large areas and create the prerequisites so German society will not be divided into poor and rich in the medium term endangering the social peace. The European integration process needs adjustment. As in the introduction of the euro, development since 1971 with the completion of the domestic market on January 1, 1993 has shown that no bulwark can be erected against the advancing globalization and shadow economy. This development endangers community more than it promotes community. Therefore the state must regain its capacity for action and creativity and effectively resist uncontrolled international developments in the domestic area that it cannot influence. (24)

III. OUTLOOK

…Competition should be the rule. Unhealthy side-effects as for example impaired competition should be combated. No enterprise may be discriminated in the awarding of building contracts. A wise far-sighted regulation for a proper state influence on the present economy has not been successfully realized today.

…States try to maintain their capacity for self-definition. Making nationalist thinking responsible for the poverty in many states of the world is a deception
because of the world plane (WTO, IMF and World Bank). The exact opposite is true. Apart from corruption whose disastrous effects on the development of a society and a modern democratic constitutional state are often underrated, a gradual development of the presuppositions for opening the borders of a state for unhindered world trade and thus for privatization of public functions is lacking. The prerequisites for competition do not exist since the starting conditions could not be more unequal. All advocacy of privatizing public tasks and dismantling all barriers to world trade and the world economy misjudges in that the loss of identity and sovereignty of states occurs simultaneously. Only a few states can maintain their identity and sovereignty on the world stage. Even the United Nations proves powerless in many regards. The conflicts over the distribution of raw materials revenues worldwide show that this development destabilizes many states, the world of states and thus world peace altogether. The defenders of the widest possible opening of states for an open economy predicted the opposite. Thus 26 states face collapse, more than in past years according to the study of the World Bank.

In this global connection, the basic ideas for social, economic and political stabilization should be primary. What is ultimately lost in legitimation in modern democratic constitutional states? For what does a state or body politic still stand amid the consistent enforcement of privatization that is vehemently rejected here?

NOTES
[«1] Hierzu nun auch Der Spiegel Nr. 34 vom 21. August 2006, S. 40 ff. “Der private Staat”.
[«2] Einzelheiten hierzu im Vortrag vom 3. September 2003, JZ 2003, S. 874 ff.; siehe auch ders. Das europäische Vergaberecht in der Daseinsvorsorge – Bilanz und Ausblick, NZBau 2004, S. 465 ff.”.
[«3] BVerfGE 6, 32 (40) - Elfes -.
[«4] Hinweis auf BVerfGE 2, 1 (12 f.); 5, 85 (204 ff.).]
[«5] BVerfGE 7, 198 (205) – Lüth -
[«6] Bestätigt etwa in BVerfGE 21, 362 (372)
[«7] BVerfGE 1, 97 (104 f.)
[«8] BVerfGE 1, 97 (104)
[«9] BVerfGE 1, 97
[«10] BVerfGE 1, 97 (105)
[«11] BVerfGE 33, 303 (330 f.); bestätigt etwa in BVerfGE 35, 79 (115>)
[«12] BVerfGE 50, 290 (338) - Mitbestimmung
[«13] Hinweis auf BVerfGE 7, 377 (400) - Apotheken-Urteil -
[«14] Siehe hierzu auch das Beispiel bei Schirrmacher, Minimum, München 2006, Wer benachteiligt wen?, 64 ff. (66 f.); Broß, Vortrag Bremen am 29. September 2006.
[«15] BVerfGE 38, 258 (270 f.)
[«16] Hierzu auch BVerfGE 45, 63 (78 f.)
[«17] BVerfGE 5, 85 (198)
[«18] BVerfGE 45, 376 (387)
[«19] BVerfGE 44, 353 (375); 40, 121 (133); s.a. BVerfGE 28, 324 (348); 43, 13 (19)
[«20] BVerfGE 59, 231 (263); s.a. BVerfGE 82, 60 (80)
[«21] BVerfGE 100, 271 (284)
[«22] Hierzu BVerfGE 30, 1 (24 f.); 84, 90 (121)
[«23] Vgl. Bericht in der SZ Nr. 122 vom 28. Mai 2004 Seite 22
[«24] Hierzu auch Radermacher, Zur Rolle Europas in einer schwierigen Welt, Hoffnung Europa, 2006, 189 ff. (191), Global Marshall Plan Initiative.
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