MSP Logo

What is corporatization? The ‘new’ look of water and power utilities

by David McDonald – February 5, 2015

Governments around the world are taking back control of services which had been sold or contracted out to the private sector, with the overall number of public enterprises increasing worldwide over the past decade. Corporatization has become one of the most popular forms of this renewed interest in government ownership. Corporatized agencies are fully owned and operated by the state but have separate legal and financial status.
Water and electricity utilities are common examples as illustrated in our most recent animation video, but the practice extends to a much wider range of goods and services, from airports to universities and hospitals.
The main objective of corporatization is to create arm’s-length enterprises with independent managers who are expected to account for costs and revenues as though they were operating a stand-alone company. This ring-fencing is intended to create greater financial transparency, reduce political interference and strengthen managerial accountability.

Akin to privatization?

More controversially, corporatization has been used to create market-friendly public sector cultures and ideologies. Public water and electricity utilities, for example, have been run increasingly like private companies, sometimes with the express intent of privatization once their profit potential has been realized.
In other words, corporatized services may be ‘public’ in name, but not necessarily in character. More than any other public service model, corporatization raises conflicting and complex questions about the meaning of ‘public’ and the role of the state in the delivery of essential services.

Progressive cases

Not all corporatizations have been carried out with this commercial imperative in mind, however. Our research has found many examples of equity-oriented water and electricity corporatized agencies at various levels of government. This work sheds light on how and why these agencies have managed to resist neoliberal pressures and prioritize social objectives. (Watch our 3-minute animation video for highlights)

Take the electricity utility in Costa Rica, for example. For decades, ICE has been one of the most efficiently run companies in all of Latin America, public or private, evolving out of Costa Rica’s social democratic experience with its modelo solidario (solidarity model). Costa Rican citizens are aware of the state’s contributions to national development, and have broadly resisted previous attempts to privatize public enterprises.
In Uruguay, OSE is another positive example of corporatization, providing high-quality, affordable and nearly universal water services to the country’s population for more than 60 years.
Our case studies from Asia and Africa are not quite as encouraging but still cut against the grain of powerful neoliberal trends in public service delivery. In Malaysia, we examined the state-owned and operated electricity provider Tenaga Nasional, which has managed to resist much of the neoliberal pressures that have altered electricity utilities in the region. Its social objectives have remained at the forefront of decision-making and there have been important public investments in long-term service expansion and equity.
In the Philippines we looked at the Leyte Metro Water District, which has taken environmental sustainability and watershed management seriously, and to some extent issues of equity as well, seeing water as an essential service for poverty reduction in the region.
We studied Tunisia’s state-owned electricity provider (STEG), which benefited from massive investments under the previous autocratic regime, and is now trying to democratize itself.
Finally, we looked at one of the poorest and driest countries in the world – Burkina Faso – where a corporatized water service provider (ONEA) has fought off privatization and managed to maintain a commitment to public ethos in its service provision.
These are not the only, or even necessarily the best, pro-public corporatized entities in the South today, but they demonstrate the potential for non-neoliberal corporatization. Learning from their strengths (and weaknesses) can help us better understand the possibilities for progressive corporatizations in the future, and the mistakes of the past.
David McDonald is co-director of the Municipal Services Project, and professor of global development studies at Queen's University in Canada. He is the author of the book Rethinking Corporatization and Public Services in the Global South.
is co-director of the Municipal Services Project, and professor of global development studies at Queen's University in Canada. - See more at: