The unacknowledged social implications

German Social Watch Report group of editors of the German NGO Forum World Social Development Summit: DGB-Bildungswerk e.V.; German Federation of Civil Servants; Diakonisches Werk of the Protestant Church in Germany; Church Development Service; Friedrich-Ebert-Stiftung; Heinrich Böll Stiftung, Terre des Hommes Germany; Werkstatt Ökonomie, World Economy, Ecology and Development.

The privatisation of services previously delivered by state-owned companies or public institutions began in the 1980s, and its pace intensified in the 1990s. In addition to the negative social impact of privatisation on consumers, the first casualties of privatisation have usually been the workers and the poor. Development co-operation, whose primary goal is poverty eradication, is using its limited resources, paid out of public funds, to engage in economic development on behalf of major corporations.


Inearly 2000, negotiators at the WTO in Geneva began a new round of talks on GATS(General Agreement on Trade in Services). The aim is the progressiveliberalisation of all markets for services, including all public services, withno sector being excluded from GATS on principle. The intention is for allservices to be subject to the WTO's principles of market access and equaltreatment of foreign and domestic suppliers. This is a particularly sensitiveissue since the markets for services are mainly protected through nationalprovisions such as laws, regulations, and ecological and social standards,rather than by “classical” trade barriers such as tariffs.

Dueto the lack of clarity in the GATS definition of services supplied “in theexercise of governmental authority”, public services in particular are likelyto come under more intense pressure, for as soon as there is competition fromprivate suppliers, which is already happening in many cases, the GATS provisionsapply. Among other things, GATS aims to ensure that private suppliers have equalaccess to government funding for public services or services supplied on thebasis of public contracts. However, this increased competition will mean thatthe public funding available for services of general interest will furtherdecrease.

TheWTO is obliged to carry out an impact assessment on GATS, but this has not yettaken place. All WTO members were required to file their liberalisation requeststo their trading partners by the end of June 2002. In line with the timetablefor the GATS negotiations, they must submit their liberalisation offersto the countries concerned by the end of March 2003. The European Commission isnegotiating GATS on behalf of the EU Member States, with the Federal Ministry ofEconomics taking the lead role on the German side.

Theprivatisation of services previously delivered by state-owned companies orpublic institutions began in the 1980s, and its pace intensified in the 1990s.Most Germans are probably unaware, for example, that private security firms nowemploy 145,000 people, often poorly trained and earning a pittance of a wage,which amounts to more than half the number employed by the police with its270,000 officers. The privatisation of postal services is also well under way.

Aboveall, the privatisation of telecoms made the headlines: at first, call chargesdecreased markedly, confirming many Germans' suspicion that the publicutilities' overriding features seemed to be poor performance and lack ofinnovation. However, in the deregulated electricity markets, only large-scaleconsumers benefited from the pledged price cuts.

Inaddition to the social impact of privatisation on consumers, the firstcasualties of privatisation are usually the workers, as the German Federation ofCivil Servants explains: “The private transport companies are able to submitmore attractive bids in response to calls for tender because they generally paytheir staff lower wages and maintain smaller administrative units. Thesearguments are used by the employer German Rail [DeutscheBahn AG] at the annual wage rounds in order to drive wages steadilydownwards.”

Waterdoes not come cheap

Thewater and waste-water management industry is likely to respond negatively tofurther privatisation, as this sector deals with a basic human need and involvesenvironmental policy decisions which have far-reaching implications. In view ofthis fact, the United Services Trade Union (Ver.di) takes a harsh view of themeasures being undertaken in this area: “The privatisation of the waterindustry has certainly not led to any reduction in charges or prices. The factthat profits must be generated for shareholders increases prices over the shortand medium term. To conceal this fact, there is a tendency to dispense with theregular maintenance which is necessary to guarantee security of supply, as wellas the investment required to safeguard resources.”

Thetrade union also focuses on the risk that private companies will make handsomeprofits through the sale of drinking water, while the costly business ofprotecting drinking water is left to public funds. Ver.di is therefore lobbying“for a sustainable water industry in which the precautionary and ‘polluterpays’ principles play a key role. Monitoring and control of pollutantdischargers are tasks for the public institutions.”

Theprivatising trends in the water industry are also reflected in Germandevelopment policy, where co-operation between the private and public sectorshas been promoted vigorously in recent years. A recent study by World Economy,Ecology and Development (WEED) reveals that private companies are being giventargeted support to ensure that the German water industry “plays a major rolein the global market, which is becoming increasingly significant”, to quoteUschi Eid, Parliamentary State Secretary at the Ministry for EconomicCo-operation (BMZ). According to the study, the firms “have been able toconclude long-term licensing agreements to operate waterworks or securelucrative contracts to construct water treatment plants. For such companies,projects in Albania, Montenegro or Namibia open the doors to the global market,with government and political support in this competitive environment. Ineffect, development co-operation, whose primary goal—according to its ownassertions—is poverty eradication, is using its limited resources, paid out ofthe public funds, to engage in economic development on behalf of majorcorporations. Yet the poorer population groups continue… to receive a second-or third-rate supply.”

Healthcare: State intervention required 

Thederegulation process in the German health care system is proceeding withcaution, yet it has implications for society as a whole. People with asufficiently high income are allowed to opt out of the statutory healthinsurance funds. The private insurers can offer their services to young (andhealthy) people far more cheaply. As a result, the statutory health insurancefunds are retaining a larger proportion of higher cost members. The resultingproblems are described as follows in a “Memorandum on the Reform of the HealthSystem”[1]:

“Itis inaccurate to speak of a ‘general explosion of costs’ in the healthsystem. The rise in total health expenditure over the last two decades has keptpace with overall economic growth… At the same time, the ‘exploding costs’analogy… completely ignores the far more serious problems statutory healthinsurance faces on the revenue side. Experience to date has shown that theeconomic incentives resulting from competition… have led, and continue tolead, to undesirable evasion tactics…, with state intervention always beingrequired to correct them.”

Pensions:greater risk for low income sectors

Duringthe last legislative term, a law was adopted to reinforce the role of voluntaryprivate pensions compared with compulsory insurance. It is left up to employeesto decide whether, in addition to their statutory insurance provision, they wishto take out life insurance which is then subsidised by the State. As early asOctober 2000, a statement by the DiakonischesWerk of the Protestant Church in Germany took the following position on thisissue:

“Dueto its different functional logic, private provision cannot replace statutoryprovision, however… There are two key reasons in favour of… providingreliable safeguards of living standards for middle and lower income groups:private insurance is rarely taken out by persons whose pension provision isinadequate. Voluntary provision—even if subsidised by the State—is rarely anoption for persons on low incomes… because the population groups at greatestrisk of being impoverished consume all their available income.”

Germany'srole in the GATS negotiations

Astriking feature of the GATS negotiations is their complete lack oftransparency. Citizens with an interest in the process are denied access to keyinformation, and even Members of the Parliament [Bundestag]are given only limited information by the Economics Ministry.

However,fault lines are appearing within Germany's Red-Green Government which could beused by campaigning organisations to undermine progress of the negotiations. Forexample, the Study Commission on Globalisation of the World Economy set up bythe German Bundestag recommends that decisions on the adoption of furthercommitments should not be taken until after the submission of impact assessmentson the GATS negotiations and public debate of their findings. It also recommendsthe “exclusion of education and other services of general interest from theGATS negotiations.” Finally, the report states: “The Federal Government andthe European Commission are urged to notify all interested NGOs, trade unionsand associations at an early stage of all proposals for negotiation, includingthe EU's liberalisation requests to its trading partners and such requests fromthird states to the EU, as well as relevant liberalisation offers, and to givethese organisations an opportunity to state their opinion.”

Thisrecommendation conflicts with the conditions supposedly adopted for WTO members,which are described by the Economics Ministry as follows: “In accordance withthe conditions for all WTO members, the various requests to trading partnersmust be treated confidentially and cannot be divulged to non-governmental bodies,either in full or in part.” (Economics Ministry, letter of 8 August 2002,original emphasis).

Yetthe assertion that requests to trading partners cannot be divulged to“non-government bodies” conflicts with the Economics Ministry's ownpractice, for the Ministry itself released the negotiating drafts of the “133Committee” in Brussels, which coordinates Europe's international trade policy,to a number of organisations. On this issue, the federal government's responseto a Minor Interpellation submitted by the Party of Democratic Socialism (PDS)on 22 April 2002 states that “The federal government has released elements ofthe current drafts on EU requests to trading partners to a number ofdirectly-affected business associations, as well as to the German Trade UnionFederation (DGB), in order to give them an opportunity to state theiropinions.” Why this practice cannot be extended to relevant NGOs and otherlobby groups as well, in line with the Study Commission's recommendation, isunclear. This unequal treatment is undemocratic and therefore unacceptable.

TheEducation Minister's shifting position

TheEducation Ministry's position on GATS is also problematic. When the news becamepublic in June 2001 that the EU—despite assertions to the contrary—hadagreed to liberalisation requests from the USA regarding the higher educationsector, it was apparent that this sensitive sector would be subject to GATSnegotiations. Education Minister Edelgard Bulmahn then felt compelled torespond. Despite insisting that “We must not leave education to the market,”[2]she nonetheless went on to endorse the commercialisation of education:“Education services are covered by the GATS Agreement… The objective cannotbe to exclude these services from the negotiations, but merely to make a clearerdistinction between marketable and non-marketable services here.”

TheMinister regards higher education and distance learning, at least, as marketableservices. However, the GATS negotiations already cover a far wider area. At thelast world trade round, the EU negotiated two clauses allowing public servicesand subsidies for these services to be excluded from the provisions of the GATSAgreement. Yet in the current round, these clauses have been challenged by anumber of WTO members. If they are indeed deleted, even if only on a selectivebasis, private universities, for example, would have the same legal entitlementto subsidies as state universities. The competition for public funding, whichhas intentionally been capped, would further intensify, and the share left overfor the state system would inevitably decrease.


[1] The authors of the Memorandum on the Reform of the Health System are the following: Professor Heinz-Harald Abholz, President of the German Association for General Medicine; Klaus Kirschner, MdB, SPD, Chairperson of the German Bundestag Committee on Health; Monika Knoche, MdB, Alliance 90/The Greens, member of the German Bundestag Committee on Health; Professor Rolf Rosenbrock, member of the Expert Council for Concerted Action in the Health System; Horst Schmitthenner, managing member of the Executive Committee of the Metalworkers Union.

[2] Frankfurter Rundschau, 8 July 2002.