The Nationalized Multinationals

by Jesse Harasta on November 29, 2012

Throughout the 1980s and 1990s, the globe seemed seized by a great, apparently unstoppable wave of privatization. As we emerge into the 21st century, especially after the events of 2008, we find the landscape changing. While there are certainly a growing number of re-nationalizations and nationalizations, a new feature on the landscape is the growing number of state-owned multinational corporations operating in overseas markets.

These entities break with the simple dichotomies and platitudes about private and public, both on the left and on the right. Rightists who claim that public entities are bloated and inefficient find their rhetoric stumbling before the incredible successes of places like Dubai and China, the re-emergence of Russia, and the rise of Brazil, and even the ability for states like Venezuela, Iran, and Argentina to resist the dominant capitalist forces of the globe. However, this is not the beginning of a golden age of the left, where socialist multinationals stride the globe battling their capitalist opponents like the avenging ghost of the Red Army. The multinationals do not seek liberation for the world, and increasingly we see that they exist for the profit of the home country, more specifically, for the advancement of the interests of the politicians who control them. This is a narrow vision of human improvement, one that exploits the weakness and poverty of places like Afghanistan and sub-Saharan Africa where these national state-owned multinationals exploit resources and labor in the same manner as their private counterparts.

However, sometimes this broad, sweeping vision does not do justice to the subtleties of life and a close examination of a specific example is more revealing. For several months, I have lived in the city of Medellín, Colombia, home to a municipal-owned multinational, Empresas Publicas de Medellín, or “Public Companies of Medellín” (EPM). I hope, through examining how EPM operates, both at home and outside of Medellín, we can gain a better understanding of the logic behind the rise of the nationalized multinational, how they serve their owners, and what they deliver to their customers and clients.

The “Educated” City
Medellín is a city with a chip on its shoulder. Like many mid-sized countries of the world, Colombia is large enough to be home to a single, great, city; in this case it is the capital, the sprawling metropolis of Bogotá (home to about 8 million people). In its shadow, however, Colombia is home to a number of other sizeable cities, the largest of which is Medellín (with just shy of 3 million). The highly centralized Republic of Colombia concentrates not only prestige, but also a level of decision-making in the capital that many in the relatively decentralized United States would find constrictive.

It is understandable, then, that the people of Medellín, known (along with their fellow residents of the Department of Antioquia) as “Paisas” have developed a strong sense of being underdogs struggling in the shadow of a city they often revile as cold, unemotional, controlling, uneducated, and dirty. While one could examine the subordinate status of cities like Medellín in many terms, the elites in local government have decided to focus on a cultural argument. The slogan of the department of Antioquia— “Antioquia la más educada ” — literally translates to “Antioquia the most educated,” but within the Spanish-language context, “education” refers as much to one’s cultural sophistication, command of etiquette, and general deportment than to his or her classroom knowledge. The goal of the policy is to link economic development and social leveling to cultural advancement. For instance, in order to bring order to distant slums riven with violence, the city has erected cultural buildings; the most notable is the Biblioteca España (The “Spanish Library”), a mostly book-free cultural space perched on a hill high above the city center.

Biblioteca España

In truth, Medellín could never hope to displace the capital in wealth, population, or political power, and so perhaps cultural superiority is an achievable goal. However, Medellín faces an uphill battle even here, as the Colombian state has showered benefits upon the capital: it is home to publicly funded institutions of every kind, such as impressive museums (like the Museum of Gold), national celebrations, and cultural organizations like the National Symphony Orchestra of Colombia or the Teatro Colón. Bogotá draws upon the wealth of the entire nation while Medellín has only the Department of Antioquia to draw upon (of which, the majority of the inhabitants live within the metropolitan area).

There is a wrinkle in the works because Medellin has a secret weapon. Like many Colombian cities, Medellín’s public utilities—gas, water, sewer, electric and telephone—are under the auspices of EPM. While across the globe, municipalities are selling off their public utilities to private corporations, Medellín has bucked the trend and instead converted EPM into a multinational corporation. The company remains 100% owned by the municipality and is tightly linked to the Mayor’s Office: the mayor serves as the President of the company and appoints all of the other eight members of the board. This organization has served as the springboard for numerous Paisa politicians, including the infamous right-wing president Álvaro Uribe who started his public career as EPM’s Chief of Assets in 1976.

Today, they own the national telecommunications company Une and power/water companies in 11 regions of Colombia, including Bogotá itself. Even more remarkable, EPM owns utilities in Guatemala, Panama, and Guadalajara, Mexico; Une has branched out into Spain and the United States. The vast majority of EPM’s customers and—we might safely assume—its revenue streams, are outside of the boundaries of Medellín itself.

State Centralization versus Corporate Centralization
The effect of EPM’s wealth continuously flowing into the city is undeniable. EPM has funded huge projects throughout the city including: the Planetarium, the Botanical Gardens, the Museum of Water, a children’s interactive museum, libraries, urban parks and, most strikingly, the 16,000 hectare Arví Park just outside the city limits. Less tangibly, I have noted that it funds cultural projects like theaters, the symphony, and academic conferences. The revenues from EPM’s empire has allowed Medellín to bat well above its weight in the arena of elite culture and to compete with a national capital three times its size.

EPM headquarters in Medellín.

This raises interesting questions about centralization, democracy, and accountability. The people of Medellín are right in their strident criticism of the often unaccountable and undemocratic centralization of the Colombian state, where taxes, influence, and treasures of all forms are funneled into the center often with little return seen in the outlying provinces. However, is the Medellín/EPM model any better? Is it any more just for the wealth of Guatemala, Panama or, even, Bogotá to build libraries and museums in Medellín than it is for Bogotá to profit disproportionately from the national treasury?

From the left, strong critiques have been leveled against the privatization of public utilities, and one might laud the elite of Medellín for resisting the urge to sell of EPM; however, when EPM itself becomes a predator of other privatized municipalities is there any difference than if they were bought out by National Grid (a private British multinational)? One might argue that there is more accountability in a publicly owned utility, and it is true that Colombian public bodies are watched over by a relatively autonomous and strong set of regulatory institutions, but these bodies are primarily concerned with preventing fiscal wrongdoing by employees rather than ensuring that these monies are used for the benefit of those who paid them. In fact, EPM customers outside the city of Medellín have no more influence over EPM than they would over a private company. This is even less so for foreign customers for whom EPM operates like any multinational: extracting wealth and shipping it to overseas owners.

I traveled up into northeastern Antioquia, a place where EPM has a strong presence, not only owning the local utilities but also operating massive reservoirs. From the people of these impoverished campesino communities, EPM takes money and floods valleys and gives little in return. They can never attend the orchestral concerts in the city and their children will never study at the EPM-sponsored libraries. Even within Medellín, women’s groups organize against the company’s market-based models, demanding that EPM recognize clean water as a human right and cease cutting off the city’s poorest from access to the tap. Compared to the benefits for the city’s elite—who enjoy not only the full range of EPM’s cultural activities but also the political and economic benefits of having an “educated” city—the city’s poor only enjoy fringe benefits from EPM’s presence; many argue that universal access to water might be more valuable to them than concerts and academic conferences.

Larger Picture
While Medellín is remarkable as a city located in the Global South in creating their own multinational, they are not alone in utilizing the corporate model. Today we live in a world where nation-states are increasingly erecting their own multinational corporations through which they travel abroad and exploit the resources of others. The most prominent of these are, of course, energy companies such as Gazprom and Rosneft (Russia), Petronas (Malaysia), Petrobras (Brasil), and PDVSA (Venezuela), but we could also include other examples such as China’s massive overseas mining operations, or the huge holdings of the investment firms of the Gulf States (like Dubai Ports or Iran’s stake in German manufacturing giant Thyssen-Krupp).

While some of these states—in particular Venezuela and China—claim to be operated under socialist or communist ideologies, they function beyond their own borders in a manner identical to privately-owned multinationals. Even here, within Antioquia, outside the city limits, EPM functions as simply another corporation. While it is true that the people of the home states do reap benefits from these corporations, we cannot ignore the fact that their overseas activities operate under a different logic. Moreover, many are deeply intertwined into the fabric of the market, for instance, the China National Offshore Oil Corporation (CNOOC Group) lists several of its subsidiaries on the New York and Hong Kong Stock Exchanges and the PDVSA works closely with Total, Chevron, Statoil and BP.

If we are to understand and adapt to this new world, we must be willing to jettison some of our assumptions about the meaning of private and public enterprise. The old left view, where a public company provided some direct benefit to the citizens of the nation—health care, water, electricity, postal service and rail transport are the classic examples—is largely out of date. While these companies hold on in some places, they have been largely privatized and those that do exist are not the key players in the global sphere. No, the true engines behind places like China, Venezuela, and Russia are corporations that provide indirect benefits—such as the Bolivarian Missions in Venezuela or the Arví Park in Medellín—largely through the extraction of wealth from other places and the funneling it back to the home center. Certainly, the logic of accumulation is different than, say, Chevron or National Grid, but its effects upon the wealth-providing communities is often indistinguishable.

Jesse Harasta is a linguistic and cultural anthropologist who studies contemporary language and nationalism in Cornwall in the southwestern corner of the island of Great Britain.  He is a doctoral candidate at Syracuse University and an active participant in Occupy Syracuse and its Graduate Student Committee.

  • Jesse Harasta

    A bit of followup here. It appears that the model Medellin followed in developing EPM was based off of Codelco, the Chilean copper conglomerate nationalized by Allende. While the nationalization was done under a Socialist banner, Allende never had the chance to shape the organization and today’s Codelco (and the one EPM was modeled after) was a product of Pinochet’s regime. Today, from what I can understand, Codelco provides about $7 billion of Chile’s $57 billion national budget. A fundamental difference, however, is that Codelco exploits Chilean resources for the benefit of Chileans only recently dipping its toes into international projects, while EPM (like many of the other companies I cite) exploit foreign resources for the benefit of the home nation.

    Medellin has been rewarded by the capitalist powers-that-be for their work, most recently being named one of the three finalists for the “City of the Year” competition sponsored by Citi Bank, the Wall Street Journal and the Urban Land Institute (competing with NYC and Tel Aviv: http://online.wsj.com/ad/cityoftheyear).

    The Metro itself aims to be an EPM-like company seeking out contracts abroad (http://www.metrodemedellin.gov.co/index.php?option=com_content&view=article&id=64&id_link=180&parent_link=153&Itemid=180&lang=en) and they have also recently consolidated their public health insurance and social services companies to form a new conglomerate aimed to replicate EPM’s success.

  • http://www.planetanarchy.net Pham Binh of Occupy Wall Street, Class War Camp

    Things like this are one reason I never really got why so many Marxists said Occupy Wall Street should demand nationalization of the banks. In our context, wouldn’t that mean putting the Ds and Rs (or Geithner) in charge of AIG and other insolvent institutions?

  • Jesse Harasta

    @Pham Binh: Nationalization of the banks would not change either the politicians nor the banks. Of course, the billions of dollars in profits that might theoretically flow into the Federal Treasury would allow the politicos to pursue whatever projects they wanted to fund (historically, that would probably mean bombs, aircraft carriers and their own elections), all on profits made from exploiting debts. We need to be more creative than that.

  • Brian S.

    There are many structural changes taking place in 21st century capitalism, of which this is just one. We need to try and understand them and also to think through their political implications. Jesse’s case study is a useful stimulus to such thought.
    It seems to me that there are two different issues here. The first is the emergence of powerful international corporations centred in resource-based economies or newly-industrialising countries (including sovereign wealth funds, which have a similar status deriving from the financial sector) that are becoming significant players in the global economy, and are intertwined with what William Robinson and others refer to as the Transnational Capitalist Class (TCC).
    The second is the role of domestic state sector corporations which have acquired a key role in their domestic or regional economies, likeEPM. The latter suggests that one line of development for these , as they accumulate capital, is to diversify into international markets and move towards the TCC. But Jesse suggests that in fact EPM currrently operates at least partially, in a socially beneficial way, at least for its home economy, and that there is an alternative, more home-oriented model exemplified by Chile’s Codeldco. One line for the left could be to press for the latter model rather than the former.
    I have only a little specialist knowledge here – but a few thoughts.
    1. Traditionally state sector corporations (especially in third world countries( have been associated with feather-bedding, corruption, and political patronage (issues that are emerging e.g. in Libya and that underpin the IMF/World Bank obsession with privatisation). Jesse’s examples suggest that there may be an alternative model of dynamic state corporations that can match or rival capitalist enterprises: this potentially links with one of the debates over state enterprises in mature capitalist economies – should they be confined to strict “natural monopolies” or released from such confines and allowed to develop commercial operations in competition with the private sector?
    Binh and Jesse raise the question of why (if at all) the left should be in favour of nationalisation (of the banks – but by extension anything). I think the answer is that nationalisation better reflects the SOCIAL character of large-scale economic activities (especially important where finance is concerned); and it potentially creates a framework in which the redirection of these institutions towards social goals is an issue of public debate and thereby a possibility. For example, in the UK the government has acquired outright or majority ownership of a number of financial institutions in the course of the financial crisis. It is in the process of selling them back to the private sector: but various forces on the (mostly social democratic) left are arguing that they should convert them into a “People’s Bank” that would have a clear remit to develop economically and socially beneficial activities – low interest loans for small businesses; funding for “affordable housing”; finance for “green” investments. etc. I think that is right. (But raises lots of issues relating to social control.)
    The issue of how state sector firms behave and develop depends in part on the nature of the state: if a state has a strongly institutionalised and developed democratic structure, then there is a possibility of public debate and mobilisation to push state enterprises in a socially beneficial direction. This will always be politically contested ground, but it could be an arena of struggle that could see real achievements. By contrast,there is very little possibility of pushing privately owned enterprises in this direction. For this reason I think nationalisation of key sectors of the economy should remain on the agenda of the left in such societies.

  • Ross

    Nationalization of the banks would change the way the public relates to the banks, and would open up the possibility for much more militant action against institutions supposedly owned by the people. But no, it would not change anything fundamental about the economics or politics of what banks are or what they do.

    One point about the privatization of the “communist” state-run enterprises is that this has happened in character much more thoroughly and earlier than it did in form. The first step in China was to start forcing the state-runs to start operating on a for profit basis in competition with each other, and those enterprises that fell behind were subsumed into those that pulled ahead, leading to consolidation of industries into a handful of huge megacorps run by people whose area of expertise was increasingly in business management and not in public service of any kind. From this point on, these enterprises should be considered as private corporations, regardless of who owns the controlling stakes. I’ve been arguing this for many years, but most people seem to think that a wholly superficial designation of “state-run enterprise” is more meaningful than how these corporations are actually run or what role they play in the economy. This process has also been described by a defector from North Korea who had been relatively high up in the Korean Workers Party.

    A bigger conclusion that can be drawn from this dynamic is the blurring or erasing of lines between corporations and government. Whether in so-called “democratic” countries practicing laissez faire capitalism with corporate boardrooms making most of the decisions about our society with no public oversight, or in authoritarian regimes which give free reign to corporate managers at the top of state-runs, the same processes of profit-making create the same dynamic of exploitation, and ending in the same result of wealth consolidation, political disenfranchisement of the majority, and irrelevance of political institutions.

  • Jesse Harasta

    I agree with Ross that the effects of centralization, disenfranchisement and exploitation are remarkably similar in private corporations and in many ostensibly state-run corporations. I don’t want my previous commentary on banks to make it appear that I am opposed to public ownership of businesses–whether that be nationalization as the commentators are discussing or municipalization as was discussed in the article. Municipalization, or ownership by regional governments actually offers some interesting prospects, such as the partial state-ownership (as opposed to federal) of YPF in Argentina or, another Argentine example INVAP, a nuclear and rocket technology company wholly owned by the Province of Rio Negro. What I was skeptical of was the ability to convert a modern bank into any sort of ethical business regardless of who owns it. I believe that the financial sector needs to be burned out and replaced with entities like local credit unions or, perhaps something like the postal savings system of Britain, Japan (though this has been privatized, it has been quite successful in both public and private hands) and the one emerging in Brazil (in partnership with the State-owned Banco do Brasil).

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