NATIONALIZATION: THE ANSWER TO EVERYTHING FROM POVERTY TO DANDRUFF...

Word association test: Does the name Snyder-Gardner mean anything? If you’re an electrical engineer, it might. I am not, yet this name from my childhood resonates in my mind to this day. These were the names of power generating units, and the reason I recall the name so well is because they kept cropping up in newspapers on account of their constantly breaking down. (There was no cable TV or electronic games then, so I did a thing called 'reading'.) This little kid now had a name to which he could attach to the villain responsible for depriving him of his cartoons and physical comfort because of brownouts (another term I learned).

Fast forward to adulthood. I was fortunate to land a teaching job at a private tutorial center. Unlike the classrooms I had attended in college, ours were air-conditioned. That didn’t last long, however. Rotating brownouts, especially during the summer months when enrolment was at its peak, again became the norm, forcing us to open our windows to Manila traffic and trying to get our lessons across through the noise, heat, humidity and dim lighting. There was also a new set of names added to my brownout rogue’s gallery: Artemio Malicsi and Ernesto Aboitiz, both Presidents of the top villain, NAPOCOR or the National Power Corporation. No nightly news broadcast was complete without a video of Mr. Aboitiz standing before a projection screen (no Powerpoint back then) with his omnipresent steel pointer explaining the latest breakdown, to the point that many frustrated power consumers wanted to show him what to do with that pointer.

While the Meralco of my childhood had been run by Eugenio Lopez, Martial Law saw his hurried departure before he could replace all the superannuated equipment. (The Snyder-Gardners dated from the American administration.) The utility was taken over by government’s NAPOCOR. Flush with the victory over political opponents, the Marcos administration funnelled resources to its many cronies while neglecting long-term investment for the power generating sector. Whatever feeble stopgap measures NAPOCOR instituted was no match for the growing demand for electricity. Brownouts became longer and more frequent. 

After EDSA I Meralco, now a power distributor that purchased electricity from energy producers or generation companies (gencos), reverted to private ownership, first to the Lopez family and then to Manuel V. Pangilinan. To aid in his fastrack recovery of the tottering power sector President Fidel V. Ramos signed the Power Crisis Act of 1993. The Act had a bumpy beginning due to the Asian Financial Crisis of 1997, but the most notable feature was that now the power sector would be dominated by the private sector, from generation to distribution.

Let’s pause here for a moment…

This walk down memory lane only shows that we have not learned from our mistakes, but like the saying goes, we are doomed to repeat those mistakes. Despite the sins of the past, certain sectors, dismayed by rising costs, are calling once again for the nationalization of the public utilities. Not just the power sector but everything else: transportation, water, healthcare, etc.

I like to think that those people pushing for nationalization fall into two categories. First you have the average disgruntled citizen who is unfortunately guided by the simplistic black-and-white logic that if a certain system is unpopular, then scrap it for something entirely different. In the case of electricity, it’s well known that the Philippines has the most expensive electricity in the region, thus the kneejerk response: Privatization obviously is a failure. Let government run it.

The second group of people pushing for state-control do it because it is part of their agenda. I’m referring to the leftist organizations with their moribund 60s-era Communist ideology attempting to pit obsolete dialectic against historical inevitability. Their answer to every ill of society from anarchy to zero-sum economics is Nationalization. High electricity bills? Nationalize it. Poor water service? Nationalize. Trains not running on time? Let the state handle it.

Nationalization is a win-win situation for the leftists. If it works, well and good, we have a smoothly-running society and the leftists gain political capital. But if nationalization fails, then so much the better. When services degrade from government mismanagement, and enough people get angry, and government collapses, our Marxist Red Knight comes galloping to the rescue, moving into positions of power, with all vital industry and utilities all wrapped up in a neat state-controlled package a la North Korea. They are the ones stoking the anger of the aforementioned disgruntled consumers with their displays of militant outrage.

The militants have their work cut out for them; our national character has a built-in hostility towards those considered wealthy and successful. (It doesn’t help that our entertainment media never tires of the cliché of the vile, degenerate rich villain with no redeeming factor whatsoever.) Add to that our crab mentality and you have fertile ground for any anti-capitalism, anti-private sector propaganda. A casual glance at the negative comments on social media directed at privatized service invariably has the blanket condemnation of the rich-are-evil extraction. Period. No supporting statements are provided because as far as the naysayers are concerned, they hold this 'truth' to be self-evident. (Translation: Ah, basta!)

Those promoting state-control like to cite examples of successful nationalization like Singapore, Japan and so on. But one wonders why they cannot cite a Philippine example. I submit that it is because they cannot find a single case where nationalization in this country was successful. If we’re to make a game of citing examples from other countries, then how about Bangladesh’s rail system, or Indonesia’s water utilities, both state-run concerns with reportedly deplorable service?

To be fair, nationalization is not an ogre, per se. It may even work in the Philippines someday. But to institute it at this point thinking it will improve the situation is a cart-before-the –horse measure.

Nationalization has a better chance of success in a society where government possesses political will, with a bureaucracy free from excessive red tape, and most of all, with no more culture of impunity and political patronage. For us to transform ourselves into a society even slightly comparable to the aforementioned Singapore and Japan is a task for which even the description ‘Herculean’ is inadequate. This will involve a 180-degree turn in our national psyche, not to mention the passing of several generations before those changes become part of our national character. Currently, the Philippines is woefully inadequate in these qualities, thus the constant failure of state-control.

(Worse, corrupt politicians make a brisk business out of state-run services.) 

We need look no further than the Metro Rail Transit 3 system (MRT3) as a contemporary example of another public utility deteriorating under government control. While technically owned by Metro Rail Transit Holdings (MRTH), a consortium of private companies, the MRT had its maintenance responsibilities taken over by the government’s Department of Transportation and Communications (DOTC) in 2012 when they promptly relieved Sumitomo Corp., the maintenance provider hired by MRTH and replaced it with an undercapitalized and newly-formed company. Since then, the decline of the MRT has been unprecedented, culminating in a derailment in August of 2014. The malaise that the MRT is currently suffering can be attributed to those destructive aspects of our society previously mentioned. Political patronage has positioned the President of the ruling party in the DOTC seat despite a lack of a technical background. Impunity has paralyzed the investigation and prosecution of a DOTC official reported to have attempted to bribe a Czech contractor. Finally, total absence of political will has officials all the way up to Malacanang exhibiting appalling indifference for practical solutions, and instead imposing impractical and dilatory ‘solutions’. The Not Invented Here mindset (really a form of crab mentality) is present as they harbor hostility to unsolicited offers from the private sector to clean up their mess, preferring to hire their contractor of choice without bid, confident that no one will stop this blatant double-standard despite the fact that this was the very reason we were saddled by an incompetent contractor back in 2012.

One shudders at the thought of what the future holds if this same diseased government controls every industry and utility.

By contrast, the water utilities sector enjoyed the most successful Public-Private Partnership agreement in this country’s and ASEAN’s history. ‘Enjoyed’ because again, this populist government bent on garnering approval points reneged on the PPP contract which allowed regulated rate increases, an arrangement that had been working well for 17 years. The resulting lengthy arbitration and frozen rates could impact on quality of service.

Simply put, the private sector does very well, thank you very much, until government steps in and contaminates the whole proceeding.

To be sure, government does have a vital role in public utilities. They become necessary in aiding indigent or lower-income groups access to those services. But this only adds weight to the argument for privatization. Management and financing from the private sector of these services would free up government subsidies for use towards not only the poor but for other parts of the country that do not enjoy the same largesse Metro Manila has been getting.

The privatization of electricity and water came about precisely because of the failure of nationalization, and these resulted in the Electric Power Act of 1993 and the Water Crisis Act of 1994.

While brownouts are no longer as frequent as they were in pre-Crisis days, government’s own Department of Energy and the private sector foresaw the recurrence of another energy shortage as far back as 2010, given the lack of new power projects and the condition of aged generation units. Unfortunately, once again, our old demons of weak political will and outright incompetence return to plague us and threaten to bring back the Dark Ages. Regulatory bodies fail to regulate or prevent excessively high prices of electricity in the spot market. Government fails to prepare for maintenance shutdowns announced more than a year in advance. Decrepit power plants normally running on natural gas had to switch to more expensive diesel fuel while repairs were being made. Private sector attempts to set up new power projects are hamstrung for populist reasons and bureaucratic red tape. What new power plants there were had been similarly stymied. Case in  point is the coal-fired power plant in Subic that was prevented from operating in 2012 even before it could produce a single watt of electricity, due not so much to environmental concerns, but to a mere bureaucratic technicality.

With another power crisis looming, the Supreme Court in February of 2015 belatedly reversed the earlier decision and upheld the Subic plant’s permit to operate – three years after its suspension. While the plant is now allowed to open, it will take years for it to not only come fully online but to find investors to finance it, way too late to arrest the coming new crisis.

It is bad enough that we forget the lessons of the folly of government-run services, but it is even more ironic when one considers we are to this day still paying the debts not only for the emergency purchase without bidding of power generators as part of Ramos' fastrack measures, but also the ones incurred by NAPOCOR prior to his administration.

The main objection to the privatization of public services is the supposedly high cost to consumers. Public facilities run by private companies need to turn a profit, unlike a government-subsidized service. True enough, but given the choice between a subsidized service that continually breaks down (and in the case of the MRT, is potentially life-threatening) versus one that is costly but effective, the choice is clear. Quite simply, if the private sector doesn’t maintain good service, they don’t make a profit, thus it behooves them to maintain an acceptable level of efficiency. The private sector may be profit-driven, but a populist-driven government whose only motivation is instant gratification as against what is practical and enduring is more deleterious. Consider, too, the ‘hidden costs’ that come with poor infrastructure in the form of lost work hours, stress, medical bills and additional transportation (like to ferry water as I did in my childhood), and finally, diminished investor confidence. Once people learn to see the correlation, then the choice becomes easier: You get what you pay for.

It would be so wonderful to say: ‘Government can keep the prices low and fix the service.’ It’s always nice to have the best of both worlds, but at present this is not possible. Once we have the political will of Singapore and the sense of unity of Japan, when we have gotten our act together as a people and are able to elect competent leaders under a working system of checks and balances, then that goal is attainable.