Privatisation

One thing which is not much commented on is the impact of the Global Procurement Agreement (GPA), and I think this neglected agreement should be more widely known.

The GPA is the only legally binding agreement reached under the auspices of the World Trade Organisation. It was implemented in 1996 and revised in 2011.

A little background.

The first thing you have to realise about this agreement is that its aim is to open public spending to private companies. Governments, national and local, spend billions of pounds every year to provide goods and services for their populations. The money, of course, comes ultimately from tax on those same populations. Naturally enough, the private sector wants a piece of that pie. They push their right to have a slice through their economic mantra of the benefits of competition etc. Having captured governments they implement their agenda through agreements like this.

It is important to note that government procurement was specifically excluded from the original General Agreement on Tariffs and Trade (GATT) negotiated after WW2. Since government procurement is estimated to represent about 10-15% of GDP spent, it is obvious that the private sector has a strong interest in overturning that exclusion: and they have achieved that through the GPA.

The justifications are as usual: free trade leads to cheaper and better goods and services (by definition, remember).

What it essentially provides is that procurement cannot discriminate in favour of domestic suppliers or in any other way. All contracts must be open to tender from any willing supplier. It is interesting that this is precisely what the NHS bill sought to establish in relation to health care provision. The reason it is interesting is that GPA is not binding on all members of the WTO: you have to sign up. And having signed up you have to specify which goods and services are to be included in the agreement.

What is important to note, however, is that this is a legally binding agreement. Once you have signed up and awarded contracts on this basis you cannot change your mind. Thus an incoming government which does not agree with this is not able to reverse the process.

You will remember that in another part of the forest the attempt to bind future governments to certain economic policies was one of the major complaints against the Hungarian incumbents: it was painted as totalitarian, actually. For some reason that is not charged against this agreement, however. That is different. It is different. In Hungary the committments could be overturned if there was a large majority for doing so in the parliament: difficult, but not beyond legal achievement. There is no such backstop in the GPA. A country can withdraw altogether: but that will not change the fact that awarded contracts are contracts. They would have to be honoured.

One instructive element of this agreement is this


Once again the legitimate control of economic policy is removed from government and passed to the market. There is a provision whereby developing countries can negotiate offsets, but only for the purpose of qualifying to participate in the procurement process: not as a critera for awarding contracts.

The agreement is peppered with hurrah words. It's aim is to prevent "discrimination": to ensure "value for money" through the benefits of "competition" and on and on.

But it is possible to look at this another way. What it does is prevent a willing purchaser from buying from a particular supplier of his choosing. Somewhat at odds with the principle of "freedom" if you want to couch it in hurrah words, is it not? What they are demanding is the right to force a purchaser to buy the cheapest option whether he wants to or not. If you translate that to domestic life it is tantamount to forbidding you from supporting your local corner shop: you would be forced to buy from the supermarket whether you would prefer to keep that corner shop open or not: whether a higher price is overidden by other values you may hold, or not.

I do not think it sounds so good put that way. It is like the cap on benefits in this sense. In that case "help" is imposed: it is not help at all. In this case "value for money" is imposed; it is not an open market or anything like it. The only way it can be portrayed in that way is if you leave out every other consideration bar money: but while many do place that high in the list of things they think about in making purchasing decisions it is not by any means the only thing people take into account. Except, of course, if you are the kind of moron who subscribes to the neoclassical vision of human nature.

The imposition of their ideology is not the only objection to this, however. Experience shows that once the public provision is privatised the cost benefits (where they actually exist) disappear. The GPA process depends on "tendering". We know what happens there: you choose the cheapest bid and it mysteriously incurs "cost overruns" once the work starts. Then you have a dilemma: cut your losses and start again, hoping that the new contract will be cheap enough to offset what you have already spent (it won't); or pay the increased costs to get the job done. In the case of health care you cannot do without the item, so abandoning the idea altogether is not an option.

There is another consequence. The money to be spent is tax money. At present one can choose to spend it within the country. That is not allowed if the purchase is covered by GPA, for it says


Say that the local supplier offers surgical gloves at 10p a pair. A foreign supplier offers them at 5p a pair. The gloves are identical. The invitation to tender is for a 5 year contract and they want 200 pairs of gloves a year.

The foreign supplier will tender to do the work for £50. The local supplier will tender to do it for £100. So far as I can see this agreement means that the government must buy from the foreign supplier. That is value for money.

But the local supplier goes out of business so instead of getting £20 of tax each year the government gets nothing. And in going out of business the two people who made the gloves get laid off. So the tax they paid is also lost: and we have to pay them unemployment benefit as well. Where is the benefit now? Gone, is where. But to take that into account is "discrimination", and "discrimination" is a bad thing.

In addition the money paid for the gloves leaves the country. So £50 of tax money goes to the Cayman islands where it no doubt helps the people there to buy a yacht. If the contract went to the local firm the £100 stays in the country which generated it. The two employees get part of it in wages and they spend them in the local shops. The owner gets part of it and he spends some of that in the local area too: he buys food and other things. He buys electricity and raw materials etc. None of that will happen now.

To me this agreement can only be a good thing if you have a very narrow focus: and those who promote this do. They focus on large corporations' potential for profit. For the rest of us it is insane.