We are very happy to announce the publication of a Portuguese translation of Philanthropication thru Privatization: Building Permanent Endowments for the Common Good, Filantropização via Privatização: Garantindo Receitas Permanentes para o Bem Comum.
This translation was undertaken and published by Brazil’s IDIS–Instituto para o Desenvolvimento do Investimento Social with the guidance of Marcos Kisil, IDIS founder and a consultant for the PtP Project. In addition to the full text of the English version of the report, this new translation includes a forward by Mr. Kisil that sheds light on the history of privatization transactions in Brazil and the relevance of the PtP model for in that country going forward. Below, is an English translation of Mr. Kisil’s insightful forward.
Foreword to Filantropização via Privatização: Garantindo Receitas Permanentes para o Bem Comum:
The publication of the book Filantropização via Privatização, an IDIS initiative, is the result of the project directed by Professor Lester Salamon who explored the potential to create or strengthen the endowments of civil society organizations through the processes of privatization.
Endowments resulting from privatizations conducted by governments demonstrate that the assets do not belong only to the State, but also to society. In this sense, the book’s main questions are: Can a public asset be the object of a privatization transaction without society’s participation? What are the State’s limitations to act as sole owner of the asset?
Professor Salamon advances the idea that the assets involved in the operations of privatizations are not, ultimately, “of the State,” but are rather “of the people”—built from the sweat, hard work, and resources of the citizens of a country or pertaining to the people as an inherent right by virtue of their presence in the territory which they collectively occupy.
A good example of the potential of this approach is the history of the Volkswagen company in Germany. An important support to sustaining the German war machine during the Nazi period, at the end of conflict, the company was in German territory controlled by the British. Believing that the industrial complex should play a role in advancing democracy and uplifting the struggling nation, the British government encouraged the transfer of the company to create an independent Volkswagen Foundation (VolkswagenStiftung)—an organization that would be independent from the company, with a Board of Trustees representative of society and the government.
The Foundation became the owner of the company with the commitment to sell its shares to German citizens. The proceeds from the sale created an endowment to support and promote science in Germany. This Foundation now has €2.6 billion (US$3 billion) in assets and a long history of substantial grants and donations for scientific and technological development, which has restored Germany as a leader in the world economy. Volkswagen remains an independent company and one of the leaders of the global car market.
Thus, we should ask why Brazil did not apply this model in Vale’s privatization in 1997. Or Electropaulo’s? Or Companhia Siderúrgica Nacional’s? We should also extend the question to the universe of concession of ports, airports, highways, and others.
Unlike what many may think, privatization has been a relatively common process in the Brazilian State since the 1980s. However, during the 90s the process gained speed. Brazilian government privatized more than 100 companies. By 2005, the Brazilian government had generated more than 95 billion dollars through privatization transactions; adjusted for inflation, that is the equivalent of 143 billion 2013 dollars.
This series of privatizations in Brazil were directly related to the Washington Consensus of 1989, which presented a series of 10 economic recommendations that served as an international instrument of pressure for the adoption of neoliberalism, particularly by developing countries. The recommendations of this Consensus, heavily promoted by the IMF, were widespread in Brazil, including the push for privatization of state-owned enterprises and assets.
Advocates of privatization in Brazil argued—and continue to argue—that centralized public administration is very precarious, prevents the development of companies, and limits the economy. Through privatization, the profitability of these institutions would rise, generating more wealth, though this wealth would no longer belong to the government, but to the group of investors.
At the core of this proposition is the reduction in payroll expenses, since the number of governmental employees would decrease as these companies’ workers became private employees. To get an idea of the scale of this transition, between 1995 and 2005, the number of employees in privatized companies fell from 95,000 to 28,000 workers—a drop of more than 70%. Meanwhile, in these same companies, the profitability jumped from 11 billion reais to 110 billion reais—an increase of 900%.
The following is a summary of the main stages of the privatizations that took place in Brazil, based on information provided by BNDES (National Development Bank):
- 1980s: Nearly 40 small companies are privatized.
- 1990: National Privatization Program (PND – Plano Nacional de Desestatização) is created.
- 1990-1992: Eighteen companies of the primary sector of the economy are sold, with an emphasis on the steel industry, resulting in generation of revenue of $4 billion.
- 1993: CSN (Companhia Nacional de Siderurgia – National Steel Company), the most important steel company in Brazil, is privatized.
- 1995: National Privatization Council (CND – Conselho Nacional de Desestatização) is created.
- 1996: Over 19 companies with a revenue of $5.1 billion are offered for privatization. Light, company of the electricity sector is privatized.
- 1997: Sale of Vale do Rio Doce and privatization of several State banks (some federalized before the sale) takes place. Privatization process of the telecommunications sector begins.
- 1998: Privatization of energy companies in the South takes place, as well as railways and highways in the Southeast.
- 1999: Sale of Datamec (company in the computer industry) and the Port of Salvador, in addition to the CESP (Companhia Elétrica do Estado de São Paulo – Electric Company of the State of São Paulo).
- 2000: Reduction in state actions stake in Petrobras and sale of the São Paulo State Bank (Banespa – Banco do Estado de São Paulo), and several other state banks.
- 2002-2008: Continuation of the privatization of banks and state power companies and sales and concessions for the use of highways are undertaken.
Although the privatization process has had specific laws during Collor’s, Itamar Franco’s, and Fernando Henrique Cardoso’s administrations, none of them included civil society as a recipient of part of the resources obtained. All of them, in one way or another, had as objectives:
- To rearrange the strategic position of the State in the economy by transferring activities to the private sector that were unduly exploited by the public sector.
- To reduce the public debt, by contributing to the improvement of the public sector finances.
- To allow the resumption of investments in firms and activities that have been transferred to the private sector.
- To contribute to the modernization of the country’s industry, increasing its competitiveness and enhancing its entrepreneurship in various sectors of the economy.
- To allow the Public Administration to focus its efforts on activities where the State’s presence is essential to the fulfillment of national priorities.
- To contribute to the strengthening of the capital market through the increased offering of securities and democratization of capital ownership of the companies that integrate the program.
In Lula’s and Dilma’s administrations, the process of privatization slowed due to ideological reasons, and various companies and sectors were removed from the National Privatization Program (PND). In addition, the State added companies to its portfolio during this period, including the incorporation of Santa Catarina’s State Bank (BESC) and Piaui’s State Bank (BEP) into the Bank of Brazil.
However, in response to the deep financial and economic crisis faced by the Brazilian government after her reelection, President Dilma Rousseff announced in June 2015 a new array of measures of the Investment Program in Logistics (PIL – Programa de Investimento em Logística). This program can reach up to R$198 billion in concessions and grants made by the government to the private sector—especially in the areas of Ports (R$37.4 billion), Airports (R$8.5 billion), Railways (R$86.4 billion), and Highways (R$66.1 billion). Unfortunately, no consideration was given for part of these funds to be distributed to civil society organizations.
Meanwhile, what we saw in these years was a strong desire from the government to politically co-opt civil society organizations for their programs and projects through the distribution of public resources without the proper bidding law process. This situation should be changed with the new law that became effective as of January 2016; however, there is no mention of access to privatization resources.
In summary, the ideas and cases in this publication should be known, analyzed, and disseminated throughout Brazilian society. It involves executive, legislative, and judicial authorities, as well as the capital companies seeking to take advantage of the privatization and concession opportunities offered.
Perhaps PtP can be the new tool to create a more fair and sustainable society.