Privatization: Left, Right and Center
Privatization has become a key element of the Chamorro government's economic program. In interviews with envío, Gilberto Cuadra, president of the Superior Council of Private Enterprise (COSEP) until September of this year, and Edgardo García, president of the pro-Sandinista Farm Workers' Association (ATC), present their respective constituencies' positions on the government's privatization plan. For the government's perspective, envío has excerpted key elements from a presentation to the National Assembly's Budget Committee by Economy Minister Emilio Pereira, Minister of the Presidency Antonio Lacayo, and President of the National Directorate of Public Sector Corporations (CORNAP) Dayton Caldera, which we offer at the end of the other two interviews. These three contrasting positions provide an important overview of the current privatization process in Nicaragua.
Gilberto Cuadra: The government’s plan is a disaster
envío: In the 1960s and 70s in Latin America, the state sector expanded rapidly due to the growing belief that the private sector and the market were not capable of appropriately managing a country's development. Could you comment on this? Why do you think that privatization is needed?
Cuadra: First of all, what prevailed in Latin America was the idea of populism—a government capable of providing all services, peace, tranquility, food, health. This was partly because it was the way of thinking at that time in all of Latin America and partly, perhaps more importantly, because it allowed the government to have more political power and a greater capacity for self-enrichment. The situation this led to has to change.
One of the leaders in populism has been Argentina since Perón, and the result is that Argentina is so destroyed that it has had to change its strategy. Bolivia was also terribly populist and has had to change. All this has convinced citizenry that populism was not the right approach to development, and some countries' successes were judged to be the result of citizens taking responsibility for the country's future. Responsibility is expressed not only by voting but also by participation. And that means that if we're paying taxes, we have to know how they're spent. We're not just pack horses that generate taxes, convinced by a government that tells us it’s the great provider, the "Big Brother" who allows us to eat practically for free or receive services we've never worked for. The idea that citizens are responsible and have to watch over how taxes are spent has led us to a slightly more advanced concept of how the problem can resolved: through privatization.
Naturally, total privatization doesn't exist. There will always have to be enterprises managed by the state or municipality, because we're still not prepared to handle all of them. Even in the United States, there's the example of the Tennessee Valley Authority—a monster that produces energy. But, though it's state-owned, the state sells energy to the local power companies, and they're in charge of selling it to the population.
envío: What should stay in state hands in Nicaragua?
Cuadra: Infrastructure, such as roads, ports, potable water, sewage, telephone services, energy, certain transportation such as the railroad. These have been state-owned and will probably continue to be for another decade, converting to private services little by little.
This means that the magic word from 1990 on, let's say to the year 2000, is privatization. Why privatize? Because of the failure of the other system. When a collective believes that it owns property but really has no control over its management, no one feels responsible if there's a pothole in the street. They think the mayor's office should repair it. But if you're a citizen and I run into you, say, in the area of streets I'm in charge of, you'll say, 'I pay you a certain amount in order to use those roads; you have to maintain them so there's no damage to my car.' It's that give and take that creates efficiency.
We also see this in the health sector. Before the revolution, health was divided into three areas: public health, which was called charity; the private sector, hospitals, and doctors who worked in their private offices; and social security. These three combined to make services more efficient, because those who had money paid for and demanded service; those who paid a quota for social security felt they had the right to demand that money be used well. When responsibility is two-sided, when there's give-and-take, that's when privatization has its greatest effect.
envío: But wouldn't it do the same thing, then, to charge for state services? Why the difference?
Cuadra: The difference has to do with public employees' complacence. For perhaps political or perhaps economic reasons, they are not efficient in generating new energy sources, water services, telephones or anything, or in charging for services. For example, 60% of the water pumped by the Managua Water Enterprise is not paid for because of a series of illegal connections. In addition, its calculations are two or three months behind. So I'm an employee, why am I going to worry about that? I just worry that the bill is correct and no one can say I stole anything. An employee isn't as interested as an owner who's looking for ways to make his business more profitable. It's an owner who says, ‘If you're working for me, make the business profitable.’ That's why privatization has become the magic word in Latin America; it doesn't resolve everything but it certainly helps a lot.
This country has been very politicized over the past 10 years. The workers and peasants were led to believe that they were in power, which led to two things—the disappearance of the work ethic and a total loss of productivity. Nicaraguans need to be reeducated, or perhaps just convinced, that there's no free lunch, that everyone in the world pays and pays in different ways.
Another thing that the workers were led to believe is that the owners, who were—and still are—called bourgeois, got rich by pillaging, robbing or exploiting, and that this wealth was really the property of the workers who had produced it. This concept arose from the Russian Revolution where the state, for its own interests, stripped the Russians of everything they had and began that Big Brother policy. As a consequence, we now find that political-economic model shattered into a thousand pieces; we'd need very specialized archaeologists to rebuild it, but only as a curiosity, because it's no longer a viable, practical model. It's based on something very interesting, very utopian—that humans respond to moral and ethical stimuli. But in reality, human beings have not surpassed the state of being relatively selfish, wanting almost everything for themselves. Naturally, some want more than others.
So in this dichotomy of a human that doesn't exist and one that does, we find that the utopia where there will be no government, where we'll all be equal and no one will exploit us, has led to disaster. It has also led to the concept that wealth as defined by socialism is finite and material, and that if you have something it's because at a certain time it was someone else's. In western culture, the predominating idea is that wealth is created and is not finite, that it's made up of both material and intangible goods.
A century ago, the vast majority of wealth was tangible; now it's the other way around. Maybe a century ago there was no machine that multiplied manual processes. The machine is a result of an invention of the human mind—an example of intangible wealth. Before machinery, everything was produced manually. Unfortunately, here in Nicaragua oxen are still used for hauling, plowing, hundreds of things; small industry is still manual and uncreative.
So this thinking about wealth—that it's predominantly tangible—led Nicaragua's workers to believe that everything the bourgeoisie had was a tangible product of their work, when reality is different, and more different all the time. And as long as the citizens or the workers don't realize that we live in a different world than the one they think we live in, we're in trouble. We have to have a country that's coherent. The workers believe that something has to be taken away for them to have something—a finite pie that gets cut up, but cut up and eaten, with nothing left; while what they ought to think is that there is a pie but that it can be made larger, divided up and made again. But since wealth is only tangible and finite, it stops here. So when the poor took from the rich and didn't multiply that wealth, everyone stayed poor.
envío: Could you comment on the pros and cons of the Chamorro government's privatization plan?
Cuadra: In my opinion, it's a disaster. You sell a product that has a buyer and you produce something the buyer needs. If it's soap, for example, you sell it because it cleans well, has a nice smell and is easy to handle. The government here wants to privatize, but to start with, it hasn't taken the first step. The previous government confiscated a lot of what the government has in its hands and wants to privatize; privatizing something subject to a legal claim is a bit ignoble. Second, all the enterprises that the government wants to privatize are in very poor economic condition—not to say bankrupt—and live off state subsidies. Their machinery is obsolete, 15 or 20 years old and poorly maintained. In addition, there are other inconveniences: the work force, for reasons that still prevail, is a political and not a labor force. So we have a disastrous combination for a factory—a poor quality product, a political instead of productive work force, obsolete machinery and an administration that isn't prepared for competition.
So what are we going to sell? Probably a white elephant to a maharajah. But common mortal beings, who want to enter into an economic venture in which they're going to risk money, want to be sure their investment is going to produce more money. They don't do it to be benefactors, because they're generous; they do it to make money. And under these circumstances, with all these handicaps, the probability is very remote that people are going to buy state enterprises. And if we add to this that the state has established that 25% of the shares will go to the workers, this is an additional risk, because the one taking the risk is the owner, not the worker. For an enterprise to be successful the risks have to be shared.
envío: Why is it only the buyer's risk and not the workers' too?
Cuadra: Let's suppose that the enterprise is state-owned. The government says, okay, 25% goes to the workers, and I sell 75%. I sell the 25% to the workers over 20 years, and 75% over 2 years. So the buyers put up their capital in 2 years, and the workers don't put up any capital, so they don't take any risk. If the factory goes bankrupt, it's the buyer who loses money.
envío: But the workers lose their jobs, no?
Cuadra: That's precisely where there's a lack of foresight. The most important thing is to produce under favorable conditions, that is, a good salary and a stable job—not to be given a huge plate of food today so that tomorrow they tell me, 'You ate it all, sorry.'
The fact that there's no risk for the workers makes the risk greater and means that a potential buyer says, 'I'm very sorry, but I'm not getting involved with that.' And that's when an enterprise is completely in state hands. If it's been taken over by someone, it's even worse.
So what's better for an investor? If I were interested in investing because the climate was appropriate, there was adequate infrastructure—let's say all the physical and psychological factors were favorable—the first thing I’d do is build a new enterprise. Why buy an old house whose repairs would cost even more and still wouldn't end up as good as a new one?
So these privatizations aren’t going to be successful. What will happen is that there will be private enterprises, but they'll be new entities built by those private investors. The best thing the government could do is give away the state enterprises and see who wants to take them, and at least if they're a gift no one can complain later!
envío: I'm surprised that the US Agency for International Development (AID) has accepted granting 25% to the workers.
Cuadra: I don't think they have accepted it. What AID or the US government has done is said, 'Here's the path, sonny, and here's your candy; it has to last you the whole trip.' Now it's, 'Here are your millions; it's your problem if you get where you want to go.' They're giving us a grace period. 'This is what you get if you work; maybe you won't get there, but I'm going to think along the way if I'll help you more.' But if we eat the candy the first day and are asking for more on the second, surely AID isn't going to give more. That's why they're leaving us on our own, and the result is going to be tragic.
envío: How many state enterprises are subject to claims by their former owners?
Cuadra: I'd say more than 90%. The few enterprises that aren't in dispute are the Timal sugar refinery, the Chiltepe milk project and the Sébaco cannery [all constructed under the Sandinista government]. Besides these new enterprises, I think all the others are affected one way or another by previous owners' claims.
envío: The government has said that it will respect the decisions of the Confiscation Review Commission.
Cuadra: It hasn't so far. I have friends who've even gotten the papers that say they're the owners of that property, that there was never a reason for it to have been taken, and when they get to the factory the workers won't give it to them. They say, 'This factory is ours; we kept it alive; we volunteered on Saturdays and Sundays to keep it running.'
Where there's no law and order, a country can't be successful, or even partly successful. The government just says, 'Here's your paper,' then doesn't give my property back to me physically. And it doesn't give it back because the workers don't want to. But that doesn't make any sense, because, to start with, the workers aren't the owners, the government is.
Second, while the workers claim they maintained the enterprise, what they really did was devour it. It used to be solvent, productive; when the government took it, it became insolvent and unproductive. So what have the workers done? Nothing. Because if they had taken a factory in good condition and had multiplied its output, then I think they could claim, 'We got it with $10,000 in capital and we've put in $100,000,' and maybe we could negotiate a part of that $100,000.
But 10 years later, the factory doesn't produce good products, its machinery is 10 years older, the workers haven't increased production. So what have they done? They haven't increased its value, so what right do they have to say it's theirs? They've simply consumed all its assets.
envío: Are there enterprises that are attractive to investors? Supposedly the government has possible buyers for some; which would they be?
Cuadra: I'd say there are very few, not to say none; very few for national or foreign investors. There are even some enterprises that were taken from owners 10 or 11 years ago that the government wants to give back, but the owners don't want them. Because the government wants to hand them over with the workers and old machinery; and they don't want to have to spend their money.
Other owners want their factories back, but more on a whim, just because it was theirs. They know that it's not profitable, that they'll have to forget everything that's there and start all over—buy new machinery, restructure the personnel, look for new products or lines of products. It can be done, but it will mean the government's close cooperation in financing. I don't mean 100%, but a reasonable amount of financing that allows someone to say, 'All this is junk; I need to remove it and buy machines and processing materials.' Say that costs $1 million; if the government would finance $600-700,000, the owner would put up the difference. Then we could have a game, because, on the contrary, one can't play alone against a whole team.
envío: The government says that one of its most important goals in privatization is bringing in income from the sale of state enterprises in order to increase the national budget for health and education. But you're saying there won't be any buyers.
Cuadra: I don't think there will be. The government has an unrealistic vision. It makes sense that the government, like any government or individual, would look for more income. That's logical. But the product it's offering is bad; who's going to buy it? Nobody. Say you were involved in clothing design; you have your collection and nobody buys from you. What would you do? You either change your style or get out of the business.
envío: What would the government have to do to make those enterprises attractive?
Cuadra: Like I said, I think they should give them away to whoever wants them; and if somebody takes them, great. I could give them away and not get a single penny, but if the people who take a factory get it working, then they're generating tax income, better quality products, jobs, stability—because when people are working, society is a little better off. So it's a tremendous advantage to the government to give them away, because there are lots of them.
I'd give them away, but obviously I wouldn't give them to just anybody. First I'd see who signs up, what their background is, because if one or two of those have experience, capital or connections, then that factory will be successful. Or at least I've tried to see that it will be successful. But if you sell an auto factory to a carpenter, it's not going to work.
But the more time the government takes in deciding to get its feet on the ground, to realize that it's not doing the right thing, the less acceptable a factory will be even as a gift. Why? First, because it continues to be less productive. Second, because people of a certain economic level have an idiosyncrasy: they start to take things. They find a pen here and take it home; they find a machine there, and they take it home. And once one sees that the other is taking things, it doesn't stop until there's nothing left to take. Now it's true that perhaps the best thing that could happen is that they take everything, so that only the building remains!
envío: The government claims that with privatization, efficiency and investment will increase, leading to an economic take-off in 1992. What do you think?
Cuadra: I'd like to be optimistic, but I'm not. An economic take-off couldn't happen in commerce, because Panama is close by with the canal. So it would have to be in production. What are we going to produce? Whatever you want, but we have to produce at competitive world prices and with acceptable quality, or no one will buy. But what does this mean? At a minimum, national infrastructure in roads, telephones, water and electricity. In Nicaragua we generate a tenth of the energy that Costa Rica generates, and in order to produce one fourth, we'd need at least five years. What industry is going to establish itself here with the blackouts we have? No one would be successful; it's impossible.
And the telephones. Communication is fundamental in this world today. But we dial a number and never make the connection, so we lose a business deal. What you need is to be able to send a FAX and get an answer in 20 minutes. We're still in the stone age.
So the government's plans all sound very nice, but they don't have a solid foundation. They're good goals, they're interesting, they sound nice, but, as they say, the proof is in the pudding. We don't have the ingredients to guarantee that take-off. For industry, there's no electricity; for agriculture to be successful you need irrigation, and there's no electricity; even in commerce, perishable products without electricity. Schools suffer, the universities suffer, hospital services suffer. All this means the arrows go down, not up. Of course, the government sometimes gets upset with me when I say these things, but that's how I see them. Maybe I'm wrong, I admit it's possible—very doubtful, but possible.
envío: Is there something that the government could do differently? Obviously such problems are very difficult to resolve in the short term.
Cuadra: I think what the government should do is accept the map as it is. First, it should make plans that are real, not fantasies, and let the citizenry know that it costs money and effort, that it's not a panacea for tomorrow or the day after. An honest and sincere government would generate the population's confidence; confidence multiplies and things advance more rapidly. But when the population is distrustful, everything slows down. I think the first thing the government has to do is accept that it's naked and not say that it's wearing golden robes, because it's not. Accept that it's naked and we're all naked, and we therefore need projects that pull us out of this naked state. And the government should present projects publicly; everything here is done under the table.
envío: Wasn't this the idea of the concertation? To bring everyone together and say we're all in this together, we have to work together to move forward?
Cuadra: Concertation is an idea that's been taken up in many countries, especially Mexico. You negotiate a social pact out of need, but you also negotiate with groups that have the same goals. You can't negotiate if one group goes this way and the other that way, if one goes up and the other down.
Concertation is the process of seeking a common goal between parties that have different timetables or strategies for getting there, but are all after the same objective. What has this government tried to do? Reach a social pact between social and economic forces that have very distinct, very different visions. There are groups that believe in the principles of free enterprise and free trade unionism, and there are groups that believe in state enterprise and populist unions; so when you try to mix the two they don't hold together. It doesn't work. What has to happen is that the groups who have more or less the same conceptions should demonstrate that successful path and see if the others want to join in. And if not, they—the Sandinistas—should be taken less and less into account in the government's decisions. A government can't be subjected to forces that work against it.
envío: Under Somoza, the private banks were a primary channel through which Nicaraguan capital left the country. There is some concern now, with the reopening of private banks, that the government is actually encouraging capital flight. In Costa Rica, for example, there are private banks, but savings accounts can only be held in the national bank system. I just saw an ad for the new Mercantile Bank announcing that, through it, people can have a savings account directly in a US bank. What do you think about this? Clearly Nicaragua needs investment.
Cuadra: Capital flight is a reality when a country doesn't have the appropriate conditions. The banks don’t promote it, nor can the government stop it. It's a natural reaction that's under the water and wants to surface. What the government should do is not cure the illness but its cause. When I see that my capital is getting smaller every day, whether it be because of devaluations or the cost of living, it's a natural and normal desire to put it where it's protected and has the possibility of reproducing. This isn't exactly capital flight—that's the result—but the truth is there aren't conditions for capital to enter or remain here. You need conditions for investment, and if you don't have them, you don't invest. Conditions have to be created.
envío: You said that those conditions relate to energy, telephones. Who's going to invest in them to change those conditions?
Cuadra: That's where I say the government has to be honest in realizing what the country needs and what it can offer in return. For example, if I have this handkerchief, I obviously can't sell it as new; there won't be any buyers. But there could be buyers if I offer it at a tenth of what it would cost new; if that's really what it's worth I'll sell it. But if someone says they'll offer me a tenth, and I say it's worth 100%, I'm never going to sell it. That is, this country is never going to attract investors if our strategy isn't realistic.
For example, if the government feels that electricity is a problem that it can't resolve, it has to look for a way to supply it, how to bring in more from another country, how to produce more here. It has to change its way of thinking. But the government says, let me think about it; I'm going to go to France to see if France wants to donate a power plant, or I'm going to Japan. That doesn't resolve the problem. A problem is solved when you want to get down to work to solve it. It's not a question of dreams and desires; it's a matter of actions, transparency, honesty.
envío: Why would feeling that the government was being more honest and admitting the reality of the situation change your desire to make more money by putting it in a US bank?
Cuadra: Let me give you an example. If you're a person who generates my confidence, I can talk to you about many things; but if you're a person who doesn't, my answers will be very different. Trust is something that we both will test over time. If we trust each other in the little things then we can move onto a broader plane. It's something, a connection, that can't be measured in time or in money.
envío: Do you think things would be different with respect to investment if the government hadn't agreed to give 25% to the workers?
Cuadra: The 25% is one of the effects, but the cause is much deeper. The cause is that there's a political party that's trying to stop this supposedly democratic project—which has still not shown itself to be democratic, but let's suppose it is—and is a bulldog when it comes to obstruction. All this is a result of that obstruction. How is it possible that a country as small as ours has a well-armed army that consumes a high percentage of the national budget and still allows itself the luxury of selling its missiles to other countries? They sold them to El Salvador, Colombia and who knows how many other places that have not yet come to light. A military that eats up a large part of the blood of the people's taxes and in addition sells what it has not bought is anti-development. It's one of the principal causes why the 25% has had such an effect. The government has not had the capacity or the will to be a government that does what it should; instead, it does what the other wants it to do. And if the government wants things this way and the other wants them that way, there's no solution.
Because their path is not the answer; they proved it for 10 years. They proved it in Russia, Germany, Eastern Europe. That road is not the road to success, to development. But as long as the other party is willing to believe it is, we're not going anywhere. Because the government has to tell them, okay, that's what you think, but I'm going this way and I don't care what you think. But the government hasn't reached this point, or doesn't want to—I’m not sure which.
Edgardo García: "The government's ideal is to see us destroyed"
envío: Could you talk a bit about privatization from the viewpoint of the workers, especially revolutionary workers?
García: A few months ago I told envío that privatization was a contradictory issue for us. But now, as time passes, I realize that it's really not, because this process can be a step forward in the struggle for workers' rights. The workers' first right is the right to work. Second is the right of those who have jobs to a good salary and certain social benefits in their workplace. Then follows the right to management, to participate in directing an enterprise and, more generally, society—because the health of the environment, working conditions and many other things go far beyond one single enterprise; they pertain to society as a whole.
Then comes the right to profits—the sharing of profits, the distribution of income; the right to the profits of that enterprise and to those that can be attained from the overall reserves in the country. If we continue along these lines, we come to the workers' right to property, to the enterprise itself, which is what we're discussing now.
The truth is that the government tried to introduce a concept of "justice" into the property debate that the majority of Nicaraguans don't share. While 50% voted for a government that didn't lead a revolution, a significant number of people among that 50% never saw the revolution's confiscations as unjust. Nevertheless, the government is now trying to put "justice" for those who were confiscated on the agenda and, at the same time, trying not to recognize state property as a factor in development. Under the concept of "returning properties," the government is determined to wrench away the rights of those who worked in those properties all these years, those of us who rebuilt many enterprises. We must put our right to property as workers in this context. That's what we're fighting for: property at the service of Nicaraguan society, to prevent that society from falling back into the hands of big landowners and Somocistas, responsible for so many crimes.
History has shown up to now that those with property are in the entryway of political power. If communal property predominates, then communal leaders will have the political power; if the majority of property is in the hands of large landowners, they will have it. So for us, the fight to win property and preserve it at the service of workers' interests is revolutionary. That preservation will assure us the next stage—the struggle for political power.
envío: From your perspective, is the state-owned Area of People's Property (APP) the ideal and privatization to workers—the formation of an Area of Workers' Property (APT)—simply the lesser of two evils, given the break-up of the APP?
García: Revolutions make changes based on utopias. Our utopia, our ideal, is social property. Until now, experience had indicated that the state represented social property. But if, under the circumstances, the state is divvying up its properties, that revolutionary utopia assigned to the state becomes our responsibility. For us, then, social property is workers' property, the APT. Property pertains to those who produce. Revolutionaries have become obliged to defend this. So, under the current circumstances, the ideal is workers' property.
envío: But the current battle is only for a small piece of property, because the workers are only being given a little of the APP...
García: A qualitative piece. The 25% of urban enterprises we've won comes together with other very important "little pieces" in the agricultural sector. Today the workers have high-quality cotton, coffee and cattle lands—among the best in the country. And we're already the owners. And at the same time, other agricultural lands have gone to former contra peasants and demobilized members of the army. So in true democratic fashion, a whole new group of landowners has arisen. Not all of them were landless before; many used to have very small plots but also worked as laborers without much chance of progress. Thus, the change in property ownership is a qualitative one. There have also been qualitative changes in rural alliances.
envío: Why do you think the government was so generous with state agricultural lands? Out of a spirit of reconciliation? The search for consensus?
García: I can't judge the government's real goal, but it seems to me that their ideal would be to see us ruined and destroyed. Because while the agricultural properties have been divvied up, the land has not been legalized. And without legal papers, they have us cornered; we can't get credit and we have problems trading our products. Our current struggle is to get our lands definitively legalized.
The government is working against us. It's trying to get a technician or group of technicians to appropriate what belongs to the workers as a whole. It's using all kinds of crafty maneuvers to keep from legalizing the land and drive us to bankruptcy, in cotton, coffee and cattle. The accord we signed with the government defined two stages. First, administration and custody of the properties were transferred to the workers, thus beginning the break-up of the APP. The second stage established the definitive transfer of property deeds according to the form of association chosen by the workers. But what has happened in this second stage? The government hasn't complied; instead, government representatives have tried to provoke divisions among the workers. For example, they persuade a group of technicians to recruit workers already registered as part of an association or associative enterprise to register separately. And after recruiting a few people, the government commission in charge of writing the deed says, 'No, we can't do this because it's not democratic; there are two, three or five workers who consider themselves outside of this association.' But they are the ones who convinced those workers to leave so that, later, they could use this pretext.
They're trying to destroy the APT. According to our agreement, the time between the first and second stages should have been three months. At the end of February, we signed the accord to transfer the administration and custody of the HATONIC [cattle corporation] lands that correspond to the workers. By April or May, we should have had the legal titles. But it has been eight months, and nothing. And all this time, our enterprises haven't been able to operate normally because they're still not legal; the banks won't give us credit, we can't do business with the slaughterhouses. And, of course, every delay in the workers' pay, every delay in each enterprise's supplies becomes a conflict. That's how this government runs a "democracy."
What's happening is that, despite this difficult situation, our enterprises still employ far more workers than the private sector, whether in cotton, coffee or cattle. And the private sector pays lower wages than we do. In addition, a private sector worker doesn't have the drive to look toward the future. Our enterprises, on the other hand, are a cauldron of ideas, discussion, participation, searching. No one can say they don't work, because they have so much life. Independent of all our problems, this experience is already provoking a revolution in people's awareness, words and deeds.
envío: Right now the privatization process seems to be in a critical stage. Is this delay in the legalization process one of the most critical points?
García: Yes, the legalization of what we've already been given is vital. In the conflict over the properties' sale value, we argue that the land itself should be free; land is a right. What does have value is the infrastructure, machinery, cattle, installation and other tools. We also argue that, with respect to the cost of all this, we accept everything that's payable; we won't accept a debt that means we'll be bankrupt in three years. That would mean that two months before the time was up, everyone in the enterprise would look for a way to take something. The enterprise would be disbanded, not strengthened, and everyone would feel betrayed.
We won't let that happen. We're going to assume a debt that's payable, that allows the enterprise to provide certain social services. We're not going to run an enterprise that turns workers into slaves either. What does the government say to this? It takes a hard line, saying it operates on bank criteria. It wants us to assume debts that are unpayable, or could be paid off over 15 years, and pay them in 7.
The root of all these obstacles the government has put in our way is fear. It's afraid that the unions will become a kind of association with an economic base, and it knows that that's the entryway into political power. To neutralize us, it has tried to organize agricultural workers who support the government, but unsuccessfully. If there's a salary dispute where it has tried to train these leaders, they simply support the struggle and end up confronting their bosses.
The APT is facing a number of hardships. But we can already say that the project has the capacity to survive. We inaugurated a childcare center in Matagalpa in October. This is very important to us, because we've begun to redeem what was destroyed by privatization. We can definitely say we're surviving.
envío: How many agricultural workers became landowners in the distribution of state cotton, coffee and cattle lands?
García: Approximately 10,000 people. And they're surviving with dignity. They aren't unemployed; they work and survive. In addition, some workers have occupied properties that the government says are subject to return to their former owners; the workers don't accept their return and are fighting for those lands, for those enterprises. Some 3,000 families are fighting.
Even the former contras have taken private farms. They've occupied some 36 farms in Jinotega, totaling about 34,000 acres. During the war, the owners of those farms encouraged those people to join the counterrevolution, promising them land when they won. But now they're sending them to fight it out with the workers on other farms, or with peasants. At first the demobilized contras took some 100 cooperatives associated with the Farmers' and Ranchers' Union (UNAG) in many parts of the country, but they weren't able to take much from the APT. In some places we came to an agreement and conceded part of our lands, but those who tried to take land by force got nothing. Former contras were also given a large share of very good cotton, coffee and cattle lands. But others decided to occupy private sector farms, and the resolution of that conflict is still pending.
envío: Is there a good relationship between UNAG's individual private producers and the agricultural workers, the new landowners of the APT? Have they formed alliances?
García: There's some coming together, especially between the APT and the cooperative sector of UNAG, but UNAG's individual producers work more on their own. They have much greater administrative capacity and fewer legal problems, and this government considers them more legitimate—perhaps more for commercial than political reasons. What they do is rent us a plot of land, buy our products, buy or sell inputs, things like that, but nothing more. We have greater political affinity with the cooperatives, because of the origin of their property.
It's a reality that small bankrupt landowners affiliated with UNAG—small farmers and cooperatives that have been dividing—are selling their properties to large landowners. We don't have this problem because we're not even legal yet. We also have a number of workers in our enterprises who didn't become landowners; they are temporary workers who have their plot for family consumption, and their family, house and animals.
envío:Are there differences between permanent and temporary workers? With the extension workers? How are these new APT properties organizing?
García: There are different criteria with respect to the percentage of shares each will receive, depending on the enterprise. In general, the enterprises are making a certain amount of the shares available, which won't be distributed but will be sold to the associates working there. This obviously means that only those who have higher incomes will be able to buy shares. Given this, it's still not clear how much will go to the extension workers, professionals or moderately qualified personnel. It depends how much remains in that sack of shares to be sold.
This point is still pending. But so far in our enterprises—those we already have and those we're fighting for in bananas, rice and tobacco—we reject the condition that to be an associate a worker must sacrifice part of his or her wages. Who's imposing this condition? The government. In the Victoria beer factory, the workers are buying shares at some 400 córdobas [$80] each. It would be very difficult for a worker to pay that price in the countryside.
The government is imposing this condition to keep competitors away. Our position is that the bosses don't have to sacrifice the food on their table. They might invest part of the profits in purchasing shares, but they don't sacrifice eating. Why should workers who are already in a financial position that barely pays for food—medicine and clothing are already out of reach—accept these conditions? There could be some amount that each worker pays, not as a principle of competition but of acceptance, a sign of approval. Not of competition, because this is obviously a way to break the workers' ranks.
envío: The subject of privatization seems to get more conflictive every day. Are the rules of the game still not clear?
García: I think they're very clear, but we don't accept them and the government hasn't defined new ones; it doesn't accept changing the rules it's been imposing. The principle of 25% agreed upon for the workers includes not only urban industry, but also tobacco, banana and rice enterprises, and it's not being respected. The government has begun to return properties to their former owners first, and then tell us, 'Your 25% of that property has been reserved.' And we say, 'No, sir, that's not the way it is; how is it that the return comes first?' In addition, this government clearly agreed not to return farms confiscated from Somocistas under decrees 3 and 38, yet it's doing so.
For example, an important cotton plantation was returned to a National Guard officer. The workers took it over and have already been ousted 12 times by the police. There were moments in which the police did truly ugly things, like bury the wells so they wouldn't have water, or throw a dead dog in the well. Why would the police do such a thing? Clearly, bribes move people. Now the people who took that farm are defending it with the recompas; they're still occupying the property though it's officially "returned."
In privatization, the same thing is being repeated that has happened in negotiations with the workers and on many other issues: words are one thing but actions are another. The government always continues with its own plans, and even if it says it's not going to do something, it does it.
We're fully aware how it's going to be: top-level officials tell you one thing, and middle-level bureaucrats say 'impossible.' This has happened with everything; since the change of government, that has been its style. Now they tell us that 25% is officially reserved for us and presume that if they return an enterprise to its former owner, our 25% is there, guaranteed. We insist that the first thing is to determine whether the conditions exist to return an enterprise. I think what they're doing is a diversionary tactic. There are enterprises where the workers don't even realize that the property has already been returned. There are other cases in which a businessperson arrives, supposedly to become an associate of the enterprise, and what he or she is actually doing is signing a rental agreement with the former owner. That way the owner never shows up. But the government is clear about who's who. These methods are part of its tactics. The government has its own logic, timetable, economic studies, everything, but it doesn't want to share them with us or make them public. With us it only discusses principles and philosophy: that the workers' company has to fulfill such-and-such requirements, that shares must be purchased with salaries, voluntarism this, democracy that. Meanwhile, properties are being returned according to the government's own timetable and plans.
Those secret timetables are being used to wear down the workers. If an enterprise is going to be privatized or returned this month, the workers don't know about it. They aren't planning for it, so they're caught off guard. And if an enterprise won't be returned until next year, the workers don't know that either; but maybe they're on the alert and already fighting, so when the time comes they'll be worn out.
Not only are the timetables kept secret, but also the government's whole logic. A number of operations aren't made public, which creates greater chaos and disorder within the enterprises.
This privatization has been very well organized, like low-intensity warfare, to make us desperate. The truth is, leaving discourse and goals aside, the only thing we have right now is the administration and custody of a large sector of agricultural enterprises. But the fact that we still don't have a single legal transfer produces a number of obstacles that wear us down.
envío: Given the government's lack of will, some think that the National Workers' Federation (FNT) is wearing itself out in the struggle for 25% and reducing its capacity to struggle in other sectors and around other issues.
García: That's not true. Property is a broad topic. The struggle for housing involves a huge portion of the population throughout the country. There's also a broad grassroots struggle that takes several forms: fighting taxes, the public sector wage struggle. All these struggles converge on and form the relationship between FNT militancy and the people. There are different echelons of struggle, and we're in each of them: from the fight for jobs to the entryway of political power. And we're convinced of the importance of providing the union movement with an economic base; otherwise we'll never make it to the entryway of political power.
In addition to the agricultural sectors, we're also fighting for other promising property sectors—the commercial chain, for example. Since we got it in our heads that the state controls many activities, we forgot the value of the whole commercial chain, which includes agricultural inputs, transportation, even basic goods and supermarket products. It's an area to be exploited. Some factories also offer possibilities, such as in fiscal industries like rum and beer. Our prospects will be good if we can secure these properties for the workers.
In the countryside, the struggles of the different groups are linked. We're involved in the struggles of those who've occupied private sector properties and that of private sector wageworkers—a very difficult struggle, but it's happening. We see the agrarian reform as a way to combat rural unemployment. Even if the government isn't implementing the agrarian reform, it's being implemented on the ground through land takeovers, and the Agrarian Reform Institute (INRA) no longer has arguments against it because it now has its organizational law and regulations. They provide the conditions under which we can get the occupied lands legalized. The complexities of all this have become a school for the workers.
envío: So has the FNT been able to move this rightwing government's privatization project more toward the center?
García: We've neutralized the return of property in the countryside; we've been able to stop returns in places where we have the strength to do so. We've also neutralized their attempts to divide us. We've maintained the properties we already have and are surviving on them. Of course, the situation right now with the recontras and the recompas is critical. For the economic life of the countryside, of which we are part, this phenomenon concerns us; we think negotiated solutions must be found that allow for uninhibited circulation and rural economic activity.
envío: Why do you think the government says that the privatization process must happen rapidly?
García: Privatization won't be over in 1992. The process can't happen quickly. When the government says rapidly, it means unilaterally. And unilaterally means once again operating "Panchito Mayorga style." [Mayorga was the first Central Bank president under the Chamorro government and author of the first economic plan, which failed in part because it was imposed and excessively ambitious.] We know this can't be unilateral. Concertation gives this country the space to move forward, and concertation can't be unilateral. I understand that the government will experiment with all kinds of low-intensity war tactics, and, if they work, it will logically keep using them. We have to keep them from working. I'm very clear why many government officials emphasize speed, why it has to be done in two years. Why two years? Because they think their moral standing won't last longer than that. Government officials have said this openly, that if they're going to serve a government and burn themselves, it's in order to get as much out of this privatization as they can in the shortest time possible. It's practically a declaration of their corruption. Because behind all these philosophies, there are personal interests in privatization that require that it happen quickly.
envío: How do you think this complex issue of privatization and these struggles so full of obstacles are influencing the workers' class consciousness?
García: It's a child born of the times. And that's where one must grow and struggle and hope. The revolutionary movement must now put the past 10 years of schooling to the test. And we haven't failed yet! We have no model for this struggle; nor has there been any similar privatization process in Latin America. These are special circumstances.
There are dangers, risks. One of them is getting worn out. But the greatest danger is if the government can destroy the solidarity between those who acquire enterprises and those who don't, if criteria on business and profits become more important than the political struggle that's giving birth to workers' property. That's the greatest danger. Because if the new owners turn to buttressing the government plan instead of the revolutionary movement, the struggle will have been in vain.
For the time being there's no evidence that this is happening. That will come at another stage; we're still barely laying the foundations. If our enterprises don't abandon the deeper issue, solidarity among workers, we will have won. We're all aware of the risks we're facing and what's at stake in this struggle.
Official Comments on Privatization
“ A process very particular to Nicaragua” - Antonio LacayoPrivatization is the consequence of a very particular process of state sector expansion that took place in Nicaragua over a 10-year period. Between 1979 and early 1990, the state took over private enterprises through nationalization, confiscation, expropriation, bank appropriation and purchase; in addition, the state directly invested in new projects.
On May 2, 1990, the Chamorro government issued decree 7-90, creating the General Division of National Public Sector Corporations (CORNAP) to administer these enterprises and make recommendations to the presidency with respect to their privatization.
The way this state sector expansion occurred in Nicaragua means that privatization has very special characteristics that differentiate it from that of other countries like Argentina, Mexico, Chile or Eastern Europe. First, there are enterprises that should pass to private hands not through sale but through return to their previous owners. Enterprises that became state property under confiscation decrees should, in conformance with the government’s program, be reviewed to determine the feasibility of returning them. Enterprises that cannot be returned or that were purchased, appropriated by the bank or built by the government will have to be privatized through sale.
A second element that characterizes privatization in Nicaragua is the heavy political aura surrounding the process. In other countries, especially Mexico and Argentina, private enterprises pass to state hands when they have economic problems and the state intervenes to purchase and thereby rescue the enterprise for strictly economic reasons, such as to protect jobs, the enterprise itself, exports or production.
In Nicaragua’s case, with the exception of the banks that were heavily decapitalized at the time of the revolutionary triumph, the state took over companies for fundamentally political reasons, and over time they came to be known as the Area of People’s Property. Workers were led to consider them their own property to a certain degree, even though they remained in state hands and through the years were managed more for political than economic motives. In Nicaragua, this political and ideological aspect must be taken into account to guarantee the success of privatization.
The third element is that this process must take place rapidly, unlike in Chile, for example, where it’s been going on for 15 years and still hasn’t concluded. Given that many enterprises are seriously deteriorated and it’s virtually impossible for the government to recapitalize them, privatization has to happen fast. Nicaragua’s far-reaching economic adjustment process means that state resources must go to higher priorities than bolstering these enterprises. So if they’re not privatized, they’ll collapse, especially now that the country has opened up its borders to economic integration with the rest of Central America and perhaps beyond.
These three elements mean that privatization in Nicaragua must occur with the greatest flexibility possible; otherwise we run the risk of paralyzing the process. The more regulations and requirements that must be met, the slower privatization will be and the greater the deterioration of state enterprises.
“Three fundamental goals”- Dayton CalderaIn privatization, we have three fundamental objectives. The first is to obtain income both from the sale of the enterprises and from cutting subsidies–-so-called credits authorized by the national bank system, which in practice are subsidies that affect the national budget. This income would increase the national budget, allowing for the development of new social investment projects.
Second, we hope both to reactivate the economy by attracting foreign and national private sector investment and to increase the efficiency of business management. In other words, promoting competition will result in economic reactivation, which will benefit the consumer and make business management more dynamic.
The third goal is to diversify property, offering all sectors a chance to participate in privatization and even giving special opportunities to certain sectors. Groups of producers can become proprietors in industry or agriculture; and workers will be given preferential options to do the same.
Not all these objectives can be reached in each privatization case, but the three should be reached by the process overall.
“The value of an enterprise will be set by the market” - Dayton CalderaThe privatization procedure begins with the selection of the enterprise to be privatized, which has to do with its legal status–-that is, if it is legitimately state-owned [or is subject to return]–-and whether it’s attractive to investors. Its relationship to other enterprises will also be studied to determine the consequence of privatization, i.e., if it supplies products to another factory.
The development of a profile or prospectus of the enterprise helps determine the privatization strategy–-if 100% should be sold or a smaller percentage; if it should be marketed locally or internationally. This depends on its technological complexity, the markets to which it must have access or the amount required to rehabilitate or restructure the enterprise. Or perhaps it should remain in state hands, be rented or even be shut down because it’s not economically viable.
If the establishment should be sold, a financial evaluation will be conducted to estimate its value. But its real value–-I think this is very important–-will be determined by the market, the value that participants give it in the bidding or direct negotiation process.
It’s not the same to sell an enterprise today, with the country’s current economic and political situation, as it would be to sell that same enterprise perhaps in three years, in a much more favorable economic and political environment. Obviously, it will be worth much more at that time. Nevertheless, in order to build that improved future climate, we must contribute through the privatization of these enterprises so that they are a part of creating that new environment.
There are three different ways to conduct a privatization process. One is very well planned out and would include studies before starting the process to establish a precise timetable for each enterprise. Such a thorough study would take a minimum of six months. Another way to privatize is by planning absolutely nothing, selling enterprises simply as buyers appear. In Nicaragua, we’ve opted for a third and intermediate way that is neither one extreme of providing a timeline for the entire process or the other of proceeding haphazardly. We’ve tried to combine the two.
We estimate that the privatization process should come to a close at the end of 1993, or at least that all state enterprises will be on the road to privatization by that time.
“Many enterprises will not be attractive to investors” - Dayton CalderaIt’s important to point out that when many of these enterprises passed to CORNAP they had heavy liabilities, that is, were deeply in debt. Some do not even have statements of accounts. There are also operational problems due to the freeing-up of the market, where many have gone from a protected to a competitive market in which they are not accustomed to operating; and because they’re state-owned, they find it difficult to adjust.
Because of the sum of their liabilities, many enterprises will not be attractive to investors. There will have to be a financial clean-up before putting them on the market. In many cases, the whole business will not be sold but just its working assets. Logically this has important implications with respect to a buyer’s obligations if he or she buys the entire business or just its working assets.
“The workers will become owners” - Dayton CalderaThe workers’ participation in privatization is specifically outlined in the concertation accords signed on August 15. The government will guarantee 25% of the total assets of state enterprises to the workers before their return or privatization. Naturally, we agreed upon a series of criteria that make an enterprise returnable. It was also established that financial measures and options would be agreed upon at the appropriate time, when the workers were given a percentage. We’ve already begun to negotiate, for example, with the workers of the ENSA bottling company. We also have a meeting pending with workers from the Victoria beer factory. Both are enterprises whose return was already underway, but in which the workers’ participation had not been precisely defined.
The workers’ participation will always be calculated before the return or privatization. If there are enterprises that should be returned 100%, then different options will be given to the workers, such as privatization bonds with which they can purchase shares in another company, participation through profits or any other viable mechanism. Something new will come out of each situation presented.
Even before this specific framework was defined, the workers and other sectors benefited from the division of the state agricultural conglomerates HATONIC (cattle), AGROEXCO (cotton) and CAFENIC (coffee).
The important thing is that there may be enterprises that, given their characteristics or the kind of business they’re involved in, could be privatized 100% to the workers; and others in which even mixed participation–-whether workers or several different associates–-may not be possible because they should be privatized to one individual. But through this privatization process, 25% of all the enterprises or of the total net assets will go to workers who will become owners, just as a number of new proprietors will arise, thus diversifying property.
International donations - Dayton CalderaThe opinion of international organizations that have collaborated in the development of different state enterprises is also considered in privatization. NORAD, the Norwegian international development agency, for example, has provided assistance to shellfish processing plants on the Atlantic Coast for many years. The government requested its aid, and consultants made recommendations on the best manner of privatizing or administering those plants, given the new conditions with the deregulation of fishing and a competitive market. Their recommendation was to rent them. That is, the state still owns the plants, but their administration was privatized, giving them the competitive character needed to compete with other enterprises that have already been established in the country to exploit fishing resources.
“An essential step toward economic recovery” - Emilio PereiraPrivatization is an economic and social matter that has a significant impact on the foundation and equilibrium of public holdings. In the short run, privatization could be ineffective in recovering this balance if we don’t do it right and don’t do it fast. In the medium and long run, privatization opens new doors to growth, employment generation and swift recovery, which really must be considerable to pull this country out of poverty.
Although there is a certain ideology in privatization, the state as administrator, as manager, has shown itself to be very inefficient. It’s worth noting that governments that adopted the philosophy of expanding the state sector did so claiming good faith in the majority of cases—popular causes that would benefit the poor, bring relief to the unprotected. But unfortunately, independent of ideological system or geographic location, these processes have resulted without exception in a greater macro-social imbalance, an accelerated drop in living standards and finally unemployment—the opposite of the reasons the state began its concentration of enterprises.
It’s important to emphasize the condition of state enterprises in Nicaragua. They are seriously deteriorated. In medical terms, one might say they’ve had several heart attacks. Nicaragua can’t permit itself the luxury of allowing these patients to lose all vital signs before shocking them back to life. It’s extremely difficult to revitalize an enterprise once it’s on the way to bankruptcy, and the majority of state enterprises are already on their way. It’s also important to clarify that a business doesn’t go bankrupt from one day to the next.
In addition, there’s a problem of responsibility in state enterprises; maybe this can be demonstrated with the parable on talent. If you remember, there’s a case where God gives a farmer a seed and the farmer loses it; He gives another a seed who simply keeps it; and finally there’s the farmer who knows to plant it, care for it and reproduce it. The majority of Nicaraguan enterprises are in the first category; another large part are in the second, just being maintained. Almost none are in a situation where talents–-so scarce and so necessary for economic reactivation–-are being multiplied.
The few resources the state has—both financial and human–-cannot be dedicated to everything; we have to choose between providing basic services and being business managers. And history has shown what happens when the state gets involved in business.
Several simple criteria must be considered in privatization. It has to happen very fast. 1992 should be the year to consolidate stabilization, the beginning of economic takeoff, the possibility for the state to increase investment in public services. But, above all, it should be the year of privatization.
Second, privatization should minimize the impact of the economic stabilization plan. I want to point out here that I’m not saying privatization should maximize state reserves; the presidency is very pessimistic about that. The great wealth that supposedly exists in these enterprises is not in the majority. They are in a poor state in financial terms, in technical resources and in competitive capacity. The people interested in buying them, be they workers or business interests, are interested in their productive assets, not their problems. Obviously a buyer isn’t going to be interested in a factory’s debts, and in many cases the state treasury will have to assume part of the bank debts and even fiscal debts, since the majority have not met their tax obligations for several years. In other words, without wanting to be pessimistic, if the treasury comes out of this without losing, that will be a victory, because we’ll be returning a large number of enterprises that will begin to grow again.
Under these circumstances, the issue of employment can’t be easily judged. It’s likely that some enterprises will have to reduce their payrolls, but one must look at the overall package and the net effect this will have on job generation.
We see privatization as an essential–-and urgent–-step toward economic recovery and the democratization of property.
“The state’s role is to govern” - Antonio LacayoWe believe that the condition of these enterprises, combined with the country’s economic situation, makes it virtually impossible for the state to be the one to promote their recovery. We believe that our fundamental role should be to govern; there are activities that the business sector, the cooperative sector and the workers themselves can develop with greater vigor and energy, with greater possibilities of success than the government, given the particular circumstances of this country. Nevertheless, these goals should always be seen as part of a bigger picture where there must be openness and the greatest benefit for the national treasury, so that income can be generated to compensate those Nicaraguans who, in conformance with the concertation accords and the desires of the National Assembly’s Property Commission, will be indemnified when unable to physically recover their properties.
We definitely agree that this privatization process should not be politicized. Some enterprises run better in state hands and should remain in state hands; others run better in private hands; and there are others where it’s not clear. What is clear is that, in Nicaragua’s case, the government does not have sufficient resources to promote development in that gray area. And for this strictly economic reason, it seems desirable to seek national and foreign investors willing to make the investments needed to reactivate those enterprises. This process should respond to strictly economic, and not ideological, considerations.