Swans Commentary » swans.com April 11, 2005  



Boycotting the Hegemony
Part Three: Bechtel II


by Gerard Donnelly Smith






(Swans - April 11, 2005)   Last time, putting my foot in my mouth, I optimistically advised my readers to divest. If I have any readers left -- who like the French reader might think me "pebble-minded" -- I beg forgiveness. The general public cannot divest its portfolios of Becthel stock, only direct shareholders (private owners, their relatives and their workers, and other participants) of the parent corporation or one of its subsidiaries can divest. Why would they? The billionaire, Bechtel family owns the majority of stocks -- thus also of power -- in the company.

One can, however, complain in writing, perhaps encourage the family-owned company to live by the ethics that they so proudly and willingly share: Bechtel Business Ethics. As of 4/15/05, Bechtel list these concepts or "values" as part of its corporate image:

"Ethics. Uncompromising integrity, honesty, and fairness are at the heart of our company.

"Fair Return. We earn a return that fairly rewards the value we deliver:" (Bechtel, Visions)

Certainly Bechtel is earning its $1.8 billion contract in Iraq. On the other hand, the corporate leadership may now realize that the "value" expected by the Iraqi people, the company's own expectations for fair reward, and the US government's reconstruction plans were never fully developed or completely understood.

David R. Baker, SF Chronicle Staff Writer reports that,

The Iraq that Bechtel engineers found in April wasn't what they expected.

They arrived ready to see battle damage -- roads and power plants and rail lines blasted by the lightning war that swept Saddam Hussein from power. Instead, they found a country that had been quietly decaying for years.

International sanctions had starved Hussein's government of cash. Iraqi engineers couldn't order the spare parts they needed to keep power or water flowing, since the U.S.-backed sanctions blocked any gear the military could possibly use.

Threatened with jail time if their utilities collapsed, Iraqi engineers survived by jerry-rigging. They cannibalized one high-voltage line to patch another, and blacked out rural areas to keep the lights on in Baghdad. Unable to do routine maintenance, they drove their utilities into the ground. (Baker)

A quick fix was obviously impossible given the sabotage, the security situation, and the overall state of Iraq, so an increase in funds, from Bechtel's perspective, was necessary. One must sympathize with the Bechtel workers on the ground who despite the dangers try to help improve Iraqi lives. Yet one must also question whether Bechtel understood the Iraq situation in full. In this case, perhaps the fair rewards -- $1.8 billion and the usual cost over-runs -- appealed to the company's utilitarian motivations: the greatest good for the greatest number of people, including participants and non-participants alike. Bechtel addresses this utilitarian value under "Sustainability" which it defines as planning and acting "for the future -- for the long-term good of our company, our customers, and our world" (Bechtel, Visions). Perhaps, the US government's guarantee of future profits, and the possibility of owning large segments of Iraqi infrastructure -- through subsidiaries -- caused the company to overlook the obvious risks.

One must fully understand the history and the culture of a country before one engages in business practices that may repeat that history or conflict with that culture, a culture one must define as a "good," even if the cultural practices conflict with the business owner's morals or values.

That business ethic should be rule one for international commerce.

Yet, the good of the customer and "the world" often conflict with the good of the company. When this occurs the corporation may sacrifice one for the other. Unfortunately, large corporations often sacrifice the "good of the world" for the "good of the company." A Bechtel subsidiary made this choice when a discrepancy between reward and value occurred in Cochabamba, Bolivia.

According to news reports, "In February 2000, just months after it took over the water system. . . a Bechtel Corporation subsidiary hit water users with enormous price increases"(The Democracy Center). Indeed, The Commission on Globalization found that,

The newly privatized water company immediately raised prices, a move that resulted in household water bills equal to 20-30% of a family's monthly income. Water prices were set in dollars and annual rate increases were to be measured against the consumer price index of the United States, an economic structure impossible for the population to bear. Furthermore, the lease contract and attendant legislation to enforce it prohibited many of the traditional means of distributing water, including community water tanks that collected rain, personal family wells, and right of townships to determine where water wells could be located. (CG)

However, the situation was a bit more complex than early journalists reported. According to Bechtel in order to repay accumulated debt the Bolivian government sharply increased water rates.

Half the rate increase was necessitated by such government requirements as paying down more than $30 million in debt accumulated by the public utility that had previously operated the system so poorly. Rate increases were also needed to finance proper maintenance and expansion of the water system. Even these rates were comparable to those in other major Bolivian cities. (Bechtel, Response)

Then, it would seem, that half the 35% -- Bechtel's figure -- increase in water rates was to ensure Bechtel profits, including overhead and broadening the consumer base. Obviously, the subsidiary Aguas del Tunari believed they would earn returns that fairly rewarded the value delivered. Water, of course, is free. Cities and national governments do, however, struggle to balance the books, and water-delivery systems must be maintained and upgraded. Public utilities usually don't run at a profit, since the delivery of water is for the "public good." Yet to balance the books, a City Council may invite "experts" to solve the problem of antiquated or deteriorating supply systems for a "nominal" profit. Good business ethics: everyone wins, except the consumer who must pay increased rates to cover the company's "fair rewards."

Yet, the Bolivian government did not initiate the request to upgrade its water delivery systems. To the contrary, the World Bank and the IMF pressured Bolivia to privatize all water services, promising a $25 million loan: the people in Cochabamba would get clean, abundant water; the private corporation would make enormous profits once it recouped its initial investment for upgrading the antiquated water delivery system.

According to Frontline in September 1999,

After closed-door negotiations, the Bolivian government sign[ed] a $2.5 billion contract to hand over Cochabamba's municipal water system to Aguas del Tunari, a multinational consortium of private investors, including a subsidiary of the Bechtel Corporation. Aguas del Tunari was the sole bidder for the privatization of Cochabamba's water system. (Timeline)

In other words, the Bolivian government was given $25 million to create $2.5 billion in future profit for Aguas del Tunari and Bechtel. Certainly everyone was happy. However, Aguas del Tunari, according the Bechtel, increased water availability by 30 percent, thus consumers were not only paying higher rates, but higher rates for higher usage (Bechtel, Response). The water was finally flowing, and it was clean. Cochabamba's residents no longer had to draw water from dirty wells or fetid ponds. Imagine the people's joy. Then imagine getting the first bill that may have represented a 200% fee increase.

Because the poor consumers could not pay the higher rates, their water was shut off. Because they were angry at the government and Aguas del Tunari, they protested. The spiraling of events can be read from two points of view. Bechtel still claims the protesters were reacting to long built-up tensions between the citizens and the military government; furthermore Bechtel claims,

unrest in Cochabamba was sparked by multiple causes, including unrelated national groundwater legislation that left even citizens outside the service area believing incorrectly that their water resources might be expropriated by a concessionaire. The unrest peaked in April 2000, two months after rates had been rolled back to preconcession levels. (Bechtel, Response)

Indeed, local leaders, according to numerous reports, felt that water resources would be "expropriated by a concessionaire" similar to Aguas Del Tunari, a concessionaire awarded a $2.5 billion dollar contact without competition. Would any consumer accept such spikes in rates? Would Americans put up with a 20-30% increase in gas prices? Understanding the cultural reasons for possible negative reactions to rate changes would have helped Aguas del Tunari avoid the negative press. Certainly North Americans may complain when gas prices jump 30% in two weeks, but they won't take to the streets like their South American counterparts. Maybe they should.

Not understanding the strength of grass roots activism in Bolivia, the company's "uncompromising integrity, honesty and fairness" were severely tested when according to The Democracy Center, "A popular uprising against the company, [was] repressed violently by government troops, [that] left one 17 year old boy dead and more than a hundred people wounded." The conflict prompted President Hugo Banzer to place Bolivia under martial law. The popular uprising continued despite government crack-downs, and allegedly Bechtel's subsidiary was forced to leave Cochabamba, Bolivia in April 2000 because of these protests.

Bechtel's version places all the blame on the Bolivian government claiming that "Responding to public criticism, the government rolled back rates in February. Customers who had paid the higher rates were refunded the difference" (Bechtel, Response). One can only praise the Bolivian government for their humanitarian, albeit politically motivated reaction. Having rolled back the rate increases and reimbursed the poor, the Bolivian government may have had little money to pay back the IMF loan, or pay Aguas del Tunari for its "valued services."

Contractually, the Bolivian government was liable. Perhaps government officials were surprised at the steepness of the rate hikes; perhaps they underestimated the people's willingness to protest paying so much for something that cost so little. Indeed, the people were not literally paying for the water, but for a "delivery system." Yet, they also knew the water system was now owned by a foreign corporation, one that would produced little economic stimulation for Cochabamba's citizens, but one which would certainly continue to drain the economy, drop by drop. Indeed, Cochabamba's business owners were stunned by the rate increases (Finnegan).

Facing this no-win situation, "In April, the Bolivian government rescinded its contract with Aguas del Tunari. For months afterward it was unwilling or unable to engage Aguas del Tunari in substantive discussions about resolving their contract dispute," claims Bechtel. Feeling cheated out of future profits -- fair rewards for value delivered -- "Aguas del Tunari pursued arbitration through the International Centre for Settlement of Investment Disputes (ICSID) to recover an as-yet-unspecified amount of compensation for the Bolivian government's having illegally terminated its contract and expropriating the concession" (Bechtel, Response).

Aguas del Tunari S.A. v. Republic of Bolivia (Case No. ARB/02/3) was concluded on February 28, 2005, when the parties submitted their post-hearing briefs, two years after the complaint was registered (World Bank). According to a news article released by Brian Smith, Western/International Press Secretary for Earthjustice,

The Bechtel Corporation was handed a powerful victory [in March 2003], when a secretive trade [ICSID] court announced that it would not allow the public or media to participate in or even witness proceedings in which Bechtel is suing the people of Bolivia for $25 million. (Smith)

When the ICSID publishes its findings on the World Bank website, the public and the media may still not know why the hearings were secret, who really was responsible for the rate increases, nor with whom fair blame resides. If ICSID precedent can be used to predict the decision, then Bolivia will be "an unspecified amount" poorer.

In conclusion, even if one cannot immediately change corporate practice by divestment, by negative press, or by boycotting, the practice still has an effect. Indeed direct action seems to be the most effective means of protest, as evidenced by the Rain Forest Action Network's Home Depot campaign. The people of Cochabamba also took direct action.

But does direct action work to change future policy for large multi-national corporations? According to the Polaris Institute pamphlet Global Water Grab,

To date, there have been at least three models of water privatization: (1) the complete sell off by governments of public water delivery and treatment systems to private corporations [which took place in Britain]; (2) the granting of long term leases or concessions allowing corporations to takeover the delivery of water services and the collection of revenues [which has been the French model]; and (3) the more restricted approach where corporations are contracted by governments to manage water services for an administration fee.

No matter which model is used, experience shows that transnational corporations, regardless of how responsibly they try to carry out their business, are simply not designed to provide public services to all people on an equitable basis. Indeed, the delivery of water services is based on the "ability to pay," which means that poor communities frequently end up without adequate services. Nor are corporations organized to conserve natural resources like water. Since maximizing profits often means encouraging increased consumption, it is not in the interest of water corporations to promote water conservation. (PI)

Bechtel may wish to reconsider its business practices in light of these well-established facts. Has Bechtel learned the lesson taught by Aguas del Tunari S.A. v. Republic of Bolivia? Will Bechtel forgo maximizing profits?

According to Public Citizen it does not appear so:

WASHINGTON, D.C. - Bechtel Group Inc., one of the lead contractors in the reconstruction of Iraq, has failed its contractual mandate to develop essential water delivery and sewage disposal, according to information Public Citizen forwarded today to the inspector general of the U.S. Department of Defense (DOD).

In response to charges against Bechtel's handling of Iraq water delivery, several anti-globalization of water organizations continue protesting privatization. Public Citizen recommends that,

Bechtel and the US government should explicitly rule out plans for the privatization of Iraq's water. Bechtel specifically should not be eligible for privatization contracts. (PC)

This recommendation certainly coincides with Bechtel's ethics of "uncompromising integrity, honesty, and fairness [...] at the heart of [its] company." Certainly allowing local control, local operation and local ownership of a "public utility" is fairer, and more honest than privatization, meaning control by some distant, foreign, multi-national corporation. Perhaps if the anti-privatization rule is implemented Bechtel can "earn a return that fairly rewards the value [they] deliver" and actually accomplish a greater good for the greatest number of "poor" people, because they helped the poor build a better water system, showed them how to operate that system, earned their fair reward, and then left.

Unfortunately, utopia and capitalism make a disturbing oxymoron.

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Works Cited

Bechtel Corporation. "Vision and Values." 2005. http://www.bechtel.com/visionvalues.htm Date accessed 4/1/05.

Baker, David, R. "Bechtel Under Siege - Iraqis Seethe as Sabotage, Red tape, Slow Repair Effort." SF Chronicle. Sunday, September 21, 2003. http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/09/21/MN306432.DTL Date accessed 4/1/05.

Commission on Globalization. "Water: The Cochabamba Story"
http://www.commissiononglobalization.org/homelinks/brazil10.htm Date accessed 4/1/05.

Democracy Center."Bechtel vs. Bolivia: The Bolivian Water Revolt"
http://www.democracyctr.org/bechtel/ Date accessed 4/1/05.

Finnegan, William. "Letter from Bolivia, Leasing the Rain." The New Yorker, April 8, 2002.

Frontline. "Timeline: Cochabamba Water Revolt" June, 2002
http://www.pbs.org/frontlineworld/stories/bolivia/timeline.html Date accessed 4/1/05.

Polaris Institute. "How Corporations are Planning to Take Control of Local Water Services."
http://www.polarisinstitute.org/pubs/pubs_global_water_grab_intro.html Date accessed 4/1/05.

Public Citizen. "Public Citizen Calls for Investigation of Bechtel's Failure to Provide Adequate Water Services to Iraqi Citizens" 4/5/04
http://www.citizen.org/pressroom/release.cfm?ID=1680 Date accessed 4/1/05.

Smith, Brian. "Secretive World Bank Tribunal Bans Public and Media Participation in Bechtel Lawsuit over Access to Water." 2/12/03
http://www.earthjustice.org/news/display.html?ID=542 Date accessed 4/1/05.

World Bank. "Pending Cases" http://www.worldbank.org/icsid/cases/pending.htm Date accessed 4/1/05.


Internal Resources

Boycotting The Hegemony -- Part II: Bechtel

Boycotting The Hegemony -- Part I: Halliburton

America the 'beautiful' on Swans


About the Author

Gerard Donnelly Smith on Swans (with bio).



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Swans -- ISSN: 1554-4915
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Published April 11, 2005