How the EU is causing problems for the ‘Preston Model’ of local, non-corporate procurement

I’ve often suggested that Western states are beginning to resemble an admin department for the corporate sector. They take corporate campaign donations, accept their jobs, listen to their lobbyists, and then manipulate their economies to service the needs of multinational corporations and banks, which includes allowing them to avoid tax, awarding them contracts, changing or removing regulations etc. Their fear is that capital will leave their countries if they don’t. The potential for national governments to challenge corporate power appears a bit bleak.

Now municipalities, on the other hand, are starting a backlash. Preston is at the forefront of this backlash in the UK. See here if you haven’t heard about the ‘Preston model’. We’ll be interviewing someone from that ‘most improved town in the UK’ soon. However, there is a backlash to this backlash, from the EU – an institution no less under the thrall of the corporate sector than the World Bank, IMF or WTO.

We’re re-blogging this article from the wonderful Corporate Europe Observatory, about how the EU is putting obstacles in the paths of municipalities trying to ‘localise’ and give contracts to local businesses rather than distant corporations (in Preston, for example, they are even helping to set up co-operatives where no local providers exist). Many municipalities are overcoming these obstacles, but a new proposal could make it much more difficult for local authorities to support local businesses and prevent corporate encroachment into their towns.

Municipalist city governments across Europe are working to democratise decision-making and reclaim their cities for citizens, and their inspiration is spreading. In Spain, municipalist citizen platforms govern major cities like Barcelona, Madrid, Valencia, Zaragoza and La Coruña. Add to that cities such as Naples, Torino, and Grenoble. Key politicians in these city governments were activists from urban citizens’ movements for causes such as affordable housing, green energy, public water supply, and other battles against neoliberal policies harming their cities. Now in power, they are creating alternatives to years of neoliberalism – pushed from both national governments and the EU – which forced the selling off of public utilities, the outsourcing contracts to the lowest corporate bidder, and the slashing of public spending.

The most famous example is housing activist Ada Colau, who became Mayor of Barcelona when citizens platform Barcelona en Comú won the municipal elections in 2015. In June 2017 Barcelona hosted the first Fearless Cities conference, bringing together municipalist activists and politicians from across Europe and the rest of the world. These cities are united in a bold municipalist vision to achieve concrete, radical progressive change in cities, in opposition to the continued neoliberal policies.

Municipalism is a crucially important movement for several reasons. Democratisation empowers citizens to engage in decision-making, at a time when far too many feel alienated from politics (one of the factors behind the rise of far right populist parties). And their innovative solutions generate ideas that others begin to emulate. Examples include the transition to affordable renewable energy, regulating AirBnB to protect affordable housing, transparency in public administration as a tool to prevent corruption, ethical public procurement policies that exclude tax-evading companies, re-municipalising public services with democratic control, and many more. This ambitious agenda for change stands in stark contrast with national government policies in most European countries, where governments appear primarily concerned with international competitiveness and luring transnational corporations to invest, and where the political space for progressive change remains very limited.

However, after more than 25 years of neoliberal policies and legislation, the EU’s legal framework contains obstacles for key municipalist priorities. A September 2017 workshop of municipal government officials, academics, trade unionists and other experts on progressive urban energy and water policies produced the report ‘Limitations of progressive municipalism within a neoliberal EU’. This highlights a range of EU legislation which could pose barriers to progressive municipal policies, such as austerity measures, and restrictions via the EU’s single market law, including on questions of public procurement and state aid law (which restricts subsidies for local renewable energy initiatives). Often barriers emerging from national government laws and policies (and over-zealous implementation of EU laws) are equally, if not more problematic.

The report highlights the harsh austerity policies imposed by the EU as well as many national governments during the last ten years as a serious obstacle to progressive municipal policies. Austerity impacts most municipalities in Europe by curtailing their ability to invest, with Southern European countries like Spain and Italy most severely affected. These countries (together with Austria, the Netherlands, and Luxembourg) have implemented the EU’s economic governance rules in a way that limits the allowed deficit of public budgets at the regional and municipal level.

For example, in Italy the transfer of funds from national to local level has dropped 75 per cent as a result of austerity. Cities like Turin that want to tackle pressing problems like air pollution lack funds to invest in solutions (electric buses and other public transport systems, safe bike lanes, etc). In Spain, the austerity-obsessed previous government introduced the ‘Montoro Law’, an amendment to the constitution which means that retiring public employees cannot be replaced, new public companies cannot be created, and municipal spending is restricted, even when they have a surplus. The Municipal Network against Illegitimate Debt and Cuts works to roll back this law, and citizens movements are proposing to create a municipal public investment fund to enable financing of necessary investments.

Another key factor reducing policy space for progressive municipal policies is the neoliberal trade agenda promoted by the European Commission and most EU governments. Agreements such as the EU-Canada trade deal (CETA), the EU-Japan deal (JEFTA) and the proposed TISA services agreement increase the pressure for liberalisation and privatisation and create new obstacles for re-municipalising public services. These trade agreements imply that everything should be liberalised unless they are explicitly exempted. They contain clauses stating that once a services sector is liberalised, this cannot be rolled back. For public services, this means these can’t be brought back into public ownership.

CETA also introduces investor-to-state dispute settlement (ISDS), enabling investors to sue municipalities in special private courts, and demand financial compensation (including loss of future profits) for policy measures they consider ‘discriminatory’. Thus, if a municipality took back a privatised service such as water or electricity into public ownership, the company in question might be able to use the extensive investors rights clauses in these trade agreements to sue for compensation. Companies under similar trade agreements have been awarded millions, paid for by taxpayers.

Obstacles to transition to renewable public energy

The energy sector has gone through a major transformation as a result of the EU’s liberalisation initiatives, which has resulted in privatisation of state-owned utilities. The sector is fully covered by EU single market rules, which also offer potential obstacles to municipalist initiatives. In some countries, the government’s overly zealous implementation of EU legislation has thrown up very large hurdles. However, the ‘Limitations of progressive municipalism’ report also includes important examples of how some of these obstacles can be circumvented. An example is Barcelona’s policies to replace the privatised energy supply – historically controlled by Endesa and few other giant firms – with publicly controlled renewable energy, with the ultimate goal to supply both municipal buildings and citizens with locally-generated, affordable renewable energy. A key objective is to fight the growing energy poverty problem: the city’s poorer citizens struggle to pay excessively high energy bills.

In July this year, the city government launched BarcelonaEnergia, a municipal energy company designed to end the dependency on failing private electricity giants and to accelerate the transition to renewable energy. The company will deliver green electricity and aims to boost the number of private homes with solar panels, offering to buy the surplus electricity citizens produce. Since July BarcelonaEnergia has taken over from private energy giant Endesa and the company now supplies energy to all public buildings, street lamps, and traffic lights.

This autumn the public utility will be ready to offer energy to other municipalities in the wider Barcelona Metropolitan Area. The goal is to serve the city’s households, but as councillor for energy Eloi Badia explains, an EU directive limits the share of the energy that can be sold to private customers to a maximum of 20 per cent of the turnover. Based on this limit, in the first phase BarcelonaEnergia aims to serve 20,000 households. One way to overcome the 20 per cent limit would be to establish a second municipal energy company and thereby expand the amount of clean and affordable electricity that can be sold to the city’s citizens. Another hurdle for the Barcelona city Government is the Spanish Government’s ban on establishing new public companies, introduced as part of the harsh austerity measures introduced after the financial crisis in 2008. BarcelonaEnergia is therefore set up as part of an existing municipal company.

Pamplona and other cities in Spain have also embarked on re-municipalisation of energy systems, but the trend is far from limited to Spain. In Germany, the country famous for its ambitious Energiewende policy (for the transition towards low carbon energy), there have been no less than 284 cases of (re)municipalisation in the energy sector since the year 2000. Contrary to Spain, Germany does not have a ban on establishing new public companies, which makes re-municipalisation far easier to implement.

EU push for water privatisation blocked

In recent years, numerous cities in Europe have turned their back on privatisation of water delivery after disappointing experiences with private water corporations, including lack of investment, secrecy, and excessive prices. As in other parts of the world, a re-municipalisation wave has arrived in Europe, with Paris and Berlin the biggest cities taking water delivery back in public hands. (1) The largest number of re-municipalisations has taken place in France, the country with the longest history of water privatisation and home to the leading global water multinationals (Suez and Veolia). No less than 106 French municipalities have returned to public management of water delivery in the last 15 years. The phenomenon clearly goes far beyond municipalist and other left-wing administrations; re-municipalisation has been initiated by politicians of a variety of political backgrounds.

Contrary to the energy sector, water delivery is not subject to Single Market rules so is not covered by EU liberalisation directives. This means there are no direct EU obstacles to re-municipalisation of water services. Several attempts by the European Commission to bring water under single market rules failed due to resistance from civil society groups and unions, as well as MEPs opposed to water becoming a commodity.

In 2006 strong European campaigns against the Bolkestein Directive on the liberalisation of the services sector managed to get the scope of the directive curbed and water excluded from the directive. Similarly in 2013 powerful campaigns forced the Commission to exempt water from the EU Concessions Directive, which would have brought increased privatisation pressure on public water municipalities across Europe. Over 1.8 million people signed the European Citizens Initiative for water as a human right, which explicitly calls for “water supply and management of water resources not to be subject to ‘internal market rules’ and “that water services are excluded from liberalisation”. (2)

Without these important victories, water would also have been covered by the rules of the EU’s single market and there would have been serious obstacles for municipalist water policies. While there is nothing in the EU legal framework that prevent cities from re-municipalising their water, then, in many cases there are political and financial obstacles. Barcelona en Comú, for instance, is attempting to re-municipalise the water, but is facing strong resistance – including legal threats – from the private water company and its powerful political allies.

EU blocking cities from acting to control AirBnB?

The EU’s strong emphasis on the ‘smooth functioning’ of the single market risks undermining a variety of municipalist policies. One key example is the Brussels lobbying by online accommodation platforms like AirBnB, which have had a dramatic impact on access to affordable housing in many European cities. Huge numbers of properties are turned into largely unregulated tourist flats, and become unavailable for long-term rental to locals. As Corporate Europe Observatory’s report ‘UnFairBnB’ shows, online rental platforms are fiercely lobbying the European Commission to defeat the measures cities such as Berlin, Brussels, Barcelona, Paris and Amsterdam have put in place to protect affordable housing in the face of the AirBnB onslaught. AirBnB argues that such measures violate single market legislation.

There are indications that the European Commission is considering challenging some of these cities on measures they’ve introduced. Siding with AirBnB and other corporate platforms against cities that have taken measures to protect affordable housing for their citizens is clearly unacceptable. It would be a horrendous example of how the EU’s neoliberal orientation in the last few decades has created a framework that protects corporations and throws up hurdles for policies that go against the neoliberal logic. The only legitimate role for the EU would be to support municipalities that protect the public interest against corporate greed.

Bolkestein on steroids

Against this background it is extremely worrying that the EU is currently negotiating a revision of the 2006 Services Directive (the infamous ‘Bolkestein Directive’ for liberalising the services sectors in Europe), more specifically a new EU services notification procedure. This proposal could have a massive delay and chill effect for municipalist initiatives.

The Commission’s proposal would oblige public authorities (including municipalities) (3) to notify the Commission – in advance – of any new measures that could affect the single market and companies active in services. The Commission would then assess whether the measures violate the Services Directive. Currently the notification only happens afterwards. If the proposal goes through municipalities would have to wait three to six months or longer for approval from Brussels before being able to implement a new measure. This could create major obstacles for progressive municipal policies such as much-needed measures to curb AirBnB. There is even a proposal on the table that would give ‘stakeholders’ (including corporations and their lobbyists) the opportunity to comment on (and object against) the measures notified by public authorities. (4)

The proposed notification procedure is already in the final stage of decision-making (‘trilogue’ negotiations), and the Austrian Government, which currently holding the EU presidency, is eager to complete it. But both national and regional parliaments have strongly criticised the proposal and last month the city council of Amsterdam (a city that declared itself a ‘Fearless City’ after the progressive victory in the spring 2018 elections) voted to oppose the proposed EU ‘services notification procedure’. The city council rejects the proposed directive because it “severely harms the autonomy of local authorities and thus poses a threat to local democracy”.

Amsterdam also committed itself to campaign against the proposal together with other progressive cities. City council member Tiers Bakker, who drafted the resolution, gives a very concrete example of what is at stake: “a company like Airbnb with this new directive will be given the opportunity to block new, stricter Amsterdam rules for holiday rentals via Brussels. A serious violation of local democracy, in favour of the profit margin of big money.” The battle against the services notification procedure is not yet lost, but it requires urgent action from progressive movements to prevent this neoliberal power grab from happening.

Towards a supportive framework for municipalism

Municipalist city governments have helped to reinvigorate local democracy and show the way for a faster transition to sustainable and socially just cities. In a Europe suffering from failing neoliberal policies, inertia in tackling climate change and other burning issues, as well as dangerous levels of public distrust and growing support for far-right populism, municipalism shows one way out of the crisis.

However, municipalist initiatives are running into a range of obstacles from EU and national-level laws and policies. While these obstacles can often be circumvented by creative measures and should therefore not discourage anyone, it is time to demand a supportive and enabling environment instead, both on national and EU-levels. Policy space for municipalist initiatives should be expanded, not narrowed as the proposed services notification procedure would do. Next year’s European Parliament elections (May 2019) offer an opportunity to raise the visibility of municipalism and its progressive agenda for change.

In October, Barcelona En Comú decided to engage itself in the elections with the coalition ‘Unidas Podemos Cambiar Europa’. “During our time in the city government we’ve seen how European politics affects our ability to make changes in Barcelona”, a spokesperson of Barcelona En Comú explained, pointing out that “what happens in Europe has an impact in our neighbourhoods, whether it be in housing policy, the quality of the air we breathe or the pressure of lobbies like Uber and Airbnb.”

Notes

1. “Reclaiming Public Services:  How cities and citizens are turning back  privatisation”, Transnational Institute, 2017; https://www.tni.org/files/publication-downloads/reclaiming_public_servic…

2. The European Commission, meanwhile, has included a reference to the human right to water in its proposal for a revision of the EU drinking water directive. The Commission, however, did act on the call in the citizens initiative to once and for all exclude water from the single market and future liberalisation initiatives. The EU institutions are currently discussing how to add specific measures to properly secure universal access to water in Europe. See for instance https://www.epsu.org/article/european-parliament-vote-right2water-drinki…

3. In a response to a parliamentary question the Dutch Government confirms that local and regional governments are also covered and that regulations around tourist services are covered by the Services Directive.
https://www.rijksoverheid.nl/binaries/rijksoverheid/documenten/kamerstuk…

4. In December 2017, the Parliament IMCO committee voted for the Commission’s proposal with a number of amendments, including that “the Commission is to offer stakeholders the possibility of providing electronically feedback on the published notifications, or of alerting the Commission of draft measures or adopted measures which have not been notified in accordance with this Directive”. See overview here: http://www.europarl.europa.eu/legislative-train/theme-deeper-and-fairer-…

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