Urban Capitalisms

Volume 29.2 June 2005 231–67 International Journal of Urban and Regional Research

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Joint Editors and Blackwell Publishing Ltd 2005. Published by Blackwell Publishing.9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA

Blackwell Publishing Ltd.Oxford, UK and Malden, USAIJURInternational Journal of Urban and Regional Research0309-1317Joint Editors Blackwell Publishing Ltd 2005June

200529223167Original Article

Urban capitalisms: European models in competitionDominique Lorrain

Urban Capitalisms: European Models in Competition

DOMINIQUE LORRAIN

The fall of communism in the early 1990s blurred the global opposition betweencapitalism and socialism, which had broadly structured debates, and this in turn helpedto bring to light real, though concealed, differences between countries in the capitalistbloc (Albert, 1991). Thus came a rediscovery of literature that put this type ofdifferentiation at the heart of its analysis — the historians of business in the UnitedStates, grouped around Chandler (1990; Chandler

et al.

, 1997), and the FrenchRegulation School (Aglietta, 1976; Boyer and Saillard, 1995).

These schools have strongly established the major differences between an Anglo-American version of capitalism — financial, and oriented towards a service economy —and a German and Japanese industrial capitalism based on different wage relations andon different coordination mechanisms. But all of them did so essentially through studyingthe nature of industry and finance. The state did not occupy a very central place in theseanalyses, while local public policy (a generic term covering forms of urban governmentas well as the organization of urban network industries)

1

remained beyond their horizon.In fact, the extension of market principles to these sectors at the end of the twentieth

century led to major change. For a long time, local public policy issues wereencompassed in a unifying whole, either relating to direct administration or falling intothe ambit of capitalism: changes now in progress serve to reveal forgotten differences.As it applies itself to the reform of network industries (electricity, telecommunications,gas, water and sewage), the European integration project is serving to highlight theseprofound differences between various ways of organizing a market economy. The reasonis simple: more than in any other sector, institutional choices concerning these networksare continuously expressing the complex influence of the political sphere, markets, firmsand weighty anthropological factors. These differences — not very visible in the past,before the creation of a major market related to industry, banking or market services —have now come fully into view.

The arguments that underlie this article are that (1) beyond any first-level complexityactually noted in the organization of each urban service in a given country, Europeancountries basically follow three major models; (2) these simplified forms, or models,represent three ways of combining public policy principles with a market economy: theymay be read as versions of urban capitalism; (3) given that all three are represented inEurope, these ‘models’ today find themselves doubly competing. Within the European

Translated from French by Karen George. An earlier version of this article was published in

L’Année dela Régulation

(2002) No. 6. Substantial changes to this English version mostly relate to the discussionof various firms: the landscape has shifted between mid-2002 and early 2005, so factual informationhas been updated.1 We use this term to refer to activities with an industrial dimension that can be — but are not

necessarily — the responsibility of local government, and may be carried out by either public orprivate corporations. These activities correspond to the notion of ‘local public services’ in France,or ‘network industries’ and ‘utilities’ in the Anglo-American countries. To put it simply, theyencompass the design, construction and operation of basic elements that relate to the urban fabric:electricity and gas, telecommunications, urban transport, heating, water and wastewater, solid waste.

232 Dominique Lorrain

International Journal of Urban and Regional Research

©

Joint Editors and Blackwell Publishing Ltd 2005

integration project, each one is attempting to promote its own solutions. However, if weacknowledge that the real difference between them relates to long-standing concepts ofcollective action, we may understand the present difficulty in creating a single Europein these spheres. These internal difficulties are augmented because each country —through the intermediary of its firms — exports its products, its services and, similarly,its concepts to other countries in the world. Veiled competition in Brussels is increasedby what is happening internationally.

First-level complexity, second-level regularity

How complicated the world is!

— or, the problem of international comparison . . . Letus start from a simple fact: town and city governments provide services and ‘industrialgoods’ — technical networks for water, sewage, waste, heating, transport and distributingelectricity. But as soon as we start to develop a concrete analysis of their policy, weencounter the reality that any analysis of political and organizational forms of urbangovernment is immediately complicated by the need to consider the institutionalarchitectures through which these productive tasks are delivered. The problem ofcomplexity arises from the outset. We encounter it when comparing towns within asingle country; when we move on to international comparisons, it is increased tenfold.

In the distribution of drinking water, for example, when we take into account thelevel of the institution responsible (the organizing authority), the nature of the operator(public, private), the type of contract and the methods of financing the service as betweenits three essential interlinked elements (investment, maintenance, operation), it becomesdifficult to perceive any consistency between towns (Lorrain, 1989).

We studied 150 conurbations,

2

which differed in many ways. In principle, the firstchoice made was a simple one: either the municipalities were responsible or else theyhad transferred their competence to a supra-municipal institution (a second tier).However, when we examined things in more detail, we observed that additionaldifferences might be introduced if production was separated from distribution. Althougha new drinking-water plant might be run by a supra-municipal institution, themunicipalities could retain responsibility for providing the end service. This situationwas also found in the sewage sector and in waste management.

When we examined operation, we found that this differentiation continued. Wherethere was public management, the municipal enterprises might call on a private providerto take on an aspect of their work: purchasing drinking water in bulk, invoicing, metermanagement, subcontracting the operation of a water treatment plant. The differencebetween these cases of broad subcontracting and those of municipal enterprises set upspecifically to provide services — functioning as integrated public enterprises and activeat every stage — was one of size, even if the words used to describe these situationswere the same: ‘municipal enterprise’ or ‘direct operation’. Where operation wasdelegated to a private business, things no longer fitted a single mould, even though theparameters of the firm’s involvement might have been defined by the main types ofcontract, from the most complex to the simplest: concession, lease or managementcontracts.

3

However, here too, the actors constantly reintroduced singularity,adapting contracts to tackle their own practical problems so that actual instances wereoften hybrids of these legal types. Heterogeneity overrode consistency.

2 The French statistical category is ‘

agglomeration

’: this notion corresponds to a central city and thefirst ring of towns around it. More recently, INSEE has established a new concept of ‘urban area’,which includes the villages that come under the city’s influence.

3 With a franchise, the firm invests in, maintains and operates the concession at its own risk. In thecase of leasing, maintenance and operation are at its own risk, but the investments are made bythe public authorities. With a management contract, the public authorities finance both investmentsand maintenance: the firm’s involvement in this type of contract is time-limited, and precise in itsobjectives.

Urban capitalisms: European models in competition 233


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Given these facts, how could we distinguish some significant ‘types’, and how couldwe account for a given way of organizing local public services? Description seemednaturally to favour the explanation that complexity was the key, and this seemed to bethe strongest argument because it was congruent with a good part of the literature onlocal government written during the relevant period

4

— a problem we also found withthe comparative European literature.

In considering the electricity sector, Jean Michel Glachant differentiates between theorganization of production, transport and distribution, according to the degree of marketopenness and whether or not a natural monopoly exists (2001). For him, despite theEuropean Commission’s desire to create an internal market, there is no single market,but several markets. He does not see convergence, but observes a range of situationswhere each finds its own solutions for each criterion. As far as the railways areconcerned, the various elements to be compared are express trains, freight services,regional trains and ordinary long-distance trains — and here too, countries differstrongly.

5

The same emerges from studying forms of regulation of public services acrossEurope (Matheu, 2002). Studies of local governments again clearly reveal diversitybetween different European countries, with comparisons based on a battery of criteria:the electoral system, local government functions, finance, the influence of the politicalvariable (Page, 1991; Goldsmith, 1992; Dufay and Lefevre, 2001).

Comparison between countries, whatever the field and whatever the indicators takenas a starting point, invariably leads to the same conclusion: generalizations cannot bemade. The idea that emerges most strongly from this literature really seems to be thatof complexity.

6

The all-embracing explanation

Alongside this first line of explanation, there is other literature offering a solution to theproblem of comparison. Its authors clearly note important differences between what theyobserve, but the beginning and end of it is that everything can be categorized throughan all-embracing explanation relating to culture, to values and to history.

• Philippe d’Iribarne, in his comparative works on the organization of labour withinfirms, strongly emphasizes the existence of national cultures that must be taken intoaccount, making it impossible to pin down

one

model of management (1989);• For Aoki, the network of conventions that forms the firm J is inserted into values,

contexts and culture (Coriat and Weinstein, 1995: chapter 5; Sellier, 2002);• Dumez and Jeunemaître (1991) stress the contextualization of regulation, pointing

out that everything is to be read in the various national contexts;• For the evolutionists (Sidney Winter, Richard Nelson), the competences accumulated

within a business create routines. But where do the routines come from? How arelearning processes created?

• Sellier, Sylvestre and Maurice’s (1982; 1986) societal analysis uses the notion of‘qualification space’. In this analysis, the origin of conventions — that is, thehistorical dimension — is essential. It puts ‘the specific construction of spaces forthe production of qualifications and organizations’ at the heart of its analysis(Maurice, 1989; Sellier, 2002).

In other words, whatever the solutions adopted internally in a firm, they can functiononly under certain general conditions: culture (d’Iribarne), the nature of the vertical

4 Following the 1970s, when explanations tending to emphasize structural factors were put forward,the literature dealing with local issues from the mid-1980s rehabilitated the singularity approach.We should point out that this meant that what was gained in precision was lost in generalization: agood part of this literature is subject to the criticism of contingency (Lorrain, 2000).

5 See Luc Baumstark’s work for

Plan 2002

.6 In this regard, we should mention that there are currently 43 codifications (accounting and legal)

that organize businesses in Europe (

Financial Times

, 25 February 2002).



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hierarchy (Aoki). One key to explaining what is happening in a business relates to thecontext, to the environment, to national cultures. The same can be asserted for the localgovernment. In a chapter comparing various types of local government, MichaelGoldsmith suggests that different models may be identified by combining politicalregimes, the extent of responsibilities, and the experience and values that hecharacterizes as ‘the sum of history’ (1992: 17).

But this use of an all-embracing explanation raises as many questions as it answers.Firstly, is it possible to understand this last addition, ‘culture’ — whose role is as vitalas a cathedral cornerstone, supporting the whole edifice — in a slightly more formalizedway? How can shape be given to this soft concept? How do cultures form? Secondly,even if we succeeded in this, the whole issue of complexity would remain, since wewould effectively be saying: things are actually complex and different, but it is possibleto highlight consistent features by relying on a cultural factor. The problem is that if weapplied this variable across the inside of a whole country, any comparison on any subject(labour within firms, technical networks, urban government) would lead to the sametypology. By being too encompassing and having no empirical linkages to the first-levelfactors that describe the objects observed, all-embracing explanation through culturalfactors is by its very nature tautological.

Second-level regularity, explanation by models

Another way of reasoning is to say, effectively, that when we start to go into the detailof analytical criteria, things are complicated — we are talking about first-rank complexity.But, if we go on to make an overall comparison of several sectors in the same countrywith those in other countries, regular features emerge: these sectors have something incommon, and this distinguishes them from solutions adopted in other countries.

These factors, which enable us to highlight regular features, should be sought morein the first, visible layer of institutions than among the less visible factors relating topolicy principles and to what we will call, for the time being, culture and values. Thismeans two things. In each country, alongside specific sectoral features, there arecommon elements running through these sectors. By comparing them overall,deliberately minimizing the details that make comparison impossible by their excess ofsingularity, we can identify regular features;

7

we can trace the contours of entities thathave an internal coherence, that are capable of change but are based on some unvaryingfeatures. International comparison allows us to discern that these internally coherentfeatures function over the long term.

In describing this, we use the term ‘model’, which may be defined as a simplifiedformalization that allows us to account for an entity made up of a large number of objects(in the descriptive sense) or of situations. This formalization relies on some rules(general laws, principles) common to several sectors, established over the long term andcapable of evolving while still preserving certain intrinsic properties, even when themodel is subjected to disruption. In using this term, we distance ourselves from otherconcepts that could come to mind when describing these regular features: structures,systems, regimes (Mossberger and Stoker, 2001), configurations (Elias, 1991),institutional architectures (North, 1990).

The idea of models

At the outset, the problem was to describe the situation of local public services in France,while avoiding the overarching image of French-style public service, characterized bylarge nationalized enterprises (an image that completely ignores the specific features of

7 This is analogous with genetics, which is marked by differentiation between species that are eachtruly diverse, using the elementary building bricks of DNA assembled in unique combinations.Another analogy is with astronomy: ‘Order out of Chaos’ (Allègre, 1992: Chapter 3).



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urban technical networks), to move away from reducing public services merely to thelegal categories of franchisor and franchisee (

concédant

and

concessionaire

: Terny andPrud’homme, 1986), and to link this whole to local government.

Our first, spontaneous approach was to compare the visible elements: the actors andthe institutional frameworks. Looking deeper, we quickly realized that this way ofcharacterizing the management of urban networks accounted for only some of thephenomena. It was also necessary to take some interest in contracts, in designs forimplementing partnerships, in techniques for financing, in decision-making processes,and in forms of monitoring and regulation.

8

It seemed to us essential to accordimportance to socio-economic and institutional factors, whose impact equates to an‘invisible technology’. Institutional architectures and policy principles gave us the twofirst stages in characterizing a model.

But something else remained — how to explain the solutions that are most naturalto the indigenous observer but draw an incredulous ‘why?’ from the foreignobserver.

9

Why retain any municipal level of organization? An obvious idea in onecountry, challenged elsewhere on grounds of non-optimality (municipalities toosmall). Why is it natural in some places to make use of private enterprise — andlarge-scale profit-making businesses to boot — while other countries envisage onlypublic-sector solutions? Why do some prefer to grant monopolies to large integratedfirms, while others incline towards more competitive solutions? Why regulatoryagencies for one and co-production procedures for others? The answer to thesequestions was very often: because that’s the way things are done, because itcorresponds to a political tradition. But this kind of answer tackled only half theissue: saying ‘it’s different because it’s always been different’ runs the risk oftautology.

On digging deeper, we quickly realized that this related to more profoundconceptions, with a certain thickness. For example, with regard to the forms of contracts(complete or incomplete), behind the technical choices lies the issue of the trust thatpartners place in each other. Then there is the importance of written as opposed to oralcommitments. When it comes to regulatory institutions, some countries will opt forspecialized structures exercising strict control, while others prefer co-regulatoryformulas: behind these, we find very different concepts of the right way to handleconflicts of interest.

To sum up, it very quickly became apparent that reducing internationalcomparison to single, visible institutions that were the targets of reforms could notoffer a real explanation: in fact, the unity observed in the French case related partlyto less visible factors, spontaneously referred to as values and political culture. Thequestion that still remained open was how to account for this — a question that isless simple than it seemed and can also be encountered in the work of other socialscientists.

10

A major inspiration came from historians and from reading (Agulhon (1986), whointroduced a distinction between ideas, ideology and collective mentalities.

8 Length of contracts, ways of creating competition, levels of competition, the importance ofmonitoring, level of penalties.

9 International differences have greatly assisted the process of thinking about these particularinvisible features, by forcing us to question what seems natural from an indigenous point of view.This can be highly revealing. Hence, England started its radical deregulation experiment; later, WestGermany was challenged by the integration of the Eastern

Länder

.10 Numerous international comparisons, whether relating to social protection regimes (Esping

Andersen), vocational training (Sylvestre, Sellier), the organization of firms (Chandler) or generalregulatory regimes (Crouch and Streeck, 1996) have brought out profound differences betweennational solutions and led to the acknowledgement of the way practices are embedded in elementsof context and are products of history. Recently, see Lallement and Spurk (2003).



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In his inaugural lesson at the Collège de France, starting from an analysis of Frenchidentity,

11

Agulhon posed the fundamental distinction between the history of ideas andcollective mentalities. ‘We must position ourselves on the theoretical terrain of thehistory of collective mentalities, as distinct from the history of ideas. This distinction ismy main profession of methodological faith’ (1986: 23). When he mentions the resultsof his

République au Village

, he concludes that ‘the classic history of ideas, opinions,theorized politics and organized politics does not explain the totality of behaviours’(

ibid

.: 25). Having recalled that politicians know how to sense this kind of thing —these specific differences between one place and another — he puts forward the notionof ‘temperament’, and immediately clarifies it: it allows us to distinguish between‘countries, regions, nations or cultural areas’ (

ibid

.: 26).This concept of temperament had been introduced by André Siegfried (1913) in his

Tableau politique de la France

. Having weighed all the factors that play a part inelectoral behaviour — patterns of population, ownership regime, religion, state policy— he put forward the idea of an ‘irreducible residue of determination [that he called]temperament . . . Beyond the word [remains] a reality to be explained — that of thecommon mental characteristics of members of a group’ (1986: 27). And in order to findtraces of this, we have to go back into history. For Agulhon, this thing that remains tobe explained, referred to as temperament or collective unconscious, emerges from thehistory of mentalities: characteristics of which the actors are not clearly aware will haveto be highlighted, since ‘the history of collective mentalities differs from that ofopinions, ideas and political programmes rather as the unconscious differs from theconscious’ (1986: 27).

This question was re-examined by Paul Bois in his doctoral thesis on electoralbehaviours in the

département

of Sarthe. After recapping all Siegfried’s arguments asthey relate to certain districts — enabling him to refine his focus — he comes to theconclusion that, in order to explain radically different electoral behaviours (red versusblue, Left versus conservative) in neighbouring rural micro-societies, it is necessary togo back to ideas originating at the time of the revolution. ‘For at least six years thecountry was shaken to its core . . . blood was spilled, and the crimes committed incitedlasting hatred and interminable vengeance. Even when peace was restored, there werestill traces of this — to put it mildly . . . An ideology was born’ (Bois, 1971: 359).

These ‘Agulhon-Blois explanations’ offer a key. (1) They enable us to distinguish theconscious from the unconscious in collective action — a major distinction that we cameacross constantly in our attempts at comparison. Ideas and ideologies are in the realmof the conscious. They are constructed in the normal and often rational processes ofcollective action: in our case, they are broadly in line with the study of institutions andpolicy principles. (2) Collective mentalities, however, may be understood by going backto their time of origin. Here, the fact that these two authors started from the FrenchRevolution suggested to us a methodological avenue: collective mentalities were lesslikely to be formed in the processes of ordinary policy — the interplay of gradualadjustments and contingent adaptations (Friedberg, 1993) — than at times when violentevents, crises, social movements and wars challenged the social bond.

This distinction meant we did not hesitate to return to sources or to introduce thelong view, in order to grasp the origin of the higher, unwritten principles that have helpedto establish so many of the differences between countries. It also suggested that we takeinto account the role of crises and tension in creating these collective mentalities(Lorrain, 2000: 171).

11 This talk was given in 1986, at a time when the extreme Right vote was starting to mass. In somevery elegant pages, Agulhon calls this the ‘second of the national crises’ (p. 17), and recalls the greatfoundations of the Nation by evoking Renan: ‘a nation hardly exists if it is reduced to the contingentcollectivity of those who live inside the same circumference of borders and who are administeredby the same state. There must be a minimum of unity there, both objective and subjective, and byits nature more profound. What is ours?’ (p. 18).



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In the mid-nineteenth century, doctrines were developed to face the challenge ofindustrialization. In arriving at an understanding of the different responses of theEuropean labour movement to the process of industrialization and urban development,one primary factor certainly relates to the robustness of municipal socialism.

12

Somecountries opted for a political form of local government with powers, and others forlocal government under supervision, leaving the responsibilities to the authority of thestate. A second major factor relates to the roots of state legitimacy, which differ betweencontinental Europe and Britain and the United States (Crouch and Streeck, 1996). Inboth France and Prussia, the state has been a modernizing one (Rioux, 1980; Kuisel,1984),

13

while the concept of a pluralist state has been a thread running through Anglo-American political philosophy (Cox, 1987). In the case of the English model, this hasserved to moderate the interventionist tendencies that resulted from active municipalism.

These responses must be read against a background of habits and references. Thismeeting between past references and ‘problems to be solved’ leads to different solutions;then things develop over long periods, before new challenges again lead to new changes.If we want to go down this road — to look at the origins — we will have to introducethe history of the construction of choices in order to understand the debates of the age,how the chosen solutions were justified, and why others were left aside. Ideally, onewould start at these founding moments and track the automatic progressions that createan authentic ‘path dependency’ (Thelen, 2003). But since not everything is regulated, itcan be argued that something that has succeeded through — and been sustained around— a few policy principles must have been through some crises, come to some possibleforks in the road. What were these critical points? How did the model then in placereact? Did it come out at the other end changed — stronger?

Analytically, a model of urban services may thus be described as an entity existingon three levels, each of which is important.

14

• Institutional architectures relate to the division of labour between the actors. This isthe most visible level, answering the question ‘Who does what?’. This question itselfcan be split into two: ‘Who is responsible? The nation, the region, the metropolitancounty, the municipality?’ and ‘Who is the operator? A large state enterprise, amunicipal enterprise or a private firm?’

• Policy principles correspond to types of contract, modes of financing, methods offixing a scale of prices, and principles of budgetary record keeping (independentaccounting and a properly balanced financial position, as against attachment to amuch larger whole within which cross-subsidy operates). These factors representinvisible techniques that enable the model to function effectively.

• All these rational constructions — the outcome of public policy — rely to some extenton beliefs that are so strongly shared that no one dreams of making them explicit:political cultures and collective mentalities.

The way these factors come together very broadly explains the different forms ofurban capitalism that can be observed empirically today. Articulations between the

12 See the works of Castel and Rosanvallon, and those of Topalov on urban development.13 We cannot think about models of urban services separately from public policy. Reform projects,

concepts of the way collective action should be carried out, and ideas about the division ofrespective responsibilities between state and market all throw light on the solutions that have beenadopted in each country. Thus, although a model of urban services can be described on the basisof specific internal criteria, it is an intrinsic part of a broader context (societal effect). This gives anempirical linkage between three areas: overall concepts of capitalism, forms of public policy andmodels of urban services.

14 In truth, a model is also defined by its technical dimension. The formation of a model presupposesa certain technical stabilization, with the result that the reverse is true: moments of technical changemay also be opportunities to challenge institutions. In this article, we concentrate solely on theinstitutional dimension.



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influences of these factors over the long term give the various forms the coherence ofmodels. Institutional architectures very largely dictate supply structures, since varyingdegrees of expansion in the public sector explain the differing spaces left for privatefirms: we will return to this point. In addition, the implementation over the long termof different policy principles and collective concepts enables us to understand the actualorganization of markets. In one country, an essential role will be played by large firmsregulated through simple state supervision, and through observing the higher principlesof competition and the rules of joint responsibility. In other countries, strong belief inthe virtues of competition will explain smaller-sized firms and the constant presence ofconsultants and lawyers responsible for creating the conditions for open competition,while overall responsibility for the whole will systematically be taken by regulatoryagencies. Therefore, any differences in respect to firms and to the functioning ofmarkets have direct linkages to long-term choices of institutional architecture. Ouranalysis of these questions led to a formalization around three models (see Figure 1).All three originated in Europe at the end of the nineteenth century, and although we willfirm up our argument by attaching each to one main country, in reality they have widerinfluence.

Strong local public sector

The German concept was that of a contractual, interventionist state, as defended byBismarck at the time the country was first unified. This vision was strengthened by afundamental distinction between ‘major policy’ and ‘ordinary policy’. The first concernsthe traditional central functions — currency, justice, defence, diplomacy — andeconomic policies, and comes under the government and the

Bund

; the second ismanaged at the local level. Several writers have shown how this division lies at the originof political arbitration on the major organizing principles (Häussermann, 1988).Christophe Charle (1990) has explained this ‘special way’ (or

Sonderweg

), as hasKocka’s (1996) thesis on the distance maintained between the nobility and the urbanbourgeoisie.

This contractual, modernizing model has been applied to two aspects ofdevelopment. Firstly, through its involvement in the rules of workforce management, itaffected industrial relations. In a business, this meant doing things in such a way thatemployer/worker relations did not lead to confrontation: the resultant introduction ofindustrial legislation prefigured the employee participation system of the 1970s. Fromthe point of view of our interests here, the important thing to note is that these —ultimately very long-standing — principles of employee participation (sometimescalled co-determination) were to flow well beyond regulation of the labour market

Figure 1

Original principles

Concept of the State Legacy of Municipal Socialism

Strong local authorities Weak local authorities

Pluralist United Kingdomorganizing state United States

Pluralist interventionist state Germany

Unitary Japan interventionist state France



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alone, becoming a sort of higher principle that pervades the whole society and alsoapplies to relations between utilities and local authorities. By comparison withEngland, Germany leans very clearly to the side of consensus-seeking rather thantowards direct competition, towards negotiations between actors rather than mobilizingthe rule of law.

This concept is also illustrated in what we can call the local production democracy.The state very quickly promulgated laws and regulations in the areas of housing andinfrastructures, and recognized the important role of local authorities in providing thesebasic services (water, electricity, transport, gas, housing). This concept was expressedin a pragmatic municipalism (Korte, 1991a; 1991b; Querrien, 1991; Häussermann,1992). For social democrats, these policies would contribute to the emancipation andthe organization of the working class. For the Right, the management of a city and itsinfrastructures by local burghers or labour movement representatives would establishthe conditions for industrial peace. We must observe that this was a secondarycompromise, since it was accepted that urban services were in the ‘sphere’ ofredistribution — less central than that of production, which was where the realdevelopment took place and the profits were made.

15

The model rests on some higher principles:

• The concept of an interventionist, organizing state, going back to the early nineteenthcentury (Cox, 1987; Steinmetz, 1990);

• A central place for cities in the administration of local affairs in the late nineteenthcentury and then during the Weimar Republic. This diminished to the benefit of theregions or of national enterprises during the Nazi period and was then re-establishedafter the second world war;

• However, this autonomy of cities is limited by the principle of subsidiarity: they havea subordinate position in relation to the

Land

and to the

Bund

, which promulgatelaws and redistribute funding.

This concept of ‘water and gas socialism’ establishes the model’s difference from themore political, more encompassing, but less operational French concept. The idea of astrong local public sector is shared by Germans as spontaneously as the idea of ‘French-style’ public service is in France. We should also note that this model developed inJapan, too, where the state played a central role in industrial modernization; and that itis found in Northern Europe — the Netherlands, Denmark, Sweden, Finland —countries where the vigour of local government has never flagged.

These higher political principles explain the

institutional architectures

. In terms ofsimple description, the organization of these sectors is the responsibility of themunicipalities (see Table 1) Those responsible are local elected officials, each occupyingonly one such post and supported by a senior corps of municipal professionals (civilservants), who are in turn grouped into national organizations such as the DIFU or

Stätetag

.Operation is almost exclusively the remit of public bodies, principally in the form of

the

Stadtwerk

. Like everywhere else, in the nineteenth century the Germans began byoperating their public services through public enterprises incorporated directly intomunicipal services — and just as unwieldy and inconvenient as in other countries. Thesewere later modernized by being given autonomy and multi-sector powers. These public,multi-sector

Stadtwerke

manage the spheres of water, gas, electricity, heating andtransport (Reidenbach, 1997). They may have the status of a semi-autonomousmunicipal agency (

Eigenbetrieb

) or of an enterprise whose capital is held by the local

15 It may also be thought that the current major movement known as ‘privatization’ is evidence of atransformation in production systems, of a shift in the boundaries between markets, and of theincorporation into the market sphere of sectors that were largely excluded from it, such as theenvironment or logistics.



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Table

1

Str

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g l

oca

l p

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lic s

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erm

any

Wat

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Sew

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Was

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eati

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Org

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ing

au

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auth

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ties

Dis

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85

0 l

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tho

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es r

esp

on

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or

the

fou

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Op

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or

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erke

Mu

nic

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Dep

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un

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en

terp

rise

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Sta

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erke

4 i

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gro

ups

and

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Sta

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erke

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Deu

tsch

e B

abco

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ind

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SB

, Ho

chti

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Pri

nci

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, mu

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, co

nce

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, co

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ated

by

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ts

Cu

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ge

bas

ed o

n p

rag

mat

ism

(g

rad

ual

ism

)

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on

sen

sus

cult

ure

, co

-pro

du

ctio

n

•M

ore

im

po

rtan

ce p

lace

d o

n i

nd

ust

rial

pro

du

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n f

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rs t

han

on

‘in

stit

uti

on

al d

esig

n’



©


authority (

Eigengesellschaft

). Until recently, sewage treatment was carried out directlyby municipal service operators.

16

This integration of several spheres has dual significance. It may help to generateeconomies of scope through better coordination of field crews and road works. Around1994, the director of a

Stadtwerk

, quoted by Reidenbach (1997: 83), stated in theirprofessional journal that this integration was enabling economies of up to 25% in oneinvestment programme: that seems very large, and the figure cannot be verified.However, let us accept horizontal integration as an essential feature of the Germanmodel, constituting a radically different approach from the efficiency through verticalintegration that characterizes the other two models. This multi-sectoral nature hasfinancial consequences, too, since it allows cross-subsidy: profits from the profitablesectors (distribution of electricity and gas and, to a lesser extent, water) compensate forlosses on urban transport. This represents a powerful factor in the strength of the Germanmunicipal public sector.

What is the place of the private sector in this model? This question must be examinedon several levels. Part of the answer follows from the above factors and from the model’sarchitecture. Given the major role of the

Stadtwerke

in the operation of several services(and, often, in some of the consulting), private firms find themselves blocked from thatangle. They can be active only in some remaining operational and consulting areas andin other functions — as builders, as manufacturers (and, it may be said, as industrialists).This was largely what we observed:

• In the water sector, the

Stadtwerke

are omnipresent, and this explains the paradoxicalsituation noted by John Briscoe, a director for water at the World Bank, who asks‘why no cross-Rhine distributor is active on the international water market, despitetheir high technical standards, the good quality of the water produced, and thesmoothly run system’ (

HydroPlus

, May 1997: 18). The approach of private firms hasmostly centred on the supply of equipment. But recently things have begun to shift.Under the pressure of budget constraints and from liberalization of the electricitymarket, the

Stadtwerke

have reacted with different strategies: some are opening theircapital to the large German utilities, while others — in order to remain independent— are merging or cooperating with other

Stadtwerke

. This is a complex, incrementalprocess that is not highly visible; nevertheless, it is reshaping the landscape ofmunicipal government and of the

Stadtwerke

. In the area of international competition,some of these municipal enterprises — Berliner Wasser (minority owned by RWEand Veolia), MVV (Mannheim) — have won some contracts abroad, mostly toprovide studies and services (Lorrain, 2003: 75).

• Specific attention has to be paid to the organization of the electricity sector, sincethis lies at the source of the development of this German form of urban capitalism,representing the organic interface between municipalities and firms. This interface,which operates through the

Stadtwerke

, is at the heart of the ‘strong local publicsector model’, firstly for highly material reasons. Long-term developmentpresupposes the availability of financial resources: electricity distribution broughtthese. Next, permanent working relations between civil servants in the public sectorand executives in the private electricity firms helped the former to evolve away froman administrative view of public policy. In a word, electricity distribution representedthe door through which market principles — measurement, efficiency, profitability— entered the public sector. In France, the equivalent function was performed by thedrinking-water distribution sector and by urban planning.

16 This relates to legal differences enshrined in municipal law. Water has a clearly commercial status,and may be financed through a scale of prices and managed by either public or private enterprise;while sewage disposal is a ‘sovereign good’ and can be financed only through taxation: this providesan incentive to maintain it within the perimeters of direct municipal services (interview on‘delegation’ in Rostock, 1994).



©


Relations between these two worlds were established naturally over a long period(Stoffaës, 1994). Private companies created the first electric power stations in the latenineteenth century; the municipalities granted them franchises and territorial monopolieson generation and guaranteed distribution, with the latter handled either by the firm orby the city. The municipalities fairly rapidly came to be shareholders. These companieshad territorial monopolies and were vertically integrated. Western Germany was dividedbetween nine firms working with the

Stadwerke

on distribution as well as generation(under an equilibrium subject to change from one place to another). This picture alteredlittle in its principles until liberalization of the sector in 1998, which represented aprofound reorganization. The municipalities sold their shares in order to give themanagement of firms more freedom to develop internationally; the reform wasintroduced first by Preussen Elektra and Bayernwerk, with RWE following in 1998. Thefirms reacted to the competition on tariffs with two mega mergers: RWE and VEWmerged to create a new RWE (2004 turnover: 43.9 billion euros), while Veba and Viagformed the new E.ON (around 46 billion euros in 2002). As the BundesKartellamt (theCartels Office) requested the firms to sell several assets in order to gain approval,the merger itself was followed by several operations, the most important being therestructuring of the eastern

Länder

around Vattenfall. In addition, Electricité de Franceinvested in the capital of EnBw (Baden Württemberg). Thus, the industry is organizedaround two large and two medium-sized corporations. It has preserved its oligopolisticstructure and the principle of vertically integrated firms (see sub-section

Integration andself-regulation

, below).

• Other large German groups have developed an industrial capacity related to urbanmarkets: Siemens, Brown Bovery, KSB for pumps, Linde, Lurgi Bamag, Wabag. Asmanufacturers of the basic components of the urban ‘machine’ — pumps, turbines,pipes, escalators, people movers, depollution systems, incinerators, cranes — theyrank first in the world in their specialities.

17

This industrial approach is anothercharacteristic of urban capitalism, totally congruent with the institutional architectureof the model. As the operation and the engineering of these sectors were largely theresponsibility of the public sphere (the

Stadtwerke

), the space remaining for privatefirms was in manufacturing and construction.

• German pre-eminence is less marked in the construction field. Hochtief, an RWEsubsidiary (until 2004, when the utility company sold its 56% control), is the fourthlargest company in Europe, behind the French groups Bouygues and Vinci and theSwedish one, Skanska. The country’s former number one, Philipp Holzmann, did notmanage to get out of its difficulties, despite a recovery plan, and had to announce itsbankruptcy at the beginning of 2002. Then we find several German groups rankinglower than eleventh in Europe, despite the country’s size: they are outstripped bySwedish and Dutch businesses (DAEI, 2002). There are two explanations for this.The first relates to the history of the economy. In a federal country, these groups havedeveloped from a family and regional base. The ‘natural’ structure of the market isless national than in France, and only a few groups, such as Bilfinger und Berger,Walter Bau or Strabag, have created organizations that have moved away from theirinitial regional framework. The other reason relates to the principles on which thesemarkets are organized, relying mainly on competitive tendering for lots separatedaccording to the specialized functions being subcontracted. This means that, unlikethe French lead-contractor pattern (Campagnac, 1992), construction enterprises arenot in control of the whole value chain, both upstream (engineering) and downstream(subcontracting finishing work). In Germany, the public consultants and municipal

17 Here the parallel must be drawn with Japan, also a country characterized by the strength of itsindustry in these sectors. Most of the information relating to the firms and the history of utilitiesdiscussed in this article are based on previous works we have published in

FLUX

, under a permanent‘rubrique: Portrait d’entreprise’. Since 1999 we have presented 10 firms and sectors. See also aspecial issue of Entreprises et Histoire, No. 30, September 2002.


International Journal of Urban and Regional Research © Joint Editors and Blackwell Publishing Ltd 2005

Stadtwerke who broadly organize urban networks are backed up by house-buildingconsultancies run by design architects: this division of labour does not make it easyfor private firms from the construction sector to expand.

• Private operators are involved in the waste sector. At the outset, family businesseswon precise, short-term waste collection contracts. They worked alongside municipalservices, creating a situation fairly similar to the one that can be observed in Englandand in the United States. As the sector became more technical under pressure fromenvironmental movements and tougher standards, firms became more concentrated.The initial family groups were regionalized, and in the mid-1990s some fell into theclutches of large infrastructure groups. The Otto Group was bought up by the world’sleading waste disposal company, the American Browning Ferris Industries, beforebeing sold on. RWE, the large German electricity company, was very activethroughout the decade through consolidation with local businesses and contracts withcities, it managed to create an enterprise — RWE Umwelt — with a turnover of 1.94billion euros in 2004. This company was offered for sale at the end of 2004: amongthe potential buyers was the family-operated waste group, Rethman.

If we go back to the global view, public management has thus relied for more thana century on an active principle, one derived from a strong primary equation: publicgoods must be managed publicly. Other countries also asserted the same in the latenineteenth century, but they have changed. The Germans, however, have been able toadapt their model so as to preserve what they conceive to be a higher principle.Examining this approach also helps to reveal other formal and more informal principlesrelating to collective mentalities.

This model is characterized by a pragmatic, gradual concept of change. Unlike theEnglish model, it does not seek to impose major framework shifts, but to adapt whatalready exists. Germany has held to some major policy principles and graduallymodernized them (Reidenbach, 1997).

• In the 1970s, the Germans saw their policy on municipal groupings through to asuccessful conclusion, so that, as organizing authorities, the municipalities now covervast territories (Grunow, 1991; Jouve and Lefevre, 1999).

• They have strengthened the Stadtwerke by transforming them from municipaldepartments into companies (Reidenbach, 1997).

Functional optimumThe English model — of which certain features are to be found in the United States —rests primarily on a philosophy of the free administration of local affairs. From the earlynineteenth century, the parishes ensured the provision of numerous services: waterdistribution, public lighting, road building, help to the poor, funeral activities (Byrne,1985; Garrard, 1994). Pre-first world war England was the country where localgovernment powers were the most extensive, and it served as a reference point for thewhole of municipal socialism. At this time, its genealogy was close to the NorthEuropean ‘strong local public sector’ model. Moreover, a split would come, since thefirst principle was to be limited by two other principles that became increasinglyimportant: a rationalization of public policy and a pluralist conception of the state.

A rationalization movement emerged in the 1880s. For reasons of efficiency, someof the parish’s tasks were transferred to ‘boards’ (a sort of specialized public enterprise,operating in a larger context than that of the municipality). This movement waspermanent and created a strong belief in the idea of optimal institutional choices. Theinfluence of economic ideas may also be seen in the sphere of public policy (Walras-Pareto). In terms of price and quality of services, an optimal situation for the partiesinvolved is obtained when certain conditions for organizing sectors and creatingcompetition are brought together.



A second limit on the free administration of municipalities came from the pluralistconcept of the state: the state does not have to do everything or decide everything. Thisdistinguishes the English tradition from the more interventionist philosophy of thecontinental countries. And if the state does not do a thing itself, it has to have it done— whence the long-standing development of thinking on control (Cox, 1987; Wright,1993).

The intersection of these three philosophies — free administration, rationality andpluralism — explains the chaotic history of local government in the UK, a picture ofcontinual reforms with major changes in the rules of the game. This history — whichcontrasts with German gradualism and French pragmatism in local affairs — followedthree major historical sequences (Stoker, 1997).

First of all, a period of the ‘strong local public sector’ type: until the late nineteenthcentury, the municipalities administered utilities directly. Then, between about 1920 and1940, the system adapted its local geometry, still within the public sector, through atransfer of powers to committees. As Gurr and King (1987: 171) explain, the initialincentives to create a modern system of local government arose from the economic andsocial consequences of the industrial revolution. At this period, local public managementand the tasks of the organizing authority and the operator were merged within the samepublic body.

A second period (1960–70) may be described as ‘strong central public sector’, sincepowers were gradually transferred to local public agencies. This relinquishment tookplace in the name of an efficiency principle and of the search for the institutionaloptimum. Among the important reforms of this period, we should mention thereorganization of local authorities into groups of municipalities, recommended by theRedcliffe-Maud Report18 (Goldsmith, 1986), as well as the transfer of water and sewageactivities to public companies at the regional level. This rationalizing phase was anintrinsic part of the building of a modern welfare state. However, although local publicspending increased, the 1970s were also marked by growing state control. Rhodes hasdescribed these years as a period of ‘incorporation’, signifying that local government— through the intermediary of its national associations — was gradually being drawninto the circles of the central decision-making process (Rhodes, 1988). Thisrationalization process included three potentially dangerous factors:

1 This ‘incorporation’ placed local government in a position of increasing dependencyon Whitehall;

2 The rationalization of government agencies strengthened a long-standingprofessionalization movement. This, though originally a strength, was to lead to the‘slightest sensitivity to pressures from electors’ (Pickvance, 1985; Dunleavy, 1991);

3 It also acted to reinforce a trait of the political culture, described by Bulpitt as ‘dualpolity’, signifying a separation between ‘high politics’ (defence, foreign policy,national economic policy) and the technical spheres of ‘low politics’. Gradually,therefore, English local government lost part of its political dimension (a source oflegitimacy in the two other models), becoming just a service provider and going onto encounter the pressure of the market principles, precisely in that sphere.

A third stage began in the 1980s, with privatizations and the extension of marketprinciples to local public services. The English model distinguishes between two ideas:‘privatization’ designates the sale of assets, while ‘marketization’ means the introductionof market principles — measurement, fixing a scale of prices at real cost, ending cross-subsidies. During the first half of the 1980s, Margaret Thatcher’s Britain was to play apioneering role in the world, signalling a challenge to the paradigm dominant since the1930s: the state as corrector of market failures and the benefactor state, brought togetherunder notions of Keynesianism and of the welfare state.

18 See also the report of the Royal Commission of 1969.



These ideas were in phase with those of Ronald Reagan, elected President of theUnited States in 1980, a year after Thatcher came to power. These two leaders activelypromoted what may be called the ‘conservative revolution’ (King, 1987). These ideasfundamentally questioned current theories, challenging the state’s vision, publicmonopolies and local authorities’ modes of action. This is a now well-known story, withwidely documented justifications (King, 1987; Vickers and Yarrow, 1989) and results(Bishop et al., 1994; Ernst, 1994).

However, before arguing the model-type unity of these reforms, we would like tostress the continuity of ideas. What happened in England was not only part of a directpolitical struggle against Labour and the trade unions — expressed in the slogan ‘rollingback the state’ — but also part of a reshaping of public policy, which flowed directlyfrom past experiences of rationalization and from a body of work critical of the theoryof natural monopolies. The justification of this theory was based on the idea of marketfailures. The model found its inspiration in an impressive series of theoretical works,19

which questioned ‘state failures’ and examined multiple routes to the reform ofmonopolies.

Privatizations have changed the face of local government a great deal, but in someways they have merely continued a trend inscribed in its long history. The transfer ofpowers from municipalities to higher-level bodies in the 1930s illustrates the loss oflocal government influence. The nationalization of gas and electricity in 1947 and 1948strengthened this trend, depriving local authorities of some of their resources. Thereform of water and drainage in 1973 to the benefit of regional public companies playedan intrinsic part in this same genealogy (Kinnersley, 1994).

The consequences of doctrinal hesitation are somewhat evident, since two traditionsare being combined: should the model be promoting the development of grass-rootsdemocracy or seeking efficiency through the use of specialized agencies — in otherwords, local government versus local agencies? For half a century, reforms tended todiminish local government in favour of ‘local agencies’ (Steward, 1989).

This explains the current landscape. English answers to the primary question, ‘whoare the authorities responsible?’ vary depending on the sector. The industrial structureof markets is explained by the search for competition. Where there were vertical,integrated public monopolies, the English reformers fairly rapidly shifted to more openarchitectures (see Table 2).

The water and sewage sector is the responsibility of two administrative bodies and aregulator (Ofwat). It is structured around approximately 20 long-standing privateenterprises, which only distribute water, representing 25% of the market (statutory watercompanies), plus 10 regional companies privatized at the end of 1989. The developmentof these companies is an example of the way in which the definition of the rules of thegame can affect an industrial sector. It is clear that privatization gave freedom to thewater companies: they diversified into waste management (Severn), construction(Anglian) and electricity (North West, Welsh), and became much more international.Later on, changes in rules and their drastic hardening under the Final Determinationsof 1999 endangered the whole industry. The landscape has become more unstable, andthe water industry has been subject to a reshaping process since 2000 (Bakker, 2002).All the ten water companies — except Severn Trent — have experienced some changesin their shareholders (from acquisition to restructuring of the debt); all those that wentinternational have restructured their portfolio of contracts (Lorrain, 2003).

In the sphere of electricity, the reformers did not wish to repeat the experience ofBritish Gas, which had been privatized without any changes to the structure of theindustry. They wanted to set up a more competitive framework: the electricity industrywas totally dismembered (Glachant, 2001).20 Where the Central Energy Generating

19 For the record, we should also mention Friedrich Hayek, Armen Alchian, Harold Demsetz, GeorgesStigler and Joseph Stiglitz.

20 See also Dominique Finon’s works and Jean Michel Glachant’s references to the UK literature.



Table

2Fu

nct

ion

al o

ptim

um

: En

gla

nd

Wat

er

& S

ewag

e

Was

te

Hea

tin

gE

ne

rgy

Tr

ansp

ort

Org

aniz

ing

au

tho

riti

esN

atio

nal

Riv

erA

uth

ori

tyD

ept

of E

nvir

on

men

tO

fwat

Was

te D

istr

ict

Dis

tric

tO

fgen

Min

istr

yL

oca

l au

tho

riti

es

Op

erat

or

10 p

riva

te e

nte

rpri

ses

20 s

tatu

tory

wat

erco

mpa

nie

s

WD

A+

pri

vate

12 d

istr

ibu

tio

n e

nte

rpri

ses

3/10

pro

du

cers

Pri

vate

bu

ses

1 tr

ansp

ort

ing

ente

rpri

se

Pri

nci

ple

sIn

teg

rati

on

of

the

cycl

eS

epar

atio

nco

llect

ion

/tre

atm

ent

Co

mp

etit

ive

ten

der

ing

Co

mp

etit

ive

stru

ctu

re, u

nb

un

dlin

gC

oo

rdin

atio

n b

y th

e p

oo

l O

pen

co

mp

etit

ion

by

lines

Po

ole

d c

oo

rdin

atio

n

•Fu

nct

ion

al o

pti

mu

m f

or

inst

itu

tio

ns

and

sec

tora

l sp

ecia

lizat

ion

•O

pen

co

mp

etit

ion

: by

line

(was

te, b

use

s), b

y se

cto

ral

org

aniz

atio

n (

elec

tric

ity,

un

bu

nd

ling

) o

r by

th

ird

-par

ty a

cces

s to

th

e n

etw

ork

(c

om

mo

n c

arri

age)

•E

limin

atio

n o

f cr

oss

-su

bsid

ies

bet

wee

n s

ecto

rs a

nd

bet

wee

n s

ubs

idia

ries

of

the

sam

e o

per

ato

r

Cu

ltu

re•

Ch

alle

ng

e, c

onf

licts

, dis

pu

tes

(rec

ou

rse

to t

he

law

), c

ult

ure

of

con

tro

l (a

gen

cies

, mo

nit

ori

ng)

•Tr

ust

in

mar

kets

to

allo

cate

res

ou

rces

mo

re t

han

in

in

teg

rate

d e

nte

rpri

ses

(ro

le o

f tr

ader

s, o

pen

ing

s fo

r fo

reig

n e

nte

rpri

ses)

: co

mp

etit

ion

•B

elie

f in

th

e im

po

rtan

ce o

f in

stit

uti

on

s. P

erm

anen

t p

roce

ss o

f in

stit

uti

on

al r

efo

rm



Board had had the monopoly of generation and of transport, there were now a transportenterprise (National Grid) and three producers (National Power, Powergen, BritishNuclear Fuels), whose influence declined steadily with the arrival of independentproducers. Distribution was covered by twelve private regional enterprises. Thislandscape has changed enormously. Immediately after the golden share arrangementcame to an end in December 1995, six American utilities bought regional electricitycompanies. A couple of years later, they changed their strategy and resold the shares.Continental utilities then entered the market, buying not only regional electricitycompanies but also generating companies; they created new forms of vertical integration.The liberalization of the market gave consumers the right to choose their supplier. Thissector, which had been within a public service (or utility) logic has become ascommonplace as other markets, and electricity has become a commodity. In this sector,Europe clearly presents three configurations: fragmented architecture in this case,oligopoly in Germany and in Spain, historical operator dominant in France and in Italy.

The reforms also applied to urban transport (under the local authority) and to therailways, where each line was opened up to competition. Auctioning off lines and tracksled to the award of contracts in these two sectors to private groups. National urbantransport firms have emerged: First Group, Stagecoach, Cowie/Arriva, Go-Ahead. Forthe railways, the situation is more balanced — between foreign firms (SNCF, Connex-Veolia) and British firms like Virgin (a new entrant) or Stagecoach. By comparison withcontinental solutions, which privilege the development of a meshed network and thecoordination of the whole by a single network operator, these reforms bring a marketvision to a technical realm.21 Each line may be awarded to a different operator, whoseperformance is then tracked through indicators. But the question of how the wholesystem can be optimized still remains.

In waste management, a different competition principle was introduced. Themunicipalities, who are the responsible authorities, have to put their service out tocompetitive tender (the CCT procedure). A private supply therefore rapidly formed;initially very broken up, it equally rapidly consolidated. There too, an essential impetuscame from foreign groups: Onyx (Vivendi), Sita (Suez), Brambles (Australia). In apanorama that has been profoundly transformed in 15 years, one British group (Shanks)emerged, while another (Biffa) was integrated into Severn Trent, the second largest watercompany.

Thus, in world competition between firms and between models, the English reformshave not been totally successful in producing ‘national champions’ capable of competingwith the heavyweights of the two other models — the German and French electricitycompanies, and the water and construction groups in France. There are two reasons forthis. The reforms are recent; and, more importantly, the main objective — the searchfor greater efficiency through competition — has had effects on supply. The quest foropen architectures, the unbundling process imposed on the electricity companies and onBritish Gas, and the refusals to admit merger requests from the water firms do notpredispose this model to the creation of large groups.

On the other hand, there is one sphere where this model’s supply excels: consulting.If we take technical consultants, general consultants, financiers (securities firms) andlawyers together, then this model of urban services is the world leader. Firms likeHallcrow, Binnies and Mott MacDonald, or Clifford Chance, Freshfields and SGWarburg,22 play an essential role upstream of these sectors. They advise the decision-makers, define problems, organize selection procedures and take part ex post facto inmonitoring. Influence is not inevitably measured in turnover or in capitalization, butequally in the ability to affect strategic links in the chain.

21 On these questions of coordination between the technical and the market, see Curien (2000) andthe works of J.M. Offner.

22 The Americans lead the market in this banking consultancy (or ‘securities firms’) niche, withGoldman Sachs, Morgan Stanley, Merrill Lynch, J.P. Morgan and Credit Suisse First of Boston.



Everywhere, the architecture of an industry reflects higher principles. In a model thatseeks to increase competition in sectors where the history is one of monopolies, theessential power lies with those who organize the market. Industrialists or builders arethere only as executors: to apply assembly procedure schedules, to respond to schedulesof conditions drawn up by consultants.

The principal actors vary according to whether beliefs centre on the virtues ofintegration or of competition. In the first case, large industrial or service groups becomeestablished in the country, offering an integrated supply from operation to engineering;structures are oligopolistic — this applies to Germany and France. In the second case,the structure becomes more atomized, with more specialization by sector, and thefunction of consultants and engineering firms is to steer the system: this is the case withEngland.

To clarify all this, a series of principles, of collective mentalities, may be mobilized,which partly explain what is being described.

1 The first essential idea that we have highlighted is the notion of the search for optimalsolutions. This explains a certain institutional architecture, highly characteristic ofthe Anglo-American model and, if we compare it with those of continental Europe,exceptional. The consequence of the quest for optimum is to change the level oforganizing authority according to the service: it can be the region, the metropolitancounty or the town. Shifting responsibilities in this way contrasts with the basicequation of the two other models: the organizing authority is the municipalgovernment. More basically, however, it provides evidence of an attachment to theidea of rationality: the management of local affairs ought to be able to escape politicalpassions and follow the harmonious principles of ‘good government’. There arecertainly intellectual relationships that can be established between the English wayof responding to problems of corruption (rife in the late nineteenth century), theAmerican movement for ‘good government’ (Banfield and Wilson, 1966; Lowi, 1969)and the current rhetoric around ‘good governance’.

2 The quest for efficiency — evidenced through the construction of competitivearchitectures at the level of firms and through regulatory institutions — fundamentallyexpresses an adherence to standard economics and to the virtues of competition.There is another very important cultural feature, turning on the pairing of trust withcontrol. We could say, by way of caricature, that the English reformers are alwaysboasting of the virtues of markets and of firms, while trusting them so little that theyconstantly seek to restrict them within a framework. The way competition isorganized in Europe, as set out by Dumez and Jeunemaître (1991), demonstrates twocollective mentalities: in Germany, a Cartels Office and oligopolistic competitionorganized by agreements are considered sufficient, whereas the UK has severaloverlapping institutions. The French model of urban services is even more heterodox,in that it regulates without formal regulatory institutions but by using differentmechanisms that function through the interplay of ‘checks and balances’ (Lorrain,2001b).

Perhaps the imprint of a long history can be seen here. Anglo-American capitalismwas open (the British Empire), supple, innovative and sometimes savage. The stateknows that it may be outflanked, as the experiments with railways and with gas showed(Chandler, 1977; Tarr, 1999). Examples of opportunism are numerous: the moreexchanges are made between distant territories, the less interpersonal trust is able toplay a moderating role. German capitalism, developed at first on a regional base, couldrely on trust between peers (bona fides); the same principle structures exchangesbetween urban services in France. The Britain of large-scale overseas trade or the UnitedStates, where markets are immense, may have been faced with the problem ofanonymous exchange before others were, and they responded to it with new theories(the principal agent) and institutions of control.



Attitudes to trust and control reflect two different concepts of partnership relations:France and Germany are characterized rather by consensus-seeking; the English modelmore by confrontation. Everything there works towards the recognition of individualrights and the presence of those (lawyers) who undertake to govern conflicts of interestthrough the law.

3 There is another trait that characterizes this model — that of belief in the role ofinstitutions as impelling change. This establishes a major distinction from thetwo other models, which are typified by gradualism and pragmatism. TheEnglish launched three major reforms in urban services in ten years:privatizations, the award of bus licences or compulsory competitive tendering,and then the PFI Act (Private Finance Initiative, November 1992), which mergedconstruction and operation activities for public facilities or public buildings. Thisall followed the reorganizations of institutions in the 1970s, the abolition of theGreater London Council (GLC) around 1985, and changes in local taxation (thePoll Tax).

In every case, these reforms were presented — with a lot of publicity — as essentialand universally relevant. In the water sector, the reform dates from December 1989.Since then, battalions of consultants and engineers have (despite some setbacks) spreadover the whole world, expounding the merits of their approach. Of course, any humanactivity presupposes at least a minimum of support from the actors involved, andeveryone believes in what they themselves are undertaking. But, in this claim touniversality, there is an astonishing behaviour that actually runs counter to the realEnglish tendency towards understatement. If this point is accepted, perhaps thesebehaviours must be seen less as evidence of a propensity towards bombast than of aprofound belief in the virtues of ‘good’ institutional architecture, which has to be ‘sold’to the emerging countries for their own good.

University academics have invented a branch of economics — institutional economics— that focuses attention on institutional design. As Vickers and Yarrow have shown(1989), the English frequently raise economics to the level of a noble art. The communityof economists has had a major influence on the reforms: yet each one limits hisrecommendations to what he knows — and does really know what he is doing inpractice. It should come as no surprise that they are setting out to reform the world withtheir institutions.

Their equivalents in France and in Germany are primarily engineers. Part of thedifference is explained by the systems for producing elites: the London School ofEconomics and Oxbridge, versus Universität or X-Mines-Ponts. In the long term, thesechannels generate differences in the spontaneous view of problems (here again, we findthe thesis of ‘path dependency’). Continental engineers work on technical objects, onprocesses. They optimize and adapt before changing everything. When two firms merge,they study needs and translate them into programmes of work; the financier only comesin afterwards. In the parallel English situation, the financial aspect seems always to betackled first: lawyers and financiers are in the driving seat.

Politics and delegationFrance oscillates between two concepts of the state, liberal or ‘grand organizing’ (Aubyand Ducos-Ader, 1975; Rioux, 1980). They vary according to economic circumstances:liberalism in the late nineteenth century, central planning in the 1930s and recourse tothe mixed economy in the 1950s. But these variations function around a very old unitarystate with an interventionist philosophy. A primary trait marks this model in an obviousway: the ultra-powerful nature of the state. This is reinforced by a second trait: economicbackwardness.



These two permanent features explain a great deal, or at least enable an understandingof why certain higher principles were established a century and a half ago. Bycomparison with its two neighbours, France has been backward in industrialdevelopment. The country was more rural, and this explains the organic weakness oflocal government, which can be illustrated by the number, availability and competenceof local elected officials, or by the history of civil service activity at the local level.23 Itsrepresentative elites in small towns broadly rejected municipalism and its ideas ofcontract-based modernization. These were fairly largely foreign to their mental realmand to their ordinary experiences. Furthermore, these ideas came partly from Prussia,the old enemy of 1870, while the word ‘municipalism’ was an echo of the ParisCommune — two sensitive experiences in the collective mentality.

Economic backwardness also explains the strategies implemented to compensate forit. Its roots can be found in seventeenth-century maritime history, in the story of theTrading Companies24 (Lemarchand, 1993; Lorrain, 1993): if the state cannot doeverything itself but needs something done in a hurry, it calls on private enterprise. Theidea of ‘having things done by someone else’ is therefore a very old one and, from thisperiod onwards, royal civil engineers and economists justified recourse to privateenterprise, compared remuneration procedures for the firm and debated the question ofprofit. It was in the seventeenth century that the basic grammar of public policy bydelegation was compiled.

In the organization of urban services (as in wage relations), French solutions areradically different in nature from German ones — backward in collective negotiationwithin enterprises and supportive of private sector operation of urban services, thusremoving any possibility of constructing a strong local authority.

Since the mid-nineteenth century, the model has been characterized by the delegationof public service tasks to the private sector. This situation is coherent with a strong state,maintaining weak local authorities, with a centre mistrustful of specific local features.It has become stronger because there is no political philosophy on either Left or Rightthat makes cities a site of societal change. Unlike Germany, France has had no realpolitical plan on cities: reform priorities have lain elsewhere. This explains whymodernization of municipal public enterprises was delayed. The example of Germanyhelps us to discuss the question: why weak public enterprises?

Because the concept that prevailed in France until the 1920s was one of a ‘minimumstate’, the public law rulings of the Conseil d’Etat sought to set permanent limits onlocal interventionism, in order to forestall the development of municipal socialism. Atthe same time, French political elites, particularly on the Left, did not see materialpolicies on water and gas as resources in their project for social change. The secondarystatus of an elected official like Henri Sellier within the SFIO is an illustration of this:his ideas were belatedly and then badly received.25 Although the distinction between‘high’ and ‘low’ politics functions explicitly in Germany and England, in France itoperates implicitly. Elites there have a taste for grandeur, are passionately in favour ofbig ideas, and are not interested in mere stewardship. ‘Take care of the pounds and thepence will take care of themselves’ might be their motto. Philippe d’Iribarne has beenable to show the ‘logic of honour’, present in the concrete behaviour of actors in aworking situation, as characteristic of a culture handed down from the Ancien Régime(1989); this is also the period we need to look to if we are to grasp the relationship ofthe political elite to ‘stewardship’. The word applies to the relationship between the‘master’, who decides, and the steward, who applies. Passionate about debates on ideas

23 See IFSA (Institut Français de Science Administrative) (1977) L’administration des grandes villes.Cujas, Paris, and special issues of Annales de la Recherche Urbaine (1989) Volumes 44/45 and Politix(2001) Volume 53.

24 For a genealogy more focused on construction and major works, see Bezançon (1999).25 See again the two special issues of the journals cited above (footnote 23), and the references to

the works of Christian Topalov, Jean Pierre Gaudin, Viviane Claude and numerous historians.



and geopolitics, French political elites have been consistently uninterested in the local— it is just too mundane. This leads them to delegate management of local affairs toothers.

These historical features explain what happened next. The actors followed whatseemed to be the natural course: the weakness of cities demanded solid partners andfound them in the urban services groups. These had come into being in order to providewater supplies — the great modernization of the late nineteenth century. The CompagnieGénérale des Eaux dates from 1853, the Société Lyonnaise des Eaux et de l’Eclairagefrom 1880. The latter increasingly developed internationally and diversified into theelectricity sphere, where it came to play a leading role. Post-war nationalizations,followed by decolonization, were to cut it back severely. It was only in the late 1960s,when urban planning developed rapidly, that these two urban services groups developedinterests in the other urban technical networks — sewerage, heating, waste, thentransport and later cable and communications.

From a descriptive, institutional point of view, the communes are the organizingauthorities26 for all the networks, as they are for electricity distribution (even though theexistence of a large nationalized enterprise has tended to lead people to forget thisprinciple) (see Table 3). At their head we find mayors, politically legitimized, close tocitizens. There is, therefore, some proximity to the German model — with two slightdifferences, however.

Some of the mayors of large cities hold other, nationally elected offices as well, sothe political dimension in France is more marked than it would be with a purelyprofessional approach. Because of this, such prominent elected representatives tendmore to act as chairpersons; in work on problems of a heterogeneous nature, they tendto delegate more, so that they can continue to manage their power base.

The second difference is that of the issue of groupings of communes. In the 1970s,France rejected changes implemented throughout the rest of Europe. How can it remainefficient while it is still institutionally broken up into 36,500 communes? Here the otherinstitutional dimension, industry, comes into its own. The existence of a few large groupsreintroduced coherence. The model depends on political authority delegating: it isinstitutionally fragmented, but industrially concentrated.

The next feature of this model relates to long-standing, large enterprises —diversified, internationalized, long since integrated into engineering activities andsometimes into construction. For its size, France is certainly the country in the worldthat can line up the most majors in a given economic sector: Suez, Veolia,27 Bouygues,Vinci, EDF. To these should be added the ‘urban’ Caisse de Dépôts et Consignations(CDC), a public financing body that may be said, in another sense, to produce from thetown, through its majority ownership of semi-public construction and planningcompanies (SMEs), through consulting and through financing.

Here the difference from England is stark. The disparity between sizes of firms ispartly an expression of differences over time: these French groups have been built upover several generations. Above all, however, it is an expression of differences in viewson the nature of firms. The English fear the abuse of monopoly; they seek spontaneouslyto recreate Adam Smith’s markets; they make their firms weaker. Not in France: on thecontrary, the existence of national economic champions there is rather seen as acompetitive advantage. The values of the elites differ, too, as is further illustrated by thenotions of ‘shareholder’ and ‘stakeholder’. In France, operating results have notrepresented immediate gains for shareholders: chief executives have had a great deal offreedom to allocate profits and cash flows to employees, to managers and, above all, toexpanding the firm. On this point, the closest comparison is that of Rhine capitalism.

26 See four previous articles that present differing elements of this French model of urban services(Lorrain, 1992; 1993; 2001b).

27 The former Compagnie Générale des Eaux became Vivendi in 1998, and was then renamed VeoliaEnvironnement in 2003.



Table

3P

olit

ics

and

del

egat

ion

: Fra

nce

Wat

er

& S

ewag

eW

aste

Hea

tin

gE

ne

rgy

Tran

spo

rt

Org

aniz

ing

au

tho

riti

es12

,00

0 m

un

icip

alit

ies

or

asso

ciat

ion

s o

f m

un

icip

alit

ies

in a

ll th

ese

sect

ors

Op

erat

or

Mu

nic

ipal

pu

blic

en

terp

rise

s o

r g

rou

ps (

Veo

lia, S

uez

Bo

uyg

ues

)E

DF/

GD

FS

uez

Bo

uyg

ues

,Tr

acte

bel

En

des

a

4 g

rou

ps

Urb

an t

ran

spo

rtR

AT

P; S

NC

F 8

5 n

etw

ork

s (K

eolis

/Via

-Tra

nse

xel+

Car

ian

e); C

on

nex

(V

eolia

, CG

EA

, CG

FTE

); T

ran

sdev

(C

DC

)

Oth

er a

cto

rsIn

teg

rate

d e

ng

inee

rin

g f

irm

sR

enau

lt, M

atra

Maj

or

con

stru

ctio

n c

om

pan

ies:

Vin

ci, B

ou

ygu

es, S

pie

Als

tom

Pri

nci

ple

s•

Cit

y le

vel

plu

s su

pp

ort

by

del

egat

ed m

anag

emen

t. C

entr

al r

ole

of

con

trac

t

•S

ecto

ral

spec

ializ

atio

n, b

reak

ing

eve

n f

inan

cial

ly (

ban

nin

g s

ub

sid

ies

bet

wee

n s

ecto

rs)

•C

on

sum

pti

on

mea

sure

men

t (m

eter

ing

)

•In

du

stri

al i

nte

gra

tio

n i

n m

ajo

r g

rou

ps

Cu

ltu

re•

Leg

acy

of s

tro

ng

sta

te a

nd

wea

k lo

cal

gov

ern

men

t: s

up

ervi

sio

n a

nd

del

egat

ed m

anag

emen

t

•Fa

vou

rin

g la

rge

gro

ups

, wit

h a

mo

no

po

ly o

r o

ligo

po

ly s

tru

ctu

re. A

ccep

tan

ce o

f ‘r

easo

nab

le’ p

rofi

t. •

Firm

s’ f

reed

om

of

acti

on

; im

po

rtan

ce o

f en

gin

eers

•S

elf-

reg

ula

ted

co

nse

nsu

al s

yste

m (

mer

ger

of

ind

ust

rial

an

d s

tate

elit

es),

reg

ula

tio

n b

y ‘c

hec

ks a

nd

bal

ance

s’

•G

rad

ual

ch

ang

e. M

ore

imp

ort

ance

acc

ord

ed t

o s

pec

ific

, in

crem

enta

l mo

der

niz

atio

ns

than

to

ch

ang

es in

inst

itu

tio

nal

fra

mew

ork



Another difference from the English model relates to the way in which all this isimplemented and regulated. The contract is at the heart of the relationship between theorganizing authority and the firm. But it is not a complete contract. Since its inception,concession has relied (although it does not say so) on a principle of incomplete contracts,balanced by a duty to achieve a given result: the groups have great freedom to conducttheir policies, but are required to take decisions that make the system work.

To make it possible for markets to function, it has been necessary to perfect othertechniques, such as operator autonomy or measurement of consumption using a scaleof prices to achieve a properly balanced financial position. Firms have always workedon a sectoral basis: the model does not rely on cross-subsidy between sectors, as inGermany. Establishing legal, accounting and financial autonomy very soon enabled thecalculation and measurement of real costs to be introduced.

Finally, the main actors of this model are elected officials and engineers, which meansthat it is motivated by real issues, not by quarterly financial results or performancemeasured by a regulator and by rating agencies. This establishes another difference fromthe English model and a similarity to the German.

Revealing crises and crashesThe above account has not covered every detail of what these models are, how theydiffer, or how they depend on collective beliefs that are not spontaneous. The collectivementalities that justify policy principles are the most difficult aspects to grasp, sincethey are part of an unconscious process, so internalized that it becomes invisible —unless external challenges force the actors to produce justifying discourses andbehaviours. One method of bringing these factors to light may therefore be to exploresome threatening situations. Tracking infrastructure issues throughout the 1990s hasallowed us to pinpoint some of these moments.

The virtues of the marketIn England, when the privatizations of the water and electricity sectors took place inDecember 1989 and 1990, everything seemed to be regulated. The economists hadimagined a coherent system, well-controlled, with many justifications: only progresscould flow from it, to the benefit of all — users, taxpayers, the country, firms. This isnot the place to draw up a balance sheet of these reforms: we would simply like tohighlight two rough patches and look at what is revealed by the way they were handled.

Having always been managed by public bodies, water services passed into the marketsphere. What happened? And how was this new idea accepted by politicians and thegeneral public? This reform came at the end of the Thatcher governments’ cycle ofderegulations, and aroused no major opposition. Initially, all went well, matching theforecasts. Firms got involved in investment programmes and conducted diversificationpolicies, evidence of their expected dynamism.

The first alarm signals came with disconnections for outstanding payments. Theserocketed in 1991/2, reaching 21,300, as against an average of 8,000 in earlier years(Ofwat, cited in Ernst, 1994). Then came announcements of very high profits andmanagers’ pay rises, while firms were reducing their workforce numbers to maintaintheir productivity. A shift in public opinion came in the summer of 1995, when a droughtsituation led to water being cut off. Some regions, such as West Yorkshire, wereparticularly affected (Bakker, 1998). This crisis was especially important because itbrought to light a dysfunction of the reform: the enormous power of the firms.

However, if we look at the responses that were implemented and at the possibleresponses that were not, the crisis goes a long way to revealing established concepts.By awarding huge regional monopolies to enterprises that owned assets and heldoperating licences, the reformers placed the whole sector under a dual tension: (1) theenormous power of firms that have a 25-year licence ahead of them, with a monopoly



over vast territories;28 (2) the need to generate returns on investments commensuratewith the assets purchased. Yet there was no challenge or criticism on any of these points.One could imagine solutions that reintroduced elected local officials into the cycle as acounterweight; the option was also open to the cities to set up their own systems.29 Yetnone of this was done, which demonstrates that, on the contrary, all the actors sharedthe implicit idea of the functional optimum. These two services, organized at a locallevel throughout the rest of the world, here remained at the regional level — becausethis was considered the best one for managing the water cycle.

The first response was to stiffen regulation and, in late 1999, this led to the FinalDeterminations (Ofwat, 1999) — but within an unchanged framework. This providedevidence of the belief that managing water primarily means managing a technical cycle,while others see it as part of urban government. There is a real difference in the waythe line is drawn between a technical concept (managing) and a political concept(governing).

The second response was to strengthen competition mechanisms. In the late 1990s,economists and Ofwat teams worked on the idea of third-party access to the network(or ‘common carriage’). According to them, the difficulties encountered in the watersector (rising prices, high profits) arose from a lack of competition. Competition hadbeen introduced into telecommunications, electricity, waste disposal and urbantransport: the water and sewage sectors were resisting this, forming ‘the ultimate utility’.This debate is very interesting, since it reveals one of the intellectual horizons of theintelligentsia and the political class. Basically, the aim of these reforms was to deal withall these sectors as if they were supplying ordinary goods, simply regulated in order tomaintain their universal service obligations. Historically, they had been categorized asutilities (public services): in future, they would be viewed as commodities.

When challenged, the model did not change: it adapted to follow its natural line,strengthening its essential principles. In other countries, the response would have tendedtowards the idea of a diminishing role for firms, towards the reintroduction of thepolitical, and towards a debate on public services, highlighting the fact that they occupya particular space between state and market. In the very sensitive areas relating to themanagement of water, the spontaneous response at the time clearly favoured technology(managing the water cycle) and market (strengthening competition).

There is another point that may astonish the outside observer: the way the matter ofnational interests was treated. This was taken into consideration at the time ofprivatization, through the ‘golden share’ technique, which fixed shareholdings for aperiod of five years. England thus protected itself from the predictable entry of large,powerful foreign groups into the sectors it was opening up. But at the end of five years,the system became fully open. The American electricity companies very quickly arrivedon the scene, followed by Scottish Power, then EDF, then the German groups (Finonand Serrato, 2000; Electricity Association, 2001). In the water sector, movement wasslower, but just as great. Welsh Water and North West Water diversified into electricity.Lyonnaise des Eaux (Ondeo) acquired Northumbrian in the North-East. The two otherFrench groups already had a presence in the statutory water companies. Scottish Powerreturned to the sector (through Southern) before leaving again (2002). WasteManagement, the American waste giant, approached Wessex Water before withdrawingto give way to Enron (the American gas company), which in turn withdrew in 2002in favour of a Malaysian group (YTL). In September 2000, the leading watergroup, Thames Water, accepted a friendly takeover bid from RWE. We have painted a

28 Thames Water and Lyonnaise des Eaux France each serve the same number of people in their homecountry: 12 million. In the first case, this is the result of a single monopoly position in one region. Inthe second , the same figure represents the sum of hundreds of different contracts located all overFrance (without ownership of the fixed assets). Thus, the real market power of the two firms is notthe same, which explains differences in modes of regulation.

29 If we take the view that these local networks are very rarely integrated into a large regional-leveltechnical system providing production or transport, then the idea becomes technically possible.



similar picture for urban transport and for waste removal, and we could addtelecommunications.

The English infrastructures industry is characterized by two traits: the strong presenceof foreign groups and an instability of supply. Yet overall reactions to these two pointshave been weak — no reaction to the American electricity companies, and a tactfulsilence at the time of the highly symbolic purchase of Thames Water. In order to grasphow this type of behaviour provides evidence of deep-seated collective mentalities, wemust compare like with like: that is, we must examine how the same issue was handledin another country.

Industrial independenceThe French model of urban services offers two examples of this. In 1992, it found itselfunder threat from the entrance of Waste Management into the waste sector. TheAmerican giant, with its 8.7 billion dollar turnover, largely dominates its rivals, sinceits activities represent more than ten times theirs: its arrival was worrying. The modelreacted at all levels: vigilant watch was placed on SMEs that could have been temptedto sell up at a good price, and elected representatives and public authorities were lobbied,presenting the new entrant in the least favourable light. The work of a California DistrictAttorney who had reported that Waste Management had links with the Mafia was widelypublicized in France; the group’s convictions for infractions of environmental legislationwere loudly relayed by the press. The system responded in every possible way.

A similar problem was posed ten years later. This time, the stakes were on a differentscale. In Spring 2002, Vivendi Universal announced that, in order to reduce its debt, itintended to reduce substantially its 63% participation in Vivendi Environnement. Firstof all, this represented a considerable strategic change, given that the whole entity hadbeen constructed from the legacy of the Compagnie Générale des Eaux — a legacy thatwas still clearly evident, since it was valued at 24 billion Euros compared to 20 billionfor the whole telecoms and media branch. Then, who might acquire the 23–30% of thecapital concerned? Candidates could be counted on the fingers of one hand. The onlygroups with a strategic interest and the financial capacity were the two large Germanelectricity companies and Suez.30 The French establishment was immediately up inarms.31 The chair of the Association des Maires de France [French Mayors’ Association]intervened, recalling that the group’s value related very largely to the contracts that ithad made with the French municipalities and that, at the time, these contracts had beennegotiated with the Compagnie Générale des Eaux, a part of the national landscape. Anyrescue bid for the company ‘would oblige the mayors under law to review their leasingcontract’ (Delevoye, in Le Monde 4 April 2002: 20–21). This was hardly a veiled threat:today’s value will not necessarily be tomorrow’s. Buying a company on the stock marketconfers neither ownership of the assets (in the case of leasing, these belong to the localauthorities) nor a guarantee of operator status.

In France, therefore, these questions concerning foreign ownership are judged to besufficiently strategic that they lead to a reaction. They trace the outlines of a collectivementality opposed, point by point, to that of the English model. The Mayors’Association’s reaction shows that these issues are viewed as an integral part of thegovernment of cities. Of course, cities delegate, but they maintain ultimate control. So,we have clearly found two ways of perceiving a sector: one that inclines to the side oflocal government (a political component) and another that leans towards the technicalside of the water cycle and to markets (a commodity approach).

Perhaps this term commodity and this issue of degree of integration into the marketbring us closest to pinpointing the biggest difference between the two models. All the

30 Suez — the other large group in the sector — could not really be envisaged, since this merger wouldhave led to a super-concentration that would undermine the legitimacy of the whole system byconcentrating too much power. At a time when this ‘model’ was being challenged for its lack ofcompetition and of transparency, a similar alteration to the supply would present many risks.

31 See inter alia two pages in Le Monde (4 April 2002: 20–21).



literature on these subjects in France has constantly affirmed that public services are nottotally within the remit of the market, but are a material expression of the social bond(Stoffaës, 1995; Bergougnoux, 2000; Martinand, 2001). On the French side of theChannel, being a member of the same nation — to take up Agulhon’s argument again— seems to mean having the same access to a network and paying an equitable pricefor it. These higher principles are guaranteed by the political force in charge of themarkets.

However, French reactions to ‘foreign’ capital bear the hallmark of a moreinterventionist culture. The way in which political, state and industrial spheres interlockis such that leaving the market alone to decide is not viewed as an option.32 The Frenchare open to the market in this sector, but the break with the political is less distinct thanin England, where there has been no reaction to the purchase of a large part of the publicservices by non-English firms. Perhaps pragmatism based on judgement by results shouldbe perceived as a feature of the English outlook, as the outcome of a long-standingfinancial approach to the issues. The nature of the operator does not really matter: inthe English model, the authorities concentrate on regulation and on the power ofcommand, while in France — like Germany — more importance is accorded to controlof the whole process, and so the idea of entrusting it to a ‘foreigner’ raises questions.

Integration and self-regulationSince the early 1990s, the German ‘strong local public sector’ model has been subjectto two major challenges — first, reunification with the East, then deregulation. Thesewere disruptive crises that placed the model in danger, forcing it to react. Given the costof bringing infrastructures to the same level, reunification could have led to English-style privatization procedures: in its systematic privatizations of East Germanenterprises, the Treuhand could have sold ‘urban assets’, as it did industrial assets(Bafoil, 1996). With deregulation, the threat was more pernicious. Opening up themarket led to the arrival of new entrants and to price competition, with an impact onthe Stadtwerke’s receipts. In the end, both their financial equilibrium and the realm ofpolitico-industrial relations, in which they were used to functioning, were challenged:let us look at this more closely.

Reunification and the challenge of modernizing infrastructures clearly acted as asignal to the large German electricity companies. For instance, RWE, up to then a‘sleeping giant’ living comfortably on its monopoly of electricity generation andtransport in the Rhineland,33 accelerated its growth into electricity and construction inEast Germany. It announced a 5 billion DM investment programme there for the period1990–5 (Financial Times, 7 November 1990); it developed a network of 200 petrolstations; its construction subsidiary (Hochtief) made its presence felt. In 1994, RWEand the two other large electricity companies, Preussen Elektra and Bayernwerk, actedto ensure that the electricity sector in East Germany could not escape them, by acquiring75% of Veag, which held the monopoly of electricity generation and transport. Thesestrong beginnings were consolidated by upstream and downstream operations.Upstream, a subsidiary of RWE bought Laubag, Veag’s supplier. Downstream, itacquired — through the Treuhand process — three electricity distribution companies,in Cottbus, Leipzig and Chemnitz.

The German electricity companies thus managed to reproduce their model ofintegrated enterprise, transmitted locally through distribution companies, even thoughthe price to pay was very high.34 The Germans have held to their industrially

32 In contrast, in his book J6M.com, J.M. Messier develops his credo in favour of markets and ofenterprise, explaining that, at the time of the operations with Vodaphone/Mannesmann and thenSeagram, he conducted his strategies without informing the political authorities.

33 See Financial Times (12 December 1990).34 According to the financial press (Financial Times, 6 July 1994), DM 8 billion was paid for Veag, with

a commitment of DM 40 billion investment; for Laubag, the respective sums were DM 2.1 billion and,over the next 20 years, DM 6 billion.



integrated model: this points up a profound difference from the Anglo-Americanmodel. The latter believes in the virtues of competition, and in order to achieve these,integrated firms must be unbundled, internal exchanges made transparent, cross-subsidies eliminated. Basically, this vision aims for the idea of an atomized market.The English are the heirs of Adam Smith, but they are also merchants. Tradingactivities take precedence over organizing production, just as the market prevails overthe firm. This goes back to a very long tradition that is not merely political and whichclearly influences theoretical debates on the status of the firm: is it just a firm, or is itan autonomous body offering one means of exchange? Here we must, of course, citeCoriat and Weinstein’s overview, Chandler’s work, the contributions of Williamsonand the French Regulationists.

German executives in this area have an entirely different conception of things. They(like French utilities, in fact) take the view that productivity gains may be made by betterorganization within firms, which presupposes control of a good part of the value chain.It also presupposes that this control will be sustained over time in these sectors, wherefixed costs are high and returns on investments are slow. The German executives’horizons are not the short-term ones of quarterly reports: their concept of capitalisminvolves optimization, stability of exchange, compromise between stakeholders. This isright at the opposite pole from ‘good governance’: unbundling, short termism,shareholder value, return on equity. When the large German electricity companies weremerging, the Chairman of Veba (the future E.ON) expressed this whole discrepancy inthe following terms: ‘We are better than fund managers at controlling and developingdifferent businesses . . . We understand more about business. We’re in closer. We followinternational developments. We know the people’ (Atkins, 1999).

This argument expresses a radically different view of who it is that ensuresexchanges: the market (via traders), fund managers or engineers? The Anglo-Americansspontaneously entrust this task to the financiers who manage the money — the mostuniversal means of comparison — while the German model relies on its engineers.

The deregulation of the electricity sector represented the other major crisis for thismodel. For a long time, the electricity companies had been subject to criticism fromindustrialists because prices were on average 30% higher than in other countries.35

Deregulation of the sector, which took place officially in April 1998, was thereforesupported by many actors. Firms adapted very rapidly to the new context, and did sowith a vigour that surprised all observers. RWE-Energie announced a price reduction of20% for private individuals. Preussen Elektra’s prices fell by 60% in 18 months for someindustrial customers (Financial Times, 21 October 1999).

These falls were enormous, and one may wonder how they could have been possible:how did the electricity companies find productivity gains like these in so short a time?The conclusion may be drawn that this partly reflects the monopoly income that thefirms had captured. However, another part of the explanation relates to restructuring(Glachant, 2001).

As has already been outlined, the industry responded to the challenge of openingmarkets with two giant mergers, both announced in October 1999, which created E.ON— operating in the North and Bavaria — and RWE, an integrated enterprise coveringan area from Switzerland to the Netherlands. The other, less immediately obviousresponse was that of better integration with Scandinavia, where, thanks to North Seagas and oil, very cheap electricity is generated. The Scandinavian electricity industry,historically fragmented between numerous small local producers and municipalities,was restructured around a regional leader, Vattenfall, a company with public capital thathas a presence in the countries of the region. The large German groups startedcooperating with this group, first in Hamburg and then, especially, in Berlin. Getting

35 In the report that he produced for the Commissariat du Plan, Jean Michel Glachant gives a greatdeal of data, including the following half-yearly averages for industrial customers, expressed in Ecu/100 kwh: Germany 8.3, France 5.8, Belgium and Italy 6.7, Sweden 3.2, Norway 3.



into Berlin through the control of Bewag enabled them to command the restructuringof the East German network (around Veag).

One of the conditions for BundesKartellamt approval of mergers was that the twonew entities should sell off assets in order to preserve the oligopolistic structure of thesystem and to avoid the risk of creating strong, monopolistic positions in many places.The way in which this was done illustrates what ‘competition’ means in the differentmodels. The operation could have centred on an American group, Southern, which hadtaken a share in the Berlin electricity company and made no secret of its ambitions torise further. Veba and RWE, however, preferred the Swedish company Vattenfall, towhich they disposed of their shares in four companies (HEW in Hamburg, Bewag, Veag,Laubag in East Germany) by private sale during 2000. The Swedish group thus becamethe country’s third largest operator (Financial Times, 8 August 2000; 4 May 2001).

The German electricity companies’ moves towards Scandinavia functioned on twolevels. Firstly, they strengthened trade with the Scandinavian pool on their northernborder and made themselves ubiquitous in the integration of this continental area, sincethe Hamburg region’s networks lie very close to those of Denmark and Sweden.Secondly, this industrial alliance, which has all the formal attributes for creatingcompetition, strengthened them in their own model. There is a great deal of similaritybetween the countries of Northern Europe and Germany: a system that combines astrong public sector philosophy with market principles (hence the way the system wasreformed, leading to the rise of Vattenfall), a role for local authorities, integrated firmsand, finally, a concept of exchange relations based on cooperation rather than onconfrontation.

On this point, the German firms felt themselves totally removed from the principlesthat inspired the American firms. Southern quickly took its differences before the courts.At the same period, another firm, Enron, was putting pressure on the EuropeanCommission for a more radical approach to opening up markets. Its criticism related tothe fact that the German model is organized by a small number of integrated enterprises,which own the transport network as well as generating the electricity. The ideal for theAmerican group, which was then developing a trader strategy (Defeuilley, 2001; 2002),would have been totally free access to these transport infrastructures. These pressingdemands justified a response from the Cartels Office, which also helps us to understanddifferences in policy principles:36 ‘Each country has its own historical conditions’.Unlike England, which, before the 1990 reform, had one large nationalized enterprise,the German electricity market (before the mergers) was split between eight regionalcompanies. Unlike other countries, ‘Germany has no regulatory authority that supervisesthe deregulation of the market’. Instead of such an authority, the companies regulateaccess to their network through a code. The Cartels Office believed that, although it hasa specific form of organization, ‘Germany has more competition than many othercountries where generation and transport are actually separate’.

A year later, in May 2001, the controversy was still running, and Enron’s Europeanmanagement continued to express its criticisms of ‘the naughty pupils in the class’.37

What ideal model was the German system being judged against? The measures seemedto be that:

1 Its architecture was not open. A comparison might be England, where firms weredismembered and the market shares of the three historically-established electricityproducers fell from 80% to 37% (Glachant, 2001). Another reference point is Spain,

36 See Financial Times (8 May 2000).37 The statements made say more about this issue than any lengthy theorizing could. Enron’s staff

were so convinced of the superiority of their model that one of them went so far as to say, ‘If I weretheir teacher, I’d make them all [European countries] stay behind after school for extra lessons’(Financial Times, 23 May 2001). Six months later, the landscape was to change abruptly: October2001 saw the onset of the group’s difficulties, which eventually led to its bankruptcy (Defeuilley,2001).



which rejected a merger between Endesa and Iberdrola at the time the Germans wereaccepting a ‘mega merger’;

2 Another criterion was freedom of choice for consumers, and the number who changedtheir supplier;

3 Lastly, the criterion of falling prices.

In these high-stakes confrontations, it can again be clearly seen that, for the Anglo-Americans, the intellectual implications of a high-performance system would includethe creation of an atomized market and generalized competition. German industrialists,on the other hand, would reply by asserting that a fall in prices and serviceimprovements could be obtained by maintaining the architecture of their system:industrial integration, tight relationships with the Stadtwerke and coordinationthroughout the continental area.

The German industrial system resisted, defending its original features against thedemands of the new ‘corporate governance’. There was conflict around architectures(integrated or dismembered), around the siting of power (engineers or traders) andaround internal principles of coordination (coordination or authorization procedures forfree access to transport). The German energy groups adapted while still preserving theiridentity, oligopolistic structure, integrated firms and management power.

Local integration and public managementThe other dimension of this Northern European industrial model relates to the way itis enmeshed with the local political system. The strong local public sector model, likethe French model, must be thought of as having dual industrial and publiccomponents.

The restructuring of the electricity sector also affected the Stadtwerke at the end ofthe chain, which numbered 900, in comparison with the country’s 7,000 or so watercompanies.38 In Autumn 1999, when the Chairman of Veba set out his plan for mergerwith Viag-Bayernwerk, ‘20,000 employees of the publicly-owned electricity enterprisesmarched through the streets of Berlin’ (Le Monde, 29 September 1999). Everyoneclearly understood that there was a risk of problems resulting from falling franchiseincomes and of private sector partners entering the Stadtwerke when they becamecompanies. Some observers took the view that, in a new, open system, the Stadtwerkemight lose 5 billion DM a year, as well as the associated advantages for local electedofficials. This situation was aggravated by the consequences of a slowdown in theeconomy. Since the mid-1990s, German cities had stretched their budgets; so, aselsewhere, local elected officials had an incentive to sell off part of the capital of theirpublic companies.39 Numerous examples show that a change was in progress. In 1995,the City of Bremen, heavily in debt, was the first to move, disposing of 49.9% to aconsortium managed by Veba. In 1993, the Rostock contract had been won byEurawasser, where Lyonnaise des Eaux was the operator. 1997 saw the Cartels Officeapproving the sale of 48.8% of the Berlin electricity company. From then on, themovement seemed to accelerate.

But, from our point of view, the ways in which the model offered resistance are justas significant. In 2000, the Mayor of Hanover had to terminate an operating contract,in the face of mounting opposition from various quarters. More significant still was theprivatization of 49.9% of the Berlin water company, and the precautions surroundingthis. This operation is a strategic one for the industry, since it is one of the major waterenterprises, serving a population of 3.5 million, and has business operations worth 1.3billion DM. It also has a symbolic value for Germany. The authorities finally acceptedthe bid from a consortium formed by RWE (45%), Vivendi (45%) and Allianz (10%).

38 The Stadtwerke relate to big cities and the specialized public enterprises to towns and villages.39 All the more so because trade-in values are high — between 1.2 and 2 times the business’s turnover.

For example, the enhanced value for Düsseldorf in 2001 was announced as being 2 billion marks, ona turnover of 1.2 billion.



However, this design meant that private sector interests remained in the minority; andthe risks that might arise from the entry of a foreign group into the sector werecontained, since Vivendi held only 22.45% (45% of 49.9%). Despite all this, the movewas only made possible by a series of exceptional commitments on the part of thefirms,40 in the face of fierce resistance from the Stadtwerke system and its politicalsupporters.

These supporters mounted a resistance in defence of established interests. They alsolaid out a certain concept of public policy, which has its own logic:

1 Politically, this system for delivering local public services is an element of the welfarestate, so that any privatization policy may be viewed as a challenge to a broader socialprotection model;

2 Financial cross-subsidies between sectors function invisibly but ensure the quality ofthe whole. Privatizations would tend to separate what had been brought together,introducing measurement and calculation;

3 The system is economically justified because it has a better capacity to coordinateinterventions in networks, each of which has its own logic but all of which share thesame urban ground. What is the reality of this? What are the organizational conditionsin which these gains can be made?

ConsequencesDifferent institutional architectures have different consequences for the organization ofmarkets, for industrial supply, for modalities of competition. If we accept that all servicescan be broken down into four different functions — operating, engineering, constructionand manufacturing — each may be treated separately.

The current structuring of the industrial supply for infrastructures in developedcountries results broadly from the way the public authorities have left certain spaces forthe private sector (see Table 4). Where a strong local public sector acts as operator —frequently with integrated engineering41 — we find enterprises that are powerful inworks activities and, especially, in the supply of industrial plant. There are both Germanand Japanese examples of this. The German groups did not originate in the water orwaste sectors: they came from industry, construction and the electricity sector. The UKrelies on a long tradition of independent consultancies, working largely in the exportsector and on major construction firms — Amec, Balfour Beatty, Carillion (ex Tarmac),Bovis Land Lease, Taylor Woodrow — although the privatizations as well as otherreforms, like the PFI, have modified this structure. In France, where the institutions haveallowed firms to come in as operators and then to diversify into engineering andconstruction, we do not find any very large groups entering in this way; on the contrary,large concerns are less numerous in industry and independent consulting.42

In the long term, therefore, the space occupied by local public authorities hasdelimited the possible development of the private sector. Current strengths andweaknesses reflect certain major choices made in the past. Therefore, although it is trueto say that French urban services groups are powerful and that they have a uniqueposition in the world, this results primarily from their service operator function. Theirpower with regard to the other functions is less evident and, for the purely industrialaspect, far from total. The same goes for independent consulting. However, it can beargued that the origins of patents and of the plant purchased are as strategically important

40 See Les Echos (5 July 1999).41 The Munich Stadtwerk has a turnover of 2.5 billion DM and employs about 10,000 people (cited in

Reidenbach, 1997).42 There are exceptions, however: Saint-Gobain and Bonna for cement pipes, Alstom for railway equip-

ment and turbines.



as the operator’s nationality, since they relate to industrial independence and can affectthe balance of trade. These analyses show that it is as important to track the policies ofindustrial groups — ABB, Hitachi, Kawasaki Heavy Industry, Mitsubishi, Siemens,General Electric — as the policies of the operators.

Such reasoning leads us towards another view of the strengths and weaknesses ofurban services in each developed country and of the ways they tackle export questions.Let us examine the consequences of a commercial transaction, according to which ofthe four areas it falls into.

1 The sale of an industrial plant is a credit for the exporting country’s balance of tradeand, if related production is carried out in the country, an operation that generatesjobs domestically;

2 A contract for works abroad is a credit for the balance of trade but has less effect onemployment, since markets often expect that the purchasing country will take a shareof that;

3 The same is more or less true for consulting.

In these three cases, the vendor’s relationship with the host country is discontinuousover time — the period of a contract, the timing of a delivery, or the time taken tocomplete the works — and the economic transaction has only a very slight impact onthe political culture of the host country. The sale of pumps, pipes, buses or incineratorsis independent of any national political debate on the reform of institutions that wouldallow the smooth running of an outsourcing contract in the long term.43

Operating a service in a foreign country functions within another logic. This kind ofactivity produces weak effects on employment at home and on the balance of trade;profits are expressed in financial transactions that impact on the balance of payments.Vertical integration of the operation of an urban service may lead to repercussions forconsultancies or for construction companies within a group; but it can also be restrictedto the sole function of operator, as a result of the political culture of the host country.Above all, approaching markets from an operating base implies roots and long-termcommitment; therefore, the quality of the institutions cannot fail to be a matter of interest.

This way of reading the situation certainly explains some of the confrontationsbetween firms on the markets. The Anglo-Americans often tackle the development ofurban infrastructure from their consulting base: they recommend internationalinvitations to tender, division into separate lots, complete contracts, then monitoring andregulation. The French think they can make negotiated offers, that a good solution is toreform the whole technical system and, finally, that contracts cannot provide foreverything. Complete and incomplete contracts represent two salient areas where there

43 Buying certain very visible equipment can frequently reactivate political passions. In 1978, thepurchase of Mercedes buses by the Socialist-run Town Hall of Brest sparked vigorous demonstra-tions by the CGT (Confédération Générale du Travail), claiming to defend French workers’ jobs atRenault.

Table 4 Positioning of sub-markets in different countries

Germany UK France

(1) Service operator Municipal enterprises Depends on the sector 75% private sector

(2) Engineering, consulting Integrated with (1) or (4) ++++ Integrated with (1)

(3) Works enterprise ++ ++ +++

(4) Industrial, plant or equipment

++++ ++ +



is real competition between different views of the issues. Some people think that a goodanalysis and a good contract will launch an operation.44 For the French, the contract isonly a stage: it cannot provide for everything and, in particular, for anything not coveredby contracts (devaluation, political crisis, slump). The main problem is to bring it to lifewhile perfecting adjustment mechanisms. To express this simply, we could say thatsome view their activities as ballistic (if we calculate the details right, we’llautomatically get results), while others see them as interactive — having set ourobjectives and obligations, we’ll have to recalculate the trajectory depending on theconditions we encounter.

Nor are these models identical in regard to their effects on urban government, ondemocracy and on the construction of a local public space. The choice of a mode ofurban service delivery relates not only to technical operation: it is one of the choicesthat organize the local political space. We could maintain that there is a link betweenthe existence of dynamic, active local government, adaptable over a long period, andthe material base that serves to support it. A politician’s knowledge of his city and hiscapacity to respond to situations depend on the boundaries of his direct powers.Reducing local government deprives it of some of its basis for legitimacy — as in theexample of the English model. Therefore, the growing autonomy of the private sectorhas a limit in principle.

For example, what was the nub of the responsibilities of elected representatives in amunicipality of 41,000 inhabitants in the suburbs of Los Angeles that employed 60agents and made 60 contracts with specialist businesses?45 Where contracting-out hasled to such butchery, what remains of the idea of local public policy? We can look tothe good health of the German political system, resting on a broad, permanent base, incontrast to the current crisis in English local government, where local politicians haveseen their room for intervention shrink away.

If the distinguishing feature of local politicians is to act as integrators, then uprootingthem from specific responsibility for production will automatically push them towardsthe joys of politics for its own sake. Of course, it is all a matter of degree, but it is wellunderstood that somewhere there is a point of balance between what one does and whatone has done by others. Having too little to do may lead to loss of competence in regardto the issues, while having too much to do directly may cause a loss of direction —management is substituted for the political. This may be one of the risks of the ‘stronglocal public sector’ model. An interesting compromise might be well-implementeddelegated management.

The challenges of defining perimeters for the intervention of local authorities alsoapply to certain ways of carrying out policy. Must politicians be networkers or brokers,who delegate, or political entrepreneurs, who create and then are faithful to a situationthrough production? The networker and public entrepreneur are the two figures aroundwhom public policy is organized. The first corresponds to the French historical traditionof the notable, or influential local figure, of the courtier, of the broker — as theAmericans would say.46 The second figure gets involved in acting on things, not just onprinciples: this is the outlook in Germany, as it was in Britain before the second worldwar.

44 An account of these issues can be found in Lorrain (1999). For the ‘complete vision’, see a recenttool kit, Managing and Hiring Consultants, put together by the World Bank teams for emergingcountries; it is very well done, but presupposes a world where the institutions are those of the UnitedStates (www.ppiaf.org).

45 According to a survey of French cities we did in 1985, the number of local civil servants as aproportion of the population of the city was around 2%. For suburban municipalities with fewerfacilities, it is a little lower (in the order of 1.4%), which means that a municipality with a populationof 41,000 would employ, on average, 574 officials. The difference is obvious.

46 See Thodore Lowi’s work on the American political machine (1969) and also the classic work byBanfield and Wilson (1966).



But this second approach relies on a distinction between high politics and ordinarypolitics. The first operates in Parliament, and relates to diplomacy, defence and financialpolicy. The second relates to everyday management. This separation — although it maybe possible for other countries — is not possible for the French. Politics is everywhere— perhaps this is a feature of the French identity: love of the word and of rhetoric,boredom with the daily round. Politicians cannot escape the attraction of politics. Theygo on being networkers, perhaps because their compatriots collectively need tragedy,drama, words and seduction in order to manage relations with the other. ‘Surprise me!’says the public to its politicians. This obviously tends to discredit ordinary politics: onecannot but acknowledge that it is difficult to produce the expected thrill by presentingthe latest plan for rubbish collection.

ConclusionBasically, two ideas have structured our analysis: political ideas and theoreticalpositioning.

On the political side, the present is marked by past European debates and byinstitutional choices made since the nineteenth century. The numerous examples that wehave given show that, after their roads divided, each has followed an authentic ‘pathdependency’. This idea of the long-term impact of the original institutional frameworkmakes sense today in the emerging countries, where very often a local political spacehas yet to be constructed, and where a clear distinction between public and privateinterests is not always guaranteed (Le Galès and Lorrain, 2003). This construction iscertainly taking place through tackling questions that have been the subject of debatesfor a long time in Europe and have therefore become less burning in nature. Are urbanservices pure public goods, financed by taxes, free at the point of use and accessible toeveryone, like roads and schools? Or are they commodities whose consumption andproduction costs are measured, and which are sold to customers? Is there a rightcompromise between these two extremes? What should a ‘good’ territorial level oforganization for these services be: states, regions, areas, municipalities, etc.? What typeof operator should be used: public, mixed or private? What pricing policy should beadopted, and how should the principle of equality of citizens before public services beimplemented? Resolving these questions is no slight matter. Maurice Agulhon’s workson late nineteenth century France have clarified perfectly the role of local affairs inextending the idea of democracy: cities were a site of learning (Agulhon, 1988). Urbandemocracy naturally depends on political means of exercising universal suffrage, but itis also implemented through institutions for managing cities. This long-term linkagebetween urban institutions and political democracy should be ever-present in the mindsof those responsible for international institutions involved in emerging countries. Thisis a major issue: the choices made often determine long-term commitments. Nor canthe management of urban services be reduced to a single equation that can be optimizedat sectoral level. From this point of view, the three models under study offer somecontrasts.

On the theoretical front, the message is that analyses of local government must bereleased from drifting towards particular disciplines and sectors — the delights oflocalism. Models of government include the political, the state, markets, firms. Thinkingabout them means mobilizing history, industrial economics, political sciences andinstitutional economics, and this complexity is the price to be paid for being able tointroduce meaning and real comparison. For 20 years — that is, over the period of thedecentralizing reforms in France — too much of the literature has merely told us thatdirected public policy results only in specific, contingent contracts and that it is verydifficult to generalize. This analysis can be challenged on two counts (Lorrain 2001a).Firstly, contracts did not begin when decentralization came in. Rather, they prepared forit: the French model of urban services provides an illustration of this, as do the



modernization programmes of the 1970s. In fact, we have been living against a backdropof ideas that has changed little in 30 years: the heirs of the notables and those observingthem have simply taken up and amplified what state reformers had invented well before.Secondly, although things seem really complicated at first sight, this does not mean thatthey are not organized around certain regular features, as this international comparisonhas shown. Thinking about this makes it necessary to move away from a strictly limitedview of local government, to create articulations between this analysis, the state andfirms, and to situate that thinking within much bigger units, corresponding to certainhistorical configurations of capitalism. By doing this, it is possible to reveal regularfeatures and to show how the scope of local government encompasses activities withdirect industrial and technical dimensions (such as infrastructure activities, constructionor utilities), providing us with a way to understand the different forms of present-daycapitalism.

This article therefore concludes with an invitation to initiate research that would lookat this subject on a comparative international level, situating it empirically andtheoretically at the intellectual intersections we have mentioned. There is certainly afairly urgent need for this, since the world is changing: boundaries are blurring, andobjects, policy principles and policy categories are shifting. In these conditions, it maybe possible to come to a better understanding of what the countries of ‘old’ Europe, theUnited States and Japan have in common and how they differ, as well as of the pathsbeing taken in an immense country like China.

Dominique Lorrain ([email protected]), CEMS, CNRS/EHESS, 54 Boulevard Raspail, 75006 Paris, France.

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Urban Capitalisms

Documents

major models

major market

major differences

european models

urban service

market economy

versions of urban capitalism

forms of urban governmentas