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Democrat April-May 2005 (Number 87)

Local authority in Britain to be under German administration

From our special correspondents in Germany*

Europe's largest media company, the German firm Bertelsmann AG, is taking over official tasks normally performed by a public authority in Great Britain. From July 2005 a Bertelsmann subsidiary will undertake the majority of public administration of a local authority in Britain. The plan is regarded by the German firm as a "pilot project of strategic importance" for its expansion into a multi billion market.

Across Europe, Bertelsmann aims to expand within the framework of the so-called "Public-Private-Partnership" into areas which are presently under the control of nation states and to carry out activities which are normally reserved for publicly responsible local authorities. Great Britain is also a target of Bertelsmann's expansion in print media. By a joint venture enterprise with two other German media firms in the construction of new large-scale printing facilities abroad, Bertelsman is aiming to gain market leadership in European newspaper printing.

From July the German firm Arvato AG, a totally owned subsidiary of Bertelsmann AG, will take over the majority of the administration of a local authority, the East Riding of Yorkshire, which has around 350,000 inhabitants. This is a similar size to a London borough

About five hundred local authority employees will switch to Bertelsmann. So a German firm will be entrusted with carrying out public duties which were previously under the authority of the British state. These include public and statutory duties (such as are carried out by a state, local authority or public corporation) to fulfil requirements under public law. The exercise of these powers of government is normally the preserve of responsible local government officials who have a special duty to the local authority and allegiance to the state.

In a few months Arvato will become responsible for paying wages and social benefits as well as collecting council tax, fees and charges. It will provide a citizens' bureau and the Council's total information technology requirement.

A strategic pilot project

The German conglomerate sees the takeover of administration in the East Riding of Yorkshire as "a pilot project of strategic importance" for expansion into a multi-billion pound market. Arvato AG believes that, in Great Britain alone, the potential market is about 8.7 billion euros (£6 billion) and has already announced the expansion of its activities in public administration in Great Britain. The Arvato board states that it is already in substantive discussions for the takeover of more local administrations. The firm is also planning entry into the public administration market in other European states. The Bertelsmann Foundation, which holds 57.6% of the shares in Bertelsmann AG and is principally financed out of the profits, has been involved for years in advising local government authorities.

According to German law, the Foundation counts as a "public utility" and therefore receives favourable tax treatment. Its articles of association explicitly provide for activities abroad.

World-wide expansion

Arvato AG is one of the most important components of Bertelsmann AG's world-wide activities. After the RTL Group, it is the most important subsidiary in turnover and profitability of the conglomerate. In 2004 Arvato increased its turnover and profits before tax and dividends to 3.756 billion euros and 310 million euros respectively. The firm controls enterprises from printing works to call centres and is increasingly targeting service provision in finance, logistics and out-sourcing.

Through a joint venture with the large German printers Gruner & Jahr and Axel Springer, Arvato plans to become the market leader in European newspaper printing this year. This cooperative venture, to be vetted by the EU Commission at the end of May, would control about 25% of the market.

Within the framework of a world-wide print media offensive, "Growth and Innovation", Bertelsmann is building a 110 million euro plant in Treviglio in Italy and a 170 million Euro printing works in Liverpool. Here Arvato is confronting the British firm Polestar.

A print order from Rupert Murdoch’s News Corporation with an estimated value of 1 billion euros over ten years, will not go to Polestar but to this German competitor.

"Hitler’s best supplier"

The economic rise of Arvato's owner, Bertelsmann, was based on close involvement with Nazism. From 1933 Bertelsmann produced Nazi propaganda.

The firm grew quickly, becoming the largest producer of books for the Wehrmacht, printing over 19 million copies. Bertelsmann could be called "Hitler's best supplier". A TV report on the publisher stated that its literature "imparted strongly anti-semitic, racist, militarist content and National Socialist propaganda". Bertelsmann was from 1933 "an outstanding representative of those who produced such literature".

Through the production of popular Nazi literature Bertelsmann experienced a "profit explosion". The historian Norbert Frei attested to Bertelsmann's "affinity in World-View" and "high readiness to adapt to the economic calculus". The former Managing Director, Heinrich Mohn, supported the SS financially from 1921as a "subscribing patron member". He gave around 15,000 Reichsmarks. For some few years the firm strove to work up its acquaintance with the Nazi leadership and gain attention.

America as well

This must be seen in connection with its attempts then to expand into the American market, where Bertelsmann attracted unfavourable reports in the US media. A press report of 2000 commented "Bertelsmann's expansion in the USA, which presently accounts for one third of its turnover, compels the firm to acknowledge unpleasant facts from times past".

Bertelsmann expects strong growth in all areas of activity during 2005. Group turnover rose by 17 billion Euros during 2004 and the year's surplus rose by more than 1 billion Euros. For the current year the firm has announced several takeovers for which some 1.5 billion Euros are allocated. It is also said that Bertelsmann plans to buy several TV stations in southern and eastern Europe.

* Based on a translation by Edward Spalton