part one: public support for private
control
introduction
In the developing world, 1.2 billion
people live under the poverty line, earning
less than $1 a day. Another 1.3 billion
earn between $1 and $2 a day. 842 million
people around the world are hungry. Natural
resources are being polluted and depleted
faster than they are regenerated, while the
climate is changing dangerously. Indigenous
Peoples are robbed of their cultures and
lands. People are losing their livelihoods
and women are marginalized further.
Something is seriously wrong with the
global economic system.
Something is therefore also seriously
wrong with the international financial
institutions, who are supposed to ensure
poverty alleviation and sustainable
development. With their help, the world’s
poorest countries were supposed to get out
of a downward cycle of increasing poverty
and servicing the never-diminishing
external debt. But because of their “help”,
these countries continue to service an
unsustainable debt at the expense of people
and the environment.
The World Bank and the International
Monetary Fund have designed a set of
doctrines, called the Washington Consensus,
which are marketoriented reforms aimed at
attracting private capital back to
countries crippled by the unsustainable
debt burden. The policy package was
originally designed for Latin America after
the debt crisis of the 80s, conditioning
IFI (International Financial Institution)
loans for debt service on 10 policy
requirements including fiscal discipline,
deregulation, privatization, and trade
liberalization. Regional banks like the
Asian Development Bank and the
Interamerican Development Bank were quick
to adopt the same recipe. In 1995, the
World Trade Organization was added to the
mix of institutions established to promote
trade liberalization and “free” trade.
Throughout the last two decades, these
institutions have imposed the same set of
economic reform policies or “market
fundamentalism” on developing countries
around the world. Unfortunately, people
living in hunger are still waiting for
these measures to deliver the economic
opportunities that would lift them out of
poverty. Overall, the neo-liberal economic
reforms have not led to economic growth,
let alone sustainable development. Trade
liberalization has not benefited the
poorest countries, but rather served the
interests of the industrialized
countries.
The biggest winners of the neo-liberal
economic agenda have been the transnational
companies. Due to the ongoing process of
economic globalisation, corporations have
been increasingly active on a global scale.
Industrial sectors, including the service
industries, have been relocating from the
North to the South. Markets in developing
countries have become more interesting for
multinational companies. But most
importantly, trade liberalization policies
combined with the pressure to privatize has
given private companies ever more access to
natural resources which used to be under
public control.
In 2002, at the UN conference on Finance
for Development in Monterrey, Mexico, the
World Business Council on Sustainable
Development succeeded in securing further
consolidation of the private investment
agenda. The UN conference was supposed to
be a broad public discussion about how to
achieve more coherence between trade and
finance policies. The hope was that the
debate would address policy inconsistencies
and result in a shift away from socially
and environmentally unsustainable
development policies. This did not happen.
Instead, governments deferred their
responsibilities and agreed to put the
‘trade-finance coherence’ process in the
neoliberal hands of the WTO, the World Bank
and the IMF.
This publication documents 34 cases
describing what happens when this agenda is
pushed through and the public sector leaves
the exploitation and management of natural
resources to the private sector. The
publication focuses on the privatization of
water and biodiversity. By highlighting
local experiences, we aim to raise
awareness of the impacts of privatization
on the resources that all of us, our
children and generations of children to
come need to be able to survive.
imposing privatization
Privatization is defined as the process
of handing over (parts of) the management
or operation of a public good or service to
a private company. Privatization is
inherent to liberalization, which is the
process of decreasing government control
and boosting the role of market forces.
Breaking government monopolies implies that
private companies can compete which
supposedly will lead to cheaper products
and better services.
Throughout the past decade, governments
have privatized publicly owned assets. They
have done this on their own accord or were
forced to do so because of structural
adjustment programmes. These programmes
were imposed as loan conditions by the
international financial institutions
(IFIs). They entail a set of strict
economic policy conditionalities, including
trade liberalization and privatization
requirements. These policy loans are
supported with public funding.
The aim of the conditionality
requirements is to increase production for
export and attract foreign direct
investment. For many of the least developed
countries, the loan conditions go further,
prescribing that the most effective
short-term strategy to bring in cash is to
sell off publicly owned assets such as
water and forest resources to foreign owned
corporations. To facilitate this process,
IFIs impose investment climate reforms.
These include relaxing national
environmental and social laws, offering tax
breaks, developing infrastructure,
low-interest loans or other incentives in
the hope that companies will set up shop in
their country. As a result, private
investment in the natural resources sector
has boomed in many poor countries while the
ability of national governments to regulate
these investments and protect their
citizens’ access to natural resources has
been greatly diminished. The neoliberal
doctrine seriously undermines democratic
processes around the world.
There is no empirical evidence proving
that foreign direct investment leads to
sustainable and equitable development. The
UN Development Programme’s report, Making
Global Trade Work for People (2003), found
that there is “no clear correlation between
the volume of foreign direct investment and
development success.” A growing portion of
foreign investments do not represent new
and constructive investment in the real
economies of developing countries. Instead,
they are acquisitions of already existing
public and private entities, including
public service providers.
Over the years IFIs have adopted
policies and provisions that are supposed
to ensure meaningful consultation with
people that are to be affected by their
programs and projects. However, while the
privatization of natural resources has a
direct effect on local communities, they
are rarely meaningfully consulted in these
processes. Privatization processes have
generally been pushed through without the
free, prior and informed consent of local
communities.
privatization and the world trade
organization
The World Trade Organisation (WTO) is at
the heart of the current corporate effort
to commodify and privatize water and
biodiversity. Its rules have actual and
potential impacts for a bewildering array
of natural resources, even life itself. WTO
negotiations on intellectual property
rights, services, ‘non-agricultural market
access’ and global environmental rules are
key culprits.
The purpose of the WTO is twofold – to
provide rules governing international
trade, and to open up markets. The welfare
and wishes of transnational corporations,
as the main agents of international trade,
are high on the list of trade negotiators’
concerns. Other issues, such as the
conservation of biodiversity and people’s
right to resources, are of considerably
less interest and trade negotiators may
ignore or even reject them if conflicts
with trade rules arise.
privatizing water and trees
The WTO’s General Agreement on Trade in
Services (GATS), established during the
last round of negotiations, which concluded
in 1994, is now being extended and revised,
bringing many environmentally-sensitive
service sectors into the WTO for the first
time.
Sectors up for negotiation include
energy and water services, tourism,
transport, landscape management and waste
disposal. The impact on biodiversity is
likely to be significant. For example, new
governmental constraints on the number and
size of oil pipelines, the development of
tourist facilities, or the uptake of water
from rivers and lakes could be prohibited.
GATS could also force through the
privatization of public services, including
water provision and park and landscape
management, whenever any competition
between the private and public sector
already exists.
Perhaps the most important feature of
GATS is that it is almost irreversible.
Indeed, it is specifically designed to lock
countries into agreements, creating a
‘stable’ and ‘predictable’ commercial
environment for foreign investors. However,
the downside is that mistakes cannot be
rectified at a later date. Furthermore, no
new environmental or social welfare
measures can be introduced. If the GATS
negotiations had already been finalized,
for example, Bolivian citizens would almost
certainly be living with the privatized
provision of water despite their success in
defeating the proposal. [
See case study: Bolivia
privatization and social unrest
].
One of the hallmarks of GATS is a very
clear North-South divide. Rich Northern
countries are seeking commercial access to
a wide range of service sectors in the
South. The EU, for example, has requested
the opening of water and
biodiversity-related services in over 70
primarily developing countries. Although
markets have to be opened equally to all
WTO members, Europe will still be the main
beneficiary if any deals are struck,
because these could be hugely profitable
for European water companies such as RWE,
Suez, Thames Water and Veolia Environnement
(previously Vivendi Environnement).
The European Union’s secret GATS
negotiating documents show the breadth and
depth of market-opening that the
industrialized nations are after. The EU’s
request to Malaysia, for example, includes
market opening and the granting of national
treatment (meaning that foreign companies
must be treated at least as well as
domestic ones) in telecommunications,
construction, distribution, environmental
services, tourism and travel, news
agencies, transport and energy.
privatizing biodiversity and
landscape
A country’s biodiversity resources and
its natural landscape are public assets
that the state should hold in trust for its
people. The main reason for preserving
biodiversity and protecting landscape is to
maintain and preserve critical ecological
functions, including the regulation of
climate, the preservation of genetic
diversity, the protection of water
resources and the prevention of flooding
and soil conservation. Indeed, the
conservation of biological diversity and
ecosystems is an absolute prerequisite for
sustainable development. The fact that GATS
could force through the privatization of
biodiversity resource management is
therefore deeply worrying, since it
increases the risk that critical
sustainability objectives may be
compromised in the interests of
commerce.
As if that wasn’t enough, currentWTO
negotiations on ‘non-agricultural market
access’ (NAMA) also have the potential to
have a negative impact on biodiversity.
This set of talks includes absolutely
anything that isn’t a service or an
agricultural product. Key sectors that are
being targeted for immediate liberalization
include fish and fish products, gems and
minerals. Environmental measures designed
to protect biodiversity are also under the
WTO’s NAMA spotlight. Packaging, marketing
and labelling requirements, on both wood
and fish products for example, have already
been listed for further discussion.
Member states have also given the WTO
the power to look at the relationship
between trade rules and specific trade
measures used in various multilateral
environmental agreements. The agreements in
question include two of critical importance
to biodiversity - the Convention on
International Trade in Endangered Species
and the Cartagena Protocol on Biosafety,
which regulates trade in genetically
modified organisms.
Worryingly, the same governments have
resolutely ignored calls to move this
debate to the UN, even though (or perhaps
because) this could mean that the WTO is
allowed to define what trade measures – if
any – may be used in other international
agreements. Ultimately, the WTO could even
be empowered to make sure that national
governments do not overstep the mark when
implementing MEAs (Multilateral
Environmental Agreements), limiting the
domestic use of trade measures meant to
protect the environment and public
health.
and the big winners are …
The big winners of the yard sale of
publicly owned natural resources are the
transnational companies. Water companies,
tourist industries, logging companies and
oil and mining companies will all benefit
to a major extent from the privatization
and commodification of public assets like
water and biodiversity. New and proposed
international regimes that resulted from
corporate lobby efforts, such as the
inclusion of carbon sequestration
activities in the Kyoto Protocol and the
proposed regime on benefit sharing of
genetic resources, are turning natural
resources like forests and genes into
highly profitable corporate assets. Due to
the pressure of corporate lobby groups in
Brussels, Washington DC and other capitals,
trade and investment liberalization rules
are consistently being shaped around the
interests of transnational companies,
consolidating their global expansion and
removing remaining obstacles. Corporations
are a dominant player in the global
economy, but because of their structure,
size and power they fall largely outside
democratic mechanisms of global governance.
FoEI and other NGOs have documented the
influence of corporate lobby groups such as
the International Chamber of Commerce or
the Biotechnology Industry Organization on
the WTO secretariat and key governments,
promoting trade rules that protect and
advance their interests. In our publication
“Business Rules, Who Pays the Price” (FoEI,
2003) we have documented the influence of
powerful industries on the WTO rules and UN
Treaties and the result of their actions on
local communities. The case studies include
Monsanto and the American Farm Bureau
pressuring the US government to force
Genetically Modified Organisms onto a
hostile European consumer market through
the WTO. Other documented examples of
corporate power are the efforts of Exxon
Mobil to undermine the United Nations
Framework Convention on Climate Change and
the role of the pharmaceutical sector on
the TRIPS (Trade Related Aspects of
Intellectual Property rights) agreement,
blocking the distribution of cheap
‘generic’ drugs.
Corporations win as they are the ones
who are regarded as the most cost-effective
and efficient providers of ‘eco-services’.
Unfortunately for people, corporations do
not have poverty reduction, sustainable
development or the delivery of key
resources to all people as their main aim.
Corporations have no official role in
ensuring that people’s rights to water or a
clean environment are met, but rather aim
to comply with shareholder requirements for
strong economic performance and
maximisation of profits. However,
institutions that do have a mandate to
reduce poverty such as the World Bank are
still calling on corporations to manage and
distribute water or manage carbon
sequestration projects.
why is privatization happening so
much?
Governments acquiesce for different
reasons. Some are ideological, some are
self-serving and some are practical.
Practical reasons include the fact that
governments are faced with problems which
they must pay for from the taxes they
raise. Privatization offers the lure of
taking some problems off government hands
and, often, at the same time providing a
sum of money. This selling off of the
family silver lets governments give the
impression that problems have been dealt
with or are, at least, now blameable on
someone else whilst at the same time
allowing them to exact less taxes.
Proponents of privatization claim that
private corporations are so much more
efficient than state run corporations that
they can take control of a resource, fix
all the problems the state
corporation/government has failed to
address and amazingly make a healthy profit
on top. The profits they create will then
trickle down to the poor. A win-win
situation as the story goes. And if this
doesn’t sway governments there are always
the tactics of financial institutions like
the World Bank and the International
Monetary Fund who will often only permit
loans to a developing country if that
country allows privatization of its assets
by foreign corporations. In addition,
countries may only “enjoy the benefits of
free trade” pursuant to the World Trade
Organisation if they agree, among other
things, to accept and protect a range of
intellectual property rights including
those over their own nature.
But what of ordinary people? Do they
benefit from privatization? There are
clearly losers: Indigenous People who are
prevented from living in their homelands
because the land has been sold to be
protected as a park and the new owners
believe those people would damage the park;
the person living on a dollar a day who
traditionally lived adequately on self
grown food and free water now struggles to
pay a company for privatised water to
substitute for river water polluted by
other industrial activities or well water
which is no longer available because the
well source belongs to the company; the
farmer in India who has developed and grown
basmati rice for generations is now
prohibited from retaining seed from season
to season because it has been patented by a
western company; children who will be born
into a world where they cannot share the
nature around them unless they earn enough
to buy or rent a slice of that bounty.
Are there winners? Financially some
people are better off: for example,
shareholders of the companies concerned.
But even if they are financially better off
are they better off in a broader sense if
they are living in a society where the
increasing gap between rich and poor breeds
jealousy and crime; where people are dying
from diarrhea and cholera because clean
water is no longer affordable; where
corporations get stronger and communities
and governments weaker; where the pursuit
of corporate profit without fair and strong
regulation encourages non-sustainable
activity with all its repercussions for the
environment; where life itself can be owned
and patented?
In short, should our nature be
for sale?
