TWN Info Service on Health Issues (December 06/01)

1 December 2006

Developing countries face problems in providing social services

Developing countries face problems in providing universal access to services to their people. This was raised in an expert meeting organised by UNCTAD which examine water, health, education and telecommunication services. The report below summarises the meeting’s discussions.

 It is reproduced with the permission of South-North Development Monitor (SUNS) # 6146, 22 November 2006.

With best wishes
Evelyne Hong

Trade: UNCTAD meeting highlights problems in providing social services

By Riaz K Tayob, Geneva, 21 November 2006

Developing countries face challenges and problems in providing universal access to services to their people, and these were brought up in an expert meeting on "Universal Access to Services" organised by UNCTAD last week.

The meeting comprised panels looking at general issues as well as various sectors, including water, health, education and telecommunication services. It also had a session on the WTO's General Agreement on Trade in Services (GATS).

Among the problems highlighted were the adverse effects of user fees (the imposition of charges and fees to citizens in exchange for public services, introduced in many countries as part of World Bank-IMF programmes), the effects of privitisation of services, and the negative effects of patents and bilateral free trade agreements on access to medicines and health services.

The meeting was opened by Dr. Supachai Panitchpakdi, the Secretary General of UNCTAD, who said that services accounted for about 20% of world trade, and was growing annually at about 10% per annum. He said for many developing countries "it is not just a matter of simply transcribing policies that have succeeded in more developed countries, rather, home-grown policies need to be tailor-made to meet national objectives and needs."

Ms. Lakshmi Puri, Director, International Trade, United Nations Conference on Trade and Development (UNCTAD), said that the meeting should address which services are critical for Universal Access and what are the spectrum of options available to countries. The factors relevant in assessing the choice between public, private or mixed provision in sectors should also be considered.

She said that there is a need to determine Universal Access and "best fit" policies based on domestic circumstances. A "one size fits all" does not offer a workable solution. Good regulations and private sector involvement, she said, may contribute to Universal Access.

Trade liberalisation, while offering opportunities, requires careful examination of issues regarding the right to regulate and Domestic Regulation negotiations. She said, caution is warranted and more research is needed to improve the evidence base available to governments.

Ms. Puri clarified that the concept of Universal Service refers to a service provided to each person or household individually, which developed countries tend to use. Whereas Universal Access is where the service is accessible to everyone, either individual or collective access. The term Universality, she said, refers to availability, access and affordability.

There are many examples of essential services and they have equity related aspects in common. She said that flexibility was needed to adjust Universal Access goals to economic, social and technological developments. Careful design was needed for Universal Access pricing and targeting. She recognised the importance of the public sector in the provision of services while noting the increased reliance on private provisioning and public private partnerships.

Universal Access was required to address market failures, provide public/merit goods and to address equity issues. The role of the government, she said was to be the provider of services and the regulator. There are diverse options available to governments including publicly funded services, Universal Service Obligations, subsidies and micro-finance.

Ms Puri said that there is widespread public provision of essential services and mentioned that user fees have not been particularly successful in Sub-Saharan Africa. She pointed out that in many African countries, the elimination of primary school fees saw an increase in the number of pupils. User fees have been found to decrease the utilisation of health services. The World Bank has found that user fee abolition had resulted in improved access, she said.

Private sector involvement, can take many forms, but no solution is a panacea. Successful private sector involvement depends on the type of service, the competitive situation in the industry, the manner of introducing private involvement and regulatory considerations. Ms. Puri added that there is a need to be realistic on private involvement and to have clearly defined Universal Access obligations. She also warned about the potential for competition to be impeded.

Ms. Cecilia Ugaz, Acting Deputy Director, Human Development Report Office of the United Nations Development Programme (UNDP) presented some of the findings of the Human Development Report 2006. She said that on current trends the Millennium Development Goals (MDGs) will be missed. Ten billion dollars per year was needed to meet the MDGs. The economic benefits of meeting them would amount to US$38 billion, with about $15 billion accruing to sub-Saharan Africa.

Ms. Ugaz said water and sanitation suffer chronic under-funding and account for only 5% of total Overseas Development Assistance and generally less than 0.5% of GDP. She said that water pricing reflects a perverse principle, the poorer you are, the more you pay for water. Regarding sanitation she said that nearly 1.4 billion people without sanitation live on less than $2 per day.

Ugaz added that regulation is critical to the progressive realisation of the right to water. Specifically she mentioned that water as a human right should be legislated, and that the regulatory framework should be developed and expanded.

During the session on Public and Private Provision, David Hall, Director Public Services International Research Unit (PSIRU), stated that public services from mid 19th to mid 20th century were really "public" in nature, characterised by "municipal socialism" where services were financed from taxes.

Hall pointed out that empirically, the private sector is no more efficient than the public sector. He cited a 2004 policy paper of the IMF written in consultation with the World Bank. In another study comparing various studies on water in Latin America, Asia, Africa, USA and Europe it was concluded that a change in ownership showed there was no consistent difference in performance.

Ms Susan Robertson, University of Bristol, said that, "there has been an overall decline in public expenditure on education globally." And while digital technologies offer new opportunities for access, "the 'divide' is still wide."

In the meeting there was a session on universal access to water services. Mr. Emanuele Lobina, Senior Fellow at the PSIRU, said that in the North, the public sector had played the predominant role to achieve universal coverage. In 1897, 82% of the largest cities in the US were served by municipal operations and at the end of the 20th century "this percentage was broadly the same and was not expected to change significantly."

Questioning the ideology of the preference for private delivery of water, he said that at present 90% of provision is still public. The transaction costs for supplanting the public sector with the private is "unsustainable" he said, referring in part to the changes required of regulatory regimes. He also emphasised the successes of international "public-public partnerships" as an option for improving access, for example cooperation between the public water agencies of Britain and Malawi. Lobina said that the "not for profit ethos" allowed for the maximum deployment of resources.

Prof. Idor Ridel, the Vice Chair of the UN Human Rights Commission's Committee for Economic, Social and Cultural Rights drew attention to the right to health which included the right to water.

He said he felt that a public private partnership approach to a human right was the "wrong approach." There were several other models that were much better. On availability, he said, that people should be entitled to 5 to 20 litres of water per day.

Bolivia's former Vice Minister of Basic Services, Rene Orellana showed how water privitisation had not worked. He cited the case of the people demanding that the company Suez who had been granted a water concession in Bolivia be closed down.

With other private entities, penalties were imposed on them for failing to meet the terms of the contract. One company's fine amounted to $9 million. Consequently the government has introduced new principles for water management, including that it should not be a lucrative business and that income from water must be reinvested in the service.

Mr Xavier Maitrerobert, Senior advisor at Aquafed (an association of water companies including Suez company) was anxious to see the debate closed on the right to water. He said that work on this had already been done in Mexico at the World Water Forum in 2004. He said free water for everybody was "unrealistic."

Maitrerobert was supportive of the private sector as a means to provide access. He said cost recovery operations "should be implemented as far as possible" and added the concept of "sustainable cost recovery."

At question time, a delegate of Bolivia questioned why the World Bank promoted the privatisation of water. Lobina said that the World Bank takes a short term approach. He said it was unrealistic that models that took decades to develop in developed countries can be translated to the South.

An Argentinian delegate cautioned about guarantees given by the public sector, especially foreign exchange guarantees, to private operators. He cautioned further that the public sector should be aware of "predatory" private sector behaviour. Ms. Stamenka Uvalic-Trumbic, a Section Chief at UNESCO, said during the session on Universal Access to Education and Health Services that governments are no longer meeting the rising demand in education and there is a rise in the provision of private education.

UNESCO was actively pursuing a policy debate on quality assurance and accreditation because of the growth in cross-border education. Uvalic-Trumbic said the private higher education market was estimated at $300 billion worldwide and growing. The globalisation of education presented both threats and opportunities.

Ms Esme Chipo Kazarmira of the University of Malawi, said that World Bank policies on user fees had dramatic impacts on enrolments and universal access to primary education. User fee increases in some cases resulted in a 50% decrease in enrolment. When fees were abolished due to changes in World Bank and donor policies, enrolments increased dramatically.

However, this "big bang" approach also created problems as schools were unable to cope with the sudden increase in students. Moreover, parents still had to meet other related school costs and thus "schooling is not free only fee-free." The number of secondary school completers was still limited despite increased primary sector enrolment.

Mr. G.K. Chadha, a member of the Prime Minister's Economic Advisory Council of India said that more than half of rural children belonging to the poorest group of households stayed away from schools, compared to 10% of their richer counterparts. Provision of a midday meal for students has not only increased performance but also enrolment.

Nuria Homedes of the University of Texas said that Universal Access to healthcare in Latin America was a challenge because of the stark inequality in the region which has worsened in the last 10 years. Health reform strategies relied on increasing the role of the private sector.

Overall, subsidies for promoting access were targeted at the demand for services instead of supply. These reforms have met with limited success, she said. Systems that have promoted private insurance have high administrative costs, as much as 30%. In addition, governments have had difficulties regulating the private sector.

She emphasised that the private sector is not interested in health promotion and disease prevention.

She added that in Chile the health system is highly inequitable. The private sector has per capita expenditure double that of the public sector but covers fewer people. This makes private sector efficiency questionable.

In Columbia despite reforms 40% of the population remains uninsured. Guatamala has contracted out services to NGOs but there are many problems with supervision and accountability. Costa Rica health cooperatives are more expensive than the regular system and there is no documented evidence of increased quality. She added that the public sector had been weakened because many of its health workers have moved to the better paying private sector.

Also experiences in Columbia, Chile and Mexico indicate that it is not advisable to decentralise and privatise health services because this promotes inequity. Securing solidarity/additional funds cannot redress the inequality trend. She added that increased autonomy for hospitals has resulted in increased user fees and discrimination against "expensive patients."

Trade agreements that facilitate the penetration of private insurance companies contribute to greater segmentation of health systems to the "detriment of their equity and efficiency."

Chantal Blouin of the North South Institute (Canada) questioned whether international trade in health services can improve access. She said that only patients with private or social insurance or high income patients benefit from access to high quality services offered by foreign establishments.

Blouin says that expansion of private insurance through foreign investment is "the most inequitable way to finance access to services." In any event, it is "unlikely that it will have a large scale positive impact on improving access to basic services."

Lessons in the literature on user fees shows that they reduce access to services. "In virtually all cases where user fees were increased or introduced, there was a decrease in service utilisation."

Blouin added that, "there is basically no experiences of developing countries building a strong regulatory framework to harness the potential benefits of private insurance."

Concluding, she said that "members who would like to open their health sector to foreign providers should consider 'experimenting' with liberalisation outside of GATS before making GATS commitments" referring to the WTO General Agreement on Trade in Services. Similar considerations apply to regional and bilateral agreements she said. This way policy reversal remains easier for governments.

Mr. Pongpisut Jongudomsuk, National Health Security Office, Thailand, said highlighted the problem of the brain drain, which he said was linked to the health of the general economy. During the 1997/8 crisis they experienced a loss of medical doctors which has been recovering together with the economy.

Eugenio Villar of the World Health Organisation said that in the health sector, there were a number of "inverse laws." For example, the 'inverse care law' meant that safe, proven and cheap interventions are not reaching those in need. He added that protection and safety of patients are also vital as too many people are worse off after they have used the health system.

In the interactive session, the impact of patents and of bilateral trade agreements was discussed. Brazil raised the question how patents affect the cost of medicines and thus universal access to healthcare.

Referring to FTAs, Villar said that the FTA (between Peru and the US) would affect the length of the period of patents. The implication is that the state would have to pay more for medicines, and it would cost the state $30 to 60 million more per year.

Hormedes said that US companies were not making as much profits at home and were seeking more profitable foreign markets that are less regulated. She added that where regional FTA negotiations had failed the US had pursued bilateral trade deals, as was the case in the ANDEAN region.

Blouin of North-South Institute said that countries should note that health insurance commitments were covered in the GATS in the category of financial services and not in the health section.

She said Canada had stated it would not make any commitments in the health sector and suggested that othercountries look at the reasons for this position. She added that a cheaper health system was an economic comparative advantage, which for example gave Canada a competitive advantage over US auto-makers.

In a session on universal access to telecommunication services, Susan Schorr of the International Telecommunication Union said that policies on access in the telecoms sector were focused mainly on fixed lines.

Jorge Bossio of OSIPTEL, the Telecoms Regulator in Peru, said his government was interested in Universal Access for efficiency reasons (positive network externalities, solving asymmetric information problems) and equity reasons (improve access to other basic services and to satisfy communication needs). Through a tax, one percent of gross incomes received by final service providers and carriers finances the Universal Access policy.

Ms. Sadhana Dikshit, Department of Telecoms, India, said that the gap between rural and urban tele-density (i.e. the number of persons with access to telecom services) was a concern. Urban density in India was about 48% while rural density was less than 2%.

Universal Service objectives are determined in transparent process with the regulator. There is a 5% across the board levy on designated revenue from all operators except value added service providers. There is also a license fee that is charged. By changing their definition of Universal service from "basic telecom" services to plain "telecom" services coverage through mobile has opened up. India has disbursed about a billion dollars from its Universal Service fund thus far.

Lee Tuthill, Counsellor, Trade in Services, World Trade Organisation, said that Universal Service is a policy objective that falls within a Government's right to regulate under the WTO's GATS. She said that Universal Service obligations are not market access restrictions, as defined by GATS, but rather form part of domestic regulation.

She said that perhaps there is an "artificial separation" between domestic regulation and market access restrictions. Tuthill claimed there was "huge inherent policy flexibility" in the Telecoms Reference Paper.

Tuthill reminded delegates of Article 8 of the GATS agreement on Monopolies and Exclusive Providers that she said would "kick in" for governments, even those which have not introduced competition.

During the interactive dialogue, the TWN representative said that on interconnection fees, there was something wrong with the regulatory model when even the EU Commission, with its complex institutions, had to ask European users to switch off their phones to avoid the excessive international roaming charges.

He stated that some developing country delegates reported that when they were negotiating the GSM standards, some companies had insisted that international calls be routed through the home country, increasing costs, even though there was no technical requirement for this. The representative of Vodafone said he supported competition but differed with the EU Commission's interpretation on international roaming.