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TWN Info Service on UN Sustainable Development (Apr14/01)
11 April 2014
Third World Network

Dear friends and colleagues

Debate over the role of the private sector, especially corporations and financial entities, is gaining momentum in the United Nations. Proponents of  "private-public partnerships" and "multi-stkeholder partnerships" envisage the private sector as contributing to achieving sustainable development and the post-2015 development agenda. However a growing number of  civil society organisations and networks from around the world are voicing their deep concerns over such enthusiastic embracing of the private sector, given the track record of the big corporate and financial actors.

We are pleased to share with you below a brief based on the presentation made by Bhumika Muchhala of TWN on 9 April 2014 at the Joint Event of the General Assembly and the Economic and Social Council on “The role of partnerships in the implementation of the Post-2015 Development Agenda”. 

A TWN Briefing Paper addresses several of the concerns in more detail:  "Amplifying the private sector in development: Concerns, questions and risks" (http://www.twn.my/title2/briefing_papers/No69.pdf)

With best wishes,
Third World Network


 The role of partnerships in the Post-2015 Development Agenda[i]

By Bhumika Muchhala, Third World Network (TWN)

The role of multi-stakeholder partnerships in the implementation of the post-2015 development agenda has been consistently underscored by various reports and committees of the United Nations as a “catalyst for achieving an ambitious and transformative development agenda beyond 2015.”

However, the other partnership, which is in the singular and is driven by states in the established context of international development cooperation, is known as the Global Partnership for Development

The UN must ensure that multi-stakeholder partnerships in the post-2015 context will be held accountable to delivering development results that are equitable and rights-based, aligned to national and local needs, and do not constrain the right to development and national policy space for developing countries. 

In this context, partnerships must also abide by, and ideally even facilitate, the means of implementation and the global partnership for development that are critical for a Post-2015 development paradigm that is not just sustainable, but also genuinely transformative and just.

Partnerships must not be endorsed at face value; key concerns and risks must first be addressed through open and participatory intergovernmental discussion, not behind closed doors. 

A first concern is that official reports in the post-2015 and SDG processes emphasize the role of governments in creating an enabling national environment for investment in sustainable development. 

However, it is the creation of an enabling international environment for development through international development cooperation and the global partnership for development that is at the center of the Post-2015 development agenda.

The role of the state in development, which has historically facilitated economic and social development through deliberate policy choices, temporary support and protections to vital domestic industries, and strategic engagement in the international economy, should not be undermined by partnerships.

In congruence to current trends across international, regional and national development finance institutions, such as the World Bank and European Investment Bank, the Global Compact report on post-2015 also promotes “the leveraging of development assistance for private sector development,” as well as “development assistance that is designed to leverage corporate sustainability and business-led solutions.”  It is important to contextualize partnerships with the corporate sector within the financialisation of official development aid (ODA) and the rapidly expanding role of large corporations in development

Over the past decade, multilateral development banks have tripled their private sector portfolios, and since the 2007 global financial crisis, development finance institutions, particularly in Europe, have increased financial flows to the private sector by almost 200%.  However, studies have found that in aid flows to the private sector from the European Investment Bank and the World Bank, almost half of the aid money spent went to support companies based in developed countries and in tax havens, while only 25% of companies supported were domiciled in the least developed countries where aid is channeled to. 

Using public resources to leverage private sector investment means that aid cannot be immediately used in national education and health budgets, where development needs are greatest.  Furthermore, most of these financial resources do not reach small and medium enterprises (SMEs), where the bulk of hiring and production occurs in many developing and low-income countries.  SMEs should thus be deliberately distinguished among different types of firms and enterprises, particularly Transnational Corporations; and specific support measures and policies should be applied to SMEs. 

The problematic trend of the liberalization of government procurementsystems is also leading to critical losses in the ability of national SMEs to secure contracts to deliver goods and services when foreign companies offer greater scale, efficiency and pricing figures.  While the liberalization of government procurement has been a long-standing condition in World Bank loans, it is now creeping into Free Trade Agreements as well.

With regard to the institutional context, the Group of 20 (G20) has prioritized public-private partnerships, particularly in infrastructure development.  Last October, the World Bank identified partnerships as the center of its new institutional strategy, and has proposed establishing a Global Infrastructure Facility.  However, there are many fundamental concerns being expressed by global civil society.  What governance and accountability mechanisms ensure that such partnerships will align with national and local development needs?  How will the socialization of losses and privatization of profits, as well as the fiscal risks of such projects, be addressed?  Is there an implicit assumption that the private sector will deliver public goods? 

What kind of infrastructure is being prioritized through public-private partnerships and who will they serve?  Will decent work and social development be generated, and will the most vulnerable sections of society be included?  Will such partnerships decrease the role of national producers and companies, particularly by outsourcing procurement for goods and services? 

Multi-stakeholder partnerships need to address inherent power imbalances and conflicts of interests between governments, business and civil society.   Even within business, the interests of large corporations may not be the same as that of SMEs, and the interests of fossil fuel industries are not the same as that of renewable energy, for example.  The lobbying power and vast financial resources of large corporations at the regional, national and local levels needs to be meaningfully addressed.  Without substantively integrating these realities, the governance model of multi-stakeholder partnerships will continue to be depoliticized. 

Currently, the official reports of the High-Level Panel (HLP) for post-2015 as well as the Global Compact espouse an instrumentalist view of development and human rights when making the “business case” for sustainable development, in that development-oriented measures become an instrument to achieve growth and productivity. For example, the HLP report states that every dollar invested in curbing chronic malnutrition returns $30 in higher lifetime productivity.  Expanded childhood immunization improves health later in life, with benefits worth 20 times the cost.  While the cost-benefit mark-up can be defended as pragmatic business sense, it begs the question of how to finance development and rights-based efforts that do not offer a good investment return. 

Despite the association of “transformative change” being attached to multi-stakeholder partnerships, the degree of structural transformation is relatively absent. 

Transformative solutions require addressing the rules and design of global trade and finance systems, as well as the structural drivers of inequality, and entrenched trends such as tax evasion and illicit financing flows. 

In this sense, the global partnership for development is, as articulated in the Monterrey Consensus and the Doha Financing for Development outcome document, supposed to facilitate the conditions for an international environment for development through addressing, for example: (i) a development-oriented trade regime; (ii) facilitating external debt sustainability; (iii) regulating financial markets, including food and commodity price markets; (iv) affordable access to technology and medicines for developing countries; (v) reforming the international monetary system; and, (vi) democratizing global economic governance, particularly in the international financial institutions.

Multi-stakeholder partnerships in the Post-2015 development agenda needs to urgently address the threats posed by bilateral investment treaties to government regulations related to development priorities, such as health and environment. 

Armed by the investor-state dispute settlement clause in bilateral investment treaties as well as bilateral and plurilateral trade agreements, many multinational corporations have sued governments in closed-door arbitration tribunals for introducing or amending regulations and policies that reduce their profits or potential profits, even if state regulations are intended to secure economic and social rights and prevent environmental harm.

A reversal of this trend is critical, and some member states have taken the necessary actions to address this, with growing CSO support.  Several Latin American governments, South Africa, Indonesia and India are reviewing their bilateral investment treaties to restore a balance in the role of foreign investors.  Without a development-oriented regulatory framework and sustainable development national policies, the role of big corporations, whether in or out of partnerships, will not be a positive one.

The role of transnational corporationsin the post-2015 agenda also needs to confront their operational trends on the international level.  This includes transfer mispricing, tax evasion and avoidance, including the use of offshore tax havens and illicit financial flows from the South to the North. 

The quantum and scale of financial resources that could be salvaged for use in developing countries from these international malpractices is of far more meaningful benefit to the global partnership for development, as well as means of implementation, than bilateral private sector contributions to developing countries through partnership projects.  However, private sources of financing should be accepted only when they are accountable and transparent to development needs.

Transnational corporations also possess disproportionate capacity and resources in technological development, research and design as well as patent holdings.  In order to channel the technological transfer and capacity building at the core of the means of implementation, large private sector actors should facilitate access, development and use of technologies for developing countries, in the context of sustainable development. 

Chief impediments to such technology transfer are the rules on intellectual property enshrined in the World Trade Organization and free trade agreements.  As such, addressing intellectual property rules should be at the forefront of the means of implementation as well as in the criterion that governs whether private sector actors could truly contribute to development. 

Ways forward

There need to be clear criterion, applied ex ante, to determine whether a specific private sector actor is fit for a partnership in pursuit of the post-2015 goals. 

United Nations member states should be at the helm of formulating a criterion-based accountability and governance framework that conducts oversight, regulation, independent third-party evaluation, and transparent monitoring and reporting partnerships with the private sector.

It is worth noting this is not only in the interest of equitable and sustainable development and human rights, but also in the interest of the UN.  The UN as an institution might never recover from the reputational shock if the private financiers it engages with are also violators of its most cherished principles.

As outlined in the statement of the Righting Finance Initiative[ii], such criteria should examine, at the least:

1.      Whether the private actor has an evidence-based history or current status of abusing human rights or the environment,including in theircross-border activities;

2.      Whether the private actor has a proven track record (or the potential to) deliver on sustainable development, as articulated by the UN outcome by 2015;

3.      Whether the private actor has previous involvement in acts of corruption with government officials;

4.      Whether the private actor is fully transparent in its financial reporting and ensures that it is respecting existing tax responsibilities in all countries it operates, and not undermining sustainable development through tax avoidance; and,

5.      Any conflicts of interest in order to eliminate potential private donors whose activities are antithetical or contradictory to the UN Charter, the Universal Declaration on Human Rights, and the SDG framework.

The call for a binding international agreement to hold corporations accountable has been iterated around the world.  Most recently, Joseph Stiglitz called for the need to move towards a binding international agreement to hold companies that violate human rights accountable in their home countries, through international cross-border enforcement.  Softlaw—the establishment of norms of the kind reflected in the Guiding Principles on Business and Human Rights—are critical; but they will not suffice.  A binding international agreement enshrining human rights norms is necessary.


[i]This is based on a presentation made on 9 April 2014 at the Joint Event of the General Assembly and the Economic and Social Council on “The role of partnerships in the implementation of the Post-2015 Development Agenda”.

[ii]http://www.rightingfinance.org/wp-content/uploads/2014/04/Read-full-statement.pdf

The following organizations and networks with human rights advocacy mandates are Steering Committee members of the “RightingFinance Initiative”: Association for Women's Rights in Development –AWID, Center for Economic and Social Rights –CESR, Center for Women’s Global Leadership –CWGL, Center of Concern, CIVICUS: World Alliance for Citizen Participation, Development Alternatives with Women for a New Era –DAWN, International Network for Economic, Social and Cultural Rights -ESCR-Net – (Working Group on Economic Policy and Human Rights), IBASE (Brazil), Social Watch.

 


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