TWN Info Service on UN Sustainable Development (Nov18/02)
22 November 2018
Third World Network

Human rights at risk from tsunami of privatization
Published in SUNS #8797 dated 16 November 2018

Geneva, 15 Nov (Kanaga Raja) - Widespread privatization of public goods is systematically eliminating human rights protections and further marginalising the interests of low-income earners and those living in poverty, a United Nations human rights expert has said.

In a recent report to the UN General Assembly, the Special Rapporteur on extreme poverty and human rights, Mr Philip Alston (from Australia), said that existing human rights accountability mechanisms are clearly inadequate for dealing with the challenges presented by large-scale and widespread privatization.

"Privatizing the provision of criminal justice, social protection, prisons, education, basic healthcare and other essential public goods cannot be done at the expense of throwing rights protections out of the window," Mr Alston said.

"States can't dispense with their human rights obligations by delegating core services and functions to private companies on terms that they know will effectively undermine those rights for some people," he added.

According to the report by the Special Rapporteur (A/73/396), neoliberal economic policies are aimed at shrinking the role of the State, especially through privatization.

This agenda has been remarkably successful in recent years and continues to be promoted aggressively by the World Bank, the International Monetary Fund (IMF), parts of the United Nations and the private sector.

"The logic of privatization assumes no necessary limits as to what can be privatized, and public goods ranging from social protection and welfare services, to schools, pension systems, parks and libraries, and policing, criminal justice and the military sector, have all been targeted," it said.

There is no substitute for the public sector to coordinate policies and programmes to ensure respect for human rights. Yet privatization directly undermines the viability of the public sector and redirects government funds to subsidies and tax breaks for corporate actors.

"The consequences for human rights are overwhelmingly negative. Human rights standards are rarely included in privatization agreements. They are systematically absent from guidelines governing both processes and outcomes."

With some exceptions, privatized entities are rarely held meaningfully to account, and government and quasi-government agencies responsible for such tasks are often either underfunded or captured by the relevant industry.

The Special Rapporteur said while it is clear both from the evidence that exists and from the basic assumptions underpinning privatization that it negatively affects the lives and rights of people living on lower incomes or in poverty, the unsurprising fact is that few detailed studies have been undertaken and relevant data are often not collected.

In the face of externally or internally driven demands for "fiscal consolidation" (austerity), Governments retreat from direct service provision, trade short-term deficits for windfall profits from the sale of public assets, and push hidden financial liabilities down the road for future generations.

The opportunity to shed responsibility, rather than to exercise it at arm's length, becomes irresistible, he added.

"Privatization also undermines democracy by marginalising the role of Governments in deciding on the allocation of public goods and services, thus giving citizens even less incentive to participate in elections."

The rights expert noted that a trend towards political demobilization, especially affecting low-income persons, has occurred in many States in recent years, and austerity policies closely linked to privatization have created fertile ground for the rise of populist, anti-human-rights politicians.

WAVES OF PRIVATIZATION

The Special Rapporteur explained that privatization is a process through which the private sector becomes increasingly, or entirely, responsible for activities traditionally performed by government, including many explicitly designed to ensure the realization of human rights.

It can take many forms, ranging from the complete divestiture of government assets and responsibilities to arrangements such as public-private partnerships.

Since the 1970s, several waves of privatization have swept the world. In 2017, the Privatization Barometer concluded that "the massive global privatization wave that began in 2012 continues unabated".

According to the rights expert, that wave has been driven not only by Governments and the private sector, but also by international organizations, especially the International Monetary Fund (IMF), the World Bank and the United Nations.

While some proponents present privatization as just "a financing tool", others promote it as being more efficient, flexible, innovative and effective than public sector alternatives. In practice, however, privatization has metamorphosed into an ideology of governance.

Large-scale privatization was first championed by General Augusto Pinochet, President of Chile, in the early 1970s and then taken up by Margaret Thatcher, Prime Minister of the United Kingdom of Great Britain and Northern Ireland, after her election in 1979.

In the United Kingdom, the first national industries to be sold were in competitive markets, such as aerospace, road freight and storage, shipbuilding, oil, and council housing.

By the mid-1980s, "natural monopolies", or public utilities such as rail, water, sewerage, electricity, gas and telecommunications, were sold.

And in 1992, the private finance initiative was introduced as a means by which to rely on private investment to deliver a wide range of public sector services and infrastructure, in accordance with government specifications.

Internationally, privatization was promoted as an antidote to patronage through public sector employment and to reduce the size of government.

It became a central feature of the programmes promoted in the post-communist States of Eastern Europe and spread to Africa, Latin America and Asia under the auspices of the Washington Consensus.

Development finance and structural adjustment support were made conditional upon the transfer of ownership of "burdensome and inefficient public enterprises" to private companies. Public utilities, especially in water and sanitation, were the subject of large-scale privatization.

By the early 2000s, as the pitfalls of structural adjustment became more apparent, proponents of privatization talked less of downsizing the State and more about correcting market failures, creating markets and enabling the private sector to thrive.

Public-private partnerships also emerged, especially in the infrastructure context, as a favoured mechanism.

According to the Special Rapporteur, another wave followed the global financial crash of 2007/8 and the resulting push for austerity and budget reductions.

Privatization generated funds for cash-strapped Governments, reduced liabilities, allowed major projects to be pursued "off-budget" without being reflected in government spending, and provided an occasion to push public sector reforms .

Mr Alston said the current wave of privatization emphasizes the concept of "blended finance", defined as "the use of development capital (from public sources like government aid or development banks, or philanthropic sources like foundations) to de-risk Sustainable Development Goal-related investments ... in order to attract commercial capital from private investors who would otherwise not have participated".

Whereas public-private partnerships are project-based and define the contractual relationship between the parties involved, "blended finance" refers to the sources of finance. The role of the Government is in part to "provide a significant risk cushion".

In other words, corporations take the profits, but Governments will bear much of the losses if they are significant.

Assessing the extent to which privatization has occurred in global terms is difficult, if not impossible, given the wide variation among countries and sectors, and over time.

In the European Union, 1,749 public-private partnerships, worth some EUR 336 billion, have been transacted since the 1990s, primarily in transport, health care and education.

"There is a real risk that the waves of privatization experienced to date will soon be followed by a veritable tsunami," Mr Alston warned.

Some observers suggest that privatization, at least in some industries and sectors, is slowing down in the face of "re-municipalization".

One study documented 235 cases of water re-municipalization in 37 countries between 2000 and 2015. A later study of essential services such as energy, waste collection, transport, education, health and social services found 835 examples of re-municipalization, involving more than 1,600 cities in 45 countries.

Privatization has long been a key part of the agenda of the IMF. Although the Fund claims to have introduced major changes to some of its Washington Consensus-era policies, the emphasis on the privatization of a range of public sector enterprises and activities continues to feature prominently in the advice given to Governments and in the conditions attached to its loans.

A review of the 10 most recent Article IV staff reports dealing with countries in Africa shows that the IMF was actively advocating privatization in six cases, while in virtually all of the others the Governments themselves noted their commitment to public-private partnerships and related projects.

In 2015, the World Bank promoted the concept of increasing private sector financing "from billions to trillions" to meet the Sustainable Development Goals. In 2017, it announced its "Maximizing Finance for Development" agenda, which "prioritizes private financing and sustainable private sector solutions" to achieve the Sustainable Development Goals by 2030.

Using a "cascade approach", the Bank seeks to "crowd the private sector in" and to "reserve scarce public financing for those areas where private sector engagement is not optimal or available".

In effect, profitable enterprises will be reserved to the private sector, w hile unprofitable activities will be publicly financed.

Mr Alston pointed out that the voluminous materials promoting this entirely one-sided solution to development financing make no mention of the human rights implications of the resulting public/private division of labour, and the implications for those living in poverty are given short shrift.

He said it is, however, important to make the point that the arguments that are systematically invoked to justify privatization are often challenged or contradicted by the available evidence.

In this context, the Special Rapporteur drew attention to the results of two very recent detailed official studies.

The first study, conducted by the National Audit Office of the United Kingdom, concluded that the private finance initiative model had proved to be more expensive and less efficient in providing hospitals, schools and other public infrastructure than public financing.

The second study, conducted by the European Court of Auditors of the Europe an Union, examined 12 public-private partnerships in France, Greece, Ireland and Spain, in road transport and information and communications technology.

It concluded that the partnerships were characterized by "widespread shortcomings and limited benefits".

In terms of costs, private finance is more expensive than public finance, and public-private partnerships can also incur high design, management and transactional costs due to their complexity and the need for external advice.

In addition, negotiations on issues other than traditional procurement can cause project delays of some years.

Similar findings emerged from a review of public-private partnerships in health and education in Africa, Asia and Latin America that pointed to high public costs, and onerous ongoing administrative burdens for the public sector.

The rights expert noted that privatization arrangements are rarely conducive to human rights impact assessments.

First, human rights criteria are systematically absent from almost all such agreements. Second, sustained monitoring is rarely undertaken on issues such as the impact on the poor, access to services and service quality.

But available reports attest to innumerable ways in which those living in poverty or on low incomes can be negatively affected by privatization, said the Special Rapporteur.

Citing some examples, Mr Alston said that as aspects of criminal justice systems are privatized, many different charges and penalties are levied with far greater impact on the poor, who then must borrow to pay them or face default. The quality of the services that they can afford diminishes, and their prospects of obtaining justice recede even further.

The privatization of social protection often results in the poor being "relegated to a new even more underfunded public sector".

Mr Alston also noted that social security systems are increasingly being privatized, which is leading to service outsourcing, social insurance marketization, commercializing administrative discretion and paying by results.

"These approaches empower private for-profit actors to make determinations about the needs and capacities of individuals, incentivize them to do so within a corporate rather than a public goods framework, and reward spending reductions rather than the achievement of positive human outcomes."

Infrastructure projects will be most attractive to private providers where significant user fees can be charged and construction costs are relatively low.

But the poor are badly placed to pay, cannot afford to use many services, and often live in distant or otherwise under-serviced areas.

Water, sanitation, electricity, roads, transport, education, health care, social services and financial services are far less likely to be provided adequately or at good quality levels to the poor. Instead, such persons either go without those services or pay even higher prices for substitute services.

The Special Rapporteur noted that institutions and commentators consistently emphasize the importance of developing guidelines to ensure that public-private partnerships achieve the full range of desired objectives.

But in fact, he said, truckloads of guidelines have already been adopted, and most ignore human rights in any comprehensive sense and pay scant regard to the negative outcomes that privatization can have in terms of poverty and inequality.

A recent review of 12 sets of guidelines found that they focus mainly on transactional aspects, overlook gender concerns and ignore other relevant environmental and social safeguard policies.

THE NEED FOR NEW STRATEGIES

The Special Rapporteur underlined that new strategies are required in rethinking the human rights implications of privatization.

These should include acknowledging past inadequacies, reasserting basic values, re-legitimizing taxation, reclaiming the moral high ground, and resetting the default setting of privatisation.

He said that few problems can be resolved without first being acknowledged. The patent inadequacies of existing responses to the dramatic spread of the privatization of formerly public goods and services must thus be recognized.

Procedural fixes have not worked precisely because privatization is a philosophy of governance rather than just a financing mechanism. A new strategy theref ore needs to be focused first and foremost on basic values.

According to the rights expert, the human rights community needs to reassert the centrality of concepts such as equality, society, the public interest and shared responsibilities.

Mr Alston noted that since the 1980s, neo-liberals have undertaken highly successful efforts to de-legitimize taxation.

The rise of privatization has reinforced this thrust. As corporations become more politically powerful, they exert greater pressure for lower corporate tax rates, expanded tax concessions or exemptions, and wider loopholes to facilitate tax avoidance.

"Human rights groups need to highlight the dire consequences, not just for inequality but for human rights in general, of starving Governments of revenue. They need to make the case in favour of a balanced and progressive fiscal regime in the interests of society at large."

The longer-term challenge, which human rights actors certainly cannot achieve on their own, is to reverse the presumption, now fully embraced by actors such as the World Bank, that privatization is the default setting and that the role of the public sector is that of a last-resort actor that does what no one else can or wants to do.

Human rights groups need to begin systematically addressing the implications of privatization and documenting and exposing situations in which privatization has generated rights-deficient outcomes, said Mr Alston.

The challenge is to uphold human rights standards, and not just to ask whet her public or private actors have performed better.

While in theory privatization is neither good nor bad, the ways in which it has most often occurred in recent decades and the ideological motivations driving much of it call for a different set of responses from the human rights community.

According to the Special Rapporteur, immediate steps should be taken to:

* Insist that appropriate standards be set by public and private actors involved with privatization to ensure that data on human rights impacts are collected and published, and that confidentiality carve-outs are strictly limited;

* Undertake systematic studies of privatization's impact on human rights in specific areas, and on poor and marginalized communities;

* Insist that arrangements for the privatization of public goods specifically address the human rights implications; and

* Explore new ways in which treaty bodies, Special Procedures, regional mechanisms, and national institutions can meaningfully hold States and private actors accountable in privatization contexts