Co-authored by Mark Dearn, trade campaigner at War on Want, published in The Guardian.
This week in New York, UN member states are discussing implementation and review mechanisms for the sustainable development goals (SDGs), which will become the focus of the UN development agenda for the next 15 years. In its 2014 world investment report, the UN Conference on Trade and Development (Unctad) estimates the SDGs will require between $3.3tn and $4.5tn (£2.1-£2.9tn) a year to implement. Proponents of privatisation have used this funding gap to promote the case for greater private sector participation, particularly in the global south.
But before the UN creates a new channel for foreign investments in public services it needs to take a closer look at the history of the private sector “leaving behind” the most marginalised and vulnerable. This is particularly salient in a global context where investment treaties increasingly limit the ability of states to uphold human rights commitments when they are deemed to interfere with profits.
In March this year, an Indonesian court annulled a 17-year-old private contract with the water corporations Suez and Aetra on the basis of human rights violations resulting from a fourfold rise in tariffs since the utility was privatised, lower service coverage than promised, and water leakage levels of up to 44%.
Jakarta is the largest of 186 municipalities worldwide that have brought water and sanitation services back into the public sector over the past decade. In May 2014, Greece’s top administrative court prevented the privatisation of Athens Water, ruling that it would violate human rights. In July 2012, Italy’s constitutional court blocked plans to privatise water. Uruguay and the Netherlands have adopted outright bans on private water services. For the most part, these were outcomes of public outrage at corporations profiting from astronomical rates as they shortchanged the public on service quality and diminished environmental, public health, and labour standards.
Research shows that the estimated $260m financing gap in water and sanitation will be best met through public financing, which currently accounts for more than 90% of global infrastructure investment.
Conversely, without an economic incentive to serve poor communities, the private sector will not ensure universal enjoyment of the human right to water and sanitation. A Public Services International Research Unit (PSIRU) study shows that private sector investment results in very few new connections in parts of the world where the need is greatest, such as sub-Saharan Africa and south Asia.
Requiring ever-increasing returns on investments, for-profit operations are far more expensive than public financing through progressive taxation or bonds. PSIRU data demonstrates that the vast majority of states have the capacity to deliver universal access to strong public services. Even countries with the highest number of people in need of water and sewerage connections could deliver these services over a 10-year period with less than 1% of GDP a year. For the few countries where needs cannot be met through progressive taxation, the gap can be filled by aid.
Foreign investment poses an increasing threat, due to the rapidly expanding web of trade and investment deals that incorporate investor-state dispute settlement (ISDS) mechanisms. ISDS undermines state sovereignty by allowing investors to make recourse to a separate court system that enables them to sue states when policies threaten present or future profits. ISDS arbitration is beholden to the terms of trade treaties, which are designed to protect investments. This means that in any case of doubt, provisions are interpreted in the investor’s favour, over and above any concern for democratic decision-making for the public good.
There has been a sharp increase in the use of ISDS. Unctad records indicate that, in the 50 years to the end of 2014, there have been a total of 608 known ISDS cases, with 58 new cases in 2012, and 42 in 2014. A new investment agreement is concluded every other week.
Argentina has been sued more than 40 times for actions it took during its economic crisis in the early 2000s. Faced with mass unemployment and 70% of children living in poverty, it fixed the price of water, gas and electricity, and later nationalised utilities to stave off threatened price hikes. In a ruling last month, the country was ordered to pay Suez $405m. While Argentina argued that it acted to ensure the human right to water for its population, the tribunal found that human rights cannot override investor rights.
This fundamental premise of ISDS means southern countries must absorb the double impact of privatisation and investment treaties.
Last month, Alfred de Zayas, UN special rapporteur on the promotion of a democratic and equitable international order, warned that secret investment agreements threaten human rights and violate international law. In March, more than 100 US law professors signed a letter highlighting the threat posed by the unaccountable ISDS system to the rule of law and domestic sovereignty.
If the international community is truly concerned about “leaving no one behind,” the SDGs must ask why so many have been left behind in the first place.
With the rise of investment treaties giving primacy to “corporate rights”, and no legally binding international mechanisms to hold these corporations accountable for human rights violations, greater private sector participation in water and sanitation projects through the SDGs will only exacerbate the water and sanitation crisis around the globe.
