Download Privatization of Natural Resources Background of Topic

Privatization of Natural Resources
Background of Topic:
Privatization is the direct shift away from the government provision of goods and
services to the private sector. Between 1997 and 2004 more than 4,000 privatization
operations were carried out in the world, saving governments over one billion US dollars.
Western Europe emerges as the most important region, having implemented the greatest
number of privatizations and raised half of global revenues. Originating in the United
Kingdom at the end of the 1970s, privatization spread into Western European countries
that were faced with mounting fiscal deficit. This resulted in the introduction of major
product market reforms as a requisite to join the European Union. The drive to privatize
water resulted from the failure of governments to supply efficient and cost effective
services during times of national financial crisis. This privatization of services that
included natural resources such as water gave rise to a peak increase in overall GDP by
30% in European countries in 2001 due to the success in private sectors, such as ENI
(petroleum) in Italy, Swisscom (tlc) in Switzerland, ENDESA electric utility in Spain,
and France Telecom (tlc) in France. Also, privatizing natural resource systems garnered
interest in 2004 when the need for sustainable resources and efficient means of managing
these resources to promote sustainability and conservation goals was recognized at the
World Water Forum in Paris in 2007. Therefore, it was suggested that privatization of
natural resources such as fisheries, forests, and rangelands could promote economic
sustainability, as the private sector manages these resources more conservatively than
government. Recently, these private rights are being advocated mostly to fulfill
environmental goals. For example, the sustainability of oil under privatization has
internalized the cost of drilling and stimulating efficient, long-term resource use.
Though privatization has been successful in more developed countries as a result
of abundant competition between companies to keep natural resource costs effective,
smaller and lesser developed countries can be negatively impacted by privatization.
Countries such as Jamaica and India have suffered prompt decreases in GDP; in fact,
Jamaica’s GDP declined by 42% from 2007 to 2010. This is a result of less developed
countries in specifically Southeast Asia and Africa having limited capabilities of utilizing
their natural resources in competition with major international corporations or
neighboring countries. Corporations will often outcompete local companies, bankrupting
them, and then hire cheaper, foreign workers. This reduces employment opportunities in
the country, and grants the corporations monopolies that allow them to manage resources
and services in ways that are more profitable but at the same time detrimental to the
country’s people. In this case, the privatization of public goods and services turns basic
human needs into products to buy and sell. For example, Nestle buys water for nearly
$.00008 per gallon, and resells it at a price 127,000 times greater. Most privatization
programs appear to have worsened the distribution of assets and income. Only under
conditions of regulation and competition would these types of programs lead to improved
efficiencies in the utilization and distribution of such goods. Approximately 75% of the
world’s energy sources and 20% or all water sources are privatized by private companies.
In Manila, the water source was privatized in 1997 by two different companies that did
not lower prices and taxes on water as they should have. Water shortages thus occurred
because citizens refused to pay the 20% increase in the cost of water. On the other hand,
natural resource privatization has succeeded in England, where sixteen private companies
control the supply of water for much of the UK. The competition between these
corporations has lowered taxes and prices on water while managing to decrease pollution
in rivers and channels and reduce the amount of waterborne infections in the area. In the
last fifteen years, 41% of natural resource privatization contracts have resulted in failure.
The Indian Privatization Task Force has asserted that nations succeed in privatization
when a stable, centralized body to manage privatization and cost efficiency in relation to
the public’s needs is created.
UN Involvement:
The privatization of public services and natural resource extraction has been an
integral component of the International Monetary Fund (IMF) and World Bank programs
in developing countries since the General Assembly resolution 48/180 was passed on 21
December 1993. This resolution dealt with entrepreneurship and privatization for
economic growth and sustainable development. Underdeveloped countries have used aid
from these programs for development assistance and debt relief to build the economy by
making natural resources part of the private sector. The IMF stated in cooperation with
Myanmar on May 21, 2013 that it would support economic growth through the
privatization of Myanmar’s abundant natural resources such as gold, gas, oil, uranium,
precious gems, zinc, and copper. Water is the natural resource most focused on in regards
to privatization, and has been privatized everywhere in the international community, as it
is a basic human right to have water. In countries especially in Africa and Southeast Asia,
the water companies monopolize towns and raise rates on average by 70% or more. The
UN’s International Policy Centre declares that privatization has failed on quite a few
counts because the focus of investors on cost recovery has not encouraged social aims to
reduce poverty and promote equity. The United Nations Conference on Environment and
Development in Rio de Janeiro in 1992 affirmed that the management of freshwater as a
finite and necessary resource is imperative to sustainable development. The International
Conference of Water and the Environment held first in Dublin 1992, and more recently in
2011, has requested innovative approaches to the assessment, improvement, and
management of freshwater resources, unsustainable water demand, and the free use of
water.
NGOs have also aided countries to keep the ownership of water public. For
instance, Water for Life in India works towards the goal of accessible water for all within
India, and further strives to implement strategies for water conservation. An example of
an organization involved in a privatization effort is Australia’s Sydney Water, a state
owned company that was responsible for capturing, storing, treating and distributing
water in Sydney. However, it was not able to improve and expand its water treatment
capacity while keeping prices low. Therefore, the cost of the privatization of water was
regulated by a Government Pricing Tribunal. Countries such as the US and UK have used
this type of mechanism to ensure that the privatization of water benefits the general
public without bumping prices up too high. However, the long-term effects of such an
international body that regulates big corporations remain to be seen.
Questions to Consider:
1. Has your country successfully privatized its natural resources? If so, what kinds
of benefits or drawbacks have resulted?
2. How does water privatization affect underdeveloped countries?
3. What ways are there to regulate the monopolies of big companies?
4. How does the privatization of natural resources affect sustainable development?
5. What are some solutions to regulating the prices of privatized natural resources by
private companies?
6. Should all natural resources be privatized to promote effective use and
conservation of resources?
Works Cited
http://rt.com/op-edge/washington-myanmar-use-resources-618/
http://online.wsj.com/article/SB10001424127887324767004578489071662362296.html
http://www.iwawaterwiki.org/xwiki/bin/view/Articles/THEIMPACTOFPRIVATISATIO
NONTHESUSTAINABILITYOFWATERRESOURCES
http://teachingenvironmentalissues.weebly.com/
http://www.foodandwaterwatch.org/water/private-vs-public/facts-and-figures/