Drinking water privatization: the
power of T
he World Bank
Group
“In the year 2000, more than 460 million people were dependent upon a few global water firms for their water supplies, and the high growth areas were Africa, Asia, and Latin America. Industry analysts predict that by 2015, 1.16 billion people will be buying their water from Northern-‐based water firms”. (Shrybman, 2002). Those in favour of water privatization claim that it is more cost-‐efficient and that the quality of the distribution is much higher. They argue that in many cases governments are corrupt and unable to provide and expand a high quality water distribution by itself. Those against claim that privatization causes a decrease in quality and an increase of risks for the public. They argue that privatization leads to an unfair distribution of water, that profit maximization leads to lower wages and higher user fees, cutting of low-‐income communities.
Water privatization is a controversial subject, related to economics, (geo-‐) politics, law and human rights. It’s a trend that takes, or has taken, place all over the globe, from England, Bolivia and China to Argentina, the Philippines and South Africa. It involves not only governments, but also institutions such as the World Bank, International Monetary Fund, the United Nations and several multinationals.
In this essay I would like to address the powers and influence that the World Bank Group and related institutions have on governments and the worldwide privatization of drinking water provision.
First, I will give a general explanation about the World Bank Group followed by an assessment of their types of powers. Throughout this essay I will elaborate my view on the matter.
Structure of The World Bank Group
The World Bank Group should not to be confused with The World Bank, which is only a component of the Group. The World Bank Group came into existence on 27th of December 1945, due to the ratification of the Bretton Woods agreements The World Bank Group is a conglomerate of the following five international institutions:
• International Finance Cooperation (IFC); • International Development Association (IDA);
• International Bank of Reconstruction and Development (IBRD); • International Centre for Settlement of Investment Disputes (ICSID); • Multilateral Investment Guarantee Agency (MIGA).
Together they form the biggest development bank on the globe. All UN-‐members participate in one of the five institutions. Their say in the Bank’s decision-‐making process is related to their quota (how much money they invest in the bank) and some claim that their policy’s are driven by their major members, especially the United States Government, and private actors (Goldstein, 2000., Frey 1997., Vaubel 1991.).
The Bank also takes an important place within the United Nations, being an observer at the United Nations Development Group.
The Bank provides leveraged loans for highly indebted, under-‐developed countries. These types of loans are intended to provide more economic stability and growth. However, such loans come at high costs. Countries have to structurally change crucial economic sectors as a pre-‐condition for a loan. According to Goldman (2007) -‐ “From the 1990’s, under the neoliberal logic of privatization, even the most essential public-‐sector services, such as education, electricity, transport, public health, water and sanitation, were being put on the auction block”. In other words – countries had or have to allow private companies to take-‐over important and vulnerable economic sectors. Now, one could argue that a country still has the option to disagree on the conditions and refuse the loan. But, is that really the case? To answer that question it is necessary to elaborate on The World Bank Group’s history as a development bank.
During the 1950s and 1960s the Bank had a different focus. In that time, the Bank loaned small amounts of money to Southern countries (mainly countries in the southern hemisphere) to pay contractors in Northern countries for capital-‐ intensive infrastructure and power plants (Goldman, 2007). The main reason for this was that during the Second World War, the initial European investors didn’t have money. In addition, post-‐World War II, European countries made colonial retreats, leaving the former colonies with minimal amounts of capital (Goldman, 2007). At that time the Bank was not as influential as it is now but that changed when Robert McNamara was selected as the president of The World Bank Group in 1968. A few citations that clarify the matter;
“McNamara transformed the World Bank from a small, reticent, and prudent investor into a completely different animal. In the first five years of McNamara’s
tenure, the Bank financed more projects (760 versus 708) and loaned more money ($13.4 billion versus $10.7 billion) than it had during the previous 22 years combined (George and Sabelli, 1994; Shapley, 1993). Together with his new trea-‐ surer Eugene Rotberg, McNamara invented a secure and profitable arena for huge institutional investors through a unique brand of bonds – very large, multi-‐ denominational ‘‘global’’ World Bank bonds (Institutional Investor, 1988). Not only did this move spur a market for global bonds, and flush source for raising capital, but it also offered to large Northern investors a new vision of the global South (commonly known as the Third World): untapped and unvalorized natural resources that could potentially fuel a tremendous growth spurt of Northern industrial output and profit.” (Goldman, 2007). So, together with a huge increase in loans, a change in vision of the Bank and a changing political landscape…
“he helped package the idea of the ‘‘green revolution’’ as the best offense against the rising tide of ‘‘red revolutions’’ sweeping across the postcolonial South (Kapur et al., 1997; McMichael, 2000)” – (Goldman 2007).
…the Bank decided to attach conditions to their loans;
The World Bank’s decision to engage in adjustment lending was probably influenced by the oil price shock. Officially, the Bank wanted to support developing countries, which were affected by the recession in most industrial countries and worldwide inflation. However, the deterioration in non-‐oil developing country’s external environment at the end of the seventies might have induced an unwillingness to service their debt if the expected net flow would have been negative (Polak, 1994: 10) what probably strengthened the Bank’s decision. Moreover, adjustment lending provided the Bank’s staff with more leverage over members’ policies, which increased its power and prestige. – (Dreher, 2004)
Under this new Bank regime, the focus expanded on macro-‐economic policy and government restructuring. ‘‘Growth with redistribution’’ evolved into a neoliberal agenda of ‘‘economics first’’. This became a great success, as the countries that already had an outstanding loan and wanted another loan had to comply with the Bank’s conditions and didn’t have a realistic second option. The following citation of Dreher (2004) argues that:
“Politicians can employ conditionality as a commitment device (Dhonte, 1997). In order to enhance policy credibility governments tie their hands by including their preferred policy measures in programs with the IFIs. A similar proposal points out that rejection of government’s preferred policies by opponents becomes more costly when those policies are tied to conditionality (Vreeland, 2001; Vaubel, 1991). “ – (Dreher, 2004)
Instable governments, lack of powerful institutions, and a high occurrence of corruption characterize countries with a Bank loan and national politics of instable countries made it even easier for the World Bank to tie countries to their conditions. It is important to mention that the Bank’s conditions differ over time,
as they are subject to different interests of stakeholders and changes in power of time.
To get back to the scope of this essay, drinking water privatization, I will focus on a privatization scheme that occurred under the influence of The World Bank Group. I will elaborate on how the powers mentioned above came into action and tensions rose.
In 1990, the Bank together with the Bolivian government started a project called “Major Cities Water and Sewerage Rehabilitation Project”. It was intended to improve drinking water provision and sanitation. It covered three large cities namely, Santa Cruz, La Paz and Cochabamba. In 2002, the World Bank stated that the loan for this project included a condition to privatize the La Paz and Cochabamba water utilities. The privatization was required to allow a two-‐year extension of the project that was due to close in 1995. As the city of Santa Cruz was able to improve it services in time, the conditions only applied to the cities of Cochabamba and La Paz where access to piped water had decreased from 70%-‐40% (World Bank).
Following up these events, and under high pressure of the Bank, the government
decided to grant a 40-‐year concession to the only bidder; Aguas del Tunari. A
consortium of British firm International Waters, part of the American
construction company Bechtel Enterprise Holdings, a Spanish construction firm
Abengoa and four Bolivian construction companies. The companies had a stake of respectively 55, 25 and 5 percent for each Bolivian construction company. It is clear that this project was in great favor of the two “western” companies and the Bank, again, succeeded to gain influence. The consortium had the goal to double the coverage area and to introduce electrical production to the region. To secure the contract the consortium had to fund the completion of a dam, which was of high interest of local politicians and the mayor of Cochabamba. The dam, as of today, is still “under construction”, but not financed by the members of the consortium. It seems that this agreement was only meant to secure their interests.
The government verified the concession by implementing a law (Law 2029) that would give the consortium a monopoly on all water resources, including resources that weren’t part of the drinking water provision before. Locals feared
that this also included water used for irrigation (Nash, 2002). Although the
consortium never did, the law provided a legal basis to sell all water resources. From that moment on tensions started to rise and inhabitants got anxious. Right after taking control, the consortium raised tariffs with an average of 35%, not knowing that this was a huge amount of money for the many poor in Cochabamba. In their ignorance they cut-‐off the poor from water provision. This, of course, goes against human rights. The tariff raise resulted in huge riots and
protest from the cities population, known as Bolivia’s “Water War”.
When asked about the events in Cochabamba during a press conference in Washington, D.C., World Bank President James Wolfensohn maintains that people in Bolivia and elsewhere should be charged for the use of public services (such as water), as public subsidies of such services lead to waste. According to Wolfensohn, "The biggest problem with water is the waste of water through lack
of charging."
The conflict ended in a settlement where all parties agreed to drop financial claims against one another.
It’s one of plenty water privatization schemes where the World Bank Group made misuse of a countries despair (South Africa, Ghana and others). As of today the World Bank Group continues to support and push privatization, arguing that the public sector failed in providing a stable water provision. This is only partly true since the bank only focuses on under-‐developed, highly indebted countries, where corruption and lack of powerful institutions are the main drivers for a failed water provision and not necessarily a public provision in general.
To support the matter, upon McNamara’s appointment as President, the Bank started to train it’s own staff, members of state borrowing state agencies, staff of NGO’s, academics and employees of engineering firms who it would hire in future projects. There are more than 48.000 participants in 150 countries that, under a broad range of technical titles, are being taught “to generate, tailor, and manage the lending efforts of the Bank, and contribute to the production of
green neoliberalism around the world” (Goldman, 2007).
Of course the Bank is not on its own and is supported by various stakeholders and supporters of the neo-‐liberal framework. Large, multinational private water companies such as Suez and Veolia Water, international consultancy firms such as PriceWaterHouseCoopers and KPMG have been and still are actively promoting the privatization of water provision. There is also a large contribution of the financial press and media who, maybe due to the journals published by the Bank, seem to have an overall bias towards privatization (McDonald & Ruiters, 2005).
Now, this essay is not meant to evaluate the pros and cons of a privatized water provision, neither to support a public provision. I’m convinced that both arrangements can work, hence a successful public provision in The Netherlands and a successful private provision in England. However, the World Bank Group seems to have only one policy on the menu without considering the other options. This is not in line with the initial aim of the World Bank Group. For organizations with names like International Development Association and
International Bank of Reconstruction and Development it seems to be a rather odd policy to knowingly and willingly risk the drinking water provision in under-‐ developed countries. Especially when taking into account that they are an observer of the United Nations Development Group. Overall the World Bank Group has a lot of power to encourage development in corrupt and weak countries to ensure water safety. However, since McNamara, they do not seem to value drinking water security over the stakes of Corporate America.
Reference
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Goldman, M. (2007). How “Water for All!” policy became hegemonic: The power of the World Bank and its transnational policy networks. Geoforum, 38(5), 786–800.
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Dreher, A. (2004). A public choice perspective of IMF and World Bank lending and conditionality, (119: 2004), 445–464.
Kapur, D., Lewis, J., P., Webb, R. (1997). The World Bank: Its First Half Century, vols. 1 and 2. Brookings Institution, Washing-‐ ton, DC.
McMichael, P. (2000). Development and Social Change: A Global Perspective. Second edition Pine Forge Press, Thousand Oaks.
Nash, J., C. (2002). Social Movements: An Anthropological Reader. United Kingdom: Blackwell Publishing.
Against Global Apartheid: South Africa meets the World Bank, IMF and international Finance. (2003). ISBN: 1 919 71382 4
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