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United Nations Development Programme (UNDP)

Can privatisation and commercialisation of public services help achieve the MDGs?1
An assessment


International Poverty Centre, Working Paper number 22

Kate Bayliss2 and Tim Kessler3

United Nations Development Programme (UNDP)

July 2006

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Abstract

Basic services are essential to reducing poverty and improving quality of life. This working paper focuses on health, education, energy and water. These services contribute to achieving the Millennium Development Goals, as well as being goals in themselves. Over the past twenty years or so, the way in which these services are provided has been subject to considerable policy debate. There has been widespread questioning of the ability of the public sector to effectively deliver such services. Largely as a result, market-oriented solutions have been promoted as a means to overcome apparent constraints posed by state-provided services.

Notwithstanding the weaknesses of state provision in many countries and localities, this working paper argues that reliance on private sector provision will fail to address the central challenges of public sector delivery. Furthermore, the process of privatisation creates an incentive framework that undermines, rather than strengthens, the accountability and capacity of the State to provide accessible and affordable services. In addition, the paper argues that the adoption of full cost recovery policies can seriously threaten achievement of the MDGs. This position does not constitute a blanket statement against private sector participation in public services or against user fees. Rather, it maintains that market-led policies fail to contribute to the MDGs and often reduce the likelihood of achieving them. Strengthening the State in assuming central responsibility for providing essential public services will help correct these setbacks.

Introduction

At a meeting of the United Nations (UN) in September 2000, all 189 Member States of the United Nations adopted the Millennium Declaration. Of these, 147 were represented directly by their head of state. The declaration committed its signatories to promote a series of goals for poverty reduction to be achieved by 2015 (UN Millennium Declaration 2000) (see Box 1). These Millennium Development Goals (MDGs) are time-bound, quantified targets for addressing the many dimensions of extreme poverty (such as income, shelter, health and education) while promoting gender equality and environmental sustainability. Furthermore, some of these goals, such as access to water and shelter, can be considered to be fundamental human rights. Five years later, at the UN summit in 2005, government leaders reaffirmed their commitment to the goals.

Unfortunately, there has been limited progress towards achieving them. The 2005 Social Watch Report, which monitors progress on poverty reduction goals, concludes that if current trends continue, the MDGs will not be achieved by 2015. Aid agencies tend to be more optimistic. However, they admit, for example, that if the goal of halving extreme income poverty is achieved, it will be almost entirely due to advances in Asia.1 For sub-Saharan African countries, in particular, the MDGs seem like a fading dream. By the World Bank’s estimate, the average daily income of Africans earning less than one dollar per day dropped from 64 cents in 1981 to 60 cents in 2001 (World Development Indicators 2005).

1.1 SHIFTING THE DEBATE

This working paper examines the impact of market-oriented reform policies on the delivery of basic services. There is consensus that achieving the MDGs will require efficient and equitable delivery of basic public services, especially water, electricity, health care and education. The debate is over the choice of policies. Privatisation and commercialisation gained popularity during the 1990s as the way to overcome the perceived deficiencies of the State sector in the delivery of basic services. In the last few years, some of the difficulties with such policies have been acknowledged even by those that most supported reforms, particularly for privatisation. Today the main controversy is not so much over whether market-oriented approaches entail risks: they do. Rather, it is whether governments should invest in improving traditional public sector service delivery, or establish an institutional framework that reduces the risks of opting for privatisation and commercialisation.

Two premises drive the following analysis. First, the debate over public service reform needs to be focused on poverty reduction. Emphasising this does not imply a rejection of the principles of efficiency and fiscal discipline that until recently have dominated reform proposals. Nor is it necessary to categorically reject either user fees or private sector participation. However, as case after case has shown, service providers can become more profitable, governments can save money, and the quality of existing services can improve – without poor people increasing their access to or sharing the benefits of these advances.

The second premise of this paper is that achieving poverty reduction goals requires an explicit government commitment – including corresponding resources – to provide a minimum level of public services for all citizens. This level need not be the same for all governments: highly impoverished countries and failing states will have different prospects than better resourced middle-income countries. However, unless the State defines the range and scope of minimally acceptable services, as well as its own responsibilities in providing them, it will be difficult for citizens to hold their political leaders accountable.

Focusing the debate on achieving the MDGs ensures that the priority outcome of service reform is the impact on the lives of the poor rather than specific indicators of service performance. It is worth emphasising that this approach is consistent with some of the basic principles of conventional policy analysis, especially those of maximising public spending on the poor and increasing the accountability of service providers to service users. But an MDGcentered approach also sharpens the recognition of the fundamental challenges to achieving poverty reduction goals posed by commercialisation and privatisation.

Rather than embrace fiscal savings as an intrinsic good, such an approach asks what equity trade-offs are involved in applying user fees and how the policy will affect affordability. In particular, an MDG focus questions the policy relevance of ‘willingness-to-pay’ surveys that show that poor people are willing to use a significant amount of their own income to pay for utilities and social services (Water and Sanitation Program 1999). It is not surprising that lowincome people state that they would pay commercial rates for basic services when the State does not provide them. Such services are central to their livelihood and even survival. However, paying commercial rates inevitably requires poor people to cut back on other consumption: food, clothing, and other commercialised services. The fact that people may make sacrifices to survive does not justify a policy that forces them to make those sacrifices.

BOX 1
Basic Services and MDGs
Effective delivery of core basic services is crucial to achieving the MDGs, both as specific goals in and of themselves and as inputs to other targets. Poverty is multi-faceted and requires an integrated response across sectors. The basic services addressed in this paper have a direct impact on poverty and interact to promote specific MDGs.

Electricity helps reduce poverty by increasing productivity, and improves health by reducing indoor pollution and respiratory ailments caused by biomass heating and cooking. It promotes education by enabling students to work at night and frees children from the burden of collecting biomass.

Improved access to water and sanitation is an MDG in its own right, the explicit target being to halve the proportion of people without sustainable access to safe drinking water and basic sanitation by 2015. The provision of water and sanitation contributes most directly to health by reducing waterrelated disease and associated child mortality. Better health, in turn, leads to higher productivity and reduced poverty. As with electricity, water access frees children (especially girls) from collection chores and improves the prospects for spending time studying. Water access is also an essential element of gender equality, easing the burden of collection and time spent caring for sick children. Accessible sanitation facilities also put women and girls at less risk of sexual assault.

The second MDG aims to provide complete primary education by 2015 for all children. Primary education contributes to poverty reduction by improving productivity and the ability to adapt to a changing labour market. Education is also associated with the use of contraception and access to prenatal care, reducing maternal and child mortality. Literacy programs in general improve hygiene, reduce the risk of HIV and promote the appropriate use of medicines.

Finally, health care is an element of three MDGs: reduced child mortality, improved maternal health and the reduction of HIV/AIDS, malaria and other diseases. In addition, improved access to health care contributes to poverty reduction. In particular, health care reduces the likelihood of prolonged illness or premature death, which can have a devastating and permanent impact on household income. It also contributes to the quality of education by improving school attendance (of both students and teachers) and mental concentration.
Source: United Nations, Millennium Development Goals Indicator Database, 2006. Available at http://millenniumindicators.un.org/unsd/mi/mi_goals.asp.


An MDG focus examines the relevant challenges and constraints in each sector and addresses them with an ‘unblinkered’ approach that carefully weighs the options of either private or public provision. It also entails a balanced analysis of the financial requirements for each approach, bearing in mind the different revenue-raising abilities of public and private actors. While the private sector might have easier access to international capital, for example, this is often at higher cost than government funds. Thus, in many cases, strengthening public sector provision could be the preferable option.


Footnotes:
  1. This paper was made possible by the support of the Poverty Group of the United Nations Development Programme and the International Poverty Centre. The work on this paper and some of the background research stems from a global UNDP project on Privatisation and Poverty Reduction. We extend special thanks to Terry McKinley, Acting Director of IPC, for his support of this work and his extensive comments on this paper.
  2. Independent Consultant, Sussex, United Kingdom.
  3. Senior Research Associate, Centro de Investigaciуn para el Desarrollo, A.C. – Mexico City, Mexico.


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