Tuesday, 29 March 2016

Trade, sustainability and global governance

On 1 January 2016, the 17 Sustainable Development Goals (SDGs) in the 2030 Agenda for Sustainable Development, adopted in September 2015, came into force, replacing the Millennium Development Goals (MDGs) framework that that shaped the international development agenda from 2000 to 2015.

So has the era of sustainability as a guiding norm for global governance arrived? As Jennifer Clapp explains, ‘governance frameworks are rarely guided by just a single normative idea, often it is the interaction of different norms that shapes policy outcomes’. Sustainability ‘shares the stage’ with another powerful norm - trade liberalisation. Increasingly, norms of trade liberalization and sustainability are presented ‘side by side’, as if mutually supportive. In the agri-food sector, for example, a liberalised trade regime is typically presented as not only compatible with but the means by which sustainability can be achieved.

The ‘trade supports sustainability’ argument relies heavily on the concept of comparative advantage, devised in 1817 by David Ricardo to explain aggregate efficiency gains realized when each country specialises in production of just those goods for which it enjoys comparative (if not absolute) advantage. What the theory assumes is that only goods, and not capital and labour, cross national borders. This is clearly not the case in a contemporary global trade regime, however, which is shaped by transnational corporations able to invest in ‘multiple locations around the world, and at numerous points along global supply chains’ undermining ‘that most basic assumption of comparative advantage, that is that capital is not mobile between countries’.

A Magna Carta for investors

While the ‘trade supports sustainability’ position broadly informed discussions at the Sustainable Development Summit, specific questions about how policies to achieve the SDGs might potentially conflict with commitments under preferential trade agreements and bilateral trade agreements (BITs) were sidelined. In particular, and unlike the SDGs, such agreements are enforceable though highly coercive ‘investor-state dispute settlement’ (ISDS) mechanisms. The inclusion of ISDS in a trade treaty or BIT enables overseas investors to sue national governments (but not the reverse) for profits lost, for example, as a result of appropriation of the company’s assets. The judgements (handed down by corporate lawyers, not judges) are binding and, it is said, irreversible.

A recent article in the Guardian revealed that the ISDS mechanism, which turned 50 last year, has a long and chequered history. The idea of ‘investor protection’ was originally conceived by European investors as a way to protect investments in former colonies. Herman Abs, then Chairman of Deutsche Bank Chairman described it, apparently without irony, as ‘a Magna Carta for private investors’.

ISDS was subsequently adopted by the World Bank, despite strong opposition from developing countries, in the belief it would ‘help the world’s poorest countries attract foreign capital.’ In 1964 the Bank set up its ‘International Centre for Settlement of Investment Disputes’ (ICSID), which remains the premier tribunal for hearing ISDS cases worldwide, and ISDS has since been a standard component in trade agreements with developing countries.

According to the authors of the Guardian article, a mechanism devised to protect against seizure of assets has suffered from rather an extreme case of mission creep. “The number of suits filed against countries at the ICSID is now around 500 – and that figure is growing at an average rate of one case a week.” These days multinational corporations routinely use ISDS, not only to recover money already invested, but for alleged “expected future profits”. Under this generous interpretation several governments have been sued for legislating to protect employment rights and social and environmental standards: In other words, the kind of measures that would be consistent with achieving the SDGs.

Treaty Alliance

The largest award made by an ISDS tribunal was by the Government of Ecuador, to the Occidental Petroleum Corporation in 2006, for $1.7 billion. Interestingly, while the tribunal found in the government’s favour (that the company had indeed violated Ecuadorian law) it nevertheless ruled damages be paid to the company on account of the government’s ‘disproportionate’ response of terminating the contract.

At a conference I recently attended, Maria Fernandez Espinosa, Government Minister and Ecuador ambassador to the UN outlined a series of events that have unfolded since that time. In 2007 Bolivia withdrew from the ICSID Convention, followed by Ecuador in 2009 and Venezuela in 2012. Between 2008 and 2010 Ecuador terminated nine BITS and have since declared several more to be ‘inconsistent with the country’s constitution’. The Government of Ecuador is now leading creation of an alternative, regional centre for dispute settlement under the rubric of the Union of South American Nations (UNASUR).

In her keynote speech, Espinoza reflected on ‘why are there not also treaties to force transnational companies to respect national laws, human rights and nature?’ Ecuador has, together with South Africa and several other countries in Latin America, along with hundreds of civil society organisations, formed the ‘Treaty Alliance’ in favour of a binding regulatory treaty with respect to human rights. Despite strong opposition from developed countries, in 2014 a UN resolution was passed to establish an intergovernmental working group: 

At its 26th session, on 26 June 2014, the UN Human Rights Council adopted resolution 26/9 by which it decided “to establish an open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights, whose mandate shall be to elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises.”

Look South

Unlike the MDGs, which assumed that only developing countries were in need of ‘development’, the SDGs are indeed ‘Global Goals’ that apply to all countries. However, as Richard Jolly argues in a recent blog, ‘if the challenges are universal, so too are the lessons of experience, achievement and failures. A change of mindset will be needed – and some humility. No longer will the more developed countries be able to dispense wisdom and instructions to poorer countries about what they ought to be doing… breaking the cycle of poverty is far from easy. Which of the richer countries have done it? Not the UK, in spite of more than 200 years of growth and ‘development’. Nor the US, France, Germany or Russia’.

In a recent article in the Conversation, Ian Scoones argues that a question that is often asked; ‘what can Africa learn from Greece?’ is the wrong question. What we should be asking is: ‘What can Greece learn from Africa about effects of austerity after a debt crisis?’ Similarly, as civil society groups and citizens in the Global North grapple with implications of a raft of new trade and investment treaties (the alphabet soup that is TTIP/TAFTA, CETA, TPP and TISA) for sustainable development, surprisingly little is heard about developments in the Global South, particularly in Latin America, from where workable alternatives look most likely to emerge. So perhaps the most important lesson yet to be learned is the need to look South for lessons.

By Sally Brooks; follow her on Twitter

Tuesday, 8 March 2016

Public sector outsourcing: What have we learnt and what is still unclear?

From the early 1980s onwards public sector outsourcing – the delivery of public services by private sector organisations – has become increasingly common place in the UK and internationally. While the language may have changed along the way, with Compulsory Competitive Tendering giving way to Public Private Partnerships, the underlying intention has remained consistent: to harness the power of competition in order to improve the efficiency, responsiveness and quality of public services. These aims have been reinforced by successive governments.

Since outsourcing is now so well-established, what can be learnt from this long-standing experience?

First, the impact of outsourced arrangements in terms of efficiency, quality and value for money seems to be mixed, but is also quite hard to assess. As the Institute for Government notes, one reason for this difficulty is the lack of transparency about both the terms on which contracts are let and how they perform. While there have been several high-profile failures, such as those involving Serco and G4S, it is hard to gauge how representative these are of outsourcing experience in general. It is certainly interesting to note though, that in some quarters there seems to have been a turning of the tide, with some recent examples of previously outsourced services being brought back in-house. In 2011, for example, the Conservative-led council in Cumbria decided to bring its contracted-out highways and road-works services in-house, citing rising prices and lack of flexibility, with similar decisions since being made in some other local authorities. These shifts indicate that, at the very least, the evidence about impact doesn’t all point one way.

Secondly, there is no shortage of incisive analysis pointing out the lessons that have been learnt within the public sector about the conditions for success. Reports by the National Audit Office (NAO) in 2012 and by the Institute for Government and the Public Accounts Committee in 2013 and 2014 respectively, all looked in depth at the problems and challenges of public sector outsourcing. The recommendations by these reports can be grouped, broadly, into a three-part agenda, dealing with:

  • Oversight arrangements. This includes having clear rules in place to govern market-based arrangements, having a clear understanding of each particular market and, crucially, knowing whose job it is to perform these oversight functions – a point made in the Institute for Government’s report on ‘Making Public Service Markets Work’. The need for transparency also fits in here.
  • Making markets work effectively. This heading sub-divides further into demand- and supply-side measures, aimed respectively at empowering users and at enabling entry to and exit from the market.
  • Contract management and delivery. Here the emphasis is on contractors having the skills to design, manage and monitor contracts. As the Public Accounts Committee commented: “government needs a far more professional and skilled approach to managing contracts”, warning that “there are serious weaknesses in the Government’s ability to negotiate and manage contracts with private companies on our behalf.” Continuing concerns about weaknesses in this area are signalled by the recent announcement of a Cabinet Office review of £500m worth of outsourcing contracts held by Atos, following a major failure in their work on an IT contract for GPs.
There seems to be, then, a clear consensus about current problems in public sector outsourcing and how they need to be addressed.

The third point to note concerning the current state of play, though, concerns the criteria that are being used to assess the outcomes of public sector outsourcing. Almost across the board, the start and end point is that of ‘value for money’. This emphasis is echoed in, for example, the title of the NAO’s report on ‘Delivering public services through markets: principles for achieving value for money’. This is not surprising, given that value for money has been at the heart of the rhetoric that drives these arrangements.

It does lead, though, to some questions and dilemmas. Value for money has to be interpreted, and this involves deciding on the appropriate trade-offs between efficiency, economy and quality. In this complex process of decision-making, it is all too easy for the interpretation to focus solely on costs at the expense of a clear-headed view about how those costs relate to the outcomes achieved. An emphasis on value for money can also lead to a market-centric perspective in which the analysis of both the process and outcomes of outsourcing tends to focus on the workings of a particular sector or market rather than on the wider implications. This emphasis can be seen in the three-part agenda set out above.

These wider implications are important for the users of public services. As the Institute for Government points out, service users may have multiple needs and yet each commissioner will tend to focus on just one narrow part of these needs. There are also wider implications for providers. What happens to the strategic capacity of a local authority when it has outsourced its services to such a degree that it no longer has the capacity to take a strategic view about the future shape and pattern of services? What happens to organisational learning – both about the process of contracting-out and the outcomes achieved – when that strategic capacity degrades? What impact does this then have on public sector managers’ capacity to take the professional and skilled approach that the Public Accounts Committee has called for?

These questions about the impact of outsourcing on strategic capacity and organisational learning urgently need adding to the agenda identified above.

Ellen Roberts – follow me on Twitter