table I
Water concessions in central Europe informing multinationals (PSI, 1997)

Country

Location

Company

Multinational

table 2
Employment and privatisation (PSI, 1997)

Country

Location

Company

Multinational

Number employed before joint venture

Number employed 1997

These drawbacks seem mostly to impact the water sector in developing countries. At the ninth session of the United Nations Conference on Trade and Development (UNCTAD, 1996) in Midrand, South Africa, several leaders from developing countries protested that liberalisation and the politics imposed by IMF and World Bank had run their local companies out of business and marginalised their economies. Opening up national economies to foreign investments has in fact resulted more in the selling of the natural resources in the developing countries more than a bilateral implementation of trade, since developing countries cannot counteract the economical power of the multinational corporations of the First World. Often foreign companies put in bids for a contract at a price too low for them to be able to cover their costs. But they accept these short-term losses, so that they can get their foot in the door of service delivery. Then they can gradually take over the small companies who are trying to compete against them. In this way, the big multi-nationals swallow up small local firms.

The Human Development Report (UNDP, 1996) contradicts the conventional wisdom that economic growth has been benefiting most of the world's people. For 70 developing countries, today's levels of income are less than in the 1960s and 1970s. The Human Development Report (UNDP, 1997) indicates a decline in human development since the creation of the Human Development Report in 1990. Can privatisation of the water sector really meet the needs of all people, and provide the basic services that are needed? Will the big multinationals be accountable to the people living in the communities where they supply water? Or will they be accountable to their shareholders? International economic and social policies of water and environmental management must be developed bearing these questions in mind, in order to avoid conflicts with basic human rights, such as the right to life and the right to development.

3.2. Impact of free trade on water resources

The goal of free trade is to raise the life standard and the economic growth of trading countries (Wilson. 1994). But free trade can imply national deregulation, which increases environmental problems in presence of environmental externalities. A main role in this chain process is played by multinationals of the First World, currently called Trans-National Corporations (TNCs) of industries. TNCs push now more than ever to conveniently approach developing countries markets to industrialise, exploit and export their natural resources to the First World. The situation could have been even more non-transparent if the negotiations of the Multilateral Agreement on Investments (MAI) had been approved by national governments within the frame of OECD. MAI is an agreement to deepen and broaden international investments by non discriminating between domestic an foreign investors and by superseding national legislation in favour of global market regulations (Singer & Stumberg, 1999).

Since the world's Trans-National Corporations account for two-thirds of the world trade in goods and services (Corporate Europe Observatory, 1998; Raghavan, 1996), their capital availability submerge the competitors operating on a more local or national scale. This process has been helped by the pressure by international institutions to open the national economies to foreign investors. Moreover, the global dimension of some corporations has brought them much economic power, so that the TNCs can now impose their own economic trends, and influence, as well as protect, their own trade market on a local. regional and continental scales. But assuming that deregulated investments generate economic benefits worldwide, it is forgotten the way in which such economic benefits are distributed between the countries and within a country.

New investments surely have some advantages for the local economies (e.g. create employment), but the economic wealth of the country hosting the production will decrease in the long term when compared to the most developed country exploiting the resource. Most of these revenues will in fact benefit the home GDP of the TNC in question. In addition to this, the weak political and environmental policy that exist in many developing countries allow to decrease the expenditure in environmental monitoring and control in order to maximise the profits. The impacts caused by TNCs and increase in trade may be illustrated by the risk to the groundwater and surface water resources:

Higher energy demmand and its direct impact on the hydrogeologic cycle: an increase in production requires a higher energy demand both for production and for transportation (Energy Information Administration, 1996). This is the trend the World is running into. Since at least the past one to two decades, the shift of the TNCs production to the so-called nations of the "South" because of the reduced production costs as well as the industrialisation and the development of the nations of the South have in fact increased the global demand for energy. Such demand is still rapidly increasing. However, due to the still high costs and low efficiency of renewable energy international funding is currently still going to sponsor large-scale fossil fuel projects to help the industrialisation of developing nations (Brown et al., 1999). Even if the world becomes more aware of the damaging consequences of fossil fuel consumption upon the global climate, the emission of greenhouse gases, the destruction of the ozone layer as well as the release of volatile toxic compounds can potentially disrupt the hydrogeological cycle on a local and global level. Climatic changes may affect a wide range of water-system components by bringing changes in rainfall events and in surface and groundwater quality, affecting the timing and magnitude of floods and droughts, shifting runoff regimes and altering groundwater recharge characteristics (Frederick & Gleick, 1999). The Kyoto protocol of 11 December 1997 calls for the industrialised nations - the so-called Annex I countries - to reduce their average national emissions over the period 2008-2012 to about 5% below 1990 levels. This international policy approved by the UN has been raising many discussions, since the production of TNCs started to move outside the countries included in the Annex I for many years ago. Such discussions have brought claims from developing countries, since their involvement in the protocol would interfere with their right to development.

Persistent Organic Pollutants: an increase in economic growth and trade implies an increase in the production of persistent organic pollutants used by TNCs to create pesticides, synthetic fibres, plastics, pulp and paper, detergents and other kind of goods, All these substances represent a serious hazard for groundwater quality (e.g. Little, 1994; Walker & Porter, 1990).

Exploitation of natural resources: the unregulated exploitation of extractive industries is rapidly depleting resources such as forestry and mining in some of the poorest parts of the world. Heavy deforestation and mining are the source of serious changes in groundwater chemistry and groundwater pollution (Beeby, 1993; Chen et al., 1997). The unregulated extraction of groundwater for agriculture, industry and potable use has shown also to seriously affect the quantity and quality of water resources (Faye, Gaye, Faye & Malou. 1997, Foster. I 998).

Unsustainable agriculture: since TNCs control virtually every step of the food production and distribution system, the practices primarily governed by a competitive policy in terms of quantity and quality. This implies an extensive use of fertilisers and pesticides in order to maximise the productivity of agricultural lands, the impact of fertilisers and pesticides on the quality has been extensively documented (e.g. Gianessi and Puffer, 1990; Foster, 1998).

Trade of toxic wastes: the impact of nuclear and other toxic wastes on the groundwater resources is a very well known problem. The neo-liberal economy has implied that toxic wastes, like anything else in the context of free trade, is treated as a commodity. However, countries where the economic costs of internalising, processing and disposing wastes are the lowest, and where the economic and political force to resist this is the lowest will receive the wastes, despite international conventions on hazardous substances (YICED, 1998). Also GATT Contracting Parties in the mid and late 1980s stated that the importing country should be fully informed about the products it was receiving and has the right to reject them if it felt they would cause it environmental or public health problems. Therefore, the South regions of the world end up being a target for many regions of the North for bearing also the less hazardous wastes of the North since it is conveniently considered as a saturated market.

Global corporations, which have main responsibility for such a large number of environmental problems around the world such as surface and groundwater pollution, are well situated to help resolve the planet's environmental problems - were they actually committed or compelled to do so. They have the financial and human resources to create, invest in, produce and distribute new technologies and production processes that alleviate the stress on water resources. But often, the production of goods does not take into consideration the cumulative impacts of the production process: water pollution, as any kind of pollution, results in increased spending for governments on health care and remediation to avoid loss of biodiversity. In sensitive areas to pollution and withdrawal, where the deterioration of the aquifer can bring dramatic socio-economical consequences, it is then far more cost effective to invest in pollution prevention than in remediation.

In recent years leaders of some of the world's most powerful corporations have begun calling for environmental change, but their kind of change does not measure up to the vision of a sustainable world. The trend among impulsive environmentalists is, therefore, to consider international corporations within the context of economic globalisation as promoting accelerated environmental destruction along with social dislocation.

However, trade and environmental objectives are not necessarily in conflict, and liberalized trade may be a key for resolving environmental issues. More trade in pollution-control products could improve the environment by the spread of new environmental technologies to trading partners. Moreover, it is only with better economic conditions that developing countries will have the ability to pay for social and environmental improvements. But since the living, standard of the most developed countries is recognised as being unsustainable, modalities for developing joint environmental and trade solutions need attention. As pointed out by Wilson (1994), a primary cause of environmental degradation is market failure, but not trade liberalisation. One type of market failure occurs when, for example, production pollutes a nearby river, but the cost of the product produced does not include the cost of environmental degradation.

In the case of water resources, this consideration implies that the most efficient remedy is to address the market failure at its source, either by establishing or enforcing property rights, or with policies such as taxes, subsidies. It is the duty of the government to restore or protect the resource by using income from taxes. The idea of pollution tax was first put forward by Pigou (1920), who suggested the "polluter pays" principle. The principle was in fact to impose a tax just equal to the damage cost of pollution. However, even if in theory the Pigovian taxes are based on a right principle of a self-regulating free market economy, in practice economic regulatory taxes too often underestimate the damage of the impact, since they neglect the indirect damages. Groundwater, for example, often makes significant contribution to valuable ecological services that are very difficult to quantify, e.g. the prevention of salt water intrusion or of ground subsidence, the preservation of biodiversities (National Research Council, 1997; Scharp, 1999).

The "share of the good" is one of the main reason for environmental degradation. No one owns the good, but money is paid to share the use of a common good such as oceans, lakes, rivers or groundwater. However, the adoption of a private good policy may have several drawbacks. Property rights may be the source of severe speculation and the result could be rather costly. They may also be the source of severe disputes and ambiguity both at a national and international level. When selling a property, the owner tends in fact to defend its sovereignty upon it, and to optimise the profits from its investments. If the good is bought by speculating people, in some cases it could be seriously mismanaged, since the polluters have no incentive to take environmental degradation into account in their production process. A major problem consists then in the practical possibility and ethical correctness of selling important social goods such as some water resources.

Moreover, international rules established by the WTO do not allow to apply trade restrictions to attempt to change the process and production methods - or other policies of its trading partners basically because the issue of production and process methods lies within the sovereign jurisdiction of each country (Ruggiero, 1995). But despite foreign impositions on process and production methods go against the Declaration on Right to Development as contained in the UN Resolution (General Assembly Resolution 41/128, 4 December 1986), in many case it can, however, advantage productivity but disadvantage the respect of the environment. This issue of production and process methods underlies the pressing need to reach a common and multilateral solution to specific international political and social issues.

4. Conclusions

For the first time in human history all different spheres on which human society is based, are reaching global dimensions. Privatisation, international production and free flows of capital, goods and services have been imposed by the major international financial institutions for reaching a global economy that "at the end will benefit everyone". The interaction, the cause and effect scenarios of neo-liberalism are complex. Indexes of human development and increasing signs of disappointment in the poorest countries of the world show that neo-liberalism may disadvantage many - mostly the poorest - and the environment.

The introduction of new global economic policies too often concentrate on ways to increment competition and business, but without considering how the benefits are distributed between the countries and within a country. Moreover, many indirect costs that increase the social costs are often not fully considered in new global economic agendas. Investments are necessary to clean the water that is polluted by an increase in industrial production and trade. Pollution results in increasing spending on health care and restoration of ecosystems. In case pollution causes a loss of biodiversity, such loss could be priceless. Once lost, the species will never return. Much attention must be therefore paid to the drawbacks of the current capitalist system if we want the global development to tend toward sustainability.

Privatisation of public water has been shown to bring mismanagement and corruption among the private investors, if no severe control from some public institution is made. From a groundwater management point of view, the roles of privatisation must be optimised and adapted to take into account the social consensus. Too much freedom to foreign investors may not meet people's need due to conflict of interests between the private company, whose aim is to increase the profits, and the consumers, which ask for high quality services at a low price.

Efficient water management is an absolute prerequisite for improving the economic growth of more and less developed countries. Improving living standards and increments in population growth are in fact accompanied by an increase in water use (Biswas, 1998). It is therefore necessary to be aware of the main sources of threat to water resources. Trans-National Corporations (TNCs) can play an important role in the deterioration of natural water resources, especially in developing countries. But environmental degradation occurs because of one type of market failure, in which the total private costs of extraction and exploitation of water do not take into consideration the cost of environmental degradation. Water, at least for industrial uses, should be charged on a total-cost basis, in which the price of degradation is taken into account. The introduction of the "Polluter Pays" principle and Pigovian taxes is one step forward in sustainable water resource management. However, the valuation of water and groundwater uses is a very difficult task (National Research Council, 1997), and the introduction of a full-cost system needs implementation and extensive research at least in the following areas:

• valuation of intrinsic economic values of groundwater resources;
• economical quantification of the impact on water quality and water quantity;
• development of hydrogeological and hydrological cost-benefit analysis methods;
• development of new charging systems for exploitation of water resources,
• water laws and water rights for national and international waters;
• development of more cost-effective depuration systems.

Economic globalisation will surely raise more environmental, social, and technical challenges for policy makers within the next decade. Now governments must recognize and work with a situation where most issues are decided internationally. But despite a key word of the neo-liberal economy being deregulation, the structure of public systems must be adjusted and the rules enforced if national governments want to effectively protect the citizen's rights to satisfy basic needs such as the availability of clean and affordable water for drinking and agricultural purposes.

If the national political role will continue to weaken because of political issues decided at an international level, the national governments will probably act much more as a control authority for social, political and environmental measures than they are doing today (Fig. 1). In this case, some new intermediate pawns that enable communications between the citizens, the environmental rights and the state will probably be needed. Moreover, the increasing world population and the related stress on the world's water resources need stronger national and international organisations that regulate and supervise the extraction of the world resources in a sustainable way. The use of a certain amount of water used in industrial processes is estimated to give an economic profit which is 70 times greater if the same amount of water is used for agricultural purposes (Brown et al., 1999). However, many times these products do not satisfy the basic needs of the people and their production can be of great impact if the industrial process discharges hazardous and toxic compounds. This also shows that a measure of the wealth of a country measured by the GDP cannot be considered as sustainable, and other environmental indexes must be considered by the international institutions for an overall measure of the wealth of a country.

Discussions are ongoing at the global level by political and company leaders of the globalisation institutions - IMF, World Bank, WTO, OECD etc. - to involve the UN system and the international NGOs into a corporate decision-making structure. Stronger environmental organisations set up at country levels that represents the will of mobilised local people and its right to a sustainable local environment are probably the only effective mean to counter attack, regulate and supervise the economic exploitation of regional and local water resources and the related global trade. Under this perspective, the actual freedom of TNCs and multinational companies should be revised accordingly. Greater public participation is a key issue in Agenda 21. It is high time for governments to actively promote environmental organisations to take part in the planning and decision-making process of the water sector at all planning levels i.e. national, regional and local.

Acknowledgements

We thank Davide Lombardo at the Department of Economics, Stanford University, for the valuable comments.

©1996-2002 CMHC-SCHL

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