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Past Forums, March 2003 IN THE FIELD OF DEVELOPMENT, DO NORTHERN NGOSs ACT AS AGENTS OF THEIR GOVERNMENTS? CORRUPTION IS AN INEVITABLE PART OF ECONOMIC DEVELOPMENT
MULTINATIONAL CORPORATIONS: ENGINES OF GROWTH OR GLOBAL MONSTERS This forum took place on: Are multinational corporations (MNCs) the driving force behind global growth and development, or do they exploit cheap labour and degrade the environment? None of the panel, comprising Daniel Franklin of the Economist Intelligence Unit, Andrew Simms, Head of International Economics at the New Economics Foundation, and Dino Adriano, former chief executive of Sainsbury and Deputy Chairman of the Trustees of Oxfam, advocated legal measures to abolish of MNCs. For each, the question was about how they should be regulated. Franklin acknowledged that MNCs are bad at spreading wealth around the world, but he still believed that they are the most effective mechanism for redistribution available to us. Some MNCs may be particularly clumsy, lacking a proper understanding of the political, social and economic conditions within the countries they operate, but others are highly creative and a force for good. The Economist's Global Corporate Achievement Award seeks to recognise this, and to highlight the huge benefits of foreign direct investment (FDI) in raising living standards and spreading wealth throughout the world. MNCs are the main conduit for FDI, resulting in the transfer of technology and managerial know-how, create jobs and provide training. Franklin cited Eastern Europe and China, now the world's largest FDI recipient, as two regions where MNCs have contributed to economic growth and political stability, contrasting them with Russia where the investment environment is less favourable. He claimed that FDI is the unsung hero of development in less developed countries (LDCs) but feared that deteriorating international relations, particularly between Europe and America, will cause the Doha Round of trade talks to stall, discouraging further free flows of capital and undermining economic development among the world's poorest countries. Simms did not share this rosy view of MNCs, arguing instead that they are a major cause of environmental degradation which has its greatest impact on the poor. They also contribute to the widening gap between rich and poor countries, whose increased dependence on volatile commodity markets, where prices have halved since 1980, has added to political instability. Simms contrasted the divergent interests of sustainable development and MNCs. Whereas sustainable development seeks to conserve natural resources, capture wealth at source and empower local communities, MNCs extract and sell natural resources, repatriate the profits and seek to protect themselves from regulation. When MNCs like and Ford and GM together exceed sub-Saharan Africa, the balance of power between MNCs and LDCs enables companies to subvert social and environmental priorities. UN studies highlight the weak bargaining power of LDCs, resulting in an unequal distribution of benefits and the abuse of market power by MNCs. Simms also stressed the irony of MNCs being islands of central planning in a sea of market relationship, that enabled them to capture a disproportionate share of the gains. Even the Economist has warned that the ability of MNCs to avoid taxes, through transfer pricing and tax concessions, threaten to undermine the ability of democratic governments to raise revenues and respond to the demands of voters. Adriano highlighted this month's insistence by pension fund managers that pharmaceutical companies charge lower prices in poor countries as a triumph for the ability of civil society to exert pressure on MNCs. OECD studies showed that they paid better, invested more in research and development, exported more and created jobs faster than their domestic counterparts. Moreover, as FDI flows dwarf development aid, he could see no alternative to MNCs. However, like Simms, he acknowledged that instability in the poorest countries lead to high risk premiums, and FDI tends to go where commercial conditions were most favourable, to the detriment of much of Africa. He also highlighted the varying quality of FDI, the most beneficial resulting in backward linkages with domestic firms, for example in sourcing materials, contrasting this with the export processing zones in countries like Mexico where very few linkages were formed. The key, he argued, is to change MNC behaviour, both through pressure from NGOs and legislation, including the incorporation of International Labour Organisation standards by national governments in the developing world. Questions from the floor suggested scepticism about whether FDI does more than benefit local elites in LDCs, and Argentina was cited as a country that had opened its doors to investment and suffered as a result. The disproportionate influence of MNCs and northern governments at forums like the WTO was also seen as a problem, and some suggested the counterbalance of higher fuel taxes to encourage local production, and a greater emphasis on fair trade arrangements. Adriano believed that regulation must be light to ensure that investment continues to benefit the poor, and whilst Franklin agreed, he conceded that the need to achieve changes at the WTO would be an uphill struggle. Meanwhile Simms argued that we need a revolution in corporate governance, including legal changes to enable and oblige companies to consider the interests of all stakeholders, rather than simply maximising shareholder value, insisting regulation should be appropriate, rather than light, to ensure that trade did not adversely affect the well-being of the poor. A straw poll at the end of the debate showed that half the audience judged NGOs to be engines of growth and half monsters, although the feeling of many was that they were both. IN THE FIELD OF DEVELOPMENT, DO NORTHERN NGOs ACT AS AGENTS OF THEIR GOVERNMENTS This forum took place on: Non-governmental organisations provide aid and basic services to some of the most vulnerable people on earth; they prick the conscience of the world, advocating the interests of the marginalized in forums where they would otherwise not be heard. A good thing, surely? Yet the accusation levelled at NGOs by the journalist Firoze Manji was that they are complicit in a system that leaves billions in desperate poverty. They bestow invaluable psychological support and ideological legitimacy that sustains an international economic structure that inflicts far greater damage on the poor than the NGOs can possibly hope to redress. Manji gave an analogy with slavery. If that prevailed across much of the world's economy, would charities be lauded if they provided healthcare to the oppressed masses, or would that make them collaborators in a corrupt system that secured the world's wealth for the few and condemned the many to tyranny and squalor? Yet the failure of both governmental and non-governmental agencies in alleviating poverty over the last fifty years is palpable. 42% of the world live on less than $2 a day; the incomes of the richest 20% have risen from 30 times that of the poorest in 1960, to 74 times in 1997; and per capita incomes in sixteen countries actually declined between 1975 and 1999. He argued that the moral obligation to crush slavery must also apply to a system that perpetuates such injustice. Manji drew on the history of collusion by non-governmental agencies since the era of colonisation when, he argued, the voluntary sector, and in particular the missionaries, actively colluded in a system where social policy was geared towards control and exploitation rather than the alleviation of poverty. He cited the Christian Council of Kenya, which even helped interrogate those interned in concentration camps to weed out the troublemakers. With the blessing of the church, the brutal response to any attempt at liberation enjoyed a legitimacy that military repression could not achieve unaided. Today's NGOs are equally complicit. During the 1980s in particular, when many of the poorest countries became mired in a debt crisis of the North's own making, NGOs were the stooges in the neo-liberal agenda of structural adjustment. Mike Aaronson, Director of Save the Children UK, disagreed. His own organisation had a long history of defying government. It was accused of collaborating with the enemy by breaking the blockade of the starving vanquished in Europe when it was founded in 1919, and its vocal criticism of the sanctions regime imposed on Iraq since 1991 proved it had lost none of its integrity and independence. He deplored the injustices of the modern world, citing the desperate condition of Ethiopia, where destitution has risen from 5% a decade ago to 14% now, with a further increase to 22% expected over the next ten years. Yet NGOs act to alleviate this misery while campaigning for structural change. By way of example he highlighted the critical importance of removing basic services from the forthcoming Doha Round of trade talks, that would otherwise result in the provision of services like healthcare and sanitation being geared to commercial interests rather than to those of the poor. NGOs were critical in building the capacity of civil society, enabling people in the South to represent themselves. Professor Peter Willetts of City University explained that the concept of NGOs came in with the UN Charter, but that, in reality, the term refers only to Northern agencies. Indeed some, like Amnesty International, are regularly accused of imposing Northern values on the South, although by and large this is an attempt by oppressive governments to undermine its legitimacy. He also warned that networking between Northern and Southern NGOs was in decline, and this was having a severe effect on the ability to Southern NGOs to be represented at forums like the World Bank. However, in part agreement with Manji, he said that aid is only marginal, and that the economic order would need to be reformed to address global poverty. The poor, he insisted, did not need cash, but relief from oppression and fair access to their own local resources. Helen Collinson of Christian Aid posed two questions: do NGOs knowingly act as agents of Northern governments? And are they guilty of collusion with a neo-colonial, neo-liberal agenda? She insisted that, although £13m of Christian Aid's funding comes from the British government and the EU, this represented only 20% of its. Christian Aid is careful not to cede its independence, seeking to collaborate with government where appropriate, but not acting for it. She acknowledged past mistakes, recognising that the churches had their roots in a colonial past, but insisted that NGOs have evolved to have a healthy cynicism about governments. Particularly because the human development indicators are deteriorating, NGOs must challenge systems of government that work against the priorities of the poor, and create a new political space to press for structural change. If the role of NGOs is capacity building for civil society, then Manji argued that the abject failure to achieve any significant empowerment over the last fifty years stood testimony to a history of voluntary sector intervention that had failed the world's poor. The dangers to NGO independence were raised in questions relating to Iraq, where some humanitarian agencies are refusing US and UK government money, since both governments are seen by many in the world as aggressors in the current action. Collinson acknowledged the pitfalls, and warned against NGOs providing legitimacy for war under the guise of humanitarian aid. Yet, as Willetts described, the fundamental problem of politics is how to apply ideals in an imperfect world. THE CAP PROTECTS THE SOCIAL FABRIC OF THE EUROPEAN COUNTRYSIDE AND DAMAGES THE POOREST COUNTRIES OF THE WORLD This forum took place on: The CAP protects the social fabric of the European countryside and damages the poorest countries of the world. Is the Common Agricultural Policy really effective in protecting the interests of the European countryside, and how much is this to the detriment of the world's poor? The system, established in 1973 to ensure food self-sufficiency in Europe as well as to protect farm incomes from the vagaries of world market prices, now consumes half of the European Union's total budget, yet discontent among European farmers has rarely been more apparent. Meanwhile, some three quarters of the billion people who live on less than a dollar a day are farmers, making food prices and agricultural incomes one of the most critical development issues facing the world today. The panel, comprising Carl Greenidge, former Deputy Secretary General of the African, Caribbean and Pacific group at the European Union, Jack Thurston of the Foreign Policy Centre, and Kevin Watkins, Head of Policy at Oxfam, all agreed that the CAP damaged the world's poorest farmers. There was also agreement on the inevitability of reform. The costs to Europe of the CAP will rise sharply as the EU enlarges to include the economies of former Eastern Europe, which are much more dependent on agriculture. Moreover, pressures from the World Trade Organisation to liberalise prices will only increase, and European interests in liberalisation of other sectors of the economy could lead to a quid pro quo on farm subsidies. Greenidge was sceptical whether the CAP protected the social fabric of the European countryside, but in any case challenged a system that was willing to sacrifice the social fabric in developing countries to achieve this end. However he stressed that the interests of developing countries were diverse. Some countries with efficient agricultural sectors would benefit from CAP reform and a reduction in unfair European competition. For others, notably former colonies, the Lomé Convention currently assures them agricultural prices that are linked to the CAP, so reform may prove detrimental. Thurston highlighted changes in the European countryside, with a fall in agricultural employment, an increase in competition for agricultural goods, and a divergence in incomes between rural and urban areas. 40% of EU farm incomes come from public money, making farms profitable that would otherwise go out of business. Yet the abandonment of the CAP would lead to rural unemployment, land abandonment, and an intensification of land remaining in use that would be detrimental to the environment. Thurston offered two conflicting visions of reform. The first, which he characterised as the position of the UK and northern Europe, was that payments should be targeted towards the provision of public goods like environmental conservation. The second view, shared by the French and much of southern Europe, was that farmers are custodians of the countryside who could be trusted to provide those goods in any case. Whilst his preference was for the first scenario, such an approach risked being evermore complex, could result in increasing land prices without raising farm incomes, and he wondered about the implications of turning farmers into park keepers, both for them and for us. Watkins insisted that the CAP fails not only developing countries and also the EU, where the number of small farms continues to decline and food safety is of increasing concern to the public. The benefits went to agribusiness, he insisted, drawing on the point made by Thurston that the smallest 60% of farmers only received 10% of subsidies. Watkins highlighted the plight of dairy farmers in the Dominican Republic, who face harsh competition from EU milk products. Milk subsidies worth £3bn result in overproduction, which the EU dumps on world markets, thereby depressing the price that all other farmers can expect to receive for their goods. Meanwhile Europe spends more in subsidies per cow than is spent on education for most of the world's children. He cited similar subsidies for goods like cotton and sugar, all of which undermined local agriculture and investment, thereby increasing dependency of developing countries even in products where, by rights, they should be highly competitive. As to reform, Watkins believed the outlook was poor. Proposals from Agriculture Commissioner Franz Fischler would reduce prices to world market levels, but farmers would instead benefit from direct payments unrelated to production. This is the mechanism used by the US to subsidise its farmers, which it had written into the Uruguay Trade Round, and which therefore would not contravene WTO rules. However this would still enable unprofitable European farmers to stay in business, and still result in unfair competition for poor farmers. Thurston was more optimistic, believing that if subsidies were no longer linked to production, farmers would be seen as getting something for nothing, undermining the political legitimacy of the CAP and eventually leading to its demise. However Greenidge insisted that the problem of global poverty would not be resolved even if world markets for agricultural products became genuinely fair and competitive. CORRUPTION IS AN INEVITABLE PART OF ECONOMIC DEVELOPMENT This forum took place on: Is corruption a millstone around the necks of the poor, or an inevitable consequence of the transition to capitalism? Despite the absence of Professor Nield of Trinity College and author and broadcaster Anthony Sampson, the audience was treated to a vigorous debate from Peter Eigen, founder of Transparency International and Mushtaq Khan of the London School of Oriental and African Studies. Whilst acknowledging the enormous difficulties in combating corruption, Eigen argued that it is the most important obstacle to sustainable development, undermining the development of democratic politics and gnawing at the moral fabric of society. Drawing on twenty-five years experience at the World Bank, he blamed corruption on an unholy alliance between foreign suppliers and corrupt local officials. He came to realise that both large and small scale corruption undermined every effort at sustainable development, and that it was officially sanctioned by Northern governments. His efforts to address this at his last posting in East Africa was met with resistance from the World Bank, whose Charter forbids political interference. Moreover, many governments, including the United Kingdom, Germany and Japan claimed that bribery was an inevitable cost of doing business in developing countries, even to the point of enabling the corrupters to get tax write-offs and export credits. Some academics went so far as to say that tackling corruption was an arrogant attempt to impose western moral values over local customs. This prompted Eigen to found Transparency International in 1993, which works with both private companies and governments to develop practical programmes that strengthened the institutions necessary to combat corruption. This, he argued, was more effective than simply naming and shaming perpetrators. Their holistic approach hinges on effective procurement guidelines, independent ombudsmen and freedom of the press, and its decentralised structure of 90 national chapters empowers local civil society. The transformation over the last ten years in dealing with corruption has been dramatic. The OECD has sponsored a convention that would, for the first time, criminalise the bribery of foreign officials. There is a new consensus over the deleterious impact of corruption on economic development. Large companies now call for transparency provisions to be mandatory, to prevent unfair competition from those willing to offer bribes. Khan agreed that corruption is damaging, and that international agencies should not turn a blind eye to the theft of public money. He attributed the new consensus in large part to Transparency International’s Corruption Index, which correlated corruption with wealth, thereby bringing it within the remit of the World Bank, and allowing the reduction of corruption to be conditional on making its loans. However he argued that any such correlation does not prove causality, that corruption leads to poverty rather than being a condition that generally accompanies it. He highlighted the experience of the ‘Asian Tigers’ in the 1960s and 70s, and more recently China, where endemic corruption did not prevent rapid economic growth. Instead he argued that corruption is the inevitable consequence of the transition to capitalism, attributing it to three specific conditions. In poor countries, petty corruption reflects the low pay of government officials and the inability to enforce rules, and these factors tend to reduce as a country becomes more wealthy. Second, corruption reflects efforts of the rich to buy influence. In rich countries this is done legally through political donations and the funding of pressure groups. Such influence buying is an inevitable consequence of wealth inequality, and we should seek to regulate, rather than stop, it. Third and most important, corruption is an essential element in the process of political stabilisation. The transition to capitalism is turbulent, involving massive government intervention and undermining traditional social bonds. Whereas rich countries make transfers to potential destabilising elements, often in the guise of welfare provision, this avenue is not open to poor countries where the tax take is significantly lower. Without a legal, fiscal, mechanism to legitimise a political regime in the eyes of groups who could destabilise it, governments have no choice but to buy-off interest groups through the proceeds of corruption. Thus for Khan, policy should be geared towards wealth creation, rather than efforts to combat corruption, which are doomed to failure and are therefore a demoralising waste of political capital. He issued a challenge for anyone to find a country that first reduced corruption and then became rapidly prosperous. Eigen rejected this analysis, arguing that corruption is the abuse of entrusted power for personal gain, rather than a method of political stabilisation. This subverts investment decisions and economic management, resulting in heavy expenditure on useless projects and a heavy debt burden for some of the world’s poorest countries. He highlighted Botswana, which is landlocked, and has few natural resources other than a modicum of diamonds. Yet its economic performance compares favourably with countries like Gabon and Nigeria, which are vastly better endowed with natural resources but where corruption is endemic. Eigen also argued that the inherent fragility of crony capitalism could be seen in the Southeast Asian financial crisis of 1998, although Khan retorted that all capitalist economies face periodic crises, and that this did not negate the strong growth of previous decades. The justice of the case against corruption was never in doubt, merely our ability to combat it. If it is structural part of wealth creation and the transition of capitalism, the cost of trying to tackle it would be high, and the effectiveness low. Yet if economic management is being subverted by vested interests, investment costs soar with little to show for it, except debt repayments for generations to come. |