CHAPTER 6 GLOBAL BUSINESS INSTITUTIONS Global Business Institutions PRISMS 1. Private vs. community capitalism 2. GGOs vs. NGOs 3. Godzillas vs. Tigers 4. The benefits vs. costs of free trade 5. Should GGOs support both cultural forms of capitalism? 6. Should human rights replace national sovereignty as the key goal of nations? 7. Is defensive protectionism justifiable when underdeveloped nations are threatened by Global 500 corporations? 8. Should rich nations be required to engage in import substitution? 9. Does the IMF have an agenda to convert Tiger nations to private capitalism? 10. Should the international debt of struggling Tiger nations be cancelled? 11. Should the IMF be reformed or even dissolved? 12. Should governments use their corporations as a foreign policy tool? 13. Is private capitalism a form of nationalism? ENTERING THE LAST ERA OF HUMAN HISTORY? Families Clans Villages Cities Nations Regions Tribes Era of internationalism (multilateralism) over nationalism There’s no bigger dimension for the world to grow into unless it’s interplanetary trade! “A new global civilization has emerged whose identity lies not just in the norms of dress, advertising, multinational brands, or the constant buzz of world music. Technology has enabled our planet to be covered by a single civilization for the first time in human history. It is now enmeshed in tiny capillaries that not only transmit information at lightning speed but also convey integrated norms of social, political, & economic behavior.” WHY NATION STATES ARE DECLINING 1. Nations are becoming so economically interdependent that regionalization is becoming a new force. 2. People are more mobile than ever before. 3. Minority populations in a growing number of nations are assertively demanding greater self-determination. 4. Global corporations can meet the consumer needs of the world’s population better than most national governments. 5. New global problems have emerged that require the cooperation of nations: terrorism, global warming, illegal immigration, disease pandemics. ST 21 A NEW CENTURY GLOBAL ORDER The 21st century political & economic order is no longer based on second-half 20th century Cold War American capitalism vs. Soviet Communism. According to new global thinker George Friedman, the 21st century global structure is overbalanced in favor of U.S. hegemony, because America is for the time being the only truly global power. But another 21st thinker, Fareed Zakaria, asserts that we are living in a “Post-American” world where the U.S. is not declining as much as other developing nations (led by China, India, & several South American nations) are rising. These rising 21st century powers will eventually move to form (primarily economic) coalitions as a counterbalance to U.S. dominance. New variants of capitalism are emerging better suited to the cultures of developing nations, posing a long-term challenge to the Western “neoliberal” Adam Smith ideology (profit maximization, single-stakeholder nationalist) capitalism. In this “postAmerican” emerging world structure, the U.S. will have to decide if it wants to participate in shaping the new order via multilateral policy consultation, or settle for a less dominant global role as the British acquiesced to in the 20th century. NEW EMERGING GLOBAL INFRASTRUCTURE FOR THE 21 CENTURY 1. Global Government Organizations (GGOs) 2. Non-Government Organizations (NGOs) 3. Global Public Policy Networks (GPPNs) GGOs TODAY 1. International Monetary Fund (Authority over nations that borrow money) 2. International Labor Organization (U.N.) (Authority over human rights violations in the global workplace) 3. World Trade Organization (Authority over nations in trading practices) 4. International Standards Organization (Mandates standards for all phases of global business operations) 5. European Union (Assuming increasing authority over the economic & political practices of 25 European nations) 6. International Criminal Court (ICC) (Capacity to prosecute national leaders who commit “high crimes against humanity”) 7. North American Free Trade Agreement: limited, but growing, authority, over “CANAMERICO” 8. “G7”, & G20” governments: Informal coalition of the world’s 7 & 20 largest economies which strive to influence how the global economy operates 9. The influence of the United Nations over sovereign nations has been limited by the nationalism of a few nations possessing veto power MEMBERS OF THE “G20” • Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, UK, USA (underlined members make-up the “G7”) • The G20 was instrumental in managing the world economic crisis of 2008-2010 instigated by investment bank and deregulation abuses in the USA. Without the willingness of the world’s largest economies to stimulate the depressed global economy, recovery from the crisis would have been much slower and more destructive. THE ICC “The International Criminal Court (ICC) is an independent, permanent court that tries persons accused of the most serious crimes of international concern, namely genocide, crimes against humanity, and war crimes. The ICC is based on a treaty, joined by 104 member nations so far (but not the USA). The ICC is a court of last resort. It will not act if a case is investigated or prosecuted by a national judicial system unless the national proceedings are not genuine. In addition, the ICC only tries those accused of the gravest crimes. In all of its activities, the ICC observes the highest standards of fairness and due process.” Thus far, the Court’s main involvement has been with the wars in Congo, Sudan, & Uganda. THE ESSENCE OF NGOs 1. NGOs strive to represent the community interests often ignored by private corporations: employee welfare, environmentalism, human rights, etc. 2. Although varied in mission, NGOs share one common perspective: unrestrained nationalistic economic growth is the catalyst for the world’s biggest problems in the 21 century: environmental degradation, materialistic consumerism, exploitative capitalism, etc. “NGOs have become the new and efficient watchers of multinationals, being able to denounce those activities which could be damaging to the environment and to local communities as well as some shameful corruption practices; as a result they have been able to force them to improve their corporate social responsibility and their awareness of the heavy costs to their sales of having a negative social reputation.” NGOs go after GGOs like dogs chase cats. Can their opposed missions ever be reconciled? NGOs: The “Global Antigrowth Coalition” (GAC) 1. 2. 3. 4. 5. 6. Anti-business environmentalists, human rights organizations, anti-capitalists, New Age activists, & neo-isolationists Amnesty International Greenpeace Human Rights Watch Peacenet Forest Conservation Portal One World OVER 25,000 NGOS IN THE WORLD OXFAM INTERNATIONAL Founded in 1995, OxFam (Oxford Committee for Famine Relief) is one of the world’s major NGOs, a confederation of 13 social justice/progress organizations (with 3000 partners in 100 nations) working together to promote sustainable economic development and poverty. “Oxfam works with communities, allies and partner organizations, undertaking long-term development, emergency work, research and campaigning for a fairer world. We seek to help people organize so that they might gain better access to the opportunities they need to improve their livelihoods, and govern their own lives.” 1. Rainforest Action Network vs. Citigroup over loans that led to habitat loss & climate change in DCs 2. Greenpeace vs. ExxonMobil to reduce climate changing fuel production 3. People for the Ethical Treatment of Animals vs. Burger King & Wendy’s for beef farming & slaughtering abuses 4. Greenpeace vs. Dow Chemical (that bought Union Carbide & tried to get UC off the hook for its liabilities from a pesticide disaster in India during the 1980s) 5. Centre for Science & Environment vs. Coke & Pepsi in India over high pesticide concentrations in their soft drinks 6. Children’s activists vs. Nike for sweatshops 1. How did nations tend to resolve their differences before GGOs & NGOs came on the scene? (war & colonialism) 2. What promotes peace more: independent nations or interdependent nations? (The more nations need each other, they more they cooperate.) GLOBAL PUBLIC POLICY NETWORKS “GPPNs are designed to bring in business as a larger participant in the provision of those public goods that are at the heart of the global sustainability and development agendas. GPPNs link local, national, & regional governments, transnational corporations, & other businesses and their associations. Diverse & sometimes opposing groups discuss common problems that no one of them can resolve by itself. The idea that these various groups can meet face to face in a non-threatening forum to discuss issues is promising. GPPNs maximizes the inclusion of material information & a rich variety of important stakeholder voices.” 1. 50-60 GPPNs have emerged since the early 1990s to promote partnerships between business, government, & NGOs to coordinate resources to fight global economic, social, & ecological problems. 2. THE CONSULTIVE GROUP ON INTERNATIONAL AGRICULTURAL RESEARCH strives to broaden research support for food supplies & sustainable agriculture (where nations can feed themselves & aren’t dependent on importing food) 3. GLOBAL REPORTING INITIATIVE: Develops global sustainability action & accountability guidelines for corporations 4. MILLENNIUM ECOSYSTEM ASSESSMENT: Analyzes scientific research for policy initiatives on ecosystem change 5. MEDICINES FOR MALARIA VENTURE 6. RENEWAL ENERGY POLICY NETWORK 7. THE INTERNATIONAL CAMPAIGN TO BAN LANDMINES B(enefit) COMPANIES “B” (benefit) companies are a new hybrid between for-profit & non-profit organizations. Companies like Newman’s Own (started by actor Paul Newman) & Pura Vida Coffee (organic coffee) contribute their profits to charitable causes, adopting a part business-part, part- philanthropy organizational model. Some B companies even pay dividends to their shareholders. Most B companies characterize themselves as missionsdriven rather than competitively driven. “B” Corporations are a new type of corporation that are purpose-driven and create benefit for all stakeholders, not just shareholders. B Corporations are unlike traditional responsible businesses because they: • Meet comprehensive and transparent social and environmental performance standards. • Institutionalize stakeholder interests. • Build collective voice though the power of a unifying brand.” GATT: Forerunner to today’s World Trade Org. 1. General Agreement on Tariffs and Trade, 1948-USA 2. GATT was the first global org. to attempt to promote free trade 3. The only way GATT could pass trade policy was if all member nations agreed. Most favored nation status (MFN) was their incentive. 4. In the 1990s, GATT fell apart because developed nations and developing nations could no longer agree on a common policy agenda because they were poles apart. 5. This ushered in the World Trade Organization (WTO) 1. In 1995, GATT was reorganized as the WTO 2. Headquartered in Geneva, Switzerland 3. 146 member nations 4. 550 staff members WTO: The Watch Dog of Global Trade THE OFFICIAL WTO MISSION 1.Promoting free & equitable global trade 2.Settling trade disputes 3.Evaluating the trade policies of nations 4.Providing economic consulting to DCs THE REAL WTO MISSION “The essential goal of the WTO is to deregulate international trade. To accomplish this, WTO rules limit the capacity of governments to regulate international trade or to interfere with the activities of corporations.” Clearly, the WTO seeks to promote “neo-liberal” capitalism in which markets take precedence over nations. 1. 2. 3. 4. MOST COMMON NON-TARIFF TRADE BARRIERS Subsidies: The government financially helps corporations & farmers to compete against foreign competition Quotas: Forcing nations to restrict the quantity of exports they send VERs (“Voluntary” Export Restraints): Arm-twisting nations into “voluntarily” restricting their exports Local sourcing requirements: Foreign manufacturers must buy supplies from domestic suppliers 5. “Dumping”: selling below cost in foreign markets to “steal” market share from local competitors 6. Asian sweetheart bank loans: The Asian government pays off loans companies can’t pay off. 7. Tariff offset tax breaks: Companies get to reduce their taxes by the amount of tariffs they paid Most-favored nation status: WTO members get tariff breaks BASIC WTO STRUCTURE 1.The Dispute Settlement Body 2.The Trade Policy Review Body 3.The General Council (Secretariat) HOW THE WTO GETS THINGS DONE 1. “Informal green room” consensus forums between nations that want to “do a deal” 2. Consensus ministerial meetings (with majority voting permissible, but voluntary agreement preferred) 3. Policy-recommending committees & special issue task forces 4. The WTO must seek to harmonize its policies with those of other global government organizations (GGOs) 5. The WTO uses the technical staff of GGOs for policy analysis 6. The WTO isn’t supposed to micromanage the economic policies of its members (as the IMB/World Bank have been accused of doing) WTO CLOUT OF THE “QUAD” NATIONS 1. The “quad” nations of the WTO (the U.S., Canada, EU, Japan & the EU) often pool their voting power and political influence to steer WTO activities in a desired direction. 2. “The Quad countries basically determine which issues are important and come to the floor and which do not.” THE WTO’S TEETH 1. Member nations enact & enforce their own trade regulations 2. Nations can sue each other over trade disputes (via a typical civil litigation process of opposing law teams, jury panel of technical experts, verdict, appeal option) 3. Trade legislation can be passed by majority vote & can be blocked by a consensus of WTO members. THE WTO TRADE COMPLAINT PROTOCOL 1. The feuding nations must engage in an informal dialogue before the WTO can get involved 2. If the feud is not resolved after 60 days, a WTO trade panel (“jury”) can be formed & the case resolved within one year. The WTO panels (judges) meet in secret & all proceedings remain confidential. No outside appeal is permitted. THE TOP 5 WTO PLAINTIFFS, 1995-2002 1. 2. 3. 4. 5. INDIA: Filed 15 suits BRAZIL: 22 suits CANADA: 24 suits EU: 63 suits USA: Filed 74 suits (winning 78%); The U.S. successfully defended against 25% of suits as defendant, higher than the 15% victory rate for WTO defendant nations over all. (EU won 46% of its cases as defendant) 1. Godzillas filed 63% (177 out of 279) of WTO challenges between 1995-2002; a quarter of these were against Tigers; Godzillas won 95% of these challenges 2. Godzillas won 81% (4 of 5 cases) of all cases filed in the WTO 3. Tigers won 95% (20 of 21 cases) of challenges against Godzillas, while Godizilla won 82% of their suits against tiger nations. 4. Summary: Plaintiff nations have won most of the time; Godzillas have filed & won way more suits than Tigers 1. In 2002, the U.S. lost a $4B suit to the EU over granting American companies tax deductions for EU tariffs. 2. In 2003, the WTO slapped the USA with a $2.2B fine for steel tariffs. 3. In 2004, the WTO levied the U.S. an annual fine of $150M as long as the “Byrd Amendment” remained in effect (which compensates U.S. companies for filing trade complaints related to foreign company dumping or subsidies) AMERICA SUES CHINA In 2007, the U.S. lodged trade complaints in the WTO against China, charging them with paying export subsidies to Chinese companies; pirating DVDs & CDs; & restricting the sale of foreign films & music in China. In the summer of 2009, the World Trade Organization issued an unfair practices ruling against China for requiring American media companies to use stateowned Chinese companies for distributing their products to the Chinese marketplace and for the government’s right to alter the contents (censor) of media material. 1. Agreement on Technical Barriers To Trade: Prohibition of trade quotas, embargos, or bans. 2. Agreement on Agriculture: Nations should import food when it is cheaper than growing it at home. No agreement exists on eliminating agriculture subsidies. 3. Agreement on Trade-related Intellectual Property (TRIPs): Nations must enforce the intellectual property laws of other nations 4. General Agreement of Trade in Services (GATS): Nations must open their borders to the exporting of services from around the world. 5. Agreement on Trade-Related Investment Measures (TRIMs): Nation's must open their borders to the unrestricted inflow & outflow of capital. FAILURE OF THE WTO DOHA ROUND (2000-2006) OF TRADE TALKS 1. The round of WTO trade talks started in 2000 in the Middle East nation of Qatar had great hopes for addressing the trade complaints of developing nations (“Tigers”) relating to the use of agricultural subsidies by rich (“Godzilla”) nations. 2. But the round collapsed in the summer of 2006 when Godzilla nations finally “threw in the towel” on extending the subsidy dialogue further. 3. Tigers have 2 specific complaints against Godzilla nations for their use of heavy agricultural subsidies: (A) Subsidies significantly lower the cost of Godzilla agricultural products & thus restrict the amount of agricultural products imported by Godzillas from Tiger nations; (B) Under the WTO’s import substitution policy, Tigers are forced to purchase many subsidized food exports from Godzilla nations, since they are cheaper than what Tigers can grow the same products for at home. 4. The U.S. wanted the Doha round to focus more on cutting tariffs than on subsidies, but the EU was open to discussing tariff cuts on manufactured products only, not farm product tariffs. 5. The U.S. wasn’t interested in subsidy compromise, insisting that no new WTO agreement was preferable to a watered down one. 6. “The most likely route to renewed WTO subsidy talks is for nations to realize that regional (bi-lateral) free trade agreements don’t have nearly the economic potential as true global (multilateral) agreements.” LESS REGIONAL FREE TRADE, MORE GLOBAL “Today the thriving world economy is complacent. Protectionism has declined significantly due to regional free trade agreements (NAFTA, the EU, MERCOSUR, etc.). But nations must understand that bilateral (regional) trade deals complicate importing-exporting on a global basis, especially in Asia where a noodle bowl of 70 bilateral trade deals greatly complicate the efficiency of product movement logistics. In addition, bi-lateral deals tend to generate much bigger trading benefits for large nations than small.” WTO PROTESTS Controversy & protests accompany the WTO ever time it holds rounds of talks in host cities around the world. In 1999, 50,000 sometimes violent protestors shut down WTO sessions in Seattle. Subsequent rounds of talks in Italy, Cancun, Hong Kong, & Rostock, Germany also experienced varying degrees of turbulence. GLOBAL INSECURITIES CAUSED BY THE SPREAD OF NEO-LIBERAL CAPITALISM 1. Clash of secular/consumerist cultures with community cultures in Africa & Latin America & theocratic cultures in the Middle East. 2. Rapid rise in global oil prices caused by China’s rapid capitalistic growth 3. Global prosperity based on America’s debt-financed over-consumption 4. Destabilization of world financial markets by America’s investment banking scandal of 2008 THE MAIN CONCERNS OF WTO CRITICS WITH BUSINESS-DRIVEN GLOBALISM IN C21 1. Rapidly rising global wealth inequality is evidence of unjust capitalism 2. Women all over the world, but especially in the developing world, have been forced to abandon their family nurturing role to earn money. 3. Global economic & job insecurity are exploding due to global capitalistic competition 4. Cultural insecurity is growing with the rapid spread of Western consumerism (materialism, debt, pollution, & advertising) 5. Environmental insecurity is expanding due to the rapid onset of “social outsourcing” (exporting pollution & risky products abroad) 6. Political insecurity is the byproduct of economic, cultural, & environmental insecurity 7. In its efforts to support the interests of global corporations over the interests of nations of local communities, the WTO prohibited the EU’s efforts to restrict imports hormone-fed beef; approved sweat shop manufacturing in many developing nations; and sided with companies opposing foreign labor unions and environmental legislation. “National governments ceded power to the WTO and IMF or had this power seized from them by international markets. The world economy needs to be brought back in line with political needs so that national and global political structures will reflect the interests of the world’s peoples and assert authority over global markets. ” CRITICS FROM THE RIGHT Not all WTO critics are from the left of the political spectrum. Conservative “neoliberal” capitalists oppose government intervention into the marketplace, preferring for the “invisible hand” of capitalism to have full sway. Neocapitalists thus oppose the free trade interventions of GGOs, preferring that corporate and nationalistic interests operate without GGO institutional coordination or multilateral (multination) policy . “Human rights must replace national sovereignty as the key international issue. Wealthy countries will become inundated with immigrants unless the North/South economic divide is faced.” LIBERTARIAN (neoliberal) CAPITALISM: THE ECONOMIC IDEOLOGY OF GLOBAL GOVERNMENT INSTITUTIONS 1. “Neo-liberal” (private) capitalism is the ideology of most Western nations (especially the USA). Its bedrock principles include the importance of private enterprise, free trade, minimum government encroachment on the “invisible hand” of capitalism, & the profit maximization ethic. 2. “Neo” refers to applying this capitalist ideology to nations in addition to corporations; “liberal” refers to liberalizing the role of government in promoting private enterprise & free trade (as opposed to regulating business activity & owning or running corporations). THE IDEOLOGY OF NEO-LIBERAL CAPITALISM 1.“Invisible-hand” capitalism based on grass roots profit-maximizing business deals regulated by impersonal institutions (CPA firms, stock markets, brokers, law firms, etc.) 2. Single stakeholder (financial owners/stockholders) private corporations competition in Darwinist survival-of-the-fittest industries 3. Laissez-faire capitalism based on limiting the government’s regulatory role 4. Neo-liberalism wants the market to control capitalism, not govenments. 4. Exporting of neo-capitalist policies to developing nations via global economic institutions (World Trade organization, International Monetary Fund/World Bank, regional free trade agreements) 5. Exporting Western culture throughout the world: consumerism, pop culture, unisex gender roles, “Social Darwinist” (survival-of-thefittest) competition Is neo-lib capitalism suitable for the st interdependent 21 century world, or only for the independent th th 19 & 20 centuries? GLOBAL GOVERNMENT ECONOMIC INSTITUTIONS (10,000 employees) 1. The World Bank describes itself as “an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.” 2. It has loaned over $350B over the past 50 years, mostly to developing nations. Money was loaned to a total of 66 different nations in the past 25 years. 3. In recent years, the Bank’s average annual loan rate has been $20B. HOW THE WORLD BANK STRIVES TO SERVE DEVELOPING NATIONS 1. Long-term loans (15-30 years) for economic & social development 2. Infrastructure loans (dams, highways, bridges, etc.) 3. Pollution reduction 4. Family health & reproductive services WHY ARE THE PRIVATE SECTORS OF MOST DCs SO WEAK? •Agricultural economies •Scarce investment capital •Limited business infrastructure •Weak institutions 1. The IMF tends to make short-term (3-5 years) loans to help developed nations deal with short-term economic challenges, such as occasional trade deficits, recessions, weakening currency, or crop disasters. It relies on its sister lender, the World Bank, to make longer-term, developmental loans (major construction projects, health & human services, technology development, etc.) to developing nations. 2. The IMF makes short-term loans to nations struggling with trade balance problems & unstable currencies. 3. The IMF sometimes makes large, risky loans that private banks would not make. It’s the lender of last resort. 4. The IMF provides a $ buffer to deal with the hot money problem (money crisscrossing borders with limited institutional control). 5. Private sector financers can’t deal with the complexity & risk of financing nations. 6. The IMF is often used to advance the foreign policy aims of its depositors. WHY NATIONS DEPOSIT MONEY IN THE IMF TO BE LOANED OUT Nations don’t make deposits in the IMF in order to make money on interest, but rather to have a say in the terms of the loan. The more money a nation deposits in the IMF, the more say it gets in determining the terms of the loan—such as structural changes the borrower must make in its policies & economic structure & policies. Thus, IMF loans can be a potent form of global political influence. By tradition, the World Bank president is elected by the U.S. (the largest shareholding nation), while Europe chooses the IMF managing director. Neo-liberalism is the economic philosophy of “libertarian (neoliberal) capitalism” that supports the “invisible hand” of market (rather than community or governmental) forces: profit maximization, free trade, unrestricted movement of capital resources (money & technology) across borders, & global business. The 5 foundational libertarian capitalism policies of the IMF are: #1. PRIVATIZE (sell government-run companies to private corporations) & DEREGULATE (drop all restrictions on which companies are allowed to compete in in industry) Pros: governments don’t run businesses efficiently or effectively Cons: “Tigers” (developing nations) have few large corporations capable of privatizing government companies, so foreign firms privatize them instead #2. REMOVE GOVERNMENT RESTRICTIONS ON THE FLOW OF FOREIGN DIRECT INVESTMENT Pros: Investors are already taking big enough risks by loaning their money to Tigers; they shouldn’t be forced by Tiger governments to leave their money there any longer than they want to. Cons: Major regional currency meltdowns have happened due to the “hot money” syndrome caused by lack of restrictions on FDI flows. #3. MANAGE TRADE AROUND THE NEEDS OF CORPORATIONS Pros: Corporations take the risks in global business & should thus be in the driver’s seat; corporations are laden with productive resources Cons: Corporations value profit over patriotism & often affect international politics due to their size & wealth. All nations are dependent on global corporations to one extent or another. #4. PRACTICE IMPORT SUBSTITUTION IN TIGER NATIONS The IMF import substitution program encourages Tiger nations to import efficiently-produced commodities (especially agricultural products) from Godzilla nations in place of producing them domestically. Pros: Tigers can import many commodities from giant Godzilla agricultural conglomerates cheaper than producing at them at home— often because Godzilla farmers gain a competitive advantage from large government subsidies Cons: Import substitution can cause Tigers to lose their food self-sufficiency & put farmers out of work in economies that lack substitute jobs #5. MAKE GLOBAL BUSINESS OPERATIONS AS UNIFORM AS POSSIBLE TO EXPEDITE EFFICIENCY Pros: Lowers the cost/price of products Cons: Forces DCs to quit making inefficient products & to instead import them from more efficient nations. These DCs then experience job losses & become less self-sufficient. AMERICAN FARM SUBSIDIES In 2005, American farmers received over $20B in farm subsidies, thus depressing the global price of corn (46% of total subsidies); soy-beans (6% of total subsidies); rice (8% of total subsidies); cotton (23% of total subsidies); and wheat (10% of total subsidies). Sixty percent of American farmers receive no government subsidies, and 10% (mainly the larger commercial farms) get 72% of total American subsides. Brazil has already won a subsidy-related WTO suit against the U.S., and American farmers are worried about more subsidy-related suits in the near future (especially in the key crop areas listed above.) 1. A recent study of the long-term effectiveness of IMF/World Bank loan projects disclosed that half of the 66 nations financed by the sister institutions over the past 25 years were are better off today than they were before partnering with the IMB/WB—and 20 of these nations were actually worse off economically. 2. Critics charge the 2 organizations with backing ill-conceived developmental projects that displaced more than a million people from the homes, spawned environmental damage, & either made fragile democracies more instable or reinforced the political power of dictatorial leaders in repressive political regimes. EXAMPLES OF ALLEGED IMF-WB BOONDOGGLES 1. The Sardar Sarovar dam project in India displaced 250,000 people into squalid resettlement sites. 2. The Polonoroeste Frontier Development project caused large scale deforestation in the Brazilian rain forest. 3. The Pak Mun dam project in Thailand destroyed large human and animal habitats. IMF/WB STRATEGIC MISTAKES 1. In most places where they operate, the IMF/WB typically undercut private lenders (global banks) who are more likely to hold their client nations responsible for how the money is invested & safeguarded from corruption. 2. In an attempt to diminish socialism, the 2 organizations frequently force governments to cut their domestic spending to such an extent that significant economic downturns result (causing significant unemployment). 3. IMF loans often have belowmarket interest rates which encourages nations to borrow larger sums than they can afford to pay back. 4. The IMF/WB make loans to developing nations in spite of corrupt governments, who often use the money for non-economic purposes, such as bolstering the military & making loans to “fat cat” businessmen. 5. “Even though the influence of the IMF/WB is often overstated, they have not been given enough credit for many of the little things they do well. Both institutions provide invaluable economic analysis information about the global economy that no other nation or GGO could perform with such skill.” 6. More than 60% of Asians & 70% of Africans feel the 2 institutions have had a positive effect on their countries. 7. Despite some of its policies that have fallen short of the mark, The World Bank has helped many of the world’s poor to receive schooling, gain access to clean water and electricity, increase agricultural output, and to benefit from improved infrastructure such as roads and sanitation projects. 8. “A balanced assessment of the World Bank would likely show that more poor people have benefited from bank projects than have not.” Developing nations have been forced to follow a less secure pattern of economic development than the largest economies of the world. Due to the onset of rapid “trade-liberalization” (quick elimination of protectionism & subsidies plus import substitution), developing nations were not given the same opportunity to protect their new industries until they became strong enough to compete on their own against their powerful competitors in the developed world. According to developing nation economist HaJoon Chang, history gave Western Europe, Japan, the U.S. and several areas of Asia much longer to slowly nurture their key growth industries via substantial subsidies and other forms of infant industry protection. “Rich countries have kicked away the ladder from DCs by forcing free-market, free-trade policies on poor countries. Already established countries don’t want more competitors emerging throgugh the nationalistic policies they themselves successfully used in the past.” “Developed countries have been accused of maintaining high levels of protectionism on the goods and services exported by developing countries, such as agricultural and food products, textiles, footwear and clothing. They have also been accused of generously and absurdly subsidizing their own agricultural production, which is largely inefficient and very uncompetitive vis-à-vis that of developing countries. These subsidies also lead to huge stocks of non-competitive products, they are exported to developing countries (also with subsidies) at dumping prices, shattering their domestic agricultural prices and markets”. The richest nations (which largely control the economic policies of the IMF and WTO) “have created a new international trading system that is rigged in their favor. They are preventing developing nations from using the very tools of trade that the rich nations themselves so effectively used in the past to promote their own economic development, now at the expense of DCs. Trade liberalization does not necessarily bring overall gain. Even there are winners in the process, their gains may not be as large as the loses of the losers.” Ha-Joon Chang concludes that “free trade works neither in practice nor in theory. Despite its abysmal record, rich nations have strongly promoted trade liberalization in developing since the 1980s. The secret of economic development success is a mix of protection and open trade with areas of protection constantly changing as new infant technologies are developed and old infant industries become internally competitive. Free trade is not the best path to the economic development of emerging economies today.” 1. Are the loan conditions set by the IMF good economics or political meddling—a form of “neocolonialism”? 2. Neocolonialism refers to an institutional form of colonialism in which developing nations are allegedly dominated by global governmental institutions, such as the IMF & WTO, rather than by colonizing nations. THE GLOBAL NORTH-SOUTH DIVIDE 1. The developed world makes up only 20% of the world’s population but has 80% of the total wealth 2. The North’s economy revolves around the service sector, the South’s around manufacturing 3. The North consumes more than it produces and the South produces more than it consumes TIGERS: Rapidly developing nations 1.Latin America 2.Middle East 3.Africa 4.China 5.Southeast Asia 6.The “G20” are the largest developing nations in the world including China, Brazil, & South Africa. ZEBRAS: Underdeveloped nations with stagnant economic growth 1. The “G90” are the 90 poorest nations in the world, located predominately in Africa & the Middle East, but also in parts of Latin America & Southeast Asia. 2. These least-developed nations are labeled as zebras because, like the stripped African horse, they are vulnerable to predators (Godzilla capitalism); dependent on the herd (resource-rich nations); & agricultural (high-risk, low return economies). “Traffic” on the Godzilla side of the bridge symbolizes Western “imperialistic capitalism” being exported into Tiger nations: WTO & IMF profit-maximization ideology, import substitution, global efficiency mandate, etc.) Would the world be better off if the “bridge” came down? “When huge billboards for Sex and the City are found in the middle of Israel, it is obvious that the culture of celebrity emanating from the United States has become a currency that is traded throughout the world.” NATIONS WITH THE GREATEST VOTING POWER IN THE IMF: 1. USA (greatest voting power) 2. German-Japan (equal vote) 3. France & Britain 4. Belgium-led consortium of Eastern Euro nations 5. Netherlands-led consortium of Ural Mountain nations 6. Mexico & Latin nation consortium 7. Italy & Med Sea consortium THE “PARIS CLUB” OF CREDITOR NATIONS (G-7) 1. G-7 nations (USA, Canada, Britain, France, Germany, Italy, Japan) control over half of IMF loan votes 2. Russia is sometimes an informal member of the G-7 , but 3 nations (China, India, South Korea) that have much stronger economies than Russia want to become part of the Paris Club 3. The USA has the greatest IMF voting power (17%), putting it in the power seat on most issues that require an 85% IMF majority 4. Critics contend that the IMF caters to and is controlled by America’s economic agenda THE GODZILLA TRADE AGENDA The worlds’ most affluent nations depend on innovative global service sector products for most of their growth, so they want intellectual property protection on patents, copyrights, etc. Thus, these Godzillas are most interested in the WTO’s GATS (General Agreement on Trade in Services) trade program & TRIP (Trade-Related aspects of Intellectual Property). WHY SHOULD THE GODZILLAS CARE ABOUT THE PROBLEMS OF THE TIGERS? 1.Humanitarian concern 2.Global political stability 3.Smoother global trade 4.Markets for Western companies THE TIGER & ZEBRA TRADE AGENDA THE HAVE-NOT SOUTHERN HEMISPHERE NATIONS HAVE A LOT LESS OF: 1. Per capita income 2. Foreign Direct Investment (FDI) 3. Infrastructure 4. Technology 5. Representative, stable governments TWO STRIKES AGAINST DEVELOPING NATIONS 1. Weak democracies 2. Internal civil wars 3. Ethnic strife 4. Over-population 5. Legacy of colonialism (economic & political exploitation) 6. Agriculture-based economies GLOBAL WEALTH DISTORTION At the start of C21, the wealthiest 20% of nations had: 1. 86% of the global GDP (vs. 1% for the poorest 20%) 2. 82% of total global exports (vs. 1% for the bottom 20%) 3. 68% of total global foreign direct investment (vs. 1% for the bottom 20%) 4. 74% of global phone lines (vs. 1.5% for the bottom 20%) The WTO’s Doha (Qatar) DEVELOPMENT AGENDA (2001-2006): 1. Impact of free trade agreements on the General System of Preferences (Godzilla nations agree to engage in import substitution—to import key Tiger products instead of making them at home) 2. Less Western political meddling into Tiger affairs IN THE GENEVA TALKS (7/04)THE USA & EU AGREED TO: 1. Reduce farm subsidies ($88B annually for the USA & $52B for the EU)—the “framework for establishing modalities in agriculture” 2. Lower tariffs on key Tiger exports that Godzilla nations already make at home AG SUBSIDIES AS % OF FARM OUTPUT, 2003 1. Australia: subsidies were 1.0% of total Australian farm output 2. Canada: 5.6% 3. USA: 38.9% 4. Japan: 44.7% 5. EU: 121.4% Would Godzilla nations be able to avoid import substitution without agricultural subsidies? THE “GREEN ROOM” PROBLEM 1. The “4 Quad” WTO members (USA, Canada, EU, & Japan) often broker private/closed trade deals with select other nations, bypassing Tiger nations & ignoring their needs 2. The WTO favors forming a steering committee of affected nations to coordinate trade dialogues in a fair, transparent, and representative manner “Fair trade is commerce with a commitment to developing equitable partnerships between marketers in highly industrialized nations and low-income producers in developing regions of the world. Fair trade creates the opportunity for businesses to increase their profits through socially responsible business practices, for consumers to vote with every purchase for a more equitable world, and for farmers to view themselves not as an anonymous cog in the world market, but as a valuable contributor to a global community.” “Fair trade cooperatives produce a healthy alternative to large-scale manufacturing, working mainly with small businesses where workers earn a greater return on their labor, and profits are distributed more equitably and often re-invested into the local community in health clinics, child care, education, & safe working conditions. Workers learn leadership and organizing skills, enabling self-reliant economic development. Producers gain greater control and decision-making power over the use of local resources.” IS INSTANT FREE TRADE FAIR? It was competitively necessary for most of the world’s richest (“Godzilla”) nations to go though protracted protected (nonfree) trade eras early in their history. They were not strong enough economically or militarily to withstand “free” trade. Many developing (”Zebra”) nations complain that free trade has been prematurely foisted on them by the WTO & IMF before they are ready, generating economic hardship & political instability. “Rich nations now hector the poor on the importance of free trade, respect for intellectual property, and hospitality to foreign investors, yet avoided and rejected such practices when the rich nations were climbing the ladder towards prosperity. They hypocritically tell the poor world to do as we say, not as we did. The West’s neoliberals (private capitalists) have either forgotten or rewritten their secret history, arm-twisting today’s developing nations to to open up to the free trade regime in the mistaken belief that free trade secured the West’s current prosperity.” 1. 2. 3. 4. 5. DO WE NEED MORE FREE TRADE OR MORE FAIR TRADE? International trade is worth $10 million a minute. Poor countries account for only 0.4 percent of world trade. Since 1980 their share has been cut in half. The United Nations estimates that unfair trade rules deny poor countries $700 billion every year affecting 30 million people. Income per person in the poorest countries in Africa has fallen by 25% in the last 20 years. The three richest people in the world control more wealth than all 600 million in the world’s poorest countries. 6. Nearly half the world’s population (2.8 billion people) lives on less than US$2 per day. 7. The prices of many poor countries’ key exports are at a 150-year low. 8. At the last full meeting of the WTO, the European Union had 500 negotiators and Haiti had none. 9. After the last round of trade negotiations, rich countries estimated that they would gain by $141.8 billion per year and Africa would be $2.6 billion per year worse off. 10. Global trade is regulated through priorities and policies set by international institutions, including rules made at the World Trade Organization and conditions attached to loans provided by the World Bank and International Monetary Fund. These bodies are controlled by governments. WHEN PROTECTIONISM IS EXPLOITATIVE NATIONALISM: 1. EXPLOITATIVE PROTECTIONISM: One nation tries to raise its standard of living by lowering another nation’s standard of living. 2. DEFENSIVE PROTECTIONISM: used to prevent foreign companies from stealing business from domestic companies THE FAIR TRADE MOVEMENT 1. Fair trade is virtually the only organized social movement that strives to improve the economic selfsufficiency of workers in developing (community capitalism) nations & empower them to become stakeholders in global trade. 2. The free movement is backed by a coalition of international religious, development aid, environmental, & social justice organizations. 3. The fair trade global coalition seeks to reduce poverty & promote sustainable economic development through the fair trade minimum price program (designed to price goods high enough to pay for their direct cost plus a contribution to sustaining their future production). 4. The Fairtrade Labeling Organization (FLO), begun in 1997, set standards for labeling products as Fairtrade Certified. The highest volume fairtrade certification products include bananas, honey, coffee, oranges, cocoa, cotton, dried & fresh fruits & vegetables, juices, nuts & oil seeds, quinoa, rice, spices, sugar, tea and wine. 5. FLO-CERT (Fairtrade Labeling Organization Certification) coordinates the certification, marketing, & inspection of fairtrade products through a network of independent inspectors who travel the world as liaisons between families, traders, & sellers. 6. The International Fairtrade Association (IFAT), created in 1989, is a global coalition of agricultural coops, export marketers, importers, retailers, regional fairtrade networks, & support organizations. IFAT has 300 member organizations in 60 nations. 7. In addition to sustainable economic development pricing, core fairtrade values include safe working conditions; gender equity; environmental protection; worker participation in decision-making; & general adherence to the United Nations charter of human rights. 8. Fairtrade certified sales in 2005 were estimated at over $1B, less than one hundredth of one percent of total world trade. As of 2006, 1.5M economicallydisadvantaged workers directly participated in fairtrade initiatives & 5M benefited from commerce. 9. The additional profit generated when producers bypass intermediate buyers, instead selling directly to international buyers can be highly significant. For example, in 1999, Central American coffee growers who sold to traditional middle men buyers averaged 38 cents per pound, compared to $1.26 earned by farmers selling though the fair trade institutions. 10. The fair trade system places a high priority on community development in addition to guaranteeing fair prices for farmers. Workers within a community participate in determining their own economic development priorities, including education, clean water, health care, & infrastructure development. MCDONALD’S FAIRTRADE DEAL WITH TOMATO PICKERS 1. In 2007, McDonald’s nearly doubled the wages of its Florida migrant tomato pickers by increasing the wages paid for a bucket of picked tomatoes from 40 cents to 72 cents. 2. The deal was made in an arrangement with the Coalition of Immokalee Workers, which has also brokered a fair trade deal with Taco Bell. 3. “The McDonald’s deal sends a strong message to the rest of the fast-food industry that the leaders of the industry are taking concrete steps to improve the lives of workers, of human beings.” FAIRTRADE PRINCIPLES (from the Americas Program Inter-hemispheric Center) 1. Local and regional producers and service providers should be in control so benefits remain in their communities. 2. Laborers should earn a fair wage and work in a healthy, safe environment. 3. Intermediary organizations that soak up and expatriate profits should be removed from the equation, allowing producers to keep a larger share of sales revenues without passing on excessive costs to consumers. 4. Goods and services should be environmentally friendly and socially responsible. 5. Community development needs, as well as environmental and social criteria, should be taken into account in business decisions. 6. Product and producer diversity should be supported, and increased opportunities for women should be a priority. 7. When possible, intermediaries that buy products directly from producers should provide financial assistance, such as direct loans, prepayments, or linking producers with sources of financing. 8. The finances, management policies, and business practices of fair trade enterprises should be open to public scrutiny. 9. Consumers who are educated regarding the importance of purchasing products and services that support living wages, healthy working conditions, and environmental protection will be willing to pay slightly higher prices. 10. Gender equality 11. Capacity building (developing the capacity of producers to help themselves). 12. Environmental protection through responsible production practices that sustain physical & human assets for successive generations. KEY PROBLEMS OF FAIR TRADE (from the Americas Program Inter-hemispheric Center) 1. Free trade favors large corporations, not Mexico’s many small-scale farmers, artisans, and businesses. 2. Smaller producers and service providers lack capital or access to credit, technical and marketing assistance, and delivery systems. 3. The export orientation of Mexico’s economy calls for the production of basic commodities, which face steep competition from foreign, subsidized products, are highly vulnerable to global price fluctuations, and generate minimal profit margins. 4. Foreign sales are usually managed by non-local companies, minimizing benefits for producer communities. 5. Agriculture, manufacturing, and tourism operations under pressure to compete according to the terms of free trade overlook sound natural resource management practices. THE SIZE & SUCCESS OF THE FAIR TRADE MOVEMENT THE LIFELINE OF CCs 1. Family & small local businesses 2. Sustainable incomes provided by the VAC 3. Protection from T-Rex corps 4. Subsidy-free competition from Godzilla nations 5. Flourishing “fair trade” options in Godzilla nations In 2006, Fair trade global revenues were $2.3B, but represented less than one hundredth of a percentage point in total world trade of physical products. Over 1.5M producers worked in fair trade organizations, but 5M more members of fair trade communities also benefited. In 2002, fair trade sales in the USA, Canada, & the Pacific Rim were $251M, with the greatest sales growth of coffee. 3200 people were employed in these regions. In 2000, there were 600 fair trade wholesalers in the USA & Canada and over 7000 retailers. AN IMPOSSIBLE DREAM? Many Westerners would probably respond if given the opportunity to pay a 5-10% surcharge on products made in low wage capitalist nations. BUT no such opportunity is feasible under the invisible capitalist system of supply chain corporate dominators (Wal-Mart, giant food conglomerates, agriculture subsidies, etc.). Fair trade initiatives struggle under the invisible hand rigidities of global-scale business.