Our Word is Our Weapon

Just installed in the library: ‘Power and politics in the WTO’ by Aileen Kwa, accompanied by my own dissertation on the same topic.

Just a few more thoughts on my previous posts on the UK Government’s pronouncements on trade and development …

Labour figures are keen to imply that free trade is the best route to development, but rarely make the claim directly because they know the evidence isn’t there to back it up. But let’s assume they actually do believe it. They’re entitled to their opinion, but what I believe they are not entitled to do is force that opinion onto the governments of other countries, which is exactly what they are doing through their privileged positions in the WTO, IMF and World Bank. It’s striking reading the pages of evidence to the Committee on International Development how often representatives from development NGOs stress that they are merely arguing for more policy autonomy for developing countries, and how often Patricia Hewitt and other government figures say nothing of the sort.

That’s really what this blog is all about: those who claim for themselves the right to decide the rules for everyone else, and those who are resisting this and struggling for more self-determination.

But aren’t the same people arguing for more policy autonomy for the poorest countries also arguing for less for the richest? Yep, you bet. But that’s because so many of these areas involve abuse of power - debt, agricultural subsidies, trade negotiations and so on - which greatly exceed a government’s sovereign rights. I don’t really mind all that much what rich countries do as long as they don’t exploit their power to hurt the less well off, so if and when they stop I’ll gladly shut up.

Having mentioned the UK Parliament’s International Development Committee, it’s worth pointing out that the committee’s website has links to lots of oral evidence by the likes of Patricia Hewitt and representatives of WDM and Save the Children. Worth a read.

There’s a letter in today’s Guardian by Patricia Hewitt (Trade Secretary) and Valerie Amos (International Development) responding to Monday’s revelation by Stephen Byers that he did not know what he was talking about when he repeatedly said during his two and a half years as Trade Secretary that free trade was good for the poor.

Hewitt and Amos are miffed that Byers could even suggest that there’s something amiss with Goverment policy, and set about rubbishing what he said and what he didn’t say. In their very first sentence they express reservations about “Stephen Byers’ article calling for an increased use of tariffs and subsidies by developing countries”. A quick look at the original article indicates that he did not call for increased use of tariffs and subsidies, but merely expressed a preference for a ‘managed trade regime’ in which “trade policy levers like subsidies and tariffs are used to help achieve development goals”. So they are an acceptable part of economic policy but that’s not the same as calling for everyone to fling up protectionist barriers.

The next trick is to drop into the middle of a humdrum retreading of the argument against EU agricultural subsidies the following line: “We cannot hope to reform the common agricultural policy with one hand if we are advocating protectionism for poorer countries with the other”. Why not, exactly? Are they suggesting that the two are somehow comparable? Rich superpowers spending hundreds of billions on subsidies to wasteful farmers cannot be compared in any meaningful sense with developing countries using tariffs and subsidies to protect peasants and small-scale farmers in their countries from the ravages of hugely distorted world markets. Reform of the CAP has been promised for so long, and so many concessions have been bled from developing countries on the strength of those promises, that to make its reform (or better yet, abolition) dependent on the removal of yet more protections for the poor would be devious and incredibly harmful.

The letter continues a noticeable trend of Labour figures tending to dodge the real questions on trade and development and seeking to make sly elisions between very different concepts. In her evidence of 11 March 2003 to the UK Parliamentary Committee on International Development, Ms Hewitt cites support for the Government’s position from “evidence that trade, coupled with better standards of government, investment in primary education, investment in primary health care, investment in basic clean water facilities and so on, together can give you the path to development”.

Nobody would argue with that, but that in fact is not the political issue. Hewitt is hoping to make us think that ‘exports’, ‘trade’ and ‘free trade’ are one and the same thing. More exports are usually a good thing for a country, more trade - which can mean simply more spent on imports - not necessarily so. It is the second that the UK government is more keen to see happening in developing countries; in fact they want free trade for developing countries - ie no tariffs against the UK’s imports, no protections for their farmers, factory workers and entrepreneurs against our massively richer corporations. A country that is increasing its exports should be able to invest in the other ingredients for development Hewitt mentions, but going down the free trade route would probably mean not being able to afford them.

Here’s a final example of Hewitt’s slyness from her Committee evidence:

as far as investment is concerned, we are very clear that developing countries are in desperate need of investment. I am not talking about speculative capital flows here, I am talking about foreign direct investment, particularly in infrastructure. At the moment developing countries are getting 2%, a tiny fraction, of the world’s FDI flows. If developing countries can opt in�and this is an opt-in not a compulsory procedure�to a basic set of standards for the treatment of foreign investment, that will encourage foreign investment.

The last proposition is simply unfounded. Countries attract investment because of their resources and opportunities, not because they sign up to whatever deregulatory programme is dreamed up in the WTO. Countries like China and India have been attracting massive amounts of FDI without giving up the usual investment regulations. So yes, developing countries are in desperate need of development, but the third sentence of that paragraph is also incorrect - it is the 49 Least Developed Countries who get only 2% of FDI flows. Private companies are simply not interested in these countries, and liberalising their investment rules will have little or no beneficial effect, in fact it would tend to reduce the developmental benefits of what little investment they do get.

Today’s Guardian carries the news that Stephen Byers has begun to think for himself, and about globalisation and development. Finding himself with some time on his hands, he has begun to consider whether free trade really benefits the poor. He has come to the startling (to him) conclusion that it does not. Instead, in the absence of strong and wise government intervention, liberalisation benefits the strong and mobile while increasing risk and uncertainty for the poor. Well, he’s right, but a little late. I’m glad that Mr Byers has discovered a mind of his own, but could he not have done so during the two and half years he spent at the Department of Trade and Industry as the minister with chief responsibility for Britain’s external trade relations?

�Since leaving the cabinet a year ago�, Mr Byers writes, �I’ve had the opportunity to see at first hand the consequences of trade policy. No longer sitting in the air-conditioned offices of fellow government ministers I have, instead, been meeting farmers and communities at the sharp end�..

Good for him, I suppose. But would it have killed him to go meet the farmers and communities at the sharp end when he was a Minister, when he had in effect as much responsibility for overseas development as the Minister for Overseas Development? Why couldn’t he pay the slightest bit of heed to representations from the people who actually spend their days listening to farmers and communities in the Third World, people like those at Oxfam, CAFOD, Christian Aid and dozens of other groups?

Not that he doesn’t make some good points:

Rich nations may be pre pared to open up their own markets, but still keep in place massive subsidies. The quid pro quo for doing this is that developing countries open up their domestic markets. These are then vulnerable to heavily subsidised exports from the developed world.

And

The evidence shows that the benefits that would flow from increased international trade will not materialise if markets are simply left alone. When this happens, liberalisation is used by the rich and powerful international players to make quick gains from short-term investments.

But while it’s nice to hear someone who was once in the Government say all this, none of it is or should be new to anyone who has actually worked in development for any length of time. Which really must raise the question � how stupid was Stephen Byers? Or if not stupid, how ignorant?

Maybe I’m being harsh again. I’m just sick of sick of only agreeing with British cabinet Ministers when they’ve lost their jobs. But what really pisses me off is that at no point does he feel the need to say sorry. And if he really believes what he now says he does, then that’s the least he could do.

I made the first entry in the embryonic library section of the site on Friday: it’s the World Bank paper on China discussed in the post below.

I still haven’t settled on a good set of categories for the library, or on whether or not to use the same ones for the blog’s themes. So there’ll be a few more changes over the next while, and I hope to add a lot more to the library too.

Until the tragic farce of SARS took hold in China, it was the fastest-growing large economy around, and expected to be the ‘engine of growth’ in the world economy for some time. There’s a debate about whether the ‘Chinese miracle’ was anything of the sort - whether it was more about a country with huge resources and a massive supply of cheap labour eventually attracting foreign investment with nowhere better to go - but this is neither the time nor the place. What I want to do is look at a new World Bank research paper released this week - Household Welfare Impacts of China’s Accession to the World Trade Organization, by Shaohua Chen and Martin Ravallion.

IMPORTANT PROVISO: The paper relies upon a very involved set of economic calculations on goods prices and household incomes. The mathematics of it are completely beyond me and I haven’t even tried to understand it.I have also in the past been known to be highly critical of World Bank research on poverty (but usually because of its optimism bias). Still …

Briefly put, the paper examines the effects on prices and incomes across China of its entry into the World Trade Organisation in 2001, for which it was forced to / agreed to (depending on your outlook) abruptly open up its markets, drop its trade barriers and tariffs (and generally give the US what it wanted). The authors conclude that “In the aggregate, we find only a small impact on mean household income, inequality and the incidence of poverty. However, there is still a sizable, and at least partly explicable, variance in impacts across household characteristics. Rural families tend to lose; urban households tend to gain”.

Notice that bit about rural families tending to lose? That’s a rather worrying prognosis for a country with a rural population of around 900 million. The authors suggest that families in the worst affected provinces look set to lose ‘around 3-5% of their incomes’. That may not seem all that much, but when you’re not exactly well-off in the first place it can make all the difference, and bear in mind that this income loss is from one big-bang trade reform. It is even more worrying when set against the trend in the last two decades of constantly rising rural incomes.

If all this comes true, will the increased incomes in urban areas compensate? It’s hard to say, but I would be inclined to think not. For one thing, country to city migration is already a growing social phenomenon in China, and reduced incomes in rural areas will turn it into a human tide flooding the cities. This will bring its own costs to everyone involved, and we can’t say for sure how China will come out of it. Oh well, at least the American farmers did okay out of the deal.

(Jeebus what a terrible title. I’m useless at giving articles catchy names, so for now I’ll try to make the worst possible job of it)

The recent controversy over EU requests for developing countries to open up their public services to more foreign competition laid clear the contradictions of rich country policies towards privatisation in the developing world. We say we just want to help them improve their water supplies, their electricity or whatever, and if our companies can turn a profit doing so what’s the harm? We either don’t see or choose to ignore that as soon as the second part - making a profit - becomes an aim, we can’t be trusted on the first. We inevitably end up trying to bully poorer countries into selling their public services to our chosen companies on the most favourable terms possible.

Eurodad (that’s the European debt and development NGO) has a short, clear article on why pushing privatisation onto developing countries is not necessarily a good idea. The author, Kate Bayliss, examines five principle arguments frequently put forward in favour of privatisation (privatisation promotes growth and private sector development, reduces expenditure, improves performance and increases aid flows) and finds them unsupported by the evidence. She also makes a very basic but very important point: private companies naturally are mostly interested in making a profit, so we can expect them to only want to acquire those developing country public services that make a profit, or that can be made to make a profit by increasing charges - and thus excluding the poorest customers - or by laying off lots of employees - again, thus increasing poverty. If the service is profitable, though, the government should hang onto it, otherwise we will see companies from the rich countries ‘cherry-picking’ the best services and leaving governments stuck with the loss-making ones.

Bayliss goes on to argue that poorer countries often lack the regulatory capacity or expertise to ensure that privatised utilities deliver a quality service for a good price. Rather important considering that regulators often seem incapable of doing that in most industrialised countries, which have vastly more resources to do the job.

The full paper is here, but for the crucial point is that if developing country governments are that keen to get our companies to run their services, they’ll ask. Why is it still a condition of so many debt assistance programmes run by the IMF and World Bank? Because, as with so much else, it suits us, not them.

Martin Stabe has an excellent post on his blog (can’t link to the particular post, but it’s called ‘Charting the Blogs’) about the political economy of the proposed Bush tax cut. He links to a now rather-famous chart showing the basic distribution of benefits from the proposed changes - over $100,000 for the average person in the top earnings percentile in America, around $29.50 for the people in the bottom 80%. So far so spectacular.

But he goes on to recall a NY Times article explaining why ordinary Americans seem to go for this kind of redistribution up to the already-fabulously-wealthy:

The most telling polling result from the 2000 election was from a Time magazine survey that asked people if they are in the top 1 percent of earners. Nineteen percent of Americans say they are in the richest 1 percent and a further 20 percent expect to be someday. So right away you have 39 percent of Americans who thought that when Mr. Gore savaged a plan that favored the top 1 percent, he was taking a direct shot at them.

For me, this shows that inequality could not have reached its present incredible extent in the US without the popular misconception that the system works, that little guys became winners all the time, and that to spread the wealth even further all you need are more incentives. Which of course helps widen the gulfs between rich or poor, so that the delusions get even stronger.

Following up on my earlier post about the World Bank’s World Development Indicators, George Monbiot had an article in the Guardian last week questioning the validity of the Bank’s most well-known poverty indicator, the $1 a day income level. Monbiot claims that “the World Bank’s methodology is so flawed that its calculations cannot possibly be correct. Not only do they appear wildly to underestimate the level of global poverty, but the downward trend they purport to show seems to be an artefact of the way in which they have been compiled. The World Bank’s figures, against which the success or failure of the entire global economy is measured, are useless”.

Monbiot is describing the conclusions of Columbia University academics Sanjay Reddy and Thomas Pogge, available here. Their critique is fundamentally that the methodology used to compare the ‘purchasing power’ of incomes of people in different situations and in different countries is fatally flawed since it measures the power to purchase a ‘basket’ of ‘global commodities’, ie anything and everything. Obviously, the poorest people (in fact, most people) in Mali don’t buy the same things as those in London or Chicago or Tokyo. They’re mostly concerned with buying the basics of human existence - staple foods, shelter, and so on. But while basic foodstuffs tend to be cheaper in poor countries than in rich, services (even luxury services like pedicures or personal fitness training) tends to be comparatively more cheaper. The more of the latter consumed, the better-off poor people seem to be. As the world consumes more services, poverty seems to decrease.

As Monbiot says, “The Bank would derive a far more accurate view of the purchasing power of the poor if it measured only the costs of what they buy, rather than those of what richer people in the same economies buy. Complete figures do not yet exist, but Reddy and Pogge’s initial calculations, based on the cost of bread and cereals, suggest that the Bank’s analysis might have underestimated the number of the world’s people living in absolute poverty by some 30-40%”.

Reddy and Pogge’s site has a technical version and a plain English version of their argument, together with a reply by the
World Bank and their counter-criticism.

Clearly stung by my recent tirade, Clare Short has resigned today from her post as UK Minister for International Development in protest over the government’s handling of the aftermath of the Iraq war (or because she was about to be sacked).

Her resignation letter to Dear Tony says:

I thought the run-up to the conflict in Iraq was mishandled, but I agreed to stay in the government to help support the reconstruction effort for the people of Iraq.

I am afraid that the assurances you gave me about the need for a UN mandate to establish a legitimate Iraqi government have been breached.

Too right they have, and fair play to Ms Short for following through on her threat. Maybe I should say sorry for calling her pointless …

In the middle of an interesting discussion on boards.ie about the upcoming G8 summit at Evian, it was pointed out that protests at the Evian summit (and by extension, I felt, such protests in general) would be ‘relatively tiny’ compared to the anti-war protests around the world in the last six months or so.

I disagreed: ‘anti-globalisation’ protests have attracted massive participation, and not just in the richest countries. The World Development Movement have produced a series of annual reports on anti-IMF and World Bank protests across the developing world. The latest, ‘States of Unrest III’, describes protests by millions of people worldwide against the policies of these institutions in particular (and against their own governments for going along with them) and, it’s not unreasonable to assume, against the present model of globalisation in general.

Incidentally, here’s the first paragraph of States of Unrest III:

“The rising tide of the global economy will create many economic winners,
but it will not lift all boats. [It will] spawn conflicts at home and abroad,
ensuring an ever wider gap between regional winners and losers than
exists today. [Globalisation’s] evolution will be rocky, marked by chronic
financial volatility and a widening economic divide. Regions, countries,
and groups feeling left behind will face deepening economic stagnation,
political instability, and cultural alienation. They will foster political, ethnic,
ideological, and religious extremism, along with the violence that often
accompanies it.”

Scary stuff, especially when you consider it’s a quote from the CIA’s ‘Global Trends 2015′ report.

Foreign Policy magazine has published “the first annual CGD/FP Commitment to Development Index, which grades 21 rich nations on whether their aid, trade, migration, investment, peacekeeping, and environmental policies help or hurt poor nations”.

The Netherlands finishes top, with Denmark 2nd, Ireland 15th, the UK 11th, the US 20th and Japan last.

The most interesting relationship thrown up is that between country size and commitment to development. Of course, Japan and the US give far more aid to and import more goods from developing countries than anyone else by volume. But the CDI measures “policy effort rather than impact” so the other damaging policies of these countries counts against them. The result is a far sharper analytical and political tool.

There are still difficulties, though. Commitment to the development of the Least Developed Countries is apparently weighted no more than commitment to the devlopment of, say, China or India. The CDI leaves out policy on debt cancellation, on intellectual property, on commodity price stabilisation and on pushing liberalisation in developing countries. All quite tough to quantify, of course, and the authors stress that they’re trying to compare quantifyably present policies rather than historical performance.

As for Ireland, our Environment score is low due to high fishing subsidies, low monetary contributions to international environmental funds and low R&D spending on new environmentally friendly technologies. Also, since the study uses data a year or so out of date, it doesn’t reflect the great strides in aid that Ireland has made recently.

The study was carried out in cooperation with the Center for Global Development - if you’re interested in delving into the technicalities they’ve got background papers galore.

The World Bank has published the 2003 edition of its annual global development survey, World Development Indicators (press release summing it up here).

The main point is that there is still a need for a massive increase (perhaps a doubling) of aid funding to developing countries if education and health provision is to improve to the levels envisaged in the Millennium Development Goals.

The second interesting result is that, in the absence of such a leap in aid funding, the World Bank envisages poverty greatly increasing in Sub-Saharan Africa - in 1999 315 million peopel there fell under the (slightly dubious) poverty line of $1 a day income, but that figure is set to increase to 404 million by 2015. Given that the World Bank tends to make fairly optimistic forecasts, this is extremely worrying.

Interesting paragraph spotted in the most recent BRIDGES weekly trade digest:

Tariffs are important revenue generators for poorer states, where income and other tax collection systems are underdeveloped. According to IMF figures, import duties represented 15 percent of government revenue in developing countries in 1999-2001. In African least- developed countries, the percentage was more than twice as high, at 34 percent.

After extensive googling, I can’t find a source but I’ll take their word on it for now as I’ve heard figures of a similar magnitude before. This aspect of tariffs is rarely mentioned by those gung-ho for trade liberalisation in developing countries, but deserves serious consideration: if the figures are accurate, income from duties is more valuable to some countries than foreign aid or debt relief.

Things are not going well at the World Trade Organisation. Nearly every deadline for agreement set at 2001’s Doha Ministerial conference has been missed and it doesn’t seem possible that member countries will agree anything that substantial at the next Ministerial in Cancun, Mexico, in September.

That won’t stop some serious elbow-twisting, though.

I wrote a dissertation on decision-making in the WTO, and discovered how one of the most important factors counting against developing countries in WTO negotiations is their lack of human resources: during the Ministerial conference in Doha, the G7 nations together had 481 delegates, compared to 276 from all 39 Least Developed Country members. This meant that poor countries simply didn’t have the staff to attend every meeting in a packed four-day summit, even if they had been told about it and even if they were let in.

Cancun looks like it could be even worse: according to an article by Shefali Sharma of iatp.org (received via ATTAC’s ‘Sand in the Wheels’ bulletin):

there are approximately 13 issues to resolve or
address either before or at Cancun, yet six is all a Ministerial can
be expected to handle. Why six and not another number is unclear. If
all of these issues are left for Ministers to decide in four day at
Cancun, then many of these issues will be squeezed out or there will
be pandemonium in Cancun or both. In Doha, the declaration had 50 some
paragraphs and only 6 issues were assigned facilitators. Many
governments had nowhere to turn if they wanted to address other
relevant issues that were not assigned facilitators. It appears likely
that the Doha process will be repeated.

‘The Doha process’ was characterised by playground tactics like exclusion, divide-and-conquer, bribery and outright bullying - aid budgets, for example, were threatened to buy the support of poor countries for a trade package that was not in their interests.

Nevertheless, many developing countries held firm, and since Doha they have not sold themselves out. The key questions now are whether they will be able to withstand an incredible amount of pressure from the rich countries in Cancun, and, if they can, the rich countries will maintain any interest in the WTO. After all, they only pay any mind to the WTO while it remains a useful tool for achieving their policy objectives. When it starts being something like a democratic international arena (or even, shock-horror, a pro-development organisaton), they’ll have no incentive to abide by its decisions.

So developing countries are caught in a bind. Their most cherished goals - such as full implementation of previous agreements, special treatment for the poorest, freedom to keep their trade and investment protections, and access to G7 agricultural markets - are technically all there to play for, but they know that each victory is one less reason for the rich to play the game.

If you like, check out my dissertation on ‘Power and decision-making in the WTO’ is here, or a short article summing it up.