Category Archives: Development and globalisation

US-EU trade deal stalls over corporations suing governments

Until recently investor-State dispute settlement (ISDS) cases were rare.   This is the provision that allows companies to take governments to international arbitration panels to seek compensation if they feel their investment has been harmed by government action.   There has now been a surge in filings by companies taking an ever broader view of what constitutes a legitimate cause for action.   According to the OECD, 57 ISDS cases were filed against government in 2013, almost half of them in developed economies.   What is disturbing is that ISDS has increasingly been stretched to cover regulatory actions rather than simple expropriation.   Several recent cases illustrate this point.

Vattenfall, a Swedish energy company, is suing the German government for €3.7bn over the latter’s decision to phase out nuclear power in the wake of the Fukushima nuclear disaster.   Canada was forced to revoke its ban on the toxic fuel additive MMT under challenge from the US company Ethyl.   The US tobacco giant Philip Morris is suing the Australian government for billions of dollars over its public health policy that all cigarettes must now be sold in plain packaging.   Argentina has been hit hard by several ISDS cases, msny of them related to the country’s decision to unpeg its currency from the US dollar in 2002, and has been forced to pay over $500m  to settle 5 companies’ claims in October 2013.   Ecuador has been ordered to pay Occidental Petroleum $1.77bn in damages for terminating the oil giant’s contract when the company broke Ecuadorian law.   A separate tribunal threw out the claim by Ecuador for $19bn in damages against Chevronfor its contamination of the Amazonian rainforest over a period of two decades.
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Corporate tax scams in developing countries the next target

It is staggering that, according to the recent Annan report, Africa loses twice as much each year from tax avoidance, offshoring company registration, financial transfers, and corrupt mining deals secretly hidden, than the total it receives as a continent in aid.   The most recent scandal concerns the concession deal extracted by a FTSE-100 company, the Eurasian Natural Resources Corporation, in the Congo whereby it bought 5 mining stakes which were State assets at far below their true value.   Clearly there were corrupt officials involved as well as scheming and greedy corporate executives, but the loss to the Democratic Republic of the Congo is estimated at $1.3bn.   What puts that in perspective is that that is the equivalent of their total health and education budgets combined.   Given that Annan calculates that the loss to the African continent each year from financial skulduggery of this kind is of the order of £25bn, that indicates that scandals of the ENRC kind are multiplied up to 40 fold.
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Global sharing economy v. deregulated capitalism

An outstanding new analysis has just been published a few weeks ago by a group of experts under the title ‘Sharing the World Resources’.   It is detailed in argument and well-documented, but neither a political manifesto nor an academic utopia.   It is rather a depth examination of money flows in a world increasingly out of control and hijacked by the 1% who have imposed the neoliberal capitalist ideology both in their own countries and across the world.   All of their recommendations will only be achieved after intense struggle, but the great merit of this analysis is that it quantifies the scale of what is currently wrong and spells out the spectrum of change that could be achieved if these colossal money flows could be re-directed.   Here are some of their proposals, none of them particularly new, but calibrating for the first time the capacity for fundamental change.
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If austerity today is right for long-term future, why isn’t stopping climate change right for same reason?

You probably didn’t notice it, but an important event happened recently – or rather it didn’t happen.   The second Earth Summit, 20 years after the first at Rio, ended with a whimper.   There was no lack of warm verbiage and plenty of reaffirmation of noble intentions, but nothing that would take the skin off a rice pudding.   Nothing to deter fossil fuel burning, nothing to incentivise a switch to renewables or energy saving or energy efficiency, and certainly nothing to make sustainable development a robust and forceful reality and nothing to slow the pace of destruction of biodiversity, now proceeding at a pace 100 to 1,000 times faster than any time in palaeohistory.
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Et tu, Brute

So even Alastair Darling has turned against Gordon Brown for the IMF  job.   But what is disturbing about all the jockeying and jostling now going on is the focus on the wrong criteria.   This is not a position – ‘the world’s banker’ – to be decided on the basis of personality incompatibilities (Cameron-Brown) or on whether the successor should be appointed from the same country (DSK-Lagarde) or whether the appointment should follow the switch of economic power to the East and South (Carstens-Manuel) or whether the Eurozone crisis should commend or disqualify an EU candidate for the job, or whether the IMF remains the fiefdom of the Europeans to balance the Americans at the World Bank.
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Glencore: the lessons of global market capitalism

The floating of Glencore today at a value of £38bn is a watershed in contemporary international capitalism.   Its initial public offer is the biggest yet launched on the London stock market, making its chief executive an overnight multi-billionaire worth £6bn, but its significance goes far wider.   It may well mark the turning point in the simultaneous boom in almost all commodities over the last 18 months which has pushed up inflation sharply in both the developing and developed world.   Just as the ill-fated RBS takeover of ABN Amro foreshadowed the high-water mark of bank recklessness before the financial crash of 2007-8, so the Glencore flotation may well represent the point of disclocation which always occurs eventually in all unsupportable booms. 
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What targets should the world be aiming at?

It endless growth via conventional industrialisation exacerbates climate change, over-exploits finite planetary resources, and doesn’t necessarily make us happier anyway, what alternative goals should we have? Research just published by the New Economics Foundation makes some important proposals. It posits that a successful society is one that can support good lives that don’t cost the Earth. The index adopted to measure progress towards this target embodies 3 criteria: high life expectancy, high life satisfaction, and a low ecological footprint. The results turn our idea of progress on its head. Whilst the index confirms that the countries where people enjoy the healthiest lives are mostly richer developed countries, it also shows the unsustainable ecological price we pay. But it’s the exceptions that are most interesting.

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Globalisation isn’t necessarily good for you

The one unchallenged premise uniting all the G20 attendees was the desirability of globalisation. For them all it was an article of faith. And in one sense they are of course right. Given the advance of IT technologies and the enormous expansion of worldwide travel, the global economy in one form or another is here to stay. But that does not necessarily mean that the present kind of global economy is either desirable or inevitable. There are very good reasons for thinking it is neither.

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Bretton Woods II conference.jpg
There is a silver lining in the economic and financial turmoil. The so-called Bretton Woods II conference, called by President Bush for Saturday week (15th) at Washington, was clearly intended by the US and the other lead capitalist nations to make the minimalist changes necessary to return the world to the 2007 status quo ante. The election of Obama however has changed all that.
Fundamental geopolitical change occurs when the shifting tectonic plates underpinning the balance of power abruptly reach a tipping point which opens up a profoundly new landscape. Thus the uneasy partnership between the State and private markets which managed capitalism between 1945 and 1973 was upended by the world-wide inflation from the OPEC quadrupling of oil prices, by the increasing confidence of the capitalist class emboldened by a monetarist ideology to face down trade union resistance, and by persistent tabloid sniping at the welfare state foundations of social democracy. The resulting Reagan-Thatcher counter-revolution between 1979 and 2008 unleashed the neo-liberal triumph of private markets through deregulation and privatisation, a ballooning of inequality, and the undermining of democratic accountability by a marked centralisation of State power. That system is now irrevocably broken by the excesses of its own internal dynamics. Once broken to that degree, a system never recovers in anything like the same form. It morphs into wholly different formations.
What determines those formations is the shifting contours of geopolitical power. The IMF, World Bank, GATT/WTO, and the Washington Consensus did not arise from contemporary theories of economic enlightenment, but from calculation of what best suited the interests of the US, their creator. That hegemony is now threatened on all sides. The US economy is dangerously over-dependent on imported oil, when over 90% of exported oil will by 2020 be concentrated in Muslim countries. US attempts to control this dependence by domination of the Middle East and Caspian Basin have led to imperial over-reach in Iraq and Afghanistan, which threatens a US humiliation and enforced withdrawal (even when it is dubbed a victory).
But the long-term threat to US hegemony now comes from the seemingly unstoppable rise of China. With a breakneck rate of growth of 7-10% over the last decade and a GDP of over $8 trillions, twice as large as Japan’s, China is now challenging the US over trade, financial imbalances, the struggle for oil and natural resources in Africa, Latin America and the Middle East, as well as regional dominance in East Asia. Indeed a new superpower coalition of China, Russia, India and Brazil, covering 75% of the world’s population and 80% of its natural resources, is now emerging and attracting the close interest of major oil producers such as Iran and Venezuela, as a counterweight to American power.
This precariousness of the current world order is exacerbated by three massive underlying pressures – over-exploitation of natural resources, over-population of a finite planet, and over-warming of the global atmosphere by greenhouse gases. Not only is the availability of oil likely to begin to dry up within some 40 years, water scarcity also already affects half a billion people living in regions prone to chronic drought. The UN expects this number to increase 5-fold to around 3 billions within just two decades, nearly half the entire world, with unprecedented implications for population displacement and refugee flows. And so great is the over-use of the Earth’s natural capital stock that is has been estimated that in 50 years’ time on current trends we will be exploiting natural resources equal to two Earths when, as some have percipiently observed, we only have one.
The new world order will be formed as a compromise between the interests of the new global power-brokers, the requirements of a more regulated capitalism, and the exigencies of the rapidly changing resource base of the planet. It will reflect the switch, which is now irreversible, from uni-polar US power to a much more fragmented and uncertain multi-polar system of shifting alliances. It will require new global institutions, not merely a limited re-writing of the remits of the IMF and its sister bodies.
It will also become in many ways a more dangerous world. The gradual proliferation of nuclear weapons is probably unstoppable once Iran is nuclear-armed within the combustible Middle East, while at the same time a revived Russia now and probably China later stokes a new nuclear arms race. A generations-long ‘war on terror’, as a cover for continuing US imperialism, threatens to set the post-Cold War world, if maintained, on a self-destruct course towards conflict between civilisations. Resource wars around oil, water and minerals will intensify. A human race that took 150,000 years to reach 1bn population and is now likely to take less than 250 years to reach 10bn faces the dark underside of globalisation in growing famine, increased transmission of disease, and unprecedented environmental refugee movements.
Given this impasse to which the world is now heading on several fronts, the Washington conference in December offers a once-in-a-lifetime escape route. But it will have to meet several conditions, most of which are potentially treacherous.
Unlike Bretton Woods I when a tiny elite of war victors could carve up the political, economic, financial and trade systems to suit their own interests, this time if the conference is to get anywhere it will have to be open not only to the old capitalist powers of the US, EU and Japan, but also to the emerging superpowers of China, Russia, India and Brazil as well as to regional representatives from Africa, the Middle East and southern Asia. Getting agreement on a multi-faceted new order, as the successive collapses of the Doha Round has shown, will be fraught.
The immediate requirement will be to replace a free-wheeling, no-holds-barred capitalism with a more stable, better regulated capitalism but without extinguishing its inbuilt innovativeness and dynamism. That is a very hard call. It means fixing the banking system’s appetite for speculative trading, hedge fund instability, derivatives, offshore accounting and securitisation, as well as the obscure reporting of corporate risk and sometimes dodgy auditing. Capitalism is not capable of mutual co-operation, but it has to be shed of its proclivity for the extremes of competitive recklessness, driven by greed for astronomic bonuses.
The conference offers too the best chance yet to align the global economic track to the carrying capacity of the planetary eco-system. Yet the response of governments worldwide to increasing climatic devastation and the risk of an irreversible tipping point this century, which could threaten human survival, has been glacial. Never has a global Green New Deal been more imperative, yet still widely resisted, but this conference might just offer the breakthrough so desperately needed.
A new world order will only be sustainable if, lastly, it is seen as more mutually beneficial and less greedily exploitative as this one is. A rather more equal balance of power across the world should make this more achievable. But the inequalities are now so staggeringly huge and the unwillingness of the rich hemisphere to face up to its Millennium Development Goals so great that it will require much more aggressive alliances between the poorer nations than simple reliance on Western altruism. At least the hope and opportunity is there which hitherto has not existed.
This article first appeared in Tribune on 14 November 2008.