“Just eight individuals, all men, own as much wealth as the poorest half of the world’s population, Oxfam said on Monday in a report calling for action to curtail rewards for those at the top.” – Fortune
Here is a framework for understanding international economic policies:
Originally Published December 2014. Long-Form Journalism. By Renwei Chung.
My Two Cents in International Inequality
Millenium Development Goals (MDGs)
- Introduction……………………………………………………………………… 2
- How MDGs Affect the Bottom Billion………………………………….. 3
- How Law, Institutions Can Contribute to the Achievement of These Two MDGs 7
- The Extent to Which the UN is the Most Appropriate “International Economic Organization” for Addressing These Two MDGs………………………………………………………………….. 12
- How Other International Organizations Can Help to Achieve These Two MDGs 16
World Trade Organization (WTO)
- The Doha Round Negotiations Have Not Fostered Meaningful, Sustainable Economic Development and Poverty Reduction in the Developing World. The Doha Round is Dictated by the Developed World. 31
- International Trade Liberalization has not Led to Economic Growth and Development for the Developing World 24
- WTO………………………………………………………………………….. 23
- The Relationship between International Trade Liberalization and Inclusive and Equitable Economic Growth and Development within the Developing World………………………………… 23
- Introduction……………………………………………………………………. 23
- Doha Round………………………………………………………………….. 31
- Doha Rounds’s Lack of Economic Development and Poverty Reduction in the Developing World 31
- The Developed World’s Agenda is the Doha Round’s Agenda 34
- Given the Recent 2013 Bali Negotiations, is there Realistic Hope that the Doha Negotiations will be Concluded and (if so) along Lines Favorable to the Developing World?…………. 36
World Bank
- Laws, Institutions, and the “Rule of law” are Critical for the Bank to Achieve Its Mandate 51
- Bank’s Role…………………………………………………………………. 44
- World Bank (Bank)……………………………………………………………. 41
- The World Bank’s Role Today and What It Should be in the Future 41
- Introduction……………………………………………………………………. 41
- The Bank Should Focus on More than Just the “Bottom Billion” 56
Millennium Development Goals
I. Introduction
At the Millennium Summit in September 2000, the largest gathering of world leaders in history adopted the United Nation Millennium Declaration. The world leaders committed their nations to a new global partnership to reduce extreme poverty and set a series of time-bound targets, with a deadline of 2015. These time-bound targets have become known as the Millennium Development Goals (MDGs).[1]
The United Nations (UN) member states and more than twenty international organizations committed to achieve the following eight MDGs by 2015:
- Goal 1: Eradicate extreme hunger and poverty
- Goal 2: Achieve universal primary education
- Goal 3: Promote gender equality and empower women
- Goal 4: Reduce child mortality
- Goal 5: Improve maternal health
- Goal 6: Combat HIV/AIDS, Malaria, and other diseases
- Goal 7: Ensure environmental sustainability
- Goal 8: Develop a global partnership for development
These goals were surely ambitious, but by setting the timeframe of 2015 the UN and other groups could assess their progress and diagnose areas that need improvement.
This article analyzes the strategies and institutional framework for achieving the MDGs. This article specifically addresses “Goal 1: eradicate extreme hunger and poverty” and “Goal 7: ensure environmental sustainability.”
II. How MDGs Affect the Bottom Billion
In Paul Collier’s book “The Bottom Billion: Why the Poorest Countries are Failing and What Can be Done About It,” he addresses four poverty traps that prevent development in countries.
He reasons that the struggles of the fifty-eight countries, which harbor the poorest billion individuals, are a result of one or a combination of the four poverty traps:
- Conflict trap
- Natural resources trap
- Trap of being landlocked with bad neighbors
- Poor governance trap
In Jeffrey Sach’s book “The End of Poverty,” he believes the answer to alleviating this devastating poverty demographic is to increase aid. In William Easterly’s book “White Man’s Burden,” he believes there is no clear answer to this type of poverty. As a former director of the World Bank’s development research and as advisor to the British government’s Commission on Africa, Collier demonstrates that the solutions to these poverty traps lie in a delicate balance of aid, military intervention, international charters, and trade policies. Collier’s view may not be as cut and dry as his contemporaries, but it may prove more pragmatic for policy makers.
The MDGs to “eradicate extreme hunger and poverty” (Goal 1) and “ensure environmental sustainability” (Goal 7) can be viewed through the lens of Collier’s “poverty traps.” After all, 73% of those in the poorest billion of the world’s population are either involved in or recovering from civil war (conflict trap). 29% of the “bottom billion” live in countries in which resource wealth dominates the economy (natural resources trap). 30% of the “bottom billon” live in landlocked countries (trap of being landlocked with bad neighbors). 76% of the “bottom billion” live in countries that are either failing, or recently were failed states[2] (poor governance trap).[3] For the sake of brevity, I focus on the conflict and natural resources traps.
Conflict and Natural Resource Traps
This article focuses on how “Goal 1: eradicate extreme hunger and poverty” and “Goal 7: ensure environmental sustainability” relate to Collier’s “conflict trap” and natural resources trap.”
In his book “The Bottom Billion,” Collier writes “Civil war is much more likely to break out in low-income countries: halve the starting income of the country and you double the risk of civil war (Pg. 19).” Here, Collier directly relates the poverty level of country to the conflict within a country. He further states, “Civil war leaves a legacy of organized killing that is hard to live down. Violence and extortion have proved profitable for the perpetrators. Killing is the only way they know to earn a living. And what else to do with all those guns (Pg. 33)?”
In addition, Collier writes “Suppose a country starts its independence with the three economic characteristics that globally make a country prone to civil war: low income, slow growth, and dependence upon primary commodity exports. It is playing Russian roulette (Pg. 32).” Not only does he relate poverty levels with the conflict trap, he adds the dependence upon primary commodity exports as a third leg to the stool of civil war. In other words, the very supply of resources makes conflict for those resources all the more likely.
The discovery of valuable natural resources in the context of poverty constitutes a paradoxical poverty trap. Collier’s principle economic account is named the “Dutch Disease.” In relation to environmental sustainability, the “Dutch Disease” is the claimed inverse relationship between the increase in the economic development of natural resources and a decline in the manufacturing and/or agricultural sectors.[4]
When there is an abundance of resources that lead to excess revenue in an impoverished country, leaders will most likely embezzle funds. The abundance of resources reduces the necessity to tax which also reduces public scrutiny, destroys checks and balances, and erodes electoral competitiveness where parties compete for votes by patronage (Pg. 146). The most corrupt will inevitably win the elections.
Dependence upon primary commodity exports is a detriment to environment sustainability because governments who receive short-term easy revenues from valuable natural resources are less likely to be motivated to build infrastructure, explore alternatives, and develop long-term solutions to environmental sustainability. Instead, the government that relies on a valuable natural resource will do everything in its power to further exploit this resource, including (ironically) damaging the environment which produces this valuable natural resource.
III. How Law, Institutions Can Contribute to the Achievement of These Two MDGs
The very law and institutions that many deem to have caused hunger, poverty, and environmental problems could also be implemented to solve these problems. Many people believe capitalism has increased global poverty and reduced traditional style and quality of life.[5] In April 2013 the World Bank noted, “More than 1 billion people still live in destitution. At the same time, inequality is rising in many developing nations.”[6] Critics of capitalism point to the fact that there are more people living today in extreme poverty than before neoliberalism, and that environmental indicators indicate massive environmental degradation since the late 1970s.[7] Furthermore, environmentalists worry that because the capitalism system requires continual economic growth, it will inevitably drain our planet of all its finite natural resources.[8]
In his book “The Law-Growth Nexus: The Rule of Law and Economic Development,” Keneth Dam focuses on the “the protection of property rights, the enforcement of contracts, and the role of judiciary in achieving those goals (Pg. 9).” He also emphasizes a regulatory system that requires banks, which extend the bulk of credit in developing countries, to be apolitical.
Multi-national corporations (MNCs) continually exploit countries with low human rights and/or environmental regulations.[9] Law and institutions can contribute to the MDGs by regulating MNCs’ actions. MNCs should be required to pay the proper rents for economic pollution. MNCs should be required to pay the host country proper rents for using its workforce.
There should be international regulations established through WTO agreements, charters, treaties, and/or based on public international laws that govern MNCs. Just like in Doe v. Unocol Corporation, 248. F.3d 915, where the District Court had original jurisdiction and found that MNCs could be liable for humans rights violations under the Alien Tort Claims Act,[10] international/domestic courts should apply other traditionally viewed international public laws to govern MNCs;[11] especially if the WTO can’t or refuses to unanimously adopt MNC reform measures. Although there is an arguable required nexus to the United States for Doe’s ruling to apply extraterritorially, the ruling is a specific example of how the judiciary can help to govern MNCs.
“The World Trade Organization (WTO) was born out of negotiations and everything the WTO does is the result of negotiations.”[12] The WTO agreements could serve as a nexus or foundation for institutional reform of MNCs. Law and institutions can contribute to the achievement of MDGs via developing a set of rules and regulations that would specifically apply to MNCs. With regard to the environment, international big business is one of the largest creators of pollution and the best viable resource for its cleanup.
In fact, the newest economic Nobel Prize recipient, Jean Tirole, speaks directly about the dangers of large corporations and the need for proper regulation.[13] He argues that the root of the problem is the inherent asymmetric information that the large corporations harbor and successfully implement to always be two-steps ahead of the regulators.[14]
I believe another specific strategy to “eradicate extreme hunger and poverty” and “ensure environmental sustainability” is for some countries, which have a base level of GDP/GNP, to implement a negative income tax system (NIT). A NIT grants income subsidies to people whose income falls below a certain level.[15] For countries in a natural resources trap or for countries that produce enough income, a NIT could better allocate revenue to its citizens and ensure a minimum standard of life.[16] A NIT would obviously not be a productive system for a country with little to no GDP. A NIT is not a one-size-fits all solution.
Countries in a natural resources trap already have a problem with government distribution, but by individuals expecting a certain subsidy amount they are more likely to hold the government accountable for such distribution, rather than just be happy to not be taxed.
As referenced by James Bacchus,[17] the WTO treaty is the “sole source of all authority in WTO dispute settlement.”[18] By authority of the WTO, strategies can be enforced by the “set of principles and rules, underpinned by binding arrangements for settling trade disputes.”[19] Any and all adopted strategies by the WTO to address the MDGs shall be enforced through its Dispute Settlement Body.[20]
International MNC laws and a NIT for qualified countries may seem radical, but I argue they are no more fantastic than Collier’s proposal of five international charters to assist the bottom billion.
IV. The Extent to Which the UN is the Most Appropriate “International Economic Organization” for Addressing These Two MDGs
Many may question if the UN is the most appropriate “international economic organization” for addressing the MDGs to “eradicate extreme hunger and poverty” and “ensure environmental sustainability.” I believe as the most prominent international institution, the UN has a responsibility to be the springboard for these issues and its agenda should be, at the very least, to supplement other organizations that carry the flag for these topics.
However, the UN shouldn’t be necessarily viewed as the primary “international economic organization” for addressing these two goals.
The Preamble of the Charter of the UN[21] outlines four points of purpose:
- to save succeeding generations from the scourge of war, which twice in our lifetime has brought untold sorrow to mankind, and
- to reaffirm faith in fundamental human rights, in the dignity and worth of the human person, in the equal rights of men and women and of nations large and small, and
- to establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained, and
- to promote social progress and better standards of life in larger freedom
The underlying aim of the UN is to promote international cooperation, in which its predecessor the League of Nations failed to achieve. “The eight MDGs. . . form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions. They have galvanized unprecedented efforts to meet the needs of the world’s poorest.”[22] (emphasis added)
Just like the Vienna Convention on the Law of Treaties[23] is considered a treaty on international treaties, the UN should be viewed as an aid on international aid. The UN should serve as the foundation for international aid. The UN’s mission should indeed be understood to “form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions.”
The UN’s Preamble declares its purpose is “to promote social progress and better standards of life in larger freedom.” It seems more than reasonable that the UN has declared two of its eight MDGs to be to “eradicate extreme hunger and poverty” and “ensure environmental sustainability.”
The UN already had initiatives in place to assist with hunger and poverty such as the UN World Food Program (WFP),[24] UN Children’s Fund (UNICEF),[25] UN High Commissioner for Refugees (UNHCR),[26] and UN Office for the Coordination of Humanitarian Affairs (OCHA).[27]
The WFP is the world’s largest humanitarian agency fighting hunger worldwide.[28] UNICEF fights hunger and poverty by ensuring the survival, protection, and development of children; UNHCRs priority is to provide protection and assistance to the world’s refugees; and OCHA is mandated to mobilize and coordinate the collective efforts of the international community.
The UN already had an initiative in place to assist with environmental sustainability. The UN Environment Programme (UNEP) “is the voice for the environment within the United Nations system. UNEP acts as a catalyst, advocate, educator and facilitator to promote the wise use and sustainable development of the global environment.”[29]
The UN has set the word’s agenda in the form of the eight MDGs. The UN already has initiatives in place to address both the MDGs mentioned in this book, but these organizations should be relied upon to mobilize and coordinate the collective efforts of the international community and as a catalyst, advocate, educator and facilitator. They should not be expected to be the sole provider of aid and assistance to these causes.
The UN should not be relied upon as the sole purveyor of social progress and better standards of life as they pertain to hunger, poverty, and environmental stability. It should be incumbent upon the other dedicated and cause-specific organizations to respectively address the MDGS to “eradicate extreme hunger and poverty” and “ensure environmental sustainability.”
It is only through international coordination and cooperation of non-governmental organizations (NGOs), non-profit organizations, and private-sector parties dedicated to hunger, poverty, and environmental stability that the MDGs will be achieved.
V. How Other International Organizations Can Help to Achieve These Two MDGs
The Center for Global Development (CDG) states, “Many poor countries, especially those in Africa, will miss the MDGs by a large margin. But neither African inaction nor a lack of aid will necessarily be the reason. Instead, responsibility for near-certain ‘failure’ lies with the overly-ambitious goals themselves and unrealistic expectations placed on aid.”[30]
The goals are admittedly ambitious. Many would label them aspirational. However, there are prescribed international organizations whose primary objective is to deal with the MDGs to “eradicate extreme hunger and poverty” and “ensure environmental sustainability.”
There are specific institutional frameworks in place to assist with hunger and poverty. “These range from the usual suspects – the World Bank, IMF, UN General Assembly, UN Secretariat, specialized UN agencies, OECD’s Development Assistance Committee (DAC), national governments, bilateral aid agencies and major development NGOs.”[31]
Some notable NGOs and non-profit organizations dedicated to hunger and poverty include: Action Against Hunger (AAH),[32] CARE,[33] Caritas Internationalis,[34] Catholic Relief Services (CRS – USCC),[35] Food For The Hungry International (FHI),[36] Hunger Plus,[37] International Committee of the Red Cross (ICRC),[38] Mercy Corps (MC),[39] Oxfam,[40] and Save the Children.[41]
There are also specific institutional frameworks in place to assist with environmental sustainability. Some notable organizations dedicated to ensure environmental sustainability include: Earth System Governance Project (ESGP),[42]Global Environment Facility (GEF),[43]Intergovernmental Panel on Climate Change (IPCC),[44]World Nature Organization (WNO),[45]World Wide Fund for Nature (WWF),[46] as well as the UN Environment Programme (UNEP).[47]
In regards to both MDGs, “eradicate extreme hunger and poverty” and “ensure environmental sustainability,” organizations need to provide more than mere aid. Collier notes that aid to a country in a conflict trap can actually make a coup more likely. He calls this problem “rents to sovereignty – the payoff to power” (Pg. 104). Collier also notes that in countries with a natural resource trap, “aid is fairly impotent” because the money is there, but the government’s proper distribution of it isn’t (Pg. 107).
The Water Problem
The International Institute for Environment and Development (IIED) says up to US$360m has been spent on building boreholes and wells that then become useless because they are not maintained or fixed when they break down. As a result, 50,000 water supply points are not functioning across rural Africa. According to the report only one third of water points built by NGOs in Senegal’s Kaolack region are working and 58% of water points in northern Ghana are in disrepair. The report’s author, Jamie Skinner, says that water points are often built by donors, governments and NGOs without fully consulting local people and finding out just how much it will cost to keep the boreholes clean and functioning over a sustained period of time.[48]
Ms. Skinner states, “To meet the MDGs on water supply it is just as important to build the systems to keep existing boreholes working as it is to drill new ones, even if such work is more challenging.”[49] The difference between a successful well program and an unsuccessful one is not rocket science, it is communication. Ms. Skinner’s outlines many solutions that could also be applied to the numerous organizations’ plans in addressing the MDGs.
As Ms. Skinner notes, it is imperative that organizations solicit feedback and insights from the very people they are trying to help. Organizations must understand the local culture if they want to have a real impact on a country. Whether an organization is trying to alleviate hunger, poverty, or promote environment sustainability it is crucial to get buy-in from the local people. It is important to understand the behavior, lifestyle, and ingrained culture of the people you are attempting to influence.
It is important to have a system of accountability, checks and balances, and realistic maintenance programs. Just as Ms. Skinner highlights, it is just as important to focus on the sustainability of these international programs as it is to begin such programs. The previous World Bank President, Robert B. Zoellick, may have said it best:
First, developing countries need to be the World Bank Group’s clients and partners – not objects of policy. It’s an important shift of mindset. We need to do development with clients, not to them. Just as foot soldiers are no longer cannon fodder, so the poor of today cannot be the cannon fodder of development schemes.[50]
Furthermore, the Bretton Wood Institutions should be held more accountable for the alleviation of poverty. After all, the International Monetary Fund’s (IMF) mission is to “foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”[51] The World Bank’s mission is to “provide vital financial and technical assistance to developing countries around the world to reduce global poverty.”[52] The World Bank states that “poverty reduction through an inclusive and sustainable globalization remains the overarching goal of our work.”[53] These multilateral systems should focus on the quality of aid and true sustainability programs. Quality of aid should be judged in terms of more available grants, non-cash assistance, and concessionary terms. Sustainability requires more investment in proper infrastructure and creation of local financial markets.
In addition, a renewed focus on the systemic issues of the poorest countries should help alleviate the “middle income bias” and better help achieve the MDGs. The better the WTO, IMF, and World Bank can coordinate activities with each other as well with the NGOs mentioned in this section, the more successful each organization will be in contributing to the achievement of the MDGs.
World Trade Organization System (WTO)
I. Introduction
This article analyzes how the Developing World has been impacted through international trade liberalization. This book addresses the Developing World through the perspective of the Doha Round and by analyzing the meaningful, sustainable economic development goals in developing countries.
II.The Relationship between International Trade Liberalization and Inclusive and Equitable Economic Growth and Development within the Developing World
A. WTO
The WTO website states:
The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the ‘Doha Development Agenda’ launched in 2001. . .
At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations. These documents provide the legal ground rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments, the goal is to help producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives. . . The system’s overriding purpose is to help trade flow as freely as possible — so long as there are no undesirable side effects — because this is important for economic development and well-being..[54]
B. International Trade Liberalization has not Led to Economic Growth and Development for the Developing World
The past thirty years have revealed that there isn’t a positive relationship or necessarily a direct correlation between international trade liberalization and inclusive and equitable economic growth and development within the Developing World.
The WTO was created with the primary purpose of liberalizing international trade. As the WTO website highlights, “It is an organization for trade opening. It is a forum for governments to negotiate trade agreements. It is a place for them to settle trade disputes. It operates a system of trade rules. Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other.”[55]
How has international trade liberalization affected economic growth and development within the Developing World? As I previously mentioned, “More than 1 billion people still live in destitution. At the same time, inequality is rising in many developing nations.”[56]
Just as many people believed Reaganomics would be the saving grace for the domestic economy, many people believed neoliberal theory would solve many of the Developing World’s problems. But as Paul Krugman has noted:
The Reagan economy was a one-hit wonder. Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before — and the poverty rate had actually risen.[57]
In Paul Collier’s book “The Bottom Billion” (2007), he noted that “the most dramatic transformation of the size and composition of (international) trade has been during the past twenty-five years.” The Developing World, as a whole, did not secure the rents from this dramatic transformation, instead Collier notes that Asia was the primary securer of these “economies of agglomeration.” Once Asia had established itself through the “growth of agglomerations,” it secured a competitive advantage in export diversification among the rest of the Developing World.
To highlight the relationship between international trade liberalization and the rise of Asia, as well as the lack of relationship between international trade liberalization and economic growth and development within the rest of the Developing Word, Collier states:
The Chinese are all over the countries of the bottom billion, securing natural resource deals. . . . In the bottom billion it is already unusually bad, and the Chinese are making it worse, for they are none too sensitive when it comes to matters of governance. . . . The growth of global trade has been wonderful for Asia. But don’t count on trade to help the bottom billion. Based on present trends, it seems more likely to lock yet more of the bottom-billion countries into the natural resource trap than to save them through export diversification. (Pg. 86-87)
Although Asia may not be entirely helpful in the economic growth and development within the rest of the Developing Word, there are other primary factors responsible for the lack of development in the Developing World.
Global capitalism inherently seeks the best return on investment and rarely would countries in the Developing World qualify as candidates for best return on investment. In the Developing World, perceived poor governance and policy, capital flight, relatively smaller economies, credibility concerns, reform difficulties, migration of the educated people, and lack of knowledge all hinder the possible growth of these countries via international trade liberalization.
Despite being commonly called one of the Bretton Wood institutions, the WTO is not a part of the UN, and did not arise from the Bretton Woods Conference.[58] Still, I would be remiss if I didn’t mention the WTO’s close relationship with organizations such as that of the UN and the Bretton Woods institutions.
“Although the WTO is not a UN specialized agency, it has maintained strong relations with the UN and its agencies since its establishment. The WTO-UN relations are governed by the Arrangements for Effective Cooperation with other Intergovernmental Organizations-Relations Between the WTO and the United Nations.”[59] Specifically, senior officials often collaborate with the UN Economic and Social Council (ECOSOC), UN Conference on Trade and Development (UNCTAD), and the Bretton Woods institutions.
It is also important to look at the relationship between international trade liberalization and economic growth of the Developing World through the “Washington Consensus.” Bretton Wood institutions like the IMF and World Bank have been impregnated with the ideology of the “Washington Consensus.” In John Williamson’s paper “A Short History of the Washington Consensus,” he states:
The term “Washington Consensus” was coined in 1989. The first written usage was in my background paper for a conference that the Institute for International Economics convened in order to examine the extent to which the old ideas of development economics that had governed Latin American economic policy since the 1950s were being swept aside by the set of ideas that had long been accepted as appropriate within the OECD.[60] In order to try and ensure that the background papers for that conference dealt with a common set of issues, I made a list of ten policies that I thought more or less everyone in Washington would agree were needed more or less everywhere in Latin America, and labeled this the “Washington Consensus.”
As the World Health Organization website states: “These ideas (the ten policies of the Washington Consensus) proved very controversial, both inside and outside the Bretton Woods institutions. However, they were implemented through conditionality under International Monetary Fund (IMF) and World Bank guidance. They are now being replaced by a post-Washington consensus.”[61] Trade liberalization was the sixth reform of the ten reforms Williamson originally listed.
Any relationship between international trade liberalization and economic growth and development within the Developing World has been disappointing. The whole idea of the Bretton Woods Conference was to “create a family of institutions to address critical issues in the international financial system.”[62]
The International Monetary Fund’s (IMF) mission is to “foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”[63]
The World Bank’s mission is to “provide vital financial and technical assistance to developing countries around the world to reduce global poverty.”[64]
These two institutions, along with the WTO, have been primary vessels for international trade liberalization. The lack of improvement for the Developing World as a result of the Washington Consensus and continued administration by the Bretton Woods institutions and the WTO begs the question, “Were these policies really about the Developing World or the Developed World?
III. The Doha Round Negotiations Have Not Fostered Meaningful, Sustainable Economic Development and Poverty Reduction in the Developing World. The Doha Round is Dictated by the Developed World.
A. Doha Round
The WTO website states:
The Doha Round is the latest round of trade negotiations among the WTO membership. Its aim is to achieve major reform of the international trading system through the introduction of lower trade barriers and revised trade rules. The work programme covers about 20 areas of trade. The Round is also known semi-officially as the Doha Development Agenda as a fundamental objective is to improve the trading prospects of developing countries.
The Round was officially launched at the WTO’s Fourth Ministerial Conference in Doha, Qatar, in November 2001. The Doha Ministerial Declaration provided the mandate for the negotiations, including on agriculture, services and an intellectual property topic, which began earlier.
In Doha, ministers also approved a decision on how to address the problems developing countries face in implementing the current WTO agreements.[65]
B. Doha Rounds’s Lack of Economic Development and Poverty Reduction in the Developing World
In 2009 the International Food Policy Research Institute (“IFPRI”) wrote, “The Doha agreement . . . has an ambivalent impact on developing countries and does not offer enough to the poorest countries” [66] In his article “The Broken Legs of Global Trade” (2012) Jagdish Bhagwati[67] writes, “The Doha Round, the latest phase of multilateral trade negotiations, failed in November 2011, after ten years of talks… the failure of Doha will virtually halt multilateral trade liberalization for years to come.”[68] Another article in the Economist titled “Goodbye Doha, Hello Bali” (2012) states, “The aims of the Doha Round, launched by the WTO in 2001, were laudable. . . The potential gains were around $280 billion a year. Its failure is a tragedy.”
Both Bhagwati’s and the Economist’s articles warn that preferential trade agreements (PTAs) or “patchwork regional deals” are threatening to usurp the Doha Round. Both articles concluded that the Doha Round, which still continues to this day, has been a failure.
On April 21, 2011 the Trade Negotiation Committee Chair, Pascal Namy, warned:
As the guardian of the WTO system, to all of you in Geneva and capitals I say, use the next days to reflect on our situation. Think hard about the consequences of throwing away ten years of solid multilateral work. Work at home to build support for trade opening. Use the upcoming weeks to talk to each other and build bridges. We will be meeting on 29 April to begin our collective consideration of the next steps, seeking to identify and converge upon a way forward which preserves the objectives and values of the Doha mandate.
As of the present, the Doha Round negotiations have not identified and converged upon a way forward to come to a resolution or affirmatively preserve the objectives and values of the Doha mandate.
In her article “Poor nations ‘pushed into new debt crisis,’” Katie Allen writes:
The Jubilee Debt Campaign said as many as two-thirds of the 43 developing countries it analyzed could suffer large increases in the share of government income spent on debt payments over the next decade. The report highlights that for 43 poor countries, half of lending is from multilateral institutions such as the International Monetary Fund, World Bank and African Development Bank. Total lending to the group of poor countries has increased by 60% from $11.4bn (£7.1bn) a year in 2009 to $18.5bn in 2013. . . . “The shocking thing is that public bodies like the World Bank are leading the lending boom, not just reckless private lenders hunting for returns.”[69] (emphasis added)
Under the term of the Doha Round, the Developing World’s difficulties to implement the current WTO agreements have become magnified, not solved. Meaningful, sustainable economic development and poverty reduction in the Developing World is continually being eroded by PTAs, which inherently favor the more powerful countries. The Doha Round’s fundamental objective to improve the trading prospects of developing countries[70] has been hijacked by other agendas. The following section discusses how the Developed World’s Agenda usurped the Doha Round’s Agenda.
C. The Developed World’s Agenda is the Doha Round’s Agenda
In her article ”Doha Collapse Won’t Mean Suffering for The Poor,” Aileen Kwa[71] writes “the failure of the Doha talks is another blow to the crumbling [Washington] Consensus. Binding a country’s trade policy and liberalising in accordance with a standard formula cannot accommodate this dynamism. In fact, liberalisation cannot be an end in itself. Countries should liberalise only when it is of benefit to them.”[72]
A successful Doha Round of negotiations doesn’t guarantee that the Developing World is better off. After all, the liberalization and deregulation of the Washington Consensus has been seen by many as a failure.
In his paper “Doha Round Betrayals,” Raj Bhala[73] writes, “Unfortunately, in the Doha Round, the WTO members, and chiefly among them the United States, the European Union (“EU”), Brazil, China, and India, have used legal details to advance their narrow agendas.”[74] In its 2011 article “The Doha Round: An Obituary”[75] the Global Governance Programme writes, “While some members—notably the United States—are not able to live with a low-ambition deal, others—notably China, India, and Brazil—cannot commit to elements of a high-ambition deal.”
The United Nations is a victors’ organization. Five of the fifteen members of the UN Security Council have veto power – the victor nations of World War II have the power.[76] The WTO works very closely with the UN and the Bretton Woods institutions. All these organizations have been heavily influenced by the Washington Consensus. The alleged fundamental objective of the WTO Doha Round is to improve the trading prospects of the developing countries. However, it has become apparent that the gains of the Developing World shall not come at the expense of the Developed World. The Developed World’s agenda has become primary with all else being secondary.
IV. Given the Recent 2013 Bali Negotiations, is there Realistic Hope that the Doha Negotiations will be Concluded and (if so) along Lines Favorable to the Developing World?
The WTO’s Bali Ministerial Conference finished on December 7, 2013 – a day later than scheduled. The Bali Package was agreed upon after intensive meetings almost round the clock for three days straight, followed by overnight negotiations of heads of all delegations the following night.[77]
During his concluding remarks, WTO Director-General Roberto Azêvedo’s stated:
“With the Bali package you have reaffirmed not just your commitment to the WTO — but also to the delivery of the Doha Development Agenda. . . The decisions we have taken here are an important stepping stone towards the completion of the Doha Round. . . And it is very welcome that you have instructed us to prepare, within the next 12 months, a clearly defined work program to this end.[78]
At the end of the recent 2013 Bali negotiations, there was realistic hope that the Doha negotiations could be concluded. Many lauded the WTO’s first multilateral pact in nearly 20 years as an “historic” achievement.[79] The Bali Package breathed life back into the Doha Round. Even though the Bali Declarations represented a small part of the Doha Round, it showed that the WTO could still be proper venue for broad negotiations and was still important for global economic governance.[80]
However, the July 2014 Forbes article “India: Tough Talk And The Bali Trade Facilitation Agreement” reported, “India’s top trade negotiators told the WTO that India would not support the (Bali) package of trade facilitation measures . . . Because adoption of these measures must be done by consensus among WTO members by July 31, India’s rejection of the agreement now stands to render moot the entire trade facilitation effort.”
On July 31, 2014 the WTO missed the deadline for the adoption of the trade facilitation measures for the Trade Facilitation Agreement.
In the September 22, 2014 Conference on Trade and Development speech, Director-General Roberto Azevêdo warned “All WTO negotiations will be at risk if the current impasse is not solved.”[81] He stated that if the impasse is not solved “many areas of our work may suffer a freezing effect, including the areas of greatest interest to developing countries, such as agriculture.”[82]
The Overseas Development Institute states, “The Least Developed Countries (LCD) Package has been the least controversial of the three negotiation areas, largely because the contents of the package are best endeavors rather than binding commitments.”[83]
Compared to when the WTO negotiations collapsed in 2008, the 2013 Bali negotiations provide a sense to a possible conclusion of the Doha Round. Unlike the “best endeavors” of the LCD package, most WTO commitments are binding and subject to legal ramifications. The Doha Round potentially could be concluded, but it will most likely be in a reduced form compared to the original concept.
Any lines favorable to the Developing World in the LCD package will be on a “best endeavor” basis. The Trade Facilitation and Aid for Trade packages of the Bali Declarations also have LCD objectives and purposes in mind; but these commitments will be much harder for the WTO to ultimately gain a consensus on to adopt because they are binding commitments.
The Developed World will give concessions and aid to the Developing World, but under the terms and conditions of the Developed World. There is still hope that the larger Doha negotiations can completed, but the momentum of succeeding is stalling as time presses on. If the Doha negotiations find a resolution, then any favorable lines to the Developing World will be contingent on the Developed World’s agenda.
World Bank and Its Development Role
I. Introduction
This article addresses the World Bank’s role today and proposes what it should be in the future. It examines how laws, institutions, and the “rule of law” objectives are important for the World Bank to achieve a relevant and effective mandate. This book also suggests specific policies the World Bank should focus on.
II. The World Bank’s Role Today and What It Should be in the Future
A. World Bank (Bank)
The Bank’s website states:
Since inception in 1944, the World Bank has expanded from a single institution to a closely associated group of five development institutions. Our mission evolved from the International Bank for Reconstruction and Development (IBRD) as facilitator of post-war reconstruction and development to the present-day mandate of worldwide poverty alleviation in close coordination with our affiliate, the International Development Association, and other members of the World Bank Group, the International Finance Corporation (IFC), the Multilateral Guarantee Agency (MIGA), and the International Centre for the Settlement of Investment Disputes (ICSID). . . . Reconstruction remains an important part of our work. However, at today’s World Bank, poverty reduction through an inclusive and sustainable globalization remains the overarching goal of our work.[84] (emphasis added)
The Bank’s Articles of Agreement[85] require it to be a non-political organization.
Article 10 §10 states, “The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions”.
Article III §1(a) states that loans must be given with “with equitable consideration to projects for development and projects for reconstruction alike.”
Article III §5(b) requires the loan proceeds to be used for their intended purposes, “with due attention to considerations of economy and efficiency and without regard to political and other non-economic influences or considerations.”
In 1990 Ibrahim Shihata, the Bank’s former General Counsel, highlighted five governance issues the Bank’s mandate specifically prohibits:
- the Bank cannot be influenced by the political character of a member
- it cannot interfere in the domestic or foreign partisan politics of a member
- it cannot act on behalf of donor countries to influence a recipient member’s political orientation or behavior
- it cannot allow political factors to influence its decisions unless there is also an obvious economic effect
- the Bank’s staff must not build their assessment on the possible reactions of a particular Bank member or members[86]
B. Bank’s Role
On an October 1, 2014 speech in advance of the Bank’s Annual Meeting, Jim Yong Kim, the current Bank President, stated “For the first time in the history of the World Bank Group, we have set a goal that aims to reduce global inequality. . . . We are working to ensure that the growth of the global economy will improve the lives of all members of society, not only a fortunate few.”[87] Is this mission in accordance with the Bank’s mandate? Does this statement seem political?
It is no coincidence that during the Conference on Economic Opportunity and Inequality at the Federal Reserve Bank of Boston on October 17, 2014, Federal Reserve Chairwoman Janet Yellen stated:
The extent of and continuing increase in inequality in the United States greatly concerns me. … It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.[88] (emphasis added)
The Global Financial Governance & Impact Report 2013 states “The Bank has long been criticized for not placing enough emphasis on directly combating poverty and inequality, and seeming to rely on an assumption that income will ‘trickle down’ to the poor via accelerated growth.”[89] The Reports states:
The World Bank’s Articles of Agreement draw a clear line of internal accountability within the Bank: staff are accountable to management, management to the Board, and the Board to the Governors. However this clear line only operates in practice between staff and management. The gravest institutionalized problem with World Bank is that actual power resides in the G7 countries, and increasingly with the G20. The President is chosen by the United States, with the rest of the G7 having the power to strongly oppose. The President is then answerable, de facto, to these external powers, not to the Board.[90]
The same criticism of Reagan’s “trickle down” (“Reaganomics”) policies regarding the economy could also be applied to the Bank’s policies regarding poverty. After all, “the President is then answerable, de facto, to these external powers, not to the Board.” Since the international lackluster results of the ineffective policies of the Washington Consensus, the United States, the Federal Reserve, and the Bank have begun to change their tune.
In his book “The Law-Growth Nexus: The Rule of Law and Economic Development,” Keneth Dam writes “the persistence of global poverty has led many experts to conclude that we must look beyond neoclassical economics in order to understand the causes of growth (Pg. ix).” He further states “‘The Washington consensus’ is looking increasingly wobbly, while a new belief in the power of institutions is on the rise (Pg. ix).”
It makes sense that the Federal Reserve and the Bank are on the same page. Both the Federal Reserve Chairman and the Bank President are appointed by the President of the United States. The United States policies, both domestic and international, are no doubt influential in the Bank’s policies. Inequality is the issue of our lifetime. As Federal Chairwoman Janet Yellen highlighted, “By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.”[91]
As I previously mentioned, “More than 1 billion people still live in destitution. At the same time, inequality is rising in many developing nations.”[92] Capitalism is an admittedly inherently unequal system, but it seems that globalization (global capitalism) has contributed to the growth of global poverty and has further magnified international inequality.
Inequality to the degree we are witnessing today is not only alarming; it is devastating to the global economy. Poverty and inequality are certainly different ideas; these two ideas should not be conflated. However the correlation between these two topics is apparent and this type of inequality is exacerbating the international poverty problem.
So what is the Bank’s role and what should it be given these and other global issues? Growing from its roots as the IBRD and its role as a facilitator of post-war reconstruction and development, the Bank still remains cognizant of how violent conflict affects poverty reduction.[93], [94]
The Bank has placed an increased premium “on preventing the onset, exacerbation, or resurgence of violent conflict.”[95] After all as Collier noted, impoverished nations are much more likely to be in conflict (the conflict trap). Apolitical “poverty reduction through an inclusive and sustainable globalization remains the overarching goal” of the Bank’s work.[96]
The 2013 World Bank Annual Report introduced a new focus: “shared prosperity.” The 2013 Report states the Bank “has entered a new era by adopting measurable goals to end extreme poverty globally by 2030 and promote shared prosperity. . . increased levels of social unrest around the world have been caused, in part, by a rise in economic inequality and a lack of inclusive opportunities.”[97] (emphasis added) In its October 2013 quarterly newsletter titled “Analyzing the World Bank’s Goal of Achieving ‘Shared Prosperity,’” the Bank states:
This focus on improving the income growth of the poorest 40 percent is a departure from the traditional practice of focusing on per capita GDP growth rates. GDP growth rates are useful summary measures of a society’s economic progress but they are unable to capture the distributional aspects of growth: It is entirely possible for a country to be growing rapidly on average while the poor within the country see their incomes stagnate. (emphasis added)
These goals represent a significant reinvigoration of the Bank’s commitment to working toward improving the living standards of the most downtrodden populations with a sharper equity lens, even in wealthier countries where instances of extreme poverty or destitution may be low.[98] (emphasis added)
Helder Camara, a Catholic Archbishop, famously quipped “”When I give food to the poor, they call me a saint. When I ask why they are poor, they call me a communist.”[99] The Bank has typically employed an array of strategies to address poverty, but has only recently undergone new policies to address inequality. I believe this is the appropriate strategy and proper priority for the Bank.
As Roberto Danino, former Senior Vice President and General Counsel of the Bank, highlights, “The Bank’s mission as currently defined consists of the alleviation of poverty (WDR 2000/2001) through economic growth and social equity (WDR 2006), this conception of the alleviation of poverty has an especially strong human rights dimension.”
In his paper “The Legal Aspects of the World Bank’s Work on Human Rights” Roberto Danino writes:
Social equity, at the heart of my conception of poverty alleviation, includes fighting inequality, giving the poor and marginalized a voice (i.e., empowerment), freedom from hunger and fear, as well as access to justice. Social equity has, therefore, an obvious human rights content. In our interpretation of the Articles of Agreement, we must therefore maintain a focus on the purposes of Article I and the overall mission of the Bank.
Neoclassical economic policies, MNCs, hedge funds, globalization, and technology have all contributed to global extreme poverty and historical inequality. The rents gained from global capitalism and technology have flowed to the few advantaged countries and oligarchs, while the income for the many – including the impoverished countries and the bottom billion of the world’s population – remains stagnate or have declined.
If reducing global inequality is political, then the G20 should focus on revising the Bank’s mandate. It is only by addressing inequality issues that the Bank can effectively relieve global poverty. Ultimately, the Bank’s main priority must be to address inequality.
III. Laws, Institutions, and the “Rule of law” are Critical for the Bank to Achieve Its Mandate
Laws, institutions, and the “rule of law” are prerequisites for the Bank to achieve its mandate of worldwide poverty alleviation. Laws, institutions, and the “rule of law” form a critical foundation for the Bank’s mandate. Without one of these three legs, the Bank will ultimately fall flat in its objective for worldwide poverty alleviation. With the failings of the Washington Consensus, the Bank should renew its focus on policies based on Max Weber’s and Friedrich Hayek’s theories. Presently, the Bank should focus on institutionalism and the “rule of law” at least as much as it focused on neoclassical theory in the past.
In his book “The Law-Growth Nexus: The Rule of Law and Economic Development,” Damn writes, “The role of legal institutions is imperative for economic development. Dam states “the idea that legal institutions and especially legal institutions are crucial of the process of economic development is now broadly accepted in the academies and in the research departments of IMFs such as the World Bank (Pg. 5).” Although pivotal, legal institutions alone will not ensure economic growth. It is important that other institutions such as education and health care along with the “rule of law” all play a part in advancing economic growth.
The rule of law is defined by the World Justice Project as a system in which the following four universal principles are upheld:
- The government and its officials and agents as well as individuals and private entities are accountable under the law.
- The laws are clear, publicized, stable, and just; are applied evenly; and protect fundamental rights, including the security of persons and property.
- The process by which the laws are enacted, administered, and enforced is accessible, fair, and efficient.
- Justice is delivered timely by competent, ethical, and independent representatives and neutrals who are of sufficient number, have adequate resources, and reflect the makeup of the communities they serve.[100]
It is also imperative to recognize the culture of the country being imparted upon. As I mentioned in earlier: “Whether an organization is trying to alleviate hunger, poverty, or promote environment sustainability it is crucial to get buy-in from the local people. It is important to understand the behavior, lifestyle, and ingrained culture of the people you are attempting to influence. It is important to have a system of accountability, checks and balances, and realistic maintenance programs.” As Dam states “The institutions important to development are more likely to bear fruit if they evolve out of roots already growing in the soil of particular countries (Pg. 6).”
The rule of law is the antonym of the rule by law. In Amartya Sen’s speech at the first World Bank conference on Comprehensive Legal and Judicial Development, he quotes Benjamin Franklin: “We must all hang together, or most assuredly we shall all hang separately.” The Nobel Laureate Amartya Sen further states:
Franklin was, of course, talking about the interdependence of the security of different groups of American revolutionaries, whereas we have to talk about, the interdependence of different aspects of development – economic, social, political, and most immediately in the context of the present meeting, legal as well. It can be argued that if the different aspects of development are not simultaneously addressed and considered together for analysis and action, they may each end up “hanging separately.”[101]
Laws, institutions, and the “rule of law” do not operate in a vacuum. They don’t perform in silos. These issues and policies must be simultaneously addressed with a conscious regard for their interdependence. They must be viewed in an economic, social, and political manner; they must be viewed in context. This lack of realization, along with hubris, was the impetus for the failure of the Washington Consensus. There is no clear formula. The exact engine that drives economic growth is in and of itself perplexing. How does one explain the lack of correlation between the rule of law and China’s growth; or the economic liberalism of the many developing countries and their lackluster results?
The Bank cannot ensure sustainable initiatives for worldwide poverty alleviation without proper laws, institutions, and the “rule of law.” Some may cite China as a counterexample to the need for strong institutions and the rule of law. To rebut this claim, Dam evokes Zhou Enlai’s quote, “It is too early to tell.” Dam writes:
The Chinese experience is consistent with Rodrik’s view that considerable development is possible without strong legal institutions but sustainable growth to higher per capita levels require considerable development of legal institutions. While a definitive conclusion will not be able to be drawn for several decades, it is nonetheless clear that little thus far in the Chinese experience leads to the conclusion that rule-of-law issues are not important in economic development (Pg. 277).
Even China’s Central Committee has recently stated “Fairness is the lifeline of rule of law… Judicial injustice is fatally destructive of social fairness.”[102] The best way to alleviate worldwide poverty is through economic growth. Yellen’s phrase “equality of opportunity,” Kim’s statement “inclusive opportunities;” and Dam’s focus on “the protection of property rights, the enforcement of contracts, and the role of judiciary achieving those goals (Pg. 9)” all have the same purpose – to promote economic growth, thereby reducing worldwide poverty.
IV. The Bank Should Focus on More than Just the “Bottom Billion”
The “bottom billion” must be viewed through an economic, social, and political manner; they must be viewed in context. The Bank should focus on worldwide inequality issues that result from differences in growth, opportunities, and the rights of women. If the Bank strictly focuses on the sixty countries that host the bottom billion of the world’s population, then the Bank will ultimately fail in its mandate – worldwide poverty alleviation.
On October 17, 2014, in his message for the International Day for the Eradication of Poverty, Secretary-General Ban Ki-moon stated, “On this day we recommit to think, decide and act together against extreme poverty and plan for a world where no-one is left behind. Our aim must be prosperity for all, not just a few.” In his message, Secretary-General Ban Ki-moon further highlighted, “Since the beginning of the financial crisis, inequality has grown even more pronounced than it was already.”[103]
From a pragmatic perspective, Collier’s suggestion to focus on just the “bottom billion” appears to make sense. After all, we must start somewhere – why not start with the “bottom billion?” 700 million people were lifted out of extreme poverty between in the last 20 years. But how far out of poverty were these people lifted? Are they still making less than $2 a day? Does moving people from $1.25 a day to $2 a day really solve the problem?
Growth is the only true sustainable solution to specifically address the Bank’s mandate; not arbitrarily defined metrics. The best way to analyze growth is by measuring its distributional impact. As previously mentioned, the Bank should look at growth through a “sharper equity lens, even in wealthier countries where instances of extreme poverty or destitution may be low.”[104] Laws, institutions, and the “rule of law” are the necessary catalysts for growth. Suffice it to say, capitalism has again reared its ugly head in the form of historically high inequality.
The Bank should concentrate on the global economic, social, and political systems that undermine human dignity. The Bank should focus on economic growth and opportunities rather than just the plight of the world’s impoverished. Collier even writes about this in his book “The Bottom Billion” – “While I was directing the World Bank’s research department, the most controversial paper we produced was one called ‘Growth is Good for the Poor.’ Some NGOs hated it, and it was the only time in five years that Jim Wolfensohn, the Bank’s president, phoned me to voice his concern (Pg. 11).”
The topic of inequality recently referenced by Federal Chairwoman Yellen, World Bank President Kim, and Secretary-General Ki-moon has long been taboo for political leaders. The same uncomfortable feelings and emotions Collier’s paper “Growth is Good for the Poor” evoked from political leaders can also be evoked by inequality issues. But now these inequality issues are finally being recognized. It is time for the Bank to directly address global growth inequality along with the problems of the world’s most impoverished countries.
Furthermore, if the Bank is to properly address inequality issues, then it needs to recognize womens’ rights. As Robert Zoellick, the former President of the World Bank, noted:
Women make up 50 percent of the global population and 40 percent of the global workforce. . . Yet women only own 1 percent of the world’s wealth. Women and girls in developing countries are less likely than men to survive infancy, to survive early childhood, or to survive their reproductive years. . . We know that gender equality is smart economics. That countries with greater gender equality tend to have lower poverty rates; that a child’s chance of survival is much greater if income goes into the hands of the mother; that simply by giving women more control over agricultural inputs, agricultural productivity can be as much as 20 percent higher in some countries.[105]
Collier’s book addresses “why the poorest countries are failing and what can be done about it.” This should certainly be a part of the Bank’s mission, but not its exclusive mission. For the Bank to achieve its mandate of worldwide poverty alleviation, it must focus on the pervasive growth and inequality issues that plague our entire global system. If the Bank were to only focus on the “bottom billion,” then the Bank would ignore the systemic inefficiencies of our global economy. Specifically, the Bank should focus on how economic growth is distributed in both developing and developed countries, the domestic rules and laws that govern economic opportunities of citizens, and the economics of gender equality.
By understanding how the group dynamics of a country’s laws, institutions, and concept of “rule of law” affect a developed or developing country’s economy, the Bank can better achieve its mandate of worldwide poverty alleviation.
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FOOTNOTE 4 