A Very Capitalist Disaster: Naomi Klein’s Take on the Neoliberal Saga

A critical review of Naomi Klein’s The Shock Doctrine: the Rise of Disaster Capitalism (New York: Metropolitan Books, 2007)

Walden Bello*, Republished from Focus on the Global South website.

Naomi Klein’s The Shock Doctrine: the Rise of Disaster Capitalism is very impressive indeed. This is, however, not immediately evident, a sense that is confirmed by Joseph Stiglitz’ review of the book. Even before I read it, I was certain that the Nobel laureate would highlight Klein’s attempt to make a connection between the electric shock experiments performed by the notorious McGill University psychologist Ewen Cameron who was on contract with the CIA and the economic shock approach developed by Milton Friedman at the University of Chicago.

And indeed, he does, in the course of writing a typical New York Times Book Review piece that dares not evince too much enthusiasm for a book that comes from left field lest it provoke the ever-alert watchdogs of the right to question one’s credentials. Stiglitz, in fact, suggests that Klein’s analysis might be infected with conspiracy theory with his very first sentence: “[T]here are no accidents in the world as seen by Naomi Klein.” The Nobel laureate does have some positive things to say about the book, but he neutralizes this by dropping the line that Klein “is not an academic and must not be judged as one.” As for Klein’s central concept of “disaster capitalism,” it is mentioned once but otherwise ignored. It all adds up to damning with faint praise.

The New York school of publishing says that you win or lose your audience in the first few pages, but whatever their reason for bringing the Cameron experiments up front and strongly implying a link between the genesis of Cameron’s shock treatment and the Chicago School approach to economic policymaking, it is bad judgment on the part of Klein and her editors. What is transparently intended mainly as a dramatic device risks achieving its opposite. Conspiracy theory buffs will be elated but not the critical, discerning audience the book is aimed at.

Towering Work

Which is a pity since, despite this initial fumble, The Shock Doctrine recovers to emerge as a towering work, one that brilliantly follows neoliberalism’s march from marginal theology to universal policy. Klein combines the journalist’s eye for the arresting detail, the analyst’s ability to spot, surface, and dissect deeper trends, and a talent for telling a spell-binding story to prove once again that a masterful journalist can often illuminate social realities far better than the best-trained economist or political scientist.

With her ability to combine no-stones-left-unturned investigative reporting with in-depth social analysis, Klein is her generation’s David Halberstam, her Shock Doctrine and an earlier book No Logo being on par with The Best and the Brightest and War in a Time of Peace. There is one difference, though: Klein is unashamedly a woman of the left, and this is where her analysis derives both its power and its passion.

The Shock Doctrine traces neoliberalism’s rise to dominance to a program set up in the mid-fifties to enable Chilean students to imbibe the radical free-market doctrine being propagated by Milton Friedman and his associates at the University of Chicago, then an oasis of radical free-market thinking in a world dominated by Keynesianism in the United States and Europe and “developmentalism” or desarrollismo in Latin America, with their pragmatic compromises between the state and the market, labor and management, trade and development.

Los Chicago Boys

The opportunity for neoliberalism to come in from the cold arrived in the early seventies, when General Augusto Pinochet overthrew the revolutionary government of President Salvador Allende in Chile and invited the “Chicago Boys” that had been waiting in the wings for years to manage the economy. With the population stunned by the coup, the “Chicago Boys” went about the task of swiftly dismantling the Keynesian and developmentalist compromises that underpinned one of Latin America’s most advanced industrial economies.

With a Year Zero mentality akin to the Khmer Rouge, they forced Chile’s overnight transformation into the free-market “paradise” prescribed by Friedman, a believer in seeing crisis as an opportunity for radical restructuring. It was, however, a paradise that could be created only with massive repression–and an even greater dose of repression was necessary to radically liberalize neighboring Argentina, where tens of thousands were murdered and over a hundred thousand were tortured by a murderous military regime that gave a free hand to free-market radicals to restructure the economy.

Some of Klein’s most original insights are found in her chapters on Bolivia, Poland, China, and South Africa. Bolivia, under the tutelage of a younger “Doctor Shock”–Harvard economist Jeffrey Sachs–showed that neoliberal measures could be imposed by a democratically elected government if it was willing to resort to emergency measures, like arresting and isolating labor leaders. Poland, also advised by Sachs, showed how democratic transitions could actually be an opportunity to deliver a system-transforming shock that included eliminating price controls overnight, slashing subsidies, and rapidly privatizing state enterprises to a population that was still dazed by the collapse of communism.

There was no democratic transition in China, but Deng Hsiao Ping and his allies used the Tiananmen Square massacre and its aftermath, when the population was confused and paralyzed, to decisively advance and consolidate the ambitious capitalist reform program they had begun in the late seventies. Neither in Poland nor in China were people who were tired of communism clamoring for the free market, Klein emphatically points out; they were demanding greater popular, democratic control over economic policy.

South Africa

South Africa provided yet another route to neoliberalism. Here there was an element of stealth, with white business interests taking advantage of the African National Congress’ (ANC) overwhelming focus on the politics of achieving Black majority rule to preserve their property rights and install a conservative macroeconomic regime. But not everything was that subtle: big capital made clear their intention to leave should socialist policies be introduced, conveying the prospect of economic destabilization.

In these circumstances, the white elite found a valuable ally in chief ANC negotiator and future South African President Thabo Mbeki, who convinced Nelson Mandela that what was needed to stabilize the new regime was “something bold, something shocking that would communicate, in the broad, dramatic strokes the market understood, that the ANC was ready to embrace the neoliberal Washington Consensus.”

Margaret Thatcher and Ronald Reagan’s contribution was to show that neoliberal programs antithetical to the interests of the majority could be imposed in a western democracy if one was ruthless enough to exploit certain situations. For Thatcher, the war with Argentina over the Falklands in 1982 was a heaven-sent opportunity to enlist jingoism in the service of a radical program, one of her tactics being to portray the labor unions as the “enemy within.” Thatcher’s tactics prefigured those of George W. Bush in the aftermath of 9/11, when he and his crew exploited the hysterical state of the population to declare a “war on terror” that was meant to kick-start a new phase of the neoliberal enterprise that Klein labels “disaster capitalism.” But before we go into this, let us pause to assess Klein’s analysis so far.

Great but…

Klein’s account is superb, but it is not without its flaws. For one, Klein has too rosy a view of the Keynesian state that reigned in the United States and Europe and the developmental state that dominated the Southern Cone in the period from late nineteen forties to the mid-seventies. She writes that owing to developmental regimes, “[T]he Southern Cone began to look more like Europe and North America than the rest of Latin America or other parts of the Third World.”

Again, “Developmentalism was so staggeringly successful for a time that the Southern Cone of Latin America became a potent symbol for poor countries around the world: here was proof that with smart, practical policies, aggressively implemented, the class divide between the First and the Third World could actually be closed.”

That certainly was not what it felt like at the time. Indeed, if the neoliberals walked in from the wilderness, it was because they were perceived as presenting an alternative, albeit untested, to economic systems in crisis. In the United States, the period of rapid economic growth fuelled partly by the reconstruction of Japan and Europe gave way to a state of stagnation cum inflation that was a symptom of a deeper crisis, the growing gap between enormous productive capacity and limited consumption, leading to erosion of profitability that Marxists have called the crisis of overproduction. In Latin America, the leading critics of the developmental state were found on the left, who charged that the process of industrial import substitution presided over by the state was “agotado,” or exhausted, owing to a domestic market limited by a very unequal distribution of income.

In the United States and Britain, the experience of seeing their salaries and savings eroded by double digit inflation made the middle strata receptive to the Friedmanite message. In Chile, they were initially receptive to the left’s critique of the developmental state. But when the left came to power with a socialist project in 1970, the middle classes–fearing the rise of the poor, whom they called rotos, or “lowlifes”– turned on the left with a vengeance, with the middle-class-based Christian Democrats joining the right on an anti-communist platform that shrilly proclaimed a defense of private property, capitalism, and “liberty.”

Neoliberal Ascendancy

This leads us to the question of how the neoliberals came to power. This was not simply a matter of the elite using the military or manipulating democracy to impose a neoliberal program on a recalcitrant but stunned population, which is the image that Klein’s account—wittingly or unwittingly—projects. This was not the case even in Klein’s paradigmatic example, Chile. Neoliberalism’s coming to ascendancy there involved the elite and the military acting in concert with a counterrevolutionary middle-class mass base that controlled the streets, with Christian Democratic youth joining their more fascist brethren, Fatherland and Liberty, in intimidating and beating up partisans of the left.

I know, since as a PhD student doing a dissertation on the rise of the counterrevolution, I was nearly beaten up a couple of times by angry anti-Allende middle class youths who insisted I was a Cuban agent sent to destroy Chile by Fidel. Sure, the CIA played a critical role, but it was in support of an already heated counterrevolution with a middle-class base, a process that was reminiscent of Italy and Germany in the post-World War I period.

In other words, in practically every instance, neoliberalism found a middle class that was disenchanted with the Keynesian or developmental state or felt threatened by the left, or both.

The Construction of Hegemony

This is why to counter Stiglitz’ suggestion that she operates with a conspiracy paradigm, Klein’s instrumentalist account must be supplemented with David Harvey’s notion of the “construction of hegemony,” a process by which the elite creates a consensus among the subordinate classes in support of a neoliberal project that principally serves its interests. (David Harvey, A Brief History of Neoliberalism [Oxford: Oxford University Press, 2005])

In the case of the UK, it was not so much the jingoistic atmosphere of the Falklands War as the ideological captivation of the middle class by a conservative leader adept at evoking the themes of freedom, the individual, and property that was the tipping point towards neoliberal reform. Thatcher was an expert at promoting what Harvey calls a “seductive possessive individualism” and she “forged consent through the cultivation of a middle class that relished the joys of homeownership, private property, individualism, and the liberation of entrepreneurial opportunities.”

The construction of consent was the main avenue to hegemony in the United States, where neoliberals deftly connected their free market program to the agenda of a middle class-based coalition that was propelled by resentment against minorities that were allegedly coddled by liberal democrats and by an inflamed attachment to religious values that were seen as being under attack from the left. “Not for the first time,” says Harvey, speaking of the ascendancy of the Republicans under Reagan, “nor, it is feared, for the last time in history has a social group voted against its material, economic, and class interests for cultural, nationalist, and religious reasons.”

Even some blue-collar workers were in danger of being coopted: “Greater freedom and liberty of action in the labor market could be touted as a virtue for capital and labor alike, and here, too, it was not hard to integrate neo-liberal values into the ‘common sense’ of the work force.”

Neoliberalism, in fact, became so “commonsensical” that even where social democratic parties have come to power, displacing the traditional conservative parties of neoliberalism, as they have in Britain, Chile, and the United States, they have not dared to reassemble the interventionist liberal state and have made it a point to pay homage to the “magic of the market.” Indeed, it has not been conservatives but social democrats such as the Blairites in Britain, the Clintonites in the United States, and the Socialist-led Concertacion government in Chile, with their rhetoric about “market-oriented social policies,” that have consolidated the neoliberal economic regime.

Crisis of the Keynesian State

The book’s most important contribution is its theory of “disaster capitalism.” But to fully appreciate Klein’s insight, it is important to go back to the roots of the crisis of the Keynesian state and the developmental state in the 1970’s that she glosses over. This crisis, which paved the way for the neoliberal ascendancy, had its origins in what economists have called the crisis of overaccumulation or overproduction.

The golden period of postwar growth globally that skirted major crises for nearly 25 years was due to the massive creation of effective demand via rising wages for labor in the North, the reconstruction of Europe and Japan, and the import-substituting industrialization in Latin America and other parts of the South. This dynamic period came to a close in the mid-seventies, with stagnation setting in, owing to global productive capacity outrunning global demand, which was constrained by continuing deep inequalities in income distribution.

According to the calculations of Angus Maddison, the premier expert on historical statistical trends, the annual rate of growth of global gross domestic product (GDP) fell from 4.9% in what is now regarded as the golden age of the post-World War II Bretton Woods system, 1950-73, to 3% in 1973-89, a drop of 39%.

These figures reflected the wrenching combination of stagnation and inflation in the North, the crisis of import substitution industrialization in the South, and erosion of profit margins all around. For global capital, neoliberal policies, which included redistribution of income towards the top via tax cuts for the rich, deregulation, and an assault on organized labor, were one escape route from the crisis of overproduction. Another was corporate-driven globalization, which opened up markets in the developing world and moved capital from high-wage to low-wage areas.

Financialization

A third was what Robert Brenner and others have called “financialization,” or the channeling of investment towards financial speculation, where much greater returns were to be derived than in industry, where profits were largely stagnant.

Feverish speculation triggered the proliferation of novel sophisticated speculative instruments like derivatives that escaped monitoring and regulation. Finance capital also forced the elimination of capital controls, the result being the rapid globalization of speculative capital to take advantage of differentials in interest and foreign exchange rates in different capital markets.

These volatile movements, the result of capital’s liberation from the fetters of the post-war Bretton Woods financial system, was one source of instability. What was fundamentally problematic with speculative finance, however, was that it boiled down to an effort to squeeze more “value” out of already created value instead of creating new value since the latter option was precluded by the problem of overproduction in the real economy. But the divergence between momentary financial indicators like stock prices and real values can only proceed to a point before reality bites back and enforces a “correction,” like the recent collapse of stocks tied up in myriad Byzantine ways to overvalued subprime mortgages. Corrections or crises have become more frequent in the neoliberal era, with one Brookings study counting about 100 over the last 30 years.

At any rate, neoliberal policies, globalization, and financialization, while restoring and strengthening elite power by redistributing income from the bottom to the top, have not been effective in reinvigorating global capital accumulation. Its actual record, Harvey points out, “turns out to be nothing short of dismal.” Aggregate annual global growth rates came to 1.4% in the 1980s and 1.1% in the 1990s, compared to 3.5% in the 1960s and 2.4% in the 1970s.

Disaster Capitalism

It is this fundamental failure of finance-driven capitalism to reignite vigorous capital accumulation that allows us to fully appreciate Klein’s theory of disaster capitalism and David Harvey’s closely related notion of “accumulation by dispossession.” Both may be seen as the latest desperate effort of an increasingly sputtering capitalist machine’s effort to surmount the persistent and deepening crisis of overproduction.

In the last few years, stagnation or weak growth has marked most areas of the world economy, with the exception of China and India. U.S. growth has been higher than that of sclerotic Europe, but it has been largely illusory, being largely the result of middle-class spending fuelled by massive credit from China and East Asia. China has to lend to the United States to keep up demand for its cheap-labor based export-industrial sector, but the expansion of its production has itself contributed mightily to the overcapacity, overproduction, and shrinking profitability plaguing the whole global system. Even the International Monetary Fund (IMF) has recognized that the world is skating on thin ice, which could break should American consumers rein in their debt-driven spending, as they now seem to be doing.

In its efforts to surmount the crisis, capitalism has increasingly supplemented, if not supplanted accumulation through production with accumulation through dispossession, or the expropriation of already created wealth or sources of wealth akin to the process of primitive accumulation that marked early capitalism in the 14th to the 17th centuries. Accumulation by dispossession involves an acceleration of the privatization and commodification of the commons, which includes not only land but also the environment and knowledge. Millions of peasants and indigenous peoples are displaced from the soil as private property supplants common property or communal regimes, often with the active support of institutions like the World Bank and the Asian Development Bank. Seeds, the end-result of eons of interaction between nature and human communities, are now privatized through mechanisms such as the Trade Related Intellectual Property Rights Agreement (TRIPs), which has also dampened technological development in the South owing to fear of infringing on the patents of northern corporations.

Contracting Out the War on Terror

A key mechanism for accumulation by dispossession is the accelerated privatization of hitherto public or state assets, which is what disaster capitalism is all about. Disaster capitalism is the Bush administration’s central contribution to neoliberalism. Its key feature is the parceling out to the private sector of the “core” functions of security, defense, and infrastructure that Adam Smith himself thought had to be left to the state. Through the “war on terror,” Klein writes, the Bush administration brought about:

“The creation of the disaster capitalism complex—a full-fledged new economy in homeland security, privatized war and disaster reconstruction tasked with nothing less than building and running a privatized security state, both at home and abroad. The economic stimulus of this sweeping initiative proved enough to pick up the slack where globalization and the dot-com booms had left off. Just as the Internet launched the dot-com bubble, 9/11 launched the disaster capitalism bubble…It was the pinnacle of the counter-revolution launched by Friedman. For decades, the market had been feeding off the appendages of the state; now it would devour the core.”

In the disaster capitalism paradigm, the state serves as the engine of capital accumulation— that is, it raises capital via taxes, then transfers it to private contractors that take over its core functions, from defense to incarceration to the provision of infrastructure. Security provision becomes the new growth industry, incorporating but going beyond the old military-industrial complex. Disaster, either of the natural kind like Katrina or the socially created kind like Iraq, is seen as opportunity in several ways. It creates demand for a commodity, that is, for security or reconstruction. By taking advantage of natural disasters, it provides the opportunity to alter the physical landscape and “add value” to it, by sweeping away “value-deprived” poor communities and converting the land to upscale commercial or residential real estate, as in post-Katrina New Orleans.

Finally, as in Iraq, war becomes the instrument to erase the old interventionist state and create from scratch the ideal neoliberal government whose key function is to delegate its own functions to private contractors, like the engineering firm Bechtel or the notorious private security firm Blackwater. “In Iraq,” Klein writes, “there was not a single governmental function that was considered so “core” that it could not be handed to a contractor, preferably one who provided the Republican Party with financial contributions or Christian footsoldiers during elections campaigns. The usual Bush motto governed all aspects of the foreign forces’ involvement in Iraq: if a task could be performed by a private entity, it must be.”

The problem, of course, is that disaster capitalism is so brazenly anti-people that even dressed up in the rhetoric of freedom, entrepreneurship, and efficiency, it cannot win over people in the way early neoliberal ideology was able to captivate the middle classes in the era of Reagan and Thatcher. Reading Klein’s chilling account, one wonders how Paul Bremer, the head of the Coalition Provisional Authority, could not have realized that the decrees he made which had the effect of making Iraqi youth a surplus population in a society where the state functioned mainly to enrich foreign contractors would turn them into insurgents. Disaster capitalism and accumulation by dispossession represent a capitalist order that no longer seeks ideological hegemony but seeks to impose itself through pure force. This is not sustainable.

Klein’s last chapter, which looks at the vast and varied global movement that has risen against what French thinkers call “savage capitalism” shows that, as Gramsci noted, nothing can remain hegemonic for long without legitimacy. People have become both more hopeful and more savvy: they will not be easily subjected to another neoliberal shock.

Klein Past versus Klein Present

So here’s the inevitable question: which is the better book, No Logo or The Shock Doctrine? This is not an easy choice, but I would land on the side of No Logo.

Let me explain. The critical edge, analytical sharpness, and passion of No Logo are to be found in The Shock Doctrine as well. But there is something different about the writing. In a review I did for Yes! in 2001, I wrote: “No Logo is compelling, but it’s not an easy read. Reading Klein is like serving alongside a skilled commander who relentlessly probes the enemy’s many defenses to locate the principal point of vulnerability. And just when the reader thinks Klein has identified the key to the defense, she reveals that this is only one episode in unraveling the dynamics of contemporary capitalism. This is deconstructive writing at its best, the product of a first-rate, restless mind that is not satisfied with drawing a solitary insight or two from her material.”

Reading The Shock Doctrine is a different experience. You don’t need to work. You’re like a tourist being guided on a well-lit path where there are few surprises.

I much prefer the discourse of No Logo, and I certainly do not relish being subjected at the very beginning to a literary shock treatment that has no other purpose but to prod me to read further. That flaw—and the change in style–I prefer to attribute not so much to the Toronto-based Klein but to the New York School of publishing, which, like Hollywood, much prefers an in-your-face approach to a more allusive, more indirect, less predictable but ultimately more enlightening discourse.

*Walden Bello is currently a Distinguished Visiting Professor at St. Mary’s University in Halifax, Canada. Bello is also a senior analyst at the Bangkok-based institute Focus on the Global South and professor of sociology at the University of the Philippines at Diliman. He is the author of Walden Bello Presents Ho Chi Minh (London: Verso, 2007), Dilemmas of Domination (New York: Metropolitan Books, 2005) and Deglobalization (London: Zed, 2002).

Further Resources:

After Shock: Interview with Naomi Klein

A World Occupied by Profit: Interview with Naomi Klein

Watch a video interview with Naomi Klein and a short video on The Shock Doctrine

What’s wrong with “rights”?

Editorial, Seedling, GRAIN, October, 2007.

Download a PDF version.

Download the October 2007 issue of Seedling.

Peoples’ rights have long featured prominently in GRAIN’s analyses, deliberations and documents, as well as in those of our partners. As private companies – especially huge transnationals – have extended their control (and ownership) over wider and wider areas of life, peoples and communities around the world have seen how their chance of maintaining a decent and sovereign way of life, with their own values and norms and with respect for the human beings and the environment around them, is vanishing. Actions that were previously considered natural and taken for granted – such as keeping, reproducing and sharing seeds and animals, accessing water, copying a song, sharing information, reproducing medicines, borrowing books without charge from a library, and copying software – are no longer permitted but are becoming criminalised, all in the name of property rights. In this context, the concept of peoples’ rights has become a defensive tool, one to be used as part of the ethical, political and cultural struggles for justice and dignity.

But recently a cruel paradox has emerged: the very concept of rights is being used to impose and expand neoliberalism. Social organisations and NGOs that have attempted to advance certain rights have ended up causing confusion and divisions, and even harming the very interests and welfare of those claiming the rights. Rights regimes have forced many peoples, especially indigenous peoples, to define according to alien values some fundamental aspects of their identity and way of life, such as their art, their medicinal and agricultural knowledge, their tenure systems and so on. These harmful effects are occurring even when the organisations involved are unquestionably committed to the well-being of those they represent.

From GRAIN’s perspective, this process has been especially harmful when it has affected the way people collectively enjoy and manage local natural resources and biodiversity, using knowledge acquired over millennia. We have seen the aggressive expansion of private property over territories and ecosystems, including components as essential as water and air, all carried out in the name of the “right” of local communities to use local natural resources and biodiversity. We seem to be facing a tragic contradiction: the fight for rights – a component common to the struggles of peoples around the world – is being used by states, corporations and international organisations to worsen the conditions of the people involved.

GRAIN believes that we urgently need to reflect on these processes. We need to search for new concepts and ways of thinking that might help us to defend from corporate control the ways of life that people themselves have defined. We see this not as a theoretical exercise, but as a compelling political necessity. The debate needs to be as wide, collective and diverse as possible. Most of all, the debate should take place locally, as close as possible to the actual conditions people face and to the cultural and political strengths people possess.

To encourage this wider debate, GRAIN invited a group of people around the world to reflect on their concepts of rights and how they affect people’s lives and welfare. We raised the same issues with people from Asia, Africa and Latin America. These are some of the questions we put to them: What, if anything, is wrong with “rights”? Do the problems stem from the fact that its intimate corollary – obligations and responsibilities (but see Radha D’Souza’s contribution for a different view even of this point) – has been erased from the debate and our thinking? Or is it because “rights” have been equated with “property”? Or is it because there has been a decades-long attempt to standardise rights? How do we distinguish legitimate rights from illegitimate ones? And how do we socialise rights when most rights regimes and approaches today almost inevitably seem to favour individual rights, even if this is not always fully apparent? What sort of processes and approaches are required to keep biodiversity and knowledge outside the realm of “property rights”? How can collective goods – including public goods – be protected against exploitation by corporations? How can we build forms of social control that do not entail ownership? What are the traditional norms, customary practices or laws that in your community or country or region illustrate another way of viewing the world and defining relationships?

In the following pages we share with you the responses we received from over a dozen panellists from different countries, cultures and contexts. Our contributors have very different perspectives and experiences but they are all profoundly critical of current formal rights regimes. They all identify the expansion of private property and capital as a major source of disruption of the forms of life and coexistence that peoples and communties around the world have built over centuries, saying that this invasion is threatening or destroying their social and cultural relationships, their food sovereignty, their forms of education and their sources of welfare. One way or another, most panellists see the source of all the most serious problems to be the wide physical, cultural, political and social distance of local communities from the people who write legal defintions of rights. They also say that the imposition of formal education and health systems, cultural erosion, and the lack of reflection and discussion around ethical issues are, directly or indirectly, contributing to the increased inequity and the loss of sovereignty and dignity. All in all, the picture that emerges is that the evolution of rights regimes around the world have been clearly harmful to communities. The struggle for rights has not yielded a positive balance.

No clear picture emerges as to the way forward. The views of our panellists vary from those highly sceptical about the prospect of continuing to walk along the old road of appealing to governmental and state processes to those who still believe that it is possible to reform the formal rights systems. Very little was said by our panellists on the linkage between rights and responsibilities, or about the fundamental difference between rights and property, or how collective resources could be protected.

However, two promising lines of discussion seem to have emerged. The first concerns the need to shorten distances – physical, cultural and social – between those who define rules and regulations and those who live under them. In other words, increasing numbers of people, communities and organisations are seeing the need to bring the struggle for rights and dignity as close as possible, turning themselves – and not international or state bodies – into the main agents for building and defining the norms for coexistence, including individual and collective rights and obligations.

The second line of discussion concerns collective rights. Although no clear concept emerged as to how, precisely, they could be defined, several of our panellists mention these rights as a central component of their struggles. One says that a fundamental characteristic of collective rights is that people are not mere beneficaries of these rights but have the capacity to decide how these rights should be exercised. Interpreted in this way, collective rights could be a way in which people and communities construct, in a supportive, reflective and deliberate way, the norms by which they will live together, without being obliged to make these norms comply with standards established, mainly in the interest of capital, in the centres of power.

GRAIN presents the points of view of its panellists as a catalyst for discussion. We agree with some of the observations made and disagree with others. It is evident that key issues – the link between rights and responsibilties, the precise nature of collective rights, the multiple links between the effective exercise of rights and the concrete conditions of everyday life, and others – need further discussion. It is in this spirit that GRAIN supports the call for a long and thorough debate that deals with the fundamental questions, such as values and ethics, and that strengthens the processes of autonomy. If the voices we present in this issue of Seedling contribute to this process, GRAIN will be fully satisfied.

Globalization and International Institutions: The International Monetary Fund (IMF), the World Bank and the World Trade Organization

Nancy Alexander, Citizens’ Network on Essential Services Email: NCAlexander@igc.org

There are only two families in the world as my grandmother used to say: the haves and the have nots. – Sancho Panza, Don Quixote de la Mancha, Miguel de Cervantes (as quoted in Human Development Report, UNDP, 2005)

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 even wider gap between regional winners and losers than exists today…. [Globalization’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. CIA, Global Trends 2015, 2000.

Globalization: Markets as Master of Development

Capitalism is a great servant of sustainable development, but a bad master. Historically, many governments have harnessed the power of capitalism to achieve tremendous improvements in the lives of their citizens. However imperfectly, open and participatory governments mediated the rights of different groups — owners of capital, workers, and consumers — and defined public goods, like a healthy population and a clean environment, and provided rules and resources to help achieve them.

The process of globalization flips the relationship between governments and markets, so that markets are the “master” of development and governments are the “servants,” facilitating the flow of capital. For purposes of this brief, “globalization” is described as “a process of greater integration within the world economy through movements of goods and services, capital, technology and (to a lesser extent) labor, which lead increasingly to economic decisions being influenced by global conditions.” Global conditions are mediated by two economies:

• The powerful “speculative” economy. The volume of flows, which arises from trading money in rapidly expanding pooled funds (e.g., pension and mutual funds), is at least a hundred times greater than the volume of flows in the “real” economy. Financial speculation and currency crises erupt when huge amounts of footloose capital (over $1 trillion per day) rush in and out of countries at the push of a computer key. When asked about his image of globalization, an Egyptian said, “We were sleeping on the shore when a big wave came.”

• The “real” economy in which goods and services are produced and traded. Sales of the 500 largest firms in the world nearly tripled between 1990 and 2001. In 2004, there are approximately 70,000 transnational corporations (TNCs) with nearly 700,000 foreign affiliates. Foreign affiliates of transnational corporations (TNCs) account for a tenth of world GDP and a third of world exports. TNCs such as Vivendi Universal (water, media), Pfizer (drugs) and Rio Tinto (mining) have registered the largest increases in foreign assets.

Comparing the sales volume of Wal-Mart with the GDP of nations, the TNC has more economic clout than all but 19 nations in the world. In the intense competition among developing country producers for integration into corporate value chains of production, firms shed unionized workers, reduce the social cost of benefits, and exploit the natural environment.

While “free trade” and deregulation of economies has spawned powerful “speculative” and “real” economies, it has also swollen the ranks of a third economy: the “informal, or shadow” economy where transactions are based on street trading, smallholder farmer production, and the labor of women. The dynamism of informal economies sustains the vast majority of populations in developing countries. Nevertheless, their contribution is invisible insofar as it is not counted in a country’s gross domestic production (GDP). Workers in the shadow economy have no protection against illness or old age.

The 2002 U.S. National Security Strategy states that “free trade” is a “moral principal.” Indeed, “free traders” see globalization as expanding economic freedom, spurring competition, and raising the productivity and living standards of people in countries that open themselves to the global marketplace.” The invention of big, fast cargo ships, the mass production of jet planes, cellular technology, the internet – all of these have compressed the time and cost of moving almost anything. Proponents of globalization celebrate super-efficient production chains — clusters of firms from dozens of countries – that manufacture components for sophisticated, high quality goods sold at affordable prices. No globalization, no I-Pod.

Globalization is not new phenomenon, but in this era, the significant expansion in markets and the rise of corporate power began about 1980, during the administrations of U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher. Then, it accelerated after the collapse of the USSR and communism in 1989.

The international financial institutions (IFIs) – the International Monetary Fund and the World Bank — were formed in 1945 to stabilize the world economy and rebuild Europe in the aftermath of World War II. However, after the independence movements and the fall of communism, their missions changed as membership grew from the original 57 to 184 nations. In 1980, developing country debt crises (accompanied by plummeting prices of commodity exports) led the U.S. and U.K. to use the IFIs — to capture foreign markets and recoup debts with bare-knuckles power. Borrowing governments were required to slash their budgets – e.g., health, education, agriculture, and infrastructure — in order to meet budget targets set by the IFIs and service their debt obligations to the institutions. Since 1995, when the World Trade Organization (WTO) was formed, transnational corporations have increasingly influenced political leaders to push international trade laws in the same direction of liberalization and deregulation.

Originally, the IMF’s mandate involved assisting countries in stabilizing their short-term balance of payments and the exchange rate of their currencies. When, as is true today, the price for Mali’s cotton drips, the IMF steps in and helps to balance the budget by financing a portion of the lost revenue. [The international price for cotton has dropped due to factors, including U.S. subsidies for its 25,000 cotton farmers.]

However, the IMF’s mandate has grown to include long-term financing for development purposes. Poverty reduction was not part of the World Bank or IMF’s remit until 1989 and 1999, respectively. At this point, the IMF micro-manages the budgetary decisions of most developing countries. In the case of Mali, the IMF is requiring the government to cut wages of health and education workers, cut financing for the social safety net, reduce pensions, and cut subsidies for petroleum.

Technically, the IMF has authority over the U.S. economy. However, the U.S. does not heed the IMF’s warnings that it’s ballooning fiscal and trade deficits threaten the global economy.

To comply with IFI policy prescriptions, developing countries have unilaterally liberalized their economies including sectors such as: agriculture, including crop marketing and trade parastatals; services — including health care, education, water; government procurement of goods and services; manufacturing; and intellectual property rights. Such liberalization has opened up economies to foreign investors. At the WTO, trade rules are being negotiated in all of these sectors, plus more. When governments of developing countries liberalize in the context of WTO negotiations, they demand reciprocal concessions such as access to Northern markets. However, when they unilaterally liberalize under IFI auspices, they receive no concessions. This is an enormous benefit to rich countries and their transnational corporations.

The U.S., the European Union and other advocates for “free trade” don’t practice what they preach. For instance, they subsidize agriculture to the tune of about $1 billion per day and dump cheap foodstuffs in developing countries, thus, under-pricing and extinguishing the livelihoods of local farmers. In the current WTO negotiations, the New York Times says, “The European Union and the United States are busily fighting over how little they can get away with when it comes to liberalizing farm trade. Listening to these two economic powerhouses snipe about who should be doing what is revolting; neither is doing anything real.” Just as damaging, the industrialized powers slap manufactured goods from developing countries with tariffs, thus consigning these countries to exporting raw materials for which prices have been on the decline for some 40 years. Just between 1997 and 2001, the combined price index of all commodities (in US$) fell by 53% in real terms in sub-Saharan Africa. That is, the region lost more than half of its purchasing power in terms of manufactured goods.

Whereas the IMF was initially created to help countries manage balance of payment problems and currency fluctuations, its primary role today is to keep fiscal deficits and inflation as low as possible throughout the developing world. Unfortunately, these policies often have a negative impact on economic growth and employment – and ultimately on poverty. With regard to the impacts of budget cuts on rural Africa, economist Jeffrey Sachs says that there is a “silent tsunami… silent holocaust underway with mass death. But, [the IMF and World Bank] don’t say in public that the United States and other donor countries should therefore do more to save the millions of lives that could be saved…. What they say is to the governments, “Well, so sorry you have what you have; now live and in fact die, within your meager means….”

In 1997-98, East Asian governments, in part due to pressure from the IMF, eliminated the “speed bumps” or regulatory controls on the inflows and outflows of speculative capital to the region. Investors prize capital mobility highly. When capital hemorrhaged out of the region, hundreds of million of people were thrown into poverty. Western firms were able to buy up assets in the region at firestorm prices.

Sachs claims that the IMF and World Bank are the “handmaidens of creditor governments,” that do not fairly serve the interests of all of their members. After more the two decades of World Bank and IMF policies, rolling back the state and harsh macroeconomic discipline have failed to turn the tide on poverty. In fact, evidence suggests that economic growth was significantly better under interventionist governments in the two decades before the Bretton Woods institutions adopted their current policy line.

According to Weisbrot, Baker and Rosnick, the rates of growth for countries at all income levels, except the poorest, declined in the era of globalization: 1980-2005 as compared to the earlier period 1960 – 1980. For the poorest countries grew only meagerly. The U.N. Development Program (UNDP) finds that, between 1985 and 2000, 55 countries developing countries grew at less than 2% per year and 23 countries experienced economic contraction. Only 16 developing countries grew at more than 3% per year. Whereas Gross Domestic Product (GDP) per capita in the 20 richest countries has tripled since 1960, it has barely changed in the poorest 20 countries.

As the IFIs have promoted privatization of state assets and services over twenty-five years, state monopolies have become private monopolies and wealth has become increasingly concentrated in the hands of a few. In 2002, the U.S. persuaded the World Bank’s Board to adopt a “Private Sector Development strategy” – aimed at privatizing health care, education and water services — as the overarching strategy of the institution. During 2006-08, the Bank’s private sector affiliate will double its financing for these purposes in Africa. The strategy involves scaling up financing for “high risk” infrastructure, particularly dams. In sectors, such as health care, one commonly finds a two-tiered service supply with a corporate segment focused on the healthy and wealthy and an under-financed public sector focusing on the poor and sick.

Growth in inequality has also been striking. Some 358 billionaires control assets (a wider measure of their power than income alone) greater than those of 2.3 billion people, 45 percent of the world’s population.

Between 1981 and 2001, the number of people living on less than $2 per day grew from 2.4 billion to 2.7 billion. The increase is evident in every region of the world, except for East Asia and the Pacific. With subsidies of $2.50 per day, European cows are richer than nearly half of the world’s population. According to UNICEF (2004), more than 1 billion children are growing up hungry.

Of 73 countries for which data are available, 53 countries with 80% of the world’s population have seen inequality rise; while only 9 with 4% of the world’s population have seen it narrow. In the U.S., the richest 1% of families earned 9.3% of all income in 1980. By 2000, this income share had increased to 19.6%. Correspondingly, the income share of the bottom 90% declined from 66% to 53.9%. According to the September 2005 report of the Census Bureau, poverty rose to12.7 percent of the population last year, its fourth consecutive annual increase.
Inequality is explosive, particularly when “market-dominant minorities,” such as whites in South Africa, Chinese in Southeast Asia, Jews in Russia, or Indians in East Africa, control hugely disproportionate percentages of their countries’ resources. Throughout Latin America, indigenous peoples live at the margins of their societies. As described by Yale Professor Chua, introducing democracy in these circumstances ignites active ethno-nationalist movements demanding that the country’s wealth and identity be reclaimed by the ‘true owners of the nation.’” She goes further in suggesting that the U.S. is the market-dominant minority in the world.

Activist Movements Join Forces Against the IFIs

*In the mid-1980s, people in the Narmada Valley of India found stakes hammered into the hillsides surrounding their villages. Only then did they learn that a World Bank-financed dam would flood their lands and, ultimately, cause 200,000 people to lose their homes. In the same era, a World Bank-financed project built roads that penetrated the Brazilian Amazon and led to massive deforestation and extinction of indigenous peoples.

*In June 2000, the World Bank helped finance a $3.7 billion project to develop oil infrastructure in Chad and build an oil pipeline from that country to Cameroon’s Atlantic coast. The Bank never produced a comprehensive social and environmental impact assessment (EIA) despite widespread fears of water shortages and pollution due to oil spills. European and U.S. companies engaged in extracting the oil are exempt from paying taxes in Chad, limiting benefits to that country’s poor population.

*In the late 1990s, under pressure from the World Bank, Bolivia turned the city of Cochabamba over to U.S. based Bechtel Corporation which imposed huge rate hikes, leading to massive protects and forcing the company to abandon the project. In 2005, the government of Tanzania expelled a British company, Biwater, from the country after the company breached its contractual promises to improve water services to the poor of that country’s capital, Dar es Salaam.

Corporate Governance

Corporations are legitimate stakeholders in debates about economic policy. However, when their interests drive national priorities and global governance, democracy suffers. At present, corporate social responsibility (CSR) standards are purely voluntary. Should they be mandatory? Citizens need to speak out about questions that affect their communities and society, at large:

Under what circumstances should large dams be built? How can sovereign rights of indigenous peoples be protected? Do we believe that market forces rather than governments should provide water, which is essential to lives and livelihoods? Do we want corporations to take responsibility for the standards of their products? Should new corporate accounting principles take the costs of environmental damage into account? Should corporate contracts with governments – even those covering essential services like health care or water — be secret? How can domestic competition laws stop collusion by transnational corporations and guarantee of the rights of foreign consumers to take actions in foreign courts against corporations that abuse their market power (e.g., Universal Foreign Corrupt Practices Act).

Transnational firms like Coca Cola and McDonalds establish brands and distribution networks across the planet, homogenizing consumption and exporting dubious aspects of (mostly US) culture. Capital is increasingly concentrated. If we consider the gross sales of a corporation to be roughly the equivalent of the GDP of a country, of the world’s 100 largest economies, 51 are actually private companies. The combined sales of the world’s top 200 corporations are equal to 28 percent of total world GDP. These same 200 corporations employ only 18.8 million people, less than 1/3 of one percent of the world’s population.

Student Action

Students vs Coca-Cola. In June 2005, the University of Michigan’s Dispute Review Board found evidence that Coca-Cola may have violated standards of the University’s Vendor Code of Conduct on the issues of high pesticide levels in soft drinks in India and labor practices in Colombia. A student coalition representing 5,000 students in alliances with Indian and Colombian movements was gratified that the University is now requiring a full-fledged investigation of allegations that Coca-Cola has been selling products in India with high levels of pesticides, including DDT, sometimes as high as 30 times those allowed by the US and European Union standards. In Colombia, Coca-Cola’s bottler, Panamco is charged with hiring right-wing paramilitaries to kill and intimidate trade union leaders from Coca-Cola bottling plants.

Students vs Nike. In April 2005, after five years of pressure by groups, including United Students Against Sweatshops, Nike disclosed its factory locations so that the conditions of factory workers can be monitored. Nike has admitted that its factories are places where physical and sexual abuse, low wages, restrictions on bathroom use and other human rights abuses happen on a regular basis.

Students vs Big Pharma. Student Global AIDS Campaign effectively organized against pharmaceutical giants that claimed that countries importing generic drugs for treatment of HIV/AIDS violated their patent rights. As a result of such pressure, 31 pharmaceutical companies withdrew their suit against South Africa for exporting generics.

What Future for the World Bank and IMF?

The IMF and World Bank are experiencing a crisis of legitimacy due to the institutions’ lack of democratic governance, adverse impacts of their operations, lack of accountability to those impacted and corruption. IFI expert and Carnegie Mellon University Professor Adam Lerrick declared that the World Bank needs an independent performance audit of its operations…that an auditor would find half of the institution’s project operations don’t even exist. Democratic practice, accountability, and transparency need to be restored from the “base,” or the grassroots of developing countries to the “apex” of the global institutions.

A. ABOLITIONISTS. Below, in their own words, are the voices of leaders from all points of the political spectrum that question or oppose the existence of the IMF and/or World Bank:

*JESSICA EINHORN, former Managing Director of the World Bank, writes in “Foreign Affairs” (January/February 2006) that the World Bank’s window for middle-income countries, the International Bank for Reconstruction and Development (IBRD), “seems to be a dying institution.” She proposes ways that the institution might be phased out. She states, “The whole concept of a lending institution with a big balance sheet tied up in long-term loans has been overtaken by securitization, in which loans are just the starting point for packaging together securities that can be sold and traded in the marketplace…Looking ahead…credit to middle-income countries will be just another derivative financial instrument to be bought, sold and managed in private portfolios.”

*JOSEPH STIGLITZ, Nobel economics laureate (”Financial Times,” 8/21/02) “I used to say that since we are going to need these institutions, it is better to reform them than to start from scratch. I’m beginning to have second thoughts. I’m beginning to ask, has the credibility of the IMF been so eroded that maybe it’s better to start from scratch? Is the institution so resistant to learning to change, to becoming a more democratic institution, that maybe it is time to think about creating some new institutions that really reflect today’s reality, today’s greater sense of democracy. It is really time to re-ask the question: should we reform or should we build from start?”

*DAVID ELLERMAN, a former Senior Economist of the World Bank, states: “Agencies such as the World Bank and IMF are now almost entirely motivated by big power politics and their own internal organizational imperatives. All their energies are consumed in doing whatever is necessary to perpetuate their global status. Intellectual and political energies spent trying to ‘reform’ these agencies are largely a waste of time and a misdirection of energies. Dominant global institutions, like monopolies or dominant oligopolies in the private sector, can be counted on to use the power to maintain their dominance — and yet that dominance or monopolistic power is the root of the problem. (”Helping People Help Themselves: From the World Bank to an Alternative Philosophy of Development,” Ann Arbor, U. of Michigan Press, 2004)

*WALDEN BELLO, Director of FOCUS on the Global South in Bangkok, Thailand states: “Rather than expect the highly paid World Bank technocrats who live in the affluent suburbs of Northern Virginia to do the impossible, designing anti-poverty programs for folks from another planet — poor people in the Sahel — it would be more effective to abolish an institution that has made a big business out of ‘ending poverty’ and completely devolve the work to local, national and regional institutions better equipped to attack the causes of poverty.

*ARCHBISHOP NJONGONKULU NDUNGANE, Capetown, South Africa, “[If] we must release ourselves from debt peonage - by demanding the repudiation and cancellation of debt - we will campaign to that end. And if the World Bank and IMF continue to stand in the way of social progress, movements like Jubilee South Africa will have no regrets about calling for their abolition. To that end, the World Bank Bonds Boycott movement is gaining even greater momentum. (”A World With a Human Face: A Voice from Africa,” Cape Town, David Philip, 2003, p. 31)

*JUBILEE SOUTH: “We reject…any further role or interference of the World Bank or IMF in our countries. We as African civil society organizations need to…mobilize our people to challenge and change the global economic system through campaigns and actions to shut down the World Bank and IMF.” (Pan-African Declaration on PRSPs, May 2001, Kampala, Uganda)

In addition, we see churches, foundations, union, cities and social responsibility funds that have joined in a boycott of the World Bank. TIAA-CREF, the world’s largest pension, sold its World Bank bonds as did cities (e.g., Milwaukee), Progressive Assets Management, Calvert Group, Unitarian Church, the University of New Mexico, and many union pension and investment funds, such as the Teamsters, Postal Workers, Communication Workers of Americ, etc. See www.worldbankboycott.org.

For more information on the abolitionists’ agenda, see www.50years.org or www.focusweb.org.

B. REFORMISTS

1. Some would radically strengthen the IFIs:

*MERVYN KING, Governor of the Bank of England contends that the IMF is irrelevant. Martin Wolf of the “Financial Times” (2/22/06) responds to Mervyn King, Governor, “Let us be brutal: the IMF is on the brink not just of ‘obscurity,’ as Mr. King suggests, but of irrelevance.” Mr. King believes that the IMF should be an authoritative economic colossus which, among other things, would drive the trade talks.

*In a 2/23/06 letter to the “Financial Times,” FRITZ FISCHER, Former Executive Director at the World Bank called for creating single board for IMF and World Bank, saying that “Such a pooling would not only cut costs at a time when their traditional revenues from interests to loans are shrinking. It would also reduce duplication and - above all - guarantee consistent advice for the clients.

2. Others would shrink the IFIs and refocus their role in the world.
*YILMAZ AKYÜZ, would radically overhaul the IMF. See his paper, “REFORMING THE IMF: BACK TO THE DRAWING BOARD,” (Third World Network, November 2005):

The paper recommends that the IMF should focus on short-term counter-cyclical current account financing and policy surveillance and withdraw from its involvement in development and trade policy as well as bail-out operations in emerging markets. Rather, it suggests that the IMF should help preclude the need for bailouts by working with emerging markets to manage unsustainable capital inflows by promoting appropriate measures, including direct and indirect controls. Finally, the paper urges the IMF to pay greater attention to destabilizing impulses originating from macroeconomic and financial policies in major industrial countries.

While the paper calls for changes in IMF policies and modalities, it concedes that any reform designed to bring greater legitimacy would need to address shortcomings in the institution’s governance structure. It holds out little hope for change in this regard. The paper contends that governance reform would require that the IMF end its dependence on a few countries for resources and that its engagement with countries be independent of bilateral arrangements.

Reformist campaigners call for:

*ending the IFI practice of imposing policy conditions on financing, unless conditions relate to strengthening fiduciary capacity – that is the capacity to spend resources for the intended purpose. As agents of globalization, the IMF and World Bank derive their clout from the practice of attaching policy conditions to their financing of governments. Such conditions supplant democratic practice, often requiring that borrowing countries to pass laws acceptable to the IFIs and compliant with the WTO. In 2004, a World Bank loan to Mozambique required that the President of that country issue seven decrees, thus bypassing the parliament altogether. Executives in many borrowing countries become more accountable to the IFIs than to their own citizens.

*withdrawing the IMF from its role as head of a “policy cartel.” The IMF has a unique role in the global economy insofar as it modulates the flow of financing to governments based upon its assessment of their performance. If the IMF declares that a government is “off track,” or not in compliance with the institution’s policy conditions, most financiers will withdraw from the country. Operating as head of such a policy “cartel,” the IMF effectively closed the spigot on most financing to the government of Malawi from January 2002 until August 2005, when the country was gripped by famine. The IMF often punishes the most vulnerable countries, while “blinking” as strategic countries such as India or Pakistan flout its mandates. The U.K. has already declared that it will no longer automatically follow the IMF’s “signals;” the U.S. should do likewise.

*eliminating the requirement that national strategies be shaped and endorsed by the IFIs. In 2000, the IFIs began requiring the governments of low-income countries to produce national development strategies (i.e., Poverty Reduction Strategy Papers (PRSPs)) for endorsement by the institutions’ Boards. Governments prepare these documents with input donors and creditors as well as citizens in order to provide a framework for external assistance. However, citizens are excluded from discussions of key policies, for instance, those related to trade and privatization of basic services. External actors should withdraw from the process of preparing these strategies. Independent countries should not need to have their development strategies endorsed by their creditors.

*supporting efforts by the U.S. Congress to curb corruption at the World Bank. In particular, it is important to call for independent audits of the institution’s operational performance.

*requiring that the World Bank comply with “best practice” with regard to environmental and social performance. This would entail reversing the recent weakening in environmental policies (e.g., the removal of the ban on clear-cutting forests); compliance with the guidelines of the World Commission on Dams and conclusions of the Extractive Industries Review. As a public institution, the World Bank should be a trend-setter for the private sector.

*encouraging the formation of regional institutions, such as the Asian Monetary Fund, which can usefully supplant a global “control center” for macroeconomic policy.

*increasing democratic governance of the institutions. In each institution’s 24 member executive board, votes are distributed to governments based upon their financial holdings in the institution. Industrialized countries control approximately 62% of votes in the IMF and World Bank, with the U.S. alone holding veto power. Countries where the institutions operate have insufficient “voice” in their decision-making.

The World Bank states that it never forces policies upon its member governments. In fact, the World Bank, like the IMF, negotiates the terms and conditions of its lending arrangements with the Finance Ministers of borrowing nations. For the most part, citizens and their representatives in parliament have little role in influencing these deals. Hence, it is not surprising that, under contract to the World Bank, Princeton Survey Research Associates, surveying over 2400 opinion leaders in every region of the world found that “Most opinion leaders think the World Bank forces its agenda on developing countries. This finding is consistent and overwhelming in all regions and in virtually all countries.” In reaction to policy conditions, such as those that eliminate subsidies for basic staples, there have reportedly been 238 incidents of civil unrest involving millions of people across 34 countries, according to the U.K.-based World Development Movement.

*requiring greater transparency on the part of the IMF and World Bank. As it is, loan documents rarely reach the people most affected by World Bank and IMF operations. Moreover, English is the dominant language in which they are written.

For more information on the reformist agenda, see: www.bicusa.org or www.new-rules.org.

Conclusion

U.K. Prime Minister Tony Blair stated, “I hear people say we have to stop and debate globalization. You might as well debate whether autumn should follow summer.” However, globalization must be debated and its rules must be changed. Global governance decisions are increasingly made in ways that limit – or circumvent – the consent of the governed. The IMF and the World Bank – have a “democracy deficit;” they are primarily accountable to few powerful countries, particularly the U.S. Citizens’ groups can strengthen the accountability of corporations, the governments that they elect, and international institutions controlled by the world’s most powerful countries.

Suggestions for further reading:

The Report of the World Commission on the Social Dimension of Globalization, “A Fair Globalization: Creating Opportunities for All,” 2004.

M. Weisbrot, D. Baker, and D. Rosnick, “The Scorecard on Development: 25 Years of Diminished Progress, Center for Economic and Policy Research, September 2005.

S. Anderson and John Cavanagh with Thea Lee, “A Field Guide to the Global Economy,” The New Press and W.W. Norton & Co., 2005.

Human Development Report 2005: International Cooperation at a Crossroads: Aid, Trade and security in an unequal world.

A. Chua, “World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability,” Doubleday Books, 2003

Our Drinkable Water Supply Is Vanishing

By Tara Lohan, AlterNet. October 11, 2007.

Thanks to global warming, pollution, population growth, and privatization, we are teetering on the edge of a global crisis.

Albert Szent-Gyorgyi, the Hungarian biochemist and Nobel Prize winner for medicine once said, “Water is life’s matter and matrix, mother and medium. There is no life without water.”

We depend on water for survival. It circulates through our bodies and the land, replenishing nutrients and carrying away waste. It is passed down like stories over generations — from ice-capped mountains to rivers to oceans.

Historically water has been a facet of ritual, a place of gathering and the backbone of community.

But times have changed. “In an age when man has forgotten his origins and is blind even to his most essential needs for survival, water has become the victim of his indifference,” Rachel Carson wrote.

As a result, today, 35 years since the passage of the Clean Water Act, we find ourselves are teetering on the edge of a global crisis that is being exacerbated by climate change, which is shrinking glaciers and raising sea levels.

We are faced with thoughtless development that paves flood plains and destroys wetlands; dams that displace native people and scar watersheds; unchecked industrial growth that pollutes water sources; and rising rates of consumption that nature can’t match. Increasingly, we are also threatened by the wave of privatization that is sweeping across the world, turning water from a precious public resource into a commodity for economic gain.

The problems extend from the global north to the south and are as pervasive as water itself. Equally encompassing are the politics of water. Discussions about our water crisis include issues like poverty, trade, community and privatization. In talking about water, we must also talk about indigenous rights, environmental justice, education, corporate accountability, and democracy. In this mix of terms are not only the causes of our crisis but also the solutions.

What’s gone wrong?

As our world heats up, as pollution increases, as population grows and as our globe’s resources of fresh water are tapped, we are faced with an environmental and humanitarian problem of mammoth proportions.

Demand for water is doubling every 20 years, outpacing population growth twice as fast. Currently 1.3 billion people don’t have access to clean water and 2.5 billion lack proper sewage and sanitation. In less than 20 years, it is estimated that demand for fresh water will exceed the world’s supply by over 50 percent.

The biggest drain on our water sources is agriculture, which accounts for 70 percent of the water used worldwide — much of which is subsidized in the industrial world, providing little incentive for agribusiness to use conservation measures or less water-intensive crops.

This number is also likely to increase as we struggle to feed a growing world. Population is expected to rise from 6 billion to 8 billion by 2050.

Water scarcity is not just an issue of the developing world. “Twenty-one percent of irrigation in the United States is achieved by pumping groundwater at rates that exceed the water’s ability to recharge,” wrote water experts Tony Clarke of the Polaris Institute and Maude Barlow of the Council of Canadians in their landmark water book Blue Gold: The Fight to Stop the Corporate Theft of the World’s Water.

The Ogallala aquifer — the largest in the North America and a major source for agriculture stretching from Texas to South Dakota — is currently being pumped at a rate 14 times greater than it can be replenished, they wrote. And, across the country, “California’s Department of Water Resources predicts that, by 2020, if more supplies are not found, the state will face a shortfall of fresh water nearly as great as the amount that all of its cities and towns together are consuming today,” add Clarke and Barlow.

Demand is outstripping supply from the rainy Seattle area to desert cities like Tucson and Albuquerque. And from Midwest farming regions to East Coast cities.

The crisis is also worldwide, most noticeable in Mexico, the Middle East, China and Africa.

As population growth, development, consumption and pollution take its toll on our water resources, the ability to fight this problem has been further complicated by the spread of neoliberalism. The same ideas that have resulted in the booty of private contracts being doled out in Iraq also have contributed greatly to our water crisis. Neoliberalism is the belief in “economic liberalism,” which espoused that government control over the economy was bad. It opened up the commons to commodification and let corporations privatize what once belonged to the public.

In 2000 Fortune magazine printed this telling statement: “Water promises to be to the 21st century what oil was to the 20th century; the precious commodity that determines the wealth of nations.”

It has oft been expressed that the next resource wars will not be over oil — or energy at all — but over water. As the idea of neoliberalism, proliferated by institutions like the World Bank and the IMF, spread, the public sector has become dangerously privatized. And it may not be the wealth of nations on the line — but the wealth of corporations.

A senior executive at a subsidiary of Vivendi, the world’s largest water controller summed it up, “Water is a critical and necessary ingredient to the daily life of every human being, and it is an equally powerful ingredient for profitable manufacturing companies.”

But when private companies control water resources, people’s needs for survival are pushed aside in place of the bottom line. In Africa, an estimated 5 million people die each year for lack of safe drinking water. And yet Africa, with its many cash-strapped countries, is targeted by multinationals that force governments to turn over their public water systems in exchange for promises of debt relief.

When corporations control water, rates go up, services go down, and those who can’t afford to pay are forced to drink unsafe water, risking their lives. This has happened across the world — in South Africa, in Bolivia, in the United States.

This same philosophy of corporate control drives the construction of dams, which have displaced an estimated 80 million people worldwide. In India alone, over 4,000 dams have submerged 37,500 square kilometers of land and forced 42 million people from their homes.

Multinationals looking to cash in on the water business have also made giant inroads in selling bottled water in richer countries. Expensive marketing campaigns convince people that their tap water is unsafe to drink. Then, companies like Coke and Pepsi bottle municipal tap water and others like Nestle pilfer spring water from rural communities and resell it at huge profits.

The water crisis may be growing, but so is resistance to privatization as communities are fighting back against the corporate control of the world’s most vital resource.

How we can fix it

We need water to survive, not just as individuals, but as communities. Author John Thorson put it perfectly when he said, “Water links us to our neighbor in a way more profound and complex than any other.”

Just ask the people of the Klamath Basin of Southern Oregon and Northern California. They’ve experienced water wars for the last hundred years that have pitted neighbor against neighbor and tribal member against farmer.

Native American tribes in the region — the Klamath, Hoopa, Karuk, and Yaruk — with priority rights to water, have struggled with farmers over limited water resources. Nature has been unable to deliver as much water as the government has promised to farmers and tribal members, as well as downstream fishermen. With not enough water in the river, either crops have failed or fish have died, creating community strife and economic hardship.

But in the last year, things have begun to change. These groups have formed a coalition to save the river they all depend on for survival. They are sitting at the same table and finally beginning to hear from each other about the needs of farmers, the value of subsistence economies, the history of families on the river, the ceremony that comes with the salmon runs, the rights of nature.

Together, this unlikely alliance is taking on PacifiCorp, one of the largest multinational power companies, whose out-of-date dams are threatening the ecosystem and the economy of the region.

And just over the peak of Mount Shasta another community and tribe are battling to save their spring water from Nestle, which hopes to tap the community’s greatest asset for its own wealth.

The people of the small town of McCloud and the Winnemem Wintu tribe are fighting back, and they are not alone. Across the country a backlash to the bottled-water business is gaining steam. Fancy restaurants like California’s Chez Panisse, Incanto, and Poggio and New York’s Del Posto have gotten on board. San Francisco has also led the way among municipalities that are beginning to cancel their bottled water contracts, understanding the great harm the industry does to the environment and communities.

It is not just bottled water that has posed a problem, but private companies buying out municipal water systems and then raising rates and lowering services. One the best examples is Stockton, Calif., which went private in the largest “public-private partnership” in the West. Since 2001 the people of Stockton have been fighting for control of their water against a multinational consortium.

The case gained international attention when it was featured in the film and book Thirst: Fighting the Corporate Theft of Our Water. The public finally won out in July, when the city council voted to get rid of the 20-year contract and send the corporation packing.

The citizen groups that have been working to defend their communities are being supported by many national and international groups pushing back against corporate control and empowering people — groups like Tony Clarke’s Polaris Institute in Canada, which has focused on public education and research around issues like the privatization of water services, bulk water exports, water security and bottled water.

In the United States, Corporate Accountability International is encouraging people to drink tap water over bottled water with their “Think Outside the Bottle Campaign.” They are working to educate the public, as well as city governments and businesses, with great success.

And today, on the 35th anniversary of the Clean Water Act, Food & Water Watch, is sponsoring a National Call-In Day for action on clean water to urge representatives to support the creation of a clean water trust fund, “which is a long-term, sustainable, and reliable source of funding to upgrade and improve our public water systems.” The organization has been working to protect public water systems from private takeover and to help fund municipal water so that all residents have clean, safe and affordable water.

The movement extends across the country and the world as people are also rebelling against the corporate takeover of their municipal water systems — in California, in Ghana, in Brazil, in Canada, in France, in Indonesia — and the list goes on.

Opposition to corporate control is rooted in the belief that water is part of the commons. Everyone should have access to clean water, regardless of their level of income or their country’s international standing.

In order to ensure that all people have access to clean, affordable water, we need to make some changes.

Some see technology as the necessary fix — or at least a step in the right direction. As the BBC reports:

New technology can help, however, especially by cleaning up pollution and so making more water useable, and in agriculture, where water use can be made far more efficient. Drought-resistant plants can also help. Drip irrigation drastically cuts the amount of water needed, low-pressure sprinklers are an improvement, and even building simple earth walls to trap rainfall is helpful. Some countries are now treating waste water so that it can be used — and drunk — several times over. Desalinization makes sea water available, but takes huge quantities of energy and leaves vast amounts of brine. But many warn against relying on a “techno-fix” to solve our problems.

Water experts argue that we need to reduce consumption on individual and community levels. Author Tony Clarke advises working with those closest to the problems, such as helping farmers to develop a more sustainable agriculture system. And the same goes for industry. Looking to the folks who have been on the land longest, like indigenous and traditional cultures, will also help us learn how an ecosystem works.

And experts say that we also need to start developing a comprehensive water policy that goes from the regional to international level. The World Bank and United Nations have the capability to change the designation of water from a human need to a human right, ensuring that corporations can’t exploit this resource for economic gain, as Clarke and Barlow advocate for in Blue Gold.

Governments should be investing in their people, in conservation and in the infrastructure that we depend on to access clean, affordable water.

It ultimately comes down to an issue of democracy. “We came to see that the conflicts over water are really about fundamental questions of democracy itself: Who will make the decisions that affect our future, and who will be excluded?” wrote Alan Snitow, Deborah Kaufman and Michael Fox in their recent book Thirst. “And if citizens no longer control their most basic resource, their water, do they really control anything at all?”

Consolidating ideology in law? Legal and judicial reform programmes at the World Bank

Victoria Harris, Bretton Woods Project, 25th July 2007

Download a fully-formatted (but unreferenced) PDF version of this briefing.

The World Bank has vastly increased the resources it commits to good governance, with a large portion of that going to a complex and under-researched area: legal and judicial reform. Researcher Victoria Harris explores how the Bank uses such reforms to cement in place its preferred market-based development paradigm.

The necessity of legal and judicial reform to facilitate market-led development has been widely promoted by the World Bank since the early 1990s. Despite its articles of agreement prohibiting it from becoming involved in the political affairs of states, the Bank’s foray into governance reforms - to which legal and judicial reforms have been central - tells a different story.

Generally citizens are protected from the potential excesses of the state and market by the judiciary so an independent judiciary is therefore a cornerstone for the protection of civil and political rights. In contrast, Bank-led reforms are market-focused, including training for lawyers and judges and the formulation of contract and property rights laws. Additionally, legal reforms have been executed by circumventing democratic processes and undermining accountability, setting a worrying precedent.

Legal and judicial reforms are one of six main themes of the World Bank’s governance work, the other five being: anti-corruption, civil service reform, decentralisation, public financial management and tax policy administration. These are key ingredients of the new institutional economics paradigm of the post-Washington consensus, which sees economic development as dependent on stable and predictable market-transactions. Good governance reforms have developed rhetorically, as an anti-corruption strategy and in response to the failure of infrastructure projects and structural adjustment programmes to fulfil sustainable development objectives.

The Bank has defined adherence to the rule of law as an integral part of economic and social development and promotes legal and judicial reform as a means to “promote the rule of law”1. In 2005 the Bank’s former legal counsel, Robert Dañino stated that Bank support for rule of law and justice sector reform “has made major contributions to the substantive furtherance of a broad array of human rights in a range of fields”2 . Independent judiciaries and functioning court systems are clearly important tools for human rights protection. However, the Bank’s legal reform focus is on the ability of legal systems to facilitate market transactions by defining property rights, guaranteeing the enforcement of contracts and maintaining law and order.

Civil society has cautioned that the Bank may use the rhetoric of human rights to legitimise its legal and judicial reform programmes that are executed to facilitate markets, rather than to uphold rights. Gordon Barron of the LondonSchool of Economicsnotes that criticisms of the Bank’s legal and judicial reformprogrammes have rested on the “absence of a guiding theory”3 of law and development and an opportunistic application of rule of law reform.

Richard Messick writing for the Bank’s Research Observer cites analogies between the Bank’s reform programme and the so-called ‘law and development movement’ in the 1960s4. That programme, led by USAID and the Ford Foundation, sought to use law as a tool for development and social change mainly in Latin America but academics criticised it for its lack of coherence. Practitioners had no way to prioritise, predict or measure the effect of reforms, which were created and implemented without public participation. Foreign legal consultants dictated the content and pace of reform which focused exclusively on formal legal systems5.

In response the Bank claims that the ‘law and development movement’ was state-centred and that within its own market-based model, “the state is no longer the protagonist of social change”6. However as Barron has pointed out this leads to a worrying notion of a “faith in spilovers”7, that market led reforms will naturally engender human rights and democracy, although there is little empirical evidence to suggest this.

Codifying corporate rights

Legal reform or the passing of new laws to implement Bank projects affects all major sectors that the Bank is involved in. Independent judiciaries are necessary to uphold and implement laws. Judicial reform is political as judicial mandates are generally written in constitutions, but due to the political nature of these reforms the Bank has stated that it “does not directly finance the legal work required”8. However, informal conditions are prevalent in the guise of investment climate and governance indices and monitoring systems. TheWorld Bank’s Country Policy and Institutional Assessment (CPIA) and Doing Business indicatorsas well as the Business Environment and Enterprise Performance Survey (BEEPS), jointly prepared by the Bank and European Bank for Reconstruction and Development, suggest that for countries to become attractive to foreign direct investment and gain funding from the Bank, certain market-oriented legal and judicial reforms are necessary.

The CPIA, the Bank’s policy scorecard, rates all countries annually and has 16 indicators grouped under four headings: Economic management, structural policies, social inclusion and public sector management and institutions. The BEEPS index allows companies to rate the business environment in 22 transitional countries in Central and Eastern Europe, Central Asia and Turkey. The dataset examines the “wide range of interactions between firms and the state”9 including the quality of the business environment, the legal and judicial climate, financial development and regulation. Both surveys rate the ability of member states to uphold property rights.

Graham Harrison of the University of Sheffield notes that the Bank will: “stop all lending to any member state that violates the property rights of a transnational corporation”10. Scorecards and monitoring surveys act as a policing strategy, to protect the interests of foreign direct investment and direct the nature of state reforms.

Embedding reforms

The Bank has become increasingly involved in legal and judicial reform through its lending and non-lending activities since 1991. Lending in this area is executed via the Bank’s legal general counsel, which has financed more than 1,300 legal and judicial reform projects. Reforms are “multidisciplinary”11, both focusing on institutional reform and developing legal frameworks for Bank-funded projects across all major sectors including: health, education, finance, energy, agriculture and public administration.

Worldwide there are 23 freestanding active and upcoming projects for the reform of a state’s legal system. From 2001 to 2006 worldwide lending for law & justice and public administration, the Bank’s classification for this work, increased from $3.9 billion to $5.9 billion12, dwarfing lending in all other sectors and accounting for nearly one quarter of total sector lending. Law & justice and public administration is the top sector for both IBRD and IDA lending. Worldwide thematic lending for “rule of law” projects also rose, from $410 million to $757 million, in the same period.

The financing of reform through structural and sector adjustment loans usually carries specific law reform conditions with it. Adjustment lending conditionality for justice administration projects “often includes the preparation and adoption of certain laws and regulations that reflect policies agreed upon with the Bank13”. Reform of the judiciary often necessitates a change to a country’s constitution. However, in 2005 a Bank publication on policy-based lending stated that; “Any attempt … to introduce political transformation through policy-based lending in the form of politically motivated conditionality may contravene the Articles”14. It also states that “requiring the passage of a law could cause problems between the executive and legislative branches of a borrower’s government”15 and should be avoided.

Outsourcing justice

The legal vice-presidency of the Bank has been providing law reform technical assistance to governments since 198616. It has advised governments on drafting legislation as it relates to project lending in such sectors as: public health law, environmental law, human rights and transport. Much of this technical assistance has been carried out by foreign consultants.

For example, the US-based management consultancy group Glocoms, Inc received the largest technical assistance tender in the Romanian judicial reform project, for $480,000.17 Glocoms claims to have a “leading edge” in the legal and judicial reform market. Its strategy for public sector reform rests on privatisation and restructuring fiscal policy and expenditure. The group has directed Bank projects in Angola, Armenia, China, the Russian Federation and Malawi18. It has just announced the opening of new country offices in: Mongolia, Armenia, Vietnam, DRC, Malawi, Kenya and Georgia, all countries undergoing judicial and institutional reform programmes.

The Bank has recognised that early judicial reform projects in Venezuela and Peru were unsuccessful because they failed to develop a consensus between the Bank and effected parties. However, it is still hard to find evidence of real participation or ownership in the development of projects. Awarding technical assistance contracts for the components of legal and judicial reform programmes to foreign consultants is representative of this trend.

The acknowledgement of past failures has led the Bank to develop a reform rhetoric which is posited as being socially and culturally inclusive. Beyond the rhetoric it is hard to find evidence of a commitment to these ideals. The bias toward market reforms is exemplified by the breakdown of funded projects. Out of a total of 555 Bank-supported rule of law projects, 240 are focused on the development of legal institutions for a market economy. Only 40 projects have ‘access to justice’ components which include goals such as, raising public awareness of legal institutions and laws, educational programmes and institutional transparency.

This is emblematic not only the Bank’s reform agenda, but also the practical limitations the Bank faces in this reform area. Inclusive and participatory legal reform depends on the commitment and political will of domestic politicians, which may be lacking. There is evidence that many law reforms have been passed by decree. Meanwhile, because of prohibitions on involvement in a borrowing country’s politics the Bank is often left with little option but to carry out infrastructure projects, such as the building or renovation of courtrooms.

Reform programmes in Central and Eastern Europe

The rapid transition from centralised communist rule towards market-based economies in Central and Eastern Europe since 1991 led to a proliferation of Bank-sponsored legal and judicial reform programmes in the region. The possibility of EU accession clearly spurred reform efforts on. Slovenia, Slovakia and Romania have now all made it into the top twenty reforming countries in the Bank’s Doing Business Report 2005 graded on such measures as property security and the length of time it takes to set up a business.

A 2002 evaluation of lending and non-lending projects in Europe and Central Asia by the Bank’s Operations Evaluation Department (OED), now the Independent Evaluation Group, states that “legal reform in itself has not been a Bank strategic objective” rather that it has “been a tool to implement policy reforms being sought by the Bank”19. The primary focus of reforms was on securing the privatisation of state-owned enterprises and national banking systems and developing legal frameworks in the energy and mining sectors. At the end of the nineties the focus of policy reform in the region moved toward developing legislation for foreign direct investment.

The OED also reported that, far from stemming corruption and increasing accountability and transparency, adjustment lending conditionality in countries with weak governments has tended to “increase governance by ordinance” which can “undermine democracy and distort the roles of various branches of government”20 leading not only to greater political instability but also to instability within the market.

The development policy of Romania drafted in 2004 after initial diagnostic and sector assessment evaluation liaisons with the Bank saw the adoption of “an extensive set of new laws”21. Although a referendum was held before the introduction of some new judicial legislation, the government has stated that “the volume and speed of adoption of this legislation meant frequent use of emergency decrees and similar instruments and limited parliamentary debate or public consultation”22. The use of emergency decrees to pass legislation required by adjustment lending conditionality has been registered in the Russian Federation, Kazakhstan and Ukraine.23

Contradictions abound

Legal and judicial reform programmes highlight the Bank’s fraught relationship with its own articles of agreement, the nature of its interference in the political matters of state and its position on human rights. These contradictions are becoming more evident, as increases in spending on rule of law programmes reshape legal systems and institutions throughout the world. There is no empirical evidence that ensuring private investment rights will further the protection and promotion of universal human rights, although the Bank insists these reforms will benefit the poor.

Countries such as Romania are scoring well in terms of their willingness to reform. However, it is unclear whether reforms are being executed or upheld by legal institutions. The Bank’s methodology has focused on training judges and improving the physical and administrative infrastructure of court systems, yet legal and judicial reforms are dependant on the political will to implement them. The Bank claims it is promoting the rule of law through legal and judicial reform yet the implementation of these reforms can undermine democratic processes, questioning the legitimacy of externally-imposed law reform as a development strategy. These reforms also reveal the increasing reach of the Bank into frontiers that have traditionally been the domain of governments and not markets.

1 World Bank: (2004) Initiatives in Legal and Judicial Reform. The World Bank; p3

2 Dañino.R: (2005) Workshop on Legal Convergence & Development – Opening Remarks. Nov 14th Place de Droit - Paris p4

3 Barron. G: (2005) The World Bank and Rule of Law Reforms. Development Studies Institute. P32

4 Messick, R; (1999) Judicial Reform and Economic Development. The World Bank Research Observer Vol. 14

5 Trubeck & Glanter: (1974) Cited in Messick.R: Ibid p 13.

6 Ibid P14

7 Ibid Barron P33

8 World Bank: (2004) Initiatives in Legal and Judicial Reform. The World Bank:p6

9 http://info.worldbank.org/governance/beeps/

10 Harrison. G: (2004) The World Bank and Africa, The construction of governance states. Routledge p9

11 Dañino.R: Speech: American Foreign Law Association, New York, June 9th 2004.

12 World Bank Annual Report 2006

13 World Bank: (2004) Initiatives in Legal and Judicial Reform. The World Bank:p6

14 Legal Vice Presidency: (2005) Review of World Bank Conditionality: Legal Aspects of Conditionality in Policy-Based Lending World Bank p 17

15 Ibid p 18

16 World Bank: (2004) Initiatives in Legal and Judicial Reform. The World Bank p 8

17 http://www.dgmarket.com/eproc/np-notice.do~1682129

18 http://www.armeniandiaspora.com/forum/showthread.php?t=46785

19 Gupta. P et al(2002) Legal and Judicial Reform in Europe and Central Asia. OED World Bank p3

20 Ibid p19

21 Letter of Development Policy: Romania July 28th 2004. Adrian Nastase. P2

22 Ibid P2

23 Ibid OED p12