The System Implodes: The 10 Worst Corporations of 2008

November 24, 2008

By Robert Weissman, Multinational Monitor. November 24, 2008

2008 marks the 20th anniversary of Multinational Monitor’s annual list of the 10 Worst Corporations of the year.

In the 20 years that we’ve published our annual list, we’ve covered corporate villains, scoundrels, criminals and miscreants. We’ve reported on some really bad stuff – from Exxon’s Valdez spill to Union Carbide and Dow’s effort to avoid responsibility for the Bhopal disaster; from oil companies coddling dictators (including Chevron and CNPC, both profiled this year) to a bank (Riggs) providing financial services for Chilean dictator Augusto Pinochet; from oil and auto companies threatening the future of the planet by blocking efforts to address climate change to duplicitous tobacco companies marketing cigarettes around the world by associating their product with images of freedom, sports, youthful energy and good health.

But we’ve never had a year like 2008.

The financial crisis first gripping Wall Street and now spreading rapidly throughout the world is, in many ways, emblematic of the worst of the corporate-dominated political and economic system that we aim to expose with our annual 10 Worst list. Here is how.

Improper political influence: Corporations dominate the policy-making process, from city councils to global institutions like the World Trade Organization. Over the last 30 years, and especially in the last decade, Wall Street interests leveraged their political power to remove many of the regulations that had restricted their activities. There are at least a dozen separate and significant examples of this, including the Financial Services Modernization Act of 1999, which permitted the merger of banks and investment banks. In a form of corporate civil disobedience, Citibank and Travelers Group merged in 1998 – a move that was illegal at the time, but for which they were given a two-year forbearance – on the assumption that they would be able to force a change in the relevant law. They did, with the help of just-retired (at the time) Treasury Secretary Robert Rubin, who went on to an executive position at the newly created Citigroup.

Deregulation and non-enforcement: Non-enforcement of rules against predatory lending helped the housing bubble balloon. While some regulators had sought to exert authority over financial derivatives, they were stopped by finance-friendly figures in the Clinton administration and Congress – enabling the creation of the credit default swap market. Even Alan Greenspan concedes that that market – worth $55 trillion in what is called notional value – is imploding in significant part because it was not regulated.

Short-term thinking: It was obvious to anyone who cared to look at historical trends that the United States was experiencing a housing bubble. Many in the financial sector seemed to have convinced themselves that there was no bubble. But others must have been more clear-eyed. In any case, all the Wall Street players had an incentive not to pay attention to the bubble. They were making stratospheric annual bonuses based on annual results. Even if they were certain the bubble would pop sometime in the future, they had every incentive to keep making money on the upside.

Financialization: Profits in the financial sector were more than 35 percent of overall U.S. corporate profits in each year from 2005 to 2007, according to data from the Bureau of Economic Analysis. Instead of serving the real economy, the financial sector was taking over the real economy.

Profit over social use: Relatedly, the corporate-driven economy was being driven by what could make a profit, rather than what would serve a social purpose. Although Wall Street hucksters offered elaborate rationalizations for why exotic financial derivatives, private equity takeovers of firms, securitization and other so-called financial innovations helped improve economic efficiency, by and large these financial schemes served no socially useful purpose.

Externalized costs: Worse, the financial schemes didn’t just create money for Wall Street movers and shakers and their investors. They made money at the expense of others. The costs of these schemes were foisted onto workers who lost jobs at firms gutted by private equity operators, unpayable loans acquired by homeowners who bought into a bubble market (often made worse by unconscionable lending terms), and now the public.

What is most revealing about the financial meltdown and economic crisis, however, is that it illustrates that corporations – if left to their own worst instincts – will destroy themselves and the system that nurtures them. It is rare that this lesson is so graphically illustrated. It is one the world must quickly learn, if we are to avoid the most serious existential threat we have yet faced: climate change.

Of course, the rest of the corporate sector was not on good behavior during 2008 either, and we do not want them to escape justified scrutiny. In keeping with our tradition of highlighting diverse forms of corporate wrongdoing, we include only one financial company on the 10 Worst list. Here, presented in alphabetical order, are the 10 Worst Corporations of 2008.

AIG: Money for Nothing

There’s surely no one party responsible for the ongoing global financial crisis.

But if you had to pick a single responsible corporation, there’s a very strong case to make for American International Group (AIG).

In September, the Federal Reserve poured $85 billion into the distressed global financial services company. It followed up with $38 billion in October.

The government drove a hard bargain for its support. It allocated its billions to the company as high-interest loans; it demanded just short of an 80 percent share of the company in exchange for the loans; and it insisted on the firing of the company’s CEO (even though he had only been on the job for three months).

Why did AIG – primarily an insurance company powerhouse, with more than 100,000 employees around the world and $1 trillion in assets – require more than $100 billion ($100 billion!) in government funds? The company’s traditional insurance business continues to go strong, but its gigantic exposure to the world of “credit default swaps” left it teetering on the edge of bankruptcy. Government officials then intervened, because they feared that an AIG bankruptcy would crash the world’s financial system.

Credit default swaps are effectively a kind of insurance policy on debt securities. Companies contracted with AIG to provide insurance on a wide range of securities. The insurance policy provided that, if a bond didn’t pay, AIG would make up the loss.

AIG’s eventual problem was rooted in its entering a very risky business but treating it as safe. First, AIG Financial Products, the small London-based unit handling credit default swaps, decided to insure “collateralized debt obligations” (CDOs). CDOs are pools of mortgage loans, but often only a portion of the underlying loans – perhaps involving the most risky part of each loan. Ratings agencies graded many of these CDOs as highest quality, though subsequent events would show these ratings to have been profoundly flawed. Based on the blue-chip ratings, AIG treated its insurance on the CDOs as low risk. Then, because AIG was highly rated, it did not have to post collateral.

Through credit default swaps, AIG was basically collecting insurance premiums and assuming it would never pay out on a failure – let alone a collapse of the entire market it was insuring. It was a scheme that couldn’t be beat: money for nothing.

In September, the New York Times’ Gretchen Morgenson reported on the operations of AIG’s small London unit, and the profile of its former chief, Joseph Cassano. In 2007, the Times reported, Cassano “described the credit default swaps as almost a sure thing.” “It is hard to get this message across, but these are very much handpicked,” he said in a call with analysts.

“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions,” he said.

Cassano assured investors that AIG’s operations were nearly fail safe. Following earlier accounting problems, the company’s risk management was stellar, he said: “That’s a committee that I sit on, along with many of the senior managers at AIG, and we look at a whole variety of transactions that come in to make sure that they are maintaining the quality that we need to. And so I think the things that have been put in at our level and the things that have been put in at the parent level will ensure that there won’t be any of those kinds of mistakes again.”

Cassano turned out to be spectacularly wrong. The credit default swaps were not a sure thing. AIG somehow did not notice that the United States was experiencing a housing bubble, and that it was essentially insuring that the bubble would not pop. It made an ill-formed judgment that positive credit ratings meant CDOs were high quality – even when the underlying mortgages were of poor quality.

But before the bubble popped, Cassano’s operation was minting money. It wasn’t hard work, since AIG Financial Products was taking in premiums in exchange for nothing. In 2005, the unit’s profit margin was 83 percent, according to the Times. By 2007, its credit default swap portfolio was more than $500 billion.

Then things started to go bad. Suddenly, AIG had to start paying out on some of the securities it had insured. As it started recording losses, its credit default swap contracts require that it begin putting up more and more collateral. AIG found it couldn’t raise enough money fast enough – over the course of a weekend in September, the amount of money AIG owed shot up from $20 billion to more than $80 billion.

With no private creditors stepping forward, it fell to the government to provide the needed capital or let AIG enter bankruptcy. Top federal officials deemed bankruptcy too high a risk to the overall financial system.

After the bailout, it emerged that AIG did not even know all of the CDOs it had ensured.

In September, less than a week after the bailout was announced, the Orange County Register reported on a posh retreat for company executives and insurance agents at the exclusive St. Regis Resort in Monarch Beach, California. Rooms at the resort can cost over $1,000 per night.

After the House of Representatives Oversight and Government Reform Committee highlighted the retreat, AIG explained that the retreat was primarily for well-performing independent insurance agents. Only 10 of the 100 participants were from AIG (and they from a successful AIG subsidiary), the company said, and the event was planned long in advance of the federal bailout. In an apology letter to Treasury Secretary Henry Paulson, CEO Edward Liddy wrote that AIG now faces very different challenges, and “that we owe our employees and the American public new standards and approaches.”

New standards and approaches, indeed.

Cargill: Food Profiteers

The world’s food system is broken. Or, more accurately, the giant food companies and their allies in the U.S. and other rich country governments, and at the International Monetary Fund and World Bank, broke it.

Thirty years ago, most developing countries produced enough food to feed themselves [CHECK]. Now, 70 percent are net food importers.

Thirty years ago, most developing countries had in place mechanisms aimed at maintaining a relatively constant price for food commodities. Tariffs on imports protected local farmers from fluctuations in global food prices. Government-run grain purchasing boards paid above-market prices for farm goods when prices were low, and required farmers to sell below-market when prices were high. The idea was to give farmers some certainty over price, and to keep food affordable for consumers. Governments also provided a wide set of support services for farmers, giving them advice on new crop and growing technologies and, in some countries, helping set up cooperative structures.

This was not a perfect system by any means, but it looks pretty good in retrospect.

Over the last three decades, the system was completely abandoned, in country after country. It was replaced by a multinational-dominated, globally integrated food system, in which the World Bank and other institutions coerced countries into opening their markets to cheap food imports from rich countries and re-orienting their agricultural systems to grow food for rich consumers abroad. Proponents said the new system was a “free market” approach, but in reality it traded one set of government interventions for another – a new set of rules that gave enhanced power to a handful of global grain trading companies like Cargill and Archer Daniels Midland, as well as to seed and fertilizer corporations.

“For this food regime to work,” Raj Patel, author of Stuffed and Starved, told the U.S. House Financial Services Committee at a May hearing, “existing marketing boards and support structures needed to be dismantled. In a range of countries, this meant that the state bodies that had been supported and built by the World Bank were dismantled by the World Bank. The rationale behind the dismantling of these institutions was to clear the path for private sector involvement in these sectors, on the understanding that the private sector would be more efficient and less wasteful than the public sector.”

“The result of these interventions and conditions,” explained Patel, “was to accelerate the decline of developing country agriculture. One of the most striking consequences of liberalization has been the phenomenon of ‘import surges.’ These happen when tariffs on cheaper, and often subsidized, agricultural products are lowered, and a host country is then flooded with those goods. There is often a corresponding decline in domestic production. In Senegal, for example, tariff reduction led to an import surge in tomato paste, with a 15-fold increase in imports, and a halving of domestic production. Similar stories might be told of Chile, which saw a three-fold surge in imports of vegetable oil, and a halving of domestic production. In Ghana in 1998, local rice production accounted for over 80 percent of domestic consumption. By 2003, that figure was less than 20 percent.”

The decline of developing country agriculture means that developing countries are dependent on the vagaries of the global market. When prices spike – as they did in late 2007 and through the beginning of 2008 – countries and poor consumers are at the mercy of the global market and the giant trading companies that dominate it. In the first quarter of 2008, the price of rice in Asia doubled, and commodity prices overall rose 40 percent. People in rich countries felt this pinch, but the problem was much more severe in the developing world. Not only do consumers in poor countries have less money, they spend a much higher proportion of their household budget on food – often half or more – and they buy much less processed food, so commodity increases affect them much more directly. In poor countries, higher prices don’t just pinch, they mean people go hungry. Food riots broke out around the world in early 2008.

But not everyone was feeling pain. For Cargill, spiking prices was an opportunity to get rich. In the second quarter of 2008, the company reported profits of more than $1 billion, with profits from continuing operations soaring 18 percent from the previous year. Cargill’s 2007 profits totaled more than $2.3 billion, up more than a third from 2006.

In a competitive market, would a grain-trading middleman make super-profits? Or would rising prices crimp the middleman’s profit margin?

Well, the global grain trade is not competitive.

In an August speech, Cargill CEO Greg Page posed the question, “So, isn’t Cargill exploiting the food situation to make money?” Here is how he responded:

“I would give you four pieces of information about why our earnings have gone up dramatically.

  1. The demand for food has gone up. The demand for our facilities has gone up, and we are running virtually all of our facilities worldwide at total capacity. As we utilize our capacity more effectively, clearly we do better.
  2. Fertilizer prices rose, and we are owners of a large fertilizer company. That has been the single largest factor in Cargill’s earnings.
  3. The volatility in the grain industry – much of it created by governments – was an opportunity for a trading company like Cargill to make money.
  4. Finally, in this era of high prices, Cargill over the last two years has invested $15.5 billion additional dollars into the world food system. Some was to carry all these high-priced inventories. We also wanted to be sure that we were there for farmers who needed the working capital to operate in this much more expensive environment. Clearly, our owners expected some return on that $15.5 billion. Cargill had an opportunity to make more money in this environment, and I think that is something that we need to be very forthright about.”

OK, Mr. Page, that’s all very interesting. The question was, “So, isn’t Cargill exploiting the food situation to make money?” It sounds like your answer is, “yes.”

Chevron: “We can’t let little countries screw around with big companies”

The world has witnessed a stunning consolidation of the multinational oil companies over the last decade.

One of the big winners was Chevron. It swallowed up Texaco and Unocal, among others. It was happy to absorb their revenue streams. It has been less willing to take responsibility for ecological and human rights abuses perpetrated by these companies.

One of the inherited legacies from Chevron’s 2001 acquisition of Texaco is litigation in Ecuador over the company’s alleged decimation of the Ecuadorian Amazon over a 20-year period of operation. In 1993, 30,000 indigenous Ecuadorians filed a class action suit in U.S. courts, alleging that Texaco had poisoned the land where they live and the waterways on which they rely, allowing billions of gallons of oil to spill and leaving hundreds of waste pits unlined and uncovered. They sought billions in compensation for the harm to their land and livelihood, and for alleged health harms. The Ecuadorians and their lawyers filed the case in U.S. courts because U.S. courts have more capacity to handle complex litigation, and procedures (including jury trials) that offer plaintiffs a better chance to challenge big corporations. Texaco, and later Chevron, deployed massive legal resources to defeat the lawsuit. Ultimately, a Chevron legal maneuver prevailed: At Chevron’s instigation, U.S. courts held that the case should be litigated in Ecuador, closer to where the alleged harms occurred.

Having argued vociferously that Ecuadorian courts were fair and impartial, Chevron is now unhappy with how the litigation has proceeded in that country. So unhappy, in fact, that it is lobbying the Office of the U.S. Trade Representative to impose trade sanctions on Ecuador if the Ecuadorian government does not make the case go away.

“We can’t let little countries screw around with big companies like this – companies that have made big investments around the world,” a Chevron lobbyist said to Newsweek in August. (Chevron subsequently stated that “the comments attributed to an unnamed lobbyist working for Chevron do not reflect our company’s views regarding the Ecuador case. They were not approved by the company and will not be tolerated.”)

Chevron is worried because a court-appointed special master found in March that the company was liable to plaintiffs for between $7 billion and $16 billion. The special master has made other findings that Chevron’s clean-up operations in Ecuador have been inadequate.

Another of Chevron’s inherited legacies is the Yadana natural gas pipeline in Burma, operated by a consortium in which Unocal was one of the lead partners. Human rights organizations have documented that the Yadana pipeline was constructed with forced labor, and associated with brutal human rights abuses by the Burmese military.

EarthRights International, a human rights group with offices in Washington, D.C. and Bangkok, has carefully tracked human rights abuses connected to the Yadana pipeline, and led a successful lawsuit against Unocal/Chevron. In an April 2008 report, the group states that “Chevron and its consortium partners continue to rely on the Burmese army for pipeline security, and those forces continue to conscript thousands of villagers for forced labor, and to commit torture, rape, murder and other serious abuses in the course of their operations.”

Money from the Yadana pipeline plays a crucial role in enabling the Burmese junta to maintain its grip on power. EarthRights International estimates the pipeline funneled roughly $1 billion to the military regime in 2007. The group also notes that, in late 2007, when the Burmese military violently suppressed political protests led by Buddhist monks, Chevron sat idly by.

Chevron has trouble in the United States, as well. In September, Earl Devaney, the inspector general for the Department of Interior, released an explosive report documenting “a culture of ethical failure” and a “culture of substance abuse and promiscuity” in the U.S. government program handling oil lease contracts on U.S. government lands and property. Government employees, Devaney found, accepted a stream of small gifts and favors from oil company representatives, and maintained sexual relations with them. (In one memorable passage, the inspector general report states that “sexual relationships with prohibited sources cannot, by definition, be arms-length.”) The report showed that Chevron had conferred the largest number of gifts on federal employees. It also complained that Chevron refused to cooperate with the investigation, a claim Chevron subsequently disputed.

Constellation Energy: Nuclear Operators

Although it is too dangerous, too expensive and too centralized to make sense as an energy source, nuclear power won’t go away, thanks to equipment makers and utilities that find ways to make the public pay and pay.

Case in point: Constellation Energy Group, the operator of the Calvert Cliffs nuclear plant in Maryland. When Maryland deregulated its electricity market in 1999, Constellation – like other energy generators in other states – was able to cut a deal to recover its “stranded costs” and nuclear decommissioning fees. The idea was that competition would bring multiple suppliers into the market, and these new competitors would have an unfair advantage over old-time monopoly suppliers. Those former monopolists, the argument went, had built expensive nuclear reactors with the approval of state regulators, and it would be unfair if they could not charge consumers to recover their costs. It would also be unfair, according to this line of reasoning, if the former monopolists were unable to recover the costs of decommissioning nuclear facilities.

In Maryland, the “stranded cost” deal gave Constellation (through its affiliate Baltimore Gas & Electric, BGE) the right to charge ratepayers $975 million in 1993 dollars (almost $1.5 billion in present dollars).

Deregulation meant that Constellation’s energy generating assets – including its nuclear facility at Calvert Cliffs – were free from price regulation. As a result, instead of costing Constellation, Calvert Cliffs’ market value increased.

Deregulation also meant that, after an agreed-upon freeze period, BGE was free to raise its rates as it chose. In 2006, it announced a 72 percent rate increase. For residential consumers, this meant they would pay an average of $743 more per year for electricity.

The sudden price hike sparked a rebellion. The Maryland legislature passed a law requiring BGE to credit consumers $386 million over a 10-year period. At the time, Constellation was very pleased with the deal, which let it keep most of its price-gouging profits – a spokesperson for the then-governor said that Constellation and BGE were “doing a victory lap around the statehouse” after the bill passed.

In February 2008, however, Constellation announced that it intended to sue the state for unconstitutionally “taking” its assets via the mandatory consumer credit. In March, following a preemptive lawsuit by the state, the matter was settled. BGE agreed to make a one-time rebate of $170 million to residential ratepayers, and 90 percent of the credits to ratepayers (totaling $346 million) were left in place. The deal also relieved ratepayers of the obligation to pay for decommissioning – an expense that had been expected to total $1.5 billion (or possibly much more) from 2016 to 2036.

The deal also included regulatory changes making it easier for outside companies to invest in Constellation – a move of greater import than initially apparent. In September, with utility stock prices plummeting, Warren Buffet’s MidAmerican Energy announced it would purchase Constellation for $4.7 billion, less than a quarter of the company’s market value in January.

Meanwhile, Constellation plans to build a new reactor at Calvert Cliffs, potentially the first new reactor built in the United States since the near-meltdown at Three Mile Island in 1979.

“There are substantial clean air benefits associated with nuclear power, benefits that we recognize as the operator of three plants in two states,” says Constellation spokesperson Maureen Brown.

It has lined up to take advantage of U.S. government-guaranteed loans for new nuclear construction, available under the terms of the 2005 Energy Act [see “Nuclear’s Power Play: Give Us Subsidies or Give Us Death,” Multinational Monitor, September/October 2008]. “We can’t go forward unless we have federal loan guarantees,” says Brown.

Building nuclear plants is extraordinarily expensive (Constellation’s planned construction is estimated at $9.6 billion) and takes a long time; construction plans face massive political risks; and the value of electric utilities is small relative to the huge costs of nuclear construction. For banks and investors, this amounts to too much uncertainty – but if the government guarantees loans will be paid back, then there’s no risk.

Or, stated better, the risk is absorbed entirely by the public. That’s the financial risk. The nuclear safety risk is always absorbed, involuntarily, by the public.

CNPC: Fueling Violence in Darfur

Many of the world’s most brutal regimes have a common characteristic: Although subject to economic sanctions and politically isolated, they are able to maintain power thanks to multinational oil company enablers. Case in point: Sudan, and the Chinese National Petroleum Corporation (CNPC).

In July, International Criminal Court (ICC) Prosecutor Luis Moreno-Ocampo charged the President of Sudan, Omar Hassan Ahmad Al Bashir, with committing genocide, crimes against humanity and war crimes. The charges claim that Al Bashir is the mastermind of crimes against ethnic groups in Darfur, aimed at removing the black population from Sudan. Sudanese armed forces and government-authorized militias known as the Janjaweed have carried out massive attacks against the Fur, Masalit and Zaghawa communities of Darfur, according to the ICC allegations. Following bombing raids, “ground forces would then enter the village or town and attack civilian inhabitants. They kill men, children, elderly, women; they subject women and girls to massive rapes. They burn and loot the villages.” The ICC says 35,000 people have been killed and 2.7 million displaced.

The ICC reports one victim saying: “When we see them, we run. Some of us succeed in getting away, and some are caught and taken to be raped – gang-raped. Maybe around 20 men rape one woman. … These things are normal for us here in Darfur. These things happen all the time. I have seen rapes, too. It does not matter who sees them raping the women – they don’t care. They rape girls in front of their mothers and fathers.”

Governments around the world have imposed various sanctions on Sudan, with human rights groups demanding much more aggressive action.

But there is little doubt that Sudan has been able to laugh off existing and threatened sanctions because of the huge support it receives from China, channeled above all through the Sudanese relationship with CNPC.

“The relationship between CNPC and Sudan is symbiotic,” notes the Washington, D.C.-based Human Rights First, in a March 2008 report, “Investing in Tragedy.” “Not only is CNPC the largest investor in the Sudanese oil sector, but Sudan is CNPC’s largest market for overseas investment.”

China receives three quarters of Sudan’s exports, and Chinese companies hold the majority share in almost all of the key oil-rich areas in Sudan. Explains Human Rights First: “Beijing’s companies pump oil from numerous key fields, which then courses through Chinese-made pipelines to Chinese-made storage tanks to await a voyage to buyers, most of them Chinese.” CNPC is the largest oil investor in Sudan; the other key Chinese company is the Sinopec Group (also known as the China Petrochemical Corporation).

Oil money has fueled violence in Darfur. “The profitability of Sudan’s oil sector has developed in close chronological step with the violence in Darfur,” notes Human Rights First. “In 2000, before the crisis, Sudan’s oil revenue was $1.2 billion. By 2006, with the crisis well underway, that total had shot up by 291 percent, to $4.7 billion. How does Sudan use that windfall? Its finance minister has said that at least 70 percent of the oil profits go to the Sudanese armed forces, linked with its militia allies to the crimes in Darfur.”

There are other nefarious components of the CNPC relationship with the Sudanese government. China ships substantial amounts of small arms to Sudan and has helped Sudan build its own small arms factories. China has also worked at the United Nations to undermine more effective multilateral action to protect Darfur. Human rights organizations charge a key Chinese motivation is to lubricate its relationship with the Khartoum government so the oil continues to flow.

CNPC did not respond to repeated requests for comment.

Dole: The Sour Taste of Pineapple

Starting in 1988, the Philippines undertook what was to be a bold initiative to redress the historically high concentration of land ownership that has impoverished millions of rural Filipinos and undermined the country’s development. The Comprehensive Agricultural Reform Program (CARP) promised to deliver land to the landless.

It didn’t work out that way.

Plantation owners helped draft the law and invented ways to circumvent its purported purpose.

Dole pineapple workers are among those paying the price.

Under CARP, Dole’s land was divided among its workers and others who had claims on the land prior to the pineapple giant. However, under the terms of the law, as the Washington, D.C.-based International Labor Rights Forum (ILRF) explains in an October report, “The Sour Taste of Pineapple,” the workers received only nominal title. They were required to form labor cooperatives. Intended to give workers – now the new land owners – a means to collectively manage their land, the cooperatives were instead controlled by wealthy landlords.

“Through its dealings with these cooperatives,” ILRF found, Dole and Del Monte, (the world’s other leading pineapple grower) “have been able to take advantage of a number of worker abuses. Dole has outsourced its labor force to contract labor and replaced its full-time regular employment system that existed before CARP.” Dole employs 12,000 contract workers. Meanwhile, from 1989 to 1998, Dole reduced its regular workforce by 3,500.

Under current arrangements, Dole now leases its land from its workers, on extremely cheap terms – in one example cited by ILRF, Dole pays in rent one-fifteenth of its net profits from a plantation. Most workers continue to work the land they purportedly own, but as contract workers for Dole.

The Philippine Supreme Court has ordered Dole to convert its contract workers into regular employees, but the company has not done so. In 2006, the Court upheld a Department of Labor and Employment decision requiring Dole to stop using illegal contract labor. Under Philippine law, contract workers should be regularized after six months.

Dole emphasizes that it pays its workers $10 a day, more than the country’s $5.60 minimum wage. It also says that its workers are organized into unions. The company responded angrily to a 2007 nomination for most irresponsible corporations from a Swiss organization, the Berne Declaration. “We must also say that those fallacious attacks created incredulity and some anger among our Dolefil workers, their representatives, our growers, their cooperatives and more generally speaking among the entire community where we operate.” The company thanked “hundreds of people who spontaneously expressed their support to Dolefil, by taking the initiative to sign manifestos,” including seven cooperatives.

The problem with Dole’s position, as ILRF points out, is that “Dole’s contract workers are denied the same rights afforded to Dole’s regular workers. They are refused the right to organize or benefits gained by the regular union, and are consequently left with poor wages and permanent job insecurity.” Contract workers are paid under a quota system, and earn about $1.85 a day, according to ILRF.

Conditions are not perfect for unionized workers, either. In 2006, when a union leader complained about pesticide and chemical exposures (apparently misreported in local media as a complaint about Dole’s waste disposal practices), the management of Dole Philippines (Dolefil) pressed criminal libel charges against him. Two years later, these criminal charges remain pending.

Dole says it cannot respond to the allegations in the ILRF report, because the U.S. Trade Representative is considering acting on a petition by ILRF to deny some trade benefits to Dole pineapples imported into the United States from the Philippines.

Concludes Bama Atheya, executive director of ILRF, “In both Costa Rica and the Philippines, Dole has deliberately obstructed workers’ right to organize, has failed to pay a living wage and has polluted workers’ communities.”

GE: Creative Accounting

General Electric (GE) has appeared on Multinational Monitor’s annual 10 Worst Corporations list for defense contractor fraud, labor rights abuses, toxic and radioactive pollution, manufacturing nuclear weaponry, workplace safety violations and media conflicts of interest (GE owns television network NBC).

This year, the company returns to the list for new reasons: alleged tax cheating and the firing of a whistleblower.

In June, former New York Times reporter David Cay Johnston reported on internal GE documents that appeared to show the company had engaged in long-running effort to evade taxes in Brazil. In a lengthy report in Tax Notes International, Johnston cited a GE subsidiary manager’s powerpoint presentation that showed “suspicious” invoices as “an indication of possible tax evasion.” The invoices showed suspiciously high sales volume for lighting equipment in lightly populated Amazon regions of the country. These sales would avoid higher value added taxes (VAT) in urban states, where sales would be expected to be greater.

Johnston wrote that the state-level VAT at issue, based on the internal documents he reviewed, appeared to be less than $100 million. But, “since the VAT scheme appears to have gone on long before the period covered in the Moreira [the company manager] report, the total sum could be much larger and could involve other countries supplied by the Brazil subsidiary.”

A senior GE spokesperson, Gary Sheffer, told Johnston that the VAT and related issues were so small relative to GE’s size that the company was surprised a reporter would spend time looking at them. “No company has perfect compliance,” Sheffer said. “We do not believe we owe the tax.”

Johnston did not identify the source that gave him the internal GE documents, but GE has alleged it was a former company attorney, Adriana Koeck. GE fired Koeck in January 2007 for what it says were “performance reasons.” GE sued Koeck in June 2008, alleging that she wrongfully maintained privileged and confidential information, and improperly shared the information with third parties. In a court filing, GE said that it “considers its professional reputation to be its greatest asset and it has worked tirelessly to develop and preserve an unparalleled reputation of ‘unyielding integrity.'”

GE’s suit followed a whistleblower defense claim filed by Koeck in 2007. In April 2007, Koeck filed a claim with the U.S. Department of Labor under the Sarbanes-Oxley whistleblower protections (rules put in place following the Enron scandal).

In her filing, Koeck alleges that she was fired not for poor performance, but because she called attention to improper activities by GE. After being hired in January 2006, Koeck’s complaint asserts, she “soon discovered that GE C&I [consumer and industrial] operations in Latin America were engaged in a variety of irregular practices. But when she tried to address the problems, both Mr. Burse and Mr. Jones [her superiors in the general counsel’s office] interfered with her efforts, took certain matters away from her, repeatedly became enraged with her when she insisted that failing to address the problems would harm GE, and eventually had her terminated.”

Koeck’s whistleblower filing details the state VAT-avoidance scheme discussed in Johnston’s article. It also indicates that several GE employees in Brazil were blackmailing the company to keep quiet about the scheme.

Koeck’s whistleblower filing also discusses reports in the Brazilian media that GE had participated in a “bribing club” with other major corporations. Members of the club allegedly met to divide up public contracts in Brazil, as well as to agree on the amounts that would be paid in bribes. Koeck discovered evidence of GE subsidiaries engaging in behavior compatible with the “bribing club” stories and reported this information to her superior. Koeck alleges that her efforts to get higher level attorneys to review the situation failed.

In a statement, GE responds to the substance of Koeck’s allegations of wrongdoing: “These were relatively minor and routine commercial and tax issues in Brazil. Our employees proactively identified, investigated and resolved these issues in the appropriate manner. We are confident we have met all of our tax and compliance obligations in Brazil.GE has a strong and rigorous compliance process that dealt effectively with these issues.”

Koeck’s Sarbanes-Oxley complaint was thrown out in June, on the grounds that it had not been filed in a timely matter.

The substance of her claims, however, are now under investigation by the Department of Justice Fraud Section, according to Corporate Crime Reporter.

Imperial Sugar: 13 Dead

On February 7, an explosion rocked the Imperial Sugar refinery in Port Wentworth, Georgia, near Savannah.

Tony Holmes, a forklift operator at the plant, was in the break room when the blast occurred.

“I heard the explosion,” he told the Savannah Morning News. “The building shook, and the lights went out. I thought the roof was falling in. … I saw people running. I saw some horrific injuries. … People had clothes burning. Their skin was hanging off. Some were bleeding.”

Days later, when the fire was finally extinguished and search-and-rescue operations completed, the horrible human toll was finally known: 13 dead, dozens badly burned and injured.

As with almost every industrial disaster, it turns out the tragedy was preventable. The cause was accumulated sugar dust, which like other forms of dust, is highly combustible.

The Occupational Safety and Health Administration (OSHA), the government workplace safety regulator, had not visited Imperial Sugar’s Port Wentworth facility since 2000. When inspectors examined the blast site after the fact, they found rampant violations of the agency’s already inadequate standards. They proposed a more than $5 million fine, and issuance of citations for 61 egregious willful violations, eight willful violations and 51 serious violations. Under OSHA’s rules, a “serious” citation is issued when death or serious physical harm is likely to occur, a “willful” violation is a violation committed with plain indifference to employee safety and health, and “egregious” citations are issued for particularly flagrant violations.

A month later, OSHA inspectors investigated Imperial Sugar’s plant in Gramercy, Louisiana. They found 1/4- to 2-inch accumulations of dust on electrical wiring and machinery. They found 6- to 8-inch accumulations on wall ledges and piping. They found 1/2- to 1-inch accumulations on mechanical equipment and motors. They found 3- to 48-inch accumulations on workroom floors. OSHA posted an “imminent danger” notice at the plant, because of the high likelihood of another explosion.

Imperial Sugar obviously knew of the conditions in its plants. It had in fact taken some measures to clean up operations prior to the explosion.

Graham H. Graham was hired as vice president of operations of Imperial Sugar in November 2007. In July 2008, he told a Senate subcommittee that he first walked through the Port Wentworth facility in December 2007. “The conditions were shocking,” he testified. “Port Wentworth was a dirty and dangerous facility. The refinery was littered with discarded materials, piles of sugar dust, puddles of sugar liquid and airborne sugar dust. Electrical motors and controls were encrusted with solidified sugar, while safety covers and doors were missing from live electrical switchgear and panels. A combustible environment existed.”

Graham recommended that the plant manager be fired, and he was. Graham ordered a housekeeping blitz, and by the end of January, he testified to the Senate subcommittee, conditions had improved significantly, but still were hazardous.

But Graham also testified that he was told to tone down his demands for immediate action. In a meeting with John Sheptor, then Imperial Sugar’s chief operating officer and now its CEO, and Kay Hastings, senior vice president of human resources, Graham testified, “I was also informed that I was excessively eager in addressing the refinery’s problems.”

Sheptor, who was nearly killed in the refinery explosion, and Hastings both deny Graham’s account.

The company says that it respected safety concerns before the explosion, but has since redoubled efforts, hiring expert consultants on combustible hazards, refocusing on housekeeping efforts and purchasing industrial vacuums to minimize airborne disbursement.

In March, the House of Representatives Education and Labor Committee held a hearing on the hazards posed by combustible dust. The head of the Chemical Safety Board testified about a 2006 study that identified hundreds of combustible dust incidents that had killed more than 100 workers during the previous 25 years. The report recommended that OSHA issue rules to control the risk of dust explosions.

Instead of acting on this recommendation, said Committee Chair George Miller, D-California, “OSHA chose to rely on compliance assistance and voluntary programs, such as industry ‘alliances,’ web pages, fact sheets, speeches and booths at industry conferences.”

The House of Representatives then passed legislation to require OSHA to issue combustible dust standards, but the proposal was not able to pass the Senate.

Remarkably, even after the tragedy at Port Wentworth, and while Imperial Sugar said it welcomed the effort for a new dust rule, OSHA head Edwin Foulke indicated he believed no new rule was necessary.

“We believe,” he told the House Education and Labor Committee in March, “that [OSHA] has taken strong measures to prevent combustible dust hazards, and that our multi-pronged approach, which includes effective enforcement of existing standards, combined with education for employers and employees, is effective in addressing combustible dust hazards. We would like to emphasize that the existence of a standard does not ensure that explosions will be eliminated.”

Philip Morris International: Unshackled

The old Philip Morris no longer exists. In March, the company formally divided itself into two separate entities: Philip Morris USA, which remains a part of the parent company Altria, and Philip Morris International.

Philip Morris USA sells Marlboro and other cigarettes in the United States. Philip Morris International tramples over the rest of the world.

The world is just starting to come to grips with a Philip Morris International even more predatory in pushing its toxic products worldwide.

The new Philip Morris International is unconstrained by public opinion in the United States – the home country and largest market of the old, unified Philip Morris -and will no longer fear lawsuits in the United States.

As a result, Thomas Russo of the investment fund Gardner Russo & Gardner told Bloomberg, the company “won’t have to worry about getting pre-approval from the U.S. for things that are perfectly acceptable in foreign markets.” Russo’s firm owns 5.7 million shares of Altria and now Philip Morris International.

A commentator for The Motley Fool investment advice service wrote, “The Marlboro Man is finally free to roam the globe unfettered by the legal and marketing shackles of the U.S. domestic market.”

In February, the World Health Organization (WHO) issued a new report on the global tobacco epidemic. WHO estimates the Big Tobacco-fueled epidemic now kills more than 5 million people every year.

Five million people.

By 2030, WHO estimates 8 million will die a year from tobacco-related disease, 80 percent in the developing world.

The WHO report emphasizes that known and proven public health policies can dramatically reduce smoking rates. These policies include indoor smoke-free policies; bans on tobacco advertising, promotion and sponsorship; heightened taxes; effective warnings; and cessation programs. These “strategies are within the reach of every country, rich or poor and, when combined as a package, offer us the best chance of reversing this growing epidemic,” says WHO Director-General Margaret Chan.

Most countries have failed to adopt these policies, thanks in no small part to decades-long efforts by Philip Morris and the rest of Big Tobacco to deploy political power to block public health initiatives. Thanks to the momentum surrounding a global tobacco treaty, known as the Framework Convention on Tobacco Control, adopted in 2005, this is starting to change. There’s a long way to go, but countries are increasingly adopting sound public health measures to combat Big Tobacco.

Now Philip Morris International has signaled its initial plans to subvert these policies.

The company has announced plans to inflict on the world an array of new products, packages and marketing efforts. These are designed to undermine smoke-free workplace rules, defeat tobacco taxes, segment markets with specially flavored products, offer flavored cigarettes sure to appeal to youth and overcome marketing restrictions.

The Chief Operating Officer of Philip Morris International, Andre Calantzopoulos, detailed in a March investor presentation two new products, Marlboro Wides, “a shorter cigarette with a wider diameter,” and Marlboro Intense, “a rich, flavorful, shorter cigarette.”

Sounds innocent enough, as far as these things go.

That’s only to the innocent mind.

The Wall Street Journal reported on Philip Morris International’s underlying objective: “The idea behind Intense is to appeal to customers who, due to indoor smoking bans, want to dash outside for a quick nicotine hit but don’t always finish a full-size cigarette.”

Workplace and indoor smoke-free rules protect people from second-hand smoke, but also make it harder for smokers to smoke. The inconvenience (and stigma of needing to leave the office or restaurant to smoke) helps smokers smoke less and, often, quit. Subverting smoke-free bans will damage an important tool to reduce smoking.

Philip Morris International says it can adapt to high taxes. If applied per pack (or per cigarette), rather than as a percentage of price, high taxes more severely impact low-priced brands (and can help shift smokers to premium brands like Marlboro). But taxes based on price hurt Philip Morris International.

Philip Morris International’s response? “Other Tobacco Products,” which Calantzopoulos describes as “tax-driven substitutes for low-price cigarettes.” These include, says Calantzopoulos, “the ‘tobacco block,’ which I would describe as the perfect make-your-own cigarette device.” In Germany, roll-your-own cigarettes are taxed far less than manufactured cigarettes, and Philip Morris International’s “tobacco block” is rapidly gaining market share.

One of the great industry deceptions over the last several decades is selling cigarettes called “lights” (as in Marlboro Lights), “low” or “mild” – all designed to deceive smokers into thinking they are safer.

The Framework Convention on Tobacco Control says these inherently misleading terms should be barred. Like other companies in this regard, Philip Morris has been moving to replace the names with color coding – aiming to convey the same ideas, without the now-controversial terms.

Calantzopoulos says Philip Morris International will work to more clearly differentiate Marlboro Gold (lights) from Marlboro Red (traditional) to “increase their appeal to consumer groups and segments that Marlboro has not traditionally addressed.”

Philip Morris International also is rolling out a range of new Marlboro products with obvious attraction for youth. These include Marlboro Ice Mint, Marlboro Crisp Mint and Marlboro Fresh Mint, introduced into Japan and Hong Kong last year. It is exporting clove products from Indonesia.

The company has also renewed efforts to sponsor youth-oriented music concerts. In July, activist pressure forced Philip Morris International to withdraw sponsorship of an Alicia Keys concert in Indonesia (Keys called for an end to the sponsorship deal); and in August, the company was forced to withdraw from sponsorship in the Philippines of a reunion concert of the Eraserheads, a band sometimes considered “the Beatles of the Philippines.”

Responding to increasing advertising restrictions and large, pictorial warnings required on packs, Marlboro is focusing increased attention on packaging. Fancy slide packs make the package more of a marketing device than ever before, and may be able to obscure warning labels.

Most worrisome of all may be the company’s forays into China, the biggest cigarette market in the world, which has largely been closed to foreign multinationals. Philip Morris International has hooked up with the China National Tobacco Company, which controls sales in China. Philip Morris International will sell Chinese brands in Europe. Much more importantly, the company is starting to sell licensed versions of Marlboro in China. The Chinese aren’t letting Philip Morris International in quickly – Calantzopoulos says, “We do not foresee a material impact on our volume and profitability in the near future.” But, he adds, “we believe this long-term strategic cooperation will prove to be mutually beneficial and form the foundation for strong long-term growth.”

What does long-term growth mean? In part, it means gaining market share among China’s 350 million smokers. But it also means expanding the market, by selling to girls and women. About 60 percent of men in China smoke; only 2 or 3 percent of women do so.

Roche: Saving Lives is Not Our Business

Monopoly control over life-saving medicines gives enormous power to drug companies. And, to paraphrase Lord Acton, enormous power corrupts enormously.

The Swiss company Roche makes a range of HIV-related drugs. One of them is enfuvirtid, sold under the brand-name Fuzeon. Fuzeon is the first of a new class of AIDS drugs, working through a novel mechanism. It is primarily used as a “salvage” therapy – a treatment for people for whom other therapies no longer work. Fuzeon brought in $266 million to Roche in 2007, though sales are declining.

Roche charges $25,000 a year for Fuzeon. It does not offer a discount price for developing countries.

Like most industrialized countries, Korea maintains a form of price controls – the national health insurance program sets prices for medicines. The Ministry of Health, Welfare and Family Affairs listed Fuzeon at $18,000 a year. Korea’s per capita income is roughly half that of the United States. Instead of providing Fuzeon, for a profit, at Korea’s listed level, Roche refuses to make the drug available in Korea.

Korea is not a developing country, emphasizes Roche spokesperson Martina Rupp. “South Korea is a developed country like the U.S. or like Switzerland.”

Roche insists that Fuzeon is uniquely expensive to manufacture, and so that it cannot reduce prices. According to a statement from Roche, “the offered price represents the lowest sustainable price at which Roche can provide Fuzeon to South Korea, considering that the production process for this medication requires more than 100 steps – 10 times more than other antiretrovirals. A single vial takes six months to produce, and 45 kilograms of raw materials are necessary to produce one kilogram of Fuzeon.”

The head of Roche Korea was reportedly less diplomatic. According to Korean activists, he told them, “We are not in business to save lives, but to make money. Saving lives is not our business.”

Says Roche spokesperson Rupp: “I don’t know why he would say that, and I cannot imagine that this is really something that this person said.”

Another AIDS-related drug made by Roche is valganciclovir. Valganciclovir treats a common AIDS-related infection called cytomegalovirus (CMV) that causes blindness or death. Roche charges $10,000 for a four-month course of valganciclovir. In December 2006, it negotiated with Médicins Sans Frontières/Doctors Without Borders (MSF) and agreed on a price of $1,899. According to MSF, this still-price-gouging price is only available for poor and very high incidence countries, however, and only for nonprofit organizations – not national treatment programs.

Roche’s Rupp says that “Currently, MSF is the only organization requesting purchase of Valcyte [Roche’s brand name for valganciclovir] for such use in these countries. To date, MSF are the only AIDS treatment provider treating CMV for their patients. They told us themselves this is because no-one else has the high level of skilled medical staff they have.”

Dr. David Wilson, former MSF medical coordinator in Thailand, says he remembers the first person that MSF treated with life-saving antiretrovirals. “I remember everyone was feeling really great that we were going to start treating people with antiretrovirals, with the hope of bringing people back to normal life.” The first person MSF treated, Wilson says, lived but became blind from CMV. “She became strong and she lived for a long time, but the antiretroviral treatment doesn’t treat the CMV.”

“I’ve been working in MSF projects and treating people with AIDS with antiretrovirals for seven years now,” he says, “and along with many colleagues we’ve been frustrated because we don’t have treatment for this particular disease. We now think we have a strategy to diagnose it effectively and what we really need is the medicine to treat the patients.”

Multinational Monitor editor Robert Weissman is the director of Essential Action.


Towards an Economic System that Works for People and the Planet

November 21, 2008

A civil society statement on the G20 summit from IPS Director John Cavanagh and coalition members.

On November 15, the leaders of 20 nations and the major multilateral financial institutions will gather behind closed doors in Washington to discuss the future of the global economy. Led by outgoing U.S. President George W. Bush, this group includes many of the people, governments, and institutions whose policies are responsible for the current financial meltdown. As such, we believe they are the wrong group to be charged with reworking global economic rules and institutions. The world needs a process that is much more inclusive of other nations and the peoples of those nations.

This statement begins to sketch an agenda for change that would resolve the crisis by putting people and the planet first. It starts from the experiences of groups and communities around the world. It speaks to a financial meltdown triggered in the very heart of the globalized capitalist economy that has combined with the growing crises of climate chaos and hunger, and that now reaches into every corner of the planet. This new crisis of predatory and unregulated “casino capitalism” is destroying jobs, lives and livelihoods, while wreaking havoc on currencies and stock markets around the world. It has taken resources from the many, while concentrating wealth in the hands of the few.

To date, governments have largely responded by spending more than one trillion dollars bailing out private financial institutions and corporations. Meanwhile, the crushing needs of communities, ordinary citizens and fragile ecosystems have been largely ignored.

Now is the time to learn from this experience and from the consequences and devastating impacts of other recent crises, such as the debt crisis unleashed in 1982 and the financial crises in Mexico (1994-95), Asia (1997-98), Russia (1998), and Argentina (1999-2002). History continues to repeat itself. This pattern, culminating in the current global crisis, demonstrates quite definitively that a real transformation of the system is required.

New rules and institutions should be created in an open and inclusive process of dialogue. They should be based on a new set of principles to guide economic activity. We offer an overview of those principles and an outline of new rules and institutions.

1. We need a new set of principles to support new national, regional and global financial institutions.

The following principles should underpin new rules and institutions:

• Economic democracy and equity, including the development of local economies, and community control and protection of water, seeds, genes, air, communal lands, fisheries, and other “commons”;
• ecological sustainability and environmental justice, including promoting long term, productive green investment;
• the fulfillment, protection, and promotion of all human rights, including the right to food, air, and water, and the rights of workers, small-hold food producers, rural and urban communities, indigenous peoples, women, children, and the elderly;
• gender, racial, ethnic and intergenerational justice and equality;
• self-determination and sovereignty of peoples and nations; and
• non-interference, mutual cooperation, complementarity and solidarity.

On the basis of such principles, finance should be aimed at and linked to strengthening national and local real economies to meet the requirement of sustainable and equitable development. And governments should support innovative new regional financial bodies such as the South Bank in South America, which has the potential to serve the needs of those regions more effectively than the IMF and World Bank. Regional emergency funds are also needed to help ensure the food and energy sovereignty of nations.

2. Enough with market fundamentalism:

The world doesn’t need another “Washington Consensus.” The so-called “Washington Consensus” that has preached deregulation, privatization, the over-leveraging of banks, and trade and capital liberalization over the past 30 years has been extremely damaging to workers, communities and the environment. It is discredited and should be officially abandoned. It should not be replaced with any new “one-size-fits-all” dogma.

Rich world leaders and institutions not only promoted the frenzy of deregulation and privatization in their own countries, but pushed it on developing countries through aid and loan conditionality. As they mobilize trillions of dollars to clean up the mess at home, they must do their fair share to redress the devastating impacts of their mistakes on the South. This should include cancellation of all unsustainable and illegitimate debts claimed from countries of the South and restitution and restoration of the social and ecological debts owed to peoples of the South. These resources, together with the rapid and full disbursement of previously scheduled aid increases, should be provided free of macroeconomic and structural conditions. The right of all countries to define their own paths toward sustainable and healthy economies must be respected. The onerous conditions attached to existing aid, loan, and debt-reduction programs should be removed before they do further damage.

3. Curb the power of the IMF, World Bank, and WTO:

The present crisis has again demonstrated how we are all impacted by three powerful global institutions whose policies have been instrumental in its creation: the IMF, World Bank, and the WTO. Nonetheless, much of the current debate among financial institutions and governments involves giving them enhanced roles. The WTO, for example, continues to press for further deregulation and privatization of the financial sector, principally through its General Agreement on Trade in Services. For individual countries and the global community to adopt critical new regulations of the financial sector, not only should the WTO’s current Doha Round be suspended, but also existing WTO rules constraining regulation of financial services should be rolled back. Likewise, efforts by the IMF and World Bank to expand their influence as a result of the financial, climate, energy and food crises should be rejected. Furthermore, global, regional and national economic governance institutions must be democratic and accountable to the women and men they are supposed to serve.

4. Regulate the global economy effectively:

Governments should take immediate action to develop a new international regulatory architecture with democratic checks and balances that is aimed at promoting the interests of workers, small-hold farmers, consumers, and the environment and preventing future financial crises; the United Nations should play a central role in its development. This should cover not just banks but also the parallel and under-regulated financial system, including hedge funds and private equity funds. Some first steps should include regulating derivatives, stopping speculation on staple food commodities, applying stricter international capital reserve requirements, a speculation tax on international transactions, closing tax havens, and stronger transparency rules. Governments will also need to renegotiate the dozens of free-trade agreements and bilateral investment treaties that currently ban governments from placing controls on capital flows and applying other sensible conditions to foreign investment and other financial transactions.

Such steps are possible and many more will be needed to build a truly just global economic system that works for people everywhere, local communities, and the environment. This is the change that the world needs and for which we will continue to struggle.

Signatories (526 total: 211 organizations from 52 countries and 315 individuals):

International and Regional Organizations (10)
1. ActionAid International, Johannesburg, South
2. Africa
3. Africa Jubilee South
4. CADTM International Network (Com. para la Anulación de la Deuda)
5. Comité Ejecutivo Regional Asamblea de los Pueblos del Caribe
6. European Solidarity Towards Equal Participation (EUROSTEP)
7. Jubilee South
9. Social Watch
10. South Asia Alliance for Poverty Eradication (SAAPE)

African Organizations (10)

11. EHRCEPA (Ethiopian HHRR and Civic Education..), Ethiopia
12. African Women’s Development and Communication Network, Kenya
13. Kenya Adult Learners’ Association, Kenya
14. Kenya Debt Relief Network – KENDREN, Kenya
15. Labour, Health and Human Rights Development Center, Nigeria
16. Centre for Civil Society Economic Justice Project, South Africa
17. Network of Ugandan Researchers and Research Users (NURRU), Uganda
18. Daughters of Mumbi Global Resource Center, Kenya
19. African Forum on Alternatives, Senegal
20. ARCADE, Senegal

Asia-Pacific Organizations (37)

21. Australian Fair Trade and Investment Network (AFTINET), Australia
22. Foundation for National Renewal, Australia
23. Jubilee Australia, Australia
24. BanglaPraxis, Bangladesh
25. Equity and Justice Working Group (EquityBd), Bangladesh
26. Unnayan Dhara Trust, Bangladesh
27. Humanist Association of Hong Kong, China
28. Public Services Committee, HKCTU, China
29. All India Bank Emp Association (AIBEA), India
30. Alternatives Asia, India
31. Bharatiya Krishak Samaj, India
32. IT For Change, India
33. Public Agenda, India
34. Anti Debt Coalition (KAU), Indonesia
35. Cakrawala Timur, Indonesia
36. Cindelaras paritrana Foundation, Indonesia
37. IMPARSIAL – Indonesian Human Rights Monitor, Indonesia
38. International NGO Forum on Indonesian Development (INFID), Indonesia
39. LSM Bismi, Indonesia
40. Jubilee Kansai Network, Japan
41. Himalayan & Peninsular Hydro-Ecological Network (HYPHEN), Nepal
42. Least Developed Countries Watch (LDC Watch), Nepal
43. Nepal Policy Institute – NPI, Nepal
44. Rural Reconstruction Nepal (RRN), Nepal
45. Water & Energy Users’ Federation-Nepal (WAFED, Nepal
46. creed, Pakistan
47. Alliance of Progressive Labor (APL), Philippines
48. Foundation for Media Alternatives, Philippines
49. Kalikasan People’s Network for the Environment, Philippines
50. Philippine Indigenous People’s Links (PIPLINKS), Philippines
51. Philippine Rural Reconstruction Movement – PRRM, Philippines
52. Social Watch Philippines
53. Women’s March Against Poverty and Globalization (WELGA!), Philippines
54. Movement for Land and Agricultural Reform ( MONLAR), Sri Lanka
55. Focus on the Global South, Thailand
56. Local Talk Project, Thailand
57. Social Agenda Working Group, Thailand
58. Center for Encounters and Active Non-Violence, Austria

European Organizations (68)

59. Attac Austria, Austria
60. ECA Watch Austria, Austria
61. 11.11.11- Coalition of the Flemish North-South Movement, Belgium
62. European Network on Debt and Development (EURODAD), Belgium
63. Bulgarian Gender Research Foundation, Bulgaria
64. Pancyprian Public Employees Trade Union – PASYDY, Cyprus
65. Finnish NGDO platform to the EU, Finland
66. Attac France, France
67. Les Amis de la Terre, France
68. Evangelischer Entwicklungsdienst (EED), Germany
69. Global Policy Forum Europe, Germany
70. terre des hommes Germany, Germany
71. The Hunger Project-Germany, Germany
72. URGEWALD, Germany
73. Attac-Hellas, Greece
74. Greek Forum of Migrants, Greece
75. One Earth, Greece
76. Anthropolis, Hungary
77. Debt and Development Coalition Ireland, Ireland
78. Kimmage Development Studies Center, Ireland
79. ARCI, Italy
80. Campagna per la Riforma della Banca Mondiale, Italy
81. Campagna per la riforma della Banca mondiale (CRBM), Italy
82. Fair, Italy
83. Federazione Italiana Metalmeccanici FIM-CISL, Italy
84. Transform! Italia, Italy
85. Kopin (Koperazzjoni Internazzjonali) Malta, Malta
86. Tax Justice NL, Netherlands
87. Transnational Institute (TNI), Netherlands
88. SOBREVIVENCIA, Amigos de la Tierra Paraguay, Paraguay
89. Network of East-West Women, NEWW (Polska), Poland
90. Association for the Development of the Romanian Social Forum, Romania
91. Civil Society Development Foundation, Romania
92. Romanian Social Forum, Romania
93. ACSUR – Las Segovias, Spain
94. Área de Justicia y Solidaridad de CONFER, Spain
95. Asamblea verde, Spain
96. Asociación Ecologista Solidaria”Kima Berdea”, Spain
97. Asociación Nexos, Spain
98. Associacio Audiovisual Debitas, Spain
99. Attac España, Spain
100. Attac Galicia, Spain
101. CEPAC (Asoc. d’Educació en DDHH i de Prevenció de Conflict), Spain
102. Comitè de Solidaritat amb els Pobles Indigenes d´ Amèrica, Spain
103. Comunidad Carmelitas de Vedruna, Spain
105. Ecologistas en Acción, Spain
106. Fed. Humanista Centro de las Culturas, Spain
107. Fondo de Solidaridad, Spain
108. Fundació Quepo, Spain
109. HUACAL (Solidaritat amb el Salvador), Spain
110. Icaria Editorial, Spain
111. Jesús Santamaría, Spain
112. Mundo sin Guerras (Marcha Mundial por la Paz y la No Violencia), Spain
113. Observatori del Deute en la Globalització, Spain
114. Periódico digital El Guanche, Spain
115. Plataforma 2015 y más, Spain
116. unaymedia, Spain
117. Alliance Sud, Switzerland
118. Terre des Hommes International Federation, Switzerland
119. Bretton Woods Project, United Kingdom
120. Fahamu – Networks for Social Justice, United Kingdom
121. Foundation for Gaia, United Kingdom
122. Jubilee Debt Campaign, United Kingdom
123. Jubilee Scotland, United Kingdom
124. MEDACT, United Kingdom
125. War on Want, United Kingdom
126. World Development Movement, United Kingdom

Latin America and Caribbean Organizations (29)

127. Ecoportal.Net, Argentina
128. FOCO – Foro Ciudadano de Participación por la Justicia y los Der, Argentina
129. FUNDACION DA VINCI, Argentina
130. Centro de Estudios para el Desarrollo Laboral y Agrario – CEDLA, Bolivia
131. Centro de Mujeres Aymaras Candelaria, Bolivia
132. Fundación Solón, Bolivia
133. Radio Emisora Saywani, Bolivia
134. Red de Comunicaciones Apachita, Bolivia
135. IBASE, Brazil
136. Asoc. Inmigrantes por la Integración Latinoamericana (Apila), Chile
137. Centro de Estudios para el Desarrollo de la Mujer (CEDEM), Chile
138. Chile Sustentable, Chile
139. Asoc. De Fomento De Integracion De Las Negritudes, Colombia
140. Instituto Latinoamericano Servicios Legales Alternativos (ILSA), Colombia
141. Instituto FRONESIS, Ecuador
142. SERPAJ Ecuador, Ecuador
143. PAPDA, Haiti
144. Colectivo Parlamentario Partido Unificaciòn Democratica, Honduras
145. Americas Policy Program, Mexico
146. CACTUS-Oaxaca, Mexico
147. México nación Multicultural -UNAM- Oaxaca, Mexico
148. Federacion Nacional de Trabajadores del Agua Potable del Peru, Peru
149. Comité de apoyo al Llamado Mundial de Acción contra la Pobreza, Perú
150. Food and Water Watch Latin America, Uruguay
151. ICAE, Uruguay
152. Instituto del Tercer Mundo – ITeM, Uruguay
153. International Council for Adult Education – ICAE, Uruguay
154. REDES – Amigos de la Tierra Uruguay, Uruguay
155. Asamblea Popular Revolucionaria de Caracas (APR), Venezuela

Middle East/North African Organizations (2)

156. El Amel Association for Social Development, Algeria
157. Forum des Alternatives Maroc, Morocco

North American Organizations (54)

158. African Reform Group, Canada
159. ATTAC-Québec, Canada
160. centre des femmes, Canada
161. Centre justice et foi, Canada
162. Common Frontiers-Canada, Canada
163. Femmes Entre-Elles, Canada
164. Halifax Initiative Coalition, Canada
165. Sudanese Calgarian Community Centre, Canada
166. TROVEP Estrie, Canada
167. Africa Action, United States
168. African American Environmentalist Association (AAEA), United States
169. Alliance for Democracy, United States
170. Anglican Consultative Council, United States
171. Bangladesh Development Research Center (BDRC), United States
172. Bay Area Labor Committee for Peace & Justice, United States
173. Center of Concern (COC), United States
174. Colombians For Sovereignty, ASOCOL, United States
175. Columban Justice, Peace and Integrity of Creation Office, United States
176. Committee in Solidarity with the People of El Salvador, United States
177. Congregations of St. Joseph, United States
178. Democratic Socialists of America, United States
179. Essential Action, United States
180. Food First, United States
181. Foreign Policy In Focus, United States
182. Friends of the Earth-US, United States
183. Gender Action, United States
184. Global Policy Forum, United States
185. Hal F. Keene, United States
186. Institute for Agriculture and Trade Policy, United States
187. Institute for Policy Studies, Global Economy Project, United States
188. International Accountability Project, United States
189. International Forum on Globalization, United States
190. International Labor Rights Forum, United States
191. International Women’s Anthropology Conference, United States
192. Jubilee Montana Network, United States
193. Jubilee USA Network, United States
194. Marin Interfaith Task Force on the Americas, United States
195. Maryknoll Office for Global Concerns, United States
196. Missionary Oblates, United States
197. National Family Farm Coalition, United States
198. New Rules for Global Finance Coalition, United States
199. Northwest Coalition for Responsible Investment, United States
200. People-Centered Development Forum, United States
201. Planning Alternatives for Change LLC, United States
202. Quixote Center, United States
203. Sisters of Charity of Saint Elizabeth, United States
204. Sisters of St. Joseph, United States
205. Transafrica Forum, United States
206. Tri-State Coalition for Responsible Investment, United States
207. United Church of Christ Network for Environmental & Economic Res, United States
208. United Methodist Church, General Board of Church and Society, United States
209. USAction, United States
210. Wheaton Franciscans, United States
211. Witness for Peace, United States

Individual Signatories (315): For a full list, see:

The Parable of the G-20: Blind to the Elephant

November 21, 2008

By Devinder Sharma*,

The leaders of the G-20 Group of countries who met in Washington DC for an emergency meeting to revamp the global financial landscape can be compared to a parable in the Hindu ‘Panchantra’.  Like the six blind men who failed to see the elephant, they grappled in bright light for six hours and yet failed to frame an action plan that could truly stimulate the global economy.

The elephant in this case is the parasitical global financial system. It has thrived all these years on the hungry stomach of starving millions, extracting every last available ounce of blood. Untamed and unregulated, it demolished the borders of the nation-state to emerge unfettered and free — unrestrained by governments, and liberated from society’s control. In the process, speculative and mobile financial capital has played havoc with the global economy. The elephant has been on a rampage.

Instead of placing a wreath on the tottering financial system and acknowledging that the free market cannot survive without a massive life-saving blood transfusion from governments the world over, the blind leadership has worked out a 16-week roadmap to tackle the global crisis. What appears to be a concerted plan to pave the way “for reforms to help ensure a similar crisis does not happen again,” is in reality a recipe for yet another bubble ready to burst.

The economic policies that remain in vogue will continue to impoverish workers, promote jobless growth, push developing country farmers out of agriculture, mine natural resources (and render the commons barren in the process), and allow corporate control over farming while aggressively pushing for one-way trade — from the rich to the developing countries, adding to global warming and thereby driving the world towards an unforeseen ecological crisis. In providing enormous bail-outs to banks, the international leadership has not only acknowledged but applauded the role played by financial robbers and business pirates.

Isn’t this a sad travesty of the truth? If you rob a bank of a few thousand dollars, you are inevitably arrested and sent to prison. If you rob the entire international banking system, you not only receive a pat on the back but also a handsome retirement package. If you are personally unable to pay your debts to the banks, you are hauled before the courts and have both your movable and immovable property confiscated. But if the bank is unable to pay its debts, it is bailed out with catastrophic urgency. If you fail to pay your insurance premium, your policy is terminated. But if the insurance company falters, it is nationalised by the government while the CEO is relieved of his job with a multi-million dollar severance package.

The proposals of the G-20’s 16-week ‘action plan’ — boosting standards of credit rating agencies, addressing weaknesses in accounting and disclosure standards, and setting up a risk warning system for banks — are a whitewash. Yet we couldn’t have expected anything better from a blind leadership that has merrily facilitated the commodification of the Earth’s limited natural resources in the name of trade, and outsourced countless thousands of jobs in the name of competitiveness.  Whether it is free trade or global warming, this entire stratagem is supposedly enacted for the benefit of developing countries — and all in the name of eradicating poverty and ending hunger. Such benevolence!

The memory of the world public is very short. We have forgotten that the last time Europe came to the ‘rescue’ of Africa, the whole continent was colonised. When the East India Company began to trade in India, the entire sub-continent was colonised for 200 years. When the British finally left, the fourth largest economy was left pauperised and hungry. In the last 30 years (including 13 years of the World Trade Organisation), 105 of the 149 developing have already become food importing economies. If the Doha Development Round is successfully completed, the likelihood is that these few remaining developing countries will be turned into food dumps for surplus produce from the West.

No wonder that the blind leadership is in a tearing hurry to push through further trade agreements.  Here is an incident you probably missed; just prior to the Washington conclave, Brazil’s Finance Minister Guido Mantega hosted a meeting for central bank presidents and finance ministers from G-20 countries. “We have to change the tires of the car with the car moving,” he said. “This means that in 60 to 90 days we will need the solutions for new financial regulations.”  Mantega and his colleagues need to be informed that changing tires with the car moving is a prerogative of James Bond, requiring either the aptitude of 007 or the imaginative skills of Ian Fleming.

Much has already been written, analysed and spoken about the present crisis. Although not an economist, I firmly believe that neo-economic thinking is the primary cause for all the misdemeanours currently being played out on the world stage and wreaking havoc throughout the globe — as witnessed in the financial crisis, food crisis, energy crisis, climate crisis, and the increasing crisis of international terrorism. If this is the garden path where modern economics has led us, isn’t it time to call out the elephant? It may well be politically incorrect to stand up against the might of the faulty economic system, but isn’t it time to call a spade a spade? Why wait for doomsday or Armageddon?

A retort I often receive is ‘where is the alternative?’ The question is asked because, in our myopic economic thinking, everything is measured in terms of ‘growth’ and ‘profit targets’, but we are never taught to calculate happiness and contentment or told that food, human genes and nature is not a commodity to be sold on the marketplace.  We have never been taught, in other words, that it is sustainable ethics that leads to sustainable development. We have been too busy partying, and the hangover is too strong for us all to see the silver lining.

Before we discuss alternatives, allow me to draw your attention to another sinister design. The financial crisis is now leading us to a more terrible food crisis in the near future. The recent surge in food prices, accompanied by food riots in 37 countries in the beginning of this year, was a mere tip of the iceberg. After destabilising the global economic structure, the financial forces are moving into agricultural markets. Speculation in commodities trading is now widely acknowledged to be the major cause behind the food price crisis. But what happens when the hedge funds and the bailout packages are used by insurance companies, banks and investment firms to purchase farm lands across the globe?

Goldman Sachs and Deutsche Bank are eyeing a takeover of China’s livestock industry. Morgan Stanley has purchased 40,000 hectares in Ukraine. Landkom, the British investment group, has also bought 100,000 hectares of land in Ukraine. The two Swedish investing firms, Black Earth Farming and Alpcot-Agro, have purchased 331,000 hectares and 128,000 hectares of farm land in Russia, respectively. Along with these investment firms, the governments have joined in the mad race to purchase land in Asia and Africa to grow food to be exported back home (see my article: Land Grab for Food Security: Corporatising Agriculture).

What happens when the food bubble bursts? Who will bail out the hungry?

Returning back to the ‘TINA factor’ (the assumption that ‘There Is No Alternative’ to economic globalisation), there is in fact a very plausible alternative. The solution lies in the principle of self-reliance that Mahatma Gandhi advocated so many years ago. It is time to revisit Gandhi and dig out his vision for a sustainable world; where production by the masses is not replaced by production for the masses; where food security does not mean importing cheaper food; where every hand is provided a decent job; and where growth does not translate into profits, but happiness. A vision in which the earth has enough for everyone’s need, but not for everyone’s greed. Such a world is surely possible. All it requires is for us to stand up, throw away the blind covers, and be counted.

*Devinder Sharma is a New Delhi-based food and trade policy analyst. He is a regular contributor to STWR and can be reached at

How trade, the WTO and the financial crisis reinforce each other

November 20, 2008

Myriam Vander Stichele, SOMO, in a detailed and excellent brief, argues that the call made by the World Trade Organisation and some European leaders to finalise the Doha round at the same time of financial reform talks (so-called Bretton Woods II) completely ignores that this would impose on the South exactly the same recipe of deregulation and liberalisation of financial services that caused the crisis in the first place. In fact, Free Trade Agreements already signed by both nations in both the North and the South are already likely to make increasing regulation of the financial sector difficult, if not impossible.

WTO meeting on financial crisis only about more financing of trade

On 12th November 2008, the World Trade Organisation (WTO) held a selective conference about the impact of the financial crisis on trade. The main issues discussed were the lack of credit and finance for traders, and the slow down of the economy resulting in slowing down international trade. The main responses advocated, which are already widely used, were to increase co-sharing of risks by the international financial institutions and export credit agencies (ECAs).

What the WTO calls risk-sharing, however, turns out in practice to increase risk for developing countries and minimise risk for transnational corporations. Export credits ultimately have to be paid by developing countries, thus increasing the debt burden of developing countries. They also mean less risk is to be taken by the private sector, some of whom were attending the meeting –including some of the banks that have already received government support such as ING and Royal bank of Scotland despite their poor social and environmental record.

The wrong arguments used for pushing to finalise the Doha Round of WTO negotiations

Of course, the WTO Director General Mr Lamy, has in his many speeches during the last weeks argued that the WTO is a solution to the crisis, that WTO rules prevent “protectionist measures” and beggar-thy-neighbour policies which led to the economic depression in the 1930s and the consequent wars, and that conclusion of the Doha Round means strengthening regulation. Mr Lamy has admitted that some losses of jobs and income over the last years are to be attributed to trade liberalisation [speech of 29 October 2008] but that therefore “restoring citizens’ confidence in trade requires governments to ensure that sound domestic policies are in place.” However, since those sound and distributive domestic policies are not in place, and the WTO rules are even undermining such policies, there is little argument to liberalise further.

There are many arguments why the WTO’s rule based system is not sufficient and why finalising the Doha Round as currently negotiated would be disastrous to deal with the economic, social and environmental problems facing the world today:

  • In the Doha Round, developing countries are asked to open up their markets much more than developed countries, so that they will have to bear more of the burden to cope with liberalisation. This is contrary to the Doha Round principles and inegates the responsibility of the developed countries for the financial crisis: the latter should indeed show solidarity and take the responsibility of unilaterally providing financial support to allow developing countries to trade without undermining social and environmental needs worldwide.
  • Opening up more markets would give even less chances to smaller producers and traders to be able to survive. In many countries employment and income losses cannot easily be replaced. The current world economic system has so many unequal players that liberalisation does not provide the claimed benefits of open trade as argued in the comparison with the 1930s. The multinationals would be the winners of the increased competition game and not the workers, poor and jobless. The Doha Round negotiation draft text show a protectionism of the rich and multinationals who lobbied for their interests, and would result in a inequitable and unsustainable ‘rule-based system’.
  • The Doha Round is about deregulation and minimising governments’ space to make policies, and is not about strengthening of regulation. The Doha Round would reinforce a failed model of laissez-faire, based on the belief that markets can be left on their own and that the common good will come out of leaving everybody to pursue their own interest. The financial crisis has shown how the free market is based on a failed ideology and why the gap between rich and poor is increasing. Free markets are unable to take environmental and social concerns into account.
  • Lamy’s argument that “one’s protection is another one’s lost opportunity” should be turned around by “each market opening is one’s lost opportunity”: the importance is that there should be no lost opportunity for “raising standards of living, ensuring full employment and a large and steadily growing volume of real income” and “the optimal use of the world’s resources in accordance with the objective of sustainable development,” “in a manner consistent with [countries’] respective needs and concerns at different levels of economic development,” – as the preamble of the WTO says! However, the trade rules would need to change as well !

The WTO has so far not talked about how General Agreement on Trade in Services (GATS) and Free Trade Agreement (FTA) commitments to liberalise financial services and to  undermine the ability of governments to prevent, or deal with, the financial crisis as explained below.

Financial services deregulation in GATS and FTAs promote financial crises

An important element is missing among the many discussions and proposals to reform the financial system and stop  the financial crisis from spreading further. There is no discussion about the broad liberalisation and deregulation of financial services, capital movements and the international financial industry through the GATS and the free trade agreements (FTAs). The call made by the WTO and some European leaders to finalise the Doha round at the same time as the financial reform talks (so-called Bretton Woods II) completely ignores that this would include further liberalisation and deregulation of financial products and all kind of financial service providers (banks, insurance, security traders, pension fund managers, …), even the most risky ones (e.g. derivatives). The Northern countries such as EU, US and Canada, are very keen on further liberalisation of the financial services sector.

GATS and FTAs have been and will take away countries’ ability to prevent a financial crisis, or take measures during a financial crisis, and improve regulation and supervision by:

  • Liberalising financial services before due international regulation and supervision is in place;
  • Further liberalising risky financial products and operations;
  • Making legally binding commitments to deregulate;
  • Not recognizing that financial services should be at the service of the whole of society, and not vice versa;
  • Removing prudential measures during secret GATS negotiations.

Countries that liberalise financial services under GATS and free trade agreements will experience negative impacts of foreign financial services providers in many sectors, especially in developing countries:

  • In agriculture, foreign banks in developing countries have not been financing small farmers nor have they been providing services in the rural areas. The food speculation through banks offering trading in derivatives in food commodities has contributed to high food prices that made many poor suffer.
  • In the industrial sector, foreign banks have been reluctant to provide credit to smaller local companies or even the domestic industry as a whole – even more in times of crisis that also leads to less financing for trade. This means that the domestic industry becomes less competitive, which is especially problematic if an agreement on NAMA would increase foreign competition in developing country markets.
  • The impact on the environment and climate change of foreign banks has been enormous. Internationally operating banks have financed many companies and projects that damaged the environment and increased climate change.

Talking points on GATS negotiations on financial services for civil society and activists

1. GATS liberalises financial services without due supervision and regulation

A major reason for the financial crisis has been the lack of regulation and supervision especially of financial conglomerates and financial service providers that operate world wide. The securities and derivatives based on US sub-prime mortgages were being sold and bought worldwide especially by internationally active financial services providers (e.g. banks, insurance companies, investment banks).The GATS has contributed to crisis by liberalising financial service providers as well as trading in (risky) financial products without any guarantee that the necessary regulation and supervision was in place at national, regional and international level.

Consumers have been some of the victims of the financial crisis. GATS has contributed to fierce international competition whereby (international) banks were only interested in serving profitable clients and were providing less or expensive services to poorer clients, including small farmers. Now it has become clear that consumers cannot be sure anymore whether foreign banks established in their country are safe, as is clear in the losses by savers at the Icesave bank in the UK and in the Netherlands. Icesave was a branch of Landsbanki from Iceland. Iceland was part of a free trade agreement with the EU. Once a country has liberalised under GATS or a free trade agreement, foreign banks have the right to establish branches in that country but savers’ interests are not taken into account. For instance, the host country supervisor is dependent on information of the supervisor in the home country to see whether the branch is stable and meeting conditions set by the host supervisor. This system failed in the case of Icesave.

2. GATS liberalises dangerous trading in risky financial products

Once a WTO member has fully liberalised a financial sector or sub-sector under GATS, this ‘commitment’ is very difficult to reverse i.e. the government cannot prohibit and stop a foreign service provider from entering the country and offering financial services that have been committed.

One example of what this might mean in practice is that it could be difficult for the authorities to prohibit speculation through trading in risky derivatives. Derivative trading in key agricultural commodities has contributing to the high food prices, making food unaffordable to many of the poor. Over the past year, India has banned this financial trading, which it could do because it had made no GATS commitments in derivative trading. South Africa would have more difficulties to do so because it has already liberalised derivative trading with only a condition on how to establish themselves in South Africa.(1)

Another example of the risks of derivative trading is the worldwide trade in sub-prime mortgage credit derivatives, which has clearly been a major cause of the current financial and credit crisis.

Also the EU and other industrialised countries will have difficulties to fundamentally reform and regulate their financial markets. They have liberalised according to a GATS model called ‘Understanding on Commitments in Financial Services’(2), which requires that any new financial service can be offered by foreign financial service providers. No conditions attached! This means that when some EU member states and the US were prohibiting ‘short selling” or ‘naked short selling’(3), this might be in breach of their commitments to liberalise innovative securities trading.

If a government wants to reverse its liberalisation commitments-which it can only do three years after the GATS commitments are in force- it has to negotiate compensation to those countries which request so because they consider they will be affected, i.e. their financial industry will be loosing business and profit opportunities. This can be a very costly, tine consuming and politically difficult exercise. As a result, countries have so far been very reluctant to reverse commitments.

3. GATS and FTAs contribute to deregulation

While there is currently much talk about more regulation and supervision, GATS in fact restricts regulation. Although GATS(4) allows authorities to take prudential measures to protect customers and avoid financial instability, the question is which prudential measures will be seen as acceptable and which not. GATS stipulates that prudential measures should not undermine GATS commitments – which is a difficult to assess and might have prevented some governments in the past from implementing particular prudential regulations. Countries could use the GATS article XIV that allows them not to implement their commitments arguing that public health is at stake, but WTO members are afraid to use that article for fear that it would be too difficult to prove or that Article XIV would be abused to their disadvantage in the future.

Countries that have fully liberalised under GATS or FTAs with the EU, without attaching conditions, are prohibited(5) from introducing particular measures or laws, such as laws that limit the number of service suppliers or limit the value of the service transactions – which could be useful to ensure the stability of the financial markets in particular countries or particular circumstances. Also, capital flows have to be allowed to move freely(6) if they are related to trading and establishment of cross border foreign financial services  and are liberalised under GATS. This restricts authorities from intervening to prevent or deal with instability in financial markets.

Worse, the fierce international competition that was encouraged through GATS, made national regulators and supervisors reluctant to curtail their financial industries through (international) regulations. Stricter regulation and supervision was considered a cost which would make their financial industry less competitive. For instance if a government were to have introduced measures to prevent banks from becoming too big to fail, such measures would have been viewed as not allowing banks to become big enough to be competitive (through economies of scale and larger profits). National regulators and supervisors have failed to ensure that interests of consumers, particular circumstances or sustainability needs of each country were taken into account.

4. Lack of recognition of the impact of GATS and FTAs and in the discussions about reforms of the financial system

Although there is a recognition that the markets have failed to regulate themselves, that public intervention is needed and that adequate financial regulation needs to be in place before liberalisation, too little has been done so far. There is a dangerous lack of discussion about the impact of liberalisation under GATS and FTAs on the financial system and on the capacity of countries to regulate and supervise according to the needs of their population. For instance, the 10 pages of recommendations(7) proposed by the Financial Stability Forum (FSF)(8), among others, do not make any reference to GATS or FTAs but demonstrate that many regulatory issues still need to be resolved. The FSF also indicates thatinternational cooperation among regulators and supervisors of internationally operating banks and other financial conglomerates is still very inadequate.

5. Financial services needs special attention as they are a ‘public good’

The fact that industrialised countries have been willing to bail out the risky and speculative behaviour of the financial industry and the financial markets is leading to a formal recognition of how financial services are in fact a ‘public good’. It is finally recognised that the financial sector’ services the economy and society as a whole, and can have economic and social effects all over the world. The huge costs of the bailout, with amounts that would save millions from poverty and hunger, means that all measures must now be taken to avoid making the same mistakes. It also means that financial services liberalisation should be carefully examined so that it does not at least undermine the remaining public function that financial services have. The mandate of regulators and supervisors should be to ensure to that the financial system fully and entirely contributes to a sustainable and equitable society.

6. Dangerous continuation of the negotiations

The current calls to finalise the Doha Round during the reforms of the financial system, e.g by Mr Lamy and UK Prime Minister Gordon Brown, completely fail to mention that this would include further liberalisation of financial services. The EU and other industrialised countries have always pushed and argued that further liberalisation of financial services would need to be part of the Doha Round.

Developing countries have already been asked to liberalise all kind of financial services without having the necessary regulations in place. This includes a request to permanently open their markets for trade in “derivative products” as well as investment banking. The EU has since 2002 requested different developing countries to remove specific prudential regulation which was put in place to deal with a financial crisis.(9) The most glaring case is provided by the EU’s request that some countries such as Brazil, Chile and India liberalise according to the far-reaching GATS Understanding on Commitments in Financial Services which requires that foreign financial service providers be given permission to introduce any new financial service.

The GATS negotiations might actually have surprising negative impacts on regulation. The negotiators have so far not been able to ensure that the draft new GATS disciplines on ‘domestic regulation’ will not undermine prudential regulation in financial services. If financial prudential measures would fall under the current draft text on ‘disciplines in domestic regulation’, this would mean that measures and standards in the financial sector could be challenged in the future on a variety of grounds, such as being not “objective”, “relevant”, or acting as a disguised restriction on trade. Also, licensing procedures for banks would have to be made “as simple as possible”. Committing financial services before new domestic regulation text is finalised may endanger domestic financial regulation. This would increase uncertainty over whether measures that are introduced to avoid a financial crisis and adapted to a country’s circumstances, will be considered as restrictions to trade.

7. A few urgent demands to be made, among many others

7.1. Rolling back commitments

Given that some developing countries (like South Africa) have already opened up so much of their financial services market according to GATS rules, including for risky and volatile financial services, such countries should be allowed to reverse their current GATS commitments on financial services without paying compensation for their withdrawal of commitments. According to GATS article XXI, if no country asks for compensation, the country withdrawing its liberalisation commitments does not have to give any compensation for the withdrawal of its financial services commitments under GATS.

7.2. Prudential regulation to be fully applied

Countries should be allowed to fully use their power to introduce prudential regulation under the current GATS rules (Annex on Financial Services). However, they should ensure this does not give more advantages to the financial industry who lobbied to undertake ever more risky and speculative financial operations, but should support the general public, small producers, farmers and sustainable development.

7.3 No deal on Doha Round during the discussions on a new international financial order (often called Bretton Woods II conferences):

There should certainly be no Doha Deal that includes liberalisation of financial services, since the necessary national and international regulation and supervision is not yet in place and GATS as well as FTAs will curtail regulation.

Given the failure of the markets and the recognized need for regulation and supervision before liberalisation, no commitment on further liberalisation in the services sector should be considered. This also means that there should be no inclusion of liberalisation of financial services and capital movements in free trade agreements, as currently negotiated or being submitted for ratification.

7.4. Financial services out of the GATS and free trade agreements

The discussions on a new international financial order should consider how the public function of financial services can be sufficiently guaranteed. This cannot be done under GATS and liberalisation of financial services under FTAs, and should take place in an other institutional setting and manner including  through a public financial sector if that is the best way. In order to meet its role as a function of the public good, the financial services sector should ensure that it fully contributes to sustainable development worldwide, rather than its current record of contributing to social exclusion as well as climate change through financing the wrong projects, the wrong trade and production, and the wrong companies. In practical terms, this means completely changing the mandate and decision-making of regulators and supervisors.

7.5. Some general demands related to ensuring a financial system at the service of people and the environment

  • Democratisation of decision making on financial regulation and accountability of supervision and central banks, at local, national, regional and international level. This means involvement of those interested in defending the public interest and involvement of developing countries.
  • There should be a ban on secret lobbying and high-level pressure by international financial conglomerates, including in trade talks.
  • The ‘financialisation’ of the economy has to be stopped. Financial services should prioritise the poor, marginalised and small farmers or companies, not the profits of the shareholders and managers of the financial industry. This could include requiring regulators, supervisors and the financial industry to only provide financial services to operations, projects, investments, companies, production, trade, housing and consumption that are promoting equity and sustainability. Financial service providers, including credit rating agencies, should not be treated as ‘normal’ companies and be in public hands where necessary.
  • Governments should reverse their policies of only supporting the competitiveness of their own financial industry, and pushing for market opening, at the expense of regulation and supervision that provides protection and improved services for the majority of the population and small entrepreneurs and farmers.
  • There should be strong regulations that prevent any financial service providers from becoming too big to fail, or too interconnected to fail. Further liberalisation of financial services and the mergers & acquisitions during the current crisis are exacerbating such problems rather than solving the ‘moral hazard’ problem of ever increasing bail outs.
  • Financial conglomerates should be split up again so that noone covers banking, insurance, equity trading, investment advice and investment banking at the same time.
  • No financial product should be offered until it has been officially approved to be safe for consumers (no predatory lending) and will not cause instability or “toxic’ risks.
  • Tax havens and financial services for tax evasion should be banned.


(1) The condition that South Africa has imposed when it liberalised derivative trading is that such trading on licensed exchanges requires capitalised incorporation as a South African company and registration with the supervisory authority. South Africa’s commitments on financial services were finalized separately in document GATS/SC/78/Suppl.3, dated 26 February 1998.

(2) The GATS Understanding on Commitments in Financial Services includes a rule (Art. B.7.) that “A Member shall permit financial service suppliers of any other Member established in its territory to offer in its territory any new financial service.”

(3) The definition of short selling according to Wikipedia: the short-seller will “borrow” or “rent” the securities to be sold, and later repurchase identical securities for return to the lender. If the security price falls as expected, the short-seller profits from having sold the borrowed securities for more than he or she later pays for them but if the security price rises, the short seller loses by having to pay more for them than the price at which he or she sold them. <;; ‘naked short selling’ means that the securities are even not first rented or borrowed by the short seller; see <;

(4) In the Annex on Financial services

(5) See Art. XVI of GATS, and identical article in the EPA (FTA) between the EU and Caribbean countries.

(6) See GATS Art. XI and XII.

(7) Financial Stability Forum, Enhancing market and institutional resilience, April 2008, Annex A: available for downloading at:; see also the review of its recommendations on 10 October 2008

(8) The FSF was created in the aftermath of the 1998 Asian financial crisis and brings together on a regular basis national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts

(9) See paper by M. Vander Stichele, GATS negotiations in financial services: The EU requests and their implications for developing countries (see

For comments or more information, contact Myriam Vander Stichele:

Statement on the G-20 Summit on the Financial Crisis

November 20, 2008

By the Transnational Institute Working Group on the Global Financial and Economic Crisis

The summit of a selective group of 20 widely diverse countries meeting in Washington moved the discussion of a new global financial architecture a step further, but it was a baby step, not the giant leap that is urgently needed not only to reverse the financial crisis but also to restructure fundamentally the global financial and economic systems. Why was there so little progress?

First, George Bush, representing the country with the largest responsibility for the global crisis, is the lamest of lame ducks. He could not commit his successor to any real course of action. His insistence on free markets reflects a dangerous and outmoded ideology with regard to financial regulation – abundantly demonstrated by his speech prior to the G20 meeting convened in which he re-visited the ideas that are the source of the worst worldwide financial crisis of the past 90 years. These outmoded and discredited ideas were included, unfortunately, in the G20 Communiqué.

Second, this meeting – sometimes called Bretton Woods II – was so hastily put together that unlike Bretton Woods I, its principal outcome was merely to reveal the fault lines of the debate, defined by the U.S. and European positions, although not that of Great Britain. The Europeans, led by president Nicholas Sarkozy of France, argued that since the 1980s, finance has become a quintessentially global phenomenon with money and credit washing across borders. Financial entities are thus able to exploit the inability of nation states to tax or regulate them effectively. Consequently, the Europeans call for a new global financial architecture that starts with, and gives primacy to, new cross-border global financial regulatory authorities. These global institutions are not now in place, must be constructed, and should be the G20’s core project for the immediate future. The Europeans note that existing international regulatory institutions, like the Basel Committee on Banking Supervision and the Financial Stability Forum, have very limited membership, cannot issue binding standards and rules, are heavily influenced by the financial lobby, and have proven to be totally inadequate both in predicting the financial crisis and in acting to stem it.

The United States’ counter-argument rests on the nation state, locates the primacy of regulatory authority in national governments, and adds new, cross-border forms of transnational collaboration and co-ordination. It starts with existing national regulatory regimes, upgrades them considerably, and expands them to encompass new financial instruments and institutions heretofore unregulated. The North Americans argue that this system offers the best tools for the broadest possible political control because it is rooted in national governments – their executives and parliaments, which are themselves subject to popular oversight, however imperfect. Behind these arguments, however, lie both ideology and the desire to protect the U.S.’s and UK’s financial sectors’ competitiveness as global financial industry centres.

The G20 Communiqué avoids this debate and attempts to diminish the distance between the U.S. and European positions. Several other fault lines emerged at the G20 meeting. Europe wants to go faster, broader, and deeper with new regulations than the U.S. and wants more co-ordination of policy intervention. The weakness of the G20 Communiqué also indicates that governments are paying more attention to the interests of their financial lobbies than to the interests and urgent needs of their own citizens and citizens worldwide.

Pushing all these divisions into the future and giving the new U.S. administration the necessary space to formulate its own positions, the G20 limited its scope to some broad general principles and an action plan for the next four and a half months that includes only measures that should have been taken long ago to correct the most obvious gaps in transparency and regulation. Whether or not these meagre measures are implemented will depend mainly on how aggressive civil society is in holding the G20 to their limited commitments.

No set of basic but effective principles, guidelines and criteria is yet on the official agenda. We offer four that should be minimum demands in exchange for the unprecedented taxpayer bailouts:

  • Total transparency – all financial instruments and all financial institutions to report fully on their activities and this information made available to the public;
  • A 10 percent rule – all financial instruments require a minimum 10 percent collateral, capital reserves in order to eliminate the uninhibited leveraging (sometimes only 1 dollar actually held for every $30-$40 lent to borrowers) that is a major source of the meltdown;
  • All current and future financial instruments should be brought under the umbrella of financial regulation;
  • New national and global regulatory systems to be subject to the widest and deepest democratic participation, including oversight, monitoring, and access to decision-making.

In our view, the global financial implosion is but one of several converging crises caused by government neglect and an ideology celebrating an individualist- based, free-for-all market fundamentalism over the need for civic responsibility. This irresponsible neglect has permeated governing regimes at every level: local, national, regional, and global. Consequently, two other enormous global problems now worsen and converge with the financial crisis: the planetary climate crisis and inequality within and across nations. The same political recklessness that has brought us financial default is also guilty with regard to the global climate and inequality crises of the 21st century.

Furthermore, the financial crisis has now become a crisis of the real economy. The private financial institutions receiving taxpayer bailouts should be obliged to lend to the real economy in order to ease the transformation towards an environmentally robust economy. They must be prevented from further indulging in exotic financial instruments that have greatly contributed to the current worldwide financial meltdown. We support the call for a minimum fiscal stimulus of at least 2 percent of GDP. The earlier anaemic attempts at fiscal stimulus of the G7 were far too small to have any effect.

A more comprehensive integrated set of proposals is therefore needed:

  • Closure of tax havens in countries of convenience and attention to other forms of tax evasion that allow global companies and wealthy individuals to avoid their statutory tax obligations in their countries of origin;
  • A commitment that no country be allowed to become insolvent;
  • Refusal of the nearly bankrupt and discredited IMF as the global dispenser of funds. The failed IMF ideology contributed to this global financial crisis in the first place;
  • Integration of southern countries as well as experts from NGOs and other parts of civil society into all discussions of a new global financial architecture;
  • Introduction of taxes on cross-border financial transactions – such as the Tobin Tax – that are new sources of tax revenues for government to pay for the financial bailouts, dampen financial speculation, and slow down the turnover of financial transactions in the global economy;
  • Limits to the riskiness of any new financial product or instrument, for example, by public governmental certification of a risk assessment of the product before it comes on market;
  • Suspension of the financial services negotiations within the GATS section of the Doha Round on trade liberalization. The deregulation and anti-regulation orientation of these negotiations is totally at odds with the premises of the G20 discussions for re-regulation and new regulation of the global financial sector;
  • Public disclosure of all lobbyists before national and global regulatory authorities;
  • Limits on excess compensation of top level management of financial institutions and elimination of forms of incentive compensation that reward excessively risky behaviour;
  • Involvement of global institutions other than the International Financial Institutions discussions concerning the new global financial architecture, including the UN and its appropriate agencies.

The world is not undergoing a crisis in the system but a crisis of the system in which the real economy has become subservient to the financial economy. All solutions must be based on this underlying truth. Nothing less than a Global Round on a Reconstructed Economic Order is required to address an integrated reform and restructuring of the global economy – including finance, trade, investment, production, corporate codes of conduct, labour standards, systemic risk and environmental regulation. The efforts of the G20 are puny compared to the comprehensive and serious process appropriate to the scale of these converging crises of the 21st century.

By Susan George, Barry K. Gills, Myriam Vander Stichele and Howard M. Wachtel for the TNI Working Group on the Global Financial and Economic Crisis, Amsterdam, 17 November

Wake Up, Freak Out – then Get a Grip

November 20, 2008

It’s much, much later than you think.

This really isn’t about polar bears any more. At this very moment, the fate of civilization itself hangs in the balance.

It turns out that the way we have been calculating the future impacts of climate change up to now has been missing a really important piece of the picture. It seems we are now dangerously close to the tipping point in the world’s climate system; this is the point of no return, after which truly catastrophic changes become inevitable.

G20 summit ‘punts’ till April

November 19, 2008

The Real News, November 17, 2008

G20 leaders have a nice dinner, but do not deal with how to make financial institutions serve the public.