this deserves closer reading & raises good discusison points, what does our IWLRI group thnk?
pat
Dr Patricia Wouters
Director, International Water Law Research Institute
University of Dundee
Dundee, Scotland
DD1 4HN
phone: (44) (0) 1382 34 44 56
visit our website: www.dundee.ac.uk/law/water
join our water law forum: [log in to unmask]
IWLRI founding member of UNESCO HELP (Hydrology for the Environment, Life & Policy)
and
Universities Partnership for Transboundary Waters
http://waterpartners.geo.orst.edu/
Dundee: Scottish University of the Year!
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Whose power, whose glory?
By Rahul Jacob
Published: January 8 2005 02:00 | Last updated: January 8 2005 02:00
The rhetoric on the economy during the US election campaign last year sounded like that of a country in recession. The Kerry-Edwards campaign made bewildering pronouncements on "outsourcing". US companies that move jobs offshore - the anti-globalisation camp's latest bogeyman - were also getting a bad rap on that most global of television news operations, CNN, where anchorman Lou Dobbs pilloried them. Yet Ben Bernanke, a Princeton University economist, estimates that foreign competition accounts for just one in 50 jobs lost every year in the US.
Five hundred years since Vasco da Gama opened up a trade route to the east, the debate about globalisation colonises op-ed pages around the world and slogan-chanting anarchists frequent G8 and World Trade Organisation meetings from Seattle to Genoa and Santiago.
Into this battlefield come three books, published within months of each other, that offer a practical perspective on fighting poverty and creating a freer environment for the private sector in the developing world. They provide a ground-up view of the Sisyphean task of reforming economies that is free of arcane formulas and sloganeering.
Sebastian Mallaby's The World's Banker is a riveting portrait of the World Bank and its mercurial president of the past 10 years, James Wolfensohn. For all the bank's shortcomings, Mallaby says, it remains the rich world's main instrument for combating poverty; it lends money by the billion and wields considerable influence over economic policies in the developing world. But its impossibly wide mission now extends from helping governments combat Aids to firefighting in the midst of the Asian financial crisis, from governance to loans for infrastructure.
The bank may make proposals, but ultimately it is the governments of developing countries that must balance budgets and build schools. This is where things often unravel, because bureaucracies and politicians get in the way. Arun Shourie, the reformist minister in charge of privatisation in the BJP government voted out of office in India in May, has published, in Governance and the Sclerosis That Has Set In, a book that reads like a diary from the trenches of his battle with the country's famously obstructive civil servants. Shourie pushed hard to get the government out of running hotels and teleprinters - running them in to the ground, that is - and to curb its tendency to suffocate even growth industries, such as cellular phones.
University of Michigan business school professor C.K. Prahalad's book The Fortune at the Bottom of the Pyramid turns conventional wisdom on its head: far from getting rich off the poor, global corporations are not exploiting the big markets that the poor in places such as Brazil, China and India represent. Ignored by banks, the poor pay 600 to 1,000 per cent interest to loan sharks. Ignored by retailers, they pay far higher prices for staples than do the rich. By contrast, Casas Bahia, a retailer in Brazil, has devised a credit rating system that allows it to sell appliances to customers with unpredictable incomes, including many in the shantytowns. The default rate is 8.5 per cent. This is smart business practice, says Prahalad, in a country where the informal sector is estimated to account for half the GDP.
Each book takes aim at an assortment of sacred cows. Mallaby's has had Washington's development types chuckling because of the gossip he has amassed on Wolfensohn's stormy tenure at the World Bank since 1995, but the book offers a devastating critique of NGOs, which he describes as a "Lilliputian menace" that prevent the bank from fulfilling its role of helping fund big infrastructure projects in poor countries. When he seeks to verify the bona fides of a local environmental group that opposes a small dam in Uganda, Mallaby is rebuffed by the Berkeley environmental NGO touting their claims, but he later discovers the group had all of 25 members.
The loan for a dam in China's Qinghai province, bordering Tibet, was quickly tied up in knots after overseas Tibetan groups opposed it (areas of Qinghai are claimed as part of "greater Tibet"). The Chinese government's resettlement plans for farmers had been vetted by the bank, but according to Mallaby, this was soon being depicted as a plan to move 60,000 ethnic Chinese into Qinghai "even though they were just moving to a different part of it". The bank's executive board refused to endorse the plan, prompting the bank to withdraw. The Chinese government went ahead anyway.
When the going gets tough, Wolfensohn goes ballistic: "He counted himself a friend of the NGOs, a friend of the Dalai Lama, a friend of Congresswoman [Nancy] Pelosi and certainly a friend of China... " Instead of defending his staff, he rounded on the Swedish managing director then overseeing east Asia, accusing him of never travelling to China. It turns out the Swede had been there three months earlier, but according to Mallaby, Wolfensohn berated him anyway: "Did you go to Qinghai? Any idiot would know if you went out there, that there were Tibetans. Why would you do a project when the Tibetans were there?"
As entertaining as this is - and Mallaby's book may well be the most hilarious depiction of a big organisation and its controversial boss since Michael Lewis's Liars' Poker on investment bank Salomon Brothers - the debacle is illustrative of the bank's tendency in recent years to pull back from infrastructure projects that would bring benefits to millions of poor people because of the political headaches they pose. There are good reasons to thoroughly vet resettlement plans in places such as China and India, where bureaucrats often ride roughshod over the rights of villagers, but the pendulum has swung too far the other way.
For all the good work that some NGOs do, many make ill-supported pronouncements on everything from trade policy to globalisation's effect on gender equity. Columbia University economist Jagdish Bhagwati persuasively argues in In Defense of Globalization that on many such issues NGOs are simply wrong. Last year, Afghanistan's planning minister complained that NGOs were squandering money channelled through them to the country's reconstruction effort there.
The oft-repeated claim that the developing world's poor are all adversely affected by globalisation doesn't wash. An openness to foreign direct investment and a greater integration with the world economy has seen incomes rise rapidly in China, India and even Bangladesh in the past two decades. As the FT's Martin Wolf observes in his provocative book, Why Globalisation Works, between 1990 and 2001, GDP per head rose rose at 5.5 per cent a year in east Asia, while growth rose to 3.2 per cent a year in south Asia. "China and India, it should be remembered, contain almost two- fifths of the world's population... Never before have so many people - or so large a proportion of the world's population - enjoyed such large rises in their standards of living," he writes. In Bangladesh, he says, as its economy opened, between 1990 and 2000 the ratio of exports to GDP jumped from 18 per cent to 32 per cent of GDP, and GDP per head grew at 3.1 per cent a year.
There is truth in the argument that the developed world's stewardship of both the World Bank and the IMF has been absent- minded in the extreme. The west has used both institutions to reward allies or as firefighters during a financial meltdown such as the Asian crisis of 1997, while moving fitfully on issues such as debt forgiveness. As Stephen Fidler, also of the FT, observed in the journal Foreign Policy a couple of years ago, rich countries have blithely dumped new responsibilities onto the bank, and the costs are met by middle-income borrower nations who pay more for loans than they otherwise would.
Trouble is, many developing country's governments are part of the problem. After decades of socialist policies, many are better at extracting rents from the economy and enforcing stifling regulations than they are at delivering education and health services.
There are few more glaring examples of this than India. Shourie's book begins with an anecdote that is Wodehousian in its absurdity: in 1999, an inter-ministerial consultation was launched to determine if senior officials could use inks other than blue or black on files. Two officers had broken protocol by using red and green ink. More than a year later, a decision of sorts was reached: "Only an officer of the level of joint secretary to the Government of India and above may use green or red ink in rare cases."
Shourie's conclusions are unsettling: since "the system swallows efforts to reform it, do not attempt to reform [it]... just hack away the function". This is the strategy economic reformers in India in the 1980s and early 1990s adopted, jettisoning entire sections of regulations that forced businesses to seek government approval on minutiae such as expanding production at their factories. The country's growth rate close to doubled to more than 6 per cent annually. Hacking away the function is not an endlessly replicable formula, however, when it comes to delivering basic services to the third of the world's poor who reside in India, which is why India's far-sighted prime minister, Manmohan Singh, has led calls to reform the bureaucracy.
Shourie's account suggests Singh will fail - indeed Shourie's and Mallaby's books leave one more than a little depressed, loaded as they are with the shortcomings of multilaterals and the governments of developing countries. As economist Jeffrey Sachs put it in an open letter to the incoming head of the IMF in Foreign Policy recently, when the IMF makes the wrong decisions in Africa, people die.
Prahalad's tome, for all that it is essentially a series of business school case studies on how corporations can promote development and profit by selling to the poor, is nevertheless uplifting. Multinationals are generally overlooked - or demonised - in discussions of ways to combat poverty, yet given their distribution networks and marketing skills, they have plenty to offer. In Mexico, Prahalad finds the cement company Cemex helping low-income buyers to pool resources so they can build their own homes. In India, Unilever's subsidiary has helped women entrepreneurs start retail businesses. Another branch of Unilever raises the profile of iodised salt to sell its Annapurna brand in a country where iodine deficiency is a serious problem. Public interest or self interest? Does it matter if the incidence of mental retardation, goitres and low IQ is reduced as a result? Given the rapid rate of urbanisation in Africa and Asia, selling to less well-off customers will get easier.
The prescription one comes away with is that there are virtually no prescriptions that work everywhere. The 1993 World Bank study of the unusually concentrated success in Asia similarly found basically two common building blocks: export orientation and widespread primary education. As Jessica Einhorn, a former managing director of the World Bank, observes, serendipity plays a part in development. Good governance obviously helps, but as these books remind us, like common sense, that is rare indeed - in multilateral institutions, in NGOs and in the developing world.
Rahul Jacob is the FT's leisure editor.
The World's Banker
By Sebastian Mallaby
Penguin Press $29.95 (in the UK on January 20, Yale £9.95)
Governance and the Sclerosis that has set in
By Arun Shourie
ICA/Rupa, Rs395
The Fortune at the Bottom of the Pyramid
By C.K. Prahalad
Prentice Hall $28.95
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Saleh M.K. Saleh Eissa
LLM Candidate
International Water Law Research Institute,
Park Place, University of Dundee,
Dundee,
DD1 4HN,
Scotland,
United Kingdom.
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