ian
> -----Original Message-----
> From: owner-lbo-talk at lists.panix.com
> [mailto:owner-lbo-talk at lists.panix.com]On Behalf Of Doug Henwood
> Sent: Wednesday, September 01, 1999 12:50 PM
> To: lbo-talk at lists.panix.com
> Subject: Wolf on civil society etc.
>
>
> Financial Times - September 1, 1999
>
> UNCIVIL SOCIETY
>
> The ill-fated multilateral agreement on investment shows the need to
> confront the claims of pressure groups hostile to globalisation,
> writes Martin Wolf <Martin.Wolf at ft.com>
>
> In 1997, according to the World Bank, the 10 economies with the
> highest incomes per head were, in order, Singapore, the US,
> Switzerland, Hong Kong, Norway, Japan, Denmark, Belgium, Austria and
> Canada. Two things should strike anyone who looks at this list:
> first, these are all internationally open, market economies; second,
> seven of them have populations of less than 10m.
>
> As Adam Smith remarked, the division of labour is limited by the size
> of the market. But the biggest of all markets is the world. If people
> are able to access world markets and know-how, the size of their own
> economies becomes irrelevant. That this is what more and more
> countries have chosen to do is the most heartening economic
> development of our era.
>
> Yet, like all human achievements, it is fragile. Integration is
> vulnerable to attack from protectionist interests and populist
> rabble-rousers. It may also die from suspicion or neglect. These are
> not small dangers. They are ones trade ministers attending the World
> Trade Organisation's ministerial meeting in Seattle, in November,
> must bear well in mind.
>
> There can be no more salutary warning than the ill-fated multilateral
> agreement on investment (MAI), conceived in 1995 and still-born in
> December 1998. This is a sad tale, clearly told in a recent pamphlet
> by David Henderson, former chief economist of the Organisation for
> Economic Co-operation and Development.*
>
> As Mr Henderson points out, back in 1995, there seemed nothing very
> remarkable about taking the liberalisation of investment regimes
> further. In the background was the increasing importance of foreign
> direct investment (FDI) - shown clearly in the chart. As Mr Henderson
> notes, between 1986 and 1996, world real output increased by about 40
> per cent, the volume of trade doubled and the quantity of FDI rose by
> a factor of more than four and a half. This growth reflected the
> decisions to liberalise of individual governments. It seemed obvious,
> however, that just as world trade had gained from the security
> provided by a rules-based regime, so might investment.
>
> Nevertheless, this attempt was abandoned after three and a half years
> of effort. The question is why.
>
> Mr Henderson ascribes the failure to two main interrelated sources of
> concern. The first was fierce disagreements within the negotiations;
> the second was the rising anxiety of a host of non-governmental
> organisations.
>
> Specific problems arose in three ways. First, disagreement grew over
> the broad definition of investment, the design of the dispute
> settlement mechanism and the treatment of incentives. Second, the US
> and the European Union were unable to compromise on the things of
> greatest concern to each. Third, governments began to feel concerned
> that an agreement as ambitious as the MAI would deprive them of all
> control over the pace of liberalisation.
>
> Crucial to the latter were the superbly organised NGOs. For many, the
> MAI became a totem of the loathed cause of globalisation. Partly in
> response, negotiators became increasingly concerned about social and
> environmental standards. Meanwhile, as hopes for liberalisation
> diminished, business lost interest, too.
>
> In the end, an agreement with little upside for any and much downside
> for many was allowed to die. That is not of great importance. The
> pressures for unilateral liberalisation of investment remain intact.
> But it is widely seen as a defeat for multilaterally agreed
> liberalisation and could be a harbinger of worse to come. Those
> involved in the WTO must learn from this failure.
>
> A vital lesson is that a negotiation needs a format and an agenda
> likely to lead to success. In this case, the differences among the
> participants turned out to be far too large, as was the importance of
> the countries not included within the negotiations.
>
> As significant a lesson, however, is the political one. A way must be
> found to deal with the new pressures coming from outside such
> negotiations.
>
> This needs to be done in two complementary ways. The first is to
> tackle head on the arguments of extremists who believe international
> economic liberalisation threatens parliamentary democracy, the poor
> and the environment. The second is to insist that the claims of NGOs
> to represent civil society as a whole and, as such, to possess
> legitimacy rivalling - perhaps even exceeding - that of elected
> governments is outrageous.
>
> On the first, as Mr Henderson notes, many of the fears of those
> opposed to liberalisation make little sense. It is absurd to argue
> that multinationals, which possess no armies and run no secret
> police, would, in the words of one group of NGOs, "end up hijacking
> the fundamental democratic rights and freedoms of peoples all over
> the world". On the contrary, it is no accident that all the great
> tyrants have imposed closed economies.
>
> Again, many of the critics rely on the simplistic slogans of
> "production for people, not profits". But there is no better way of
> deciding whether something is worth producing than by comparing
> prices with costs. True, problems arise when social and private costs
> and benefits diverge. But there is no credible alternative to profit
> as the motor of the economic system.
>
> Finally, on the vexed question of standards, it is not the case that
> liberal trade or investment flows demand that standards be the same
> everywhere. Differences, both over the environment and the labour
> market, are perfectly legitimate. It is particularly absurd for
> people to argue that international agreements to liberalise trade or
> investment are an interference in sovereignty, while also insisting
> that every country must adopt the same environmental and labour
> standards. Now that really is an interference in sovereignty.
>
> At the very least, then, the substantive claims of those most
> strongly opposed to liberalisation must be challenged. Yet it is
> quite as important to confront their political legitimacy as
> purported representatives of civil society as a whole.
>
> Only elected governments can be properly responsible for the making
> of law, domestically and internationally. This does not preclude full
> discussion with all private interests. But a civilised society is one
> in which the state alone has a monopoly of coercive power, exercised,
> under law, by a government responsible to the electorate as a whole.
> To grant any private interests a direct voice in negotiations over
> how coercion is to be applied is fundamentally subversive of
> constitutional democracy.
>
> As for "civil society", it is simply a label for all those
> activities, relationships and organisations that fall outside the
> purview of the state. This amorphous mass cannot be represented by
> anyone. Those who claim to do so are impostors. Organisations can
> only represent themselves. If NGOs were indeed representative of the
> wishes and desires of the electorate, those who embrace their ideas
> would be in power. Self-evidently, they are not.
>
> The fate of the MAI is a warning. Policy-makers need to prepare their
> ground far better than this. They also need to recognise the changed
> political context in which they operate. The enemies of the liberal
> international economy have found new arguments and new ways of
> organising. Both need to be resisted. What is at stake is far too
> important to go by default.
>
> * David Henderson, The MAI Affair, a Story and its Lessons. The Royal
> Institute of International Affairs, London, 1999.
>