MakingItIndustry for Development

3rd quarter 2011

Governing aglobalized

world

n Dani Rodrik n Indonesia: Cleaning

up the river n Solar Sister n Mark Malloch

Brown n Bangladesh

A quarterly magazine. Stimulating, critical andconstructive. A forum for discussion and exchangeabout the intersection of industry and development.

NUMBER 1, DECEMBER 2009lWe must let nature inspire us– Gunter Pauli presents analternative business model thatis environmentally friendly andsustainable lHot Topic: Is itpossible to have prosperitywithout growth? Is ‘greengrowth’ really possible?

NUMBER 2, APRIL 2010lThe International EnergyAgency’s Nobuo Tanaka looks atenergy transitions for industry l Energy for all – KandehYumkella and Leena Srivastavaon what needs to be done toimprove energy access

NUMBER 3, JULY 2010l China’s stunning economicrise: interview with minister ofcommerce, Chen Deming l Towards a more productivedebate – Ha-Joon Chang callsfor an acceptance that industrialpolicy can work

NUMBER 4, NOVEMBER 2010l Strengthening productivecapacity – Cheick Sidi Diarraargues that the LDCs should –and can – produce more, andbetter quality, goods l PatriciaFrancis on climate change andtrade l Hot topic: The relevanceof entrepreneurship

NUMBER 5, FEBRUARY 2011lA window of opportunity forworld trade? – Peter Sutherlandassesses the prospects for theconclusion of a multilateraltrade agreement l A path tomutual prosperity –Xiao Ye ontrade between sub-SaharanAfrica and China

NUMBER 6, APRIL 2011l Feeding a crowded world –IFAD’s Kanayo Nwanze arguesthat smallholder farmers musthave opportunities to beentrepreneurs l Nestlé CEOPaul Bulcke on ‘Creating SharedValue’ l Hot Topic: Does energyefficiency lead to increasedenergy consumption?

MakingIt 3

Never has the world been more interdependent, never has it been more shapedby technological, economic and social progress – and never has it been morevulnerable to economic and environmental shocks and political failure. Ourglobal economic, social and political systems have been under great pressurefor a while, and the future appears uncertain. As the financial crisis evolvedfrom a credit crunch affecting mortgages in certain developed countries to aworldwide calamity encompassing financial, manufacturing and serviceactivities, we have taken a turn towards a situation of even greater globalfragility and risk.

Popular perceptions of globalization are getting more and more polarizedbetween those who see it as a source of freedom and new opportunities, andthose who associate it with rising inequality and injustice.

We clearly live in a multi-polar world. It is no longer possible to isolatethe complex risks and fragilities that we face, nor is it possible to findnational solutions to global challenges. They require a diversified andmulti-polar response.

As we stand at a crossroads of global policy and governance, this issue ofMaking It: Industry for Development offers a selection of some of the bestcontributions to the growing debate. These include the keynote article byProfessor Dani Rodrik, in which he embarks on a fascinating journey into the

globalization paradox, and a candid interview with formerUN Deputy Secretary-General, Mark Malloch Brown, in

which he gives his views on how to stay “one stepahead of failure’’ during “a century of continuous

change and likely drastic upheaval”.Aside from articles addressing the main

theme, there are also discursive contributionsthat question mainstream economists’

approaches, debate the pros and cons ofnuclear power, and look at theeconomic progress of Bangladesh.

Phot

o: is

tock

Editorial

Editor: Charles Arthureditor@makingitmagazine.netEditorial committee: Ralf Bredel,Tillmann Günther, Sarwar Hobohm,Kazuki Kitaoka, Wilfried Lütkenhorst(chair), Cormac O’Reilly and Jo Roetzer-SweetlandWebsite and outreach: Lauren Brassawoutreach@makingitmagazine.netCover illustration: Maya ZankoulDesign: Smith+Bell, UK –www.smithplusbell.comThanks for assistance to Donna ColemanPrinted byGutenberg PressLtd, Malta –www.gutenberg.com.mton FSC certified paper To view this publication online and toparticipate in discussions aboutindustry for development, please visitwww.makingitmagazine.netTo subscribe and receive future issuesof Making It, please send an emailwith your name and address tosubscriptions@makingitmagazine.netMaking It: Industry for Developmentis published by the United NationsIndustrial Development Organization(UNIDO),Vienna International Centre, P.O. Box 300, 1400 Vienna, AustriaTelephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69E-mail: unido@unido.orgCopyright © 2011 The UnitedNations Industrial DevelopmentOrganization No part of this publication can beused or reproduced without priorpermission from the editorISSN 2076-8508

GLOBAL FORUM6 Letters8 The barefoot economistInterview with acclaimedChilean economist,Manfred Max-Neef 10 Hot Topic: Is nuclear powernecessary for a carbon-freefuture? Environmentalists ChrisGoodall and José Etcheverry debate

16 Business matters – news and trends

FEATURES16 Fairer, greener and moresustainable – Hedda Oehlberger-Femundsenden argues that UNIDO’s

Green Industry initiative can buildon the successes of globalization,while helping to rectify itsshortcomings 18 Interview: The unfinishedglobal revolution – MarkMalloch Brown on thechallenges and opportunities ofglobalization in the 21st century

KEYNOTE FEATURE22 The globalization paradox –Dani Rodrik argues thatglobalization works best when it isnot pushed too far

30 Unfair share –Thomas Pogge looksat the statistics of world poverty andexposes a series of broken promisesand rigged initiatives

MakingItIndustryforDevelopment

The designations employed and thepresentation of the material in this magazinedo not imply the expression of any opinionwhatsoever on the part of the Secretariat of theUnited Nations Industrial DevelopmentOrganization (UNIDO) concerning the legalstatus of any country, territory, city or area or ofits authorities, or concerning the delimitationof its frontiers or boundaries, or its economicsystem or degree of development. Designationssuch as “developed”, “industrialized” and“developing” are intended for statisticalconvenience and do not necessarily express ajudgment about the stage reached by aparticular country or area in the developmentprocess. Mention of firm names or commercialproducts does not constitute an endorsementby UNIDO.The opinions, statistical data and estimatescontained in signed articles are theresponsibility of the author(s), including thosewho are UNIDO members of staff, and shouldnot be considered as reflecting the views orbearing the endorsement of UNIDO.This document has been produced withoutformal United Nations editing.

MakingIt4

22

18

Contents

Number 7, 3rd quarter 2011

34 Globalization, governance and theG20 – Jan Wouters and Dylan Geraetsargue that network governance needsto be transparent, inclusive, andresponsive36 Country feature: Bangladesh –Manufacturing, the garment industry,and women workers bring progress to one of the world’s most populouscountries, plus an interview with Dilip Barua, Minister of Industries40 Cleaning up the river – Goldman Environmental Prizewinner, Prigi Arisandi, explains how a local movement is helping to stopindustries from polluting the riverflowing through the Indonesian city of Surabaya

POLICY BRIEF42 Beyond the ‘resource curse’ 44 Drivers of development

46 Endpiece – Katherine Lucey onSolar Sister, a social enterprise thatprovides women with training andsupport to create solar micro-businesses

MakingIt 5

16

30

LETTERS

MakingIt6

On energyefficiencyWhile I commend Ms.Moscoso-Osterkorn on hereffective defence of energyefficiency (Making It, issue 6), I have to note that the originalclaims by Jenkins andSaunders (Hot Topic) stillremain, at least from my pointof view. Their focus was on theclimate change effects ofenergy efficiency – no doubtthat they would also agree thatthere are other economic andsocial benefits toimplementing energyefficiency.

Their “rebound effect” theoryalso focused on the developingnations and their thirst fordevelopment and more energy.The reply gave excellentcounter-examples but mainlyfrom the US and Japan. Wheredeveloping nations werementioned, the examples areskewed – for example, howmany Ghanaians will continuepurchasing and using compactfluorescent lights (CFLs), oncethe original supply needsreplacement? And if Thailandreally saved 1,725 MW of peakpower (or is that 1.725 MW?),did this offset the need for newelectricity generation or didthis just shift consumption toother uses as the reboundeffect claims?

Don’t get me wrong – I agreewith Moscoso-Osterkorn’swider claims on energy

efficiency and am a bigproponent of the same – I amjust wondering if her responsemissed the point in this case.l Peter Bartlett, websitecomment

I fully agree with Mr Bartlett’ssentiment, but I believe thatthe impact of the reboundeffect is fundamentallydifferent between developedand developing countries.There is no doubt that therebound effect exists and that itcan affect climate change in anegative way. In countrieswhere energy access is not anissue – like developedcountries – rebound canindeed lead to increase in useand carbon emissions. Indeveloping countries, energyefficiency will not onlyfacilitate energy access for thepoor, it will also act as analternative to fossil fuel energyproduction. If a farmer savesenergy by using an efficientbulb, he can light his secondbulb with the energy he issaving instead of starting uphis diesel generator or burningmore wood.

Positive examples from Japanand California highlight thatpolicy intervention and publicsupport can change consumerpatterns, and these successstories should serve asguidelines for others. InGhana, nobody can forcepeople to buy compactfluorescent lights (CFLs) oncethey need replacement. But thehuge market created throughthis governmental programme,

lowers the price of CFLswhich makes them affordableto everybody. l Marianne Moscoso-Osterkorn, REEEP, Vienna,Austria

Women and theArab SpringRe: “An Arab Spring forwomen?” (Making It, issue 6),meanwhile, in Lebanon, a newcabinet has been formed. It iscomposed of 35 men, and nota single solitary woman.l MM, website comment

MM, you shouldn’t expectchange to come from the top.It never has and it never will.It is only by organizing at thegrassroots that women (andmen) will be able to forcethrough progressive change.l Charlene, website comment

Lebanon is a democracy. Themajority of voters voted forthe government. If the electedrepresentatives endorse acabinet that does not includeany women, that is democracyin action. PresumablyLebanese women (and men)voted for the members ofparliament who endorse thenew cabinet…l Knox, website comment

Indeed, there is a strongglobal and MENA backlash inrelation to women’s positionand women’s rights which istaking various forms andshapes. Turkey has just

dismantled the Ministry forWomen and replaced it with aMinistry for Family Affairs.This is an indication of agrowing conservative view ofwomen’s role being in thefamily rather than them beingindependent citizens endowedwith rights.

It would be wise to rethinkthe common definition ofdemocracy. It is widely heldthat free elections are thecornerstone of democracy. It istime to challenge this idea.While free elections are a must,they do not necessary lead toinclusion, full participation,non-discrimination andequality…l Lina Abou-Habib, websitecomment

It seems it would also be wiseto rethink the common(media) definition ofrevolution. Somecommentators would have youbelieve that what has beenhappening in several countriesin the Arab world arerevolutions, but, as women arefinding out, nothing verymuch has really changed, andthere certainly has not been aprocess of one class takingpower from another….l Red, website comment

The Global Forum section of Making It is a space for interaction anddiscussion, and we welcome reactions and responses from readers aboutany of the issues raised in the magazine. Letters for publication inMaking It should be marked ‘For publication’, and sent either by email to:editor@makingitmagazine.net or by post to: The Editor, Making It, Room D2142, UNIDO, PO Box 300, 1400 Wien, Austria. (Letters/emailsmay be edited for reasons of space).

GLOBAL FORUM

© C

happ

atte

in “L

e Tem

ps”

MakingIt 7

Rice powerI think this article (A revolutionin electricity, Making It, issue 6) isinteresting as it illustrates a realpossibility in places that producehigh volumes of rice. It’s also anice read because it shows thepower, literally, of entrepreneursin developing countries.

From a people side, it makesyou wonder how manyentrepreneurs in developingcountries already have theknow-how to producealternative and renewableenergy processes to providetheir own villages withelectricity, such as this featuredcompany.

Another thing the articleraises is a concern about riceproduction, and therefore aboutavailability of bio resources to

gasify and therefore to createenergy with. I could see thismethod working well wheremass quantities of rice aregrown –namely in India andother Southeast Asiancountries – but the videoproduced by the company’sfounder seems to hint at theirdesired to expand to a globalmarket, and this just doesn’tseem feasible where rice husksaren’t readily available in suchlarge quantities.

Can this method be extendedto other organic byproducts, oris it limited to rice husks? And,are there many moreentrepreneurs out there indeveloping countries who haveother ideas for energy resourcesand production? l Sara Patalone, websitecomment

Breast is best Interesting to see Nestlé gettingspace in your magazine,“Creating Shared Value forsociety and shareholders” (issue 6, Making It). This is thecompany that, according tonutrition campaign groups andUNICEF, the UN Children’sFund, violates a global code onthe marketing of breast-milksubstitutes.

The International Baby FoodAction Network, which links 200 groups in 100 countries,backs a boycott of Nestlé productsbecause, it says, the companyskirts restrictions on promotinginfant formula contained in theWorld Health Organization-endorsed International Code ofMarketing of Breast-milkSubstitutes.

In developing nations, theuse of infant formulaincreases the odds of an infantcontracting food-borneillness, and increases infantmortality rates. UNICEFestimates that a formula-fedchild, living in unhygienicconditions, is between six and 25 times more likely to die ofdiarrhoea, and four timesmore likely to die ofpneumonia, than a breastfedchild.

But Nestlé continues topromote its new formulaproducts, calling them a“comprehensive nutritionsystem.” As someone hasalready remarked, the realcomprehensive nutritionsystem is a pair of lactatingbreasts. lMary Gland, by email

For further discussion of theissues raised in Making It, pleasevisit the magazine website atwww.makingitmagazine.net andthe social networking Facebooksite. Readers are encouraged tosurf on over to these sites to joinin the online discussion anddebate about industry fordevelopment.

GLOBAL FORUM

MakingIt8

Could you explain ‘barefoot economics’?Well, it’s a metaphor, but a metaphor thatoriginated in a concrete experience. Iworked for about ten years of my life inareas of extreme poverty in the sierras, inthe jungle, in urban areas, in differentparts of Latin America. At the beginning ofthat period, one day I was in an indigenousvillage in the sierra in Peru. It was an uglyday. It had been raining all the time, and Iwas standing in the slum. And, across fromme, another guy was also standing in themud. Well, we looked at each other, andthis was a short guy, thin, hungry, jobless,five kids, a wife, and a grandmother, and Iwas the fine economist from Berkeley,teaching in Berkeley, and so on. And we

were looking at each other, and thensuddenly I realized that I had nothingcoherent to say to that man in thosecircumstances, that my whole language asan economist was absolutely useless.Should I tell him that he should be happybecause the GDP had grown five percent orsomething? Everything was absurd.

I discovered that I had no language inthat environment, and that we had toinvent a new language. And that’s theorigin of the metaphor of barefooteconomics, which is the economics that aneconomist who dares to step into the mudmust practice. The point is that economistsstudy and analyze poverty in their niceoffices, have all the statistics, make all the

models, and are convinced that they knoweverything that you can know aboutpoverty, but they don’t understand poverty.That’s the big problem, and that’s whypoverty is still there. And that changed mylife as an economist completely. I inventeda language that is coherent with thosesituations and conditions.And what is that language? The thing is much deeper. I mean, it’s notlike a recipe with 15 lessons or ‘satisfactionguaranteed or your money back’. That’s notthe point. The point is much deeper. Letme put it this way. We have reached a pointin our evolution where we know a lot. Weknow a hell of a lot, but we understand verylittle. Never in human history has therebeen such an accumulation of knowledgelike in the last 100 years. But look how weare. What was that knowledge for? Whatdid we do with it? The point is thatknowledge alone is not enough. We lackunderstanding.

The difference between knowledge andunderstanding? I can give an example. Letus assume that you have studiedeverything that you can study, from atheological, sociological, anthropological,biological, and even biochemical point ofview, about a human phenomenon calledlove. The result is that you will knoweverything that you can know about love,

The barefooteconomist

Democracy Now’s Amy Goodmanspeaks with the acclaimed Chileaneconomist, Manfred Max-Neef

Phot

o: P

oste

r Boy MANFRED MAX-NEEF is a Chilean economist and founder of the

Centro de Estudio y Promoción de Asuntos Urbanos (CEPAUR). In 1981 he wrote the book for which he is best known, From the OutsideLooking in: Experiences in Barefoot Economics, which describes hisexperiences practising economics among the poor in South America. In 1983, Max-Neef won the Right Livelihood Award for his work inpoverty-stricken areas of developing countries. In 1993, he wasappointed rector of the Universidad Austral de Chile in Valdivia. His latest book, Economics Unmasked: From Power and Greed toCompassion and the Common Good was published in 2011.

MakingIt 9

GLOBAL FORUM

but sooner or later you will realize thatyou will never understand love unless youfall in love. What does that mean? That youcan only attempt to understand that ofwhich you become a part. If we fall in love,as the Latin song says, we are much morethan two. When you belong, youunderstand. When you’re separated, youcan accumulate knowledge. And that’sbeen the function of science. Science isdivided into parts but understanding isholistic.

And that happens with poverty. Iunderstood poverty because I was there. Ilived with them, I ate with them, I sleptwith them, and so on. And then you beginto learn that in that environment there aredifferent values, different principlescompared to those from where you arecoming, and that you can learn anenormous amount of fantastic thingsamong poverty. What I have learned fromthe poor is much more than I learned inthe universities. But very few people havethat experience, you see? They look at itfrom the outside, instead of living it fromthe inside.

The first thing you learn is that inpoverty there is an enormous creativity. Ifyou want to survive, you cannot be anidiot. Every minute you have to bethinking, “what next?” What do I know?What trick can I do here? What’s this andthat, that, and that? Your creativity isconstant. In addition, this is combinedwith networks of cooperation, mutual aid,and all sorts of extraordinary things whichyou’ll no longer find in our dominantsociety, which is individualistic, greedy,and egoistical. It’s just the opposite ofwhat you find there. And it’s sometimes soshocking that you may find people muchhappier in poverty than what you wouldfind in your own environment, which alsomeans that poverty is not just a questionof money. It’s a much more complexthing.

So, to avoid another catastrophe, collision, ifyou were in charge, what would you say hasto happen?For me, the problem begins in theuniversity. The university today has becomean accomplice of maintaining a worldwhich we don’t want, because if you don’tteach something different to theeconomists, well, how the hell are you goingto change it when they are professionals?It’s impossible. When I started economicsin the early 1950s, it was totally different. Wehad some fundamental courses likeeconomic history and history of economicthought. Those courses don’t exist in thecurricula anymore. You don’t have to knowthe history. It’s not necessary. It’s notnecessary that you know what previouseconomists ever thought. That’s notnecessary. You don’t need it. I mean, that’sstupid arrogance. No, now we know for surethis is it forever, you know? Then it ceases tobe a discipline, it ceases to be a science, andit becomes a religion. And that is whateconomics, neo-liberal economics, is today.

So, first of all, we need culturedeconomists again, who know the history,where they come from, how the ideasoriginated, who did what, and so on and soon. Second, we need an economics now thatunderstands itself very clearly as asubsystem of a larger system that is finite,

the biosphere. Hence economic growth isan impossibility. And third, a system thatunderstands that it cannot function withoutthe seriousness of ecosystems. Andeconomists know nothing aboutecosystems. They don’t know anythingabout thermodynamics, anything aboutbiodiversity. They are totally ignorant inthat respect. And I don’t see what harm itwould do to an economist to know that ifthe beasts would disappear, he woulddisappear as well, because there wouldn’t befood anymore. But he doesn’t know that wedepend absolutely on nature. For theseeconomists, nature is a subsystem of theeconomy. It’s absolutely crazy.

In addition, we must bring consumptioncloser to production. I live in the south ofChile, in the ‘deep south’, and that area is afantastic area for milk products. A fewmonths ago, I was in a hotel, and there inthe south, for breakfast, I was given a littlepacket of butter. I get one, and it is butterfrom New Zealand! I mean, if that isn’tcrazy! And why? It’s because economistsdon’t know how to calculate real costs. Tobring butter 20,000 kilometres to a placewhere they make the best butter, arguingthat it is cheaper, is a colossal stupidity.They don’t take into consideration theimpact of 20,000 kilometres of transport.What is the impact on the environment ofthat transportation, and all those things? Inaddition, it’s cheaper because it’ssubsidized. So, it’s clearly a case in whichprices never tell the truth. It’s all tricks, andthose tricks do colossal harm. If you bringconsumption closer to production, you willeat better, and you will have better food. Youwill know where it comes from. You mayeven know the person who produces it. Youhumanize this thing. But the way theeconomists practice today is totallydehumanized.l This is edited version of an interview thatfirst appeared on Democracy Now –www.democracynow.org

“Economists study andanalyze poverty in their niceoffices, have all the statistics,make all the models, and areconvinced that they knoweverything that you can knowabout poverty, but they don’tunderstand poverty.”

MakingIt10

GLOBAL FORUM

Is nuclear power necessaryfor a carbon-free future?

HOT TOPIC

Phot

o: G

eoffr

ey G

ilson

MakingIt 11

GLOBAL FORUM

The recent devastatingearthquake and tsunami in Japanhave confirmed the worst fears ofnuclear power critics.Governments everywhere are re-evaluating their nuclear plans, butare fears of nukes misplaced?CHRIS GOODALL and JOSÉETCHEVERRY are bothenvironmentalists – but standdivided on the nuclear debate. Goodall – I am looking at a website thattells me how much electricity is comingfrom various sources around Britain.After a decade of financial incentives,wind turbines are currently producingabout two per cent of our electricity.Excluding a small amount of hydro, allour electricity is coming from fossil fuelsand nuclear. Britain’s 10 nuclear powerstations are now producing 10 times asmuch energy as comes from 3,000turbines.

I would love it if we powered our entireeconomy from renewables but I see nopolitical will to achieve this aim. Wewould need to invest billions now inrenewable technologies. Without nuclear,reducing carbon emissions at high speedis impossible. We might end up keepingold coal power stations open for the next30 years.

People say that we simply need to workharder to persuade a largely indifferentpublic to accept huge numbers ofturbines and to invest billions in otherrenewable technologies. Such idealism isirresponsible: if we truly believe thatclimate change is the greatest threat theworld has ever faced, we cannot riskfailing to achieve the growth in low-carbon energy sources. However much wemay regret this, nuclear is the onlytechnology capable of delivering largeamounts of power within the next decade.

“If we truly believe that climatechange is the greatest threatthe world has ever faced, wecannot risk failing to achievethe growth in low-carbonenergy sources. Nuclear is theonly technology capable ofdelivering large amounts ofpower within the next decade.”

CHRIS GOODALL is a British businessmanand green activist. He is the author of Howto Live a Low-Carbon Life, and TenTechnologies to Fix Energy and Climate. Dr. JOSÉ ETCHEVERRY is AssistantProfessor at York University, Toronto,Canada, and is chairperson of the WorldCouncil for Renewable Energy.

We in the environmental movement havefailed to get the United Kingdom (UK) toinvest in renewables, and we now have noalternative but to welcome nuclear power.

Etcheverry – Nuclear plants need to bephased out because they are dangerous,toxic, and impede the adoption of thethree key options needed to build acarbon-free energy future: conservation,efficiency, and renewable energy.Conservation and efficiency (i.e. doingmore with less) represent two of the threemost profitable opportunities to createnew jobs and address climate change. Tovisualize the potential: Canada and theUS use electricity at embarrassinglygreater per capita rates than leadingindustrialized nations like Denmark andGermany.

Those two nations have not onlyminimized the way their citizens usepower, they’re also constantly innovatingefficient design and they’ve become worldleaders in the development of renewableenergy sources.

Their success is based on developingpragmatic renewable-energy policies,such as feed-in tariffs, which quicklyenable entrepreneurs to innovate invibrant markets that guarantee easyinterconnection, fair long-term prices forall types of renewable energy, andinvestment stability.

Germany’s renewable-energy policies inthe last 10 years have become the mostimportant climate mitigation strategy inEurope, and are a strong engine ofindustrial innovation and employmentcreation.

Germans and Danes have understoodthat nuclear plants cannot complementrenewable energy sources, as they cannotbe turned on or off easily. Furthermore,they also understand that building nukesforces you to sell vast amounts ofelectricity, which acts as a clear ‰

MakingIt12

GLOBAL FORUM

(Fukushima is now a level 7 catastrophe,the same as Chernobyl). l Nukes take at least a decade to buildand are highly context-dependent designprojects (i.e. a nuke design from Canadacannot be cut and pasted in seismicallyactive places without major designmodifications, which by definitioninvolve higher costs, longer timelines,and trial/error experimentation). l Nukes are not cheap, and uranium is afinite, non-renewable toxic mineral. l Nukes can easily be diverted foratomic weapons – one reason thetechnology has ‘strong’ fans.

Renewable sources on the other hand:l Are much safer, have vastly smallerecological footprints, and representstrategic assets for current and futuregenerations. l Most renewable energy systems aremanufactured today in assembly lines,and can therefore be deployed andimplemented very quickly anywheresuitable. l Most renewable energy systemsbenefit from economies of scale;therefore the more money we invest inthem the cheaper they become. Plus, theyuse fuels that are plentiful and cheap likesun and wind or that can be locallyproduced at stable prices like biogas andbiofuels. l Renewables can promote localresilience and energy autonomy, sodefusing sources of conflict instead ofbecoming weapons.

Goodall – Fukushima is a horribledisaster, but we can reasonably expectthat no one will die as a result of theradiation leaks. Yes, nuclear power is veryexpensive, but so are all low-carbontechnologies. Most studies show nuclearcosting less than offshore wind. What ismore, nuclear will deliver power reliablyand throughout the year.

contradiction to efforts at conservationand efficiency.

These lessons are starting to beunderstood by 148 other nations that haveformed the International RenewableEnergy Agency (IRENA) to develop rapidlya new paradigm of energy security andclimate protection.

Goodall – Almost all of us welcome therapid growth in renewables but even inGermany only 17% of electricity comesfrom these sources. The key question iswhether renewables have any prospect ofgrowing fast enough to replace fossil fuelsources completely. In the UK andalmost everywhere else, I don’t thinkanybody pretends that low-carbonsources are increasing at anywhere closeto a fast enough rate. That is why nuclearis vital – not because we don’t wantrenewables.

The second illusion is to believe thatenergy efficiency measures cansignificantly reduce demand forelectricity. All independent sourcespredict a rise in electricity use because ofhome heating and the need to switch toelectric vehicles. Conservation efforts arebarely denting the demand for power.Environmentalists can bemoan the lackof interest in efficiency, but we need todeal with the world as it is, not how wewant it to be. We may not like today’sconsumerist, high-energy use lifestyles,but we cannot change the world’spriorities overnight. Nuclear power isnecessary to meet people’s demands forelectricity.

Etcheverry – I’d like to set the recordstraight on nukes:l Nukes are toxic and pose great dangersto present and future generations

HOT TOPIC‰

“Nuclear plants need to bephased out because they aredangerous, toxic, and impedethe adoption of the three keyoptions needed to build acarbon-free energy future:conservation, efficiency, andrenewable energy.”

MakingIt 13

GLOBAL FORUM

People who live and work near nuclearreactors seem happy to have them asneighbours. By contrast, in Britain at least,onshore wind is widely detested.

I cannot accept that other technologieshave ‘vastly smaller ecological footprints’.A new nuclear station will generate thesame amount of electricity as about 3,000wind turbines covering hundreds ofsquare kilometres and requiring far moresteel, concrete and disruption to wildlife.

We come back to the core argument.There is no political will anywhere in theworld to make renewable electricityhappen in sufficient amounts. I deeplyregret this. Environmentalists watchingthe world sleepwalk into multiple

ecological disasters have to actresponsibly, and accept that nuclearpower is one of the few ways we have ofmaintaining standards of living, whilereducing the CO2 production fromelectricity generation.

Etcheverry – So, what do we need toglobalize a sustainable energy path?Massive creativity, courage and politicalwill – plus we need to design globaldeployment strategies for renewableenergy that have tangible local socialbenefits.

For example, farmers who can own or atleast benefit directly from wind turbinessee them as a desirable cash crop. Schoolswith solar roofs see them as versatileteaching tools. Hospitals that can havelower fuel bills and cheap hot water viadistrict energy see biomass CHP(combined heat and power) technology asa smart investment.

Our biggest obstacle to solving climatechange with renewable energy,conservation and efficiency is the limitedexperience that most people have withthese options. For all of us, the mostcrucial strategy is to get directly involvedin ‘learning by doing’ – and to fully useour creativity, which is itself a renewableand unlimited resource.l This discussion was originallypublished in New Internationalistmagazine, and is licensed underCreative Commons.

Imag

e: S

even

resis

t

Phot

o: A

shde

n Aw

ards

MakingIt14

nThe global economy isexperiencing a synchronizedslowdown, as high energy andcommodity prices take a toll. The disaster in Japan, aslowdown in US job creation andrenewed concerns about thefuture of the euro zone alsoovershadow growth prospects.

Asia is embarking on a benignslowdown as Western demandweakens and policymakers try to

to slow from 6% in 2010 to 4.5%in 2011.

The wave of political unrestsweeping the Middle East andNorth Africa (MENA) may lead topositive changes in the longterm, but civil instability isdepressing short-term economicprospects. (EconomistIntelligence Unit)

n 2010 may have been the yearwhen developing countriespulled away from the developedworld’s fossil-fuel fouled past,toward a future powered by cleanrenewables. And despite the fact

Making the body ofa Toyola stove.

trends

New technologies needed toavoid ecological destruction

BUSINESS MATTERS

get inflation under control. Foodand energy prices are still risingrapidly, potentially necessitatinga policy response that wouldslow growth sharply. Still, theregion’s fundamentals arehealthy.

The Economist IntelligenceUnit (EIU) expects China’seconomy to prove resilient to thetightening of monetary andcredit policy and to expand by

9% in 2011. Indian GDP growthwill come in at 8.6%. South-eastAsia’s rate of economicexpansion will slow markedlythis year from nearly 8% in 2010,albeit to the still-healthy rate of5.2%.

Latin American economies aredecelerating after a stellarperformance in 2010. As policytightens in response to rapidinflation, regional growth is set

A fundamental technologicaloverhaul of productionprocesses is requiredworldwide to end poverty andavert the likely catastrophicimpacts of climate change andenvironmental degradation.

“Business as usual is not anoption,” said Rob Vos, Directorof the Development Policy andAnalysis Division at theDepartment of Economicand Social Affairs of theUnited NationsSecretariat (UN/DESA)and lead author of thereport The WorldEconomic and SocialSurvey 2011: The GreatGreen TechnologicalTransformation,published in July.

“Without drasticimprovements in anddiffusion of greentechnologies, we will notreverse the ongoing ecologicaldestruction and secure adecent livelihood for all ofhumankind, now and in thefuture,” Vos continued.

The global environment’s

Toyola Energy Ltd. from Ghanais the 2011 international GoldWinner of the Ashden Award forSustainable Energy. Thecompany was selected for thecoveted Gold Award (£40,000) forits success in making over150,000 efficient charcoal stovesaccessible to low-incomefamilies.

Sarah Butler-Sloss, FounderDirector of the Ashden Awardsand chair of the judging panelsaid, “Toyola Energy Ltd. hastaken a simple stove technology,

Toyola wins awardadapted it to make it more robustand efficient, and then focusedits efforts on making this stovetechnology accessible to the poorso that they can save money andhave cleaner, healthierenvironments to cook in. In themeantime, Ghana’s forests areprotected and greenhouseemissions reduced. This is aperfect example of how muchcan be achieved through the useof simple, clean energytechnologies and clever, pro-poor marketing strategies.”

capacity to cope with humanactivity has reached its limits.About half of the earth’sforests are gone, groundwaterresources are being depletedand contaminated, enormouslosses in biodiversity havealready occurred, and climatechange threatens the stabilityof all ecosystems.

Phot

o: G

erha

rd F

ally/

UN

IDO

MakingIt 15

that much of that investmentwas state-subsidized, we are stillat a turning point whenrenewables such as solar,geothermal and wind (those oldwhipping posts for criticsarguing they won’t competewith subsidized oil and coal)began to stand on their own twofeet, especially in parts of theworld where they are often theonly source of power available.

According to a new report byUN Environment Programme,collaborating with the FrankfurtSchool of Finance &Management and Bloomberg

New Energy Finance, investorspoured a record US$211 billioninto renewable energy in 2010,accounting for one-third of allnew generating capacity. That’s a540% rise since 2004, and duringa global financial crisis.

A big chunk of this investmentwas for massive wind farms inChina and small-scale solarrooftops in Germany. Both arerecipients of largess fromgovernments through feed-intariffs and subsidies. Yet the farmore interesting story is theexplosion of alternative energyin places that can’t afford such

schemes, where the naturalresource base (wind, sun andgeothermal) is vast and the costof generating clean energy is ator near competitive prices:Egypt, Morocco, Kenya,Argentina, Mexico and others.Even Pakistan took in US$1.5 billion investment toboost its wind capacity.

“In many parts of the world,we could expect something like aleapfrog [of energytechnologies],” writes UlfMoslener of the FrankfurtSchool of Finance &Management in the report.

“The strong message is growth...Fossil fuel investment is stilldominant around the world butthe gap is shrinking fast. If youlook at the deals being made,much of the [conventional]investment is to replace oldfossil plants, but renewablefinance is for new capacity.”

Renewables may still provemore expensive for some time tocome. But economics changefast. If today’s trends are point tothe future (the price of PV solarper megawatt has dropped 60%since mid-2008), then there’s noturning back. (Fast Company)

Appearing at UNIDO’s ViennaEnergy Forum in June, formerGovernor of California ArnoldSchwarzenegger told participantsthat universal energy access isn’t“just about lighting a dark room,or cooking on a better stove. It’sabout the freedom that energy –and especially renewable energy –gives us.”

“We don’t have to be slaves tofaulty grids. We don’t have to

watch our citizens get sick anddie from pollution,”Schwarzenegger said. “We don’thave to worry about a corruptdictator waking up on the wrongside of the bed and deciding toshut off power to our country.”

The Austrian-born movie starcontinued, “We need to say,‘We’ve had enough of the oldenergy order. We are mad as helland we are not going to take it

any more!’ It’s time for energyfreedom.”

Schwarzenegger’s attendanceat the Forum marks hiscontinued commitment to workwith the United Nations, afterengaging with UN Secretary-General Ban Ki-moon last yearat the launch of a project tocreate new green jobs andreduce greenhouse gases aroundthe world.

Time for energy freedom

Over the next 40 years,US$1.9 trillion per year willbe needed for incrementalinvestments in greentechnologies. At least one-half, or US$1.1 trillion peryear, are needed indeveloping countries to meettheir rapidly increasing foodand energy demands throughthe application of greentechnologies.

The report recommendsthat policies be guided byfour key goals: l improving energyefficiency without expandingconsumption where energy-use levels are high; l supporting a broad globalenergy technologydevelopment portfolio whilescaling up the use of knowngreen technologies inspecific places; l supporting greaterexperimentation and longerdiscovery times; and l applying superiorgovernance andaccountability strategies inenergy-related technologicaldevelopment than at present.

MakingIt16

At the United Nations Millennium Summit inSeptember 2000, the largest-ever gathering ofworld leaders agreed that “the central challengewe face today is to ensure that globalizationbecomes a positive force for all the world'speople. For while globalization offers greatopportunities, at present its benefits are veryunevenly shared, while its costs are unevenlydistributed”. More than a decade later, growinginequality continues to threaten the sustainabil-ity of economic and social development, andpoverty is still widespread, with almost half theworld – over three billion people – surviving onless than US$2.50 a day.

Who gains, who loses?On average, globalization has generated undeni-able benefits in terms of higher economic growthand incomes, better living standards, povertyreduction and access to essential services. Thesuccess of countries such as Germany, Japan,Republic of Korea, Singapore, Malaysia, China,Brazil and India would have been inconceivablein the absence of globalization. It is no longerpossible to think of a country’s economic growthas a purely internal process. Open trade and theinternationalization of capital have enabledcountries to benefit from global demand for theirproducts and from new sources of funding.

Increased competition and technology transferhave led to enhanced efficiency and productivitygains. Countries able to exploit these factors havemanaged to leap-frog several stages of thenormal development process.

On the downside, in a globalized and inte-grated world, almost all problems can and dospill over borders. The painful consequences ofsocial, economic and environmental shocksspreading from one country to another havebeen starkly demonstrated by the recent finan-cial, food and fuel crises. Developing countriesare especially vulnerable to the effects of theseexternal shocks, with the world’s poorest andmost marginalized people bearing the brunt ofcrises they did not cause.

Similarly, developing countries as a groupcontribute relatively little to global warmingcompared to developed countries, but many aredisproportionally affected by changing climateconditions because of their geographic position.This injustice is worsened by the fact that thewealth accrued in most developed countries canbe largely attributed to past and present indus-trial activities, at the same time as the industrialsector is responsible for a considerable share ofdeveloped countries’ greenhouse gas emissions.

Globalization was supposed to promoteeconomic growth throughout the world and

to level the playing field so that everyone couldbenefit from increased development andrising incomes. Instead, by far the greatestdownside to globalization has been the (unin-tended) exacerbation of inequality, in manyforms and at all levels, both within andbetween countries. These rising inequalities,coupled with greater awareness of them, strainsocial cohesion, deepen the divides betweengroups and countries, and increase unrest andthe potential for conflict.

Governance in the era of globalization Global governance in the last decades has beendominated by a small group of powerful coun-tries that tried to minimize the role ofgovernment in wealth generation and redistri-bution. However, the global financial andeconomic crisis has laid bare the inadequacy ofthis approach. Likewise, laissez-faire policies arenot proving particularly helpful in tackling theeffects of climate change or uncertainties aboutthe future supply of energy. Again, we stand at acrossroads of policy and governance. Thisprovides us with a unique opportunity to designour shared future. As the main institution ofinclusive multilateralism, the United Nationscan play an important role in facilitating suchsystemic change.

Hedda Oehlberger-Femundsenden argues that UNIDO’s Green Industry initiative canbuild on the successes of globalization, while helping to rectify its shortcomings.

Fairer, greener and

more sustainable

MakingIt 17

A fairer, greener and more sustainableglobalization: can industry help?What is at stake is a fundamental rethinkingof the whole process of globalization thatbuilds on its successes while rectifying itsshortcomings. The UN believes that at theheart of these efforts lies the need to insert thenotion of a fairer, greener and sustainableglobalization into the centre of the currentglobal debate. This notion is closely linked tothe concept of sustainable development andits economic, environmental and social pillarsfirst articulated by the Brundtland Commis-sion, formally the World Commission onEnvironment and Development, in 1987.

The sustainable development agenda is acase in point on how the UN can use its role asa facilitator for systemic change. The Brundt-land Report came up with the classicdefinition of sustainable development:"Sustainable development is development thatmeets the needs of the present withoutcompromising the ability of future genera-tions to meet their own needs". Acceptance ofthe report by the United Nations GeneralAssembly gave the term political prominenceand laid the basis for the groundbreakingEarth Summit in Rio de Janeiro five years later.This UN conference represented a major stepforward for sustainable development, withinternational agreements made on climatechange, forests, and biodiversity. The summitalso led to the establishment of the UNCommission on Sustainable Development.Over the past 20 years, sustainable develop-ment has become a development paradigm,with governments, businesses, and civil societyaccepting it as a guiding principle.

Yet the concept of sustainable developmentremains somewhat elusive, and operational-ization has proven difficult. Globalization haschanged the challenges for sustainable devel-opment by relocating production, so thatresource- and energy-intensive productionprocesses are increasingly concentrated indeveloping countries, with consumption stillhighly concentrated in the developed coun-tries. Thus, on a global scale, there has beenvery little de-linking of the economy from theenvironment. Progress is further hamperedby the incorrect, but common, belief thatthere is a negative trade-off between economicgrowth and prosperity on the one hand, andsocial and environmental protection on theother.

As the United Nations’ specialized agencyfor sustainable industrial development,UNIDO has concentrated its activities acrossthree closely related thematic priorities that

are all linked to sustainable development andachieving a fairer, greener and sustainableprocess of globalization: poverty reductionthrough productive activities; trade capacitybuilding; and environment and energy. In itsrecently elaborated mission statement,UNIDO continues to underline its commit-ment to these priorities by emphasizing itsaspiration to support member states in grow-ing a flourishing productive sector, to increasetheir participation in international trade, andto safeguard their environment.

Green Economy and Green(ing) IndustryThe concept of a Green Economy, launched bythe United Nations Environment Programme(UNEP), also incorporates many of theelements of a fairer, greener, more sustainableglobalization. The Green Economy does notreplace sustainable development, but there isnow a growing recognition that achievingsustainability rests almost entirely on gettingthe economy right. UNIDO’s Green Industryinitiative is a concrete sectoral approach tooperationalizing Green Economy as a newmodel for economic growth and development.

The Green Industry vision grasps the poten-tial for industries to decouple economic growthand revenues from excessive and increasingresource use and pollution. A new report,UNIDO Green Industry: Policies for SupportingGreen Industry, foresees a world in which indus-trial sectors minimize waste in every form,utilize renewable resources as input materialand fuels, and take every possible precaution toavoid harming workers, communities and theenvironment. Green Industries will be creativeand innovative, and constantly developing newways of improving their economic, environ-mental and social performance. This willstimulate green investments, and create newgreen jobs and businesses.

Twenty years after the historic EarthSummit, the forthcoming UN Conference onSustainable Development (UNCSD 2012) –also referred to as ‘Rio+20’ – is a major oppor-tunity for the United Nations to come up withspecific answers and solutions to the twinchallenges of sustainability and globalization.What is needed is a concrete action-orientedagenda to realize the vision of a fairer, greenerand sustainable process of globalization.Adopting a sectoral approach such as GreenIndustry as a way of operationalizing theGreen Economy concept will contribute tomaking this vision a reality.l Hedda Oehlberger-Femundsenden is a strategicplanning officer at the United Nations IndustrialDevelopment Organization (UNIDO)

Stills from UNIDO’sGreen Industrypublic serviceannouncementscreened on CNNin late 2010.

“There is now a growingrecognition that achievingsustainability rests almostentirely on getting theeconomy right.”

MakingIt22

DANI RODRIK argues that theultimate paradox of globalizationis that it works best when it is notpushed too far. This paradoxmust be reflected in new globaleconomic arrangements that arebased on democratic deliberationwhere it really occurs – withinnational states.

GLOBALIZ PARADOXTHE

MakingIt 23

Phot

o: Iv

a Zi

mov

a/Pa

nos

ATION

MakingIt24

Let me begin by framing my argument with three key ideas. One is the idea thatmarkets need to be coterminous with institutions of governance and regulationthat underlie them. This is a corollary to Adam Smith’s notion that the divisionof labour is limited by the extent of the market. My corollary is the idea that theextent of the market is, in turn, limited by the scope of workable, and I empha-size workable, regulation and governance. A lesson that we keep learning is thatmarkets are institutions that require the support of other non-market institu-tions. Any kind of long-distance market requires non-market institutions to createit. Markets are not self-creating, they’re not self-regulating, they’re not self-stabi-lizing, and they’re not, fundamentally, self-legitimizing.

That is why well-functioning domestic markets always operate amidst analphabet soup of regulatory institutions that deal with market failure, with infor-mational asymmetries, and with incentive problems. The requisite rules areembedded in macroeconomic institutions – institutions of monetary and fiscalstabilization – and in broader governance, in political institutions that also providesafety nets, social protection, the welfare state, and ultimately, of course, in polit-ical democracy, in terms of ensuring that markets operate within a set of rules thatoperate through legitimate modes of public choice. So, the first key idea is that werun into problems when markets go beyond the limits of the governance insti-tutions that we need to support them.

GovernanceThe second idea is that the main locus of legitimate governance today remains thenation state. There is a lot of creative new thinking about mechanisms of gover-nance that go beyond the nation state: various mechanisms of global governance,whether those are the traditional multilateral or international organizations, alongthe lines of the International Monetary Fund and the World Trade Organization(WTO), or the newer forms of ‘network’ governance around networks of regula-tors; or the various forms of cross-border, non-governmental organizations; or theCorporate Social Responsibility movement. However, even though all of theseare very interesting, important, and innovative methods of transnational gover-nance that are trying to deal with some of the consequences of the fact thatmarkets go beyond national governments, these structures are weak, and they’relikely to remain weak. On their own, they’re unlikely to support anything but arelatively limited version of globalization because the focus of democratic delib-eration still resides largely with the nation state.

The third idea is that different nation states have different preferences over theshape that these institutions of governance ought to take. Because they differ intheir historical trajectories, because of their cultural background, because of theirlevels of income and development, they have different preferences, and they havedifferent needs. So, when we’re talking about the shape of a social protectionmechanisms, or the shape that financial regulation ought to take, or the shape thatlabour-market institutions ought to take, or the form that consumer health andsafety standards ought to take, there is going to be much variation across differ-ent parts of the world in terms of what is a locally desired form for theseinstitutions. This diversity is natural. There is nothing in either theory or prac-tice that suggests that capitalism, or a market-based system more generally, mapsinto a unique form of governance, into a unique set of regulations that ought tobe globally harmonized, or that, necessarily, different countries will have similarpreferences for the shape that these different regulatory institutions ought to take.

G20dive

rsity

Dani Rodrik is the Rafiq Hariri Professor of International Political Economyat the John F. Kennedy School of Government, Harvard University, USA.He has published widely in the areas of international economics,economic development and political economy. His research focuses onwhat constitutes good economic policy, and why some governments arebetter than others in adopting it. His latest book is The GlobalizationParadox: Democracy and the Future of the World Economy. He was bornand grew up in Istanbul, Turkey.

labou

rm

obilit

y

nati global governancedemocratic

MakingIt 25

A patchworkWhen you put these three ideas together, you end up with the conclusion that wehave to contend with a world economy that is, and is likely to remain, a patchworkin terms of governance. We need to internalize the idea that the world economyis always going to be divided into different polities, and that jurisdictional bound-aries will be there. This conclusion really puts a damper on how far we can go interms of envisaging a truly global market, in terms of how far we can strive forwhat I call ‘hyper-globalization’, which refers to this ideal of a world economywhere national borders don’t matter in the sense that they don’t impose any trans-action costs on economic exchange.

When we get the balance between the reach of the market, and the reach of the‘workable’ regulation wrong, then we tend to run into one of two kinds of problems:1) We run into problems of legitimacy when we try to push the global rules too far,and try to harmonize institutional arrangements beyond what domestic politicalconsiderations would allow. I think the best example of this is the difficulty inwhich the current world trade regime finds itself. In fact, the WTO is one of theleast popular institutions in the world. To a large extent, the reason for this isthat we have overreached in terms of rule-making in the world trade regime.2) On the other hand, when we don’t have these rules, when the global governanceregime remains weak, or when the rules are highly country specific, then we getinto problems of inefficiency and instability, and that has been the curse of finan-cial globalization. I think that our experience with financial crises and problemsof contagion and financial volatility globally, reflect, in part, the fact that we havea world in which financial markets are increasingly global, while the regulatoryarrangements and the stabilizing arrangements are still based within nation states.We don’t have anything like a global regulator, or a global lender of last resort, orglobal fiscal policies.

mechanismsfinancialcrisesprotectionism

economic growthonal sovereigntyopen

tradenetworks

problems

WTO

The nation stateComing full circle, my argument is not just that we have to rein in our ambitionsbecause of the continuing power of the nation state, but also that it’s not neces-sarily a bad thing if we recognize the centrality of nation states in the worldeconomy. We’re more likely to contribute to a healthy global economy when werecognize the validity of the constraints than when we try to eviscerate them.Weakening domestic governance arrangements ultimately benefits no one.

Whether or not you buy my argument about the inherent desirability of a worldeconomy that’s divided across different national polities, we’re likely to move intoa world where the balance of political forces is becoming significantly morecentrifugal. This is, in part, because of the declining role of the United States inthe global economy, and also because the European Union will likely remainhighly preoccupied with its own financial crisis and its own unification process.

Rising powersAs for the rising powers, led of course by China, but also others like Brazil, India,Turkey, South Africa and Russia – even though they differ on a lot of different ‰

MakingIt26

dimensions – there is one thing that is common to all of them, which is thatall these rising powers tend to put a huge weight on the value of national sover-eignty. So, these new powers are going to be standing for a world where in fact thenation state does matter, and there’s going to be much less willingness to trans-fer sovereignty to transnational or global governance mechanisms. The supplyof global leadership is likely to be in short supply in any case.

Now, this might be a very pessimistic prospect if you think that, in order tomaintain a healthy world economy, we require a lot of global cooperation, a lot ofglobal governance, and a lot of global rule-making. It might suggest that we’relooking toward a somewhat bleak future. But I don’t think that’s that right way tolook at it, because to maintain a healthy global economy, you basically need toensure that countries do whatever is good for themselves. They need to look outfor their own interests, not those of the global economy. This is a point that is notvery well understood.

Semi-private goodsWe often think of the global economy using the analogy of a global commons –we think that the world economy is like a global ecosystem. This is the wrongway to think about trade and financial policies, in the sense that trade and financepolicies are what we would call ‘semi-private goods’ from the perspective of eachindividual nation. When we economists teach the benefits of trade, and the virtueof comparative advantage, we teach it from the perspective that this is good for

each country in and of itself. We don’t teach that trade is good because this is howyou provide benefits for the rest of the world. We say instead that trade is goodbecause it enables you to allocate your own resources more efficiently. This is verydifferent from a true global commons, for example, in the area of climate change,where in a world where each nation is doing whatever is good just for themselves,we would collectively all go to hell because nobody would have any incentive toinvest in climate control. Trade and financial policies aren’t like that, becausethese are semi-private goods, and if countries adopt policies that are good forthemselves, they will have open economic policies.

So, fundamentally, subject to a couple of caveats, an open economy is in fact ineach individual country’s own interest. There are spillovers of course. There arespillovers in terms-of-trade effects, and potentially mercantilist effects, and thisis why I call open trade and financial policy, semi-private goods, not purely privategoods from the standpoint of individual countries. When a country, let’s say,follows protectionist policies, and if it is true that it is following these in order to‘protect’ itself for economically inappropriate reasons, most of the bulk of thecosts are actually borne not by the rest of the world, but by particular groupswithin that country.

transparency

instability

‰

hyper-globalizat NGOs subs

idie

s centrifugalself-regulating sovereignty

stabilizing arrangements I businessgovernance

trade

MakingIt 27

The corollary of that is that when nation states in fact do have the manoeuvringroom to select their own trade and financial policies and their own institutionalarrangements that might potentially impose transaction costs on cross-bordertrade and financial relationships, the outcome need not be the slippery slope toprotectionism.

Agricultural subsidiesI’m not making a claim that democratic politics are always going to result in thekind of economics with desirable outcomes, but the point is that when democraticpolitics do malfunction, the costs in the world economy are paid mostly by thelocals, and not by the rest of the world. Of course, agricultural subsidies are agreat example of that, because we say “here is a fundamental failure of the worldeconomy or world governance arrangements” with respect to trade rules, and thatcountries like the United States, or those in Europe, or Japan, or Korea, with highrates of subsidies or agricultural protection, generate adverse consequences forcountries that are agricultural exporters. But, of course, the fundamentaleconomic logic of this is that when countries are subsidizing their agriculturalproducts, if anything they’re providing a benefit to the rest of the world, becauseof the terms-of-trade gains that the rest of the world derives. But even leavingthat aside, the answer to the question, “Who pays the cost of those policies?” is thatthe costs are paid for by domestic consumers and domestic tax payers. So, theultimate failure here is not failure of global rules per se. It’s a failure of domesticdeliberation, of domestic democracy. These are very costly policies from the stand-point of each individual country, and if a democracy ends up saying that despitethose costs, we want these policies nonetheless, it is not because they want toimpose costs on others, it’s because democracies are entitled to make their ownmistakes.

Bigger gainsThe point is that since the costs of ‘bad’ trade and financial policies are bornemostly at home, improved deliberation (and improved mechanisms of decision-making in these areas) is likely to be a much more powerful discipline, a muchmore powerful stick, than external constraints. After all, the bulk of the costs fallnot abroad, but at home. And in any case, the mechanisms of governance withinwhich we can sensibly address these issues are mostly national to begin with. So,this way of thinking about where we’re going has implications for how we thinkabout the design of global institutions, how we think about where we should focusour energies. In other words, where are the bigger gains for international coop-eration and rule-making?

One of the policy areas where one can apply some of these broader principlesis with respect to what, in some sense, is the burning macroeconomic issue of theday which is, how do you deal with global macroeconomic imbalances?

ChinaNow this is an area where cross-border spillovers are large because you can argue,quite reasonably, that China’s mercantilist policies have costs for others. What Imean by China’s mercantilist policies is its currency and other policies that createa large trade surplus. These have costs elsewhere in the world economy, becausethey aggravate unemployment in the United States and elsewhere, and also havecosts for economic growth in developing and emerging market economiesbecause of the relationship between exchange-rates and economic growth.However, I think that what this debate has not taken on board sufficiently is thatChina also has valid concerns about the potential employment and social conse-quences of a rapid currency appreciation. So, for the last ten years, China’s growthmodel has relied extensively on an undervalued currency, and what one might callexchange-rate protection, which has increasingly replaced the kind of trade andindustrial policies that China used to rely on, prior to joining the WTO in 2001.In fact, it’s quite striking that both the external imbalance and the exchange-rateundervaluation started to rise in 2001, just as China joined the WTO.

ionMF

transactions

‰

barriers

MakingIt28 MakingIt28

So, I think that one way of squaring the circle is to accept that if the rest ofthe world – the United States in particular – is going to come down hard on Chinato do something on the exchange rate front, it’s also incumbent on us to thinkwhether China needs any insurance policy against the potential downside of lossof employment and significant reduction in economic growth that could besocially costly. And the kind of insurance policy that economic logic suggests weought to provide China with is much greater freedom to employ sectoral policiesin case particular sectors, or particular sets of firms, are adversely affected by arapid appreciation of the Renminbi, potentially causing unemployment prob-lems. The suggestion here is that greater discipline on macroeconomic andexchange-rate policies imposed on China is really viable only if is matched bysignificantly relaxed discipline on sectoral, or microeconomic, or industrial poli-cies. In a way, the quid-pro-quo here is to look the other way if China is going toviolate the agreement on subsidies of the WTO, and use sectoral policies in orderto potentially pre-empt the employment costs of a rapid appreciation of theRenminbi. In exchange, the rest of the world can ask for greater global disciplineover macroeconomic and currency policies.

Labour mobilityThe second area is one area where globalization has advanced way too little. Ininternational trade and international finance, we need to ask how we can mitigatethe consequences of globalization having gone too far. But with respect to theworld labour regime, we’re in a world where globalization has not gone farenough. The world labour regime today is roughly where the trade regime stoodin the 1950s. We live in a world in which there are very high barriers to labourmobility, very inconsistent policies – quantitative restrictions all over. Now, whatthis means economically is that because we’re starting from a position where thesize of barriers is so large, the relative balance between the total global efficiencygains and potentially adverse distributional effects of relaxing those barriers ishighly skewed on the positive side. It is skewed in the direction of the net effi-ciency gains. For any dollar of redistribution we get from relaxing these temporaryworker mobility barriers, the surplus we generate for the world economy, theextent by which we would increase the global pie, is much greater than fromalmost any other area of reform. Even a relatively small increase in the temporarywork visa allocations of rich countries would produce net gains that are severaltimes those produced by the removal of trade barriers, or anything else that’scurrently under discussion regarding the world trade regime.

This is really the unexplored frontier of globalization, and I suggest that if thetrade negotiators, who are wasting their time with Doha, really want to do some-thing useful, and really expand the size of the global pie, this – and not the existingagenda – would be the area that they should be targeting.

capita employment

Doh

a

accountability

‰

nation global governance

regula unemployment

protectionistregulation

MakingIt 29MakingIt 29

Global rulesWith respect to the nature of the global rules, I suggest that the main contribu-tion that global rules can make is through their effect on improving the qualityof domestic deliberation. If there is a shift in emphasis in places like the WTO orthe G20, instead of trying to enact global rules that try to harmonize on substancein pursuit of the objective of minimizing transaction costs across borders, theseglobal rules should instead focus on procedural safeguards that ensure that thedomestic deliberation on regulatory matters affecting trade and finance benefitfrom some key qualitative improvements. The key principle here would be toensure things like transparency, accountability, representativeness, and the use ofscientific or economic evidence in domestic deliberations with respect to tradeand industrial and financial policies. And international rules could set proce-dural standards, require the application of these principles, and, through such amechanism, could actually make a contribution to the quality of domestic delib-eration. The idea here is that there is much to be gained by legitimizing nationaldifferences and regulatory structures, but doing that subject to procedural safe-guards that can potentially improve the quality of such deliberation.

To sum up, I believe that democratic deliberation is still largely organizedaround nation states, and I believe in the right of countries to protect their ownregulatory arrangements and institutions, but I distinguish this very sharply fromthe right to impose those arrangements on others. The right to have your owninstitutions doesn’t give you a right to impose them on others. I think we shouldstrive for as much economic globalization as we can get that is consistent withmaintaining this space for diversity in domestic international arrangements.

Policy spaceMy emphasis here on creating policy space is based on the argument that all kindsof countries need that policy space; the rich nations need it to provide social safetynets and social insurance programmes, to address concerns about the labour,environmental or health and safety consequences of trade, and ultimately toshorten the chain of delegation whereby decisions are made by a group of judgesin Geneva. And I think developing countries need the policy space, because therecord shows us that it’s those countries that use the policy space to restructuretheir economies, and to diversify their economies, that ultimately benefit fromglobalization the most, and can leverage globalization the most.

Providing countries of both the North and the South – both rich and poorcountries – with this kind of policy space, and understanding that this policyspace is needed to maintain the integrity of domestic institutions, is somethingthat is not just desirable from the narrow perspective of national economicmanagement. It will actually produce a global economy that is workable and thatis healthier. n

l This is an editedversion of a talk given atthe Peterson Institute forInternational Economics,Washington, DC, on 4 May 2011.

lism

welfarestate

social protection

states

torsexchange-rate mechanism

regionalism

political democracyop

entra

demulti-polarmacroeconomic subsidies

MakingIt18

You argue that the central global predicamentof the 21st century is that, in becoming moreintegrated, we have also become less gov-erned. When did this shift start taking place,and where are we today along the continuumof this “unfinished global revolution”?In the last twenty or so years, two great trendsthat are inherently in conflict with each otherhave been playing out. By chance, I have livedat their intersection. The first trend is thedemand of people everywhere to have moresay over their own lives. This has led to the as-tonishing people power revolutions from thePhilippines and Latin America to EasternEurope and Africa, and now, recently, in Egypt.Steadily, one man rule has been rolled back,and politburos and generals have been sentpacking, as people have demanded demo-

cratic control over their societies and lives.I was present at many of these revolu-

tions. In the early days, as a political advisorto insurgent candidates like Cory Aquino inthe Philippines and her counterparts inLatin America and Eastern Europe, and thenI saw a later round of these changes, and gotin the midst of more than my fair share ofthem as a senior international official, andthen government minister. I saw enough, asI describe in the book, to understand thatmost, if not all, of these democratic out-pourings have fallen short of the anticipa-tion of those who filled the streets tocelebrate democracy’s victory. The old order,corruption, inequality, a lack of real freedom,too often has hung on, despite the new dem-ocratic trappings.

Rahim Kanani speaks to Mark Malloch Brown about hisnew book, The Unfinished Global Revolution: The Pursuit ofa New International Politics, which explores the challengesand opportunities of globalization in the 21st century.

MARK MALLOCH BROWN is a former Minister ofState in the Foreign and Commonwealth Office of theBritish government with responsibility for Africa, Asia,and the United Nations. Prior to that, he served asDeputy Secretary-General of the United Nations(2006) and chef de cabinet for UN Secretary-GeneralKofi Annan (2005), and as administrator of the UnitedNations Development Programme (1999-2005). Earlierin his career, he served at the World Bank as vice-president for external affairs, and vice-president forUnited Nations affairs.

Phot

o: S

tefa

n M

agda

linsk

Ph

oto:

Wor

ld E

cono

mic

For

um/Y

ouss

ef M

efta

h

globalThe

revolution

unfinished

Interview

MakingIt 19

But there is no doubting the depth of theyearning for control over our lives and thefreedom to make our own choices within ademocratic framework, where we have theprotection of the land for ourselves and ourfamilies. From being a minority, luxury, aspi-ration for the few in the West, democracy hasbecome a nearly worldwide demand.

This political tidal wave of our lifetimessmashes into the rocks of the other great trendof recent decades: the impact of globalization.While it has blown change through our lives,and through its mass communications tech-nologies even enabled many of the nationaldemocratic changes – witness the role of Face-book and Twitter in Egypt, it has also hijackedour democracy, in unanticipated ways.

What I mean is that as our lives have

become integrated on a global level: from theglobally sourced finance that underpins na-tional economies, to the far-flung locationsfrom where our food and consumer goodscome, to where the services from bank backoffices to the staff in our hospitals originate.We live our lives with an ever greater depend-ence on international travel for work andpleasure. All of this has consequences for na-tional democracy. Regulating finance, trade,public health, security, and all the other di-mensions of a global economy are beyond thepower of individual countries – even the mostpowerful. A country only controls one or twolinks in the chain of finance, or the spread ofan infectious disease.

That is the dilemma I try to expose as ademocracy advocate and a champion of better

management of our global affairs. I describehow my thinking evolved, as I found how dif-ficult it is to carry that powerful moment ofdemocratic revolution from the people powerof the streets to people power in the distant,global places, where more and more of the de-cisions that shape our lives must be made. Iam able to describe these inaccessible places,and their workings too, in these pages becausemy own journey took me from democratic ac-tivist to senior international official, where Iwas privy to significant deliberations and wasresponsible for major management rolesacross the system. Indeed, probably nobodyhas been lucky enough to enjoy such a widerange of experience across the top level of anemerging system of global governance.

So, this is the story of two unfinished

“[On] the long journey,that we have hardlyembarked on, to build aglobal democracy...”

‰

MakingIt20

revolutions: the imperfections and incom-pleteness of local and national democracy inthe face of the persistence of old powergroups and of poverty and marginalization;and of the long journey, that we have hardlyembarked on, to build a global democracy –partly because it is even more complicatedthan one man, one vote, or one country, onevote. We have hardly begun to work out how togovern ourselves at the global level. Andindeed there are jealous politicians every-where, defending their own prerogatives, inthe name of national sovereignty, who don’tthink we should even try.

In this changing international landscape,what is the obligation of this generation tothe next?Well, this generation is probably the last glob-ally unregulated generation. We can racethrough the world’s finite natural resourcesof energy, water, commodities, forests, soils,and oceans, as though there was no tomorrow!We also have the freedom to move our wealtharound, shopping for low regulation locationswhere it is not taxed and oversight is lax.Indeed, many companies employ lots oflawyers and tax accountants to play this patch-work global system, where money is global,but regulation local.

At the very least we are going to have to ex-plain to the next generation why in a world ofgrowing population, we did not have the fore-sight to think and act more clearly to addressthese issues. Why did we not understand thatin a globalized economy, letting politicianscontinue in the self-indulgence that rules andregulations could still be set by them at thenational level was a recipe for incoherenceand abuse? What can we do about it? Act now,and get going on the kind of bargaining andglobal negotiating necessary to create properframeworks for handling these issues in a fair,globally inclusive way for the future.

In your book, you argue that as nationalpoliticians cede control to impersonal globalforces, they will be forced to become more ef-fective participants in international mecha-nisms, such as the United Nations. What aresome examples of this trend, and what are thepotential consequences associated with an in-creased reliance on a system like the UN thatstill needs much reform in order to operateeffectively?

A: When one looks at a difficult and so farunsuccessful new trade round, the so-calledDoha round, one sees politicians weighing inbecause they think an agreement will bring

jobs home. So, for months at a time, trade ne-gotiations will be delegated to ambassadors inGeneva who often have no particular incen-tive to arrive at an agreement, given the pleas-ant sinecure of Geneva life. Suddenly,politicians facing low growth and too few jobsat home wade in, and there are frantic phone-calls between leaders. The White House,Downing Street, and their Indian and Chineseequivalents are involved. In this case, withlittle result, but the point is clear: politiciansrecognize global trade matters.

Similarly, in 2008-9, when the world wasfaced with financial meltdown, leaders gotstuck in. From Bush to Brown, they recog-nized the survival of their national economiesdepended on coordinated internationalaction.

A lot of these examples of coordinated po-litical action are, however, outside the UN.This is a sad commentary on its perceived in-effectiveness. It has got a fail grade from manyon its handling of climate change negotia-

tions. It has been largely missing in many ofthe major political confrontations of the lastfew years. The stark truth is it is going to haveto raise its game, if the new multilateralism isnot to largely by-pass it.

Nevertheless, one should not overlook thefact that the source of much of its weakness isalso the source of its unique legitimacy: everycountry is a member. And while an inner coreof countries, with major interests in the issue,may be able to agree an approach to financialregulation or climate change, unless thewhole global community of 192 suspicious,often opposing, countries then endorse it, it’snot going to be applied universally. So, whilethe dynamic part of negotiation may migratefrom the UN to more purpose-built associa-tions of national and other stakeholders, theyseem likely to continue to need the UN as thefinal seal of approval.

That would be a reduced role for the UN,but it may be its fate unless a new generationof leaders, like Kofi Annan, comes back intopositions of prominence. As I argue in thebook, what distinguished Kofi, and other lead-ers I worked with, was the ability, proactively,to sense where a creative progressive consen-sus among governments might be found, andto lead, bargain, and cajole nations to getthere. Then, the UN can produce remarkableresults.

If President Obama granted you an audienceto discuss the role of the United Statesmoving forward in strengthening the systemof international relations and global mecha-nisms such as the United Nations, whatwould be your advice?Senator Obama visited the UN on a couple ofoccasions when I was Deputy Secretary-Gen-eral. We spoke about Darfur and other troublespots. I was left with a very clear respect forhis instinctive multilateralism as a means formoving forward human rights and conflictissues he cared deeply about. He understoodthat the American ‘big stick’, wielded alone,rarely brought the results he desired aroundthe world. But his faith in multilateralism, asa progressive force, was even then laced witha discernable scepticism about whether theUN was always fit for purpose for the big tasks,such as peacekeeping in Darfur. His two con-cerns seemed to be the chronic institutionalconservatism brought about by obedience tothe sovereign rights of even the mostwretched governments such as Sudan. Howcould you save the people of Darfur, if every-thing you did had to have the OK of their per-secutors in Khartoum? His second apparent

“We have hardly begun towork out how to governourselves at the globallevel. And indeed thereare jealous politicianseverywhere, defendingtheir own prerogatives, inthe name of nationalsovereignty, who don’tthink we should even try.”

‰

MakingIt 21

ence of their actions. As British Prime Minis-ter Gordon Brown’s G20 envoy, I saw it was ahigh point, and indeed the pace of agreementon common action fell away sharply after theLondon Summit in April 2009 as the crisisitself receded.

So, while there is a similarly compellingcase for global action on public health, povertyor climate change, the sense of crisis andmutual threat that drove action on finance ismissing. There have been moments – the con-certed action against HIV/Aids when it threat-ened to become a global scourge; anintermittent commitment to tackling poverty– but what we have not yet acquired is a globalpolitical consciousness that allows us to rec-ognize that we must worry about the badneighbourhoods next door. Just as Americansor Britons, a hundred years ago, had begun torecognize the state must address poverty, andnot leave it to private charity alone, so we areon the cusp, I suspect, of a great leap of imag-ination in terms of our responsibilities as cit-

concern was that an organization with suchgovernments having a hand on the wheel wasunlikely to have the internal resourcefulness,morale, or risk taking culture, to deal robustlywith crises.

I was left believing President Obama wasan unconditional multilateralist but a condi-tional UN supporter. The way of course toconvince him otherwise is clear. The UN mustperform. That, in turn, means a risk-takingleadership ready again to challenge the world,including the US, to do better.

If your audience was the leadership of China,India, or Brazil, and the topic was the futureof the international system, how would youradvice differ?I would presumptuously offer the leaders ofChina, India, and Brazil, a history lesson. Itwould dwell on events they may not be thatfamiliar with – how FDR came to commis-sion the design of the United Nations even asthe US entered the Second World War, andthat he did this not solely to export Americanliberal values round the world. Rather, it wasseen as a system of sharing out responsibilityfor global security. Roosevelt could see Amer-ica was going to be landed with the role ofglobal policeman, but he equally recognizedAmericans would demand that the country fo-cused its resources on the home front. TheUN became the pragmatic vehicle for squar-ing the circle, to deflect global calls for Amer-ican leadership into a robust burden-sharedsystem of global leadership, covering securityand development matters.

Today, China, India, and Brazil face similardemands to step up to global leadership whentheir people want them to continue to tacklea huge unmet domestic agenda. The UNoffers their leaders, as it did the Americans in1945, a low-cost way of meeting the responsi-bilities thrust upon them. It requires them toplunge back into the organization which theyhave traditionally resented as too Westerndominated.

Reflecting on the 2008 financial crisis, whatis the relationship between the necessity togovern the global economy with global in-stitutions, and the necessity to empowerand enable similar institutions to addressissues of public health, poverty, or climatechange?The leap to an empowered G20 occurred in2008 because of a financial crisis that threat-ened the stability of governments and all ourlivelihoods. Briefly because of crisis leaderssurprised themselves by the force and coher-

izens, whether we believe in right-wingmarket solutions to global poverty or moreleft-wing social interventions, we are crossingthe threshold where we will recognize that itis our business to worry about global poverty,even if we still disagree about solutions.

As the ‘unfinished global revolution’ unfolds,and having served for many years in a varietyof public, private and non-profit institutionsaround the world, what insights would youimpart on young and emerging leaders in thesocial sector who may be disenchanted withthe ineffectiveness and bureaucracy of globalinstitutions and with their inability to meet21st century challenges?First, the canvas on which young leaders canact is wide: NGOs, the UN, business. Almostevery organization is moving towards a moreinternational model, and with that comes theopportunity of more career time spent abroad.So, choices do not need to be limited to the of-ficial part of an international system. It’s nowbig enough and diverse enough to touch all ofus. So, seize the chance whatever your field ofendeavour. Recognize that new or old organi-zations will need continuously to re-inventthemselves during a century of continuouschange and likely drastic upheaval. Finally, un-derstand that new leadership requires less ofthe domineering alpha male popularized inthe Hollywood model of governmental andcorporate leaders. We are likely to see fewerlantern-jawed heroic titans barking instruc-tions to deferential subordinates, and insteadsee a gentler consensus, with leaders who willseek the understanding and emotional buy-inof the cross-cultural teams they work with.Kofi Annan. Not George Bush.

What is it about the ‘unfinished global revo-lution’ that worries you the most?That it’s unfinished and, with a world ex-panding at 200,000 people a day, we don’thave long to sort ourselves out.

And what are you most optimistic about?That, so far, innovation, social adaptation, andremarkable individuals – not just some ex-traordinary world leaders, but civil society andentrepreneurs, some working in most diffi-cult circumstances – have kept us one stepahead of failure.

l Rahim Kanani is founder and editor-in-chief ofWorld Affairs Commentary. For more interviewswith global leaders in international development,philanthropy, education, and more, visitwww.RahimKanani.com.

“While the dynamic partof negotiation maymigrate from the UN tomore purpose-builtassociations of nationaland other stakeholders,they seem likely tocontinue to need the UNas the final seal ofapproval.”

MakingIt30

MakingIt 31

Economists in developedcountries have constructed acomforting narrative about ourefforts to fight world poverty,but a closer look at the statisticsexposes a series of brokenpromises and rigged initiatives,writes Thomas Pogge

Phot

o: C

hery

l Rav

elo/

Reut

ers

shareUnfair

‰

THOMAS POGGEis Leitner Professor of Philosophy andInternational Affairs at Yale University, New Haven, USA.

MakingIt32

Fairness of an economic system can be defined by two requirements.First, people must have minimally adequate starting positions, so thatthey can effectively participate. In our time, this requirement is unmetfor people who lack basic literacy and numeracy or live from child-hood on with undernutrition or endemic malaria. Such conditionspre-empt their capacity to explore and evaluate their options for buyingand selling, borrowing or employment. Second, those at the bottommust be able to share proportionately in economic growth. This re-quirement is unmet, for instance, in a feudal system where the gap be-tween the landowners and the landless widens relentlessly, no matterhow much harder the latter may work.

Despite abundant rhetorical commitment to the ideal of a fair globaleconomic order, the world has actually moved in the opposite direc-tion. According to the UN Food and Agriculture Organization, thenumber of chronically undernourished people steadily increased fromthe early 1990s, before rising above a billion in 2009 for the first time inhuman history. Branko Milanovic reports that, in a mere 17 years ofglobalization (1988 to 2005), the share of global household income goingto the bottom quarter of the world’s population has fallen by a third(from 1.155% to 0.775%), with the gap between the average income of thetop 5% and that of the bottom quarter growing by 61%.

These bleak statistics disturb the rosy picture of valiant effort andpartial success that well-paid economists are feeding to the media andpublic of affluent countries. But if we care about fairness, as opposedto the mere appearance of it, then we must be willing to face the facts,

as well as to look more closely at how that inaccurate narrative is pro-duced. We must examine the World Bank’s unsound purchasing poweradjustments, which count a person as non-poor even though his orher entire income can buy only as much daily food as could be boughtin the US for 83 cents. We must recognize the mendacity of the Mil-lennium Development Goals (MDG) effort, which is illustrated by trac-ing the emergence of the first and most prominent MDG: the promiseto halve extreme poverty by 2015.

The first version of this promise was made in the 1996 Rome Dec-laration on World Food Security. It commits us to halve the number ofundernourished people between 1996 and 2015. The second version ofthe promise was made by the UN General Assembly in its 2000 Mil-lennium Declaration. It commits us to halve, between 2000 and 2015,“the proportion of the world’s people whose income is less than onedollar a day and the proportion of people who suffer from hunger”.The third version of the promise, supposedly based on the MillenniumDeclaration, is the official formulation of MDG-1 now used to trackprogress. It commits us to halve, between 1990 and 2015, the proportionof extremely poor people among the population of the developingcountries.

Concealed by an unchanged catchphrase (“halve extreme povertyby 2015”), the revisions cleverly dilute the promise. By basing the targeton a proportion rather than a number, the later versions take advantageof population growth. This advantage is magnified by relating thenumber of poor to the faster-growing “population of the developing

‰

“We must recognize the mendacity of the MillenniumDevelopment Goals (MDG) effort, which is illustrated by

tracing the emergence of the first and most prominent MDG:the promise to halve extreme poverty by 2015.”

Phot

o: S

tefa

n Bo

ness

/Pan

os

MakingIt 33

countries” rather than to “the world’s people”, and it is magnified againby the decision to backdate the baseline to 1990: if the population of thedeveloping countries grows until 2015 as expected, to 146% of what itwas in 1990, then the number of poor only needs to fall to 73% of whatit was in order to "halve poverty". This is obviously much less ambitiousthan reducing the number of poor to 50% of what it was. The back-dating to 1990 brings the further advantage that spectacular povertyreductions in China during the 1990s can now be counted toward theMillennium Development Goals.

The latest World Bank data on the evolution of extreme poverty andthe latest UN statistics on population growth, illustrate the significanceof the reformulations. The dilutions have added 484 million to thenumber of people whose extreme poverty in 2015 will be deemedmorally acceptable, or even celebrated as success. Yet an extra 484 mil-lion people in extreme poverty equates to about six million additionalpremature deaths from poverty-related causes each year.

Even more remarkable than the thoughtfulness expended on thesedeceitful reformulations is the fact that, despite their high visibility,they drew no protests or even comments from any of the politicians,bureaucrats and experts (including those from less developed coun-tries) who are supposedly engaged in the fight against poverty. None ofthem was willing to put his or her career at risk in order to try to pro-tect the poor by holding the global elite to their earlier promises.

The story of the past 20 years is not that, through deception, theglobal elite did less than it ought to lift people out of poverty. Hadthe poorest quarter of humanity merely kept up with the growth in theglobal average income, had they merely maintained their wretched1.155% share of global household income, they would have had 49%more in 2005 than they actually had. While this would still have beena less than fair basis for participation in the world economy, it wouldnonetheless have been a huge improvement on their actual condi-tion. The real story of the past 20 years is that, despite all the rhetoricand good and successful efforts by many NGOs and developmentagencies, the world’s poor have been slaughtered. If we don’t under-stand how this happened, we won’t be able to do better in the post-MDG era.

What went wrong?If acknowledged at all, the massive persistence of extreme poverty isusually explained by two factors: corrupt and oppressive regimes inmany poor countries, and the ‘leaky bucket’ of development assistance.Both these explanations have an element of truth. But the first fails toexplain the high prevalence of corrupt and oppressive regimes, andthe second why the income share of the poor is falling, and rapidly so.

My own explanation redeploys the metaphor: the assets of the poorare like a leaky bucket, continuously depleted by massive outflows thatoverwhelm the effects of development assistance, which, in any case, arepuny. We take great pride in our assistance, boasting of the roughlyUS$15bn that OECD countries spend annually on basic social servicesin poor countries. Yet we ignore the vastly larger amounts that we extractfrom the poor without compensation. Let me count the ways.

First, affluent countries and their firms buy huge quantities of nat-ural resources from the rulers of developing countries without regardfor how such leaders came to – and how they exercise – power. In manycases, this amounts to collaboration in the theft of these resources fromtheir owners: the country’s people. It also enriches their oppressorsand thereby entrenches the oppression: tyrants sell us the natural re-sources of their victims and then use the proceeds to buy the weaponsthey need to keep themselves in power.

Second, affluent countries and their banks lend money to suchrulers and compel the country’s people to repay it even after the ruleris gone. Many poor populations are still repaying debts incurred,against their will, by dictators such as Suharto in Indonesia, Mobutu inthe Democratic Republic of the Congo, and Abacha in Nigeria. Again,we are participating in theft: the unilateral imposition of debt burdenson impoverished populations.

Third, affluent countries facilitate the embezzlement of funds bypublic officials in less developed countries by allowing their banks toaccept such funds. This complicity could easily be avoided: banks arealready under strict reporting requirements with regard to funds sus-pected of being related to terrorism or drug trafficking. Yet banks stillaccept and manage embezzled funds, with governments ensuring thattheir banks remain attractive for such illicit deposits. Global FinancialIntegrity (GFI) estimates that less developed countries have annuallylost at least US$342bn in this way during the 2000–08 period.

Fourth, affluent countries facilitate tax evasion in the less developedcountries through lax accounting standards for multinational corpo-rations. Since they are not required to do country-by-country report-ing, such corporations can easily manipulate transfer prices amongtheir subsidiaries to concentrate their profits where they are taxed theleast. As a result, they may report no profit in the countries in whichthey extract, manufacture or sell goods or services, having their world-wide profits taxed instead in some tax haven where they only have apaper presence. GFI estimates that, during the 2002–06 period, trademispricing has deprived less developed countries of US$98.4bn perannum in tax revenues.

Fifth, affluent countries account for a disproportionate share ofplanetary pollution. Their emissions are prime contributors to seri-ous health hazards, extreme weather events, rising sea levels and cli-mate change, to which poor populations are especially vulnerable. Arecent report by the Global Humanitarian Forum, led by Kofi Annan,estimates that climate change already seriously affects 325 millionpeople and causes US$125bn worth of economic losses every year. Italso causes 300,000 deaths, of which 99% are in developing countries.

Finally, affluent countries have created a global trading regime thatis supposed to release large collective gains through free and openmarkets. The regime is rigged, however, by allowing rich states to con-tinue to protect their markets through tariffs and anti-dumping dutiesand to gain larger world market shares through export credits and sub-sidies (including about US$300bn annually in agriculture) that poorcountries cannot afford to match. Since production is much morelabour-intensive in poor than in affluent countries, such protectionistmeasures destroy many more jobs than they create.

Taken together, these factors generate a massive headwind againstthe poor. This overwhelms the effects of public and private foreign aid,meaning that the poor remain excluded from effective participationin the globalized economy and cannot benefit proportionately fromglobal economic growth.

This problem may be solvable through huge increases in devel-opment aid, but such continuous compensation is neither cost-ef-fective nor sustainable. It is far better to develop institutional reformsthat would reduce the headwind, and eventually turn it off. Thiswould mean seeing the world poverty problem not as a specialistconcern at the margins of politics but as an important considerationin all decisions related to institutional design.l This article first appeared in The RSA Journal and is reprinted here withpermission of The Royal Society for the Encouragement of Arts, Manufacturesand Commerce (RSA).

MakingIt34

Phot

o: M

atth

ias

Kul

ka/C

orbi

s

Jan Wouters and Dylan Geraets argue that network governance needs to be transparent, inclusive, and responsive.

Globalization,governanceand the G20

MakingIt 35

How to govern globalization? In the past threeyears the world has witnessed the emergenceof a series of new actors in global governance.Increasingly, (informal) networks are used asforums to discuss new and pressing issues,alongside traditional international organiza-tions. These networks operate in fields asdiverse as food safety, standard setting, inter-national public health, and financialregulation. At the global level, one of theprime examples of network governance is theGroup of 20. Through the G20 – in November2008 elevated to the rank of heads of state andgovernment – world leaders attempt toaddress the most pressing global problemsthat arise in our increasingly multi-polarworld. Although initially focused on dealingwith the effects of the world’s worst financialcrisis since the 1930s, the agenda of the G20has steadily broadened and now includesissues that range from the reform of interna-tional financial institutions and the effects ofmacro-economic imbalances to commodityprice volatility, development and the fightagainst corruption. In attempting to deal withthese issues, the G20 maintains a close rela-tionship with formal internationalorganizations, such as the InternationalMonetary Fund, the World Trade Organiza-tion and the World Bank.

After three years, we can make an initialassessment of this relatively new construct inglobal governance: has the combination ofinformal networks, like the G20, and formalinternational organizations, proven fruitful?Has effective and efficient cooperationbetween them materialized? Does the G20provide political guidance to ‘traditional’international organizations? At the same time,we need to ask whether the G20 itself deliversin terms of ‘democratic’ global governance.Does the inclusion of emerging countriesmake the G20 more legitimate? Has the G20lived up to its expectations in terms ofgoverning globalization: can it function as anew steering committee for the world?

A broadening agenda – shifting prioritiesAs a network rather than a formal organiza-tion, the G20 is not based on a formal charteror treaty. There are no voting procedures,there is no central secretariat, and it does notprovide legally binding outcomes. Throughits informal structure, the G20 has the free-dom to set its own agenda, coordinatepolicies, and distribute tasks across existinginstitutions. After the initial phase of crisismanagement in the face of the internationalfinancial crisis, this freedom has led to the

broadening of priorities of the G20. Thedownside of this broadening agenda can beseen with regard to the level of decisivenesswith which the G20 has been able to operate.The expediency with which the ‘sherpas’ (thefaceless diplomats who lay the groundworkfor high-profile international meetings suchas the G8 and the G20) crafted the bailoutpackage at the end of 2008 can no longer beseen. Far from turning into a central hub forglobal governance, the G20 is turning into aforum where a variety of issues are discussed,and diverse opinions and policy preferencesare exchanged between new and emergingpowers, but firm policy conclusions are notnecessarily reached.

Vision and guidanceIn an earlier issue of Making It, Peter Suther-land warned against the growing economicnationalism of the mercantilist mindset andrising protectionism within G20 countries.More recently, WTO Director-General Pascal Lamy urged G20 leaders “to renew the firmcommitment that they will not recourse toprotectionism in order to exit the crisis.” Inan earlier speech, Lamy also called upon G20leaders to provide the political guidanceneeded to complete the Doha Round ofmultilateral trade negotiations that has beenrunning since 2001. So far, unfortunately, suchrequests have remained unanswered. In spiteof their initial commitment to refrain fromprotectionism, in reality there has been anincrease in the number of protectionist meas-

ures in the last six months. This example begsthe question to what extent the G20 is reallycapable of providing the political vision andguidance that it is asked for. Can we realisti-cally expect this guidance (these decisions)from a network that includes both China andthe United States: the prime example of geo-political tension at this very moment in time?In terms of effectiveness and efficiency, in arecent article in Foreign Affairs, the influentialeconomists Ian Bremmer and NourielRoubini argued that the G20 has turned “froma would-be concert of nations to a cacophonyof competing voices.” In their view “the G-Zero era is more likely to produce protractedconflict than anything resembling a new Bret-ton Woods”.

Legitimate and accountable globalgovernance?Until 2008, the Group of Eight (G8) was anexclusive club of the world’s leadingeconomies. Its importance had, however,waned over the past few years. A network thatdoes not include major economies such asIndia, China and Brazil risks becoming irrele-vant. By inviting these countries to the table inthe G20 constellation, this legitimacy deficitprevalent in the G8 was partially addressed.The emerging economies that are now ‘inside’the network have used this position to theiradvantage; although their positions are oftennot the same, they have been the major propo-nents behind the proposals for the reform ofthe international financial institutions. Anumber of excluded countries, includingNorway and most notably the countriesunified under the ‘Global Governance Group’(3G), have expressed their concerns regardingthe legitimacy of the G20. Making the policy-making process more transparent, forexample, by publishing more documents nextto the already openly available communiqués,would alleviate at least some of these concerns.

Rather than looking at (new) internationalinstitutions as the panacea for all perceiveddeficiencies of global governance throughnetworks, it would be better to encourageour leaders to display the type of politicalleadership and vision that has been lackingfor so long. If we accept that (informal)networks are indispensable to address theproblems posed by the process of globaliza-tion, we have to attempt to mitigate some oftheir negative features. Turning to newformal institutions might not be necessaryif we ensure that the networks of today andtomorrow are transparent, inclusive, andresponsive. n

JAN WOUTERS is Professor of International Lawand International Organizations, and Director of theLeuven Centre for Global Governance Studies andthe Institute for International Law at the Universityof Leuven, Belgium.

DYLAN GERAETS is an assistant at the Institute forInternational Law at the University of Leuven.

MakingIt36

GarmentindustryleadsthewayAt the United Nations Conference on the LeastDeveloped Countries (LDCs) held in Turkey inMay 2011, Bangladesh was singled out by UNofficials as one of the countries with realpotential to graduate from the LDC list.

This view was echoed by the eminenteconomist, Debapriya Bhattacharya, who told journalists, “I believe that Bangladesh has the capabilities to come off the list ofLDCs very soon, as the country has madesignificant progress in different sectors,including the economy.”

Despite political turbulence and frequentnatural disasters in recent years, Bangladeshhas sustained a surprisingly good record forgrowth and development. The economy hasgrown by an average of 5-6% each year since1996, and this growth has been accompaniedby significant poverty reduction.

The country has made laudable progress onmany aspects of human development, mostnotably the influx of girls into the educationsystem and of women into the labour force.Bangladesh is on track to meet MillenniumDevelopment Goals for infant and childmortality, and gender equality in education.

It is considered something of a paradox thatBangladesh has made such relatively strongprogress on development, while experiencing achallenging governance environment,characterized by political instability, poorinfrastructure, corruption, and insufficient

power supplies. Analysts have been forced toconclude that, despite these difficultcircumstances, successive governments havemanaged to maintain macroeconomic stability,have allowed the private sector to flourish, andhave facilitated the receipt of vast amounts ofremittances from Bangladeshis working abroad.

From a predominantly feudal agrarian base,over the last four decades the economy ofBangladesh has undergone a rapid structuraltransformation. Whereas in the early 1970s, theagricultural sector contributed 50% of GDP,today it accounts for less than 20%. Services andmanufacturing are now the main drivers ofeconomic growth, with services accounting foraround 50% of GDP, and industry contributingaround 30%.

Industrial growth has been driven by abooming garment industry. This sector beganto take-off in the 1980s when foreign investorstook note of the country’s cheap labour costs,but the real impact has been over the lastdecade. In 2002, the garment industry exportedUS$5bn. worth of products but, by the fiscalyear 2009-10, this figure had increased toUS$12.6bn. Recently, the World TradeOrganization ranked Bangladesh as the fourthlargest clothing exporter in the world.

The garment industry today employs morethan three million workers, 90% of whom arewomen. According to Nasreen Awal Mintoo,president of the Women Entrepreneurs

Bangladesh

COUNTRYFEATURE

MakingIt 37

A Bangladeshi girl driescolourful handkerchiefsnear a handloom factoryat Kaliganj, 32 miles fromthe capital Dhaka.

Phot

o: R

afiq

uar R

ahm

an/R

eute

rs

Association of Bangladesh, this dynamic partof the economy sector is being driven by aprivate sector in which women are playing asignificant role.

“The Bangladesh private sector is doingreally a lot. It’s because of the private sectorthat Bangladesh is growing faster”, Mintoorecently told IPS. “And womenentrepreneurship is growing fast, helpingBangladesh to grow. A lot of womenentrepreneurs are coming up.”

Mintoo is another who sees the countrygetting ready to step ahead, stating, “SoonBangladesh will come out of LDC status… andwomen are really playing a big role in this.”

Sabera Ahmed, chief executive director ofPentasoft Centre of Excellence, an informationtechnology education network, agrees thatwomen - both women workers and womenentrepreneurs – are having a big impact on thecountry’s economic progress.

“We are a role model, inside the house,outside. Outside the country even”, said Ahmed.“In the garments sector we have a revolution.Like in the United States, there was a women’srevolution in the sixties, in our country we haveseen a revolution in the eighties, in the nineties,in the garments sector.”

As an example, she remarked, “Very often we see the men taking care of the kids in thehouse, and the wives are going to the garments factory.”

The garment industry will remain thelargest contributor to growth in output for theforeseeable future, especially since the recentchange in European Union (EU) import ruleswhich gives Bangladesh (and other LDCs) asignificant competitive advantage overcompetitors. The change gives theBangladesh duty-free access to the EU forclothes and other finished goods if importedcomponents of the finished product do notexceed 70%. Clothes imported to the EU fromChina, India, Pakistan and Sri Lanka, whichare Bangladesh’s main competitors but arenot LDCs, will be liable for duty.

In the first months of 2011, there has beena surge in the value of Bangladesh’s garmentexports as the new rule has taken effect. Oneramification of the new arrangement is thatfirms from China and India, amongst others,have begun setting up in Bangladesh in aneffort to secure a foothold in the largelydomestically owned industry. Localcompanies have already voiced theirconcerns about the new competition on theirhome soil.

In the longer term, there may be a dilemmafor Bangladesh’s policymakers: Bangladeshigarment exporters can prosper from duty-freeaccess to the EU thanks to the country’s LDCstatus, but the economic success of this sectormay very well be helping to bring that statusto an end. n

“Soon Bangladesh willcome out of LDC status…and women are reallyplaying a big role in this.”

MakingIt38

What have been the main successes duringyour two and half years as Minister of In-dustries, and what are the main challengesyou are facing as you work to achieve sus-tainable industrial development? The main drive of the present government ofBangladesh, under the dynamic and visionaryleadership of the Prime Minister Her Excel-lency Sheikh Hasina, is to build a knowledge-based society through hi-tech and sustainable,green industrialization. To the surprise ofmany, Bangladesh has shown a remarkable re-silience during the global economic slow-down by maintaining an almost unhinderedgrowth of around 6%. Bangladesh’s consistentgrowth in GDP, exports, and remittances,clearly illustrate substantive and pragmaticeconomic management. A favourable invest-ment climate has been created, and is show-

ing an upward trend. Many local and foreigninvestment projects are being implemented.Bangladesh has been listed by Goldman Sachsin its Next Eleven list of countries having ahigh potential of becoming the world's largesteconomies in the 21st century, and in JPMorgan’s Frontier Five.

The Ministry of Industries has been ableto play a very effective catalytic role in devel-oping the industrialization process, both inthe public and private sectors. We are work-ing as a facilitator with appropriate policyand logistical support for the sustainable de-velopment of the private sector. Meanwhile,a public-private partnership effort has beenstrengthened, and the Ministry of Industriesis considered an important developmentpartner by the private sector.

The Ministry has formulated an inte-

grated National Industrial Policy (NIP)-2010that aims to transform Bangladesh into anindustrially developed and middle-incomecountry by 2021. The new industrial policyhas been designed in the context of theglobal economic meltdown, socio-economicrealities, and past experience.

We have not privatized any state ownedenterprises (SOEs). Rather, we have madethose concerns profitable by upgrading ca-pacity and improving management systems.We are in the process of opening some of theSOEs that have been kept shutdown for along time, with a view to creating new job op-portunities, enhanced productivity andgrowth, through better management. Allthese are undoubtedly good examples of ourachievements.

Now we are facing some challenges withshortages of energy and power. The govern-ment has put in place a comprehensive pro-gramme to urgently set up power plants sothat demand does not outstrip supply. An-other challenge is technology. In this regard,our strategy is to look at building up ourtechnology base, where our own engineerswill fashion new and sophisticated machineswhich will produce more, at less cost. At thesame time, we invite foreign investment thatwill help us with technology transfer, skillsdevelopment, and employment creation. The manufacture of textiles and clothing isan important component of industrial pro-duction in Bangladesh. What are the prosand cons of having such a large garment as-sembly sector? The textile and clothing sector, especiallyready-made garments (RMG), is the mainsource of our export earnings. At present,Bangladesh is the second largest exporter ofRMG in the global market. Textile and cloth-ing exports brought in US$18.71bn out of thetotal US$22.93bn export earnings in the fiscalyear 2010-11. Of the major export items,knitwear products were worth US$9.49bnand woven garments worth US$8.43bn, reg-istering 46% and 40% growth respectively.

The rise in exports was helped by the Eu-ropean Union’s decision to allow, from Jan-uary 2011, clothes and other finished goodsmade in Bangladesh (and other least-devel-oped countries) duty-free access if importedcomponents of the final product do notexceed 70%. (Previously, duty-free access wasgranted to goods with a maximum importedcontent of 30%.) Bangladesh is also per-forming well in new markets such as Japan,South Africa, Australia, Canada, New Zealand,and some Latin American countries.

Playing a catalytic role: Dilip Barua, Bangladesh’sMinister of Industries, talks to Making It

BangladeshCOUNTRYFEATURE

“Bangladesh hasshown a remarkableresilience during theglobal economicslowdown bymaintaining an almostunhindered growth of around 6%.”

MakingIt 39

The historical evolution of Bangladesh’sRMG sector started in the early 1980s. Ourbig internal market, cheap labour force, andtraditional efficiency in stitching have con-tributed to the rapid expansion of the RMGsector. RMG industries have a tremendousscope for employment generation, especiallyfor women of Bangladesh. It helps the gov-ernment a lot in achieving the goal ofwomen’s empowerment in general, and inachieving some of the Millennium Develop-ment Goals. The national poverty level ofBangladesh has been reduced by 10%, and thetextile and clothing sector has played a majorrole in achieving this poverty reduction. Could you comment on the dynamic be-tween the need to keep wages low in orderto win orders, and low wages limiting thespending power of the working class andthereby impeding the development of localbusinesses?I firmly believe that lower rates of wages arenot an effective option for making an indus-try economically sustainable and commer-cially viable in the present context of globalcompetitiveness. Rather, it reduces the pro-ductivity, durability, and sustainability of aventure. In order to attain the optimum levelof productivity and progress in any industrialsector, workers’ satisfaction and fulfillmentof their basic needs deserve proper consider-ation. Without ensuring the minimum re-muneration for workers, no industrialventure can be successful. We cannot expectmaximum productivity by investing mini-mum input. Man and machine are consid-ered the dominant factors for production, butman and machine are not the same. We mustconsider the workers as human beings andmust fulfill their basic needs in order tomake a congenial atmosphere in the factoriesso that the workers can perform properly.That is why our government is a worker-friendly government, and why we are givingmore priority to workers’ right and needs.What is being done to try and diversify theindustrial sector in Bangladesh?The prime objective of the New IndustrialPolicy is to ensure the industrial sector con-tributes 40% of the national income and 25%of new jobs by 2021. The government is work-ing to ensure necessary economic stimuluspackages, infrastructure facilities, and policysupport for achieving this objective. The NIPhas identified 32 thrust sectors and 31 indus-trial service sectors for augmenting rapid in-dustrial growth and economic development.

We are giving emphasis not only to thedevelopment of the textile and clothing

sector, but also to other industrial sectorsmaking products like jute and jute goods, ce-ramics, pharmaceuticals, electronics, leather,automobile parts, and plastic and agro prod-ucts. I am happy to say that Bangladesh’shigh-quality medicines are now being ex-ported to over 70 countries in the world, in-cluding the USA and those in the EU.Recently, the shipbuilding industry has ac-quired momentum and is becoming abooming industrial sector. We are exportingships to Denmark, Germany, the Nether-lands and Finland. We are also exporting au-tomobile spare parts to developed countries,including the USA. So, at present, the diver-sification of industrial products is on theright track in line with our vision of 2021. What is being done to green the industrialsector? In Bangladesh, we are making green industri-alization a top priority. We welcome knowl-edge based hi-tech industry with zeroenvironmental pollution. The government has

made it a mandatory provision for new indus-trial units to set up effluent treatment plants(ETP), and has given a specific deadline for oldindustries to set up ETPs. We are not allowingany industry that may endanger human lifeand the environment in our country.How is the energy situation impacting onindustry in Bangladesh? Our focus is shifting to the efficient use ofrenewable energy, such as solar energy, toprovide poor people with access to electric-ity. Bangladesh already has a renewableenergy policy in place with the objective ofdeveloping, disseminating, promoting andextending renewable energy technology torural areas to meet their energy needs. Toachieve the objective, the government has settargets for developing renewable energy re-sources to provide 5% of total power demandby 2015 and 10% by 2020. The governmenthas also made solar energy equipment taxexempt in order to make the use of solarenergy more popular and cheaper. n

“We are not allowing any industry thatmay endanger human life and theenvironment in our country.”

Phot

o: G

erha

rd F

ally

/UN

IDO

MakingIt40

When I was 10 years old, my father wouldthrow me in the river and he would swim withme. It was a very happy time in my life. I couldsee the stones and the sand, and there wereplenty of fish and wild animals. I started tonotice the pollution in the early 1980s, a fewyears after manufacturing facilities and facto-ries were built along the river. The riverstarted to accumulate a layer of pulp and sed-iment; there was a bad odour, and dead fishwould float on top.

I discovered that there were more than 100industries dumping waste in the river withoutany treatment. The biggest offenders were thepulp and paper companies, PT SurabayaAgung Kertas and PT Adiprima Suraprinta,which is owned by the biggest newspaper com-pany in East Java. There was cadmium, iron,and mercury in the river. Studies revealed thatthe concentration of mercury in the river was100 times the limit established by the WorldHealth Organization. I couldn’t even thinkabout swimming in it, as I had as a child. Andpeople drink this water – 96% of our region’swater comes from the Surabaya River.

While at university in the year 2000, to-gether with other activists, I established theEcological Observation and Wetlands Conser-vation (Ecoton), the first environmental edu-cation programme in the region to informlocal communities about biodiversity andwater pollution. It teaches school studentsabout the dangers and uses them to spread theword.

Children are especially vulnerable to thewater pollution since they are growing. Ahuge number of kids who live near the riverare mentally disabled and have high rates ofcancer as a result of the pollution. We teachthe children that they can protest to the gov-ernment and ask for the safety of their drink-ing water.

As for the more wealthy people from thecity of Surabaya, Indonesia’s second largestcity, they have purchasing power, so I encour-age them to boycott. I show them the list offactories that pollute the river, and tell themthat if they buy the products made by thesefactories, they’re polluting the river as well.

While effective environmental laws exist inIndonesia, the East Java provincial govern-ment’s standard practice has been non-en-forcement. Industry – when caught dumpingindustrial effluent into the Surabaya – simplypaid the modest fines, without changing itspractices.

In 2007, Ecoton sued East Java’s governorand the province’s environmental manage-ment agency for failing to control water pol-lution on the Surabaya River. In April 2008,the provincial court issued a precedent-set-ting environmental decision, ordering thegovernor to implement water-quality regula-tions targeted at industry operating along theSurabaya, establishing a maximum daily limitfor toxic releases into the river, as well as amonitoring system to ensure compliance. Thelawsuit represented the first time in East Javathat a governor had been taken to court tochange government policy.

In the beginning, the companies treatedme like their enemy and as a threat to theirbusiness. I published my survey on industrialwastewater dumping activity in a newspaper,and they were really angry. I also made a legalreport to the police about some industriesthat were polluting the river, and those in-dustries had to go to court and were punished.

Some companies offered me money, andasked me to withdraw the report and stoptheir cases from going through a legal processthat was costing them time and money. I saidI didn't want their money. I asked them to usetheir money to install and to run wastewatertreatment facilities in a proper way.

The legal case forced me to engage in in-tense communication with the industrypeople, and slowly we came to understandeach other. Then we tried to find better solu-tions. Now, those industries that used to bebiggest offenders have realized that they getbenefits from improving their environmentalmanagement. A better relationship with thelocal community and the media, a betterimage, strengthen the development of theirbusiness.

I am working with industry to put in filtersthat will treat the water. One Surabaya sugarfactory, PT Gempol Krep, recently investedUS$220,000 in a wastewater treatment plant.It is now one of the most environmentally re-sponsible factories operating on the Surabaya.The water is recycled back to the industrialprocess so that their water consumption is de-creasing and they can reduce their bill withthe water company. The wastewater disposedof by the factory now always fulfils the waste-water quality standard. Several other indus-trial facilities have followed suit, installingpollution controls of their own, including thetwo pulp and paper factories I named above.

The government now has weekly or bi-weekly patrols, and the industry doesn’t knowthe schedule. I still test the water myself butthe government now has an officer who mon-itors the water. I trust the government – wehave to trust each other to work together. Thequality of the water is getting better, and inthe last two years there are no longer dead fishlike there used to be. n

Prigi Arisandi explains how a local movement that he initiated is helping tostop industrial pollution from flowing into a river that provides drinkingwater for three million people in and around the Indonesian city of Surabaya.

PRIGI ARISANDI is a 35-year-old environmentalactivist who was awarded the 2011 GoldmanEnvironmental Prize to honour his sustained effortsto protect the natural environment and hiscommunity.

CLEANINGUPTHE RIVER

MakingIt 41

Phot

o: G

oldm

an E

nviro

nmen

tal P

rizePrigi Arisandi teaching

children how to monitor theSurabaya River’s water qualityand report their findings tothe government.

MakingIt42

POLICY BRIEF

By Professor RAPHAEL KAPLINSKY

It is widely believed that industrialdevelopment in commodity-exportinglow- and middle-income economies ishampered as a direct consequence of theexploitation of natural resources. Variousreasons are given for this so-called‘resource curse’. One is that theseeconomies suffer from the ‘Dutch disease’in which large resource rents andappreciating exchange rates underminethe traded goods sectors such asmanufacturing. In addition, with respect tomanufactures, commodities haveundergone a long-term decline in theirterms of trade, as well as being subject tohigh price-volatility. Hence, they seldomprovide the regular and sustainablesurpluses required to promotedevelopment. It has also been argued that,by their nature, commodity-producingsectors are enclave activities and have fewexternal economies, and consequently thatthey involve few developmental spilloversto industry.

These conventional wisdoms must bechallenged. While there may be anassociation between commodity intensityand relatively low growth rates, thisassociation is weak. Moreover, where itoccurs, it is often due less to a causalrelationship than to weak pre-existingindustrial structures and inappropriatepolicy responses in commodity-dependent economies. Indeed, a review ofthe historical experience of some high-income economies, such as the United

The possibilities for export-orientedindustrialization have similarly beenrestricted by intense competition fromemerging economies.

Second, the boom in commodity prices –already longer than any previous boom incommodity prices – is likely to besustained for some years to. Coupled withcontinued, and indeed heightened,competition in the global manufacturingsector, it is likely that the historical declinein commodities’ terms of trade in relationto manufactures will be arrested,providing sustained natural resourcerents.

And third, the evolution of global valuechains has led to a change in corporatepolicies whereby leading commodity firmshave an active interest not just inoutsourcing, but in near-sourcing thesupply of many of their inputs. Thissuggests that now there are corporatestrategic agendas which are diametricallyopposed to the enclave mentality whichcharacterized their activities in the past.

In terms of how commodity-exportingeconomies may take advantage of thesedevelopments, it is helpful to look at thepossible production linkages – backwardin the supply of inputs, and forward in theprocessing of commodities. There are anumber of reasons to believe that there issubstantial scope for the expansion ofproduction linkages between industry andcommodities sectors. In part, this isbecause of the desire of leadingcommodity firms to increase theiroutsourcing, and in part becausecommodity production is invariablyaffected by contextual factors – climate andthe geology of individual deposits. Bynecessity therefore, they require uniqueinputs and many of these can be used topromote distinctive local industrial (andagricultural and service) capabilities.

In a context of increasing lead-firmoutsourcing, many of these linkages occur

States, Canada, Sweden and Australia,shows that these economies not only builttheir industrial competences in part bydeveloping linkages from the commoditysectors, but also that these industrialcompetences fed back into theircommodities sectors, enhancingcommodity recovery rates and reducingcosts.

Whatever the historical experience mayhave been, recent decades have seen threesets of changes which suggest that a newapproach be adopted towards industrialdevelopment in commodity-exportinglow- and middle-income economies.

First, many of the policies which havedelivered industrial progress in the pastare now no longer as effective. Inward-oriented industrialization has been madeless attractive by the reduced capacity toprotect domestic industry, and byincreased competition from imports.

Beyond the‘resource curse’

“The function of effective government policy is to both speed-up and deepen production linkages between industry and commodities sectors.”

MakingIt 43

POLICY BRIEF

Albert Hirschman’s words, “one thing leadsto another”;l The sustained nature of commodityproduction may provide an arena for thedevelopment of dynamic capabilitiesthrough the expansion of the NationalSystem of Innovation;l The development of horizontal linkages– the provision of inputs into thecommodity sector and the processing of itsoutputs – will also offer complementarybenefits to other industrial sectors;l Despite the fact that outsourcing is in theinterests of lead-firms, many firms could domore to enhance their supply chain

development capabilities, and requiresupport (as they do in the industriallyadvanced economies), and;l With the growth of industrial capabilitiesin emerging economies blocking otherpaths to industrial development, there isnow a premium on the development ofindustrial capabilities which feed into theexploitation of the commodities sectors.

nThe above is a summary of a working paper,Commodities for industrial development: makinglinkages work, prepared for UNIDO’sDevelopment Policy, Statistics and ResearchBranch.

as a natural consequence of market forces.The function of effective governmentpolicy is to both speed-up and deepenthese linkages. Disabling governmentpolicy, by contrast, slows down andreduces the extent of these linkages.

For a number of reasons, governmentshave an important role to play inoptimizing the nature and pace of theselinkages:l These linkages provide the potential forboth employment creation and as acontributor to economic growth;l They also provide a pointer to the pathof industrial development – in economist

Phot

o: is

tock

By the Overseas Development Institute

According to new research by the OverseasDevelopment Institute (ODI), there arefour key drivers of progress indevelopment. The report, MappingProgress: Evidence for a new developmentoutlook, systematically analysesdevelopment progress in 24 countriesacross the global south and rankscountries according to performance.

Countries often better known as hubs ofwar and famine have made remarkableprogress across different sectors,including growth, education, healthcare,governance, and agriculture. The reportidentifies the crucial role of effectiveleadership, smart policies, properinstitutional foundations, andinternational partnership, in drivingdevelopment progress.

Countries are categorized into fourcategories: stars, surprises, potentialperformers, and conundrums whereprogress in some areas has not deliveredexpected improvements in the lives of thepoor.

According to ODI Director, AlisonEvans, “Development is a highly complexbusiness and people can get it wrong. Butquite often they get it right. The purposeof the Mapping Progress report is to showthat progress is not only possible, it’shappening.”

She continued, “The real question weneed to answer is ‘what works and why?’Why have some of these countries seensuch remarkable progress? What havebeen the most interesting innovations?”

“Looking across at the strongest

examples across the continent, we can seethat the most transformative andsustainable developments have occurredwhen the commitment to change hascome from within African countries andcommunities.”

The four driversSmart leadership: Transformation in Ghana,Rwanda, and Brazil would not havehappened without Presidents Rawlings,Kagame, and Lula.

Smart policies: Progress has involved achanging role for government, away fromcontrolling (markets and prices) tofacilitating and enabling (investment andproduction), and, in the best cases,empowering citizens. Policies have beenbuilt on clear vision or national strategy,and have been evidence-based.

Smart institutions: In many countries,progress has been achieved throughgovernance reforms that havedecentralized and strengthened localinstitutions. Reforms have not only led toimproved service delivery but also enabledmore effective revenue collection andmanagement of public finances.

Smart friends: Effective internationalpartnerships can be important catalystsfor progress. These partnerships can takevarious forms beyond aid, including thetransfer of knowledge and technology,international trading relations, anddiplomatic interventions.

Development progress stories

Ghana – star performerGovernment-led reforms of the domesticcocoa market have driven a tremendousrecord of agricultural growth – averagingover 5% for the last 25 years. Ghana is ontrack to meet Millennium DevelopmentGoal 1 – halving rates of poverty andmalnutrition by 2015. Having raised foodproduction per capita by more than 80%since the early 1980s, Ghana is largely self-sufficient in staple foods.

Star performers, such as Ghana, haveshown sustained progress for more thantwo decades. By diversifying products andservices they have added considerablevalue to national performance. Starcountries display a more mature level ofdevelopment and are now beginning toface challenges more common todeveloped countries such asenvironmental degradation, agingpopulations and non-communicablediseases. Other star performers includeBhutan, Thailand, Brazil, and Uganda.

Ethiopia – surprise performerSince emerging from civil war in 1991,Ethiopia has significantly improved accessto education for its population. Primaryschool enrolment rates have risen by more

“Why have some of thesecountries seen suchremarkable progress? Whathave been the mostinteresting innovations?”

Drivers of development

POLICY BRIEF

MakingIt44

than 13 million since 2005. A sustainedGovernment commitment, matched byincreased spending, allowing the removalof school fees, has triggered thisastonishing rise. Other surpriseperformers are Rwanda, Cambodia, Laos,and Somaliland.

Surprise performers, such as Ethiopia,have delivered progress against the odds,often recovering from crisis and war ordealing with ongoing conflict, challengingpolitical situations and highlyinaccessible topography. The surpriseelements of progress in these countriesoften lie in the speed of recovery,sometimes allowing them to eclipseprevious levels of development.

Malawi – potential performerMalawi has the potential to deliversignificant progress towards itsdevelopment over the next decade,according to a newly published globalresearch project. The country’s recentprogress in providing economic stabilityhas begun to have a positive effect ondevelopment indicators placing Malawi inthe top twenty performers for several of theMillennium Development Goals. Growth ofover 7% per year for most of the last decade,and a steady fall in rates of inflation, suggesta bright future for the country.

Potential performers, such as Malawi,have shown recent examples of progress,often achieved over a limited period oftime. Progress may be limited toindividual sectors or regions. Whilst thesecountries have already producedimpressive results, they now need tosustain them into the future. Otherpotential performers include Benin andBurkina Faso. n

POLICY BRIEF

MakingIt 45

MakingIt46

ENDPIECE

The next issue of Making It will look at genderequality and the economic empowerment ofwomen. One take on this subject is provided byKATHERINE LUCEY, the founder and CEO ofSolar Sister, a social enterprise that provideswomen with training and support to create solarmicro-businesses.

More than 125 years after Thomas Edisoninvented the light bulb, 1.6 billion people –a quarter of the world’s population – stillrely on kerosene lanterns and candles forlight. They spend up to 40% of their familyincome on energy that is inefficient,insufficient and hazardous. Widespreaduse of kerosene has an adverse impact onlocal air quality as well as on global climatechange. Poor lighting, smoke, andrudimentary lanterns are responsible forlarge number of infections and burninjuries.

Solar Sister is a social enterprise that istackling the problem of energy povertywith an innovative market-based approachthat empowers rural women in Africa witheconomic opportunity. Using an Avon-style business model that deliberatelyreaches out through women’s socialnetworks, Solar Sister solves the problemof ‘last mile’ access to clean energy andbrings solar technology right to thedoorstep of rural households.

Using a micro-consignment business

model, the women are provided with a‘business in a bag’ that includes inventory,sales training and marketing support. Thewomen are empowered to bring access to aportfolio of clean energy technologiesincluding solar lamps, solar cell-phonechargers and radios and clean cookstoves.Clean energy provides light and power thatsaves lives, provides connectivity, improvespublic health, provides livelihoods andcombats climate change. The womenbecome their own bosses and beacons oflight, hope and opportunity for theircommunities.

Solar Sister is a market-basedprogramme, with revenues from sales ofsolar lamps providing the engine foreconomic growth. Solar Sister is a socialbusiness, using the power of the market toachieve a social goal of distribution ofclean energy technology. It is the emphasison “opportunity” rather than “aid” thatattracts and rewards women who aremotivated to build successful businessesthat benefit the whole community byproviding access to breakthroughtechnology. Today, even though portablesolar LED lighting technology is anaffordable solution; lack of access has keptthe products from being adapted by ruralhouseholds living in the dark. Ingenuousclean energy products for the base ofpyramid markets are not much good if the

Solar Sister: empoweringwomen with light andopportunity

Katherine Lucey, founderand CEO of Solar Sister.

"Women become their ownbosses and beacons of light,hope and opportunity for theircommunities."

ENDPIECE

poor can’t use them. Solar Sister’s salesproposition is simple: at a starting costof about US$20 for a solar lamp,customers get a lighting source that iseight times brighter, cleaner and saferthan piecemeal kerosene – the cashexpense is paid back by the cost savingsof buying kerosene in two and a halfmonths. This translates into brighterlight for families, and savings of morethan US$100 a year on fuel.

Solar Sister reaches out to the womenwho would otherwise not have anopportunity to become entrepreneursand provides them with a holisticpackage of working capital, businesstraining and marketing support.Women represent 70% of the rural poormost affected by energy poverty. Butmore importantly, women are primarilyresponsible for energy usage at thehousehold level. Clean energytechnology will not be adapted on awidespread basis if women are not partof the solution. Solar energy can provideconnectivity as well as lighting, andsome of our best selling products aresolar lamps that also provide power tocharge mobile phones. The phenomenalsuccess of mobile phones in sub-Saharan Africa is possibly the mostimportant development story of thiscentury. Having access to the energy topower those phones is a correlatingopportunity that the Solar Sisterentrepreneurs are able to meet. Onecustomer not only charges her ownphone, but has set up a micro-businesscharging her neighbour’s phones as well,earning a steady daily income.

A founding story of Solar Sister is thatof Rebecca, a rural farmer in Mpigi,Uganda, who chose to put a solar light inher chicken room. Rebecca knew thatchickens only eat when they can see, andby increasing the hours of light, thechickens ate more, and were healthier.

They laid more eggs, improving theeconomics of her operation andproviding income that allowed her tobuy seeds, and eventually a goat, pigs,and even a cow.

From the simple improvement of asingle light, Rebecca built a farm andeventually a school where she teacheschildren to read and write, and also howto do small plot farming. With a little bitof light and opportunity, women likeRebecca have the power to improve theirown lives.

The strength of Solar Sister’senterprise solution comes from thewomen themselves. It is their owningenuity and commitment that buildstheir business – we are just offeringthem the opportunity to helpthemselves. Even small amounts ofelectricity can dramatically improve thelives of women living with acute energypoverty. Creating economicopportunities for women in turn has amultiplier effect on social and economicprogress of their communities, and ourworld. n

MakingIt 47

Chang, Leslie – Factory Girls: From Village to City in aChanging China

Ferguson, Niall – Civilization: The West and the RestGhemawat, Pankaj – World 3.0: Global Prosperity and

How to Achieve It Gilding, Paul – The Great Disruption: How the Climate

Crisis Will Transform the Global EconomyHeinberg, Richard – The End of Growth: Adapting to

Our New Economic Reality Heinberg, Richard and Lerch, Daniel (eds) – The Post

Carbon Reader. Managing the 21st Century’sSustainability Crises.

Lovins, Amory – The Essential Amory LovinsMahbubani, Kishore – New Asian Hemisphere: The

Irresistible Shift of Global Power to the EastMoyo, Dambisa – How the West Was Lost. Fifty Years of

Economic Folly – And the Stark Choices AheadNye, Joseph – The Future of PowerPogge, Thomas – Politics as Usual: What Lies behind the

Pro-Poor RhetoricRivoli, Petra – The Travels of a T-Shirt in the Global

Economy: An Economist Examines the Markets,Power, and Politics of World Trade

Stiglitz, Joseph – Making Globalization Work Zakaria, Fareed – The Post-American World: Release 2.0

www.attac.org – ATTAC is an international organizationthat fights for the regulation of financial markets, theclosure of tax havens, the introduction of globaltaxes to finance global public goods, the cancellationof the debt of developing countries, fair trade, andthe implementation of limits to free trade andcapital flows.

www.globaldashboard.org – Global Dashboardexplores global risks and international affairs,bringing together authors who work on foreignpolicy in think-tanks, governments, academia, andthe media.

www.postcarbon.org – The Post Carbon Institutepromotes the transition to a more resilient,equitable, and sustainable world.

www.postgrowth.org – The Post Growth Instituteinspires and equips people to make global well-being our most urgent priority, without relying ongrowth to make it happen.

www.somo.nl – SOMO is a research and networkorganization working on social, ecological andeconomic issues related to sustainabledevelopment.

www.stwr.org – Share The World's Resources is a think-tank that advocates for natural resources such as oiland water to be sustainably managed in the interestsof the global public, and for essential goods andservices to be made universally accessible.

www.sustainableenergyforall.org – 2012: TheInternational Year of Sustainable Energy for All.

www.triplecrisis.com – Global perspectives on finance,development, and the environment

www.un-energy.org – UN-Energy, the United Nations’mechanism for inter-agency collaboration in thefield of energy.

www.wedo.org – The Women's Environment andDevelopment Organization envisions a just worldthat promotes and protects human rights, genderequality, and the integrity of the environment.

MakingItIndustry for Development

FURTHER READING

FURTHER SURFING

A quarterly magazine tostimulate debate about globalindustrial development issues

MakingItIndustry for Development

partner for prosperity