upton-on-line

16th February 2002

In this issue

Upton-on-line provides a first glimpse of the strange maneuverings that herald the beginning of the French Presidential election campaign and (strictly for devotees) gives some ‘order-of-magnitude’ feel for what sort of initiatives might help developing countries in the context of this year’s World Summit on Sustainable Development to be held in Johannesburg later this year.

But first, a quick report on reader reactions to last issue’s proposals for a Trans-Tasman Foundation. In a nutshell, everyone (or almost everyone) thinks there’s no problem. The most commonly expressed views held that, contrary to upton-on-line’s musings, either familiarity hasn’t bred any contempt – or people enjoy it. Several correspondents thought a foundation would look a bit self-absorbed and some (mysteriously) thought a foundation would detract from focussing on other relationships. (Given that we don’t, as a society, tend to take any foreign relationships very seriously, this was a bit hard to follow). Many of you read Geoff Miller’s piece as an argument in favour of doing nothing – which wasn’t quite his position. All in all, upton-on-line is relieved to dive headlong into the tide of complacency with a clear conscience. Let’s hope we don’t all meet at the visa application counter one day.

Republican rites

Crypto-republicans in New Zealand should cast their eyes in the direction of France over the next few months to observe the punishments the French citizenry visit on themselves in the name of republicanism – namely, the election of a President. While New Zealanders observed last year the arrival of Dame Sylvia Cartwright as if on a cloud in one of those 17^th century court masques, the French are steeling themselves for a dour trial of national re-consecration (as well as a pile of merde if a former Prime Minister, Alain Juppé is to be believed). Running a monarchy is just so trouble free. Scandal never gets beyond broken hearts and the lenses of the paparazzi. Whereas when mortals are asked (as French presidents are) to embody the entire noblesse of la patrie in their being, and they have real power to wield, human frailty becomes a much more potent threat to the very existence of the nation. (If that sounds over-the-top to New Zealand readers, they must appreciate that there is nothing small or shabby about the way the French think about the State and la gloire de la France).

The biggest circus in town

The weirdest thing about the performing troupe currently assembling itself is that one star turn hasn’t yet confirmed that he will put in an appearance. For tactical reasons that are beyond Anglo-Saxon comprehension, the current incumbent, Jacques Chirac, and the putative socialist challenger, Lionel Jospin, have spent the last 6 months failing to confirm their candidacies. For some reason it was considered vastly shrewd not to announce formally their candidacies. The infinitely subtle permutations of recent months ("if and when the time comes", "at a date closer to the first round" etc) continued to be intoned even though it was as plain as a pikestaff that people who are publishing books, opening campaign headquarters and giving briefings through their designated campaign chiefs (not to mention leading the opinion polls) were going to be in the fray.

The pressure got too much last week for Jacques Chirac. Suffering a steady decline in his poll ratings and the whiff of new scandals to be revealed by a former political operator who returned from exile and turned himself over to the police, the President decided to create a splash by breaking the worst kept secret in France – that he had finally decided to offer himself once again to the French people. This stunning move (motivated, the President declared, by a blinding and uncontrollable passion for France) has turned his rival, Lionel Jospin, into an even graver, less humorous man than he normally is.

Having been quietly amused by the President’s former determination to delay an announcement because of the weighty burdens of office, M. Jospin’s allies have now adopted even graver tones. Faced with the fact that their man hasn’t even mounted his horse while the President has left the starting gates and is quickly sympathising with every disgruntled pressure group in sight, prime ministerial advisers are now stressing the importance of having at least one of the country’s top leaders stay at the helm to the last. Needless to say, the Left hopes sincerely that it is M. Chirac who will hit the iceberg first at which point the SS Lionel Carpathia will rescue the survivors.

But if the President and the Prime Minister are spoiling the fun there is no shortage of entertainment for the masses. Indeed the circus ring is filled with hopefuls. This is a direct result of France’s excellent two round system of elections in which everyone has a bash first time round and then (assuming no outright winner in the premier tour) the two leaders battle it out to the death. Those eliminated in the first stoush have not only the glory of their moment in the sun but the satisfaction of being courted for their endorsement of one or other candidate in the second round (with the prospect of all sorts of future favours should their candidate be in the money).

Already turning summersaults in the ring are Alain Madelin (France’s most economically liberal candidate who is about as right wing as Bill Clinton), Francois Bayrou (a sort of centrish candidate who supports anything that is not extreme), Arlette Larguiller (who leads a splinter group explicitly dedicated to being extreme[ly] left), Robert Hue (the Communist candidate – presumably not extreme enough), Noël Mamère, the (extremely) Green candidate, Jean-Marie Le Pen (standard bearer for the National Front) and Charles Pasqua (a sort of disgruntled conservative patriot.

[For New Zealand readers to gain a feel for how surreal this all is, they should simply imagine that Helen Clark and Bill English were having to battle it out as equals with Owen Jennings, Warren Kydd, Keith Locke, Liz Gordon, Nandor Tanczos and Ross Robertson – all good New Zealanders just like their French counterparts are all faithful servants of the Republic. It’s just that …]

The third man

But unlike New Zealand, France has a third man – Jean-Pierre Chevènement. This is the man who could upset the applecart (or the French horticultural equivalent). M. Chevènement has profited from the debilitating tussle that has characterised France’s leadership since 1997 when the right lost the parliamentary elections and M. Chirac was forced to co-habit with Jospin. Condign smiles in public at European Summits have been matched by endless guerilla warfare between the two at home. M. Chirac has been only to happy to revel in being a Head of State who is out amongst the people listening and sympathising but being able always to direct criticisms with alacrity to his Prime Minister who, in most domestic matters, has ultimate control.

This, M. Chevènement charges, has led to a "Janus-faced" leadership lacking in conviction and integrity. A three-time Minister in socialist administrations (including Jospin’s), M. Chevènement is undeniably from the left. But he has been busily blurring that impression. His most recent resignation (in 2000) was over Jospin’s proposals to devolve certain powers of self-management to Corsica. This rubbed up against the fiercely ‘sovereigntist’ strain of republicanism to which M. Chevènement adheres. All of which fits nicely with traditionally rightist views about preserving law, order and the integrity of the Republic.

This is all wonderfully nuanced to appeal to the most exotic constellation of constituencies. Le Monde has identified at least seven ‘families’ within the ‘Pôle Républicain’ as Chevènement’s movement is known. There are the former Trotskyists of which Jean-Pierre himself is a former acolyte (only in France is this still a badge of honour – another former comrade, the Prime Minister himself is busily trying to dis-own it); disaffected communists; a small bunch of radicals; a group of bright young things of indeterminate orientation; members of something called the Citizens’ Movement; another camp of disgruntled ‘sovereigntist’ right wingers and finally what le Monde calls "les inclassables". If it sounds like Winston Peters starting from the other side of the tracks, that’s probably not a misleading comparison.

And, surprise, surprise, M. Chevènement talks with passion and respect for the memory of Général Charles de Gaulle whose heritage, he says, Messieurs Chirac and Jospin have ‘consciously and methodically liquidated’. This is about as close as you get to alleging treason in France and it has done M. Chevènement no harm at all (as well as pandering to right wing voters who would previously have had their hand wither if it had thought of voting for a Trot). While the also-rans bump around at the 3 – 5% mark, he is rising towards 15% in the polls with the possibility of his heading off either Chirac or Jospin being not altogether implausible. And to emphasise his superior and different trajectory he grandly declined to take part in the first debate between presidential candidates who, in his (apparently accurate estimation) are mere minnows in comparison. The minnows can’t believe he’s getting away with it – but they can talk of nothing else.

Wondering how to jump

All of which has M. Chevènement whipping everyone else into a lather. No-one knows yet whether he represents a tidal wave about to demolish the French political landscape or whether the ever-resourceful President or his ever-dogged Prime Minister will yet hold the centre ground. But looking at the rumblings that have swept governments from power in Norway, Italy and Denmark recently and the signs coming from the Netherlands and Germany, it cannot be a reassuring time to be in office in France – even when left and right are both, in a sense, ‘in power’.

READER WARNING:

Serious Stuff for Serious People: the next article is strictly for those interested in the development debate that is going to play out its next rounds at conferences this year in Monterey and Johannesburg

Are the leaders of the rich countries really interested in helping developing countries?

Later this year upton-on-line will struggle, along with wide-bodied plane loads of wide-eyed visionaries, to the UN World Summit on Sustainable Development in Johannesburg. This immense undertaking is the decadal follow-up to the Rio Earth Summit of 1992. World leaders, no less, are expected to parade there and account for their actions or inactions over the intervening ten years – and ponder the way forward.

It goes without saying that the world has changed out-of sight since then. Most leaders will be commenting on commitments that, given the high-speed revolving door of contemporary politics, will have the feel of pre-second world war treaties about them. (It would be extremely interesting to know just how many leaders – if any – have been around for the entire decade!)

Preparatory to this politico-archaeological dig, upton-on-line has just returned from a gathering in Delhi where he was invited to say a few words about what politicians might consider promoting in the name of helping the development prospects of the worlds poor. What follows is a (slightly amended) version of the paper he delivered. It asks a single, very specific question: if world leaders decide to focus on the issues that could make the biggest difference, what would they be (assuming they decide to attend it).

First some premises

The 1992 Rio Conference was about environment and development. The implicit – and uneasy - understanding was that the ability of developing countries to engage on many environmental challenges was dependent on their own economic development – and the help of rich countries in facilitating it. Without that development part of the bargain being addressed, there was never much prospect of truly global engagement on some of the environmental concerns that came to the fore at Rio.

So here are two starting premises:

1. There is nothing remotely ‘sustainable’ about grinding poverty. Being poor in human and physical resources is no passport to environmental sustainability – quite the opposite. A combination of all or some of
• illiteracy,
• poor life expectancy,
• chronic public health challenges,
• weak or dysfunctional government,
• an absence of clearly defined property rights and
• over-use of common assets like clean water
makes for a spiral of declining ecological services and deepening poverty.
2. Leaders who spend time going to conferences should focus on the big issues first.

So, if world leaders really want to make a difference to the development prospects of the 2.8 billion people who live on less than US$2 per day, what are the policies they should target for immediate and urgent attention? What follows provides a feel for the relative magnitude of some of the options.

Official Development Assistance

Official development assistance is the most familiar. We know that current transfers from rich countries to the rest of the world total $53.7 billion – that’s down from $60.8 billion in 1992 (and represents, in real terms, a fall of 7%). Since the Pearson Commission in 1969, a target for ODA of 0.7% of the GDP of donor countries has been in vogue. It has been formally endorsed as a target to be aimed for on numerous occasions, most recently in the Millennium Development Goals.

Should leaders focus on this option? Meeting it would take the total quantum of ODA from $53 billion to $160 billion. It would certainly make a good deal of basic humanitarian assistance possible. But there is not the slightest indication that anything like this is going to be made available – indeed some donor countries are looking at significant cuts.

Philanthropy

It would be anomalous indeed if world leaders decided to spend their time exhorting private citizens to step into the breach given the yawning gap between their own rhetoric and performance. But for the sake of completeness it is worth recording the current state of philanthropy as a source of development assistance – if only to calibrate whether this is a source potentially worth waiting for.

If you put together the available data from the US and Europe the figure is significant, but not critical when set against the other sources. Last year, charitable foundations on both sides of the Atlantic donated somewhere between US$3 - 4 billion – and that’s a generous estimate.

Furthermore, the immediate outlook is bleak for private philanthropy. It is a sector that has been hard hit by the collapse in high tech stock values making any near-term upside look remote.

Foreign Direct Investment

Would it, alternatively, be plausible to maintain that private investment flows from developed to developing countries should be the principal engine for development? First the statistics.

Certainly, FDI has shown more promise in terms of its trajectory than ODA. In 1992, flows to developing countries totaled $36 billion. By 1999 that figure was approaching 160 billion. Unquestionably, such investment brings with it a range of direct and indirect benefits – employment, skills and the ‘crowding in’ of additional investment.

What can the political leaders of rich countries do to stimulate additional foreign direct investment? There are some policy tools available, like building legal capacity, or helping to create transparent and business friendly environments. Some might be tempted to turn to export credit guarantee agencies to expand trade flows and credit lines - but it has to be asked whether these are not even more self-serving than some of the direct aid grants that have been designed to create business for donor countries.

Ironically, many companies that are potentially large foreign investors would point to both the quality and quantity of ODA as a pre-condition to many markets becoming attractive. Without minimum levels of education and personal health and security, the attractiveness of many countries is slight.

It is also important to acknowledge that, while overall FDI figures are large, a small number of developing countries have attracted the lion’s share of investment. China alone, for instance, has swallowed up US$321 billion or 45% of all of the investment flowing to the Asian region since 1990.

The reality is that not all developing countries are equally attractive to investors – and it’s not always a question of the quality of governance and institutions. Take the Kyrgyz Republic, which, despite all the text book reforms, attracted in 2000 only 10% of the FDI that poured into the Central Asian Republics. Countries with serious corruption and governance problems, but huge natural resources, have proved much more attractive than this little country of 4 million people with few natural resources but hard-won WTO membership.

At the most optimistic estimate, roughly one third of the 2.8 billion people referred to earlier live in countries that are, at least currently, attractive to foreign investors. FDI will be a powerful engine for development but it is by no means a complete solution.

But aside from that, it is hard to see why leaders would attend a conference to promote something over which they have relatively limited control.

Taking trade liberalisation seriously

Unlike the destination of capital flows, governments have very considerable influence over the basis on which goods are permitted to flow across their own borders. So perhaps world leaders should choose to give real impetus to pulling down some of the barriers that keep developing country goods out of their markets, and eliminating the subsidies that help keep them uncompetitive? The numbers certainly make this look a promising area.

Subsidies paid out by OECD countries amount to between US$560 billion and US$725 billion per year. That’s more than ten times the figure for ODA and about three times the value of FDI flows to developing countries.

Take the main offender, agriculture. This sector absorbs some $362 billion a year in subsidies from OECD countries, or 1.4% of those countries GNP. Compare this figure to the 0.24% of GNP provided in development assistance by those same countries.

The specific statistics are barely conscionable. Last year, the EU spent over US$2 billion on subsidising EU sugar farmers alone to produce a product which can be produced more efficiently and cheaply in the developing world. Similarly, in the US, oilseed farmers received nearly US$12,000 per year in support. Compare that to the average wages in most developing countries. Overall tariffs and subsidies in the developed world cause annual welfare losses of almost US$20 billion for developing countries. This is equal to some 40% of annual ODA provided by OECD countries to the developing world.

Regional snap-shots of the impact of these policies paint an even grimmer picture. Sub-Saharan African countries, for instance, suffer an annual trade loss of US$20 billion because of the combined effect of tariff quotas, barriers and subsidies. That figure is US$6 billion more than ODA disbursed in the region.

So, what would the value of the liberalisation of trade be worth to developing countries? Estimates vary. Based on what we know of other liberalisation efforts, the outcomes can only be positive. Take NAFTA, which increased trade and boosted employment by 22% in Mexico, 10% in Canada and 7% in the United States.

More generally, the World Bank has estimated that removing obstacles to trade would boost the incomes of developing countries by anything from US$200 billion to US$500 billion a year. Even if you take the lowest estimate this is almost the same as current FDI and ODA flows combined. So if world leaders were going to talk seriously about trade liberalisation, they would be talking about some seriously big numbers.

Opening borders to people

It has become commonplace to describe the planet as a global village. The internet and television have made it possible for one half of the world to see a glamourised version of how the other half lives. People are understandably determined to try to gain access to this enhanced quality and quantity of life. To this general pressure for migration must be added the specific - but related – pressures of war, persecution, violence and the denial of human rights.

That pressure is currently held at bay by stringent immigration controls in rich countries. One other way to improve the development prospects of poorer countries would be to extend the argument for free trade in goods and services, to the free movement of people. It would be a powerful – and controversial - way forward.

The most direct benefit migration provides to developing countries is through expatriate remittances. The total value of global remittances has risen from less than US$2 billion in 1970 to almost US$100 billion in 1999. The importance of remittances varies but for a number of developing countries they are a critically important source of income and foreign exchange. Egypt, for instance, received US$5.1 billion in remittances – not far short of the US$6.9 billion income received from the Suez Canal, oil exports and tourism combined. According to the Central Bank of the Philippines, that country’s economy has benefited by upwards of US$7 billion in the form of remittances (easily dwarfing ODA and FDI flows over the same period). Jamaica has benefited from a steep increase in remittances, with an increase over a ten-year period from 4% of GDP to nearly 10%.

Some doubt the development benefit of migrant remittances on the grounds that they tend to fund consumption, not investment. But it is undeniable that many forms of consumption such as housing, better food, education and health will improve productivity and thus development prospects. If this is so, what might we expect from even a relatively minor easing of the migration restrictions currently in place in developed countries?

Suppose, for instance, the five leading economies of the G7 could be persuaded to approve work permits for an inflow of migrant workers equivalent to 4% of their current work force. The returns to developing country economies alone can plausibly be estimated to be of the order of US$200 billion (while the gains to global economic welfare are much higher again). Contrast that with the potential gains from the Trade Round which, if delivered, might on past experience not actually accrue until as much as five years after the Round is completed - whenever that is.

Conclusions

Putting these possible engines for development side by side, it is not hard to see where the largest possible gains could be made.

These numbers are rough – but defensible – estimates. They show that the sort of development gains that a combined cross-border liberalisation of product and labour markets would produce are roughly an order of magnitude greater than the current level of ODA for which there appears to be little prospect of upside.

So does this mean that leaders will weigh their priorities accordingly? Who knows? Any fair presentation of this table would have to observe that the political difficulties of opening borders to more migrants are probably an order of magnitude more difficult than voting a little more for ODA budgets.

The figures tell their own story. Upton-on-line ventures just one personal opinion and it is this: that leaders should not try to cover their inaction on any of these fronts with words. That has been the past practice. Developed countries have been ‘aiming’ to lift their ODA to 0.7% GDP for a very long time. It hasn’t happened. The draft text for the forthcoming Monterey Conference on Financing for Development limply ‘acknowledges’ concern on a raft of issues such as non-tariff barriers and tariff escalation.

There is a fairly high level of summit fatigue out there. There have been too many declarations without follow through – and not just on development. One thinks of the FCCC with its ‘aim to’ target of stabilising greenhouse gas emissions at 1990 levels. In upton-on-line’s judgement, if leaders are not in a position to make commitments they should be plain about that. It will be small comfort for those hoping for major gains, but a concrete list of positive initiatives – however modest - would be preferable. Whether that would be enough to give environment ministers hope of progress in their field is another matter. Because it is as clear today – as it was at Rio – that no country is going to sign up to a serious environmental agenda by surrendering its right to development.